SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13
of
The Securities Exchange Act of 1934
For the fiscal year Commission File
ended March 31, 1997 Number: 0-8505
NORTHWEST TELEPRODUCTIONS, INC.
(Name of Small Business Issuer in its Charter)
Minnesota 41-0641789
(State of incorporation) (I.R.S. Employer
Identification Number)
4000 West 77th Street
Minneapolis, Minnesota 55435
(Address of principal executive offices) (Zip code)
Telephone Number: 612-835-6450
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No []
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended March 31, 1997 were
$11,852,758.
The aggregate market value of the Common Stock held by shareholders other
than officers, directors or holders of more than 5% of the outstanding stock of
the registrant as of June 30, 1997 was approximately $3,508,436 (based upon the
closing sale price of the registrant's Common Stock on such date).
Shares of $.01 par value Common Stock outstanding at June 30, 1997:
1,356,425
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended March 31, 1997 are incorporated by reference into Part II.
2. Portions of the Registrant's definitive Proxy Statement for the Registrant's
1997 Annual Meeting of Shareholders are incorporated by reference into Part III.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
Introduction
Northwest Teleproductions, Inc. and its subsidiaries, Southwest
Teleproductions, Inc. and Northwest Teleproductions/Chicago, Inc., are referred
to herein as the "Registrant" unless the context indicates otherwise.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business.
Northwest Teleproductions, Inc. (the "Registrant"), a Minnesota
corporation, was incorporated in 1945 and began its current business operations
in 1970. Since it began operations the Registrant has been in the videotape
production business and, in fiscal 1981, added film production as an alternative
to videotape recording.
Each year since fiscal 1986, the Registrant has derived a significant
portion of its revenue from government twelve-month requirement contracts and
renewals. In August 1993 the Registrant was awarded a new contract by the
Government for the same requirements with four consecutive one-year renewal
options on the part of the Government, the third of which has been exercised by
the Government. See "Narrative Description of Business -- Dependence on One or a
Few Customers."
Narrative Description of Business.
Principal Products and Services. The Registrant is engaged in the videotape
and film production business. The Registrant produces advertising commercials,
industrial, governmental and educational programs, programming for cable
broadcast, and fee-for-service electronic retailing (infomercials). The
Registrant offers services in all phases of production including production
planning (pre-production phase), recording (production phase), editing
(post-production phase) and duplication. The Registrant has four studios with a
total stage area of approximately 11,000 square feet and operates eleven
post-production facilities to provide editing services. To complement these
services the Registrant also has two film-to-tape transfer facilities and two
high end graphics facilities. In addition to studio recording facilities, the
Registrant has portable recording units used for location production.
Markets and Distribution. The Registrant sells its services as a producer
of commercials to advertising agencies and advertisers, and to other users of
production services for various kinds of educational and broadcast programs.
Such advertising agencies, advertisers and other users are located throughout
the United States although a majority of those purchasing the Registrant's
services are located in the north central and south central portions of the
United States. The Registrant presently uses six salespersons in its marketing
efforts. The Registrant sells programming and creative content services to the
broadcast networks and cable television operators throughout the country.
<PAGE>
Status of New Products or Services. None.
Competition. Numerous videotape and film production companies located
throughout the United States compete directly with the Registrant in the area of
both commercial and industrial production. Many of these companies are larger
than the Registrant in terms of sales, assets and resources.
Competition in the videotape and film production industry is based
primarily on creative ability, quality and timeliness of service at competitive
prices. Location of a company's production facilities and location of the client
involved are also factors in competition since the cost of transporting
equipment and crews can often affect a company's ability to compete. Location is
not an important factor to the network and cable industry clients, who are
accustomed to purchasing the best product wherever it may be. The Registrant has
production facilities in Minneapolis, Minnesota; Dallas, Texas; and Chicago,
Illinois. The Registrant has decided to close one of its production studios in
Chicago as part of a cost cutting program. The Registrant has access to many of
the additional production studios in Chicago in order to service its clients.
Although there are many production companies in the geographical areas in which
the Registrant is located, the major and much larger production companies
generally are located on either the west or east coasts of the United States.
Sources and Availability of Raw Materials. There are many available sources
of supply for raw materials needed for the Registrant's operations.
Dependence on One or a Few Customers. Since fiscal 1986 a significant
portion of the Registrant's revenue has been derived from twelve-month
requirement contracts and renewals awarded to the Registrant by the U.S.
Department of Defense for the production of radio and television spot
announcements meeting the requirements of the Armed Forces Information
Service/Armed Forces Radio and Television Service. The original contract,
awarded in October 1984, provided for four consecutive one-year renewal options
by the Department of Defense, all of which were exercised by the Government. The
subsequent contract, awarded to the Registrant in January, 1990, covered the
Department's same requirements and provided for three one-year renewal options
by the Department of Defense, all of which were exercised by the Government. In
August, 1993, the Registrant was awarded a new contract by the Department of
Defense for the Department's same requirements. The contract provides for four
consecutive one-year renewal options by the Department of Defense after the
initial year of the contract. The initial year and the first renewal year of the
contract each amounted to revenues of $2,600,000. The second renewal year
amounted to $2,250,000 of revenues. The third year renewal has been exercised
and is estimated at $2,250,000.
In fiscal 1997, 1996 and 1995, government contract revenue accounted for
20%, 22% and27% respectively, of total revenue. The loss, therefore, of business
from the Government could have a material adverse effect on the Registrant.
Patents, Trademarks, Etc. The Registrant claims common law trademark rights
in its name, Northwest Teleproductions, and its subsidiaries' names. The
Registrant has no other patents, trademarks, copyrights, licenses, franchises or
concessions that it considers material.
<PAGE>
Government Approvals. Other than approval by the U.S. Department of Defense
of the television spot announcements produced for it, the Registrant is not
required to obtain government approval of its products or services.
Effect of Governmental Regulations. The Registrant does not believe that
any existing or proposed governmental regulations will have a material effect
upon its business.
Research and Development. During each of the last two fiscal years the
Registrant expended an insignificant amount of funds on research activities
relating to the development of new products or services, or the improvement of
existing products or services, and had no employees who devoted full time to
research and development activities.
Effect of Environmental Regulation. To the extent management can determine
at this time, there are no federal, state or local provisions regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment, compliance with which by the Registrant has had
or is expected to have a material effect upon the capital expenditures, earnings
and competitive position of the Registrant.
Employees. At June 30, 1997 the Registrant employed approximately 98
persons, all of which were employed full time.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant's principal properties are as follows:
<TABLE>
<CAPTION>
Location General Description Manner of Ownership
- -------- ------------------- -------------------
<S> <C> <C>
4455 West 77th Street 20,000 square feet; office Direct fee ownership subject to mortgage.
Minneapolis, Minnesota and production facility. See Note 2 of Notes to Consolidated Financial
Statements.
4000 West 76th Street 13,000 square feet; office Direct ownership.
Minneapolis, Minnesota and production facility.
2649 Tarna Drive 14,000 square feet; office Direct fee ownership subject to mortgage.
Dallas, Texas and production facility. See Note 2 of Notes to Consolidated Financial
Statements.
142 E. Ontario Street 15,000 square feet; office Leased with lease expiring April, 2002.
Chicago, Illinois and production facility. Option to renew for one additional five-year term.
81 South Ninth Street 5,000 square feet; office Leased with lease expiring September 30, 2001.
Minneapolis, Minnesota and production facility.
</TABLE>
<PAGE>
The Registrant believes its properties to be in good condition and adequate
for its present and foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's shareholders during
the fourth quarter of the Registrant's 1997 fiscal year.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information required by Item 5 is incorporated herein by reference to
the section labeled "Financial Review -- Market Prices" which appears in the
Registrant's 1997 Annual Report to Shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information required by Item 6 is incorporated by reference to the
section labeled "Management's Discussion and Analysis" which appears in the
Registrant's 1997 Annual Report to Shareholders.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7 is incorporated by reference to the
Consolidated Financial Statements, Notes thereto and Independent Auditors'
Report thereon which appear in the Registrant's 1997 Annual Report to
Shareholders.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names and ages of the executive officers of the Registrant and their
positions and offices presently held are as follows:
<TABLE>
<CAPTION>
Name of Present Position(s) with
Executive Officer Age Registrant Business Experience
- ----------------- --- ------------------------ -------------------
<S> <C> <C> <C>
John C. McGrath 39 President; Chief Executive President and CEO of the Registrant since
Officer; Director November 4, 1996. Member of the Board of
Directors since November 4, 1996. Chief
Operating Officer of Cutters, Inc. in Chicago
from January 1, 1990 to November 1, 1996.
Cutters, Inc. is a nationally recognized
post-production and design facility.
Phillip A. Staden 40 Vice President, Secretary, Secretary and Treasurer and Vice-president of
Registrant from April 1993 Treasurer Registrant since November 4, 1996. Controller
of the Registrant from April 1991 to
November 3, 1996.
</TABLE>
There are no family relationships among any of the Registrant's directors
or executive officers.
The information required by Item 9 relating to directors is incorporated
herein by reference to the section labeled "Election of Directors" and the
information relating to compliance with Section 16(a) is incorporated herein by
reference to the section labeled "Section 16(a) Beneficial Ownership Reporting
Compliance", which sections appear in the Registrant's definitive Proxy
Statement filed pursuant to Regulation 14A not later than 120 days after the
close of the Registrant's 1997 fiscal year end in connection with the
Registrant's 1997 annual meeting of shareholders.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference to
the Section labeled "Executive Compensation" which appears in the Registrant's
definitive Proxy Statement for its 1997 annual meeting of shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference to
the sections labeled "Principal Shareholders" and "Management Shareholdings"
which appear in the Registrant's definitive Proxy Statement for its 1997 annual
meeting of shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated herein by reference to
the section labeled "Election of Directors" which appears in the Registrant's
definitive Proxy Statement for its 1997 annual meeting of shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on page following signatures.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last fiscal quarter of the
Registrant's 1997 fiscal year.
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTHWEST TELEPRODUCTIONS, INC.
(the "Registrant")
By /s/ John C. McGrath
Date: July 14, 1997 John C. McGrath, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints JOHN C.
McGRATH and PHILLIP A. STADEN his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-KSB and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ John C. Mcgrath President, CEO and Director July 14, 1997
John C. McGrath (principal executive officer)
/s/ Phillip A. Staden Vice President, Secretary and July 14, 1997
Phillip A. Staden Treasurer (principal financial and
accounting officer)
/s/ John G. Lindell Chairman of the Board and July 14, 1997
John G. Lindell Director
James S. Fish Director _______, 1997
C. Dale Haworth Director _______, 1997
/s/ Ronald V. Kelly
Ronald V. Kelly Director July 14, 1997
/s/ Gerald W. Simonson
Gerald W. Simonson Director July 14, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
NORTHWEST TELEPRODUCTIONS, INC.
(Commission File No. 0-8505)
EXHIBIT INDEX
for
Form 10-KSB for 1997 Fiscal Year
Exhibit
- -------
3 Registrant's Articles of Incorporation and Bylaws:
3.1 Registrant's Restated Articles of Incorporation, as amended to
date--incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1987*
3.2 Registrant's Bylaws, as amended to date--incorporated by
reference to Exhibit 6(b) to the Registrant's Registration
Statement on Form S-14, Reg. No. 2-55647*
10 Registrant's Material Contracts:
10.1** Employment Agreement, dated November 2, 1996, between the
Registrant and John C. McGrath--incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended December 31, 1996*
10.2** Deferred Compensation Agreement, dated November 2, 1996,
between the Registrant and John C. McGrath--incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended December 31, 1996.*
10.3** Incentive Stock Option Agreement, dated November 2, 1996,
between the Registrant and John C. McGrath--incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended December 31, 1996.*
<PAGE>
10.4 Lease, dated January 31, 1994, covering facility at 142 East
Ontario Street, Chicago, Illinois--incorporated by reference
to Exhibit 10.3 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1994*
10.5 Lease, dated June 17, 1991, covering facilities at 81 South
Ninth Street, Minneapolis, Minnesota--incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1991*
10.6 Requirements Contract, dated August 27, 1993, between the
Registrant and the Department of Defense--incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1994*
10.7** 1993 Stock Option Plan and form of option
agreements--incorporated by reference to Exhibit 10.7 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1993*
10.8 Twelfth Amendment to Credit Agreement and Second Amendment to
Replacement First Term Note, dated August 25, 1995, between
the Registrant and Norwest Bank Minnesota, National
Association (the "Bank")--incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1995*
10.9 Credit Agreement, dated July 24, 1996, between the Registrant
and the Bank--incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1996*
10.10 Agreement and Release, dated April 10, 1996, between the
Registrant and Robert C. Mitchell--incorporated by reference
to Exhibit 10.9 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1996*
10.11 Form and amounts of 10-1/2% Subordinated Notes issued by the
Registrant to certain of its directors--incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1996*
10.12 Form and amounts of Warrants to Purchase Common Stock issued
by the Registrant to certain directors in connection with
issuance of Subordinated Notes--incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1996*
<PAGE>
10.13 10-1/2% Subordinated Note in the principal amount of $150,000
dated February 10, 1997, issued by the Registrant to John G.
Lindell
10.14 Warrant to Purchase 60,000 shares of Common Stock at $2.50 per
share, dated February 10, 1997, issued by the Registrant to
John G. Lindell
10.15 Loan and Security Agreement, dated April 24, 1997, between the
Registrant and NationsCredit Commercial Corporation through
its NationsCredit Commercial Funding Division
("NationsCredit")
10.16 Guaranty, dated April 24, 1997, by the Registrant of certain
obligations of Northwest Teleproductions/Chicago, Inc. ("NW
Chicago") and Southwest Teleproductions, Inc. ("Southwest")
10.17 Loan and Security Agreement, dated April 24, 1997, between NW
Chicago and NationsCredit
10.18 Guaranty, dated April 24, 1997, by NW Chicago of certain
obligations of the Registrant and Southwest
10.19 Loan and Security Agreement, dated April 24, 1997, between
Southwest and NationsCredit
10.20 Guaranty, dated April 24, 1997, by Southwest of certain
obligations of the Registrant and NW Chicago
10.21 Security Agreement, dated April 24, 1997, between Northwest
Teleproductions/Kansas City, Inc. ("NW Kansas City") and
NationsCredit
10.22 Guaranty, dated April 24, 1997, by NW Kansas City of certain
obligations of the Registrant, NW Chicago and Southwest
10.23 First Amendment, dated June 4, 1997, to Loan and Security
Agreement dated April 24, 1997 between the Registrant and
NationsCredit
10.24** Description of Officers' Incentive Compensation Arrangement
10.25 Real Property Mortgage, dated April 24, 1997, between the
Registrant and NationsCredit covering Registrant's property
in Minneapolis, Minnesota
11 Statement Regarding Computation of Per Share Earnings: The
required information is included in Note B of Notes to
Consolidated Financial Statements
13 Annual Report to Shareholders: The portions of the
Registrant's 1997 Annual Report to Shareholders that are
incorporated in this Form 10-KSB by reference
<PAGE>
21 Subsidiaries of the Registrant:
Name State of Incorporation
Southwest Teleproductions, Inc. Texas
Northwest Teleproductions/Kansas City, Inc. Minnesota
Northwest Teleproductions/Chicago, Inc. Minnesota
23 Consent: Consent of Deloitte & Touche LLP
24 Power of Attorney: Powers of Attorney from directors of the
Registrant are included as part of the "Signatures" page of this
Form 10-KSB
27 Financial Data Schedule (filed in electronic format only)
*Incorporated by reference to a previously filed report or document, SEC File
No. 0-8505 unless otherwise indicated.
**Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-KSB.
THIS NOTE HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND IS SUBJECT TO
CERTAIN INVESTMENT REPRESENTATIONS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT, AND
THE APPLICABLE BLUE SKY LAWS, OR AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO COUNSEL FOR THE COMPANY THAT SUCH TRANSACTION WILL NOT RESULT IN A
PROHIBITED TRANSACTION UNDER THE ACT OR APPLICABLE BLUE SKY LAWS.
NORTHWEST TELEPRODUCTIONS, INC.
101/2% Subordinated Note
$150,000 February 10, 1997
(Principal Amount) (Date of Issue)
FOR VALUE RECEIVED, Northwest Teleproductions, Inc., a Minnesota
corporation (the "Company"), promises to pay, subject to Sections 1, 2 and 3
hereof, to John G. Lindell, or his registered assigns, the principal amount of
One Hundred Fifty thousand Dollars ($150,000), upon presentation and surrender
of this Note at the principal business office of the Company, and to pay
interest thereon at such office from the date hereof at the rate of 101/2
percent (101/2%) per annum as provided below. Interest shall be computed on the
basis of a 365-day year. The Company shall pay unpaid accrued interest to the
holder annually on July 31 of each year until the principal has been paid in
full or applied to the exercise of Warrants as described in Section 1.
Notwithstanding the maturity or other provisions hereof, the Company may prepay
this Note in whole or in part, without any premium or penalty, at any time. Any
partial prepayments shall be applied against principal payments in the order in
which they come due. This Note is one of a duly authorized issue of unsecured
notes of the Company, issued to the holders thereof, in the aggregate principal
amount of Four Hundred Twelve Thousand Five Hundred Dollars ($412,500.00)
(collectively, the "1996 Subordinated Notes"). Subject to Sections 1, 2 and 3
hereof, the original principal amount of this Note stated above shall be paid as
follows: (i) one-third on July 31, 1998, (ii) one-third on July 31, 1999, and
(iii) one-third on July 31, 2000.
1. Application to Warrant Exercise. Prior to payment of this Note by the
Company, the holder of this Note may apply any portion of any unpaid accrued
interest or unpaid principal toward the exercise price of the Warrants issued to
the holder in connection with the issuance of this Note. If some but less than
all of the outstanding principal amount of this Note is applied by the holder
toward the exercise price of the Warrants, such principal so applied (the
"Applied Principal") shall reduce by the full amount of the Applied Principal
the next principal payment to come due as described above, and if the Applied
Principal is greater than the next principal payment to come due it shall fully
satisfy such next principal payment and shall also reduce or fully satisfy,
depending on the amount of the Applied Principal remaining, subsequent principal
payments in the order in which they come due.
<PAGE>
2. Subordination. This Note is unsecured in all respects. The Company
covenants and agrees, and the holder of this Note by acceptance thereof
covenants and agrees, that this Note is subordinate to all indebtedness of the
Company outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed by the Company with banks, finance companies, trust companies,
pension trusts, insurance companies, other financial institutions or other
similar third-party lenders designated by the Company (collectively, "Senior
Debt"). Upon any distribution of the assets of the Company in a dissolution,
winding up, liquidation, bankruptcy, receivership, reorganization or similar
proceeding relating to the Company, the holders of such Senior Debt are entitled
to receive payment in full before the holder of this Note is entitled to receive
any payment in such distribution. If in any of such situations referred to in
the preceding sentence, a payment is made to the holder of this Note before all
applicable Senior Debt has been paid in full or provision has been made for such
payment, the payment made to the holder of this Note must be paid over to the
holders of such Senior Debt.
3. Notes Rank Equally. This Note and all other 1996 Subordinated Notes
shall be pari passu ranking equally and ratably without priority over one
another. In this regard, any payment to be made by the Company on this Note or
any other 1996 Subordinated Note shall be paid pro rata to all 1996 Subordinated
Notes. If any holder of this Note or any other 1996 Subordinated Note receives a
payment thereon from the Company in excess of the pro rata portion to which he
is entitled, the holder shall pay over to holders of the other 1996 Subordinated
Notes their pro rata portion of such excess.
4. Transferability. This Note may be transferred, or divided into two or
more Notes of smaller principal amount, subject to applicable law and the
following conditions. The holder of this Note, by acceptance hereof, agrees to
give written notice to the Company before transferring this Note of such
holder's intention to do so, describing briefly the manner of the proposed
transfer. If, in the opinion of counsel satisfactory in form and substance to
the Company and its counsel, the proposed transfer may be effected without
constituting a violation of the applicable federal and state securities laws,
then the holder shall be entitled to transfer this Note in the manner
contemplated in the transfer notice to the Company, provided that an appropriate
legend may be endorsed on this Note respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel satisfactory to the
Company to prevent further transfers which would be in violation of the
securities laws or adversely affect the exemptions relied upon by the Company.
To such effect, the Company may request that the intended transferee execute an
investment letter satisfactory to the Company and its counsel.
A register of the issuance and transfer of this Note and other 1996
Subordinated Notes of this issue shall be kept at the office of the Company, and
this Note may be transferred only on the books of the Company maintained at its
office. Each transfer shall be in writing signed by the then registered holder
hereof or the holder's legal representatives or successors, and no transfer
hereof shall be binding upon the Company unless in writing and duly registered
on the register maintained at the Company's office. Upon transfer of this Note,
the transferee, by accepting the Note, agrees to be bound by the provisions,
terms, conditions and limitations of this Note and the investment letter, if
any, required by the Company.
<PAGE>
If (i) no opinion of counsel referred to in this Section has been provided
to the Company or (ii) in the opinion of counsel, the proposed transfer or
disposition of this Note described in the holder's written transfer notice given
pursuant to this Section may not be effected without registration or without
adversely affecting the exemptions relied upon by the Company, the holder will
limit its activities and restrict its transfer accordingly.
5. Replacement of Note. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and in the
case of any such loss, theft or destruction, upon delivery of a bond of
indemnity satisfactory to the Company if requested by the Company, or in the
case of any such mutilation, upon surrender and cancellation of such Note, the
Company shall issue a new Note identical in form to the lost, stolen, destroyed
or mutilated Note.
6. Events of Default. Each of the following events shall be an Event of
Default ("Event of Default") for purposes of this Note:
(a) Note Terms. The Company defaults in the due and punctual
performance or observance of any material terms contained in this Note,
and such default continues for a period of thirty (30) consecutive days
after written notice thereof to the Company by the holder of this Note,
except that any such default by the Company will not result in an Event
of Default if such default is waived by the holder(s) of a majority of
the total principal amount then outstanding of the 1996 Subordinated
Notes of the Company; or
(b) Insolvency Matters. The Company makes an assignment for
the benefit of creditors, or admits in writing its inability to pay its
debts as they become due, or files a voluntary petition in bankruptcy,
or is adjudicated a bankrupt or insolvent, or files any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or files any answer
admitting the material allegations of a petition filed against the
Company for any such relief, or seeks or consents to or acquiesces in
the appointment of any trustee, receiver or liquidator of the Company
or all or any substantial part of the properties of the Company.
7. Remedies on Default. Upon the occurrence of an Event of Default as
described under Section 6 hereof, the holder hereof shall have the option to
declare the principal amount hereof and all accrued but unpaid interest thereon
through the date of the Company's full payment hereof, to be immediately due and
payable upon written notice from the holder to the Company.
8. Modification and Waiver. No purported amendment, modification or waiver
of any provision hereof shall be binding unless set forth in a written document
signed by the Company and the holder of this Note (in the case of amendments or
modifications) or by the party to be charged thereby (in the case of waivers).
Any waiver shall be limited to the provision hereof in the circumstances or
events specifically made subject thereto, and shall not be deemed a waiver of
any other term hereof or of the same circumstance or event upon any reoccurrence
thereof.
<PAGE>
9. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given, when received, if personally delivered or delivered by telex,
telegram or telecopy, or five (5) days after depositing in the U.S. Mails for
delivery by first class mail, postage prepaid and addressed as follows: (i) if
to any holder of this Note, addressed to such holder at the holder's address as
shown on the books of the Company, or at such other address as such holder may
specify by written notice to the Company, or (ii) if to the Company, at 4455
West 77th Street, Minneapolis, MN 55435, Attention: President, or at such other
address as the Company may specify by written notice to the holder of this Note.
10. Successors and Assigns. All the terms and provisions of this Note shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the Company and each holder of this Note.
11. Applicable Law. The laws of the State of Minnesota shall govern the
validity of this Note, the construction of its terms and the interpretation of
the rights and duties of the Company and each holder of this Note, without
giving effect to principles of conflict of laws.
12. Corporate Obligation. No recourse under or upon any obligation,
covenant or agreement contained in this Note, or for any claim based hereon or
otherwise in respect hereof, shall be had against any promoter, subscriber to
shares, incorporator, shareholder, officer, or director, as such, past, present
or future, of the Company or of any successor corporation, either directly or
through the Company or any successor or corporation or through any trustee,
receiver, or any other person, whether by virtue of any constitution, statute,
or rule of law, or by the enforcement of any assessment or penalty or otherwise,
except as expressly agreed to by the party charged.
13. Payment. Upon payment in full, together with payment of any accrued but
yet unpaid interest hereon, this Note will terminate and be of no further force
or effect.
IN WITNESS WHEREOF, the Company has caused this Note to be signed by its
duly authorized officer.
NORTHWEST TELEPRODUCTIONS, INC.
By
Its
THE SECUTITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER EITHER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND
ARE SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THE SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT, AND THE APPLICABLE BLUE SKY LAWS, OR AN OPINION OF
COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE COMPANY THAT SUCH
TRANSACTION WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER THE ACT OR
APPLICABLE BLUE SKY LAWS.
Warrant No. 5
WARRANT
To Purchase 60,000 Shares of Common Stock
of
NORTHWEST TELEPRODUCTIONS, INC.
THIS CERTIFIES THAT, John G. Lindell, or his registered assigns, is
entitled to subscribe for and purchase from Northwest Teleproductions, Inc. (the
"Company"), subject to the following provisions, terms, conditions and
limitations, at any time on or before the Expiration Date (as defined below),
Sixty Thousand (60,000) fully paid and nonassessable shares (the "Shares") of
the Company's Common Stock at a price equal to $2.50 per Share (the "Warrant
Exercise Price"). This Warrant or the originally issued predecessor Warrant from
which this Warrant originates was issued in connection with the issuance of a
1996 Subordinated Note of the Company to the holder of this Warrant or the
originally issued predecessor Warrant, as the case may be. The "Expiration Date"
for this Warrant shall be the one-year anniversary of the date on which such
1996 Subordinated Note to which this Warrant relates has been paid in full.
1. Exercise. The rights represented by this Warrant may be exercised by the
registered holder hereof, in whole or in part (but not as to a fractional share
of Common Stock), by written notice of exercise delivered to the Company ten
calendar days prior to the intended date of exercise and by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company, prior to or on the intended date of the exercise, together with payment
to the Company by either (i) check of the purchase price for the number of
Shares being purchased or (ii) by application of principal and interest due to
holder on a 1996 Subordinated Note for the number of Shares being purchased.
As a condition to the issuance by the Company of the Shares pursuant to
this Warrant, the holder, if requested by the Company, shall provide a letter in
which the holder (a) represents that the Shares are being acquired for
investment and not resale, that the holder is an "accredited investor," as
defined in Regulation D of the Securities Act of 1993, as amended (the "Act")
and make such other representations as may be necessary or appropriate to
qualify the issuance of the Shares as exempt from the Act and any other
applicable securities laws, and (b) represents that the holder shall not dispose
of the Shares in violation of the Act or any other applicable securities laws.
The Company reserves the right to place a legend on any stock certificate issued
pursuant to the exercise of this Warrant to assure compliance with the
foregoing.
<PAGE>
The holder is aware that the Company is relying, and presently intends to
continue relying upon, exemptions from the securities registration requirements
of federal and state securities laws in the issuance of this Warrant and in the
issuance of the Shares. If, when this Warrant is exercised, appropriate
exemptions from registration are not available under federal and state
securities laws, the exercise shall not be consummated on the intended date of
exercise specified in the holder's written notice of exercise and no Shares
shall be issued to the holder unless and until such exemptions are available. If
registrations are not made and if exemptions are not available when the holder
seeks to exercise the Warrant, the Warrant exercise period will be extended, if
need be to prevent the Warrant from expiring, until such time as either
registrations are filed or until exemptions are available, and shall then remain
exercisable for a period of 30 calendar days from the date the Company mails a
notice to the holder at the last address of the holder appearing on the
Company's books informing the holder of such registrations or available
exemptions. The holder agrees to execute such documents and make such
representations, warranties and agreements as may be required in order to comply
with the exemption(s) relied upon by the Company, or the registrations made, for
the issuance of the Shares. The Company shall, however, have no obligation to
effect any registration for the exercise of this Warrant.
2. Transferability. This Warrant may be transferred, or divided into two or
more Warrants of smaller denomination, subject to applicable law and the
following conditions. The holder of this Warrant, by acceptance hereof, agrees
to give written notice to the Company before transferring this Warrant, or
transferring any Shares, of such holder's intention to do so, describing briefly
the manner of the proposed transfer. If, in the opinion of counsel satisfactory
in form and substance to the Company and its counsel, the proposed transfer may
be effected without constituting a violation of the applicable federal and state
securities laws, then the holder shall be entitled to transfer this Warrant or
to dispose of any of the Shares received upon the previous exercise of the
Warrant in the manner contemplated in the transfer notice to the Company,
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for any of the Shares respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel satisfactory to the Company to
prevent further transfers which would be in violation of the securities laws or
adversely affect the exemptions relied upon by the Company. To such effect, the
Company may request that the intended transferee execute an investment letter
satisfactory to the Company and its counsel.
A register of the issuance and transfer of this Warrant and other Warrants
of this issue shall be kept at the office of the Company, and this Warrant may
be transferred only on the books of the Company maintained at its office. Each
transfer shall be in writing signed by the then registered holder hereof or the
holder's legal representatives or successors, and no transfer hereof shall be
binding upon the Company unless in writing and duly registered on the register
maintained at the Company's office. Upon transfer of this Warrant, the
transferee, by accepting the Warrant, agrees to be bound by the provisions,
terms, conditions and limitations of this Warrant and the investment letter, if
any, required by the Company.
<PAGE>
If (i) no opinion of counsel referred to in this Section has been provided
to the Company or (ii) in the opinion of counsel, the proposed transfer or
disposition of the Warrant or the Shares described in the holder's written
transfer notice given pursuant to this Section may not be effected without
registration or without adversely affecting the exemptions relied upon by the
Company, the holder will limit its activities and restrict its transfer
accordingly.
3. Issuance of Shares. The Company agrees that the Shares purchased hereby
shall be and are deemed to be issued to the record holder hereof as of the close
of business on the date on which this Warrant shall have been surrendered and
the payment made for such Shares as aforesaid. Subject to the provisions of
Section 4, certificates for the Shares so purchased shall be delivered to the
holder hereof within a reasonable time, not exceeding ten business days after
the exercise of this Warrant has been so consummated, and, unless this Warrant
has expired, a new Warrant representing the number of Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
delivered to the holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for the Shares upon exercise of this Warrant, except
in accordance with the provisions, and subject to the limitations, of Section 1
hereof.
4. Covenants of Company. The Company covenants and agrees that all Shares
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then effective purchase price per share of the Common Stock
issuable pursuant to this Warrant. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for
issuance upon exercise of the subscription rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject to
adjustment as provided in this Section 5.
<PAGE>
(a) In case the Company shall hereafter:
(i) pay dividends on its Common Stock payable in Common Stock;
(ii)subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii)combine outstanding shares of Common Stock into a smaller
number of shares;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event, and the resulting quotient shall be the adjusted
Warrant Exercise Price per share. An adjustment made pursuant to this Subsection
shall become effective immediately after the record date in the case of a
dividend and shall become effective immediately after the effective date in the
case of a subdivision or combination.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to Section
5(a) above, the holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in this Warrant (as adjusted as a result of all
adjustments in the Warrant Exercise Price in effect prior to such adjustment) by
the Warrant Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.
(c) If any capital reorganization or reclassification of the capital stock
of the Company, or any consolidation, merger or statutory exchange to which the
Company is a party or any sale of all or substantially all of the assets of the
Company shall be effected in such a way that the holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger, exchange or sale, lawful and adequate
provision shall be made whereby the holder of this Warrant shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of the Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by this Warrant, the kind and amount of shares of stock
and other securities and property which such holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, exchange or sale, had this Warrant been
exercised immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, exchange or sale and in any such case,
if necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section with respect to the rights and interests
<PAGE>
thereafter of any holder of this Warrant, to the end that the provisions set
forth in this Section shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise of the Warrant.
If, as a result of an adjustment made pursuant to this Subsection, the holder of
this Warrant shall be entitled to receive more than one type of security or
property upon exercise of this Warrant, then the Board of Directors (whose
determination shall be conclusive) shall determine the allocation of the
adjusted Warrant Exercise Price between and among the various securities and
property receivable upon exercise of this Warrant and thereafter the Warrant
Exercise Price of each such security or property so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions set forth in this
Section. The provisions of this Subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, exchanges or sales.
(d) If the Company distributes to all holders of Common Stock any assets
(excluding ordinary cash dividends) or debt securities or any rights or warrants
to purchase debt securities, assets or other securities (including Common
Stock), other than pursuant to the adjustments set forth in Subsection (c)
above, then the Warrant Exercise Price shall be adjusted in accordance with the
following formula:
C1 = C x (O x M) - F
O x M
where:
C1 = the adjusted Warrant Exercise Price.
C = the current Warrant Exercise Price immediately prior to the
event.
M = the Fair Market Value per share of Common Stock on the record
date mentioned below.
O = the number of shares of Common Stock outstanding on the record
date mentioned below.
F = the fair market value on the record date of the aggregate
of all assets, securities, rights or warrants distributed.
The Company's Board of Directors shall determine the fair
market value in the exercise of its reasonable judgment.
The adjustment shall be made successfully whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. In this
Subsection the Fair Market Value per share of Common Stock on the particular
date shall be as defined in Section 10 (d) of this Warrant.
(e) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock or other securities or property purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
<PAGE>
6. Common Stock. As used herein, the term "Common Stock" shall mean and
include the Company's presently authorized shares of Common Stock and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company.
7. No Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.
8. Amendments, Waivers or Termination. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
9. Governing Law. The laws of the State of Minnesota shall govern the
validity of this Warrant, the construction of its terms and the interpretation
of the rights and duties of the Company and each holder of this Warrant, without
giving effect to principles of conflict of laws.
10. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the Company
to convert this Warrant (the "Conversion Right") at any time prior to its
expiration into shares of Company Common Stock as provided for in this Section
10. Upon exercise of the Conversion Right, the Company shall deliver to the
holder (without payment by the holder of any Warrant Exercise Price) that number
of shares of Company Common Stock equal to the quotient obtained by dividing (x)
the value of the Warrant at the time the Conversion Right is exercised
(determined by subtracting the aggregate Warrant Exercise Price for the Warrant
Shares in effect immediately prior to the exercise of the Conversion Right from
the aggregate Fair Market Value for the Warrant Shares immediately prior to the
exercise of the Conversion Right) by (y) the Fair Market Value of one share of
Company Common Stock immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the holder will purchase
pursuant to such conversion and (ii) a place and date not less than one or more
than 20 business days from the date of the Conversion Notice for the closing of
such purchase.
<PAGE>
(c) Subject to the provisions of the second and third paragraphs of Section
1, at any closing under Section 10(b) hereof (i) the holder will surrender the
Warrant and (ii) the Company will deliver to the holder a certificate or
certificates for the number of shares of Company Common stock issuable upon such
conversion, together with cash, in lieu of any fraction of a share, and (iii)
the Company will deliver to the holder a new warrant representing the number of
shares, if any, with respect to which the warrant shall not have been exercised.
(d) Fair Market Value of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System, then the
average of the closing sale prices reported for the ten (10)
business days immediately preceding the Determination Date, and
(ii) If the Company's Common Stock is not traded on an exchange or on
the NASDAQ National Market System but is traded on the
over-the-counter market, then the average of the closing bid and
asked prices reported for the ten (10) business days immediately
preceding the Determination Date.
IN WITNESS WHEREOF, Northwestern Teleproductions, Inc. has caused this
Warrant to be signed by its duly authorized officer.
Northwest Teleproductions, Inc.
By
Its
Date: February 10, 1997
<PAGE>
To: NORTHWEST TELEPRODUCTIONS, INC.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered
- ----------------------------- Holder in Order to Exercise the
Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
________________________________
(Print Name)
Please insert social security Address:
or other identifying number
of registered holder of ________________________________
certificate (____________________) ________________________________
Date: ___________, 19_____ ________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________ the right to purchase the securities of
Northwest Teleproductions, Inc. to which the within Warrant relates and appoints
___________________ attorney to transfer said right on the books of Northwest
Teleproductions, Inc. with full power of substitution in the premises.
Date: ___________, 19_____ _________________________________
(Signature)
Address:
________________________________
________________________________
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
The undersigned hereby irrevocably elects a cashless exercise of the
right of purchase represented by the within Warrant Certificate for, and to
purchase thereunder, ______________ shares of Common Stock, as provided for in
Section 10 therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name___________________________________
(Please print Name)
Address:
______________________________________
______________________________________
Social Security No.____________________
Signature______________________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
NationsCredit Commercial Funding
- -------------------------------------------------------------------------
Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this "Agreement")
is entered into on April 24, 1997 between NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"), having an
address at 1177 Avenue of the Americas, 36th Floor, New York, New York 10036 and
NORTHWEST TELEPRODUCTIONS, INC., a Minnesota corporation ("Borrower"), whose
chief executive office is located at 4000 West 76th Street, Minneapolis,
Minnesota 55435 ("Borrower's Address"). The Schedules to this Agreement are an
integral part of this Agreement and are incorporated herein by reference. Terms
used, but not defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to time during the
Term at Borrower's request, make revolving loans to Borrower ("Revolving
Loans"), and make letters of credit, bankers acceptances and other credit
accommodations ("Credit Accommodations") available to Borrower, in each case to
the extent that there is sufficient Availability at the time of such request to
cover, dollar for dollar, the requested Revolving Loan or Credit Accommodation;
provided, that after giving effect to such Revolving Loan or Credit
Accommodation, (x) the aggregate outstanding balance of all monetary Obligations
of each Company to Lender (including the principal balance of any term loans
owing by each Company to Lender and, solely for the purpose of determining
compliance with this provision, the Credit Accommodation Balance of each
Company) will not exceed the Maximum Facility Amount set forth in Section 1 of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts of the Companies (less
maximum existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit set forth in Section
1(c) of Schedule A;
plus
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section 1(b)(ii)
of Schedule A, but not to exceed the Inventory Sublimit(s) set forth in
Section 1(d) of Schedule A;
minus
<PAGE>
(iii) all Reserves which Lender has established pursuant to Section
1.2 (including those to be established in connection with the requested
Revolving Loan or Credit Accommodation); and
minus
(iv) the outstanding balance of all of the monetary Obligations of the
Companies (excluding the Credit Accommodation Balance of each Company and
the principal balance of each term loan owing by a Company to Lender).
(b) Term Loan. On the date of this Agreement, make a term loan to Borrower
(the "Term Loan") in the principal amount, if any, set forth in Section 2(a) of
Schedule A.
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of Eligible Inventory, (b)
which is or will be in transit to one of the locations set forth in Section
10(d), (c) which is fully insured in a manner satisfactory to Lender and (d)
with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the Inventory
Advance Rate applicable to Eligible Inventory and (y) in the case of any other
Credit Accommodation issued for any purpose, establish a Reserve equal to the
full amount of the Credit Accommodation Balance. In addition, (x) Lender shall
establish a permanent Reserve in the amount set forth in Section 1(f) of
Schedule A, and (y) if the outstanding principal balance of the Term Loan
advance with respect to Eligible Equipment exceeds the percentage of the
appraised value of such Eligible Equipment set forth in Section 2(a) of Schedule
A, Lender may establish an additional Reserve in the amount of such excess (and,
for this purpose, if payments of principal on the Term Loan advances against
Eligible Equipment and Real Property are not calculated separately, payments of
principal of the Term Loan made by Borrower shall be deemed to apply to the Term
Loan advance with respect to Eligible Equipment and Real Property, respectively,
in proportion to the original principal amounts of such advances). Lender may,
in its discretion, establish and revise Reserves by deducting them in
determining Availability or by reclassifying Eligible Accounts or Eligible
Inventory as ineligible.
<PAGE>
1.3 Other Provisions Applicable to Credit Accommodations. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations of Borrower
shall be payable on the first day of each month. Principal of the Term Loan
shall be repaid as set forth in Section 2(b) of Schedule A. If at any time any
of the Loan Limits are exceeded, Borrower will immediately pay to Lender such
amounts and/or provide cash collateral to Lender with respect to the Credit
Accommodation Balance of Borrower in the manner set forth in Section 7.3, as
shall cause the Companies to be in full compliance with all of the Loan Limits.
Notwithstanding the foregoing, Lender may, in its sole discretion, make or
permit Revolving Loans, the Term Loan, any Credit Accommodations or any other
monetary Obligations to be in excess of any of the Loan Limits; provided, that
Borrower shall, upon Lender's demand, pay to Lender such amounts as shall cause
the Companies to be in full compliance with all of the Loan Limits. All unpaid
monetary Obligations shall be payable in full on the Maturity Date set forth in
Section 7.1 or, if earlier, the date of any early termination pursuant to
Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to Borrower and loans by Lender to
each other Company to equal or exceed, at all times prior to the Maturity Date,
the Minimum Loan Amount set forth in Section 4 of Schedule A and (ii) maintain
Availability sufficient to enable Borrower to do so. Notwithstanding any other
provision contained in this Agreement, the failure by Borrower to comply with
this Section 1.5 as a result of Borrower's failure to maintain sufficient
Availability in accordance with clause (ii) above shall not constitute an Event
of Default. However, Lender shall not be obligated to loan Borrower or any other
Company the Minimum Loan Amount other than in accordance with all of the terms
and conditions of this Agreement or any other loan and security agreement
between a Company and Lender.
<PAGE>
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations of Borrower shall
bear interest at the Interest Rate(s) set forth in Section 3 of Schedule A,
except where expressly set forth to the contrary in this Agreement or another
Loan Document; provided, that after the occurrence of an Event of Default, all
Loans and other monetary Obligations of Borrower shall, at Lender's option, bear
interest at a rate per annum equal to two percent (2%) in excess of the rate
otherwise applicable thereto (the "Default Rate") until such Event of Default
has been cured (notwithstanding the entry of any judgment against Borrower or
the exercise of any other right or remedy by Lender), and all such interest
shall be payable on demand. Changes in the Interest Rate shall be effective as
of the date of any change in the Prime Rate. Notwithstanding anything to the
contrary contained in this Agreement, the aggregate of all amounts deemed to be
interest hereunder and charged or collected by Lender is not intended to exceed
the highest rate permissible under any applicable law, but if it should, such
interest shall automatically be reduced to the extent necessary to comply with
applicable law and Lender will refund to Borrower any such excess interest
received by Lender.
2.2 Fees and Warrants. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in Section 6(a) of
Schedule A, which shall be deemed to be fully earned as of, and payable on, the
date hereof.
(b) Facility Fees. A facility fee for the Initial Term in the amount set
forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of the
date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary of the date hereof during the Initial Term),
and a facility fee for each Renewal Term in the amount set forth in Section
6(b)(ii) of Schedule A (which shall be fully earned as of the first day of such
Renewal Term and shall be payable in equal installments due, respectively, on
the first day of such Renewal Term and on each anniversary thereof during such
Renewal Term).
(c) Servicing Fee. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to the percentage
per annum set forth in Section 6(d) of Schedule A of the amount by which the
Maximum Facility Amount exceeds the average daily outstanding principal balance
of the Loans and the Credit Accommodation Balance during the immediately
preceding month (or part thereof), which fee shall be payable, in arrears, on
the first day of each month so long as any of the Obligations are outstanding
and on the Maturity Date.
<PAGE>
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to the excess, if
any, of (i) interest which would have been payable in respect of each period set
forth in Section 6(e) of Schedule A if, at all times during such period, the
principal balance of the Loans and all other loans by Lender to each other
Company was equal to the Minimum Loan Amount over (ii) the actual interest
payable in respect of such period, which fee shall be fully earned as of the
first day of such period and payable on the date set forth in Section 6(e)(ii)
of Schedule A and on the Maturity Date.
(f) Success Fee. A success fee in the amount set forth in Section 6(f) of
Schedule A, which shall be fully earned as of the date of this Agreement and
payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) Credit Accommodation Fees. All of the fees relating to Credit
Accommodations set forth in Section 6(i) and 6(j) of Schedule A.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a loan account
for Borrower reflecting all advances, charges, expenses and payments made
pursuant to this Agreement (the "Loan Account"), and shall provide Borrower with
a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations of Borrower.
Interest, fees and other monetary Obligations of Borrower due and owing under
this Agreement (including fees and other amounts paid by Lender to issuers of
Credit Accommodations) may, in Lender's discretion, be charged to the Loan
Account, and will thereafter be deemed to be Revolving Loans and will bear
interest at the same rate as other Revolving Loans.
<PAGE>
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations of
Borrower when due, Borrower hereby grants to Lender a continuing security
interest in all of Borrower's property and interests in property, whether
tangible or intangible, now owned or in existence or hereafter acquired or
arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all Accounts,
Chattel Paper, Instruments, Documents, Goods (including Inventory, Equipment,
farm products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and products of all of the
foregoing (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the foregoing.
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or in the name of Lender
(a "Lock Box") or (ii) depositing all Account Proceeds received by Borrower into
one or more bank accounts maintained in Lender's name (each, a "Blocked
Account"), under an arrangement acceptable to Lender with a depository bank
acceptable to Lender, pursuant to which all funds deposited into each Blocked
Account are to be transferred to Lender in such manner, and with such frequency,
as Lender shall specify or (iii) a combination of the foregoing. Borrower agrees
to execute, and to cause its depository banks to execute, such Lock Box and
Blocked Account agreements and other documentation as Lender shall require from
time to time in connection with the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1, all proceeds
arising from the sale or other disposition of any Collateral shall be delivered,
in kind, by Borrower to Lender in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
<PAGE>
4.3 Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations of Borrower, in such order and
manner as Lender shall determine, whether or not the Obligations of Borrower are
due, and whether before or after the occurrence of a Default or an Event of
Default. For purposes of determining Availability, such amounts will be credited
to the Loan Account and the Collateral balances to which they relate upon
Lender's receipt of advice from Lender's Bank (set forth in Section 11 of
Schedule A) that such items have been credited to Lender's account at Lender's
Bank (or upon Lender's deposit thereof at Lender's Bank in the case of payments
received by Lender in kind), in each case subject to final payment and
collection. However, for purposes of computing interest on the Obligations of
Borrower, such items shall be deemed applied by Lender two Business Days after
Lender's receipt of advice of deposit thereof at Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower, Lender or a pseudonym of Lender; (ii)
notify Account Debtors that Lender has a security interest in the Accounts and
that payment thereof is to be made directly to Lender; and (iii) demand, collect
or enforce payment of any Accounts and Chattel Paper (but without any duty to do
so).
4.5 Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) if Borrower fails to promptly do so after Lender's
request, execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or lease (as
lessor or lessee) any real or personal property which is part of the Collateral
or in which Lender has an interest; (iii) execute on behalf of Borrower any
invoices relating to any Accounts, any draft against any Account Debtor and any
<PAGE>
notice to any Account Debtor, any proof of claim in bankruptcy, any notice of
Lien or claim, assignment or satisfaction of mechanic's, materialman's or other
Lien; (iv) receive and otherwise take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; (v) endorse Borrower's name
on all checks and other forms of remittances received by Lender; (vi) pay,
contest or settle any Lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; (vii) after the
occurrence of a Default or Event of Default, grant extensions of time to pay,
compromise claims relating to, and settle Accounts, Chattel Paper and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (viii) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (ix) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.13; (x) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xi) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xii) after the occurrence of a Default or Event
of Default, change the address for delivery of Borrower's mail and receive and
open all mail addressed to Borrower. Any and all sums paid, and any and all
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred, by Lender with respect to the foregoing shall be added to and become
part of the Obligations of Borrower, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations of Borrower. Borrower agrees that Lender's rights under the
foregoing power of attorney or any of Lender's other rights under this Agreement
or the other Loan Documents shall not be construed to indicate that Lender is in
control of the business, management or properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to an Event of Default Borrower may do such things in the ordinary
course of business. Borrower will promptly report any such permitted settlement
or forgiveness to Lender.
4.7 Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender and using a pseudonym of Lender, to
reflect Lender's security interest therein.
<PAGE>
4.8 Inventory.
(a) Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii) conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior written
consent, (i) store any Inventory or other Collateral with any warehouseman or
other third party other than as set forth in Section 9(d) of Schedule A or (ii)
sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis. Borrower will produce Inventory only in accordance with the
Fair Labor Standards Act of 1938 as amended, and all rules, regulations and
orders promulgated thereunder.
4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence and
during the continuance of a Default or an Event of Default, Lender or its agents
shall have the right to inspect the Collateral, and the right to examine and
copy Borrower's books and records. Lender shall take reasonable steps to keep
confidential all information obtained in any such inspection or examination, but
Lender shall have the right to disclose any such information to its auditors,
regulatory agencies, attorneys and participants, and pursuant to any subpoena or
other legal process. Borrower agrees to give Lender access to any or all of
Borrower's premises to enable Lender to conduct such inspections and
examinations. Such inspections and examinations shall be at Borrower's expense
and the charge therefor shall be $650 per person per day (or such higher amount
as shall represent Lender's then current standard charge), plus reasonable
out-of-pocket expenses. Lender may, at Borrower's expense, use Borrower's
personnel, computer and other equipment, programs, printed output and computer
readable media, supplies and premises for the collection, sale or other
disposition of Collateral to the extent Lender, in its sole discretion, deems
appropriate. Borrower hereby irrevocably authorizes all accountants and third
parties to disclose and deliver to Lender, at Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding Borrower. Borrower will not enter into
any agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address
without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
<PAGE>
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) compliance with
each such covenant will be a condition to each Loan and Credit Accommodation:
5.1 Existence and Authority. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A sets forth the ownership
of Borrower and its Subsidiaries as of the date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name. Listed in
Section 9 of Schedule A are all prior names of Borrower and all of Borrower's
present and prior trade names. Borrower shall give Lender at least 30 days'
prior written notice before changing its name or doing business under any other
name. Borrower has complied with all laws relating to the conduct of business
under a fictitious business name. Borrower represents and warrants that (i) each
trade name does not refer to another corporation or other legal entity; (ii) all
Accounts invoiced under any such trade names are owned exclusively by Borrower
and are subject to the security interest of Lender and the other terms of this
Agreement and (iii) all schedules of Accounts, including any sales made or
services rendered using the trade name shall show Borrower's name as assignor.
<PAGE>
5.3 Title to Collateral; Permitted Liens. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Borrower is not a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral, and no such lease now prohibits, restrains, impairs or
conditions, or will prohibit, restrain, impair or condition, Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Lender, cause each such third party to
execute and deliver to Lender, in form acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
5.4 Accounts and Chattel Paper. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
5.5 Investment Property. Borrower will take any and all actions required or
requested by Lender, from time to time, to (i) cause Lender to obtain exclusive
control of any Investment Property in a manner acceptable to Lender and (ii)
obtain from any issuers of Investment Property and such other Persons as Lender
shall specify, for the benefit of Lender, written confirmation of Lender's
exclusive control over such Investment Property. For purposes of this Section
5.5, Lender shall have exclusive control of Investment Property if (A) such
Investment Property consists of certificated securities and Borrower delivers
such certificated securities to Lender (with appropriate endorsements if such
certificated securities are in registered form); (B) such Investment Property
consists of uncertificated securities and either (x) Borrower delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with instructions originated by Lender without further consent by
Borrower, and (C) such Investment Property consists of security entitlements and
either (x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
<PAGE>
5.6 Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
5.7 Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof, there
has been no material adverse change in the financial condition or business of
Borrower. Borrower is solvent and able to pay its debts as they come due, and
has sufficient capital to carry on its business as now conducted and as proposed
to be conducted. All schedules, reports and other information and documentation
delivered by Borrower to Lender with respect to the Collateral are, or will be,
when delivered, true, correct and complete as of the date delivered or the date
specified therein.
5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all tax returns and reports required by applicable law, and Borrower has
timely paid all applicable taxes, assessments, deposits and contributions now or
in the future owed by Borrower. Borrower may, however, defer payment of any
contested taxes; provided, that Borrower (i) in good faith contests Borrower's
obligation to pay such taxes by appropriate proceedings promptly and diligently
instituted and conducted; (ii) notifies Lender in writing of the commencement
of, and any material development in, the proceedings; (iii) posts bonds or takes
any other steps required to keep the contested taxes from becoming a Lien upon
any of the Collateral and (iv) maintains adequate reserves therefor in
conformity with GAAP. Borrower is unaware of any claims or adjustments proposed
for any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay, all amounts necessary to fund all present and future pension, profit
sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or any other governmental
agency.
5.9 Compliance with Laws. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
<PAGE>
5.10 Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
5.11 Use of Proceeds. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 Insurance. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be cancelled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt of
the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations of Borrower as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all reports made
to insurance companies.
5.13 Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(a) Collateral Reports. On or before the twentieth day of each month, an
aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; provided, that
Borrower's failure to execute and deliver the same shall not affect or limit
<PAGE>
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower shall furnish Lender with copies (or, at Lender's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. In addition, Borrower shall deliver to Lender the originals of all
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts) six months after Lender
receives them, unless Borrower requests their return in writing in advance and
arranges for their return to Borrower at Borrower's expense;
(b) Annual Statements. Not later than 120 days after the close of each
fiscal year of Borrower, unqualified (except for a qualification for a change in
accounting principles with which the accountant concurs) audited financial
statements of Borrower and its Subsidiaries as of the end of such year, on a
consolidated and consolidating basis, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower but
acceptable to Lender, together with a copy of any management letter issued in
connection therewith and a letter from such accountants acknowledging that
Lender is relying on such financial statements. Concurrently with the delivery
of such financial statements, Borrower shall forward to Lender a copy of the
accountants' letter to Borrower's management that is prepared in connection with
such financial statements;
(c) Interim Statements. Not later than twenty days after the end of each
month hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower and its Subsidiaries as of the end of
such month and of the portion of Borrower's fiscal year then elapsed, on a
consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(d) Projections, Etc. Such projections of business plans, budgets, cash
flow statements and Availability projections for Borrower and its Subsidiaries
as Lender shall request from time to time;
<PAGE>
(e) Shareholder Reports, Etc. Promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental authority
which may be substituted therefor, or any national securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any annual report to
be filed pursuant to the requirements of ERISA in connection with each plan
subject thereto; and
(g) Other Information. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
5.14 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
<PAGE>
5.18 Negative Covenants. Borrower will not, without Lender's prior written
consent which consent will not be unreasonably withheld, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory in the ordinary course of its business; (v) make any loans to,
or investments in, any Affiliate or other Person in the form of money or other
assets; (vi) incur any debt outside the ordinary course of business; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions on
Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate except as may be permitted by any subordination agreement of
such Affiliate in favor of Lender; (xiii) enter into any transaction with an
Affiliate other than on arms-length terms; or (xiv) agree to do any of the
foregoing.
5.19 Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit to expend,
directly or indirectly, for capital expenditures (including capital lease
obligations) in excess of the amount set forth in Section 8(a) of Schedule A as
the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net worth of at least
the amount set forth in Section 8(b) of Schedule A as the Minimum Net Worth
Requirement.
(c) Working Capital. Borrower will at all times maintain working capital of
at least the amount set forth in Section 8(c) of Schedule A as the Minimum
Working Capital Requirement.
(d) Other Financial Covenants. Borrower will comply with any additional
financial covenants set forth in Section 8(f) of Schedule A.
<PAGE>
6. RELEASE AND INDEMNITY.
6.1 Release. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "Released Parties") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from gross negligence or willful misconduct. However, in no
circumstance will any of the Released Parties be liable for lost profits or
other special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gave rise to an Account; (ii) any error, act, omission, or delay of any
kind occurring in the settlement, failure to settle, collection or failure to
collect any Account; (iii) settling any Account in good faith for less than the
full amount thereof; or (iv) any of Borrower's obligations under any contract or
agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying transaction,
Lender shall not be responsible for the conformity of any goods to the documents
presented, the validity or genuineness of any documents, delay, default or fraud
by Borrower, shippers and/or any other Person. Borrower agrees that any action
taken by Lender, if taken in good faith, or any action taken by an issuer of any
Credit Accommodation, under or in connection with any Credit Accommodation,
shall be binding on Borrower and shall not create any resulting liability to
Lender. In furtherance thereof, Lender shall have the full right and authority
to clear and resolve any questions of non-compliance of documents, to give any
instructions as to acceptance or rejection of any documents or goods, to execute
for Borrower's account any and all applications for steamship or airway
guaranties, indemnities or delivery orders, to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 Indemnity. Borrower hereby agrees to indemnify the Released Parties and
hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement.
<PAGE>
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "Initial Term");
provided, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "Maturity Date") for
successive additional terms of three years each (each a "Renewal Term"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
Borrower contained herein and therein, shall remain in full force and effect
after the Maturity Date until all of the monetary Obligations are indefeasibly
paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence and during the continuance of an Event of Default, without
notice, effective immediately; provided, that if any Affiliate of Borrower is
also a party to a financing arrangement with Lender, no such early termination
shall be effective unless such Affiliate simultaneously terminates its financing
arrangement with Lender. If so terminated under this Section 7.2, Borrower shall
pay to Lender (i) an early termination fee (the "Early Termination Fee") in the
amount set forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid
Facility Fee. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations of Borrower. In addition, if Borrower
so terminates and repays its Obligations without having provided Lender with at
least thirty days' prior written notice thereof, an additional amount equal to
thirty days of interest at the applicable Interest Rate(s), based on the average
outstanding amount of the Obligations of Borrower for the six month period
immediately preceding the date of termination.
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all of its
Obligations, whether or not all or any part of such Obligations are otherwise
then due and payable. Without limiting the generality of the foregoing, if, on
the Maturity Date or on any earlier effective date of termination, there are any
outstanding Credit Accommodations, then on such date Borrower shall provide to
Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance of Borrower to secure all of the Obligations of Borrower (including
estimated attorneys' fees and other expenses) relating to said Credit
Accommodations or such greater percentage or amount as Lender reasonably deems
appropriate, pursuant to a cash pledge agreement in form and substance
satisfactory to Lender.
<PAGE>
7.4 Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of its Obligations until all of
the monetary Obligations of Borrower have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
of Borrower (or the provision of cash collateral with respect to the Credit
Accommodation Balance of Borrower as set forth in Section 7.3) and termination
of this Agreement, Lender shall promptly deliver to Borrower termination
statements, requests for reconveyances and such other documents as may be
reasonably required to terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in this Agreement or any other Loan Document or fails to perform any
other non-monetary Obligation; (iv) if any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made or permitted
to exist on all or any part of the Collateral; (v) if one or more judgments
aggregating in excess of $25,000, or any injunction or attachment, is obtained
against Borrower or any Obligor or which remains unstayed for more than ten days
or is enforced; (vi) the occurrence of any default which remains uncured or
unwaived following any applicable cure or grace period under any financing
agreement, security agreement or other agreement, instrument or document
executed and delivered by (A) Borrower with, or in favor of, any Person other
than Lender and such Person has accelerated the indebtedness evidenced thereby
or (B) Borrower or any Affiliate of Borrower with, or in favor of, Lender or any
Affiliate of Lender; (vii) the dissolution, death, termination of existence in
good standing, insolvency or business failure or suspension or cessation of
business as usual of Borrower or any Obligor (or of any general partner of
Borrower or any Obligor if it is a partnership) or the appointment of a
receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations of Borrower or any security document by
any Obligor; (x) if Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations of Borrower other than
as permitted in the applicable subordination agreement, or if any Person who has
<PAGE>
subordinated such indebtedness or obligations attempts to limit or terminate its
subordination agreement; (xi) if there is any actual or threatened indictment of
Borrower or any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which the potential penalties or remedies sought or available
include forfeiture of any property of Borrower or such Obligor; (xii) if
Borrower ceases to own 100% of the outstanding shares of stock of Northwest
Teleproductions/Chicago, Inc. or Southwest Teleproductions, Inc.; (xiii) if
there is any change in the chief executive officer or chief financial officer of
Borrower; (xiv) if an Event of Default occurs under any Loan and Security
Agreement between Lender and an Affiliate of Borrower; (xv) if Lender determines
in good faith that the Collateral is insufficient to fully secure the
Obligations of Borrower or that the prospect of payment of performance of the
Obligations of Borrower is impaired; or (xvi) Borrower defaults under any of its
real estate leases and any applicable cure periods under such leases have
expired.
8.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Lender, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by Borrower), may do any one or more of the
following: (i) cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other Loan Document; (ii) accelerate and declare all
or any part of the Obligations of Borrower to be immediately due, payable and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any of the Obligations of Borrower; (iii)
take possession of any or all of the Collateral wherever it may be found, and
for that purpose Borrower hereby authorizes Lender, without judicial process, to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain (or
cause a custodian to remain) on the premises in exclusive control thereof,
without charge for so long as Lender deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety or security relating thereto required by law as an incident to such
possession, (B) any demand for possession prior to the commencement of any suit
or action to recover possession thereof and (C) any requirement that Lender
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral to such locations as Lender may deem advisable; (v) complete the
processing, manufacturing or repair of any Collateral prior to a disposition
<PAGE>
thereof and, for such purpose and for the purpose of removal, Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property without charge; (vi) sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time Lender obtains possession of it or
after further manufacturing, processing or repair, at one or more public or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "Sale"), and to adjourn any such Sale from time to time without notice
other than oral announcement at the time scheduled for Sale (and, in connection
therewith, (A) Lender shall have the right to conduct such Sale on Borrower's
premises without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the rights and remedies set forth above, Lender
shall have all the other rights and remedies accorded a secured party after
default under the UCC and under all other applicable laws, and under any other
Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations of Borrower have been fully paid and performed. If
notice of any sale or other disposition of Collateral is required by law, notice
at least ten days prior to the sale designating the time and place of sale in
the case of a public sale or the time after which any private sale or other
disposition is to be made shall be deemed to be reasonable notice, and Borrower
waives any other notice. If any Collateral is sold or leased by Lender on credit
terms or for future delivery, the Obligations of Borrower shall not be reduced
as a result thereof until payment is collected by Lender.
<PAGE>
8.3 Application of Proceeds. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations of Borrower in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations of Borrower by the principal amount of the purchase
price or deferring the reduction of such Obligations until the actual receipt by
Lender of the cash therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service or by certified mail return receipt requested, addressed to Lender or
Borrower at the address shown in the heading to this Agreement, or by facsimile
to the facsimile number shown in Section 9(i) of Schedule A, or at any other
address (or to any other facsimile number) designated in writing by one party to
the other party in the manner prescribed in this Section 9.1. All notices shall
be deemed to have been given when received or when delivery is refused by the
recipient.
9.2 Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 Integration. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
Loan Documents shall not waive or diminish any right of Lender later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
<PAGE>
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents; to administer this Agreement and the
other Loan Documents (including the cost of periodic financing statement, tax
lien and other searches conducted by Lender); to enforce, or seek to enforce,
any of its rights; prosecute actions against, or defend actions by, Account
Debtors; to commence, intervene in, or defend any action or proceeding; to
initiate any complaint to be relieved of the automatic stay in bankruptcy; to
file or prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; to examine, audit, copy, and inspect any of the Collateral or any
of Borrower's books and records; to protect, obtain possession of, lease,
dispose of, or otherwise enforce Lender's security interests in, the Collateral;
and to otherwise represent Lender in any litigation relating to Borrower. If
either Lender or Borrower files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and costs
to which Lender may be entitled pursuant to this Section shall immediately
become part of the Obligations of Borrower, shall be due on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations of Borrower.
9.8 Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of its Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
<PAGE>
9.9 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower or any other Obligor.
9.10 Headings; Construction. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.11 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. EACH OF LENDER AND BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF BORROWER OR LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OR BORROWER OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER
THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
<PAGE>
9.12 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
NORTHWEST TELEPRODUCTIONS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Robert Bellish
Its Authorized Signatory
By /s/ Phillip A. Staden
Its Chief Financial Officer
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between NORTHWEST TELEPRODUCTIONS, INC. ("Borrower") and NATIONSCREDIT
COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION
(the "Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $8,500,000, in the aggregate to
the Companies
(b) Advance Rates:
(i) Accounts Advance 80%(or 90% in the case of Accounts
Rate: owing by the United States government
("Government Accounts") after proof
of payment sign-off); provided, that if
the Dilution Percentage exceeds 7% (or
2% in the case of Government Accounts),
such advance rate will be reduced by the
number of full or partial percentage
points of such excess
(ii) Inventory Advance Not applicable
Rate(s):
(c) Accounts Sublimit: Not applicable
(d) Inventory Sublimit(s): Not applicable
(e) Credit Accommodation
Limit: Not applicable
(f) Permanent Reserve Amount: Not applicable
<PAGE>
2. Loan Limits for Term Loan:
(a) Principal Amount: $1,860,000 (the "Equipment Advance")
(b) Repayment Schedule:
(i) Equipment Advance: 60 equal consecutive monthly
installments of $31,000, commencing
May 1, 1997; provided, that if, 24
months after the date of the Agreement,
the unpaid principal balance of the
Equipment Advance exceeds 70% of the
updated auction sale value of the
Eligible Equipment at such time (as
reflected in an appraisal conducted as
of such time by an appraiser acceptable
to Lender) then, at Lender's election,
such excess shall be repaid in six equal
consecutive monthly installments payable
on the first day of each calendar month
commencing with the month immediately
following such election by Lender
(which repayments shall be in addition
to the regular amortization payments
set forth above).
(ii) Real Property Not Applicable.
Advance:
3. Interest Rates:
(a) Revolving Loans: 2.25% per annum in excess of the Prime
Rate
(b) Term Loan: 2.25% per annum in excess of the Prime
Rate
4. Minimum Loan Amount: $2,500,000, in the aggregate for the
Companies.
<PAGE>
5. Maximum days after invoice date
for Eligible Accounts: 90
6. Fees:
(a) Closing Fee: $85,000, in the aggregate for Companies,
jointly and severally as set forth in
the Fee Letter.
(b) Facility Fee:
(i) Initial Term: $85,000, in the aggregate for Companies
jointly and severally as set forth in
the Fee Letter.
(ii) Renewal Term(s): $127,500, in the aggregate for
Companies, jointly and severally as set
forth in the Fee Letter.
(c) Servicing Fee: None
(d) Unused Line Fee: None
(e) Minimum Borrowing Fee:
(i) Applicable period: each month
(ii) Date payable: the first day of each month
(f) Success Fee: None
(g) Warrants: None
<PAGE>
(h) Early Termination Fee: An aggregate amount for the Companies,
jointly and severally as set forth in
the Fee Letter, equal to 5% of the
Maximum Facility Amount if terminated
during the first year of the Term, 3% of
the Maximum Facility Amount if
terminated during the second year of the
Term, 2% of the Maximum Facility Amount
if terminated during the third year of
the Term (but not on the Initial
Maturity Date), and 1% of the Maximum
Facility Amount if terminated thereafter
and prior to, but not on, the Maturity
Date.
(i) Fees for letters of 2.75% per annum of the face amount of
credit (or guaranties by each open Credit Accommodation, payable
Lender): monthly on the first day of each month
(j) Fees for other Credit
Accommodations: As specified by the issuer thereof.
7. Initial Maturity Date: April __, 2000
8. Financial Covenants:
(a) Capital Expenditure
Limitation: Not applicable
(b) Minimum Net Worth
Requirement: Not applicable
(c) Minimum Working Capital
Requirement: Not applicable
(d) Limitation on Purchase
Money Security Interests: Not applicable
(e) Limitation on Equipment
Leases: Not applicable
(f) Additional Financial
Covenants: None
<PAGE>
9. Borrower Information:
(a) Prior Names of Borrower: Empire Photosound Incorporated (until
1976)
(b) Prior Trade Names of
Borrower: None
(c) Existing Trade Names of
Borrower: Post & Transfer
Post & Transfer Northwest
Northwest Post & Transfer
Northwest Film
(d) Inventory/Equipment Locations:4000 West 76th Street
Minneapolis, Minnesota 55435
4455 West 77th Street
Minneapolis, Minnesota 55435
91 South 9th Street
Minneapolis, Minnesota 55402
(e) Other Locations: 76 South 11th Street
Minneapolis, Minnesota 55403
(f) Litigation: None
(g) Ownership of Borrower: Publicly traded company
(h) Subsidiaries (and
ownership thereof): Northwest Teleproductions/Chicago, Inc.
(100%)
Southwest Teleproductions, Inc. (100%)
Northwest Teleproductions/Kansas City,
Inc. (100%)
(i) Facsimile Numbers:
Borrower: (612) 835-4735
Lender: (212) 597-1666
10. Description of Real Property: The real property located at 77th and
76th Street, Edina, Minnesota
<PAGE>
11. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
12. Other Covenants: None
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
NORTHWEST TELEPRODUCTIONS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between NORTHWEST TELEPRODUCTIONS, INC. and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING (the "Agreement").
As used in the Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"Agreement" and "this Agreement" mean the Loan and Security Agreement of
which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ss.
101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
"Business Day" means a day other than a Saturday or Sunday or any other day
on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all of Borrower's property and interests in property in
or upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
<PAGE>
"Companies" means Borrower, Northwest Teleproductions/Chicago, Inc. and
Southwest Teleproductions, Inc.
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means, with respect to each Company the sum
of (i) the aggregate undrawn face amount of all outstanding Credit
Accommodations of such Company and (ii) all interest, fees and costs due or, in
Lender's estimation, likely to become due in connection therewith.
"Default" means any event which with notice or passage of time, or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns, allowances,
discounts, credits, write-offs and similar items relating to Borrower's Accounts
computed as a percentage of Borrower's gross sales, calculated on a ninety (90)
day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account of a
Company which satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may, in its sole
discretion, change the general criteria for acceptability of Eligible Accounts
upon at least fifteen days' prior notice to Companies). An Account shall be
deemed to meet the current general criteria if (i) neither the Account Debtor
nor any of its Affiliates is an Affiliate, creditor or supplier of a Company;
(ii) it does not remain unpaid more than the number of days after the original
invoice date set forth in Section 5 of Schedule A; (iii) the Account Debtor or
its Affiliates are not past due on other Accounts owing to a Company comprising
more than 25% of all of the Accounts owing to a Company by such Account Debtor
or its Affiliates; (iv) all Accounts owing by the Account Debtor or its
Affiliates do not represent more than 20% of all otherwise Eligible Accounts
(provided, that Accounts which are deemed to be ineligible solely by this clause
(iv) shall be considered Eligible Accounts to the extent of the amount thereof
which does not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
<PAGE>
counterclaim, dispute or set-off; (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to a Company and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless the applicable Company has complied with the
Assignment of Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or other applicable
similar state or local law in a manner satisfactory to Lender; (xi) it is at all
times subject to Lender's duly perfected, first priority security interest and
to no other Lien that is not a Permitted Lien, and the goods giving rise to such
Account (A) were not, at the time of sale, subject to any Lien except Permitted
Liens and (B) have been delivered to and accepted by the Account Debtor, or the
services giving rise to such Account have been performed by a Company and
accepted by the Account Debtor; (xii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment; (xiii)
the Account Debtor's total indebtedness to the Companies does not exceed the
amount of any credit limit established by a Company or Lender and the Account
Debtor is otherwise deemed to be creditworthy by Lender (provided, that Accounts
deemed to be ineligible solely by reason of this clause (xiii) shall be
considered Eligible Accounts to the extent the amount of such Accounts does not
exceed the lower of such credit limits); (xiv) there are no facts or
circumstances existing, or which could reasonably be anticipated to occur, which
might result in any adverse change in the Account Debtor's financial condition
or impair or delay the collectibility of all or any portion of such Account;
(xv) Lender has been furnished with all documents and other information
pertaining to such Account which Lender has requested, or which a Company is
obligated to deliver to Lender, pursuant to this Agreement or any other loan and
security agreement between Lender and a Company; and (xvi) no Company has made
an agreement with the Account Debtor to extend the time of payment thereof
beyond the time periods set forth in clause (ii) above.
"Eligible Equipment" means, at any time of determination, Equipment owned
by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory (other
than packaging materials and supplies) which satisfies the general criteria set
forth below and which is otherwise acceptable to Lender (provided, that Lender
may, in its sole discretion, change the general criteria for acceptability of
Eligible Inventory upon at least fifteen days' prior written notice to
Borrower). Inventory shall be deemed to meet the current general criteria if (i)
<PAGE>
it consists of raw materials or finished goods, or work-in-process that is
readily marketable in its current form; (ii) it is in good, new and saleable
condition; (iii) it is not slow-moving, obsolete, unmerchantable, returned or
repossessed; (iv) it is not in the possession of a processor, consignee or
bailee, or located on premises leased or subleased to Borrower, or subject to a
mortgage in favor of a Person other than Lender, unless such processor,
consignee, bailee or mortgagee or the lessor or sublessor of such premises, as
the case may be, has executed and delivered all documentation which Lender shall
require to evidence the subordination or other limitation or extinguishment of
such Person's rights with respect to such Inventory and Lender's right to gain
access thereto; (v) it meets all standards imposed by any governmental agency or
authority; (vi) it conforms in all respects to any covenants, warranties and
representations set forth in the Agreement; (vii) it is at all times subject to
Lender's duly perfected, first priority security interest and no other Lien
except a Permitted Lien; and (viii) it is situated at an Inventory Location
listed in Section 9(d) of Schedule A or other location of which Lender has been
notified as required by Section 5.6.
"Equipment" means all Goods which are used or bought for use primarily in
business (including farming or a profession) or by a Person who is a non-profit
organization or governmental subdivision or agency and which are not Inventory,
farm products or consumer goods, including all machinery, molds, machine tools,
motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor
vehicles, tools, parts, dies and jigs, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to, or spare
parts for, any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974 and all
rules, regulations and orders promulgated thereunder.
"Event of Default" has the meaning set forth in Section 8.1.
"Fee Letter" means that certain letter agreement regarding fees between the
Companies and Lender of even date herewith.
"GAAP" means generally accepted accounting principles as in effect from
time to time, consistently applied.
<PAGE>
"General Intangibles" has the meaning set forth in the UCC, and includes
all books and records pertaining to the Collateral and other business and
financial records in the possession of Borrower or any other Person, inventions,
designs, drawings, blueprints, patents, patent applications, trademarks,
trademark applications (other than "intent to use" applications until a verified
statement of use is filed with respect to such applications) and the goodwill of
the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, causes of action and other rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, internet addresses, proprietary
information, purchase orders, and all insurance policies and claims (including
life insurance, key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and claims, letters of
credit, banker's acceptances and guaranties, computer programs, discs, tapes and
tape files in the possession of Borrower or any other Person, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished or to be
furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
<PAGE>
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, a Person other than the owner of the property, whether such interest
is based on common law, statute or contract, including rights of sellers under
conditional sales contracts or title retention agreements and reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property. For the purpose of this Agreement, Borrower shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement, any other loan and security agreement
and all notes, guaranties, security agreements, certificates, landlord's
agreements, Lock Box and Blocked Account agreements and all other agreements,
documents and instruments now or hereafter executed or delivered by a Company or
any Obligor in connection with, or to evidence the transactions contemplated by,
this Agreement.
"Loan Limits" means, collectively, the Availability limits and all other
limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means, with respect to a Company, all present and future
Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties
and indebtedness at any time owing by such Company to Lender, whether evidenced
by this Agreement, any other loan and security agreement, or any note or other
instrument or document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in such Company's indebtedness owing
to others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, minimum borrowing fees and any
other sums chargeable to such Company under this Agreement or under any other
Loan Document.
<PAGE>
"Obligor" means any guarantor, endorser, acceptor, surety or other person
liable on, or with respect to, the Obligations of Borrower or who is the owner
of any property which is security for the Obligations of Borrower, other than
Borrower.
"Permitted Liens" means: (i) purchase money security interests in specific
items of Equipment in an aggregate amount not to exceed the limit set forth in
Section 8(d) of Schedule A; (ii) leases of specific items of Equipment in an
aggregate amount not to exceed the limit set forth in Section 8(e) of Schedule
A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens which
are fully subordinate to the security interests of Lender and are consented to
in writing by Lender; (v) security interests being terminated concurrently with
the execution of this Agreement; (vi) Liens of materialmen, mechanics,
warehousemen or carriers arising in the ordinary course of business and securing
obligations which are not delinquent; (vii) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clause (i) or (ii) above; provided, that any extension,
renewal or replacement Lien is limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; and (viii) Liens in favor of customs
and revenue authorities which secure payment of customs duties in connection
with the importation of goods. Lender will have the right to require, as a
condition to its consent under clause (iv) above, that the holder of the
additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations of Borrower
remain outstanding, and that Borrower agree that any uncured default in any
obligation secured by the subordinate Lien shall also constitute an Event of
Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in The Wall
Street Journal as the base rate on corporate loans posted as of such time by at
least 75% of the nation's 30 largest banks (which rate is not necessarily the
lowest rate offered by such banks).
<PAGE>
"Real Property" means the real property described in Section 10 of Schedule
A.
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(b).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a Person owns,
directly or indirectly, through one or more intermediaries, more than 50% of the
capital stock or other equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and ending
on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted and
in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
NORTHWEST TELEPRODUCTIONS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
GUARANTY
Borrowers: Northwest Teleproductions/Chicago, Inc., a
Minnesota corporation
and
Southwest Teleproductions, Inc., a
Texas corporation
Guarantor(s) Northwest Teleproductions, Inc., a
Minnesota corporation
Borrowers have requested that NationsCredit Commercial Corporation, through
its NationsCredit Commercial Funding Division ("Lender") provide certain
financial accommodations to Borrowers pursuant to the terms of certain Loan and
Security Agreements between each Borrower and Lender, respectively, dated of
even date herewith (as amended from time to time, the "Loan Agreements"). As one
of the conditions to providing financing, Lender has required that Northwest
Teleproductions, Inc. ("Guarantor") guaranty all obligations of Borrowers to
Lender.
For value received and in consideration of any loan, advance or financial
accommodation of any kind whatsoever heretofore, now or hereafter made, given or
granted to each Borrower by Lender pursuant to the Loan Agreements, Guarantor
unconditionally guaranties the full and prompt payment when due, whether at
maturity or earlier, by reason of acceleration or otherwise, and at all times
thereafter, of the indebtedness, liabilities and obligations of every kind and
nature of each Borrower to Lender (including all interest accruing after the
filing of a proceeding under the Bankruptcy Code (as defined in the Loan
Agreements) whether or not allowed by the court in such proceeding, and all
indebtedness, liabilities and obligations arising after the filing of any
proceeding under the Bankruptcy Code), howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, joint or several, now or
hereafter existing, or due or to become due, in each case arising under the Loan
Agreements and the other Loan Documents, plus all costs and expenses (including,
without limitation, all court costs and reasonable attorneys' and paralegals'
fees and expenses) paid or incurred by Lender in endeavoring to collect all or
any part of such indebtedness, liabilities and obligations from, or in
prosecuting any action against, Guarantor or any other guarantor of all or any
part of such indebtedness, liabilities and obligations (all such indebtedness,
liabilities, obligations, costs and expenses being hereinafter referred to as
"Borrowers' Obligations"). All sums becoming due under this Guaranty shall bear
interest from the due date thereof until paid at the highest rate charged with
respect to any of Borrowers' Obligations under the Loan Agreements.
<PAGE>
Guarantor agrees that its obligations under this Guaranty are
unconditional, irrespective of (i) the validity or enforceability of Borrowers'
Obligations or any notes or other instruments evidencing Borrowers' Obligations,
(ii) the absence of any attempt by Lender to collect Borrowers' Obligations from
either Borrower or any other guarantor, (iii) Lender's waiver or consent with
respect to any provision of the Loan Documents, (iv) Lender's failure to perfect
or maintain its security interests in, or to preserve its rights with respect
to, any of the Collateral, (v) Lender's election, in any proceeding under
Chapter 11 of the Bankruptcy Code, of the application of Section 1111(b)(2) of
the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
Borrower as debtor-in-possession under Section 364 of the Bankruptcy Code, (vii)
the disallowance, under Section 502 of the Bankruptcy Code, of all or any of
Lender's claims for repayment of Borrowers' Obligations or (viii) any other
circumstance which might constitute a legal or equitable discharge or defense of
either Borrower or a guarantor.
No payment made by or for the account or benefit of Guarantor (including
(i) a payment made by either Borrower in respect of Borrowers' Obligations, (ii)
a payment made by any person under any other guaranty of Borrowers' Obligations
or (iii) a payment made by means of set off or other application of funds by
Lender) pursuant to this Guaranty shall entitle Guarantor, by subrogation or
otherwise, to any payment by either Borrower or from or out of any property of
either Borrower, and Guarantor shall not exercise any rights or remedies against
either Borrower or any property of either Borrower including any right of
contribution, indemnity or reimbursement by reason of any performance by
Guarantor under this Guaranty, all of such rights of subrogation, contribution,
indemnity and reimbursement being hereby waived by Guarantor. The provisions of
this paragraph shall survive the termination of this Guaranty or the release or
discharge of Guarantor from liability hereunder. Guarantor and Lender hereby
agree that each Borrower is a third party beneficiary of the provisions of this
paragraph.
Guarantor hereby waives diligence, presentment, demand for payment, filing
of claims with a court in the event of receivership or bankruptcy of a Borrower,
protest or notice with respect to Borrowers' Obligations and all demands
whatsoever, and covenants that this Guaranty will not be discharged, except by
complete and irrevocable payment and performance of the obligations and
liabilities contained herein. No notice to any party, including Guarantor, shall
be required for Lender to make demand hereunder. Such demand shall constitute a
mature and liquidated claim against Guarantor. At any time after maturity of
Borrowers' Obligations, whether by acceleration or otherwise, Lender may, at its
sole election, proceed directly and at once, without notice, against Guarantor
to collect and recover the full amount or any portion of Borrowers' Obligations,
without first proceeding against either Borrower or any other person or against
any of the Collateral. Lender shall have the exclusive right to determine the
application of payments and credits, if any, from Guarantor, either Borrower or
any other person, on account of Borrowers' Obligations.
<PAGE>
Lender is hereby authorized, without notice or demand to Guarantor and
without affecting or impairing the liability of Guarantor hereunder, to from
time to time (i) renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, Borrowers' Obligations or otherwise
modify, amend or change the terms of any promissory note or other agreement,
document or instrument now or hereafter executed by a Borrower and delivered to
Lender; (ii) accept partial payments on Borrowers' Obligations; (iii) take and
hold collateral for the payment of Borrowers' Obligations, or for the payment of
this Guaranty, or for the payment of any other guaranties or Borrowers'
Obligations or other liabilities of a Borrower, and exchange, enforce, waive and
release any such security or collateral; (iv) apply such security or collateral
and direct the order or manner of sale thereof as in its sole discretion it may
determine; and (v) settle, release, compromise, collect or otherwise liquidate
Borrowers' Obligations and any security or collateral therefor in any manner.
At any time after maturity of Borrowers' Obligations, Lender may, in its
sole discretion, without notice to Guarantor and regardless of the acceptance of
any security or collateral for the payment hereof, appropriate and apply toward
payments of Borrowers' Obligations that remain unpaid, (i) any indebtedness due
or to become due from Lender to Guarantor and (ii) any moneys, credits or other
property belonging to Guarantor at any time held by or coming into the
possession of Lender or any affiliates of Lender, whether for deposit or
otherwise.
Guarantor assumes responsibility for keeping itself informed of the
financial condition of each Borrower and all other guarantors of all or any of
Borrowers' Obligations, and of all other circumstances bearing upon the risk of
nonpayment of Borrowers' Obligations or any part thereof that diligent inquiry
might reveal, and Guarantor agrees that Lender shall have no duty to advise
Guarantor of information known to Lender regarding any of the foregoing.
Guarantor acknowledges familiarity with each Borrower's financial condition and
represents that it has not relied on any statements made, or information
furnished, by Lender or its agents in obtaining such familiarity. If Lender
provides any such information to Guarantor, Lender shall be under no obligation
to (i) undertake any investigation not a part of its regular business routine,
(ii) disclose any information which, pursuant to accepted or reasonable
commercial finance practices, Lender wishes to maintain confidential or (iii)
make any other or future disclosures of any information to Guarantor.
Notwithstanding any contrary provision of this Guaranty, it is intended
that neither this Guaranty nor any liens or security interests securing this
Guaranty constitute a "Fraudulent Conveyance" (as defined below). Consequently,
Guarantor agrees that if this Guaranty or any liens or security interests
securing this Guaranty, would, but for the application of this sentence,
constitute a Fraudulent Conveyance, this Guaranty and each such lien and
security interest shall be valid and enforceable only to the maximum extent that
would not cause this Guaranty or such lien or security interest to constitute a
Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have
been amended accordingly at all relevant times. For purposes hereof, a
"Fraudulent Conveyance" means a fraudulent conveyance under Section 548 of the
Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under any
applicable fraudulent conveyance or fraudulent transfer law or similar law of
any state or other governmental unit as in effect from time to time.
<PAGE>
Guarantor waives the right to assert the doctrine of marshaling with
respect to any collateral held by Lender to secure any of the Borrowers'
Obligations. Guarantor further agrees that, to the extent a Borrower makes one
or more payments to Lender, or Lender receives any proceeds of collateral which
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to such Borrower, its estate, trustee, receiver
or any other party under the Bankruptcy Code or other law, that portion of
Borrowers' Obligations which has been paid, reduced or satisfied by such payment
shall be reinstated and continued in full force and effect as of the date such
initial payment, reduction or satisfaction occurred and this Guaranty shall
continue to be in existence and in full force and effect, irrespective of
whether any evidence of indebtedness or this Guaranty has been surrendered or
canceled.
Guarantor agrees that all payments hereunder shall be made without setoff
or counterclaims and Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor and
notices of acceptance of this Guaranty. Guarantor further waives all notices of
the existence, creation or incurring of new or additional indebtedness, arising
either from additional loans extended to a Borrower or otherwise, and also
waives all notices that the principal amount, or any portion thereof, or any
interest on any instrument or document evidencing all or any part of Borrowers'
Obligations is due, notices of any and all proceedings to collect from the
maker, any endorser or any other guarantor of all or any part of Borrowers'
Obligations, or from anyone else, and, to the extent permitted by law, notices
of exchange, sale, foreclosure, surrender or other handling of any security or
collateral securing payment of Borrowers' Obligations.
No delay on the part of Lender in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Lender of any
right or remedy shall preclude any further exercise thereof except as expressly
set forth in a writing duly signed and delivered on Lender's behalf by an
authorized officer or agent of Lender; nor shall any modification or waiver of
any of the provisions of this Guaranty be binding upon Lender, except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender. Lender's failure at any time or times
hereafter to require strict performance by either Borrower or Guarantor of any
of the provisions, warranties, terms and conditions contained in any promissory
note, security agreement, agreement, guaranty, instrument or document now or at
any time or times hereafter executed by either Borrower or Guarantor and
delivered to Lender, shall not waive, affect or diminish any right of Lender at
any time or times hereafter to demand strict performance thereof and such right
shall not be deemed to have been waived by any act or knowledge of Lender, or
its respective agents, officers or employees, unless such waiver is contained in
an instrument in writing signed by an officer or agent of Lender, and directed
to such Borrower or Guarantor, as applicable, specifying such waiver. No waiver
by Lender of any default shall operate as a waiver of any other default or the
same default on a future occasion, and no action by Lender permitted hereunder
shall in any way affect or impair Lender's rights or the obligations of
Guarantor under this Guaranty. Any determination by a court of competent
jurisdiction of the amount of any principal or interest owing by a Borrower to
Lender shall be conclusive and binding on Guarantor irrespective of whether
Guarantor was a party to the suit or action in which such determination was
made.
<PAGE>
Guarantor hereby represents and warrants that (i) it is in Guarantor's
direct interest to assist each Borrower in procuring credit, because each
Borrower is an affiliate of Guarantor, furnishes goods or services to Guarantor,
purchases or acquires goods or services from Guarantor, and/or otherwise has a
direct or indirect corporate or business relationship with Guarantor, (ii) this
Guaranty has been duly and validly authorized, executed and delivered and
constitutes the valid and binding obligation of Guarantor, enforceable in
accordance with its terms, and (iii) the execution and delivery of this Guaranty
does not violate or constitute a default under (with or without the giving of
notice, the passage of time, or both) any order, judgment, decree, instrument or
agreement to which Guarantor is a party or by which it or its assets are
affected or bound.
This Guaranty shall be binding upon Guarantor and upon the successors and
permitted assigns of Guarantor and shall inure to the benefit of Lender and its
successors and assigns. All references herein to each Borrower shall be deemed
to include its successors and permitted assigns and all references herein to
Lender shall be deemed to include its successors and assigns. Each Borrower's
and Guarantor's successors and permitted assigns shall include a receiver,
trustee, custodian of or for each Borrower or Guarantor or any of their
respective assets and such Borrower and Guarantor as debtor in possession. All
references to the singular shall be deemed to include the plural where the
context so requires.
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL COURTS IN
NEW YORK SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES WITH RESPECT TO THIS GUARANTY AND WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND EACH OF GUARANTOR AND LENDER CONSENTS THAT ALL
SERVICE OF PROCESS UPON GUARANTOR OR LENDER BE MADE BY REGISTERED MAIL OR
MESSENGER DIRECTED TO GUARANTOR OR LENDER AT THE ADDRESS SET FORTH BELOW
GUARANTOR'S SIGNATURE AND LENDER'S ADDRESS SET FORTH IN THE LOAN AGREEMENTS AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT
THEREOF. GUARANTOR HEREBY AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY GUARANTOR
AGAINST LENDER OR ANY MATTER ARISING OUT OF THIS GUARANTY SHALL BE BROUGHT
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS IN NEW YORK. GUARANTOR AND LENDER
EACH HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION
OR PROCEEDING AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
<PAGE>
Wherever possible each provision of this Guaranty shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor this
24th day of April, 1997.
NORTHWEST TELEPRODUCTIONS, INC.
By /s/ Phillip A. Staden
Its Chief Financial Officer
4000 West 76th Street
Minneapolis, Minnesota 55435
NationsCredit Commercial Funding
- -------------------------------------------------------------------------------
Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this "Agreement")
is entered into on April 24, 1997 between NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"), having an
address at 1177 Avenue of the Americas, 36th Floor, New York, New York 10036 and
NORTHWEST TELEPRODUCTIONS/CHICAGO, INC., a Minnesota corporation ("Borrower"),
whose chief executive office is located at 142 East Ontario, Chicago, Illinois
60611 ("Borrower's Address"). The Schedules to this Agreement are an integral
part of this Agreement and are incorporated herein by reference. Terms used, but
not defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to time during the
Term at Borrower's request, make revolving loans to Borrower ("Revolving
Loans"), and make letters of credit, bankers acceptances and other credit
accommodations ("Credit Accommodations") available to Borrower, in each case to
the extent that there is sufficient Availability at the time of such request to
cover, dollar for dollar, the requested Revolving Loan or Credit Accommodation;
provided, that after giving effect to such Revolving Loan or Credit
Accommodation, (x) the aggregate outstanding balance of all monetary Obligations
of each Company to Lender (including the principal balance of any term loans
owing by each Company to Lender and, solely for the purpose of determining
compliance with this provision, the Credit Accommodation Balance of each
Company) will not exceed the Maximum Facility Amount set forth in Section 1 of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts of the Companies (less
maximum existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit set forth in Section
1(c) of Schedule A;
plus
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section 1(b)(ii)
of Schedule A, but not to exceed the Inventory Sublimit(s) set forth in
Section 1(d) of Schedule A;
<PAGE>
minus
(iii) all Reserves which Lender has established pursuant to Section
1.2 (including those to be established in connection with the requested
Revolving Loan or Credit Accommodation); and
minus
(iv) the outstanding balance of all of the monetary Obligations of the
Companies (excluding the Credit Accommodation Balance of each Company and
the principal balance of each term loan owing by a Company to Lender).
(b) Term Loan. On the date of this Agreement, make a term loan to Borrower
(the "Term Loan") in the principal amount, if any, set forth in Section 2(a) of
Schedule A.
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of Eligible Inventory, (b)
which is or will be in transit to one of the locations set forth in Section
10(d), (c) which is fully insured in a manner satisfactory to Lender and (d)
with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the Inventory
Advance Rate applicable to Eligible Inventory and (y) in the case of any other
Credit Accommodation issued for any purpose, establish a Reserve equal to the
full amount of the Credit Accommodation Balance. In addition, (x) Lender shall
establish a permanent Reserve in the amount set forth in Section 1(f) of
Schedule A, and (y) if the outstanding principal balance of the Term Loan
advance with respect to Eligible Equipment exceeds the percentage of the
appraised value of such Eligible Equipment set forth in Section 2(a) of Schedule
A, Lender may establish an additional Reserve in the amount of such excess (and,
for this purpose, if payments of principal on the Term Loan advances against
Eligible Equipment and Real Property are not calculated separately, payments of
principal of the Term Loan made by Borrower shall be deemed to apply to the Term
Loan advance with respect to Eligible Equipment and Real Property, respectively,
in proportion to the original principal amounts of such advances). Lender may,
in its discretion, establish and revise Reserves by deducting them in
determining Availability or by reclassifying Eligible Accounts or Eligible
Inventory as ineligible.
<PAGE>
1.3 Other Provisions Applicable to Credit Accommodations. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations of Borrower
shall be payable on the first day of each month. Principal of the Term Loan
shall be repaid as set forth in Section 2(b) of Schedule A. If at any time any
of the Loan Limits are exceeded, Borrower will immediately pay to Lender such
amounts and/or provide cash collateral to Lender with respect to the Credit
Accommodation Balance of Borrower in the manner set forth in Section 7.3, as
shall cause the Companies to be in full compliance with all of the Loan Limits.
Notwithstanding the foregoing, Lender may, in its sole discretion, make or
permit Revolving Loans, the Term Loan, any Credit Accommodations or any other
monetary Obligations to be in excess of any of the Loan Limits; provided, that
Borrower shall, upon Lender's demand, pay to Lender such amounts as shall cause
the Companies to be in full compliance with all of the Loan Limits. All unpaid
monetary Obligations shall be payable in full on the Maturity Date set forth in
Section 7.1 or, if earlier, the date of any early termination pursuant to
Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to Borrower and loans by Lender to
each other Company to equal or exceed, at all times prior to the Maturity Date,
the Minimum Loan Amount set forth in Section 4 of Schedule A and (ii) maintain
Availability sufficient to enable Borrower to do so. Notwithstanding any other
provision contained in this Agreement, the failure by Borrower to comply with
this Section 1.5 as a result of Borrower's failure to maintain sufficient
Availability in accordance with clause (ii) above shall not constitute an Event
of Default. However, Lender shall not be obligated to loan Borrower or any other
Company the Minimum Loan Amount other than in accordance with all of the terms
and conditions of this Agreement or any other loan and security agreement
between a Company and Lender.
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations of Borrower shall
bear interest at the Interest Rate(s) set forth in Section 3 of Schedule A,
except where expressly set forth to the contrary in this Agreement or another
Loan Document; provided, that after the occurrence of an Event of Default, all
Loans and other monetary Obligations of Borrower shall, at Lender's option, bear
interest at a rate per annum equal to two percent (2%) in excess of the rate
otherwise applicable thereto (the "Default Rate") until such Event of Default
has been cured (notwithstanding the entry of any judgment against Borrower or
the exercise of any other right or remedy by Lender), and all such interest
shall be payable on demand. Changes in the Interest Rate shall be effective as
<PAGE>
of the date of any change in the Prime Rate. Notwithstanding anything to the
contrary contained in this Agreement, the aggregate of all amounts deemed to be
interest hereunder and charged or collected by Lender is not intended to exceed
the highest rate permissible under any applicable law, but if it should, such
interest shall automatically be reduced to the extent necessary to comply with
applicable law and Lender will refund to Borrower any such excess interest
received by Lender.
2.2 Fees and Warrants. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in Section 6(a) of
Schedule A, which shall be deemed to be fully earned as of, and payable on, the
date hereof.
(b) Facility Fees. A facility fee for the Initial Term in the amount set
forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of the
date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary of the date hereof during the Initial Term),
and a facility fee for each Renewal Term in the amount set forth in Section
6(b)(ii) of Schedule A (which shall be fully earned as of the first day of such
Renewal Term and shall be payable in equal installments due, respectively, on
the first day of such Renewal Term and on each anniversary thereof during such
Renewal Term).
(c) Servicing Fee. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to the percentage
per annum set forth in Section 6(d) of Schedule A of the amount by which the
Maximum Facility Amount exceeds the average daily outstanding principal balance
of the Loans and the Credit Accommodation Balance during the immediately
preceding month (or part thereof), which fee shall be payable, in arrears, on
the first day of each month so long as any of the Obligations are outstanding
and on the Maturity Date.
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to the excess, if
any, of (i) interest which would have been payable in respect of each period set
forth in Section 6(e) of Schedule A if, at all times during such period, the
principal balance of the Loans and all other loans by Lender to each other
Company was equal to the Minimum Loan Amount over (ii) the actual interest
payable in respect of such period, which fee shall be fully earned as of the
first day of such period and payable on the date set forth in Section 6(e)(ii)
of Schedule A and on the Maturity Date.
<PAGE>
(f) Success Fee. A success fee in the amount set forth in Section 6(f) of
Schedule A, which shall be fully earned as of the date of this Agreement and
payable as set forth in Section 6(f) of Schedule A.
(g) Warrants. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) Credit Accommodation Fees. All of the fees relating to Credit
Accommodations set forth in Section 6(i) and 6(j) of Schedule A.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a loan account
for Borrower reflecting all advances, charges, expenses and payments made
pursuant to this Agreement (the "Loan Account"), and shall provide Borrower with
a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations of Borrower.
Interest, fees and other monetary Obligations of Borrower due and owing under
this Agreement (including fees and other amounts paid by Lender to issuers of
Credit Accommodations) may, in Lender's discretion, be charged to the Loan
Account, and will thereafter be deemed to be Revolving Loans and will bear
interest at the same rate as other Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations of
Borrower when due, Borrower hereby grants to Lender a continuing security
interest in all of Borrower's property and interests in property, whether
tangible or intangible, now owned or in existence or hereafter acquired or
arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all Accounts,
Chattel Paper, Instruments, Documents, Goods (including Inventory, Equipment,
farm products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and products of all of the
foregoing (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the foregoing.
<PAGE>
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or in the name of Lender
(a "Lock Box") or (ii) depositing all Account Proceeds received by Borrower into
one or more bank accounts maintained in Lender's name (each, a "Blocked
Account"), under an arrangement acceptable to Lender with a depository bank
acceptable to Lender, pursuant to which all funds deposited into each Blocked
Account are to be transferred to Lender in such manner, and with such frequency,
as Lender shall specify or (iii) a combination of the foregoing. Borrower agrees
to execute, and to cause its depository banks to execute, such Lock Box and
Blocked Account agreements and other documentation as Lender shall require from
time to time in connection with the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1, all proceeds
arising from the sale or other disposition of any Collateral shall be delivered,
in kind, by Borrower to Lender in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations of Borrower, in such order and
manner as Lender shall determine, whether or not the Obligations of Borrower are
due, and whether before or after the occurrence of a Default or an Event of
Default. For purposes of determining Availability, such amounts will be credited
to the Loan Account and the Collateral balances to which they relate upon
Lender's receipt of advice from Lender's Bank (set forth in Section 11 of
Schedule A) that such items have been credited to Lender's account at Lender's
Bank (or upon Lender's deposit thereof at Lender's Bank in the case of payments
received by Lender in kind), in each case subject to final payment and
collection. However, for purposes of computing interest on the Obligations of
Borrower, such items shall be deemed applied by Lender two Business Days after
Lender's receipt of advice of deposit thereof at Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower, Lender or a pseudonym of Lender; (ii)
notify Account Debtors that Lender has a security interest in the Accounts and
that payment thereof is to be made directly to Lender; and (iii) demand, collect
or enforce payment of any Accounts and Chattel Paper (but without any duty to do
so).
<PAGE>
4.5 Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) if Borrower fails to promptly do so after Lender's
request, execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or lease (as
lessor or lessee) any real or personal property which is part of the Collateral
or in which Lender has an interest; (iii) execute on behalf of Borrower any
invoices relating to any Accounts, any draft against any Account Debtor and any
notice to any Account Debtor, any proof of claim in bankruptcy, any notice of
Lien or claim, assignment or satisfaction of mechanic's, materialman's or other
Lien; (iv) receive and otherwise take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; (v) endorse Borrower's name
on all checks and other forms of remittances received by Lender; (vi) pay,
contest or settle any Lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; (vii) after the
occurrence of a Default or Event of Default, grant extensions of time to pay,
compromise claims relating to, and settle Accounts, Chattel Paper and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (viii) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (ix) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.13; (x) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xi) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xii) after the occurrence of a Default or Event
<PAGE>
of Default, change the address for delivery of Borrower's mail and receive and
open all mail addressed to Borrower. Any and all sums paid, and any and all
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred, by Lender with respect to the foregoing shall be added to and become
part of the Obligations of Borrower, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations of Borrower. Borrower agrees that Lender's rights under the
foregoing power of attorney or any of Lender's other rights under this Agreement
or the other Loan Documents shall not be construed to indicate that Lender is in
control of the business, management or properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to an Event of Default Borrower may do such things in the ordinary
course of business. Borrower will promptly report any such permitted settlement
or forgiveness to Lender.
4.7 Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender and using a pseudonym of Lender, to
reflect Lender's security interest therein.
4.8 Inventory.
(a) Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii) conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
<PAGE>
(b) Other Covenants. Borrower will not, without Lender's prior written
consent, (i) store any Inventory or other Collateral with any warehouseman or
other third party other than as set forth in Section 9(d) of Schedule A or (ii)
sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis. Borrower will produce Inventory only in accordance with the
Fair Labor Standards Act of 1938 as amended, and all rules, regulations and
orders promulgated thereunder.
4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence and
during the continuance of a Default or an Event of Default, Lender or its agents
shall have the right to inspect the Collateral, and the right to examine and
copy Borrower's books and records. Lender shall take reasonable steps to keep
confidential all information obtained in any such inspection or examination, but
Lender shall have the right to disclose any such information to its auditors,
regulatory agencies, attorneys and participants, and pursuant to any subpoena or
other legal process. Borrower agrees to give Lender access to any or all of
Borrower's premises to enable Lender to conduct such inspections and
examinations. Such inspections and examinations shall be at Borrower's expense
and the charge therefor shall be $650 per person per day (or such higher amount
as shall represent Lender's then current standard charge), plus reasonable
out-of-pocket expenses. Lender may, at Borrower's expense, use Borrower's
personnel, computer and other equipment, programs, printed output and computer
readable media, supplies and premises for the collection, sale or other
disposition of Collateral to the extent Lender, in its sole discretion, deems
appropriate. Borrower hereby irrevocably authorizes all accountants and third
parties to disclose and deliver to Lender, at Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding Borrower. Borrower will not enter into
any agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address
without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) compliance with
each such covenant will be a condition to each Loan and Credit Accommodation:
<PAGE>
5.1 Existence and Authority. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A sets forth the ownership
of Borrower and its Subsidiaries as of the date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name. Listed in
Section 9 of Schedule A are all prior names of Borrower and all of Borrower's
present and prior trade names. Borrower shall give Lender at least 30 days'
prior written notice before changing its name or doing business under any other
name. Borrower has complied with all laws relating to the conduct of business
under a fictitious business name. Borrower represents and warrants that (i) each
trade name does not refer to another corporation or other legal entity; (ii) all
Accounts invoiced under any such trade names are owned exclusively by Borrower
and are subject to the security interest of Lender and the other terms of this
Agreement and (iii) all schedules of Accounts, including any sales made or
services rendered using the trade name shall show Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Borrower is not a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral, and no such lease now prohibits, restrains, impairs or
conditions, or will prohibit, restrain, impair or condition, Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Lender, cause each such third party to
execute and deliver to Lender, in form acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
<PAGE>
5.4 Accounts and Chattel Paper. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
5.5 Investment Property. Borrower will take any and all actions required or
requested by Lender, from time to time, to (i) cause Lender to obtain exclusive
control of any Investment Property in a manner acceptable to Lender and (ii)
obtain from any issuers of Investment Property and such other Persons as Lender
shall specify, for the benefit of Lender, written confirmation of Lender's
exclusive control over such Investment Property. For purposes of this Section
5.5, Lender shall have exclusive control of Investment Property if (A) such
Investment Property consists of certificated securities and Borrower delivers
such certificated securities to Lender (with appropriate endorsements if such
certificated securities are in registered form); (B) such Investment Property
consists of uncertificated securities and either (x) Borrower delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with instructions originated by Lender without further consent by
Borrower, and (C) such Investment Property consists of security entitlements and
either (x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6 Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
<PAGE>
5.7 Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof, there
has been no material adverse change in the financial condition or business of
Borrower. Borrower is solvent and able to pay its debts as they come due, and
has sufficient capital to carry on its business as now conducted and as proposed
to be conducted. All schedules, reports and other information and documentation
delivered by Borrower to Lender with respect to the Collateral are, or will be,
when delivered, true, correct and complete as of the date delivered or the date
specified therein.
5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all tax returns and reports required by applicable law, and Borrower has
timely paid all applicable taxes, assessments, deposits and contributions now or
in the future owed by Borrower. Borrower may, however, defer payment of any
contested taxes; provided, that Borrower (i) in good faith contests Borrower's
obligation to pay such taxes by appropriate proceedings promptly and diligently
instituted and conducted; (ii) notifies Lender in writing of the commencement
of, and any material development in, the proceedings; (iii) posts bonds or takes
any other steps required to keep the contested taxes from becoming a Lien upon
any of the Collateral and (iv) maintains adequate reserves therefor in
conformity with GAAP. Borrower is unaware of any claims or adjustments proposed
for any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay, all amounts necessary to fund all present and future pension, profit
sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or any other governmental
agency.
5.9 Compliance with Laws. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
5.10 Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
<PAGE>
5.11 Use of Proceeds. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 Insurance. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be cancelled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt of
the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations of Borrower as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all reports made
to insurance companies.
5.13 Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(a) Collateral Reports. On or before the twentieth day of each month, an
aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; provided, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower shall furnish Lender with copies (or, at Lender's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
<PAGE>
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. In addition, Borrower shall deliver to Lender the originals of all
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts) six months after Lender
receives them, unless Borrower requests their return in writing in advance and
arranges for their return to Borrower at Borrower's expense;
(b) Annual Statements. Not later than 120 days after the close of each
fiscal year of Borrower, unqualified (except for a qualification for a change in
accounting principles with which the accountant concurs) audited financial
statements of Borrower and its Subsidiaries as of the end of such year, on a
consolidated and consolidating basis, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower but
acceptable to Lender, together with a copy of any management letter issued in
connection therewith and a letter from such accountants acknowledging that
Lender is relying on such financial statements. Concurrently with the delivery
of such financial statements, Borrower shall forward to Lender a copy of the
accountants' letter to Borrower's management that is prepared in connection with
such financial statements;
(c) Interim Statements. Not later than twenty days after the end of each
month hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower and its Subsidiaries as of the end of
such month and of the portion of Borrower's fiscal year then elapsed, on a
consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(d) Projections, Etc. Such projections of business plans, budgets, cash
flow statements and Availability projections for Borrower and its Subsidiaries
as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental authority
which may be substituted therefor, or any national securities exchange;
<PAGE>
(f) ERISA Reports. Upon request by Lender, copies of any annual report to
be filed pursuant to the requirements of ERISA in connection with each plan
subject thereto; and
(g) Other Information. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
5.14 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
<PAGE>
5.18 Negative Covenants. Borrower will not, without Lender's prior written
consent which consent will not be unreasonably withheld, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory in the ordinary course of its business; (v) make any loans to,
or investments in, any Affiliate or other Person in the form of money or other
assets; (vi) incur any debt outside the ordinary course of business; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions on
Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate except as may be permitted by any subordination agreement of
such Affiliate in favor of Lender; (xiii) enter into any transaction with an
Affiliate other than on arms-length terms; or (xiv) agree to do any of the
foregoing.
5.19 Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit to expend,
directly or indirectly, for capital expenditures (including capital lease
obligations) in excess of the amount set forth in Section 8(a) of Schedule A as
the Capital Expenditure Limitation in any fiscal year.
(b) Net Worth. Borrower will at all times maintain a net worth of at least
the amount set forth in Section 8(b) of Schedule A as the Minimum Net Worth
Requirement.
(c) Working Capital. Borrower will at all times maintain working capital of
at least the amount set forth in Section 8(c) of Schedule A as the Minimum
Working Capital Requirement.
(d) Other Financial Covenants. Borrower will comply with any additional
financial covenants set forth in Section 8(f) of Schedule A.
<PAGE>
6. RELEASE AND INDEMNITY.
6.1 Release. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "Released Parties") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from gross negligence or willful misconduct. However, in no
circumstance will any of the Released Parties be liable for lost profits or
other special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gave rise to an Account; (ii) any error, act, omission, or delay of any
kind occurring in the settlement, failure to settle, collection or failure to
collect any Account; (iii) settling any Account in good faith for less than the
full amount thereof; or (iv) any of Borrower's obligations under any contract or
agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying transaction,
Lender shall not be responsible for the conformity of any goods to the documents
presented, the validity or genuineness of any documents, delay, default or fraud
by Borrower, shippers and/or any other Person. Borrower agrees that any action
taken by Lender, if taken in good faith, or any action taken by an issuer of any
Credit Accommodation, under or in connection with any Credit Accommodation,
shall be binding on Borrower and shall not create any resulting liability to
Lender. In furtherance thereof, Lender shall have the full right and authority
to clear and resolve any questions of non-compliance of documents, to give any
instructions as to acceptance or rejection of any documents or goods, to execute
for Borrower's account any and all applications for steamship or airway
guaranties, indemnities or delivery orders, to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 Indemnity. Borrower hereby agrees to indemnify the Released Parties and
hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement.
<PAGE>
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "Initial Term");
provided, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "Maturity Date") for
successive additional terms of three years each (each a "Renewal Term"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
Borrower contained herein and therein, shall remain in full force and effect
after the Maturity Date until all of the monetary Obligations are indefeasibly
paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence and during the continuance of an Event of Default, without
notice, effective immediately; provided, that if any Affiliate of Borrower is
also a party to a financing arrangement with Lender, no such early termination
shall be effective unless such Affiliate simultaneously terminates its financing
arrangement with Lender. If so terminated under this Section 7.2, Borrower shall
pay to Lender (i) an early termination fee (the "Early Termination Fee") in the
amount set forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid
Facility Fee. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations of Borrower. In addition, if Borrower
so terminates and repays its Obligations without having provided Lender with at
least thirty days' prior written notice thereof, an additional amount equal to
thirty days of interest at the applicable Interest Rate(s), based on the average
outstanding amount of the Obligations of Borrower for the six month period
immediately preceding the date of termination.
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all of its
Obligations, whether or not all or any part of such Obligations are otherwise
then due and payable. Without limiting the generality of the foregoing, if, on
the Maturity Date or on any earlier effective date of termination, there are any
outstanding Credit Accommodations, then on such date Borrower shall provide to
Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance of Borrower to secure all of the Obligations of Borrower (including
estimated attorneys' fees and other expenses) relating to said Credit
Accommodations or such greater percentage or amount as Lender reasonably deems
appropriate, pursuant to a cash pledge agreement in form and substance
satisfactory to Lender.
<PAGE>
7.4 Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of its Obligations until all of
the monetary Obligations of Borrower have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
of Borrower (or the provision of cash collateral with respect to the Credit
Accommodation Balance of Borrower as set forth in Section 7.3) and termination
of this Agreement, Lender shall promptly deliver to Borrower termination
statements, requests for reconveyances and such other documents as may be
reasonably required to terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in this Agreement or any other Loan Document or fails to perform any
other non-monetary Obligation; (iv) if any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made or permitted
to exist on all or any part of the Collateral; (v) if one or more judgments
aggregating in excess of $25,000, or any injunction or attachment, is obtained
against Borrower or any Obligor or which remains unstayed for more than ten days
or is enforced; (vi) the occurrence of any default which remains uncured or
unwaived following any applicable cure or grace period under any financing
agreement, security agreement or other agreement, instrument or document
executed and delivered by (A) Borrower with, or in favor of, any Person other
than Lender and such Person has accelerated the indebtedness evidenced thereby
or (B) Borrower or any Affiliate of Borrower with, or in favor of, Lender or any
Affiliate of Lender; (vii) the dissolution, death, termination of existence in
good standing, insolvency or business failure or suspension or cessation of
business as usual of Borrower or any Obligor (or of any general partner of
Borrower or any Obligor if it is a partnership) or the appointment of a
receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
<PAGE>
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations of Borrower or any security document by
any Obligor; (x) if Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations of Borrower other than
as permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations attempts to limit or terminate its
subordination agreement; (xi) if there is any actual or threatened indictment of
Borrower or any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which the potential penalties or remedies sought or available
include forfeiture of any property of Borrower or such Obligor; (xii) if there
is a change in the record or beneficial ownership of an aggregate of more than
20% of the outstanding shares of stock of Borrower (or partnership or membership
interests if it is a partnership or limited liability company), in one or more
transactions, compared to the ownership of outstanding shares of stock (or
partnership or membership interests) of Borrower as of the date hereof, without
the prior written consent of Lender; (xiii) if there is any change in the chief
executive officer or chief financial officer of Borrower; (xiv) if an Event of
Default occurs under any Loan and Security Agreement between Lender and an
Affiliate of Borrower; (xv) if Lender determines in good faith that the
Collateral is insufficient to fully secure the Obligations of Borrower or that
the prospect of payment of performance of the Obligations of Borrower is
impaired; or (xvi) Borrower defaults under any of its real estate leases and any
applicable cure periods under such leases have expired.
8.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Lender, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by Borrower), may do any one or more of the
following: (i) cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other Loan Document; (ii) accelerate and declare all
or any part of the Obligations of Borrower to be immediately due, payable and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any of the Obligations of Borrower; (iii)
take possession of any or all of the Collateral wherever it may be found, and
for that purpose Borrower hereby authorizes Lender, without judicial process, to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain (or
cause a custodian to remain) on the premises in exclusive control thereof,
without charge for so long as Lender deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety or security relating thereto required by law as an incident to such
possession, (B) any demand for possession prior to the commencement of any suit
or action to recover possession thereof and (C) any requirement that Lender
<PAGE>
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral to such locations as Lender may deem advisable; (v) complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property without charge; (vi) sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time Lender obtains possession of it or
after further manufacturing, processing or repair, at one or more public or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "Sale"), and to adjourn any such Sale from time to time without notice
other than oral announcement at the time scheduled for Sale (and, in connection
therewith, (A) Lender shall have the right to conduct such Sale on Borrower's
premises without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the rights and remedies set forth above, Lender
shall have all the other rights and remedies accorded a secured party after
default under the UCC and under all other applicable laws, and under any other
Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations of Borrower have been fully paid and performed. If
notice of any sale or other disposition of Collateral is required by law, notice
at least ten days prior to the sale designating the time and place of sale in
the case of a public sale or the time after which any private sale or other
disposition is to be made shall be deemed to be reasonable notice, and Borrower
waives any other notice. If any Collateral is sold or leased by Lender on credit
terms or for future delivery, the Obligations of Borrower shall not be reduced
as a result thereof until payment is collected by Lender.
<PAGE>
8.3 Application of Proceeds. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations of Borrower in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations of Borrower by the principal amount of the purchase
price or deferring the reduction of such Obligations until the actual receipt by
Lender of the cash therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service or by certified mail return receipt requested, addressed to Lender or
Borrower at the address shown in the heading to this Agreement, or by facsimile
to the facsimile number shown in Section 9(i) of Schedule A, or at any other
address (or to any other facsimile number) designated in writing by one party to
the other party in the manner prescribed in this Section 9.1. All notices shall
be deemed to have been given when received or when delivery is refused by the
recipient.
9.2 Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 Integration. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
Loan Documents shall not waive or diminish any right of Lender later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
<PAGE>
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents; to administer this Agreement and the
other Loan Documents (including the cost of periodic financing statement, tax
lien and other searches conducted by Lender); to enforce, or seek to enforce,
any of its rights; prosecute actions against, or defend actions by, Account
Debtors; to commence, intervene in, or defend any action or proceeding; to
initiate any complaint to be relieved of the automatic stay in bankruptcy; to
file or prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; to examine, audit, copy, and inspect any of the Collateral or any
of Borrower's books and records; to protect, obtain possession of, lease,
dispose of, or otherwise enforce Lender's security interests in, the Collateral;
and to otherwise represent Lender in any litigation relating to Borrower. If
either Lender or Borrower files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and costs
to which Lender may be entitled pursuant to this Section shall immediately
become part of the Obligations of Borrower, shall be due on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations of Borrower.
9.8 Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of its Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
<PAGE>
9.9 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower or any other Obligor.
9.10 Headings; Construction. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.11 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. EACH OF LENDER AND BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF BORROWER OR LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OR BORROWER OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER
THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
<PAGE>
9.12 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
NORTHWEST TELEPRODUCTIONS/ NATIONSCREDIT COMMERCIAL CORPORATION,
CHICAGO, INC. THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between NORTHWEST TELEPRODUCTIONS/CHICAGO, INC. ("Borrower") and NATIONSCREDIT
COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION
(the "Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $8,500,000, in the aggregate to the
Companies
(b) Advance Rates:
(i) Accounts Advance 80% (or 90% in the case of Accounts
Rate: owing by the United States government
("Government Accounts") after proof
of payment sign-off); provided, that
if the Dilution Percentage exceeds 7%
(or 2% in the case of Government
Accounts), such advance rate will be
reduced by the number of full or
partial percentage points of such
excess
(ii)Inventory Advance Not applicable
Rate(s):
(c) Accounts Sublimit: Not applicable
(d) Inventory Sublimit(s): Not applicable
(e) Credit Accommodation
Limit: Not applicable
(f) Permanent Reserve Amount: Not applicable
<PAGE>
2. Loan Limits for Term Loan:
(a) Principal Amount: $1,075,000 (the "Equipment Advance")
(b) Repayment Schedule:
(i)Equipment Advance: 60 equal consecutive monthly
installments of $17,916.67,
commencing May 1, 1997; provided,
that if, 24 months after the date of
the Agreement, the unpaid principal
balance of the Equipment Advance
exceeds 70% of the updated auction
sale value of the Eligible Equipment
at such time (as reflected in an
appraisal conducted as of such time
by an appraiser acceptable to Lender)
then, at Lender's election, such
excess shall be repaid in six equal
consecutive monthly installments
payable on the first day of each
calendar month commencing with the
month immediately following such
election by Lender (which repayments
shall be in addition to the regular
amortization payments set forth
above).
(ii)Real Property Not Applicable.
Advance:
3. Interest Rates:
(a) Revolving Loans: 2.25% per annum in excess of the
Prime Rate
(b) Term Loan: 2.25% per annum in excess of the
Prime Rate
4. Minimum Loan Amount: $2,500,000, in the aggregate for the
Companies.
5. Maximum days after invoice date
for Eligible Accounts: 90
<PAGE>
6. Fees:
(a) Closing Fee: $85,000, in the aggregate for
Companies, jointly and severally as
set forth in the Fee Letter.
(b) Facility Fee:
(i)Initial Term: $85,000, in the aggregate for
Companies, jointly and severally as
set forth in the Fee Letter.
(ii)Renewal Term(s): $127,500, in the aggregate for
Companies, jointly and severally as
set forth in the Fee Letter.
(c) Servicing Fee: None
(d) Unused Line Fee: None
(e) Minimum Borrowing Fee:
(i)Applicable period: each month
(ii)Date payable: the first day of each month
(f) Success Fee: None
(g) Warrants: None
(h) Early Termination Fee: An aggregate amount for the Companies
jointly and severally as set forth in
the Fee Letter, equal to 5% of the
Maximum Facility Amount if terminated
during the first year of the Term, 3%
of the Maximum Facility Amount if
terminated during the second year of
the Term, 2% of the Maximum Facility
Amount if terminated during the third
year of the Term (but not on the
Initial Maturity Date), and 1% of the
Maximum Facility Amount if terminated
thereafter and prior to, but not
on, the Maturity Date.
<PAGE>
(i)Fees for letters of 2.75% per annum of the face amount of
credit (or guaranties by each open Credit Accommodation,
Lender): payable monthly on the first day of
each month
(j) Fees for other Credit
Accommodations: As specified by the issuer thereof.
7. Initial Maturity Date: April __, 2000
8. Financial Covenants:
(a) Capital Expenditure
Limitation: Not applicable
(b) Minimum Net Worth
Requirement: Not applicable
(c) Minimum Working Capital
Requirement: Not applicable
(d) Limitation on Purchase
Money Security Interests: Not applicable
(e) Limitation on Equipment
Leases: Not applicable
(f) Additional Financial
Covenants: None
9. Borrower Information:
(a) Prior Names of Borrower: None
(b) Prior Trade Names of
Borrower: None
(c) Existing Trade Names of
Borrower: None
(d) Inventory/Equipment 142 East Ontario
Locations: Chicago, Illinois 60611
875 North Avenue
Chicago, Illinois 60622
(e) Other Locations: None
(f) Litigation: None
(g) Ownership of Borrower: 100 shares outstanding, all owned by
Northwest Teleproductions, Inc.
<PAGE>
(h) Subsidiaries (and
ownership thereof): None
(i) Facsimile Numbers:
Borrower: (612) 835-4735
Lender: (212) 597-1666
10. Description of Real Property: None
11. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
12. Other Covenants: None
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
NORTHWEST TELEPRODUCTIONS/ NATIONSCREDIT COMMERCIAL CORPORATION,
CHICAGO, INC. THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between NORTHWEST TELEPRODUCTIONS/CHICAGO, INC. and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING (the "Agreement").
As used in the Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"Agreement" and "this Agreement" mean the Loan and Security Agreement of
which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ss.
101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
"Business Day" means a day other than a Saturday or Sunday or any other day
on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all of Borrower's property and interests in property in
or upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
<PAGE>
"Companies" means Borrower, Northwest Teleproductions, Inc. and Southwest
Teleproductions, Inc.
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means, with respect to each Company the sum
of (i) the aggregate undrawn face amount of all outstanding Credit
Accommodations of such Company and (ii) all interest, fees and costs due or, in
Lender's estimation, likely to become due in connection therewith.
"Default" means any event which with notice or passage of time, or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns, allowances,
discounts, credits, write-offs and similar items relating to Borrower's Accounts
computed as a percentage of Borrower's gross sales, calculated on a ninety (90)
day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account of a
Company which satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may, in its sole
discretion, change the general criteria for acceptability of Eligible Accounts
upon at least fifteen days' prior notice to Companies). An Account shall be
deemed to meet the current general criteria if (i) neither the Account Debtor
nor any of its Affiliates is an Affiliate, creditor or supplier of a Company;
(ii) it does not remain unpaid more than the number of days after the original
invoice date set forth in Section 5 of Schedule A; (iii) the Account Debtor or
its Affiliates are not past due on other Accounts owing to a Company comprising
more than 25% of all of the Accounts owing to a Company by such Account Debtor
or its Affiliates; (iv) all Accounts owing by the Account Debtor or its
Affiliates do not represent more than 20% of all otherwise Eligible Accounts
(provided, that Accounts which are deemed to be ineligible solely by this clause
<PAGE>
(iv) shall be considered Eligible Accounts to the extent of the amount thereof
which does not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off; (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to a Company and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless the applicable Company has complied with the
Assignment of Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or other applicable
similar state or local law in a manner satisfactory to Lender; (xi) it is at all
times subject to Lender's duly perfected, first priority security interest and
to no other Lien that is not a Permitted Lien, and the goods giving rise to such
Account (A) were not, at the time of sale, subject to any Lien except Permitted
Liens and (B) have been delivered to and accepted by the Account Debtor, or the
services giving rise to such Account have been performed by a Company and
accepted by the Account Debtor; (xii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment; (xiii)
the Account Debtor's total indebtedness to the Companies does not exceed the
amount of any credit limit established by a Company or Lender and the Account
Debtor is otherwise deemed to be creditworthy by Lender (provided, that Accounts
deemed to be ineligible solely by reason of this clause (xiii) shall be
considered Eligible Accounts to the extent the amount of such Accounts does not
exceed the lower of such credit limits); (xiv) there are no facts or
circumstances existing, or which could reasonably be anticipated to occur, which
might result in any adverse change in the Account Debtor's financial condition
or impair or delay the collectibility of all or any portion of such Account;
(xv) Lender has been furnished with all documents and other information
pertaining to such Account which Lender has requested, or which a Company is
obligated to deliver to Lender, pursuant to this Agreement or any other loan and
security agreement between Lender and a Company; and (xvi) no Company has made
an agreement with the Account Debtor to extend the time of payment thereof
beyond the time periods set forth in clause (ii) above.
<PAGE>
"Eligible Equipment" means, at any time of determination, Equipment owned
by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory (other
than packaging materials and supplies) which satisfies the general criteria set
forth below and which is otherwise acceptable to Lender (provided, that Lender
may, in its sole discretion, change the general criteria for acceptability of
Eligible Inventory upon at least fifteen days' prior written notice to
Borrower). Inventory shall be deemed to meet the current general criteria if (i)
it consists of raw materials or finished goods, or work-in-process that is
readily marketable in its current form; (ii) it is in good, new and saleable
condition; (iii) it is not slow-moving, obsolete, unmerchantable, returned or
repossessed; (iv) it is not in the possession of a processor, consignee or
bailee, or located on premises leased or subleased to Borrower, or subject to a
mortgage in favor of a Person other than Lender, unless such processor,
consignee, bailee or mortgagee or the lessor or sublessor of such premises, as
the case may be, has executed and delivered all documentation which Lender shall
require to evidence the subordination or other limitation or extinguishment of
such Person's rights with respect to such Inventory and Lender's right to gain
access thereto; (v) it meets all standards imposed by any governmental agency or
authority; (vi) it conforms in all respects to any covenants, warranties and
representations set forth in the Agreement; (vii) it is at all times subject to
Lender's duly perfected, first priority security interest and no other Lien
except a Permitted Lien; and (viii) it is situated at an Inventory Location
listed in Section 9(d) of Schedule A or other location of which Lender has been
notified as required by Section 5.6.
"Equipment" means all Goods which are used or bought for use primarily in
business (including farming or a profession) or by a Person who is a non-profit
organization or governmental subdivision or agency and which are not Inventory,
farm products or consumer goods, including all machinery, molds, machine tools,
motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor
vehicles, tools, parts, dies and jigs, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to, or spare
parts for, any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974 and all
rules, regulations and orders promulgated thereunder.
<PAGE>
"Event of Default" has the meaning set forth in Section 8.1.
"Fee Letter" means that certain letter agreement regarding fees between the
Companies and Lender of even date herewith.
"GAAP" means generally accepted accounting principles as in effect from
time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and includes
all books and records pertaining to the Collateral and other business and
financial records in the possession of Borrower or any other Person, inventions,
designs, drawings, blueprints, patents, patent applications, trademarks,
trademark applications (other than "intent to use" applications until a verified
statement of use is filed with respect to such applications) and the goodwill of
the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, causes of action and other rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, internet addresses, proprietary
information, purchase orders, and all insurance policies and claims (including
life insurance, key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and claims, letters of
credit, banker's acceptances and guaranties, computer programs, discs, tapes and
tape files in the possession of Borrower or any other Person, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
<PAGE>
"Inventory" means all Goods held for sale or lease or furnished or to be
furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, a Person other than the owner of the property, whether such interest
is based on common law, statute or contract, including rights of sellers under
conditional sales contracts or title retention agreements and reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property. For the purpose of this Agreement, Borrower shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement, any other loan and security agreement
and all notes, guaranties, security agreements, certificates, landlord's
agreements, Lock Box and Blocked Account agreements and all other agreements,
documents and instruments now or hereafter executed or delivered by a Company or
any Obligor in connection with, or to evidence the transactions contemplated by,
this Agreement.
"Loan Limits" means, collectively, the Availability limits and all other
limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
<PAGE>
"Obligations" means, with respect to a Company, all present and future
Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties
and indebtedness at any time owing by such Company to Lender, whether evidenced
by this Agreement, any other loan and security agreement, or any note or other
instrument or document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in such Company's indebtedness owing
to others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, minimum borrowing fees and any
other sums chargeable to such Company under this Agreement or under any other
Loan Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other person
liable on, or with respect to, the Obligations of Borrower or who is the owner
of any property which is security for the Obligations of Borrower, other than
Borrower.
"Permitted Liens" means: (i) purchase money security interests in specific
items of Equipment in an aggregate amount not to exceed the limit set forth in
Section 8(d) of Schedule A; (ii) leases of specific items of Equipment in an
aggregate amount not to exceed the limit set forth in Section 8(e) of Schedule
A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens which
are fully subordinate to the security interests of Lender and are consented to
in writing by Lender; (v) security interests being terminated concurrently with
the execution of this Agreement; (vi) Liens of materialmen, mechanics,
warehousemen or carriers arising in the ordinary course of business and securing
obligations which are not delinquent; (vii) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clause (i) or (ii) above; provided, that any extension,
renewal or replacement Lien is limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; and (viii) Liens in favor of customs
and revenue authorities which secure payment of customs duties in connection
with the importation of goods. Lender will have the right to require, as a
condition to its consent under clause (iv) above, that the holder of the
additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations of Borrower
remain outstanding, and that Borrower agree that any uncured default in any
obligation secured by the subordinate Lien shall also constitute an Event of
Default under this Agreement.
<PAGE>
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in The Wall
Street Journal as the base rate on corporate loans posted as of such time by at
least 75% of the nation's 30 largest banks (which rate is not necessarily the
lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of Schedule
A.
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(b).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a Person owns,
directly or indirectly, through one or more intermediaries, more than 50% of the
capital stock or other equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and ending
on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted and
in effect at such time in the State of New York.
<PAGE>
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
NORTHWEST TELEPRODUCTIONS/ NATIONSCREDIT COMMERCIAL CORPORATION,
CHICAGO, INC. THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
GUARANTY
Borrowers: Northwest Teleproductions, Inc., a
Minnesota corporation
and
Southwest Teleproductions, Inc., a
Texas corporation
Guarantor(s) Northwest Teleproductions/Chicago, Inc., a
Minnesota corporation
Borrowers have requested that NationsCredit Commercial Corporation, through
its NationsCredit Commercial Funding Division ("Lender") provide certain
financial accommodations to Borrower pursuant to the terms of certain Loan and
Security Agreements between each Borrower and Lender, respectively, dated of
even date herewith (as amended from time to time, the "Loan Agreements"). As one
of the conditions to providing financing, Lender has required that Northwest
Teleproductions/Chicago, Inc. ("Guarantor") guaranty all obligations of
Borrowers to Lender.
For value received and in consideration of any loan, advance or financial
accommodation of any kind whatsoever heretofore, now or hereafter made, given or
granted to each Borrower by Lender pursuant to the Loan Agreements, Guarantor
unconditionally guaranties the full and prompt payment when due, whether at
maturity or earlier, by reason of acceleration or otherwise, and at all times
thereafter, of the indebtedness, liabilities and obligations of every kind and
nature of each Borrower to Lender (including all interest accruing after the
filing of a proceeding under the Bankruptcy Code (as defined in the Loan
Agreements) whether or not allowed by the court in such proceeding, and all
indebtedness, liabilities and obligations arising after the filing of any
proceeding under the Bankruptcy Code), howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, joint or several, now or
hereafter existing, or due or to become due, in each case arising under the Loan
Agreements and the other Loan Documents, plus all costs and expenses (including,
without limitation, all court costs and reasonable attorneys' and paralegals'
fees and expenses) paid or incurred by Lender in endeavoring to collect all or
any part of such indebtedness, liabilities and obligations from, or in
prosecuting any action against, Guarantor or any other guarantor of all or any
part of such indebtedness, liabilities and obligations (all such indebtedness,
liabilities, obligations, costs and expenses being hereinafter referred to as
"Borrowers' Obligations"). All sums becoming due under this Guaranty shall bear
interest from the due date thereof until paid at the highest rate charged with
respect to any of Borrowers' Obligations under the Loan Agreements.
<PAGE>
Guarantor agrees that its obligations under this Guaranty are
unconditional, irrespective of (i) the validity or enforceability of Borrowers'
Obligations or any notes or other instruments evidencing Borrowers' Obligations,
(ii) the absence of any attempt by Lender to collect Borrowers' Obligations from
either Borrower or any other guarantor, (iii) Lender's waiver or consent with
respect to any provision of the Loan Documents, (iv) Lender's failure to perfect
or maintain its security interests in, or to preserve its rights with respect
to, any of the Collateral, (v) Lender's election, in any proceeding under
Chapter 11 of the Bankruptcy Code, of the application of Section 1111(b)(2) of
the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
Borrower as debtor-in-possession under Section 364 of the Bankruptcy Code, (vii)
the disallowance, under Section 502 of the Bankruptcy Code, of all or any of
Lender's claims for repayment of Borrowers' Obligations or (viii) any other
circumstance which might constitute a legal or equitable discharge or defense of
either Borrower or a guarantor.
No payment made by or for the account or benefit of Guarantor (including
(i) a payment made by either Borrower in respect of Borrowers' Obligations, (ii)
a payment made by any person under any other guaranty of Borrowers' Obligations
or (iii) a payment made by means of set off or other application of funds by
Lender) pursuant to this Guaranty shall entitle Guarantor, by subrogation or
otherwise, to any payment by either Borrower or from or out of any property of
either Borrower, and Guarantor shall not exercise any rights or remedies against
either Borrower or any property of either Borrower including any right of
contribution, indemnity or reimbursement by reason of any performance by
Guarantor under this Guaranty, all of such rights of subrogation, contribution,
indemnity and reimbursement being hereby waived by Guarantor. The provisions of
this paragraph shall survive the termination of this Guaranty or the release or
discharge of Guarantor from liability hereunder. Guarantor and Lender hereby
agree that each Borrower is a third party beneficiary of the provisions of this
paragraph.
Guarantor hereby waives diligence, presentment, demand for payment, filing
of claims with a court in the event of receivership or bankruptcy of a Borrower,
protest or notice with respect to Borrowers' Obligations and all demands
whatsoever, and covenants that this Guaranty will not be discharged, except by
complete and irrevocable payment and performance of the obligations and
liabilities contained herein. No notice to any party, including Guarantor, shall
be required for Lender to make demand hereunder. Such demand shall constitute a
mature and liquidated claim against Guarantor. At any time after maturity of
Borrowers' Obligations, whether by acceleration or otherwise, Lender may, at its
sole election, proceed directly and at once, without notice, against Guarantor
to collect and recover the full amount or any portion of Borrowers' Obligations,
without first proceeding against either Borrower or any other person or against
any of the Collateral. Lender shall have the exclusive right to determine the
application of payments and credits, if any, from Guarantor, either Borrower or
any other person, on account of Borrowers' Obligations.
<PAGE>
Lender is hereby authorized, without notice or demand to Guarantor and
without affecting or impairing the liability of Guarantor hereunder, to from
time to time (i) renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, Borrowers' Obligations or otherwise
modify, amend or change the terms of any promissory note or other agreement,
document or instrument now or hereafter executed by a Borrower and delivered to
Lender; (ii) accept partial payments on Borrowers' Obligations; (iii) take and
hold collateral for the payment of Borrowers' Obligations, or for the payment of
this Guaranty, or for the payment of any other guaranties or Borrowers'
Obligations or other liabilities of a Borrower, and exchange, enforce, waive and
release any such security or collateral; (iv) apply such security or collateral
and direct the order or manner of sale thereof as in its sole discretion it may
determine; and (v) settle, release, compromise, collect or otherwise liquidate
Borrowers' Obligations and any security or collateral therefor in any manner.
At any time after maturity of Borrowers' Obligations, Lender may, in its
sole discretion, without notice to Guarantor and regardless of the acceptance of
any security or collateral for the payment hereof, appropriate and apply toward
payments of Borrowers' Obligations that remain unpaid, (i) any indebtedness due
or to become due from Lender to Guarantor and (ii) any moneys, credits or other
property belonging to Guarantor at any time held by or coming into the
possession of Lender or any affiliates of Lender, whether for deposit or
otherwise.
Guarantor assumes responsibility for keeping itself informed of the
financial condition of each Borrower and all other guarantors of all or any of
Borrowers' Obligations, and of all other circumstances bearing upon the risk of
nonpayment of Borrowers' Obligations or any part thereof that diligent inquiry
might reveal, and Guarantor agrees that Lender shall have no duty to advise
Guarantor of information known to Lender regarding any of the foregoing.
Guarantor acknowledges familiarity with each Borrower's financial condition and
represents that it has not relied on any statements made, or information
furnished, by Lender or its agents in obtaining such familiarity. If Lender
provides any such information to Guarantor, Lender shall be under no obligation
to (i) undertake any investigation not a part of its regular business routine,
(ii) disclose any information which, pursuant to accepted or reasonable
commercial finance practices, Lender wishes to maintain confidential or (iii)
make any other or future disclosures of any information to Guarantor.
<PAGE>
Notwithstanding any contrary provision of this Guaranty, it is intended
that neither this Guaranty nor any liens or security interests securing this
Guaranty constitute a "Fraudulent Conveyance" (as defined below). Consequently,
Guarantor agrees that if this Guaranty or any liens or security interests
securing this Guaranty, would, but for the application of this sentence,
constitute a Fraudulent Conveyance, this Guaranty and each such lien and
security interest shall be valid and enforceable only to the maximum extent that
would not cause this Guaranty or such lien or security interest to constitute a
Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have
been amended accordingly at all relevant times. For purposes hereof, a
"Fraudulent Conveyance" means a fraudulent conveyance under Section 548 of the
Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under any
applicable fraudulent conveyance or fraudulent transfer law or similar law of
any state or other governmental unit as in effect from time to time.
Guarantor waives the right to assert the doctrine of marshaling with
respect to any collateral held by Lender to secure any of the Borrowers'
Obligations. Guarantor further agrees that, to the extent a Borrower makes one
or more payments to Lender, or Lender receives any proceeds of collateral which
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to such Borrower, its estate, trustee, receiver
or any other party under the Bankruptcy Code or other law, that portion of
Borrowers' Obligations which has been paid, reduced or satisfied by such payment
shall be reinstated and continued in full force and effect as of the date such
initial payment, reduction or satisfaction occurred and this Guaranty shall
continue to be in existence and in full force and effect, irrespective of
whether any evidence of indebtedness or this Guaranty has been surrendered or
canceled.
Guarantor agrees that all payments hereunder shall be made without setoff
or counterclaims and Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor and
notices of acceptance of this Guaranty. Guarantor further waives all notices of
the existence, creation or incurring of new or additional indebtedness, arising
either from additional loans extended to a Borrower or otherwise, and also
waives all notices that the principal amount, or any portion thereof, or any
interest on any instrument or document evidencing all or any part of Borrowers'
Obligations is due, notices of any and all proceedings to collect from the
maker, any endorser or any other guarantor of all or any part of Borrowers'
Obligations, or from anyone else, and, to the extent permitted by law, notices
of exchange, sale, foreclosure, surrender or other handling of any security or
collateral securing payment of Borrowers' Obligations.
<PAGE>
No delay on the part of Lender in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Lender of any
right or remedy shall preclude any further exercise thereof except as expressly
set forth in a writing duly signed and delivered on Lender's behalf by an
authorized officer or agent of Lender; nor shall any modification or waiver of
any of the provisions of this Guaranty be binding upon Lender, except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender. Lender's failure at any time or times
hereafter to require strict performance by either Borrower or Guarantor of any
of the provisions, warranties, terms and conditions contained in any promissory
note, security agreement, agreement, guaranty, instrument or document now or at
any time or times hereafter executed by either Borrower or Guarantor and
delivered to Lender, shall not waive, affect or diminish any right of Lender at
any time or times hereafter to demand strict performance thereof and such right
shall not be deemed to have been waived by any act or knowledge of Lender, or
its respective agents, officers or employees, unless such waiver is contained in
an instrument in writing signed by an officer or agent of Lender, and directed
to such Borrower or Guarantor, as applicable, specifying such waiver. No waiver
by Lender of any default shall operate as a waiver of any other default or the
same default on a future occasion, and no action by Lender permitted hereunder
shall in any way affect or impair Lender's rights or the obligations of
Guarantor under this Guaranty. Any determination by a court of competent
jurisdiction of the amount of any principal or interest owing by a Borrower to
Lender shall be conclusive and binding on Guarantor irrespective of whether
Guarantor was a party to the suit or action in which such determination was
made.
Guarantor hereby represents and warrants that (i) it is in Guarantor's
direct interest to assist each Borrower in procuring credit, because each
Borrower is an affiliate of Guarantor, furnishes goods or services to Guarantor,
purchases or acquires goods or services from Guarantor, and/or otherwise has a
direct or indirect corporate or business relationship with Guarantor, (ii) this
Guaranty has been duly and validly authorized, executed and delivered and
constitutes the valid and binding obligation of Guarantor, enforceable in
accordance with its terms, and (iii) the execution and delivery of this Guaranty
does not violate or constitute a default under (with or without the giving of
notice, the passage of time, or both) any order, judgment, decree, instrument or
agreement to which Guarantor is a party or by which it or its assets are
affected or bound.
This Guaranty shall be binding upon Guarantor and upon the successors and
permitted assigns of Guarantor and shall inure to the benefit of Lender and its
successors and assigns. All references herein to each Borrower shall be deemed
to include its successors and permitted assigns and all references herein to
Lender shall be deemed to include its successors and assigns. Each Borrower's
and Guarantor's successors and permitted assigns shall include a receiver,
trustee, custodian of or for each Borrower or Guarantor or any of their
respective assets and such Borrower and Guarantor as debtor in possession. All
references to the singular shall be deemed to include the plural where the
context so requires.
<PAGE>
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL COURTS IN
NEW YORK SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES WITH RESPECT TO THIS GUARANTY AND WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND EACH OF GUARANTOR AND LENDER CONSENTS THAT ALL
SERVICE OF PROCESS UPON GUARANTOR OR LENDER BE MADE BY REGISTERED MAIL OR
MESSENGER DIRECTED TO GUARANTOR OR LENDER AT THE ADDRESS SET FORTH BELOW
GUARANTOR'S SIGNATURE AND LENDER'S ADDRESS SET FORTH IN THE LOAN AGREEMENTS AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT
THEREOF. GUARANTOR HEREBY AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY GUARANTOR
AGAINST LENDER OR ANY MATTER ARISING OUT OF THIS GUARANTY SHALL BE BROUGHT
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS IN NEW YORK. GUARANTOR AND LENDER
EACH HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION
OR PROCEEDING AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
Wherever possible each provision of this Guaranty shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor this
24th day of April, 1997.
NORTHWEST TELEPRODUCTIONS/CHICAGO, INC.
By /s/ Phillip A. Staden
Its Chief Financial Officer
142 East Ontario Street
Chicago, Illinois 60611
With a copy to:
Northwest Teleproductions, Inc.
4000 West 76th Street
Minneapolis, Minnesota 55435
NationsCredit Commercial Funding
- -------------------------------------------------------------------------------
This Loan and Security Agreement (as it may be amended, this "Agreement") is
entered into on April 24, 1997 between NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"), having an
address at 1177 Avenue of the Americas, 36th Floor, New York, New York 10036 and
SOUTHWEST TELEPRODUCTIONS, INC., a Texas corporation ("Borrower"), whose chief
executive office is located at 2649 Tarna Drive, Dallas, Texas 75229
("Borrower's Address"). The Schedules to this Agreement are an integral part of
this Agreement and are incorporated herein by reference. Terms used, but not
defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to time during the
Term at Borrower's request, make revolving loans to Borrower ("Revolving
Loans"), and make letters of credit, bankers acceptances and other credit
accommodations ("Credit Accommodations") available to Borrower, in each case to
the extent that there is sufficient Availability at the time of such request to
cover, dollar for dollar, the requested Revolving Loan or Credit Accommodation;
provided, that after giving effect to such Revolving Loan or Credit
Accommodation, (x) the aggregate outstanding balance of all monetary Obligations
of each Company to Lender (including the principal balance of any term loans
owing by each Company to Lender and, solely for the purpose of determining
compliance with this provision, the Credit Accommodation Balance of each
Company) will not exceed the Maximum Facility Amount set forth in Section 1 of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "Availability" means:
(i) the aggregate amount of Eligible Accounts of the Companies (less
maximum existing or asserted taxes, discounts, credits and allowances)
multiplied by the Accounts Advance Rate set forth in Section 1(b)(i) of
Schedule A but not to exceed the Accounts Sublimit set forth in Section
1(c) of Schedule A;
<PAGE>
plus
(ii) the lower of cost or market value of Eligible Inventory
multiplied by the Inventory Advance Rate(s) set forth in Section 1(b)(ii)
of Schedule A, but not to exceed the Inventory Sublimit(s) set forth in
Section 1(d) of Schedule A;
minus
(iii) all Reserves which Lender has established pursuant to Section
1.2 (including those to be established in connection with the requested
Revolving Loan or Credit Accommodation); and
minus
(iv) the outstanding balance of all of the monetary Obligations of the
Companies (excluding the Credit Accommodation Balance of each Company and
the principal balance of each term loan owing by a Company to Lender).
(b) Term Loan. On the date of this Agreement, make a term loan to Borrower
(the "Term Loan") in the principal amount, if any, set forth in Section 2(a) of
Schedule A.
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion ("Reserves") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
<PAGE>
set forth in clauses (i), (ii), (iii), (v) and (vi) of Eligible Inventory, (b)
which is or will be in transit to one of the locations set forth in Section
10(d), (c) which is fully insured in a manner satisfactory to Lender and (d)
with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the Inventory
Advance Rate applicable to Eligible Inventory and (y) in the case of any other
Credit Accommodation issued for any purpose, establish a Reserve equal to the
full amount of the Credit Accommodation Balance. In addition, (x) Lender shall
establish a permanent Reserve in the amount set forth in Section 1(f) of
Schedule A, and (y) if the outstanding principal balance of the Term Loan
advance with respect to Eligible Equipment exceeds the percentage of the
appraised value of such Eligible Equipment set forth in Section 2(a) of Schedule
A, Lender may establish an additional Reserve in the amount of such excess (and,
for this purpose, if payments of principal on the Term Loan advances against
Eligible Equipment and Real Property are not calculated separately, payments of
principal of the Term Loan made by Borrower shall be deemed to apply to the Term
Loan advance with respect to Eligible Equipment and Real Property, respectively,
in proportion to the original principal amounts of such advances). Lender may,
in its discretion, establish and revise Reserves by deducting them in
determining Availability or by reclassifying Eligible Accounts or Eligible
Inventory as ineligible.
1.3 Other Provisions Applicable to Credit Accommodations. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
<PAGE>
1.4 Repayment. Accrued interest on all monetary Obligations of Borrower
shall be payable on the first day of each month. Principal of the Term Loan
shall be repaid as set forth in Section 2(b) of Schedule A. If at any time any
of the Loan Limits are exceeded, Borrower will immediately pay to Lender such
amounts and/or provide cash collateral to Lender with respect to the Credit
Accommodation Balance of Borrower in the manner set forth in Section 7.3, as
shall cause the Companies to be in full compliance with all of the Loan Limits.
Notwithstanding the foregoing, Lender may, in its sole discretion, make or
permit Revolving Loans, the Term Loan, any Credit Accommodations or any other
monetary Obligations to be in excess of any of the Loan Limits; provided, that
Borrower shall, upon Lender's demand, pay to Lender such amounts as shall cause
the Companies to be in full compliance with all of the Loan Limits. All unpaid
monetary Obligations shall be payable in full on the Maturity Date set forth in
Section 7.1 or, if earlier, the date of any early termination pursuant to
Section 7.2.
1.5 Minimum Borrowing. Subject to the terms and conditions of this
Agreement, Borrower agrees to (i) borrow sufficient amounts to cause the
outstanding principal balance of the Loans to Borrower and loans by Lender to
each other Company to equal or exceed, at all times prior to the Maturity Date,
the Minimum Loan Amount set forth in Section 4 of Schedule A and (ii) maintain
Availability sufficient to enable Borrower to do so. Notwithstanding any other
provision contained in this Agreement, the failure by Borrower to comply with
this Section 1.5 as a result of Borrower's failure to maintain sufficient
Availability in accordance with clause (ii) above shall not constitute an Event
of Default. However, Lender shall not be obligated to loan Borrower or any other
Company the Minimum Loan Amount other than in accordance with all of the terms
and conditions of this Agreement or any other loan and security agreement
between a Company and Lender.
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations of Borrower shall
bear interest at the Interest Rate(s) set forth in Section 3 of Schedule A,
except where expressly set forth to the contrary in this Agreement or another
Loan Document; provided, that after the occurrence of an Event of Default, all
Loans and other monetary Obligations of Borrower shall, at Lender's option, bear
interest at a rate per annum equal to two percent (2%) in excess of the rate
otherwise applicable thereto (the "Default Rate") until such Event of Default
has been cured (notwithstanding the entry of any judgment against Borrower or
the exercise of any other right or remedy by Lender), and all such interest
shall be payable on demand. Changes in the Interest Rate shall be effective as
of the date of any change in the Prime Rate. Notwithstanding anything to the
contrary contained in this Agreement, the aggregate of all amounts deemed to be
interest hereunder and charged or collected by Lender is not intended to exceed
the highest rate permissible under any applicable law, but if it should, such
interest shall automatically be reduced to the extent necessary to comply with
applicable law and Lender will refund to Borrower any such excess interest
received by Lender.
<PAGE>
2.2 Fees and Warrants. Borrower shall pay Lender the following fees, and
issue Lender the following warrants, which are in addition to all interest and
other sums payable by Borrower to Lender under this Agreement, and are not
refundable:
(a) Closing Fee. A closing fee in the amount set forth in Section 6(a) of
Schedule A, which shall be deemed to be fully earned as of, and payable on, the
date hereof.
(b) Facility Fees. A facility fee for the Initial Term in the amount set
forth in Section 6(b)(i) of Schedule A (which shall be fully earned as of the
date of this Agreement and shall be payable in equal installments due,
respectively, on each anniversary of the date hereof during the Initial Term),
and a facility fee for each Renewal Term in the amount set forth in Section
6(b)(ii) of Schedule A (which shall be fully earned as of the first day of such
Renewal Term and shall be payable in equal installments due, respectively, on
the first day of such Renewal Term and on each anniversary thereof during such
Renewal Term).
(c) Servicing Fee. A monthly servicing fee in the amount set forth in
Section 6(c) of Schedule A, in consideration of Lender's administration and
other services for each month (or part thereof), which shall be fully earned as
of, and payable in advance on, the date of this Agreement and on the first day
of each month thereafter so long as any of the Obligations are outstanding.
(d) Unused Line Fee. An unused line fee at a rate equal to the percentage
per annum set forth in Section 6(d) of Schedule A of the amount by which the
Maximum Facility Amount exceeds the average daily outstanding principal balance
of the Loans and the Credit Accommodation Balance during the immediately
preceding month (or part thereof), which fee shall be payable, in arrears, on
the first day of each month so long as any of the Obligations are outstanding
and on the Maturity Date.
(e) Minimum Borrowing Fee. A minimum borrowing fee equal to the excess, if
any, of (i) interest which would have been payable in respect of each period set
forth in Section 6(e) of Schedule A if, at all times during such period, the
principal balance of the Loans and all other loans by Lender to each other
Company was equal to the Minimum Loan Amount over (ii) the actual interest
payable in respect of such period, which fee shall be fully earned as of the
first day of such period and payable on the date set forth in Section 6(e)(ii)
of Schedule A and on the Maturity Date.
(f) Success Fee. A success fee in the amount set forth in Section 6(f) of
Schedule A, which shall be fully earned as of the date of this Agreement and
payable as set forth in Section 6(f) of Schedule A.
<PAGE>
(g) Warrants. Warrants to acquire the capital stock of Borrower, as
summarized in Section 6(g) of Schedule A and as more fully set forth in a
separate warrant agreement executed by Borrower contemporaneously with this
Agreement.
(h) Credit Accommodation Fees. All of the fees relating to Credit
Accommodations set forth in Section 6(i) and 6(j) of Schedule A.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a loan account
for Borrower reflecting all advances, charges, expenses and payments made
pursuant to this Agreement (the "Loan Account"), and shall provide Borrower with
a monthly accounting reflecting the activity in the Loan Account. Each
accounting shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Lender), unless Borrower notifies Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or admissions. However, Lender's
failure to maintain the Loan Account or to provide any such accounting shall not
affect the legality or binding nature of any of the Obligations of Borrower.
Interest, fees and other monetary Obligations of Borrower due and owing under
this Agreement (including fees and other amounts paid by Lender to issuers of
Credit Accommodations) may, in Lender's discretion, be charged to the Loan
Account, and will thereafter be deemed to be Revolving Loans and will bear
interest at the same rate as other Revolving Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations of
Borrower when due, Borrower hereby grants to Lender a continuing security
interest in all of Borrower's property and interests in property, whether
tangible or intangible, now owned or in existence or hereafter acquired or
arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all Accounts,
Chattel Paper, Instruments, Documents, Goods (including Inventory, Equipment,
farm products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and products of all of the
foregoing (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the foregoing.
<PAGE>
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or in the name of Lender
(a "Lock Box") or (ii) depositing all Account Proceeds received by Borrower into
one or more bank accounts maintained in Lender's name (each, a "Blocked
Account"), under an arrangement acceptable to Lender with a depository bank
acceptable to Lender, pursuant to which all funds deposited into each Blocked
Account are to be transferred to Lender in such manner, and with such frequency,
as Lender shall specify or (iii) a combination of the foregoing. Borrower agrees
to execute, and to cause its depository banks to execute, such Lock Box and
Blocked Account agreements and other documentation as Lender shall require from
time to time in connection with the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1, all proceeds
arising from the sale or other disposition of any Collateral shall be delivered,
in kind, by Borrower to Lender in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations of Borrower, in such order and
manner as Lender shall determine, whether or not the Obligations of Borrower are
due, and whether before or after the occurrence of a Default or an Event of
Default. For purposes of determining Availability, such amounts will be credited
to the Loan Account and the Collateral balances to which they relate upon
Lender's receipt of advice from Lender's Bank (set forth in Section 11 of
Schedule A) that such items have been credited to Lender's account at Lender's
Bank (or upon Lender's deposit thereof at Lender's Bank in the case of payments
received by Lender in kind), in each case subject to final payment and
collection. However, for purposes of computing interest on the Obligations of
Borrower, such items shall be deemed applied by Lender two Business Days after
Lender's receipt of advice of deposit thereof at Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from time to
time, whether or not a Default or Event of Default has occurred: (i) verify
directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower, Lender or a pseudonym of Lender; (ii)
notify Account Debtors that Lender has a security interest in the Accounts and
that payment thereof is to be made directly to Lender; and (iii) demand, collect
or enforce payment of any Accounts and Chattel Paper (but without any duty to do
so).
<PAGE>
4.5 Power of Attorney. Borrower hereby grants to Lender an irrevocable
power of attorney, coupled with an interest, authorizing and permitting Lender
(acting through any of its officers, employees, attorneys or agents), at any
time (whether or not a Default or Event of Default has occurred and is
continuing, except as expressly provided below), at Lender's option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise: (i) execute on
behalf of Borrower any documents that Lender may, in its sole discretion, deem
advisable in order to perfect and maintain Lender's security interests in the
Collateral, to exercise a right of Borrower or Lender, or to fully consummate
all the transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements, and
amendments thereto, as Lender shall deem necessary or appropriate) and to file
as a financing statement any copy of this Agreement or any financing statement
signed by Borrower; (ii) if Borrower fails to promptly do so after Lender's
request, execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or lease (as
lessor or lessee) any real or personal property which is part of the Collateral
or in which Lender has an interest; (iii) execute on behalf of Borrower any
invoices relating to any Accounts, any draft against any Account Debtor and any
notice to any Account Debtor, any proof of claim in bankruptcy, any notice of
Lien or claim, assignment or satisfaction of mechanic's, materialman's or other
Lien; (iv) receive and otherwise take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; (v) endorse Borrower's name
on all checks and other forms of remittances received by Lender; (vi) pay,
contest or settle any Lien, charge, encumbrance, security interest and adverse
claim in or to any of the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; (vii) after the
occurrence of a Default or Event of Default, grant extensions of time to pay,
compromise claims relating to, and settle Accounts, Chattel Paper and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (viii) pay any sums required on account of
Borrower's taxes or to secure the release of any Liens therefor; (ix) pay any
amounts necessary to obtain, or maintain in effect, any of the insurance
described in Section 5.13; (x) settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (xi) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xii) after the occurrence of a Default or Event
of Default, change the address for delivery of Borrower's mail and receive and
open all mail addressed to Borrower. Any and all sums paid, and any and all
<PAGE>
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred, by Lender with respect to the foregoing shall be added to and become
part of the Obligations of Borrower, shall be payable on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations of Borrower. Borrower agrees that Lender's rights under the
foregoing power of attorney or any of Lender's other rights under this Agreement
or the other Loan Documents shall not be construed to indicate that Lender is in
control of the business, management or properties of Borrower.
4.6 Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts and Chattel Paper. Borrower will not, without
Lender's prior written consent, compromise or settle any Account or Chattel
Paper for less than the full amount thereof, grant any extension of time of
payment of any Account or Chattel Paper, release (in whole or in part) any
Account Debtor or other person liable for the payment of any Account or Chattel
Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to an Event of Default Borrower may do such things in the ordinary
course of business. Borrower will promptly report any such permitted settlement
or forgiveness to Lender.
4.7 Invoices. At Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender and using a pseudonym of Lender, to
reflect Lender's security interest therein.
4.8 Inventory.
(a) Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower will promptly determine the reason for
such return and promptly issue a credit memorandum to the Account Debtor in the
appropriate amount (sending a copy to Lender). After the occurrence of an Event
of Default, Borrower will not accept any return without Lender's prior written
consent. Regardless of whether an Event of Default has occurred, Borrower will
(i) hold the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of Borrower's other property; (iii) conspicuously label the
returned Inventory as Lender's property; and (iv) immediately notify Lender of
the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
(b) Other Covenants. Borrower will not, without Lender's prior written
consent, (i) store any Inventory or other Collateral with any warehouseman or
other third party other than as set forth in Section 9(d) of Schedule A or (ii)
sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis. Borrower will produce Inventory only in accordance with the
Fair Labor Standards Act of 1938 as amended, and all rules, regulations and
orders promulgated thereunder.
<PAGE>
4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence and
during the continuance of a Default or an Event of Default, Lender or its agents
shall have the right to inspect the Collateral, and the right to examine and
copy Borrower's books and records. Lender shall take reasonable steps to keep
confidential all information obtained in any such inspection or examination, but
Lender shall have the right to disclose any such information to its auditors,
regulatory agencies, attorneys and participants, and pursuant to any subpoena or
other legal process. Borrower agrees to give Lender access to any or all of
Borrower's premises to enable Lender to conduct such inspections and
examinations. Such inspections and examinations shall be at Borrower's expense
and the charge therefor shall be $650 per person per day (or such higher amount
as shall represent Lender's then current standard charge), plus reasonable
out-of-pocket expenses. Lender may, at Borrower's expense, use Borrower's
personnel, computer and other equipment, programs, printed output and computer
readable media, supplies and premises for the collection, sale or other
disposition of Collateral to the extent Lender, in its sole discretion, deems
appropriate. Borrower hereby irrevocably authorizes all accountants and third
parties to disclose and deliver to Lender, at Borrower's expense, all financial
information, books and records, work papers, management reports and other
information in their possession regarding Borrower. Borrower will not enter into
any agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address
without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) compliance with
each such covenant will be a condition to each Loan and Credit Accommodation:
<PAGE>
5.1 Existence and Authority. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person. This Agreement and such other Loan
Documents have been duly executed and delivered by, and are enforceable against,
Borrower, and all other Obligors who have signed them, in accordance with their
respective terms. Sections 9(g) and 9(h) of Schedule A sets forth the ownership
of Borrower and its Subsidiaries as of the date of this Agreement.
5.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct and complete legal name. Listed in
Section 9 of Schedule A are all prior names of Borrower and all of Borrower's
present and prior trade names. Borrower shall give Lender at least 30 days'
prior written notice before changing its name or doing business under any other
name. Borrower has complied with all laws relating to the conduct of business
under a fictitious business name. Borrower represents and warrants that (i) each
trade name does not refer to another corporation or other legal entity; (ii) all
Accounts invoiced under any such trade names are owned exclusively by Borrower
and are subject to the security interest of Lender and the other terms of this
Agreement and (iii) all schedules of Accounts, including any sales made or
services rendered using the trade name shall show Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrower has good and marketable
title to the Collateral. The Collateral now is and will remain free and clear of
any and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Borrower is not a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral, and no such lease now prohibits, restrains, impairs or
conditions, or will prohibit, restrain, impair or condition, Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Lender, cause each such third party to
execute and deliver to Lender, in form acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
<PAGE>
5.4 Accounts and Chattel Paper. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
5.5 Investment Property. Borrower will take any and all actions required or
requested by Lender, from time to time, to (i) cause Lender to obtain exclusive
control of any Investment Property in a manner acceptable to Lender and (ii)
obtain from any issuers of Investment Property and such other Persons as Lender
shall specify, for the benefit of Lender, written confirmation of Lender's
exclusive control over such Investment Property. For purposes of this Section
5.5, Lender shall have exclusive control of Investment Property if (A) such
Investment Property consists of certificated securities and Borrower delivers
such certificated securities to Lender (with appropriate endorsements if such
certificated securities are in registered form); (B) such Investment Property
consists of uncertificated securities and either (x) Borrower delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with instructions originated by Lender without further consent by
Borrower, and (C) such Investment Property consists of security entitlements and
either (x) Lender becomes the entitlement holder thereof or (y) the appropriate
securities intermediary agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with entitlement orders originated
by Lender without further consent by Borrower.
5.6 Place of Business; Location of Collateral. Borrower's Address is
Borrower's chief executive office and the location of its books and records. In
addition, except as provided in the immediately following sentence, Borrower has
places of business and Collateral located only at the locations set forth on
Sections 9(d) and 9(e) of Schedule A. Borrower will give Lender at least 30
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than Borrower's Address or one
of the locations set forth in Sections 9(d) and 9(e) of Schedule A, and will
execute and deliver all financing statements and other agreements, instruments
and documents which Lender shall require as a result thereof.
<PAGE>
5.7 Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof, there
has been no material adverse change in the financial condition or business of
Borrower. Borrower is solvent and able to pay its debts as they come due, and
has sufficient capital to carry on its business as now conducted and as proposed
to be conducted. All schedules, reports and other information and documentation
delivered by Borrower to Lender with respect to the Collateral are, or will be,
when delivered, true, correct and complete as of the date delivered or the date
specified therein.
5.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed all tax returns and reports required by applicable law, and Borrower has
timely paid all applicable taxes, assessments, deposits and contributions now or
in the future owed by Borrower. Borrower may, however, defer payment of any
contested taxes; provided, that Borrower (i) in good faith contests Borrower's
obligation to pay such taxes by appropriate proceedings promptly and diligently
instituted and conducted; (ii) notifies Lender in writing of the commencement
of, and any material development in, the proceedings; (iii) posts bonds or takes
any other steps required to keep the contested taxes from becoming a Lien upon
any of the Collateral and (iv) maintains adequate reserves therefor in
conformity with GAAP. Borrower is unaware of any claims or adjustments proposed
for any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay, all amounts necessary to fund all present and future pension, profit
sharing and deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or any other governmental
agency.
5.9 Compliance with Laws. Borrower has complied in all material respects
with all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, the payment and withholding of taxes, ERISA
and other employee matters, safety and environmental matters.
5.10 Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of Borrower's
knowledge) threatened against Borrower. There is no claim, suit, litigation,
proceeding or investigation pending or (to the best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may result,
either separately or in the aggregate, in any material adverse change in the
financial condition or business of Borrower, or in any material impairment in
the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Lender in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower.
<PAGE>
5.11 Use of Proceeds. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 Insurance. Borrower will at all times carry property, liability and
other insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be cancelled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt of
the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations of Borrower as Lender shall determine in its sole
discretion. Borrower will promptly deliver to Lender copies of all reports made
to insurance companies.
5.13 Financial and Collateral Reports. Borrower has kept and will keep
adequate records and books of account with respect to its business activities
and the Collateral in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, and will cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and is consistent with GAAP):
(a) Collateral Reports. On or before the twentieth day of each month, an
aging of Borrower's Accounts, Chattel Paper and notes receivable, and weekly
Inventory reports, all in such form, and together with such additional
certificates, schedules and other information with respect to the Collateral or
the business of Borrower or any Obligor, as Lender shall request; provided, that
Borrower's failure to execute and deliver the same shall not affect or limit
Lender's security interests and other rights in any of the Accounts, nor shall
Lender's failure to advance or lend against a specific Account affect or limit
Lender's security interest and other rights therein. Together with each such
schedule, Borrower shall furnish Lender with copies (or, at Lender's request,
originals) of all contracts, orders, invoices, and other similar documents, and
all original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of which gave
rise to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. In addition, Borrower shall deliver to Lender the originals of all
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts) six months after Lender
receives them, unless Borrower requests their return in writing in advance and
arranges for their return to Borrower at Borrower's expense;
<PAGE>
(b) Annual Statements. Not later than 120 days after the close of each
fiscal year of Borrower, unqualified (except for a qualification for a change in
accounting principles with which the accountant concurs) audited financial
statements of Borrower and its Subsidiaries as of the end of such year, on a
consolidated and consolidating basis, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower but
acceptable to Lender, together with a copy of any management letter issued in
connection therewith and a letter from such accountants acknowledging that
Lender is relying on such financial statements. Concurrently with the delivery
of such financial statements, Borrower shall forward to Lender a copy of the
accountants' letter to Borrower's management that is prepared in connection with
such financial statements;
(c) Interim Statements. Not later than twenty days after the end of each
month hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower and its Subsidiaries as of the end of
such month and of the portion of Borrower's fiscal year then elapsed, on a
consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(d) Projections, Etc. Such projections of business plans, budgets, cash
flow statements and Availability projections for Borrower and its Subsidiaries
as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial statements or
reports which Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental authority
which may be substituted therefor, or any national securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any annual report to
be filed pursuant to the requirements of ERISA in connection with each plan
subject thereto; and
(g) Other Information. Such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiary's financial
condition or results of operations.
5.14 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
<PAGE>
5.15 Maintenance of Collateral, Etc. Borrower will maintain all of its
Equipment in good working condition, ordinary wear and tear excepted, and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon Borrower's
business, assets or financial condition.
5.16 Notification of Changes. Borrower will promptly notify Lender in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, or any material adverse change in the business
or financial affairs of Borrower or the existence of any circumstance which
would make any representation or warranty of Borrower untrue in any material
respect or constitute a material breach of any covenant of Borrower.
5.17 Further Assurances. Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in the Collateral and
to fully effectuate the transactions contemplated by this Agreement.
5.18 Negative Covenants. Borrower will not, without Lender's prior written
consent which consent will not be unreasonably withheld, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory in the ordinary course of its business; (v) make any loans to,
or investments in, any Affiliate or other Person in the form of money or other
assets; (vi) incur any debt outside the ordinary course of business; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions on
Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate except as may be permitted by any subordination agreement of
such Affiliate in favor of Lender; (xiii) enter into any transaction with an
Affiliate other than on arms-length terms; or (xiv) agree to do any of the
foregoing.
5.19 Financial Covenants.
(a) Capital Expenditures. Borrower will not expend or commit to expend,
directly or indirectly, for capital expenditures (including capital lease
obligations) in excess of the amount set forth in Section 8(a) of Schedule A as
the Capital Expenditure Limitation in any fiscal year.
<PAGE>
(b) Net Worth. Borrower will at all times maintain a net worth of at least
the amount set forth in Section 8(b) of Schedule A as the Minimum Net Worth
Requirement.
(c) Working Capital. Borrower will at all times maintain working capital of
at least the amount set forth in Section 8(c) of Schedule A as the Minimum
Working Capital Requirement.
(d) Other Financial Covenants. Borrower will comply with any additional
financial covenants set forth in Section 8(f) of Schedule A.
6. RELEASE AND INDEMNITY.
6.1 Release. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "Released Parties") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from gross negligence or willful misconduct. However, in no
circumstance will any of the Released Parties be liable for lost profits or
other special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
(a) Lender shall not be liable for (i) any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gave rise to an Account; (ii) any error, act, omission, or delay of any
kind occurring in the settlement, failure to settle, collection or failure to
collect any Account; (iii) settling any Account in good faith for less than the
full amount thereof; or (iv) any of Borrower's obligations under any contract or
agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying transaction,
Lender shall not be responsible for the conformity of any goods to the documents
presented, the validity or genuineness of any documents, delay, default or fraud
by Borrower, shippers and/or any other Person. Borrower agrees that any action
taken by Lender, if taken in good faith, or any action taken by an issuer of any
Credit Accommodation, under or in connection with any Credit Accommodation,
shall be binding on Borrower and shall not create any resulting liability to
Lender. In furtherance thereof, Lender shall have the full right and authority
to clear and resolve any questions of non-compliance of documents, to give any
instructions as to acceptance or rejection of any documents or goods, to execute
for Borrower's account any and all applications for steamship or airway
guaranties, indemnities or delivery orders, to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
<PAGE>
6.2 Indemnity. Borrower hereby agrees to indemnify the Released Parties and
hold them harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and expenses
(including attorneys' fees), of every nature, character and description, which
the Released Parties may sustain or incur based upon or arising out of any of
the transactions contemplated by this Agreement or the other Loan Documents or
any of the Obligations, including any transactions or occurrences relating to
the issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement.
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "Initial Term");
provided, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "Maturity Date") for
successive additional terms of three years each (each a "Renewal Term"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
Borrower contained herein and therein, shall remain in full force and effect
after the Maturity Date until all of the monetary Obligations are indefeasibly
paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective thirty business days after
written notice of termination is given to Lender or (ii) by Lender at any time
after the occurrence and during the continuance of an Event of Default, without
notice, effective immediately; provided, that if any Affiliate of Borrower is
also a party to a financing arrangement with Lender, no such early termination
shall be effective unless such Affiliate simultaneously terminates its financing
arrangement with Lender. If so terminated under this Section 7.2, Borrower shall
pay to Lender (i) an early termination fee (the "Early Termination Fee") in the
amount set forth in Section 6(h) of Schedule A plus (ii) any earned but unpaid
Facility Fee. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations of Borrower. In addition, if Borrower
so terminates and repays its Obligations without having provided Lender with at
least thirty days' prior written notice thereof, an additional amount equal to
thirty days of interest at the applicable Interest Rate(s), based on the average
outstanding amount of the Obligations of Borrower for the six month period
immediately preceding the date of termination.
<PAGE>
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all of its
Obligations, whether or not all or any part of such Obligations are otherwise
then due and payable. Without limiting the generality of the foregoing, if, on
the Maturity Date or on any earlier effective date of termination, there are any
outstanding Credit Accommodations, then on such date Borrower shall provide to
Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance of Borrower to secure all of the Obligations of Borrower (including
estimated attorneys' fees and other expenses) relating to said Credit
Accommodations or such greater percentage or amount as Lender reasonably deems
appropriate, pursuant to a cash pledge agreement in form and substance
satisfactory to Lender.
7.4 Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve Borrower of any of its Obligations until all of
the monetary Obligations of Borrower have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
of Borrower (or the provision of cash collateral with respect to the Credit
Accommodation Balance of Borrower as set forth in Section 7.3) and termination
of this Agreement, Lender shall promptly deliver to Borrower termination
statements, requests for reconveyances and such other documents as may be
reasonably required to terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in this Agreement or any other Loan Document or fails to perform any
other non-monetary Obligation; (iv) if any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made or permitted
to exist on all or any part of the Collateral; (v) if one or more judgments
aggregating in excess of $25,000, or any injunction or attachment, is obtained
against Borrower or any Obligor or which remains unstayed for more than ten days
<PAGE>
or is enforced; (vi) the occurrence of any default which remains uncured or
unwaived following any applicable cure or grace period under any financing
agreement, security agreement or other agreement, instrument or document
executed and delivered by (A) Borrower with, or in favor of, any Person other
than Lender and such Person has accelerated the indebtedness evidenced thereby
or (B) Borrower or any Affiliate of Borrower with, or in favor of, Lender or any
Affiliate of Lender; (vii) the dissolution, death, termination of existence in
good standing, insolvency or business failure or suspension or cessation of
business as usual of Borrower or any Obligor (or of any general partner of
Borrower or any Obligor if it is a partnership) or the appointment of a
receiver, trustee or custodian for all or any part of the property of, or an
assignment for the benefit of creditors by Borrower or any Obligor, or the
commencement of any proceeding by Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if Borrower makes or sends a notice of a bulk transfer or
calls a meeting of its creditors; (viii) the commencement of any proceeding
against Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations of Borrower or any security document by
any Obligor; (x) if Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations of Borrower other than
as permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations attempts to limit or terminate its
subordination agreement; (xi) if there is any actual or threatened indictment of
Borrower or any Obligor under any criminal statute or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which the potential penalties or remedies sought or available
include forfeiture of any property of Borrower or such Obligor; (xii) if there
is a change in the record or beneficial ownership of an aggregate of more than
20% of the outstanding shares of stock of Borrower (or partnership or membership
interests if it is a partnership or limited liability company), in one or more
transactions, compared to the ownership of outstanding shares of stock (or
partnership or membership interests) of Borrower as of the date hereof, without
the prior written consent of Lender; (xiii) if there is any change in the chief
executive officer or chief financial officer of Borrower; (xiv) if an Event of
Default occurs under any Loan and Security Agreement between Lender and an
Affiliate of Borrower; (xv) if Lender determines in good faith that the
Collateral is insufficient to fully secure the Obligations of Borrower or that
the prospect of payment of performance of the Obligations of Borrower is
impaired; or (xvi) Borrower defaults under any of its real estate leases and any
applicable cure periods under such leases have expired.
<PAGE>
8.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Lender, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by Borrower), may do any one or more of the
following: (i) cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other Loan Document; (ii) accelerate and declare all
or any part of the Obligations of Borrower to be immediately due, payable and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any of the Obligations of Borrower; (iii)
take possession of any or all of the Collateral wherever it may be found, and
for that purpose Borrower hereby authorizes Lender, without judicial process, to
enter onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain (or
cause a custodian to remain) on the premises in exclusive control thereof,
without charge for so long as Lender deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety or security relating thereto required by law as an incident to such
possession, (B) any demand for possession prior to the commencement of any suit
or action to recover possession thereof and (C) any requirement that Lender
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral to such locations as Lender may deem advisable; (v) complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property without charge; (vi) sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time Lender obtains possession of it or
after further manufacturing, processing or repair, at one or more public or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "Sale"), and to adjourn any such Sale from time to time without notice
other than oral announcement at the time scheduled for Sale (and, in connection
therewith, (A) Lender shall have the right to conduct such Sale on Borrower's
premises without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
<PAGE>
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the rights and remedies set forth above, Lender
shall have all the other rights and remedies accorded a secured party after
default under the UCC and under all other applicable laws, and under any other
Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations of Borrower have been fully paid and performed. If
notice of any sale or other disposition of Collateral is required by law, notice
at least ten days prior to the sale designating the time and place of sale in
the case of a public sale or the time after which any private sale or other
disposition is to be made shall be deemed to be reasonable notice, and Borrower
waives any other notice. If any Collateral is sold or leased by Lender on credit
terms or for future delivery, the Obligations of Borrower shall not be reduced
as a result thereof until payment is collected by Lender.
8.3 Application of Proceeds. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations of Borrower in such order as Lender shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations of Borrower by the principal amount of the purchase
price or deferring the reduction of such Obligations until the actual receipt by
Lender of the cash therefor.
<PAGE>
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service or by certified mail return receipt requested, addressed to Lender or
Borrower at the address shown in the heading to this Agreement, or by facsimile
to the facsimile number shown in Section 9(i) of Schedule A, or at any other
address (or to any other facsimile number) designated in writing by one party to
the other party in the manner prescribed in this Section 9.1. All notices shall
be deemed to have been given when received or when delivery is refused by the
recipient.
9.2 Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 Integration. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
Loan Documents shall not waive or diminish any right of Lender later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent, and whether or
not similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement and the other Loan Documents.
<PAGE>
9.7 Attorneys Fees and Costs. Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant to, in
connection with, or relating to this Agreement, including all reasonable
attorneys' fees and costs Lender incurs to prepare and negotiate this Agreement
and the other Loan Documents; to obtain legal advice in connection with this
Agreement and the other Loan Documents; to administer this Agreement and the
other Loan Documents (including the cost of periodic financing statement, tax
lien and other searches conducted by Lender); to enforce, or seek to enforce,
any of its rights; prosecute actions against, or defend actions by, Account
Debtors; to commence, intervene in, or defend any action or proceeding; to
initiate any complaint to be relieved of the automatic stay in bankruptcy; to
file or prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; to examine, audit, copy, and inspect any of the Collateral or any
of Borrower's books and records; to protect, obtain possession of, lease,
dispose of, or otherwise enforce Lender's security interests in, the Collateral;
and to otherwise represent Lender in any litigation relating to Borrower. If
either Lender or Borrower files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and costs
to which Lender may be entitled pursuant to this Section shall immediately
become part of the Obligations of Borrower, shall be due on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations of Borrower.
9.8 Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Lender;
provided, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
Borrower from its liability for any of its Obligations. Lender shall have the
right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
<PAGE>
9.9 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower or any other Obligor.
9.10 Headings; Construction. Section and subsection headings are used in
this Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.11 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND
FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF NEW
YORK. EACH OF LENDER AND BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF BORROWER OR LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OR BORROWER OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER
THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
<PAGE>
9.12 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND
EXEMPTION LAWS. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9.13 THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as of
the date set forth in the heading.
Borrower: Lender:
SOUTHWEST TELEPRODUCTIONS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement
between SOUTHWEST TELEPRODUCTIONS, INC. ("Borrower") and NATIONSCREDIT
COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION
(the "Agreement").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $8,500,000, in the aggregate to
the Companies
(b) Advance Rates:
(i) Accounts Advance 80% (or 90% in the case of Accounts
Rate: owing by the United States
government ("Government Accounts")
after proof of payment sign-off);
provided, that if the Dilution
Percentage exceeds 7% (or 2% in
the case of Government Accounts),
such advance rate will be reduced
by the number of full or partial
percentage points of such excess
(ii) Inventory Advance Not applicable
Rate(s):
(c) Accounts Sublimit: Not applicable
(d) Inventory Sublimit(s): Not applicable
(e) Credit Accommodation
Limit: Not applicable
(f) Permanent Reserve Amount: Not applicable
<PAGE>
2. Loan Limits for Term Loan:
(a) Principal Amount: $815,000 (the "Equipment Advance")
(b) Repayment Schedule:
(i) Equipment Advance: 60 equal consecutive monthly
installments of $13,583.33,
commencing May 1, 1997; provided,
that if, 24 months after the date
of the Agreement, the unpaid
principal balance of the Equipment
Advance exceeds 70% of the updated
auction sale value of the Eligible
Equipment at such time (as
reflected in an appraisal
conducted as of such time by an
appraiser acceptable to Lender)
then, at Lender's election, such
excess shall be repaid in six equal
consecutive monthly installments
payable on the first day of each
calendar month commencing with the
month immediately following such
election by Lender (which
repayments shall be in addition to
the regular amortization payments
set forth above).
(ii) Real Property Not Applicable.
Advance:
3. Interest Rates:
(a) Revolving Loans: 2.25% per annum in excess of
the Prime Rate
(b) Term Loan: 2.25% per annum in excess of
the Prime Rate
4. Minimum Loan Amount: $2,500,000, in the aggregate for
the Companies.
<PAGE>
5. Maximum days after invoice date
for Eligible Accounts: 90
6. Fees:
(a) Closing Fee: $85,000, in the aggregate for
Companies, jointly and severally as
set forth in the Fee Letter.
(b) Facility Fee:
(i) Initial Term: $85,000, in the aggregate for
Companies, jointly and severally as
set forth in the Fee Letter.
(ii) Renewal Term(s): $127,500, in the aggregate for
Companies, jointly and severally as
set forth in the Fee Letter.
(c) Servicing Fee: None
(d) Unused Line Fee: None
(e) Minimum Borrowing Fee:
(i) Applicable period: each month
(ii) Date payable: the first day of each month
(f) Success Fee: None
(g) Warrants: None
(h) Early Termination Fee: An aggregate amount for the
Companies, jointly and severally as
set forth in the Fee Letter, equal
to 5% of the Maximum Facility
Amount if terminated during the
first year of the Term, 3% of the
Maximum Facility Amount if
terminated during the second year
of the Term, 2% of the Maximum
Facility Amount if terminated
during the third year of the Term
(but not on the Initial Maturity
Date), and 1% of the Maximum
Facility Amount if terminated
thereafter and prior to, but not
on, the Maturity Date.
<PAGE>
(i) Fees for letters of 2.75% per annum of the face amount
credit (or guaranties by of each open Credit Accommodation,
Lender): payable monthly on the first day of
each month
(j) Fees for other Credit
Accommodations: As specified by the issuer thereof.
7. Initial Maturity Date: April __, 2000
8. Financial Covenants:
(a) Capital Expenditure
Limitation: Not applicable
(b) Minimum Net Worth
Requirement: Not applicable
(c) Minimum Working Capital
Requirement: Not applicable
(d) Limitation on Purchase
Money Security Interests: Not applicable
(e) Limitation on Equipment
Leases: Not applicable
(f) Additional Financial
Covenants: None
<PAGE>
9. Borrower Information:
(a) Prior Names of Borrower: Southwest Producer's, Inc. (until
1982)
(b) Prior Trade Names of
Borrower: None
(c) Existing Trade Names of
Borrower: None
(d) Inventory/Equipment 2649 Tarna Drive
Locations: Dallas, Texas 75229
(e) Other Locations: None
(f) Litigation: None
(g) Ownership of Borrower: 100 shares outstanding, all owned
by Northwest Teleproductions, Inc.
(h) Subsidiaries (and
ownership thereof): None
(i) Facsimile Numbers:
Borrower: (612) 835-4735
Lender: (212) 597-1666
10. Description of Real Property: The real property located at
2649 Tarna Drive, Dallas, Texas
11. Lender's Bank: The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
12. Other Covenants: None
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
SOUTHWEST TELEPRODUCTIONS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
<PAGE>
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement
between SOUTHWEST TELEPRODUCTIONS, INC. and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING (the "Agreement").
As used in the Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"Agreement" and "this Agreement" mean the Loan and Security Agreement of
which this Schedule B is a part and the Schedules thereto.
"Availability" has the meaning set forth in Section 1.1(a)
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ss.
101 et seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the Agreement.
"Borrower's Address" has the meaning set forth in the heading to the
Agreement.
"Business Day" means a day other than a Saturday or Sunday or any other day
on which Lender or banks in New York are authorized to close.
"Chattel Paper" has the meaning set forth in the UCC.
<PAGE>
"Collateral" means all of Borrower's property and interests in property in
or upon which a security interest or other Lien is granted pursuant to this
Agreement or the other Loan Documents.
"Companies" means Borrower, Northwest Teleproductions, Inc. and Northwest
Teleproductions/Chicago, Inc.
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means, with respect to each Company the sum
of (i) the aggregate undrawn face amount of all outstanding Credit
Accommodations of such Company and (ii) all interest, fees and costs due or, in
Lender's estimation, likely to become due in connection therewith.
"Default" means any event which with notice or passage of time, or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns, allowances,
discounts, credits, write-offs and similar items relating to Borrower's Accounts
computed as a percentage of Borrower's gross sales, calculated on a ninety (90)
day rolling average.
"Document" has the meaning set forth in the UCC.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account of a
Company which satisfies the general criteria set forth below and which is
otherwise acceptable to Lender (provided, that Lender may, in its sole
discretion, change the general criteria for acceptability of Eligible Accounts
upon at least fifteen days' prior notice to Companies). An Account shall be
deemed to meet the current general criteria if (i) neither the Account Debtor
nor any of its Affiliates is an Affiliate, creditor or supplier of a Company;
(ii) it does not remain unpaid more than the number of days after the original
<PAGE>
invoice date set forth in Section 5 of Schedule A; (iii) the Account Debtor or
its Affiliates are not past due on other Accounts owing to a Company comprising
more than 25% of all of the Accounts owing to a Company by such Account Debtor
or its Affiliates; (iv) all Accounts owing by the Account Debtor or its
Affiliates do not represent more than 20% of all otherwise Eligible Accounts
(provided, that Accounts which are deemed to be ineligible solely by this clause
(iv) shall be considered Eligible Accounts to the extent of the amount thereof
which does not exceed 20% of all otherwise Eligible Accounts); (v) no covenant,
representation or warranty contained in this Agreement with respect to such
Account (including any of the representations set forth in Section 5.4) has been
breached; (vi) the Account is not subject to any contra relationship,
counterclaim, dispute or set-off; (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to a Company and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless the applicable Company has complied with the
Assignment of Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or other applicable
similar state or local law in a manner satisfactory to Lender; (xi) it is at all
times subject to Lender's duly perfected, first priority security interest and
to no other Lien that is not a Permitted Lien, and the goods giving rise to such
Account (A) were not, at the time of sale, subject to any Lien except Permitted
Liens and (B) have been delivered to and accepted by the Account Debtor, or the
services giving rise to such Account have been performed by a Company and
accepted by the Account Debtor; (xii) the Account is not evidenced by Chattel
Paper or an Instrument of any kind and has not been reduced to judgment; (xiii)
the Account Debtor's total indebtedness to the Companies does not exceed the
amount of any credit limit established by a Company or Lender and the Account
Debtor is otherwise deemed to be creditworthy by Lender (provided, that Accounts
deemed to be ineligible solely by reason of this clause (xiii) shall be
considered Eligible Accounts to the extent the amount of such Accounts does not
exceed the lower of such credit limits); (xiv) there are no facts or
circumstances existing, or which could reasonably be anticipated to occur, which
might result in any adverse change in the Account Debtor's financial condition
or impair or delay the collectibility of all or any portion of such Account;
(xv) Lender has been furnished with all documents and other information
pertaining to such Account which Lender has requested, or which a Company is
obligated to deliver to Lender, pursuant to this Agreement or any other loan and
security agreement between Lender and a Company; and (xvi) no Company has made
an agreement with the Account Debtor to extend the time of payment thereof
beyond the time periods set forth in clause (ii) above.
<PAGE>
"Eligible Equipment" means, at any time of determination, Equipment owned
by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory (other
than packaging materials and supplies) which satisfies the general criteria set
forth below and which is otherwise acceptable to Lender (provided, that Lender
may, in its sole discretion, change the general criteria for acceptability of
Eligible Inventory upon at least fifteen days' prior written notice to
Borrower). Inventory shall be deemed to meet the current general criteria if (i)
it consists of raw materials or finished goods, or work-in-process that is
readily marketable in its current form; (ii) it is in good, new and saleable
condition; (iii) it is not slow-moving, obsolete, unmerchantable, returned or
repossessed; (iv) it is not in the possession of a processor, consignee or
bailee, or located on premises leased or subleased to Borrower, or subject to a
mortgage in favor of a Person other than Lender, unless such processor,
consignee, bailee or mortgagee or the lessor or sublessor of such premises, as
the case may be, has executed and delivered all documentation which Lender shall
require to evidence the subordination or other limitation or extinguishment of
such Person's rights with respect to such Inventory and Lender's right to gain
access thereto; (v) it meets all standards imposed by any governmental agency or
authority; (vi) it conforms in all respects to any covenants, warranties and
representations set forth in the Agreement; (vii) it is at all times subject to
Lender's duly perfected, first priority security interest and no other Lien
except a Permitted Lien; and (viii) it is situated at an Inventory Location
listed in Section 9(d) of Schedule A or other location of which Lender has been
notified as required by Section 5.6.
"Equipment" means all Goods which are used or bought for use primarily in
business (including farming or a profession) or by a Person who is a non-profit
organization or governmental subdivision or agency and which are not Inventory,
farm products or consumer goods, including all machinery, molds, machine tools,
motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor
vehicles, tools, parts, dies and jigs, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to, or spare
parts for, any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974 and all
rules, regulations and orders promulgated thereunder.
<PAGE>
"Event of Default" has the meaning set forth in Section 8.1.
"Fee Letter" means that certain letter agreement regarding fees between the
Companies and Lender of even date herewith.
"GAAP" means generally accepted accounting principles as in effect from
time to time, consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and includes
all books and records pertaining to the Collateral and other business and
financial records in the possession of Borrower or any other Person, inventions,
designs, drawings, blueprints, patents, patent applications, trademarks,
trademark applications (other than "intent to use" applications until a verified
statement of use is filed with respect to such applications) and the goodwill of
the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, causes of action and other rights in all litigation presently or
hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, internet addresses, proprietary
information, purchase orders, and all insurance policies and claims (including
life insurance, key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and claims, letters of
credit, banker's acceptances and guaranties, computer programs, discs, tapes and
tape files in the possession of Borrower or any other Person, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Term" has the meaning set forth in Section 7.1.
<PAGE>
"Instrument" has the meaning set forth in the UCC.
"Inventory" means all Goods held for sale or lease or furnished or to be
furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, a Person other than the owner of the property, whether such interest
is based on common law, statute or contract, including rights of sellers under
conditional sales contracts or title retention agreements and reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
property. For the purpose of this Agreement, Borrower shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.
"Loan Account" has the meaning set forth in Section 2.4.
"Loan Documents" means the Agreement, any other loan and security agreement
and all notes, guaranties, security agreements, certificates, landlord's
agreements, Lock Box and Blocked Account agreements and all other agreements,
documents and instruments now or hereafter executed or delivered by a Company or
any Obligor in connection with, or to evidence the transactions contemplated by,
this Agreement.
"Loan Limits" means, collectively, the Availability limits and all other
limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
<PAGE>
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
"Maturity Date" has the meaning set forth in Section 7.1.
"Obligations" means, with respect to a Company, all present and future
Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties
and indebtedness at any time owing by such Company to Lender, whether evidenced
by this Agreement, any other loan and security agreement, or any note or other
instrument or document, whether arising from an extension of credit, opening of
a Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in such Company's indebtedness owing
to others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, loan fees, Early Termination Fees, minimum borrowing fees and any
other sums chargeable to such Company under this Agreement or under any other
Loan Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other person
liable on, or with respect to, the Obligations of Borrower or who is the owner
of any property which is security for the Obligations of Borrower, other than
Borrower.
"Permitted Liens" means: (i) purchase money security interests in specific
items of Equipment in an aggregate amount not to exceed the limit set forth in
Section 8(d) of Schedule A; (ii) leases of specific items of Equipment in an
aggregate amount not to exceed the limit set forth in Section 8(e) of Schedule
A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens which
are fully subordinate to the security interests of Lender and are consented to
in writing by Lender; (v) security interests being terminated concurrently with
the execution of this Agreement; (vi) Liens of materialmen, mechanics,
warehousemen or carriers arising in the ordinary course of business and securing
<PAGE>
obligations which are not delinquent; (vii) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clause (i) or (ii) above; provided, that any extension,
renewal or replacement Lien is limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; and (viii) Liens in favor of customs
and revenue authorities which secure payment of customs duties in connection
with the importation of goods. Lender will have the right to require, as a
condition to its consent under clause (iv) above, that the holder of the
additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations of Borrower
remain outstanding, and that Borrower agree that any uncured default in any
obligation secured by the subordinate Lien shall also constitute an Event of
Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in The Wall
Street Journal as the base rate on corporate loans posted as of such time by at
least 75% of the nation's 30 largest banks (which rate is not necessarily the
lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of Schedule
A.
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
<PAGE>
"Revolving Loans" has the meaning set forth in Section 1.1(b).
"Sale" has the meaning set forth in Section 8.2.
"Subsidiary" means any corporation or other entity of which a Person owns,
directly or indirectly, through one or more intermediaries, more than 50% of the
capital stock or other equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and ending
on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted and
in effect at such time in the State of New York.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
Borrower: Lender:
SOUTHWEST TELEPRODUCTIONS, INC. NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
GUARANTY
Borrowers: Northwest Teleproductions, Inc., a
Minnesota corporation
and
Northwest Teleproductions/Chicago, Inc., a
Minnesota corporation
Guarantor(s) Southwest Teleproductions, Inc., a
Texas corporation
Borrowers have requested that NationsCredit Commercial Corporation, through
its NationsCredit Commercial Funding Division ("Lender") provide certain
financial accommodations to Borrowers pursuant to the terms of certain Loan and
Security Agreements between each Borrower and Lender, respectively, dated of
even date herewith (as amended from time to time, the "Loan Agreements"). As one
of the conditions to providing financing, Lender has required that Southwest
Teleproductions, Inc. ("Guarantor") guaranty all obligations of Borrowers to
Lender.
For value received and in consideration of any loan, advance or financial
accommodation of any kind whatsoever heretofore, now or hereafter made, given or
granted to each Borrower by Lender pursuant to the Loan Agreements, Guarantor
unconditionally guaranties the full and prompt payment when due, whether at
maturity or earlier, by reason of acceleration or otherwise, and at all times
thereafter, of the indebtedness, liabilities and obligations of every kind and
nature of each Borrower to Lender (including all interest accruing after the
filing of a proceeding under the Bankruptcy Code (as defined in the Loan
Agreements) whether or not allowed by the court in such proceeding, and all
indebtedness, liabilities and obligations arising after the filing of any
proceeding under the Bankruptcy Code), howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, joint or several, now or
hereafter existing, or due or to become due, in each case arising under the Loan
Agreements and the other Loan Documents, plus all costs and expenses (including,
without limitation, all court costs and reasonable attorneys' and paralegals'
fees and expenses) paid or incurred by Lender in endeavoring to collect all or
any part of such indebtedness, liabilities and obligations from, or in
prosecuting any action against, Guarantor or any other guarantor of all or any
part of such indebtedness, liabilities and obligations (all such indebtedness,
liabilities, obligations, costs and expenses being hereinafter referred to as
"Borrowers' Obligations"). All sums becoming due under this Guaranty shall bear
interest from the due date thereof until paid at the highest rate charged with
respect to any of Borrowers' Obligations under the Loan Agreements.
<PAGE>
Guarantor agrees that its obligations under this Guaranty are
unconditional, irrespective of (i) the validity or enforceability of Borrowers'
Obligations or any notes or other instruments evidencing Borrowers' Obligations,
(ii) the absence of any attempt by Lender to collect Borrowers' Obligations from
either Borrower or any other guarantor, (iii) Lender's waiver or consent with
respect to any provision of the Loan Documents, (iv) Lender's failure to perfect
or maintain its security interests in, or to preserve its rights with respect
to, any of the Collateral, (v) Lender's election, in any proceeding under
Chapter 11 of the Bankruptcy Code, of the application of Section 1111(b)(2) of
the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
Borrower as debtor-in-possession under Section 364 of the Bankruptcy Code, (vii)
the disallowance, under Section 502 of the Bankruptcy Code, of all or any of
Lender's claims for repayment of Borrowers' Obligations or (viii) any other
circumstance which might constitute a legal or equitable discharge or defense of
either Borrower or a guarantor.
No payment made by or for the account or benefit of Guarantor (including
(i) a payment made by either Borrower in respect of Borrowers' Obligations, (ii)
a payment made by any person under any other guaranty of Borrowers' Obligations
or (iii) a payment made by means of set off or other application of funds by
Lender) pursuant to this Guaranty shall entitle Guarantor, by subrogation or
otherwise, to any payment by either Borrower or from or out of any property of
either Borrower, and Guarantor shall not exercise any rights or remedies against
either Borrower or any property of either Borrower including any right of
contribution, indemnity or reimbursement by reason of any performance by
Guarantor under this Guaranty, all of such rights of subrogation, contribution,
indemnity and reimbursement being hereby waived by Guarantor. The provisions of
this paragraph shall survive the termination of this Guaranty or the release or
discharge of Guarantor from liability hereunder. Guarantor and Lender hereby
agree that each Borrower is a third party beneficiary of the provisions of this
paragraph.
Guarantor hereby waives diligence, presentment, demand for payment, filing
of claims with a court in the event of receivership or bankruptcy of a Borrower,
protest or notice with respect to Borrowers' Obligations and all demands
whatsoever, and covenants that this Guaranty will not be discharged, except by
complete and irrevocable payment and performance of the obligations and
liabilities contained herein. No notice to any party, including Guarantor, shall
be required for Lender to make demand hereunder. Such demand shall constitute a
mature and liquidated claim against Guarantor. At any time after maturity of
Borrowers' Obligations, whether by acceleration or otherwise, Lender may, at its
sole election, proceed directly and at once, without notice, against Guarantor
to collect and recover the full amount or any portion of Borrowers' Obligations,
without first proceeding against either Borrower or any other person or against
any of the Collateral. Lender shall have the exclusive right to determine the
application of payments and credits, if any, from Guarantor, either Borrower or
any other person, on account of Borrowers' Obligations.
<PAGE>
Lender is hereby authorized, without notice or demand to Guarantor and
without affecting or impairing the liability of Guarantor hereunder, to from
time to time (i) renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, Borrowers' Obligations or otherwise
modify, amend or change the terms of any promissory note or other agreement,
document or instrument now or hereafter executed by a Borrower and delivered to
Lender; (ii) accept partial payments on Borrowers' Obligations; (iii) take and
hold collateral for the payment of Borrowers' Obligations, or for the payment of
this Guaranty, or for the payment of any other guaranties or Borrowers'
Obligations or other liabilities of a Borrower, and exchange, enforce, waive and
release any such security or collateral; (iv) apply such security or collateral
and direct the order or manner of sale thereof as in its sole discretion it may
determine; and (v) settle, release, compromise, collect or otherwise liquidate
Borrowers' Obligations and any security or collateral therefor in any manner.
At any time after maturity of Borrowers' Obligations, Lender may, in its
sole discretion, without notice to Guarantor and regardless of the acceptance of
any security or collateral for the payment hereof, appropriate and apply toward
payments of Borrowers' Obligations that remain unpaid, (i) any indebtedness due
or to become due from Lender to Guarantor and (ii) any moneys, credits or other
property belonging to Guarantor at any time held by or coming into the
possession of Lender or any affiliates of Lender, whether for deposit or
otherwise.
Guarantor assumes responsibility for keeping itself informed of the
financial condition of each Borrower and all other guarantors of all or any of
Borrowers' Obligations, and of all other circumstances bearing upon the risk of
nonpayment of Borrowers' Obligations or any part thereof that diligent inquiry
might reveal, and Guarantor agrees that Lender shall have no duty to advise
Guarantor of information known to Lender regarding any of the foregoing.
Guarantor acknowledges familiarity with each Borrower's financial condition and
represents that it has not relied on any statements made, or information
furnished, by Lender or its agents in obtaining such familiarity. If Lender
provides any such information to Guarantor, Lender shall be under no obligation
to (i) undertake any investigation not a part of its regular business routine,
(ii) disclose any information which, pursuant to accepted or reasonable
commercial finance practices, Lender wishes to maintain confidential or (iii)
make any other or future disclosures of any information to Guarantor.
Notwithstanding any contrary provision of this Guaranty, it is intended
that neither this Guaranty nor any liens or security interests securing this
Guaranty constitute a "Fraudulent Conveyance" (as defined below). Consequently,
Guarantor agrees that if this Guaranty or any liens or security interests
securing this Guaranty, would, but for the application of this sentence,
constitute a Fraudulent Conveyance, this Guaranty and each such lien and
security interest shall be valid and enforceable only to the maximum extent that
would not cause this Guaranty or such lien or security interest to constitute a
Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have
been amended accordingly at all relevant times. For purposes hereof, a
"Fraudulent Conveyance" means a fraudulent conveyance under Section 548 of the
Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under any
applicable fraudulent conveyance or fraudulent transfer law or similar law of
any state or other governmental unit as in effect from time to time.
<PAGE>
Guarantor waives the right to assert the doctrine of marshaling with
respect to any collateral held by Lender to secure any of the Borrowers'
Obligations. Guarantor further agrees that, to the extent a Borrower makes one
or more payments to Lender, or Lender receives any proceeds of collateral which
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to such Borrower, its estate, trustee, receiver
or any other party under the Bankruptcy Code or other law, that portion of
Borrowers' Obligations which has been paid, reduced or satisfied by such payment
shall be reinstated and continued in full force and effect as of the date such
initial payment, reduction or satisfaction occurred and this Guaranty shall
continue to be in existence and in full force and effect, irrespective of
whether any evidence of indebtedness or this Guaranty has been surrendered or
canceled.
Guarantor agrees that all payments hereunder shall be made without setoff
or counterclaims and Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor and
notices of acceptance of this Guaranty. Guarantor further waives all notices of
the existence, creation or incurring of new or additional indebtedness, arising
either from additional loans extended to a Borrower or otherwise, and also
waives all notices that the principal amount, or any portion thereof, or any
interest on any instrument or document evidencing all or any part of Borrowers'
Obligations is due, notices of any and all proceedings to collect from the
maker, any endorser or any other guarantor of all or any part of Borrowers'
Obligations, or from anyone else, and, to the extent permitted by law, notices
of exchange, sale, foreclosure, surrender or other handling of any security or
collateral securing payment of Borrowers' Obligations.
No delay on the part of Lender in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Lender of any
right or remedy shall preclude any further exercise thereof except as expressly
set forth in a writing duly signed and delivered on Lender's behalf by an
authorized officer or agent of Lender; nor shall any modification or waiver of
any of the provisions of this Guaranty be binding upon Lender, except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender. Lender's failure at any time or times
hereafter to require strict performance by either Borrower or Guarantor of any
of the provisions, warranties, terms and conditions contained in any promissory
note, security agreement, agreement, guaranty, instrument or document now or at
any time or times hereafter executed by either Borrower or Guarantor and
delivered to Lender, shall not waive, affect or diminish any right of Lender at
any time or times hereafter to demand strict performance thereof and such right
shall not be deemed to have been waived by any act or knowledge of Lender, or
its respective agents, officers or employees, unless such waiver is contained in
an instrument in writing signed by an officer or agent of Lender, and directed
to such Borrower or Guarantor, as applicable, specifying such waiver. No waiver
by Lender of any default shall operate as a waiver of any other default or the
<PAGE>
same default on a future occasion, and no action by Lender permitted hereunder
shall in any way affect or impair Lender's rights or the obligations of
Guarantor under this Guaranty. Any determination by a court of competent
jurisdiction of the amount of any principal or interest owing by a Borrower to
Lender shall be conclusive and binding on Guarantor irrespective of whether
Guarantor was a party to the suit or action in which such determination was
made.
Guarantor hereby represents and warrants that (i) it is in Guarantor's
direct interest to assist each Borrower in procuring credit, because each
Borrower is an affiliate of Guarantor, furnishes goods or services to Guarantor,
purchases or acquires goods or services from Guarantor, and/or otherwise has a
direct or indirect corporate or business relationship with Guarantor, (ii) this
Guaranty has been duly and validly authorized, executed and delivered and
constitutes the valid and binding obligation of Guarantor, enforceable in
accordance with its terms, and (iii) the execution and delivery of this Guaranty
does not violate or constitute a default under (with or without the giving of
notice, the passage of time, or both) any order, judgment, decree, instrument or
agreement to which Guarantor is a party or by which it or its assets are
affected or bound.
This Guaranty shall be binding upon Guarantor and upon the successors and
permitted assigns of Guarantor and shall inure to the benefit of Lender and its
successors and assigns. All references herein to each Borrower shall be deemed
to include its successors and permitted assigns and all references herein to
Lender shall be deemed to include its successors and assigns. Each Borrower's
and Guarantor's successors and permitted assigns shall include a receiver,
trustee, custodian of or for each Borrower or Guarantor or any of their
respective assets and such Borrower and Guarantor as debtor in possession. All
references to the singular shall be deemed to include the plural where the
context so requires.
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL COURTS IN
NEW YORK SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES WITH RESPECT TO THIS GUARANTY AND WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND EACH OF GUARANTOR AND LENDER CONSENTS THAT ALL
SERVICE OF PROCESS UPON GUARANTOR OR LENDER BE MADE BY REGISTERED MAIL OR
MESSENGER DIRECTED TO GUARANTOR OR LENDER AT THE ADDRESS SET FORTH BELOW
GUARANTOR'S SIGNATURE AND LENDER'S ADDRESS SET FORTH IN THE LOAN AGREEMENTS AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT
THEREOF. GUARANTOR HEREBY AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY GUARANTOR
AGAINST LENDER OR ANY MATTER ARISING OUT OF THIS GUARANTY SHALL BE BROUGHT
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS IN NEW YORK. GUARANTOR AND LENDER
EACH HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION
OR PROCEEDING AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
<PAGE>
THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
Wherever possible each provision of this Guaranty shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor this
24th day of April, 1997.
SOUTHWEST TELEPRODUCTIONS, INC.
By /s/ Phillip A. Staden
Its Chief Financial Officer
2649 Tarna Drive
Dallas, Texas 75229
With a copy to:
Northwest Teleproductions, Inc.
4000 West 76th Street
Minneapolis, Minnesota 55435
Security Agreement
This Security Agreement (as it may be amended, this "Agreement") is entered
into on April 24, 1997 between NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"), having an address at 1177
Avenue of the Americas, 36th Floor, New York, New York 10036 and NORTHWEST
TELEPRODUCTIONS/KANSAS CITY, INC. ("Guarantor"), whose chief executive office is
located at 4000 West 76th Street, Minneapolis, Minnesota 55435 ("Guarantor's
Address"). Schedule A to this Agreement is an integral part of this Agreement
and is incorporated herein by reference.
W I T N E S S E T H
WHEREAS, Lender has entered or is about to enter into certain financing
arrangements with NORTHWEST TELEPRODUCTIONS, INC., a Minnesota corporation,
NORTHWEST TELEPRODUCTIONS/CHICAGO, INC., a Minnesota corporation and SOUTHWEST
TELEPRODUCTIONS, INC., a Texas corporation (collectively, "Borrowers") pursuant
to which Lender may make loans and provide other financial accommodations to
Borrowers; and
WHEREAS, Guarantor has executed and delivered or is about to execute and
deliver to Lender a guarantee in favor of Lender pursuant to which Guarantor
absolutely and unconditionally guarantees to Lender the payment and performance
of all now existing and hereafter arising obligations, liabilities and
indebtedness of Borrowers to Lender; and
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following terms have the following meanings:
1.1 "Account" means any right to payment for Goods sold or leased or
for services rendered which is not evidenced by an Instrument or Chattel
Paper, whether or not it has been earned by performance.
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1.2 "Account Debtor" means the obligor on an Account or Chattel Paper.
1.3 "Affiliate" means, with respect to any Person, a relative,
partner, shareholder, member, manager, director, officer, or employee of
such Person, any parent or subsidiary of such Person, or any Person
controlling, controlled by or under common control with such Person or any
other Person affiliated, directly or indirectly, by virtue of family
membership, ownership, management or otherwise.
1.4 "Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C.ss. 101 et seq.).
1.5 "Borrowers" has the meaning set forth in the heading to the
Agreement.
1.6 "Business Day" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are authorized to close.
1.7 "Chattel Paper" has the meaning set forth in the UCC.
1.8 "Collateral" means all of Guarantor's property and interests in
property in or upon which a security interest or other Lien is granted
pursuant to this Agreement or the other Loan Documents.
1.9 "Default" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
1.10 "Deposit Account" has the meaning set forth in the UCC.
1.11 "Document" has the meaning set forth in the UCC.
1.12 "Equipment" means all Goods which are used or bought for use
primarily in business (including farming or a profession) or by a Person
who is a non-profit organization or governmental subdivision or agency and
which are not Inventory, farm products or consumer goods, including all
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies and jigs, and
all attachments, accessories, accessions, replacements, substitutions,
additions or improvements to, or spare parts for, any of the foregoing.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974
and all rules, regulations and orders promulgated thereunder.
1.14 "Event of Default" has the meaning set forth in Section 6.1.
<PAGE>
1.15 "General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other
business and financial records in the possession of Guarantor or any other
Person, inventions, designs, drawings, blueprints, patents, patent
applications, trademarks, trademark applications (other than "intent to
use" applications until a verified statement of use is filed with respect
to such applications) and the goodwill of the business symbolized thereby,
names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, causes
of action and other rights in all litigation presently or hereafter pending
for any cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, internet addresses, proprietary information,
purchase orders, and all insurance policies and claims (including life
insurance, key man insurance, credit insurance, liability insurance,
property insurance and other insurance), tax refunds and claims, letters of
credit, banker's acceptances and guaranties, computer programs, discs,
tapes and tape files in the possession of Guarantor or any other Person,
claims under guaranties, security interests or other security held by or
granted to Guarantor, all rights to indemnification and all other
intangible property of every kind and nature.
1.16 "Goods" means all things which are movable at the time the
security interest attaches or which are fixtures (other than money,
Documents, Instruments, Investment Property, Accounts, Chattel Paper,
General Intangibles, or minerals or the like (including oil and gas) before
extraction), including standing timber which is to be cut and removed under
a conveyance or contract for sale, the unborn young of animals, and growing
crops.
1.17 "Guarantor's Address" has the meaning set forth in the heading to
the Agreement.
1.18 "Instrument" has the meaning set forth in the UCC.
1.19 "Inventory" means all Goods held for sale or lease or furnished
or to be furnished under contracts of service, including all raw materials,
work in process, finished goods, goods in transit and materials and
supplies which are or might be used or consumed in a business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such Goods, and all products of the foregoing, and shall
include interests in goods represented by Accounts, returned, reclaimed or
repossessed goods and rights as an unpaid vendor.
<PAGE>
1.20 "Investment Property" shall mean all of Guarantor's securities,
whether certificated or uncertificated, securities entitlements, securities
accounts, commodity contracts and commodity accounts.
1.21 "Lender" has the meaning set forth in the heading to the
Agreement.
1.22 "Lien" means any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether
such interest is based on common law, statute or contract, including rights
of sellers under conditional sales contracts or title retention agreements
and reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting property. For the purpose of this Agreement,
Guarantor shall be deemed to be the owner of any property which it has
acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the property has been retained by or
vested in some other Person for security purposes.
1.23 "Loan Agreements" shall mean the Loan and Security Agreements of
even date herewith executed by Lender and each of the Borrowers in favor of
Lender.
1.24 "Loan Documents" means this Agreement, the Loan Agreements and
all notes, guaranties, security agreements, certificates, landlord's
agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Guarantor, Borrowers or any Obligor in
connection with, or to evidence the transactions contemplated by, this
Agreement.
1.25 "Obligations" means all present and future obligations,
liabilities, guaranties, covenants, duties and indebtedness at any time
owing by Guarantor to Lender, whether evidenced by this Agreement or any
note or other instrument or document, whether direct or indirect (including
those acquired by assignment), whether absolute or contingent, whether due
or to become due, and whether arising before or after the commencement of a
proceeding under the Bankruptcy Code or any similar statute, including all
interest, charges, expenses, fees, attorney's fees, expert witness fees,
audit fees, letter of credit fees, loan fees, and any other sums chargeable
to Guarantor under this Agreement.
1.26 "Obligor" means any guarantor, endorser, acceptor, surety or
other person liable on, or with respect to, the Obligations or who is the
owner of any property which is security for the Obligations, other than
Guarantor.
<PAGE>
1.27 "Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit
set forth in Section 2(a) of Schedule A; (ii) leases of specific items of
Equipment in an aggregate amount not to exceed the limit set forth in
Section 2(b) of Schedule A; (iii) Liens for taxes not yet due and payable;
(iv) additional Liens which are fully subordinate to the security interests
of Lender and are consented to in writing by Lender; (v) security interests
being terminated concurrently with the execution of this Agreement; (vi)
Liens of materialmen, mechanics, warehousemen or carriers arising in the
ordinary course of business and securing obligations which are not
delinquent; (vii) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described
in clause (i) or (ii) above; provided, that any extension, renewal or
replacement Lien is limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; and (viii) Liens in favor of customs and
revenue authorities which secure payment of customs duties in connection
with the importation of goods. Lender will have the right to require, as a
condition to its consent under clause (iv) above, that the holder of the
additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien
is subordinate to the security interests of Lender, and agreeing not to
take any action to enforce its subordinate Lien so long as any Obligations
remain outstanding, and that Guarantor agrees that any uncured default in
any obligation secured by the subordinate Lien shall also constitute an
Event of Default under this Agreement.
1.28 "Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated
organization, association, corporation, government or any agency or
political division thereof, or any other entity.
1.29 "Released Parties" has the meaning set forth in Section 5.1.
1.30 "Sale" has the meaning set forth in Section 6.2.
1.31 "Subsidiary" means any corporation or other entity of which a
Person owns, directly or indirectly, through one or more intermediaries,
more than 50% of the capital stock or other equity interest at the time of
determination.
<PAGE>
1.32 "UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of New York.
All other terms contained in this Agreement, unless otherwise indicated,
shall have the meanings provided by the UCC, to the extent such terms are
defined therein. The term "including," whenever used in this Agreement, shall
mean "including but not limited to." The singular form of any term shall include
the plural form, and vice versa, when the context so requires. References to
Sections, subsections and Schedules are to Sections and subsections of, and
Schedules to, this Agreement. All references to agreements and statutes shall
include all amendments thereto and successor statutes in the case of statutes.
2. SECURITY INTEREST.
2.1 To secure the full payment and performance of all of the
Obligations when due, Guarantor hereby grants to Lender a continuing
security interest in all of Guarantor's property and interests in property,
whether tangible or intangible, now owned or in existence or hereafter
acquired or arising, wherever located, including Guarantor's interest in
all of the following: (i) all Accounts, Chattel Paper, Instruments,
Documents, Goods (including Inventory, Equipment, farm products and
consumer goods), Investment Property, General Intangibles, Deposit Accounts
and money, (ii) all proceeds and products of all of the foregoing
(including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the
foregoing.
3. ADMINISTRATION.
3.1 Power of Attorney. Guarantor hereby grants to Lender an
irrevocable power of attorney, coupled with an interest, authorizing and
permitting Lender (acting through any of its officers, employees, attorneys
or agents), at any time (whether or not a Default or Event of Default has
occurred and is continuing, except as expressly provided below), at
Lender's option, but without obligation, with or without notice to
Guarantor, and at Guarantor's expense, to do any or all of the following,
in Guarantor's name or otherwise: (i) execute on behalf of Guarantor any
documents that Lender may, in its sole discretion, deem advisable in order
to perfect and maintain Lender's security interests in the Collateral, to
<PAGE>
exercise a right of Guarantor or Lender, or to fully consummate all the
transactions contemplated by this Agreement and the other Loan Documents
(including such financing statements and continuation financing statements,
and amendments thereto, as Lender shall deem necessary or appropriate) and
to file as a financing statement any copy of this Agreement or any
financing statement signed by Guarantor; (ii) if Guarantor fails to do so
promptly after Lender's request, execute on behalf of Guarantor any
document exercising, transferring or assigning any option to purchase, sell
or otherwise dispose of or lease (as lessor or lessee) any real or personal
property which is part of the Collateral or in which Lender has an
interest; (iii) execute on behalf of Guarantor any invoices relating to any
Accounts, any draft against any Account Debtor and any notice to any
Account Debtor, any proof of claim in bankruptcy, any notice of Lien or
claim, assignment or satisfaction of mechanic's, materialman's or other
Lien; (iv) receive and otherwise take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; (v) endorse
Guarantor's name on all checks and other forms of remittances received by
Lender; (vi) pay, contest or settle any Lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment
based thereon, or otherwise take any action to terminate or discharge the
same; (vii) after the occurrence of a Default or Event of Default, grant
extensions of time to pay, compromise claims relating to, and settle
Accounts, Chattel Paper and General Intangibles for less than face value
and execute all releases and other documents in connection therewith;
(viii) pay any sums required on account of Guarantor's taxes or to secure
the release of any Liens therefor; (ix) pay any amounts necessary to
obtain, or maintain in effect, any of the insurance described in Section
4.10; (x) settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor; (xi) instruct
any third party having custody or control of any Collateral or books or
records belonging to, or relating to, Guarantor to give Lender the same
rights of access and other rights with respect thereto as Lender has under
this Agreement; and (xii) after the occurrence of a Default or Event of
Default, change the address for delivery of Guarantor's mail and receive
and open all mail addressed to Guarantor. Any and all sums paid, and any
and all costs, expenses, liabilities, obligations and reasonable attorneys'
fees incurred, by Lender with respect to the foregoing shall be added to
and become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate set forth in the
Loan Agreements. Guarantor agrees that Lender's rights under the foregoing
power of attorney or any of Lender's other rights under this Agreement or
the other Loan Documents shall not be construed to indicate that Lender is
in control of the business, management or properties of Guarantor.
<PAGE>
3.2 Access to Collateral, Books and Records. At reasonable times, and
on one (1) Business Day's notice prior to the occurrence of a Default or an
Event of Default, and at any time and with or without notice after the
occurrence and during the continuance of a Default or an Event of Default,
Lender or its agents shall have the right to inspect the Collateral, and
the right to examine and copy Guarantor's books and records. Lender shall
take reasonable steps to keep confidential all information obtained in any
such inspection or examination, but Lender shall have the right to disclose
any such information to its auditors, regulatory agencies, attorneys and
participants, and pursuant to any subpoena or other legal process.
Guarantor agrees to give Lender access to any or all of Guarantor's
premises to enable Lender to conduct such inspections and examinations.
Such inspections and examinations shall be at Guarantor's expense and the
charge therefor shall be $650 per person per day (or such higher amount as
shall represent Lender's then current standard charge), plus reasonable
out-of-pockets expenses. Lender may, at Guarantor's expense, use
Guarantor's personnel, computer and other equipment, programs, printed
output and computer readable media, supplies and premises for the
collection, sale or other disposition of Collateral to the extent Lender,
in its sole discretion, deems appropriate. Guarantor hereby irrevocably
authorizes all accountants and third parties to disclose and deliver to
Lender, at Guarantor's expense, all financial information, books and
records, work papers, management reports and other information in their
possession regarding Guarantor. Guarantor will not enter into any agreement
with any accounting firm, service bureau or third party to store
Guarantor's books or records at any location other than Guarantor's Address
without first obtaining Lender's written consent (which consent may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Lender the same rights with respect to access to books and
records and related rights as Lender has under this Agreement).
4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Guarantor represents, warrants
and covenants as follows:
<PAGE>
4.1 Existence and Authority. Guarantor is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation. Guarantor is qualified and licensed to do
business in all jurisdictions in which any failure to do so would have a
material adverse effect on Guarantor. The execution, delivery and
performance by Guarantor of this Agreement has been duly and validly
authorized, does not violate Guarantor's articles or certificate of
incorporation, by-laws or other organizational documents, or any law or any
agreement or instrument or any court order which is binding upon Guarantor
or its property, does not constitute grounds for acceleration of any
indebtedness or obligation under any agreement or instrument which is
binding upon Guarantor or its property, and does not require the consent of
any Person. This Agreement has been duly executed and delivered by, and is
enforceable against, Guarantor, in accordance with its terms.
4.2 Name; Trade Names and Styles. The name of Guarantor set forth in
the heading to this Agreement is its correct and complete legal name.
Listed in Schedule A are all prior names of Guarantor and all of
Guarantor's present and prior trade names. Guarantor shall give Lender at
least thirty (30) days' prior written notice before changing its name or
doing business under any other name. Guarantor has complied with all laws
relating to the conduct of business under a fictitious business name.
Guarantor represents and warrants that (i) each trade name does not refer
to another corporation or other legal entity; (ii) all Accounts invoiced
under any such trade names are owned exclusively by Guarantor and are
subject to the security interest of Lender and the other terms of this
Agreement and (iii) all schedules of Accounts, including any sales made or
services rendered using the trade name shall show Guarantor's name as
assignor.
4.3 Title to Collateral; Permitted Liens. Guarantor has good and
marketable title to the Collateral. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Lender now
has, and will continue to have, a first-priority perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted
Liens, and Guarantor will at all times defend Lender and the Collateral
against all claims of others. None of the Collateral which is Equipment, if
any, is or will be affixed to any real property in such a manner, or with
such intent, as to become a fixture. Guarantor is not a lessee under any
real property lease pursuant to which the lessor may obtain any rights in
any of the Collateral, and no such lease now prohibits, restrains, impairs
or conditions, or will prohibit, restrain, impair or condition, Guarantor's
right to remove any Collateral from the leased premises. Guarantor will
keep in full force and effect, and will comply with all the terms of, any
lease of real property where any of the Collateral now or in the future may
be located.
<PAGE>
4.4 Accounts and Chattel Paper. All Accounts and Chattel Paper are
genuine and in all respects what they purport to be, arise out of a
completed, bona fide and unconditional and non-contingent sale and delivery
of goods or rendition of services by Guarantor in the ordinary course of
its business and in accordance with the terms and conditions of all
purchase orders, contracts or other documents relating thereto, each
Account Debtor thereunder had the capacity to contract at the time any
contract or other document giving rise to such Accounts and Chattel Paper
were executed, and the transactions giving rise to such Accounts and
Chattel Paper comply with all applicable laws and governmental rules and
regulations.
4.5 Investment Property. Guarantor will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender to
obtain exclusive control of any Investment Property in a manner acceptable
to Lender and (ii) obtain from any issuers of Investment Property and such
other Persons as Lender shall specify, for the benefit of Lender, written
confirmation of Lender's exclusive control over such Investment Property.
For purposes of this Section 4.5, Lender shall have exclusive control of
Investment Property if (A) such Investment Property consists of
certificated securities and Guarantor delivers such certificated securities
to Lender (with appropriate endorsements if such certificated securities
are in registered form); (B) such Investment Property consists of
uncertificated securities and either (x) Guarantor delivers such
uncertificated securities to Lender or (y) the issuer thereof agrees,
pursuant to documentation in form and substance satisfactory to Lender,
that it will comply with instructions originated by Lender without further
consent by Guarantor, and (C) such Investment Property consists of security
entitlements and either (x) Lender becomes the entitlement holder thereof
or (y) the appropriate securities intermediary agrees, pursuant to
documentation in form and substance satisfactory to Lender, that it will
comply with entitlement orders originated by Lender without further consent
by Guarantor.
4.6 Place of Business; Location of Collateral. Guarantor's Address is
Guarantor's chief executive office and the location of its books and
records. In addition, except as provided in the immediately following
sentence, Guarantor has places of business and Collateral located only at
the locations set forth in Sections 1(d) and 1(e) of Schedule A. Guarantor
will give Lender at least thirty (30) days' prior written notice before
opening any additional place of business, changing its chief executive
office or the location of its books and records, or moving any of the
Collateral to a location other than Guarantor's Address or one of the
locations set forth in Sections 1(d) and 1(e) of Schedule A, and will
execute and deliver all financing statements and other agreements,
instruments and documents which Lender shall require as a result thereof.
<PAGE>
4.7 Tax Returns and Payments; Pension Contributions. Guarantor has
timely filed all tax returns and reports required by applicable law, and
Guarantor has timely paid all applicable taxes, assessments, deposits and
contributions now or in the future owed by Guarantor. Guarantor may,
however, defer payment of any contested taxes; provided, that Guarantor (i)
in good faith contests Guarantor's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted;
(ii) notifies Lender in writing of the commencement of, and any material
development in, the proceedings; (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a Lien upon any of the
Collateral and (iv) maintains adequate reserves therefor in conformity with
generally accepted accounting principles, consistently applied. Guarantor
is unaware of any claims or adjustments proposed for any of Guarantor's
prior tax years which could result in additional taxes becoming due and
payable by Guarantor. Guarantor has paid, and shall continue to pay, all
amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and
Guarantor has not withdrawn from participation in, permitted partial or
complete termination of, or permitted the occurrence of any other event
with respect to, any such plan which could result in any liability of
Guarantor, including any liability to the Pension Benefit Guaranty
Corporation or any other governmental agency. Guarantor shall, at all
times, utilize the services of an outside payroll service providing for the
automatic deposit of all payroll taxes payable by Guarantor.
4.8 Compliance with Laws. Guarantor has complied in all material
respects with all provisions of all applicable laws and regulations,
including those relating to Guarantor's ownership of real or personal
property, the conduct and licensing of Guarantor's business, the payment
and withholding of taxes, ERISA and other employee matters, safety and
environmental matters.
4.9 Litigation. Section 1(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of
Guarantor's knowledge) threatened against Guarantor. There is no claim,
suit, litigation, proceeding or investigation pending or (to the best of
Guarantor's knowledge) threatened by or against or affecting Guarantor in
any court or before any governmental agency (or any basis therefor known to
Guarantor) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of
Guarantor, or in any material impairment in the ability of Guarantor to
carry on its business in substantially the same manner as it is now being
conducted. Guarantor will promptly inform Lender in writing of any claim,
proceeding, litigation or investigation in the future threatened or
instituted by or against Guarantor.
<PAGE>
4.10 Insurance. Guarantor will at all times carry property, liability
and other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Guarantor will provide evidence of such insurance to Lender,
so that Lender is satisfied that such insurance is, at all times, in full
force and effect. Each property insurance policy shall name Lender as loss
payee and shall contain a lender's loss payable endorsement in form
acceptable to Lender, each liability insurance policy shall name Lender as
an additional insured, and each business interruption insurance policy
shall be collaterally assigned to Lender, all in form and substance
satisfactory to Lender. All policies of insurance shall provide that they
may not be canceled or changed without at least thirty (30) days' prior
written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon
receipt of the proceeds of any such insurance, Lender shall apply such
proceeds in reduction of the Obligations (whether or not then due or
payable) as Lender shall determine in its sole discretion. Guarantor will
promptly deliver to Lender copies of all reports made to insurance
companies.
4.11 Litigation Cooperation. Should any third-party suit or proceeding
be instituted by or against Lender with respect to any Collateral or in any
manner relating to Guarantor, Guarantor shall, without expense to Lender,
make available Guarantor and its officers, employees and agents, and
Guarantor's books and records, without charge, to the extent that Lender
may deem them reasonably necessary in order to prosecute or defend any such
suit or proceeding.
4.12 Maintenance of Collateral, Etc. Guarantor will not use the
Collateral for any unlawful purpose. Guarantor will immediately advise
Lender in writing of any material loss or damage to the Collateral and of
any investigation, action, suit, proceeding or claim relating to the
Collateral or which may result in an adverse impact upon Guarantor's
business, assets or financial condition.
4.13 Notification of Changes. Guarantor will promptly notify Lender in
writing of any material adverse change in the business or financial affairs
of Guarantor or the existence of any circumstance which would make any
representation or warranty of Guarantor untrue in any material respect or
constitute a material breach of any covenant of Guarantor.
4.14 Further Assurances. Guarantor agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords,
mortgagees and processors and other bailees, subordination and
intercreditor agreements and other agreements, instruments and documents as
Lender may request from time to time, to perfect and maintain Lender's
security interests in the Collateral and to fully effectuate the
transactions contemplated by this Agreement.
<PAGE>
4.15 Negative Covenants. Guarantor will not, without Lender's prior
written consent which consent will not be unreasonably withheld, (i) merge
or consolidate with another Person, form any new Subsidiary or acquire any
interest in any Person; (ii) sell or transfer any Collateral or other
assets; (iii) incur any debt outside the ordinary course of business; (iv)
guaranty or otherwise become liable with respect to the obligations of
another party or entity; (v) dissolve or elect to dissolve; (vi) pay any
principal or interest on any indebtedness owing to an Affiliate, (vii)
enter into any transaction with an Affiliate other than on arms-length
terms; or (viii) agree to do any of the foregoing.
5. RELEASE AND INDEMNITY.
5.1 Release. Guarantor hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and
any other Person affiliated with or representing Lender (the "Released
Parties") from any and all liability arising from acts or omissions under
or pursuant to this Agreement, whether based on errors of judgment or
mistake of law or fact, except for those arising from gross negligence or
willful misconduct. However, in no circumstance will any of the Released
Parties be liable for lost profits or other special or consequential
damages.
5.2 Indemnity. Guarantor hereby agrees to indemnify the Released
Parties and hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties,
costs and expenses (including attorneys' fees), of every nature, character
and description, which the Released Parties may sustain or incur based upon
or arising out of any of the transactions contemplated by this Agreement or
the other Loan Documents or any of the Obligations, or any other matter,
cause or thing whatsoever occurred, done, omitted or suffered to be done by
Lender relating to Guarantor or the Obligations (except any such amounts
sustained or incurred as the result of the gross negligence or willful
misconduct of the Released Parties). Notwithstanding any provision in this
Agreement to the contrary, the indemnity agreement set forth in this
Section 5.2 shall survive any termination of this Agreement.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 Events of Default. The occurrence or existence of any Event of
Default under the Loan Agreements is referred to herein as an "Event of
Default".
<PAGE>
6.2 Remedies. Upon the occurrence of any Event of Default, and at any
time thereafter, Lender, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Guarantor), may do any
one or more of the following: (i) accelerate and declare all or any part of
the Obligations to be immediately due, payable and performable,
notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any of the Obligations; (ii) take
possession of any or all of the Collateral wherever it may be found, and
for that purpose Guarantor hereby authorizes Lender, without judicial
process, to enter onto any of Guarantor's premises without interference to
search for, take possession of, keep, store, or remove any of the
Collateral, and remain (or cause a custodian to remain) on the premises in
exclusive control thereof, without charge for so long as Lender deems it
reasonably necessary in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, that if Lender seeks
to take possession of any of the Collateral by court process, Guarantor
hereby irrevocably waives (A) any bond and any surety or security relating
thereto required by law as an incident to such possession, (B) any demand
for possession prior to the commencement of any suit or action to recover
possession thereof and (C) any requirement that Lender retain possession
of, and not dispose of, any such Collateral until after trial or final
judgment; (iii) require Guarantor to assemble any or all of the Collateral
and make it available to Lender at one or more places designated by Lender
which are reasonably convenient to Lender and Guarantor, and to remove the
Collateral to such locations as Lender may deem advisable; (iv) complete
the processing, manufacturing or repair of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal,
Lender shall have the right to use Guarantor's premises, vehicles and other
Equipment and all other property without charge; (v) sell, lease or
otherwise dispose of any of the Collateral, in its condition at the time
Lender obtains possession of it or after further manufacturing, processing
or repair, at one or more public or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit (a "Sale"), and to adjourn
any such Sale from time to time without notice other than oral announcement
at the time scheduled for Sale (and, in connection therewith, (A) Lender
shall have the right to conduct such Sale on Guarantor's premises without
charge, for such times as Lender deems reasonable, on Lender's premises, or
elsewhere, and the Collateral need not be located at the place of Sale; (B)
Lender may directly or through any of its Affiliates purchase or lease any
of the Collateral at any such public disposition, and if permissible under
<PAGE>
applicable law, at any private disposition and (C) any Sale of Collateral
shall not relieve Guarantor of any liability Guarantor may have if any
Collateral is defective as to title, physical condition or otherwise at the
time of sale); (vi) demand payment of and collect any Accounts, Chattel
Paper, Instruments and General Intangibles included in the Collateral and,
in connection therewith, Guarantor irrevocably authorizes Lender to endorse
or sign Guarantor's name on all collections, receipts, Instruments and
other documents, to take possession of and open mail addressed to Guarantor
and remove therefrom payments made with respect to any item of Collateral
or proceeds thereof and, in Lender's sole discretion, to grant extensions
of time to pay, compromise claims and settle Accounts, General Intangibles
and the like for less than face value; and (vii) demand and receive
possession of any of Guarantor's federal and state income tax returns and
the books and records utilized in the preparation thereof or relating
thereto. In addition to the rights and remedies set forth above, Lender
shall have all the other rights and remedies accorded a secured party after
default under the UCC and under all other applicable laws, and under any
other Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from
subsequent exercise or partial exercise of any other rights or remedies.
The failure or delay of Lender to exercise any rights or remedies shall not
operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed. If notice of any sale or other disposition of Collateral is
required by law, notice at least ten (10) days prior to the sale
designating the time and place of sale in the case of a public sale or the
time after which any private sale or other disposition is to be made shall
be deemed to be reasonable notice, and Guarantor waives any other notice.
6.3 Application of Proceeds. Subject to any application required by
law, all proceeds realized as the result of any Sale shall be applied by
Lender to the Obligations in such order as Lender shall determine in its
sole discretion. Any surplus shall be paid to Guarantor or other persons
legally entitled thereto; but Guarantor shall remain liable to Lender for
any deficiency. If Lender, in its sole discretion, directly or indirectly
enters into a deferred payment or other credit transaction with any
purchaser at any Sale, Lender shall have the option, exercisable at any
time, in its sole discretion, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Lender of the cash therefor.
<PAGE>
7. GENERAL PROVISIONS.
7.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service or by certified mail return receipt requested, addressed to Lender
or Guarantor at the address shown in the heading to this Agreement, or by
facsimile to the facsimile number shown in Section 1(i) of Schedule A, or
at any other address (or to any other facsimile number) designated in
writing by one party to the other party in the manner prescribed in this
Section 7.1. All notices shall be deemed to have been given when received
or when delivery is refused by the recipient.
7.2 Severability. If any provision of this Agreement, or the
application thereof to any party or circumstance, is held to be void or
unenforceable by any court of competent jurisdiction, such defect shall not
affect the remainder of this Agreement, which shall continue in full force
and effect.
7.3 Integration. This Agreement and the other Loan Documents to which
Guarantor is a party represent the final, entire and complete agreement
between Guarantor and Lender and supersede all prior and contemporaneous
negotiations, oral representations and agreements, all of which are merged
and integrated into this Agreement. THERE ARE NO ORAL UNDERSTANDINGS,
REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH
IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH GUARANTOR IS A
PARTY.
7.4 Waivers. The failure of Lender at any time or times to require
Guarantor to strictly comply with any of the provisions of this Agreement
or any other Loan Documents to which Guarantor is a party shall not waive
or diminish any right of Lender later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect
any other default, whether prior or subsequent, and whether or not similar.
None of the provisions of this Agreement or any other Loan Document shall
be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Guarantor. Guarantor waives
demand, protest, notice of protest and notice of default or dishonor,
notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, Instrument, Account, General
Intangible, Document, Chattel Paper, Investment Property or guaranty at any
time held by Lender on which Guarantor is or may in any way be liable, and
notice of any action taken by Lender, unless expressly required by this
Agreement, and notice of acceptance hereof.
7.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by Guarantor and a duly
authorized officer of Lender.
<PAGE>
7.6 Time of Essence. Time is of the essence in the performance by
Guarantor of each and every obligation under this Agreement and the other
Loan Documents.
7.7 Attorneys Fees and Costs. Guarantor shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys
and paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Lender, pursuant
to, in connection with, or relating to this Agreement, including all
reasonable attorneys' fees and costs Lender incurs to prepare and negotiate
this Agreement and the other Loan Documents which are not paid by
Borrowers; to obtain legal advice in connection with this Agreement and the
other Loan Documents or Guarantor or any Obligor; to administer this
Agreement and the other Loan Documents (including the cost of periodic
financing statement, tax lien and other searches conducted by Lender); to
enforce, or seek to enforce, any of its rights; prosecute actions against,
or defend actions by, Account Debtors; to commence, intervene in, or defend
any action or proceeding; to initiate any complaint to be relieved of the
automatic stay in bankruptcy; to file or prosecute any probate claim,
bankruptcy claim, third-party claim, or other claim; to examine, audit,
copy, and inspect any of the Collateral or any of Guarantor's books and
records; to protect, obtain possession of, lease, dispose of, or otherwise
enforce Lender's security interests in, the Collateral; and to otherwise
represent Lender in any litigation relating to Guarantor. If either Lender
or Guarantor files any lawsuit against the other predicated on a breach of
this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and
costs to which Lender may be entitled pursuant to this Section shall
immediately become part of the Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate set forth
in the Loan Agreements.
<PAGE>
7.8 Benefit of Agreement; Assignability. The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs, beneficiaries and representatives of Guarantor
and Lender; provided, that Guarantor may not assign or transfer any of its
rights under this Agreement without the prior written consent of Lender,
and any prohibited assignment shall be void. No consent by Lender to any
assignment shall release Guarantor from its liability for any of the
Obligations. Lender shall have the right to assign all or any of its rights
and obligations under the Loan Documents, and to sell participating
interests therein, to one or more other Persons, and Guarantor agrees to
execute all agreements, instruments and documents requested by Lender in
connection with each such assignment and participation.
7.9 Headings; Construction. Section and subsection headings are used
in this Agreement only for convenience. Guarantor and Lender acknowledge
that the headings may not describe completely the subject matter of the
applicable Sections or subsections, and the headings shall not be used in
any manner to construe, limit, define or interpret any term or provision of
this Agreement. This Agreement has been fully reviewed and negotiated
between the parties and no uncertainty or ambiguity in any term or
provision of this Agreement shall be construed strictly against Lender or
Guarantor under any rule of construction or otherwise.
7.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE,
IN NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF SUCH STATE. GUARANTOR HEREBY CONSENTS AND AGREES THAT THE
STATE AND FEDERAL COURTS IN NEW YORK OR THE STATE IN WHICH ANY OF THE
COLLATERAL IS LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GUARANTOR AND LENDER PERTAINING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. GUARANTOR EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND WAIVES ANY OBJECTION WHICH GUARANTOR MAY
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. GUARANTOR ALSO AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY
GUARANTOR AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS OF
NEW YORK. EACH OF LENDER AND GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE IN THE MANNER AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 7.1
FOR NOTICES, TO THE EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF BORROWER OR LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE
THE ENFORCEMENT BY BORROWER OR LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN
SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE
SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
<PAGE>
7.11 WAIVER OF JURY TRIAL, ETC. GUARANTOR WAIVES (i) THE RIGHT TO
TRIAL BY JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS TO WHICH IT IS A PARTY, THE OBLIGATIONS OR THE COLLATERAL OR ANY
CONDUCT, ACTS OR OMISSIONS OF LENDER OR GUARANTOR OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OR ANY OTHER
PERSONS AFFILIATED WITH LENDER OR GUARANTOR, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS, DEDUCTIONS,
SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING INSTITUTED
BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING
THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO
LENDER'S TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR
SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO
EXERCISE ANY OF LENDER'S REMEDIES AND (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS. GUARANTOR ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT
AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH GUARANTOR. GUARANTOR WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Guarantor and Lender have signed this Agreement as of
the date set forth in the heading.
Guarantor: Lender:
NORTHWEST TELEPRODUCTIONS/ NATIONSCREDIT COMMERCIAL CORPORATION,
KANSAS CITY, INC. THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its Chief Financial Officer Its Authorized Signatory
<PAGE>
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Security Agreement between
NORTHWEST TELEPRODUCTIONS/KANSAS CITY, INC. and NATIONSCREDIT COMMERCIAL
CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL FUNDING DIVISION (the
"Agreement").
1. Guarantor Information:
(a) Prior Names of Guarantor: Northwest Teleproductions/
Chicago, Inc.
(b) Prior Trade Names of Guarantor: None
(c) Existing Trade Names of Guarantor: None
(d) Inventory Locations: None
(e) Other Locations: 4000 West 76th Street
Minneapolis, Minnesota 55435
(f) Litigation: None
(g) Ownership of Guarantor: Wholly-owned subsidiary of
Northwest Teleproductions, Inc.
(h) Subsidiaries (and ownership thereof): None
(i) Facsimile Numbers:
Guarantor: (612) 837-4735
Lender: (212) 597-1666
2. Limitations of Liens:
(a) Limitation of Purchase Money not applicable
Security Interests:
(b) Limitation on Equipment Leases: not applicable
<PAGE>
IN WITNESS WHEREOF, Guarantor and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Guarantor: Lender:
NORTHWEST TELEPRODUCTIONS/ NATIONSCREDIT COMMERCIAL CORPORATION,
KANSAS CITY, INC. THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION
By /s/ Phillip A. Staden By /s/ Robert Bellish
Its C.F.O. Its Authorized Signatory
GUARANTY
Borrowers: Northwest Teleproductions, Inc., a
Minnesota corporation
and
Northwest Teleproductions/Chicago, Inc., a
Minnesota corporation
and
Southwest Teleproductions, Inc., a
Texas corporation
Guarantor(s) Northwest Teleproductions/Kansas City, Inc.,
a Minnesota corporation
Borrowers have requested that NationsCredit Commercial Corporation, through
its NationsCredit Commercial Funding Division ("Lender") provide certain
financial accommodations to Borrowers pursuant to the terms of certain Loan and
Security Agreements between each Borrower and Lender, respectively, dated of
even date herewith (as amended from time to time, the "Loan Agreements"). As one
of the conditions to providing financing, Lender has required that Northwest
Teleproductions/Kansas City, Inc. ("Guarantor") guaranty all obligations of
Borrowers to Lender.
For value received and in consideration of any loan, advance or financial
accommodation of any kind whatsoever heretofore, now or hereafter made, given or
granted to each Borrower by Lender pursuant to the Loan Agreements, Guarantor
unconditionally guaranties the full and prompt payment when due, whether at
maturity or earlier, by reason of acceleration or otherwise, and at all times
thereafter, of the indebtedness, liabilities and obligations of every kind and
nature of each Borrower to Lender (including all interest accruing after the
filing of a proceeding under the Bankruptcy Code (as defined in the Loan
Agreements) whether or not allowed by the court in such proceeding, and all
indebtedness, liabilities and obligations arising after the filing of any
proceeding under the Bankruptcy Code), howsoever created, arising or evidenced,
<PAGE>
whether direct or indirect, absolute or contingent, joint or several, now or
hereafter existing, or due or to become due, in each case arising under the Loan
Agreements and the other Loan Documents, plus all costs and expenses (including,
without limitation, all court costs and reasonable attorneys' and paralegals'
fees and expenses) paid or incurred by Lender in endeavoring to collect all or
any part of such indebtedness, liabilities and obligations from, or in
prosecuting any action against, Guarantor or any other guarantor of all or any
part of such indebtedness, liabilities and obligations (all such indebtedness,
liabilities, obligations, costs and expenses being hereinafter referred to as
"Borrowers' Obligations"). All sums becoming due under this Guaranty shall bear
interest from the due date thereof until paid at the highest rate charged with
respect to any of Borrowers' Obligations under the Loan Agreements.
Guarantor agrees that its obligations under this Guaranty are
unconditional, irrespective of (i) the validity or enforceability of Borrowers'
Obligations or any notes or other instruments evidencing Borrowers' Obligations,
(ii) the absence of any attempt by Lender to collect Borrowers' Obligations from
any Borrower or any other guarantor, (iii) Lender's waiver or consent with
respect to any provision of the Loan Documents, (iv) Lender's failure to perfect
or maintain its security interests in, or to preserve its rights with respect
to, any of the Collateral, (v) Lender's election, in any proceeding under
Chapter 11 of the Bankruptcy Code, of the application of Section 1111(b)(2) of
the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
Borrower as debtor-in-possession under Section 364 of the Bankruptcy Code, (vii)
the disallowance, under Section 502 of the Bankruptcy Code, of all or any of
Lender's claims for repayment of Borrowers' Obligations or (viii) any other
circumstance which might constitute a legal or equitable discharge or defense of
any Borrower or a guarantor.
No payment made by or for the account or benefit of Guarantor (including
(i) a payment made by any Borrower in respect of Borrowers' Obligations, (ii) a
payment made by any person under any other guaranty of Borrowers' Obligations or
(iii) a payment made by means of set off or other application of funds by
Lender) pursuant to this Guaranty shall entitle Guarantor, by subrogation or
otherwise, to any payment by any Borrower or from or out of any property of any
Borrower, and Guarantor shall not exercise any rights or remedies against any
Borrower or any property of any Borrower including any right of contribution,
indemnity or reimbursement by reason of any performance by Guarantor under this
Guaranty, all of such rights of subrogation, contribution, indemnity and
reimbursement being hereby waived by Guarantor. The provisions of this paragraph
shall survive the termination of this Guaranty or the release or discharge of
Guarantor from liability hereunder. Guarantor and Lender hereby agree that each
Borrower is a third party beneficiary of the provisions of this paragraph.
<PAGE>
Guarantor hereby waives diligence, presentment, demand for payment, filing
of claims with a court in the event of receivership or bankruptcy of a Borrower,
protest or notice with respect to Borrowers' Obligations and all demands
whatsoever, and covenants that this Guaranty will not be discharged, except by
complete and irrevocable payment and performance of the obligations and
liabilities contained herein. No notice to any party, including Guarantor, shall
be required for Lender to make demand hereunder. Such demand shall constitute a
mature and liquidated claim against Guarantor. At any time after maturity of
Borrowers' Obligations, whether by acceleration or otherwise, Lender may, at its
sole election, proceed directly and at once, without notice, against Guarantor
to collect and recover the full amount or any portion of Borrowers' Obligations,
without first proceeding against any Borrower or any other person or against any
of the Collateral. Lender shall have the exclusive right to determine the
application of payments and credits, if any, from Guarantor, any Borrower or any
other person, on account of Borrowers' Obligations.
Lender is hereby authorized, without notice or demand to Guarantor and
without affecting or impairing the liability of Guarantor hereunder, to from
time to time (i) renew, extend, accelerate or otherwise change the time for
payment of, or other terms relating to, Borrowers' Obligations or otherwise
modify, amend or change the terms of any promissory note or other agreement,
document or instrument now or hereafter executed by a Borrower and delivered to
Lender; (ii) accept partial payments on Borrowers' Obligations; (iii) take and
hold collateral for the payment of Borrowers' Obligations, or for the payment of
this Guaranty, or for the payment of any other guaranties or Borrowers'
Obligations or other liabilities of a Borrower, and exchange, enforce, waive and
release any such security or collateral; (iv) apply such security or collateral
and direct the order or manner of sale thereof as in its sole discretion it may
determine; and (v) settle, release, compromise, collect or otherwise liquidate
Borrowers' Obligations and any security or collateral therefor in any manner.
At any time after maturity of Borrowers' Obligations, Lender may, in its
sole discretion, without notice to Guarantor and regardless of the acceptance of
any security or collateral for the payment hereof, appropriate and apply toward
payments of Borrowers' Obligations that remain unpaid, (i) any indebtedness due
or to become due from Lender to Guarantor and (ii) any moneys, credits or other
property belonging to Guarantor at any time held by or coming into the
possession of Lender or any affiliates of Lender, whether for deposit or
otherwise.
<PAGE>
Guarantor assumes responsibility for keeping itself informed of the
financial condition of each Borrower and all other guarantors of all or any of
Borrowers' Obligations, and of all other circumstances bearing upon the risk of
nonpayment of Borrowers' Obligations or any part thereof that diligent inquiry
might reveal, and Guarantor agrees that Lender shall have no duty to advise
Guarantor of information known to Lender regarding any of the foregoing.
Guarantor acknowledges familiarity with each Borrower's financial condition and
represents that it has not relied on any statements made, or information
furnished, by Lender or its agents in obtaining such familiarity. If Lender
provides any such information to Guarantor, Lender shall be under no obligation
to (i) undertake any investigation not a part of its regular business routine,
(ii) disclose any information which, pursuant to accepted or reasonable
commercial finance practices, Lender wishes to maintain confidential or (iii)
make any other or future disclosures of any information to Guarantor.
Notwithstanding any contrary provision of this Guaranty, it is intended
that neither this Guaranty nor any liens or security interests securing this
Guaranty constitute a "Fraudulent Conveyance" (as defined below). Consequently,
Guarantor agrees that if this Guaranty or any liens or security interests
securing this Guaranty, would, but for the application of this sentence,
constitute a Fraudulent Conveyance, this Guaranty and each such lien and
security interest shall be valid and enforceable only to the maximum extent that
would not cause this Guaranty or such lien or security interest to constitute a
Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have
been amended accordingly at all relevant times. For purposes hereof, a
"Fraudulent Conveyance" means a fraudulent conveyance under Section 548 of the
Bankruptcy Code or a fraudulent conveyance or fraudulent transfer under any
applicable fraudulent conveyance or fraudulent transfer law or similar law of
any state or other governmental unit as in effect from time to time.
Guarantor waives the right to assert the doctrine of marshaling with
respect to any collateral held by Lender to secure any of the Borrowers'
Obligations. Guarantor further agrees that, to the extent a Borrower makes one
or more payments to Lender, or Lender receives any proceeds of collateral which
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to such Borrower, its estate, trustee, receiver
or any other party under the Bankruptcy Code or other law, that portion of
Borrowers' Obligations which has been paid, reduced or satisfied by such payment
shall be reinstated and continued in full force and effect as of the date such
initial payment, reduction or satisfaction occurred and this Guaranty shall
continue to be in existence and in full force and effect, irrespective of
whether any evidence of indebtedness or this Guaranty has been surrendered or
canceled.
Guarantor agrees that all payments hereunder shall be made without setoff
or counterclaims and Guarantor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor and
notices of acceptance of this Guaranty. Guarantor further waives all notices of
the existence, creation or incurring of new or additional indebtedness, arising
either from additional loans extended to a Borrower or otherwise, and also
waives all notices that the principal amount, or any portion thereof, or any
interest on any instrument or document evidencing all or any part of Borrowers'
Obligations is due, notices of any and all proceedings to collect from the
maker, any endorser or any other guarantor of all or any part of Borrowers'
Obligations, or from anyone else, and, to the extent permitted by law, notices
of exchange, sale, foreclosure, surrender or other handling of any security or
collateral securing payment of Borrowers' Obligations.
<PAGE>
No delay on the part of Lender in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Lender of any
right or remedy shall preclude any further exercise thereof except as expressly
set forth in a writing duly signed and delivered on Lender's behalf by an
authorized officer or agent of Lender; nor shall any modification or waiver of
any of the provisions of this Guaranty be binding upon Lender, except as
expressly set forth in a writing duly signed and delivered on Lender's behalf by
an authorized officer or agent of Lender. Lender's failure at any time or times
hereafter to require strict performance by any Borrower or Guarantor of any of
the provisions, warranties, terms and conditions contained in any promissory
note, security agreement, agreement, guaranty, instrument or document now or at
any time or times hereafter executed by any Borrower or Guarantor and delivered
to Lender, shall not waive, affect or diminish any right of Lender at any time
or times hereafter to demand strict performance thereof and such right shall not
be deemed to have been waived by any act or knowledge of Lender, or its
respective agents, officers or employees, unless such waiver is contained in an
instrument in writing signed by an officer or agent of Lender, and directed to
such Borrower or Guarantor, as applicable, specifying such waiver. No waiver by
Lender of any default shall operate as a waiver of any other default or the same
default on a future occasion, and no action by Lender permitted hereunder shall
in any way affect or impair Lender's rights or the obligations of Guarantor
under this Guaranty. Any determination by a court of competent jurisdiction of
the amount of any principal or interest owing by a Borrower to Lender shall be
conclusive and binding on Guarantor irrespective of whether Guarantor was a
party to the suit or action in which such determination was made.
Guarantor hereby represents and warrants that (i) it is in Guarantor's
direct interest to assist each Borrower in procuring credit, because each
Borrower is an affiliate of Guarantor, furnishes goods or services to Guarantor,
purchases or acquires goods or services from Guarantor, and/or otherwise has a
direct or indirect corporate or business relationship with Guarantor, (ii) this
Guaranty has been duly and validly authorized, executed and delivered and
constitutes the valid and binding obligation of Guarantor, enforceable in
accordance with its terms, and (iii) the execution and delivery of this Guaranty
does not violate or constitute a default under (with or without the giving of
notice, the passage of time, or both) any order, judgment, decree, instrument or
agreement to which Guarantor is a party or by which it or its assets are
affected or bound.
<PAGE>
This Guaranty shall be binding upon Guarantor and upon the successors and
permitted assigns of Guarantor and shall inure to the benefit of Lender and its
successors and assigns. All references herein to each Borrower shall be deemed
to include its successors and permitted assigns and all references herein to
Lender shall be deemed to include its successors and assigns. Each Borrower's
and Guarantor's successors and permitted assigns shall include a receiver,
trustee, custodian of or for each Borrower or Guarantor or any of their
respective assets and such Borrower and Guarantor as debtor in possession. All
references to the singular shall be deemed to include the plural where the
context so requires.
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL COURTS IN
NEW YORK SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES WITH RESPECT TO THIS GUARANTY AND WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND EACH OF GUARANTOR AND LENDER CONSENTS THAT ALL
SERVICE OF PROCESS UPON GUARANTOR OR LENDER BE MADE BY REGISTERED MAIL OR
MESSENGER DIRECTED TO GUARANTOR OR LENDER AT THE ADDRESS SET FORTH BELOW
GUARANTOR'S SIGNATURE AND LENDER'S ADDRESS SET FORTH IN THE LOAN AGREEMENTS AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT
THEREOF. GUARANTOR HEREBY AGREES THAT ANY CLAIM OR DISPUTE BROUGHT BY GUARANTOR
AGAINST LENDER OR ANY MATTER ARISING OUT OF THIS GUARANTY SHALL BE BROUGHT
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS IN NEW YORK. GUARANTOR AND LENDER
EACH HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY. NOTHING
CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION
OR PROCEEDING AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS.
Wherever possible each provision of this Guaranty shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor this
24th day of April, 1997.
NORTHWEST TELEPRODUCTIONS/KANSAS CITY, INC.
By /s/ Phillip A. Staden
Its Chief Financial Officer
4000 West 76th Street
Minneapolis, Minnesota 55435
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is entered into as of June 4, 1997,
between NORTHWEST TELEPRODUCTIONS, INC., a Minnesota corporation ("Borrower"),
and NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION ("Lender").
WHEREAS, Borrower has requested that Lender amend the Loan Agreement dated
April 24, 1997 (the "Loan Agreement") in various respects, and Lender has agreed
to do so subject to the terms contained herein;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Loan Agreement.
2. Amendments to Loan Agreement
(a) Section 2(a) of Schedule A to the Loan Agreement is hereby amended and
restated in its entirety as follows:
"2. Loan Limits for Term Loan:
(a) Principal Amount: $1,860,000.00 (the "Equipment Advance")
plus
the lesser of $700,000 and 60% of the
appraised quick sale value of the Real
Property (the "Real Property Advance"):
(b) Section 2(b) of Schedule A to the Loan Agreement is hereby amended to
add a new clause (ii) as follows:
"(ii) Real Property 60 equal consecutive monthly installments
Advance: of $11,666.67 commencing July 1, 1997"
3. Other Amendments. This Amendment shall constitute an amendment to the
Loan Agreement and all of the other Loan Documents as appropriate to express the
agreements contained herein. In all other respects, the Loan Agreement and the
other Loan Documents shall remain unchanged and in full force and effect in
accordance with their original terms.
<PAGE>
4. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce Lender to enter
into this Amendment, Borrower hereby warrants to Lender, as of date hereof,
that:
(i) The representations and warranties of Borrower contained in the
Loan Agreement are true and correct as of the date hereof as if made on the
date hereof.
(ii) All information, reports and other papers and data heretofore
furnished to Lender by Borrower in connection with this Amendment, the Loan
Agreement and the other Loan Documents are accurate and correct in all
material respects and complete insofar as may be necessary to give Lender
true and accurate knowledge of the subject matter thereof. Borrower has
disclosed to Lender every fact of which it is aware which might adversely
affect the business, operations or financial condition of Borrower or the
ability of Borrower to perform its obligations under this Amendment, the
Loan Agreement or under any of the other Loan Documents. None of the
information furnished to Lender by or on behalf of Borrower contained any
material misstatement of fact or omitted to state a material fact or any
fact necessary to make the statements contained herein or therein not
materially misleading.
(iii) No Event of Default or Default exists as of the date hereof.
(b) Expenses. Borrower agrees to pay on demand all costs and expenses of
Lender (including the reasonable fees and expenses of outside counsel for
Lender) in connection with the preparation, negotiation, execution, delivery and
administration of this Amendment and all other instruments or documents provided
for herein or delivered in connection herewith. In addition, Borrower agrees to
pay, and save Lender harmless from all liability for, any stamp or other taxes
which may be payable in connection with the execution or delivery of this
Amendment or the Loan Agreement, as amended hereby, and the execution and
delivery of any instruments or documents provided for herein or delivered or to
be delivered hereunder or in connection herewith. All obligations provided in
this Section 4(b) shall survive any termination of this Amendment and the Loan
Agreement as amended hereby.
(c) Governing Law. This Amendment shall be a contract made under and
governed by the internal laws of the State of New York.
<PAGE>
(d) Counterparts. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
(e) Reference to Loan Agreement. On and after the effectiveness of the
amendment to the Loan Agreement accomplished hereby, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like
import, and each reference to the Loan Agreement in any other Loan Documents, or
other agreements, documents or other instruments executed and delivered pursuant
to the Loan Agreement, shall mean and be a reference to the Loan Agreement, as
amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrower, Lender and
their respective successors and assigns, and shall inure to the benefit of
Borrower, Lender and the successors and assigns of Lenders.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and delivered at
New York, New York as of the date first above written.
NORTHWEST TELEPRODUCTIONS, INC.
By /s/ Phillip A. Staden
Its C.F.O.
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION
By /s/ Robert Bellish
Its
The undersigned guarantors hereby acknowledge the foregoing amendment and
ratify and reaffirm their respective guarantees of the obligations of Northwest
Teleproductions, Inc.
NORTHWEST TELEPRODUCTIONS/
CHICAGO, INC.
By /s/ Phillip A. Staden
Its C.F.O.
SOUTHWEST TELEPRODUCTIONS, INC.
By /s/ Phillip A. Staden
Its C.F.O.
EXHIBIT 10.24
OFFICER'S INCENTIVE COMPENSATION
The corporate officers, John C. McGrath and Phillip A. Staden, shall receive
additional compensation as participants in the "Officers Incentive Compensation
Plan" which plan is defined as follows:
*Incentive compensation in the form of a cash bonus shall be paid based on
consolidated audited pre-tax earnings, which for the purpose of this plan, will
be pre-tax earnings as determined in accordance with generally accepted
accounting principles and shall be net of a deduction for a provision for
officers incentive compensation to be paid under this plan.
*Total incentive compensation shall be calculated as follows:
Incentive compensation for John C. McGrath and Phillip A. Staden shall
equal five percent (5%) and two and one half percent (2.5%), respectively, of
consolidated pre-tax earnings in excess of eight percent (8%) of consolidated
stockholders' equity at fiscal year end. The incentive is subject to a maximum
of fifty percent (50%) of compensation.
REAL PROPERTY MORTGAGE
(Hennepin County, Minnesota)
THIS REAL PROPERTY MORTGAGE ("Mortgage"), made as of June 4, 1997, is made
and executed by Northwest Teleproductions, Inc., a Minnesota corporation, having
its principal offices at 445 West 77th Street, Minneapolis, Minnesota 55435
("Mortgagor"), in favor of NationsCredit Commercial Corporation, through its
NationsCredit Commercial Funding Division, having an office at 1177 Avenue of
the Americas, 36th Floor, New York, New York 10036 ("Lender").
RECITALS
I. Pursuant to the terms of a certain Loan and Security Agreement of even
date herewith by and between Lender and Mortgagor, as amended by that certain
First Amendment to Loan and Security Agreement dated June 4, 1997 by and between
Lender and Mortgagor (said Loan Agreement, together with all amendments,
supplements, modifications and replacements thereof, being hereinafter referred
to as the "Loan Agreement"), Lender has agreed, among other things more
particularly described in the Loan Agreement, to make to Mortgagor (a) a term
loan in the original principal amount of $1,860,000, which term loan (the "Term
Loan A") is evidenced by a term note dated April 24, 1997 (said term note,
together with all amendments, supplements, modifications and full or partial
replacements thereof, being hereinafter referred to as the "Term Note A") and
(b) a term loan in the original principal amount of $700,000, which term loan
(the "Term Loan B") is evidenced by a term note dated June 4, 1997 (said term
note, together with all amendments, supplements, modifications and full or
partial replacements thereof, being hereinafter referred to as the "Term Note
B"). Term Note A and Term Note B are hereinafter collectively referred to as the
"Notes" and Term Loan A and Term Loan B are collectively hereinafter referred to
as the "Loans."
II. The terms and provisions of the Notes and the Loan Agreement are hereby
incorporated by reference in this Mortgage. The initial maturity date of the
Loans is April 23, 2000, subject to renewal as set forth in the Loan Agreement.
The rate or rates of interest payable under the Notes may be variable.
GRANTING CLAUSES
To secure the payment of the indebtedness evidenced by the Notes and the
payment of all amounts due under and the performance and observance of all
covenants and conditions contained in this Mortgage, the Notes, the Loan
Agreement, any and all other mortgages, security agreements, assignments of
leases and rents, guaranties, reimbursement agreements in connection with any
letters of credit and any other documents and instruments now or hereafter
executed by Mortgagor or any party related thereto or affiliated therewith to
<PAGE>
evidence, secure or guarantee the payment of all or any portion of the
indebtedness under the Notes, the Loan Agreement and any and all renewals,
extensions, amendments and replacements of this Mortgage, the Notes, the Loan
Agreement and any such other documents and instruments (the Notes, the Loan
Agreement, this Mortgage, such other mortgages, security agreements, assignments
of leases and rents, guaranties, reimbursement agreements in connection with any
letters of credit, and any other documents and instruments now or hereafter
executed and delivered in connection with the Loans, and any and all amendments,
renewals, extensions and replacements hereof and thereof, being sometimes
referred to collectively as the "Loan Instruments" and individually as a "Loan
Instrument") (all indebtedness and liabilities secured hereby being hereinafter
sometimes referred to as "Borrower's Liabilities", Mortgagor does hereby convey,
mortgage, warrant, assign, transfer, pledge and deliver to Lender and grant to
Lender a security interest in the following described property, WITH POWER OF
SALE, subject to the terms and conditions herein:
(A) The land located in Hennepin County, Minnesota, legally described in
attached Exhibit A ("Land");
(B) All the buildings, structures, improvements and fixtures of every kind
or nature now or hereafter situated on the Land and all machinery, appliances,
equipment, furniture and all other personal property of every kind or nature
which constitute fixtures with respect to the Land, together with all
extensions, additions, improvements, substitutions and replacements of the
foregoing ("Improvements");
(C) All easements, tenements, rights-of-way, vaults, gores of land,
streets, ways, alleys, passages, sewer rights, water courses, water rights and
powers and appurtenances in any way belonging, relating or appertaining to any
of the Land or Improvements, or which hereafter shall in any way belong, relate
or be appurtenant thereto, whether now owned or hereafter acquired
("Appurtenances");
(D) (i) All judgments, insurance proceeds, awards of damages and
settlements which may result from any damage to all or any portion of the Land,
Improvements or Appurtenances or any part thereof or to any rights appurtenant
thereto;
(ii) All compensation, awards, damages, claims, rights of action and
proceeds of or on account of (a) any damage or taking, pursuant to the power of
eminent domain, of the Land, Improvements or Appurtenances or any part thereof,
(b) damage to all or any portion of the Land, Improvements or Appurtenances by
reason of the taking, pursuant to the power of eminent domain, of all or any
portion of the Land, Improvements, Appurtenances or of other property, or (c)
the alteration of the grade of any street or highway on or about the Land,
Improvements, Appurtenances or any part thereof, and, except as otherwise
provided herein, Lender is hereby authorized to collect and receive said awards
and proceeds and to give proper receipts and acquittances therefor and, except
as otherwise provided herein, to apply the same toward the payment of the
indebtedness and other sums secured hereby; and
<PAGE>
(iii) All proceeds, products, replacements, additions, substitutions,
renewals and accessions of and to the Land, Improvements or Appurtenances;
(E) All rents, issues, profits, income and other benefits now or hereafter
arising from or in respect of the Land, Improvements or Appurtenances (the
"Rents"); it being intended that this Granting Clause shall constitute an
absolute and present assignment of the Rents, subject, however, to the
conditional permission given to Mortgagor to collect and use the Rents as
provided in this Mortgage;
(F) Any and all leases, licenses and other occupancy agreements now or
hereafter affecting the Land, Improvements or Appurtenances, together with all
security therefor and guaranties thereof and all monies payable thereunder, and
all books and records owned by Mortgagor which contain evidence of payments made
under the leases and all security given therefor (collectively, the "Leases"),
subject, however, to the conditional permission given in this Mortgage to
Mortgagor to collect the Rents arising under the Leases as provided in this
Mortgage;
(G) Any and all after-acquired right, title or interest of Mortgagor in and
to any of the property described in the preceding Granting Clauses; and
(H) The proceeds from the sale, transfer, pledge or other disposition of
any or all of the property described in the preceding Granting Clauses;
All of the mortgaged property described in the Granting Clauses, together
with all real and personal, tangible and intangible property pledged in, or to
which a security interest attaches pursuant to, any of the Loan Instruments is
sometimes referred to collectively as the "Mortgaged Property." The Rents and
Leases are pledged on a parity with the Land and Improvements and not
secondarily.
ARTICLE ONE
COVENANTS OF MORTGAGOR
Mortgagor covenants and agrees with Lender as follows:
1.1. Performance under Loan Agreement, Notes, Mortgage and Other Loan
Instruments. Mortgagor shall perform, observe and comply with or cause to be
performed, observed and complied with in a complete and timely manner all
provisions hereof, of the Loan Agreement, the Notes, every other Loan Instrument
and every instrument evidencing or securing Borrower's Liabilities.
1.2. General Covenants and Representations. Mortgagor covenants, represents
and warrants that as of the date hereof and at all times thereafter during the
term hereof: (a) Mortgagor is seized of an indefeasible estate in fee simple in
that portion of the Mortgaged Property which is real property, and has good and
absolute title to it and the balance of the Mortgaged Property free and clear of
all liens, security interests, charges and encumbrances whatsoever except (i)
those described on Exhibit B attached hereto and (ii) those expressly permitted
<PAGE>
in writing by Lender, if any (such liens, security interests, charges and
encumbrances expressly permitted in writing being hereinafter referred to as the
"Permitted Encumbrances"); (b) Mortgagor has good right, full power and lawful
authority to mortgage and pledge the Mortgaged Property as provided herein; (c)
upon the occurrence of an Event of Default (hereinafter defined), Lender may at
all times peaceably and quietly enter upon, hold, occupy and enjoy the Mortgaged
Property in accordance with the terms hereof; and (d) Mortgagor will maintain
and preserve the lien of this Mortgage as a first and paramount lien on the
Mortgaged Property subject only to the Permitted Encumbrances until Borrower's
Liabilities have been paid in full and Lender's obligations under the Loan
Agreement have been terminated.
1.3. Compliance with Laws and Other Restrictions. Mortgagor covenants and
represents that the Land and the Improvements and the use thereof presently
comply with, and will continue to comply with, all applicable restrictive
covenants, zoning and subdivision ordinances and building codes, licenses,
health and environmental laws and regulations and all other applicable laws,
ordinances, rules and regulations (unless compliance is not required because
"grandfathering" provisions or similar provisions of applicable law permit such
non-compliance).
1.4. Taxes and Other Charges.
1.4.1. Taxes and Assessments. Mortgagor shall pay promptly when due
all taxes, assessments, rates, dues, charges, fees, levies, fines,
impositions, liabilities, obligations, liens and encumbrances of every kind
and nature whatsoever now or hereafter imposed, levied or assessed upon or
against the Mortgaged Property or any part thereof, or upon or against this
Mortgage or Borrower's Liabilities; provided, however, that Mortgagor may
in good faith contest the validity, applicability or amount of any tax,
assessment or other charge, if, on or before the due date of the asserted
tax, assessment, or other charge, Mortgagor shall obtain an endorsement, in
form and substance reasonably satisfactory to Lender, to the loan policy of
title insurance issued to Lender insuring the lien of this Mortgage,
insuring over such tax, assessment or other charge and if Mortgagor
otherwise complies with any provisions which may be set forth in the Loan
Agreement regarding the contest of taxes.
1.4.2. Taxes Affecting Lender's Interest. If any state, federal,
municipal or other governmental law, order, rule or regulation, which
becomes effective subsequent to the date hereof, in any manner changes or
modifies existing laws governing the taxation of mortgages or debts secured
by mortgages, or the manner of collecting taxes, so as to impose on Lender
a tax by reason of its ownership of any or all of the Loan Instruments or
measured by the principal amount of Borrower's Liabilities, requires or has
the practical effect of requiring Lender to pay any portion of the real
estate taxes levied in respect of the Mortgaged Property or to pay any tax
levied in whole or in part in substitution for real estate taxes or
<PAGE>
otherwise affects materially and adversely the rights of Lender in respect
of Borrower's Liabilities, this Mortgage or the other Loan Instruments,
Borrower's Liabilities and all interest accrued thereon shall, upon thirty
(30) days' notice, become due and payable forthwith at the option of
Lender, whether or not there shall have occurred an Event of Default,
provided, however, that, if Mortgagor may, without violating or causing a
violation of such law, order, rule or regulation, pay such taxes or other
sums as are necessary to eliminate such adverse effect upon the rights of
Lender and does pay such taxes or other sums when due, Lender may not elect
to declare due Borrower's Liabilities by reason of the provisions of this
Section 1.4.2.
1.5. Mechanic's and Other Liens. Mortgagor shall not permit or suffer any
mechanic's, laborer's, materialman's, statutory or other lien or encumbrance
(other than any lien for taxes and assessments not yet due) to be created upon
or against the Mortgaged Property, provided, however, that Mortgagor may in good
faith, by appropriate proceeding, contest the validity, applicability or amount
of any asserted lien and, pending such contest, Mortgagor shall not be deemed to
be in default hereunder if Mortgagor shall first obtain an endorsement, in form
and substance satisfactory to Lender, to the loan policy of title insurance
issued to Lender insuring over such lien, or, if no such loan policy shall have
been issued, then Mortgagor shall deposit with Lender a bond, cash or other
security satisfactory to Lender in the amount of 150% of the amount of such
lien. Mortgagor shall pay the disputed amount and all interest and penalties due
in respect thereof on or before the date any adjudication of the validity or
amount thereof becomes final and, in any event, no less than thirty (30) days
prior to any foreclosure sale of the Mortgaged Property or the exercise of any
other remedy by such claimant against the Mortgaged Property.
1.6. Insurance and Condemnation.
1.6.1. Insurance Policies. Mortgagor shall, at its sole expense,
obtain for, deliver to, assign to and maintain for the benefit of Lender,
until Borrower's Liabilities are paid in full, such policies of insurance
as are required by the Loan Agreement.
1.6.2. Adjustment of Loss. Except as otherwise may be provided by the
Loan Agreement, Lender is hereby authorized and empowered, at its option,
to adjust or compromise any loss under any insurance policies covering the
Mortgaged Property and to collect and receive the proceeds from any such
policy or policies. Mortgagor hereby irrevocably appoints Lender as its
attorney-in-fact for the purposes set forth in the preceding sentence.
1.6.3. Condemnation Awards. Lender shall be entitled to all
compensation, awards, damages, claims, rights of action and proceeds of, or
on account of, (i) any damage or taking, pursuant to the power of eminent
domain, of the Mortgaged Property or any part thereof, (ii) damage to the
Mortgaged Property by reason of taking, pursuant to the power of eminent
domain, of other property, or (iii) the alteration of the grade of any
street or highway on or about the Mortgaged Property. Lender is hereby
authorized, at its option, to commence, appear in and prosecute in its own
or Mortgagor's name any action or proceeding relating to any such
compensation, awards, damages, claims, rights of action and proceeds and to
settle or compromise any claim in connection therewith. Mortgagor hereby
irrevocably appoints Lender as its attorney-in-fact for the purposes set
forth in the preceding sentence.
<PAGE>
1.6.4. Repair; Proceeds of Casualty Insurance and Eminent Domain. If
all or any part of the Mortgaged Property shall be damaged or destroyed by
fire or other casualty or shall be damaged or taken through the exercise of
the power of eminent domain or other cause described in Section 1.6.3,
Mortgagor shall promptly and with all due diligence restore and repair the
Mortgaged Property whether or not the proceeds, award or other compensation
are [made available to Mortgagor or] are sufficient to pay the cost of such
restoration or repair. Except as otherwise may be provided by the Loan
Agreement, the entire amount of such proceeds, award or compensation shall
be applied to Borrower's Liabilities in such order and manner as Lender may
elect.
1.7. Lender May Pay. Upon Mortgagor's failure to pay any amount required to
be paid by Mortgagor under Sections 1.4, 1.5 and 1.6, Lender may pay the same.
Mortgagor shall pay to Lender on demand the amount so paid by Lender together
with interest at the Default Rate (as defined in the Loan Agreement) payable
after the occurrence of an "Event of Default" as such term is defined in the
Loan Agreement and the amount so paid by Lender together with interest, shall be
added to Borrower's Liabilities.
1.8. Care of the Mortgaged Property. Mortgagor shall preserve and maintain
the Mortgaged Property in good and first class condition and repair. Mortgagor
shall not, without the prior written consent of Lender, permit, commit or suffer
any waste, impairment or deterioration of the Mortgaged Property or of any part
thereof, and will not take any action which will increase the risk of fire or
other hazard to the Mortgaged Property or to any part thereof. Except as
otherwise provided in the Loan Agreement or this Mortgage, no new improvements
shall be constructed on the Mortgaged Property and no part of the Mortgaged
Property shall be removed, demolished or altered in any material manner without
the prior written consent of Lender.
1.9. Transfer or Encumbrance of the Mortgaged Property. Except as permitted
by the Loan Agreement, Mortgagor shall not permit or suffer to occur any sale,
assignment, conveyance, transfer, mortgage, lease (other than leases made in
accordance with the provisions of this Mortgage) or encumbrance of, or any
contract for any of the foregoing on an installment basis or otherwise
pertaining to, the Mortgaged Property, any part thereof, any interest therein,
the beneficial interest in Mortgagor, any interest in the beneficial interest in
Mortgagor or in any trust holding title to the Mortgaged Property, or any
interest in a corporation, partnership or other entity which owns all or part of
the Mortgaged Property or such beneficial interest, whether by operation of law
or otherwise, without the prior written consent of Lender having been obtained.
<PAGE>
1.10. Further Assurances. At any time and from time to time, upon Lender's
request, Mortgagor shall make, execute and deliver, or cause to be made,
executed and delivered, to Lender, and where appropriate shall cause to be
recorded, registered or filed, and from time to time thereafter to be
re-recorded, re-registered and refiled at such time and in such offices and
places as shall be deemed desirable by Lender, any and all such further
mortgages, security agreements, financing statements, instruments of further
assurance, certificates and other documents as Lender may consider necessary or
desirable in order to effectuate or perfect, or to continue and preserve the
obligations under, this Mortgage.
1.11. Assignment of Rents. The assignment of rents, income and other
benefits contained in Section (E) of the Granting Clauses of this Mortgage shall
be fully operative without any further action on the part of either party, and,
specifically, Lender shall be entitled, at its option, upon the occurrence of an
Event of Default hereunder, to all rents, income and other benefits from the
Mortgaged Property, whether or not Lender takes possession of such property.
Such assignment and grant shall continue in effect until Borrower's Liabilities
are paid in full and the Loan Instruments have been terminated, the execution of
this Mortgage constituting and evidencing the irrevocable consent of Mortgagor
to the entry upon and taking possession of the Mortgaged Property by Lender
pursuant to such grant, whether or not foreclosure proceedings have been
instituted. Notwithstanding the foregoing, so long as no Event of Default has
occurred or is continuing, Mortgagor shall have the right and authority to
continue to collect the rents, income and other benefits from the Mortgaged
Property as they become due and payable but not more than thirty (30) days prior
to the due date thereof.
1.12. After-Acquired Property. To the extent permitted by, and subject to,
applicable law, the lien of this Mortgage shall automatically attach, without
further act, to all property hereafter acquired by Mortgagor located in or on,
or attached to, or used or intended to be used in connection with, or with the
operation of, the Mortgaged Property or any part thereof.
1.13. Leases Affecting Mortgaged Property. Mortgagor shall comply with and
perform in a complete and timely manner all of its obligations as landlord under
all leases affecting the Mortgaged Property or any part thereof. The assignment
contained in Section (E) of the Granting Clauses shall not be deemed to impose
upon Lender any of the obligations or duties of the landlord or Mortgagor
provided in any lease.
1.14. Management of Mortgaged Property. Mortgagor shall cause the Mortgaged
Property to be managed at all times in accordance with sound business practice.
1.15. Execution of Leases. Except as may be otherwise provided in the Loan
Agreement, Mortgagor shall not permit any leases to be made of the Mortgaged
Property or existing leases to be modified, terminated, extended or renewed
without the prior written consent of Lender.
<PAGE>
1.16. Expenses; Indemnity. Without limitation of any obligation of
Mortgagor set forth in the Loan Agreement, Mortgagor shall pay when due and
payable, and otherwise on demand made by Lender, all loan fees, appraisal fees,
recording fees, taxes, brokerage fees and commissions, abstract fees, title
insurance fees, escrow fees, attorneys' fees, court costs, documentary and
expert evidence, fees of inspecting architects and engineers, and all other
costs and expenses of every character which have been incurred or which may
hereafter be incurred by Lender in connection with the Loans, including the
preparation, execution, delivery and performance of this Mortgage. If Mortgagor
fails to pay said costs and expenses as above provided, Lender may elect, but
shall not be obligated, to pay the costs and expenses described in this Section
1.16, and if Lender does so elect, then Mortgagor will, upon demand by Lender,
reimburse Lender for all such expenses which have been or shall be paid or
incurred by it. The amounts paid by Lender shall bear interest at the Default
Rate and such amounts, together with interest, shall be added to Borrower's
Liabilities, shall be immediately due and payable and shall be secured by the
lien of this Mortgage and the other Loan Instruments. In the event of
foreclosure hereof, Lender shall, to the extent permitted by law, be entitled to
add to the indebtedness found to be due by the court a reasonable estimate of
such expenses to be incurred after entry of the decree of foreclosure. To the
extent permitted by law, Mortgagor agrees to hold harmless Lender against and
from, and reimburse it for, all claims, demands, liabilities, losses, damages,
judgments, penalties, costs and expenses, including without limitation
attorneys' fees, which may be imposed upon, asserted against, or incurred or
paid by it by reason of or in connection with any bodily injury or death or
property damage occurring in or upon or in the vicinity of the Mortgaged
Property through any cause whatsoever, or asserted against it on account of any
act performed or omitted to be performed hereunder, or on account of any
transaction arising out of or in any way connected with the Mortgaged Property,
this Mortgage, the other Loan Instruments, any of the indebtedness evidenced by
the Notes or the Loan Agreement or any of Borrower's Liabilities.
1.17. Lender's Performance of Mortgagor's Obligations. If Mortgagor fails
to pay any tax, assessment, encumbrance or other imposition, or to furnish
insurance hereunder, or to perform any other covenant, condition or term in this
Mortgage, the Notes, the Loan Agreement or any other Loan Instrument, Lender
may, but shall not be obligated to, pay, obtain or perform the same. All
payments made, whether such payments are regular or accelerated payments, and
costs and expenses incurred or paid by Lender in connection therewith shall be
due and payable immediately. The amounts so incurred or paid by Lender shall
bear interest at the Default Rate and such amounts, together with interest,
shall be added to Borrower's Liabilities and secured by the lien of this
Mortgage and the other Loan Instruments.
1.18. Payment of Superior Liens. To the extent that Lender, after the date
hereof, pays any sum due under any provision of law or instrument or document
creating any lien superior or equal in priority in whole or in part to the lien
of this Mortgage, such sum advanced by Lender shall be immediately due and
payable, with interest at the Default Rate and shall be deemed to be a part of
Borrower's Liabilities, and Lender shall have and be entitled to a lien on the
Mortgaged Property equal in parity with that discharge , and Lender shall be
subrogated to and receive and enjoy all rights and liens possessed, held or
enjoyed by, the holder of such lien, which shall remain in existence and benefit
Lender to secure the Notes, the Loan Agreement and all obligations and
liabilities secured hereby.
<PAGE>
1.19. Environmental Conditions.
(a) "Mortgagor covenants, warrants and represents that there are no,
nor will there, for so long as any of Borrower's Liabilities remain
outstanding, be, any Hazardous Materials (as hereinafter defined)
generated, released, stored, buried or deposited over, beneath, in or upon
the Mortgaged Property except as such Hazardous Materials may be required
to be used, stored or transported in connection with the permitted uses of
the Mortgaged Property and then only to the extent permitted by law after
obtaining all necessary permits and licenses therefor. For purposes of this
Mortgage, "Hazardous Materials" shall mean and include any pollutants,
flammables, explosives, petroleum (including crude oil) or any fraction
thereof, radioactive materials, hazardous wastes, toxic substances or
related materials, including, without limitation, any substances defined as
or included in the definition of toxic or hazardous substances, wastes, or
materials under any federal, state or local laws, ordinances, regulations
or guidances which regulate, govern, prohibit or pertain to the generation,
manufacture, use, transportation, disposal, release, storage, treatment of,
or response or exposure to, toxic or hazardous substances, wastes or
materials. Such laws, ordinances and regulations are hereinafter
collectively referred to as the "Hazardous Materials Laws."
(b) Mortgagor shall, and Mortgagor shall cause all employees, agents,
contractors and subcontractors of Mortgagor and any other persons from time
to time present on or occupying the Mortgaged Property to, keep and
maintain the Mortgaged Property in compliance with, and not cause or
knowingly permit the Mortgaged Property to be in violation of, any
applicable Hazardous Materials Laws. Neither Mortgagor nor any employees,
agents, contractors or subcontractors of Mortgagor or any other persons
occupying or present on the Mortgaged Property shall use, generate,
manufacture, store or dispose of on, under or about the Mortgaged Property
or transport to or from the Mortgaged Property any Hazardous Materials,
except as such Hazardous Materials may be required to be used, stored or
transported in connection with the permitted uses of the Mortgaged Property
and then only to the extent permitted by law after obtaining all necessary
permits and licenses therefor.
(c) Mortgagor shall immediately advise Lender in writing of. (i) any
notices received by Mortgagor (whether such notices are from the
Environmental Protection Agency, or any other federal, state or local
governmental agency or regional office thereof) of the violation or
potential violation occurring on or about the Mortgaged Property of any
applicable Hazardous Materials Laws; (ii) any and all enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed
or threatened pursuant to any Hazardous Materials Laws; (iii) all claims
made or threatened by any third party against Mortgagor or the Mortgaged
Property relating to damage, contribution, cost recovery compensation, loss
or injury resulting from any Hazardous Materials (the matters set forth in
clauses (i), (ii) and (iii) above are hereinafter referred to as "Hazardous
Materials Claims"); and (iv) Mortgagor's discovery of any occurrence or
condition on any real property adjoining or in the vicinity of the
Mortgaged Property that could cause the Mortgaged Property or any part
thereof to be subject to any Hazardous Materials Claims. Lender shall have
the right but not the obligation to join and participate in, as a party if
it so elects, any legal proceedings or actions initiated in connection with
any Hazardous Materials Claims and Mortgagor shall pay to Lender, upon
demand, all attorneys' and consultants' fees incurred by Lender in
connection therewith.
<PAGE>
(d) Mortgagor shall be solely responsible for, and shall indemnify and
hold harmless Lender, its directors, officers, employees, agents,
successors and assigns from and against any loss, damage, cost, expense or
liability directly or indirectly arising out of or attributable to the use,
generation, storage, release, threatened release, discharge, disposal or
presence (whether prior to or during the term of the Loans, or either of
them, or otherwise and regardless of by whom caused, whether by Mortgagor
or any predecessor in title or any owner of land adjacent to the Mortgaged
Property or any other third party, or any employee, agent, contractor or
subcontractor of Mortgagor or any predecessor in title or any such adjacent
land owner or any third person) of Hazardous Materials on, under or about
the Mortgaged Property; including, without limitation: (i) claims of third
parties (including governmental agencies) for damages, penalties, losses,
costs, fees, expenses, damages, in injunctive or other relief; (ii)
response costs, clean-up costs, costs and expenses of removal and
restoration, including fees of attorneys and experts, and costs of
determining the existence of Hazardous Materials and reporting same to any
governmental agency; and (iii) any and all expenses or obligations,
including attorneys' fees, incurred at, before or after any trial or appeal
therefrom whether or not taxable as costs, including, without limitation,
attorneys' fees, witness fees, deposition costs, copying and telephone
charges and other expenses. The obligations of Mortgagor under this
subsection shall survive any of the foreclosure of this Mortgage, the
repayment of Borrower's Liabilities, or other satisfaction of the
indebtedness secured by this Mortgage, whether by deed in lieu of
foreclosure or otherwise.
(e) Any loss, damage, cost, expense or liability incurred by Lender as
a result of a breach or misrepresentation by Mortgagor or for which
Mortgagor is responsible or for which Mortgagor has indemnified Lender
shall be paid to Lender on demand, and, failing prompt reimbursement, such
amounts shall, together with interest thereon at the Default Rate from the
date incurred by Lender until paid by Mortgagor, be added to Borrower's
Liabilities, be immediately due and payable and be secured by the lien of
this Mortgage and the other Loan Instruments.
(f) Lender may, in its reasonable discretion, require Mortgagor, at
its sole cost and expense, from time to time to perform or cause to be
performed, such studies or assessments of the Mortgaged Property, as Lender
may deem necessary or appropriate or desirable, to determine the status of
environmental conditions on and about the Mortgaged Property, which such
studies and assessments shall be for the benefit of, and be prepared in
accordance with the specifications established by, Lender.
<PAGE>
(g) Mortgagor hereby grants to Lender, its agents, employees and
contractors, access to the Mortgaged Property, from time to time upon prior
written notice, for the purpose of either (I) taking such action as Lender
shall determine to be appropriate to respond to a release, threatened
release, or the presence of Hazardous Materials, or any related condition,
on or about the Mortgaged Property; or (ii) conducting such studies or
assessments of the Mortgaged Property, as Lender may deem necessary or
appropriate or desirable.
ARTICLE TWO
DEFAULTS
2.1. Event of Default. The term "Event of Default," wherever used in this
Mortgage, shall mean any one or more of the following events:
(a) The failure by Mortgagor: (i) to keep, perform, or observe any
covenant, condition or agreement contained in Sections 1.4.1, 1.6.1, 1.9 or
1. 19 hereof; or (ii) to keep, perform or observe any other covenant,
condition or agreement on the part of Mortgagor in this Mortgage.
(b) The occurrence of an "Event of Default" under and as defined in
the Loan Agreement or any of the other Loan Instruments.
ARTICLE THREE
REMEDIES
3.1. Acceleration of Maturity. If an Event of Default shall have occurred,
Lender may declare Borrower's Liabilities to be immediately due and payable,
without further demand or notice.
3.2. Lender's Power of Enforcement. If an Event of Default shall have
occurred, Lender may, either with or without entry or taking possession as
provided in this Mortgage or otherwise, and without regard to whether or not
Borrower's Liabilities shall have been accelerated, and without prejudice to the
right of Lender thereafter to bring an action of foreclosure or any other action
for any default existing at the time such earlier action was commenced or
arising thereafter, proceed by any appropriate action or proceeding: (a) to
enforce payment of the Notes and/or any other of Borrower's Liabilities or the
performance of any term hereof or any of the other Loan Instruments; (b) to
foreclose this Mortgage by judicial action and to have sold, as an entirety or
in separate lots or parcels, the Mortgaged Property; (c) to foreclose this
<PAGE>
Mortgage by advertisement with full authority and power to sell the Mortgaged
Property at public auction and convey the same to the purchaser in fee simple,
either in one parcel or separate lots and parcels, all in accordance with and in
the manner prescribed by law; such power of sale, if available, being hereby
expressly granted to Lender in which event, references to "foreclosure" or
"foreclosure sale" in this Mortgage shall be deemed to mean and include sales
pursuant to the exercise of the power of sale granted herein; (d) as to personal
property to enforce Lender's rights and remedies under the Minnesota Uniform
Commercial Code, or to proceed as to both real property and personal property by
foreclosure and otherwise in accordance with Lender's rights and remedies in
respect of the real property; and (e) to pursue any other remedy available to
it. Lender may take action either by such proceedings or by the exercise of its
powers with respect to entry or taking possession, or both, as Lender may
determine.
3.3. Lender's Right to Enter and Take Possession, Operate and Apply Income.
(a) Mortgagor does hereby sell, assign and transfer unto Lender all of
the leases, rents and profits now due and which may hereafter become due
under or by virtue of any lease, whether written or verbal, or any
agreement for the use or occupancy of the Mortgaged Property, whether
presently in existence or entered into at any time during the term of this
Mortgage, it being the intention of this Mortgage to establish an absolute
transfer and assignment of all such leases and agreements and all of the
rents and profits from the Mortgaged Property unto Lender and Mortgagor
does hereby appoint irrevocably Lender its true and lawful attorney in its
name and stead, which appointment is coupled with an interest, to collect
all of said rents and profits; provided, Mortgagor shall have the right to
collect and retain such rents and profits unless and until an Event of
Default exists under this Mortgage.
(b) Upon an Event of Default and whether before or after the
institution of legal proceedings to foreclose the lien hereof or before or
after sale thereunder or during any period of redemption, Lender, without
regard to waste, adequacy of the security or solvency of Mortgagor, may
revoke the privilege granted Mortgagor hereunder to collect the rents and
profits, and may, at its option, without notice, either: (a) in person or
by agent, with or without taking possession of or entering the Mortgaged
Property, with or without bringing any action or proceeding, give, or
require Mortgagor to give, notice to any or all tenants under any lease
authorizing and directing the tenant to pay such rents and profits to
Lender; collect all of the rents and profits; enforce the payment thereof
and exercise all of the rights of the landlord under the leases and all of
the rights of Lender hereunder; may enter upon, take possession of, manage
and operate said Mortgaged Property, or any part thereof; may cancel,
enforce or modify the leases, and fix or modify rents, and do any acts
which Lender deems proper to protect the security hereof with or without
taking possession of the Mortgaged Property; or (b) apply for the
appointment of a receiver in accordance with the statutes and law made and
provided for, which receivership Mortgagor hereby consents to, who shall
collect the rents and profits, and all other income of any kind; manage the
Mortgaged Property so to prevent waste; execute leases within or beyond the
period of receivership, and perform the terms of this Mortgage and apply
the rents and profits as hereinafter provided.
<PAGE>
(c) The entering upon and taking possession of the Mortgaged Property,
the appointment of a receiver, the collection of such rents and profits and
the application thereof as aforesaid shall not cure or waive any Event of
Default under this Mortgage nor in any way operate to prevent Lender from
pursuing any other remedy which it may now or hereafter have under the
terms of this Mortgage nor shall it in any way be deemed to constitute
Lender a mortgagee-in-possession. The rights and powers of Lender hereunder
shall remain in full force and effect both prior to and after any
foreclosure of the Mortgage and any sale pursuant thereto and until
expiration of the period of redemption from said sale, regardless of
whether a deficiency remains from said sale. The purchaser at any
foreclosure sale, including Lender, shall have the right, at any time and
without limitation as provided in Minn. Stat. Section 582.03, to advance
money to any receiver appointed hereunder to pay any part or all of the
items which the receiver would otherwise be authorized to pay if cash were
available from the Mortgaged Property and the sum so advanced, with
interest at the rate then in effect under the terms of the Loan Agreement,
shall be a part of the sum required to be paid to redeem from any
foreclosure sale. The rights hereunder shall in no way be dependent upon
and shall apply without regard to whether the Mortgaged Property is in
danger of being lost, materially injured or damaged or whether the
Mortgaged Property is adequate to discharge Borrower's Liabilities secured
hereby. The rights contained herein are in addition to and shall be
cumulative with the rights given in any separate assignment of leases and
rents which may now or hereafter be executed by Mortgagor in favor of
Lender (the "Assignment"), assigning any leases, rents and profits of the
Mortgaged Property. To the extent inconsistent with the terms of this
Section, the terms of the Assignment shall control. Lender shall be
entitled to all the rights and remedies afforded by Minn. Stat. Sections
559.17 and 576.01.
3.4. Leases. Lender is authorized to foreclose this Mortgage subject to the
rights, if any, of any or all tenants of the Mortgaged Property, even if the
rights of any such tenants are or would be subordinate to the lien of this
Mortgage.
3.5. Purchase by Lender. Upon any foreclosure sale, Lender may bid for and
purchase all or any portion of the Mortgaged Property and, upon compliance with
the terms of the sale, may hold, retain and possess and dispose of such property
in its own absolute right without further accountability.
3.6. Application of Foreclosure Sale Proceeds. Out of the proceeds arising
from the sale and foreclosure, Lender may retain all sums due under the Notes,
together with all such sums of money as Lender shall have expended or advanced
pursuant to this Mortgage or pursuant to statute together with interest thereon
as provided and all costs and expenses of such foreclosure, including reasonable
and lawful attorney's fees, with the balance, if any, to be paid to the persons
entitled thereto by law.
3.7. Application of Indebtedness Toward Purchase Price. Upon any
foreclosure sale, Lender may apply any or all of Borrower's Liabilities and any
other sums due to Lender under the Notes, this Mortgage or any other Loan
Instruments to the price paid by Lender at the foreclosure sale.
<PAGE>
3.8. Waiver of Appraisement, Valuation, Stay, Extension and Redemption
Laws. To the full extent permitted by applicable law, Mortgagor hereby waives
any and all rights of redemption and, in case of an Event of Default, neither
Mortgagor nor anyone claiming through or under it will [set up, claim or seek to
take advantage of any reinstatement, appraisement, valuation, stay or extension
laws now or hereafter in force, or take any other action which would] prevent or
hinder the enforcement or foreclosure of this Mortgage or the absolute sale of
the Mortgaged Property or the final and absolute putting into possession
thereof, immediately after such sale, of the purchaser thereat. Mortgagor, for
itself and all who may at any time claim through or under it, hereby waives, to
the full extent that it may lawfully so do, the benefit of all such laws, and
any and all right to have the assets comprising the Mortgaged Property
marshalled upon any foreclosure of the lien hereof and agrees that Lender or any
court having jurisdiction to foreclose such lien may sell the Mortgaged Property
in part or as an entirety.
3.9. Receiver - Lender in Possession. If an Event of Default shall have
occurred, Lender, to the extent permitted by law and without regard to waste,
the solvency of the Mortgagor, the value of the Mortgaged Property or the
adequacy of the security for indebtedness and other sums secured hereby, shall
be entitled as a matter of right and without any additional showing or proof, at
Lender's election, to either the appointment by the court of a receiver (without
the necessity of Lender posting a bond) to enter upon and take possession of the
Mortgaged Property and to collect all rents, income and other benefits thereof
and apply the same as the court may direct or to be placed by the court into
possession of the Mortgaged Property as mortgagee in possession with the same
power herein granted to a receiver and with all other rights and privileges of a
mortgagee in possession under law. The right to enter and take possession of and
to manage and operate the Mortgaged Property, and to collect all rents, income
and other benefits thereof, whether by a receiver or otherwise, shall be
cumulative to any other right or remedy hereunder or afforded by law and may be
exercised concurrently therewith or independently thereof. Lender shall be
liable to account only for such rents, income and other benefits actually
received by Lender, whether received pursuant to this Section 3.9 or Section
3.3. Notwithstanding the appointment of any receiver or other custodian, Lender
shall be entitled as pledgee to the possession and control of any cash, deposits
or instruments at the time held by, or payable or deliverable under the terms of
this Mortgage to Lender.
3.10. Mortgagor to Pay Borrower's Liabilities in Event of Default;
Application of Monies by Lender.
(a) Upon occurrence of an Event of Default, Lender shall be entitled
to sue for and to recover judgment against Mortgagor for Borrower's
Liabilities due and unpaid together with costs and expenses, including,
without limitation, the reasonable compensation, expenses and disbursements
of Lender's agents, attorneys and other representatives, either before or
during the pendency of any proceedings for the enforcement of this
Mortgage; and the right of Lender to recover such judgment shall not be,
subject to the provisions of applicable law, affected by any taking of
possession or foreclosure sale hereunder, or by the exercise of any other
right, power or remedy for the enforcement of the terms of this Mortgage,
or the foreclosure of the lien hereof.
<PAGE>
(b) In case of a foreclosure sale of all or any part of the Mortgaged
Property and of the application of the proceeds of sale to the payment of
Borrower's Liabilities, Lender shall, subject to the provision of
applicable law, be entitled to enforce all other rights and remedies under
the Loan Instruments.
(c) Mortgagor hereby agrees, to the extent permitted by law, that no
recovery of any judgment by Lender under any of the Loan Instruments, and
no attachment or levy of execution upon any of the Mortgaged Property or
any other property of Mortgagor, shall (except as otherwise provided by
law) in any way affect the lien of this Mortgage upon the Mortgaged
Property or any part thereof or any lien, rights, powers or remedies of
Lender hereunder, but such lien, rights, powers and remedies shall continue
unimpaired as before until Borrower's Liabilities are paid in full.
(d) Any monies collected or received by Lender under this Section 3.10
shall be applied to the payment of reasonable compensation, expenses and
disbursements of the agents, attorneys and other representatives of Lender,
and the balance remaining shall be applied to the payment of Borrower's
Liabilities, in such order and manner as Lender may elect, and any surplus,
after payment of all Borrower's Liabilities, shall be paid to Mortgagor.
3.11. Acknowledgment of Waiver of Hearing Before Sale. Mortgagor
understands and agrees that if an Event of Default shall occur, Lender has the
right, inter alia, to foreclose this Mortgage by advertisement pursuant to Minn.
Stat. Chapter 580, as hereafter amended, or pursuant to any similar or
replacement statute hereafter enacted; that if Lender elects to foreclose by
advertisement, it may cause the Mortgaged Property, or any part thereof, to be
sold at public auction; that notice of such sale must be published for six (6)
successive weeks at least once a week in a newspaper of general circulation and
that no personal notice is required to be served upon Mortgagor. Mortgagor
further understands that upon the occurrence of an Event of Default, Lender may
also elect its rights under the Uniform Commercial Code and take possession of
the collateral and dispose of the same by sale or otherwise in one or more
parcels provided that at least ten (10) days' prior notice of such disposition
must be given, all as provided for by the Uniform Commercial Code, as hereafter
amended or by any similar or replacement statute hereafter enacted. Mortgagor
further understands that under the Constitution of the United States and the
Constitution of the State of Minnesota it may have the right to notice and
hearing before the Mortgaged Property may be sold and that the procedure for
foreclosure by advertisement described above does not insure that notice will be
given to Mortgagor and neither said procedure for foreclosure by advertisement
nor the Uniform Commercial Code requires any hearing or other judicial
proceeding. MORTGAGOR HEREBY EXPRESSLY CONSENTS AND AGREES THAT THE MORTGAGED
PROPERTY MAY BE FORECLOSED BY ADVERTISEMENT AND THAT THE PERSONAL PROPERTY MAY
BE DISPOSED OF PURSUANT TO THE UNIFORM COMMERCIAL CODE, ALL AS DESCRIBED ABOVE.
MORTGAGOR ACKNOWLEDGES THAT IT IS REPRESENTED BY LEGAL COUNSEL; THAT BEFORE
SIGNING THIS DOCUMENT THIS SECTION AND MORTGAGOR!S CONSTITUTIONAL RIGHTS WERE
FULLY EXPLAINED BY SUCH COUNSEL AND THAT MORTGAGOR UNDERSTANDS THE NATURE AND
EXTENT OF THE RIGHTS WAIVED HEREBY AND THE EFFECT OF SUCH WAIVER.
<PAGE>
3.12. Remedies Cumulative. No right, power or remedy conferred upon or
reserved to Lender by the Notes, or either of them, the Loan Agreement, this
Mortgage or any other Loan Instrument or any instrument evidencing or securing
Borrower's Liabilities is exclusive of any other right, power or remedy, but
each and every such right, power and remedy shall be cumulative and concurrent
and shall be in addition to any other right, power and remedy given hereunder or
under the Notes, or either of them, the Loan Agreement or any other Loan
Instrument or any instrument evidencing or securing Borrower's Liabilities, or
now or hereafter existing at law, in equity or by statute.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
4.1. Heirs, Successors and Assigns Included in Parties. Whenever Mortgagor
or Lender is named or referred to herein, heirs and successors and assigns of
such person or entity shall be included, and all covenants and agreements
contained in this Mortgage shall bind the successors and assigns of Mortgagor,
including any subsequent owner of all or any part of the Mortgaged Property and
inure to the benefit of the successors and assigns of Lender. This Section 4.1
shall not be construed to permit an assignment, transfer, conveyance,
encumbrance or other disposition otherwise prohibited by this Mortgage.
4.2. Notices. All notices, requests, reports, demands or other instruments
required or contemplated to be given or furnished under this Mortgage to
Mortgagor or Lender shall be directed to Mortgagor or Lender, as the case may
be, in the manner set forth in the Loan Agreement at the following addresses:
If to Lender: NationsCredit Commercial Funding,
a division of NationsCredit Commercial
Corporation
1177 Avenue of the Americas
36th Floor
New York, New York 10036
Attn: Nancy Kagan
Robert Bellish
With a copy to: Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
(312) 201-4000
Attn: Philip M. Blackman
Nora A. Naughton
<PAGE>
If to Mortgagor: Northwest Teleproductions, Inc.
445 West 77th Street
Minneapolis, Minnesota 55435
With a copy to: Fredrickson & Byron
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
Attn: Larry Berg
4.3. Security Interest. This Mortgage shall constitute a security agreement
with respect to (and Mortgagor hereby grants Lender a security interest in) all
personal property and fixtures included in the Mortgaged Property as more
specifically described in the granting clause of this Mortgage. Mortgagor shall
from time to time, at the request of Lender, execute any and all financing
statements covering such personal property and fixtures (in a form satisfactory
to Lender) which Lender may reasonably consider necessary or appropriate to
perfect its security interest.
4.4. Fixture Filing. From the date of its recording, this Mortgage shall be
effective as a financing statement filed as a fixture filing with respect to all
goods constituting part of the Mortgaged Property which are or are to become
fixtures. For this purpose, the following information is set forth:
(a) Name and address of debtor:
Northwest Teleproductions, Inc.
445 West 77th Street
Minneapolis, Minnesota 55435
(b) Debtor's Federal Taxpayer Identification Number:
______________________________________________
(c) Name and address of secured party:
NationsCredit Commercial Corporation
1177 Avenue of the Americas
36th Floor
New York, New York 10036
<PAGE>
(d) Description of the types (or items) of property covered by this
financing statement:
All goods constituting part of the Mortgaged Property (as more
particularly described in the granting clauses of this Mortgage)
which are or are to become fixtures.
(e) Description of the real estate to which the property covered by
this financing statement is attached or upon which it is located:
See Exhibit A
(f) Name of record owner of the real estate: Northwest
Teleproductions, Inc.
(g) Products/proceeds of the collateral are also covered by this
financing statement.
4.5. Headings. The headings of the articles, sections, paragraphs and
subdivisions of this Mortgage are for convenience only, are not to be considered
a part hereof, and shall not limit, expand or otherwise affect any of the terms
hereof.
4.6. Invalid Provisions. In the event that any of the covenants,
agreements, terms or provisions contained in this Mortgage shall be invalid,
illegal or unenforceable in any respect, the validity of the remaining
covenants, agreements, terms or provisions contained herein (or the application
of the covenant, agreement, term held to be invalid, illegal or unenforceable,
to persons or circumstances other than those in respect of which it is invalid,
illegal or unenforceable) shall be in no way affected, prejudiced or disturbed
thereby.
4.7. Changes. Neither this Mortgage nor any term hereof may be released,
changed, waived, discharged or terminated orally, or by any action or inaction,
but only by an instrument in writing signed by the party against which
enforcement of the release, change, waiver, discharge or termination is sought.
4.8. Governing Law. Except with respect to the creation, perfection,
priority and enforcement of the lien and security interest created hereunder,
all of which shall be construed, interpreted, enforced and governed by the laws
of the State of Minnesota, the validity and interpretation of this Mortgage
shall be governed by and in accordance with the laws of the State of Illinois.
4.9. Limitation of Interest. The provisions of the Loan Agreement regarding
the payment of lawful interest are hereby incorporated herein by reference.
<PAGE>
4.10. Future Advances. This Mortgage is given to secure not only existing
indebtedness, but also future advances (whether such advances are obligatory or
are to be made at the option of Lender, or otherwise) made by Lender under the
Notes, or either of them, or the Loan Agreement, to the same extent as if such
future advances were made on the date of the execution of this Mortgage. The
total amount of indebtedness that may be so secured may decrease or increase
from time to time, but the principal amount of all indebtedness secured hereby
shall, in no event, exceed $10,000,000, plus the total amount of all advances
made to protect the Mortgaged Property and the security interest and the lien
created hereby, plus the amount due on any indemnity by Mortgagor contained
herein or in any other documents executed by Mortgagor, plus interest on all of
the foregoing at the Default Rate, plus all costs of enforcement and collection
of the indebtedness hereby secured (including reasonable attorneys' fees).
4.11. Release. Upon full payment and satisfaction of Borrower's Liabilities
and the termination of all Lender's obligations under the Loan Agreement, Lender
shall issue to Mortgagor an appropriate release deed in recordable form.
4.12. Attorneys' Fees. Whenever reference is made herein to the payment or
reimbursement of attorneys' fees, such fees shall be deemed to include
compensation to staff counsel, if any, of Lender in addition to the fees of any
other attorneys engaged by Lender.
4.13. Loan Agreement. The Loans are governed by terms and provisions set
forth in the Loan Agreement and in the event of any conflict between the terms
of this Mortgage and the terms of the Loan Agreement, the terms of the Loan
Agreement shall control; provided, however, in the event there is any apparent
conflict between any particular term or provision which appears in both the Loan
Agreement and this Mortgage and it is possible for the terms of both the Loan
Agreement and this Mortgage to be performed or complied with, then,
notwithstanding the foregoing, both the terms of the Loan Agreement and the
Mortgage shall be performed or complied with.
4.14. Business Purpose. Mortgagor represents that Borrower's Liabilities
will be used to further the business purposes and business objectives of
Mortgagor and Borrower and that no part of the Mortgaged Property comprises or
will be utilized as homestead or agricultural property within the meaning of any
applicable law.
4.15. Wells. Mortgagor hereby represents and warrants that there are no,
and, for so long as Borrower's Liabilities remain outstanding, there will be no
wells located on any part of the Mortgaged Property.
4.16. Liability. If Mortgagor is a partnership, Borrower agrees that it
will not register as a limited liability partnership under Minnesota Stat.
Section 323.44, and any such registration shall not be effective as to
Borrower's Liabilities, this Mortgage, or any other documents entered into in
connection with the Loans.
<PAGE>
IN WITNESS WHEREOF, Mortgagor has caused this instrument to be executed by
its duly authorized officers as of the day and year first above written.
Northwest Teleproductions, Inc.,
a Minnesota corporation
By /s/ John C. McGrath
Its President
By
Its
THIS INSTRUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
Nora A. Naughton, Esq.
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
(312) 201-4000
<PAGE>
ACKNOWLEDGMENT
STATE OF )
) SS
COUNTY OF )
I, ______________________, a Notary Public in and for and residing in said
County and State, DO HEREBY CERTIFY THAT ________________________ and
_______________________, the ___________________ and _________________ of
Northwest Teleproductions, Inc., a ____________________ corporation, personally
known to me to be the same persons whose names are subscribed to the foregoing
instrument appeared before me this day in person and acknowledged that they
signed and delivered said instrument as their own free and voluntary act and as
the free and voluntary act of said corporation for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this _______ day of ______________,
1997.
Notary Public
My Commission Expires:
<PAGE>
EXHIBIT A
Legal Description of Property
Normandale Center:
Tract R, Registered Land Survey No. 1218, Files of Registrar of
Titles, County of Hennepin, State of Minnesota.
Common Address: 4455 W. 77th Street, Minneapolis, Minnesota
Edina Office Center:
Lot 1, Block 1, EDINA OFFICE CENTER 2ND ADDITION, according to
the recorded plat thereof, and situate in Hennepin County,
Minnesota.
Common Address: 4000 W. 76th Street, Minneapolis, Minnesota
<PAGE>
EXHIBIT B
Permitted Encumbrances
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
Financial Statements for the Years Ended
March 31, 1997 and 1996 and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Northwest Teleproductions, Inc. and
Subsidiaries
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Northwest
Teleproductions, Inc. and subsidiaries (the Company) as of March 31, 1997 and
1996 and the related consolidated statements of operations, cash flows, and
stockholders' equity for each of the three years in the period ended March 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
March 31, 1997 and 1996 and the consolidated results of operations and cash
flows for each of the three years in the period ended March 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 27, 1997
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations:
Sales for the year ended March 31, 1997 of $11,852,758, compare to sales of
$12,509,041 in fiscal 1996 and $13,203,986 in fiscal 1995. The 5% decrease in
overall sales from fiscal 1996 to fiscal 1997 reflects a decrease in Department
of Defense contract production compounded by a more significant decline in
customary noncontract sales. The overall decline was offset by an increase in
production of television programs for broadcast.
The Company's estimated order backlog at March 31, 1997 is $6,000,000. Included
in this amount is show production for cable broadcast estimated at $3,750,000.
The backlog for broadcast production includes a project estimated at $2,300,000
to be fulfilled this fiscal year. Department of Defense backlog production is
estimated at $2,250,000. The backlog at fiscal 1996 was estimated to be
$4,000,000, including Department of Defense production estimated at $2,200,000
and production for cable broadcast estimated at $1,775,000.
The Company's traditional full-service production and postproduction markets
continued to struggle due to a general slowness in the marketplace and ongoing
competition from specialty facilities. While the Company vigorously pursues
these traditional markets, resources have been added to accelerate the creation,
sale, and production of programming for the broadcast market. In fiscal 1997,
management has elected to exit the infomercial market due to high risk
associated with being an equity partner. However, the Company will pursue fee
for service business in this area. In addition, the Company will no longer
produce proprietary programming on a speculative basis.
For the years ended March 31, 1997, 1996, and 1995, Department of Defense
contract sales equaled 20%, 22%, and 27%, respectively, of total sales.
Department of Defense production in fiscal 1997 consisted of completion of the
balance of the contract requirements for the second year of the potential
five-year agreement. Additionally, the Company completed 85% of the third year's
requirements and commenced creative development and scripting for the fourth
year requirements.
Cost of products and services sold, as a percentage of sales, equaled 97%, 86%,
and 75% for the years ended March 31, 1997, 1996, and 1995, respectively. The
increase in the cost of sales percentage in fiscal 1997 results from a 5%
decline in sales and a continued shift in the sales mix to full-service
production. Full-service production characteristically has higher direct job
costs. Also affecting the increase in the cost of sales percentage in fiscal
1997 were one-time expenses including writing off lease deposits, capitalized
consultants' fees, capitalized costs associated with proprietary programming and
infomercials, along with the write-down of obsolete inventory. The total for
these items and other one-time expenses was $544,500 and added 4.6% to the cost
of sales percentage. The cost of sales percentage, excluding these items, was
92.5%. Variable production costs as a percentage of sales, excluding the
one-time charges mentioned above, for fiscal years ended in 1997, 1996, and 1995
were 24.9%, 23.9%, and 20%, respectively.
<PAGE>
Selling, general, and administrative expenses for the years ended March 31,
1997, 1996, and 1995 totaled $1,855,691, $2,707,709, and $2,542,140,
respectively. Expenses for fiscal 1997 decreased $852,018 or 31.5% from fiscal
1996. Fiscal 1996 results included charges of $202,784 to write off building
costs in Chicago and an addition to the bad debt reserve in Chicago for $58,750.
A significant part of the reduction in fiscal 1997 was payroll expense related
to officer compensation during the period of recruiting a CEO. The Company did
not record any CEO compensation until late in its fiscal third quarter of 1997.
Additional reductions in occupancy costs, permanent staff reductions, bad debt
expenses, and goodwill charges constitute the difference.
Operating results for fiscal 1997 include severance and other charges of
$161,834. Operating results for fiscal 1996 included a goodwill impairment
charge of $1,060,330, litigation and settlement costs of $100,000, and severance
and other charges of $443,000.
The results of operations for fiscal 1997 included the following one-time
charges:
Write-off of $361,000 in capitalized production costs associated with
proprietary shows and infomercials.
Write-off of $75,000 in lease deposits.
Accrued bank fees of $40,250 associated with the Company's former lending
institution.
Accrued severance pay of $121,500 associated with a reduction in the work
force.
Write-off of $40,000 in obsolete inventory.
Write-off of $90,000 of capitalized expenses consisting primarily of
$65,000 of consultant's fees.
Interest expense of $489,953, $487,770, and $379,736 for the fiscal years ended
March 31, 1996 and 1995, respectively, reflect increases in borrowing in fiscal
1996 and 1995, along with rate increases on the variable rate debt over the past
three years. For the fiscal year ended March 31, 1997, the increase in interest
expense is attributable to an increase in the cost of borrowing.
The 33% tax benefit rate in fiscal 1997 reflects the valuation allowance of
$97,000 estimated during 1997 to reduce the total to an amount management
believes will ultimately be realized. The 19% tax benefit rate in fiscal 1996
reflects the substantial amount of nondeductible costs and expenses included in
fiscal 1996 operations. The effective tax rate of 67% in fiscal 1995 reflects
the greater impact of permanent book/tax differences at the decreased income
level.
This section contains a number of forward-looking statements, all of which are
based on current expectations. Actual results may vary. Looking forward to
fiscal 1998, the Company has made reductions in its fixed overhead. Net
reductions in payroll and payroll-related benefits are estimated to be $625,000.
The Company closed its Production Studio in Chicago. This will result in a
savings estimated at $140,000. Furthermore, savings of $300,000 are expected
from reductions in outside marketing consultants, business insurance, rents, and
other items. Additionally, the Company has secured a contract with The Discovery
Channel to produce 50 episodes for a new show during fiscal year 1998. The
Company is currently in production of 4 other shows, comprised of 76 episodes,
for broadcast television.
<PAGE>
Liquidity and Capital Requirements:
The net loss of $1,455,823 in fiscal 1997, which included one-time charges of
$727,750, reduced stockholders' equity from $4,016,788 at March 31, 1996 to
$2,560,965 at March 31, 1997. The impact of the net loss of $2,415,977 in fiscal
1996, which included a goodwill impairment charge of $1,060,330, $100,000 of
litigation and settlement costs, and $443,000 of severance and other charges,
reduced stockholders equity from $6,832,712 at March 31, 1995 to $4,016,788 at
March 31, 1996.
During 1997, the Company issued $562,500 of 10.5% subordinated notes which are
convertible to 225,000 shares of common stock at $2.50 per share. On April 24,
1997, the Company entered into a credit agreement with NationsCredit. The credit
agreement has a three-year term and consists of an $8,500,000 revolving credit
facility. The agreement includes a term note of $3,750,000 to be repaid in
monthly installments over three years. The payment is based on a five-year
amortization with the balance due at the end of the three-year period. The
Company used the proceeds of the term loan to pay off and cancel its
indebtedness to Norwest Bank (see Note 2). Additional borrowings against the
line of credit in April 1997 were utilized to pay off accounts payable and other
current obligations. The Company's new term debt agreement provides a reduced
principal payment and a longer amortization period than its prior term debt
agreement. The Company's new revolving line of credit will add flexibility and
allow for increased borrowings against available collateral. These changes will
have a significant impact on the Company's availability under the line of
credit. Additionally, NationsCredit provided $700,000 of mortgage financing, as
part of the $8,500,000 credit facility, in June 1997. The mortgage is
collateralized by the Company's real estate located in Edina, Minnesota. The
proceeds were used to further reduce accounts payable and other current
liabilities. Management believes the actions taken during 1997 and the
subsequent financing will enable the Company to fulfill its obligations in the
normal course at least through 1998.
Cash Generation and Deployment:
In 1997, $1,253,400 of cash was generated from operating activities compared
with $1,247,000 in 1996 and $1,902,000 in 1995. The decrease in 1997 and 1996
compared to 1995 is the result of the loss generated in both years. Capital
expenditures for property, plant, and equipment were $392,000 in 1997, compared
with $1,208,500 in 1996 and $2,450,000 in 1995. The 1997 depreciation charges
were $1,948,000. The decrease in capital expenditures is the result of the
significant upgrade of plant and production equipment started in 1995 and
completed during 1996 and as a result in a change in the business mix toward
production of shows. Management continues to invest in and upgrade equipment at
levels believed to be necessary.
The Company issued $562,500 of subordinated notes which are convertible to
common stock during 1997. Additionally, the line of credit increased by $97,200.
These cash proceeds were offset by $1,303,000 utilized to make payments on
long-term borrowings. Cash balances increased $513,000 in fiscal 1997.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW
<TABLE>
<CAPTION>
Year Ended March 31
------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
HIGHLIGHTS
Net sales $ 11,852,758 $ 12,509,041 $ 13,203,986
Net (loss) earnings (1,455,823) (2,415,977) 51,343
Net (loss) earnings per share (1.07) (1.73) .03
Stockholders' equity 2,560,965 4,016,788 6,832,712
Stockholders' equity per share 1.89 2.88 4.35
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------
June 30 September 30 December 31 March 31
<S> <C> <C> <C> <C>
QUARTERLY OPERATING RESULTS
Year Ended March 31, 1997:
Net sales $ 2,580,515 $ 3,469,747 $ 3,040,479 $ 2,762,017
Gross profit (loss) 122,067 759,605 (255,820) (291,771)
Net (loss) earnings (410,745) 188,536 (152,250) (1,081,364)
Net (loss) earnings per share (0.30) 0.14 (0.11) (0.80)
Year Ended March 31, 1996:
Net sales $ 3,043,656 $ 3,500,872 $ 3,277,590 $ 2,686,923
Gross profit (loss) 392,975 835,903 730,177 (183,805)
Net (loss) earnings (208,723) 89,624 (44,705) (2,252,173)
Net (loss) earnings per share (0.14) 0.07 (0.04) (1.62)
</TABLE>
Year Ended March 31
-------------------------------------------------
1997 1996
---------------------- ----------------------
High Low High Low
MARKET PRICES
Quarter Ended:
June 30 $ 2.88 $ 1.38 $ 3.00 $ 1.88
September 30 2.25 1.38 3.63 2.50
December 31 4.50 2.00 4.25 2.75
March 31 3.50 2.50 3.88 2.50
The Company's common stock is traded on the Nasdaq National Market under the
symbol NWTL. The quotes in the above table set forth the high and low closing
sales prices as reported by Nasdaq.
The Company has not paid dividends since fiscal 1991.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31
1997 1996 1995 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Net sales $ 11,852,758 $ 12,509,041 $ 13,203,986 $ 13,773,311 $ 13,760,513
Costs and expenses:
Costs of products and services
sold 11,518,677 10,733,791 9,888,482 9,882,291 10,068,940
Selling, general, and
administrative 1,855,691 2,707,709 2,542,140 2,533,800 2,695,185
Goodwill impairment charge 1,060,330
Cost of litigation and settlement 100,000 281,852
Severance and other charges 161,834 443,000
Interest 489,953 487,770 379,736 339,647 429,339
------------- -------------- ------------- ------------- --------------
14,026,155 15,532,600 13,092,210 12,755,738 13,193,464
------------- -------------- ------------- ------------- --------------
(2,173,397) (3,023,559) 111,776 1,017,573 567,049
Other income 10,574 58,582 44,567 53,935 28,940
------------- -------------- ------------- ------------- --------------
(Loss) earnings before taxes (2,162,823) (2,964,977) 156,343 1,071,508 595,989
Income taxes (tax benefit) (707,000) (549,000) 105,000 418,000 232,000
------------- -------------- ------------- ------------- --------------
Net (loss) earnings $ (1,455,823) $ (2,415,977) $ 51,343 $ 653,508 $ 363,989
============= ============== ============= ============= ==============
NET EARNINGS (LOSS) PER
SHARE $ (1.07) $ (1.73) $ .03 $ .40 $ .22
NET EARNINGS (LOSS) % TO
BEGINNING EQUITY (36.2)% (35.4)% .8% 10.2% 6.0%
BALANCE SHEET DATA
Total assets $ 9,834,218 $ 11,065,349 $ 13,512,782 $ 13,534,230 $ 13,277,733
Property, plant, and equipment, net 5,901,116 7,457,534 8,390,182 7,946,275 7,854,335
Stockholders' equity 2,560,965 4,016,788 6,832,712 6,831,893 6,411,605
Shares outstanding 1,356,425 1,356,425 1,554,525 1,574,525 1,632,830
Equity per share 1.89 2.96 4.35 4.34 3.93
Term obligations:
Current portion 851,610 3,844,659 1,806,914 1,629,441 2,016,403
Long-term portion 2,479,466 107,751 2,202,436 2,659,350 2,693,790
------------- -------------- ------------- ------------- --------------
Total term obligations 3,331,076 3,952,410 4,009,350 4,288,791 4,710,193
Term obligations % to equity 130% 98% 59% 63% 73%
</TABLE>
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 532,617 $ 19,188
Restricted cash 435,662
Trade accounts receivable, less doubtful accounts
of $120,622 and $153,000, respectively (Notes 1 and 2) 1,957,833 2,155,365
Inventory (Note 1) 196,238 214,105
Refundable income taxes (Note 3) 367,000 328,482
Deferred income taxes (Note 3) 64,000 216,000
Current portion of note receivable 99,831
Other assets 75,512 168,584
------------ ------------
Total current assets 3,628,862 3,201,555
PROPERTY, PLANT, AND EQUIPMENT (Note 1):
Land 447,500 447,500
Buildings and improvements 2,855,561 2,837,902
Leasehold improvements 359,641 359,641
Machinery and equipment 21,965,186 21,625,491
------------ ------------
25,627,888 25,270,534
Less accumulated depreciation 19,726,772 17,813,000
------------ ------------
5,901,116 7,457,534
Proprietary programming 187,911
Note receivable, less payments due within one year 76,133
Other assets 304,240 142,216
------------ ------------
304,240 406,260
------------ ------------
$ 9,834,218 $ 11,065,349
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,127,199 $ 1,030,000
Accounts payable 1,072,820 412,610
Commissions, salaries, and withholding 510,488 455,320
Miscellaneous accounts payable and accrued expenses 179,793 185,408
Customer deposits 652,963
Other liabilities 334,914 268,708
Payments due within one year on long-term debt
and capital leases (Notes 2 and 4) 851,610 3,844,659
------------ ------------
Total current liabilities 4,729,787 6,196,705
DEFERRED INCOME TAXES (Note 3) 64,000 556,000
LONG-TERM DEBT AND CAPITAL LEASES, less payments
due within one year (Notes 2 and 4) 2,479,466 107,751
OTHER LONG-TERM LIABILITIES (Note 4) 188,105
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (Notes 2 and 5):
Preferred stock, 2,500,000 shares authorized,
none issued
Common stock, par value $.01 per share;
authorized 10,000,000 shares, 1,356,425
issued and outstanding 13,564 13,564
Additional paid-in capital 577,123 577,123
Retained earnings 1,970,278 3,426,101
------------ ------------
2,560,965 4,016,788
------------ ------------
$ 9,834,218 $ 11,065,349
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NET SALES $ 11,852,758 $ 12,509,041 $ 13,203,986
COSTS AND EXPENSES:
Costs of products and services sold 11,518,677 10,733,791 9,888,482
Selling, general, and administrative (Note 4) 1,855,691 2,707,709 2,542,140
Goodwill impairment charge (Note 1) 1,060,330
Cost of litigation and settlement 100,000 281,852
Severance and other charges (Note 4) 161,834 443,000
Interest 489,953 487,770 379,736
--------------- ------------- --------------
14,026,155 15,532,600 13,092,210
--------------- ------------- --------------
(2,173,397) (3,023,559) 111,776
OTHER INCOME 10,574 58,582 44,567
--------------- ------------- --------------
(LOSS) EARNINGS BEFORE INCOME TAXES
(TAX BENEFIT) (2,162,823) (2,964,977) 156,343
INCOME TAXES (TAX BENEFIT) (707,000) (549,000) 105,000
--------------- ------------- --------------
NET (LOSS) EARNINGS $ (1,455,823) $ (2,415,977) $ 51,343
=============== ============= ==============
NET (LOSS) EARNINGS PER SHARE (Note 1) $ (1.07) $ (1.73) $ .03
============== ============= ==============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,356,425 1,394,155 1,571,963
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------
Number of Additional
Shares Paid-in Retained
Issued Amount Capital Earnings
<S> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1994 1,574,525 $ 15,745 $ 689,353 $ 6,126,795
Stock repurchased (20,000) (200) (8,757) (41,557)
Net earnings 51,333
------------ ------------- ------------ --------------
BALANCES AT MARCH 31, 1995 1,554,525 15,545 680,596 6,136,571
Stock repurchased (198,100) (1,981) (103,473) (294,493)
Net loss (2,415,977)
------------ ------------- ------------ --------------
BALANCES AT MARCH 31, 1996 1,356,425 13,564 577,123 3,426,101
Net loss (1,455,823)
------------ ------------- ------------ --------------
BALANCES AT MARCH 31, 1997 1,356,425 $ 13,564 $ 577,123 $ 1,970,278
============ ============= ============ ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (1,455,823) $ (2,415,977) $ 51,333
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Depreciation 1,948,249 2,141,221 2,006,253
Goodwill impairment charge 1,060,330
Proprietary programming impairment charge 187,911
Severance and other charges 161,834 443,000
Amortization of goodwill, organizational
costs, and noncompetition agreements 55,895 184,328
Deferred rent (188,738) (226,044) (233,390)
(Decrease) in deferred income taxes (340,000) (398,000) (27,000)
Changes in assets and liabilities:
(Increase) in restricted cash (435,662)
Decrease in trade accounts receivable 197,532 508,221 89,255
Decrease (increase) in inventory 17,867 (1,219) 9,955
(Increase) in refundable income taxes (38,518)
Decrease in other assets 119,786 70,102 52,878
Increase (decrease) in accounts payable and
other liabilities 426,030 9,434 (231,450)
Increase in customer deposits 652,963
--------------- ------------- --------------
Net cash provided by operating activities 1,253,431 1,246,963 1,902,162
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment additions (391,831) (1,208,573) (2,450,143)
Investment in proprietary programming (187,911)
Payments received on note receivable 175,964 124,342 122,968
--------------- ------------- --------------
Net cash used in investing activities (215,867) (1,272,142) (2,327,175)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in line of credit 97,199 230,000 800,000
Long-term borrowing 681,445 1,890,000 1,620,000
Payments on long-term borrowing (1,302,779) (1,946,944) (1,899,441)
Stock repurchases (399,947) (50,514)
--------------- ------------- --------------
Net cash (used in) provided by financing activities (524,135) (226,891) 470,045
--------------- ------------- --------------
INCREASE (DECREASE) IN CASH 513,429 (252,070) 45,032
CASH AT BEGINNING OF YEAR 19,188 271,258 226,226
--------------- ------------- --------------
CASH AT END OF YEAR $ 532,617 $ 19,188 $ 271,258
=============== ============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION -
Cash payments made for:
Income taxes (received) paid $ (328,482) $ 85,000 $ 90,000
=============== ============= ==============
Interest $ 451,000 $ 480,000 $ 390,000
=============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Northwest Teleproductions, Inc. and
subsidiaries (the Company) is a full-service videotape and film
production company providing a full range of creative, production, and
postproduction service to clientele throughout the United States.
Basis of Presentation - The Company's financial statements for the year
ended March 31, 1997 reflect a net loss of $1,455,823 and a decrease in
stockholders' equity from $4,016,788 at March 31, 1996 to $2,560,965 at
March 31, 1997. Gross margins decreased to 3% in fiscal 1997 from 14% in
fiscal 1996, in part, as a result of decreased sales volume and an
increase in both variable and fixed production costs resulting from a
change in the overall sales mix to full service production. Full service
production is characterized by greater direct job costs. Also adding to
the increase in cost of sales were one-time charges of $544,500
including the write-off of capitalized production costs, the write-off
of lease deposits, and the write-down of obsolete inventory.
On November 4, 1996, the Company hired a new President and Chief
Executive Officer. During the months subsequent to his hiring,
management analyzed the Company's operations, organizational structure,
and business plan. The write-offs and expense reductions are the results
of this evaluation.
The results of operations for fiscal 1997 included the following
one-time charges:
o Write-off of $361,000 in capitalized production costs associated
with proprietary shows and infomercials.
o Write-off of $75,000 in lease deposits.
o Accrued bank fees of $40,250 associated with the Company's former
lending institution.
o Accrued severance pay of $121,500 associated with a reduction in
the work force.
o Write-off of $40,000 in obsolete inventory.
o Write-off of $90,000 of capitalized expenses consisting primarily
of $65,000 of consultant's fees.
Since February 1997, management of the Company has acted on a rigorous
cost-cutting program that included the following actions to stabilize
its financial condition:
o Reduced payroll related expenses by $800,000 on an annualized
basis. Realization of this reduction will commence during the
Company's second fiscal quarter. The effect on fiscal 1998
operating results is expected to approximate $625,000.
o The Company has terminated its lease arrangement for its
production studio in Chicago. This termination is effective July
18, 1997. Expected savings for fiscal 1998 is $142,000.
o The Company did not renew a professional services contract which
cost the Company $240,000 in fiscal 1997.
o Cash rent paid for the primary facility in Chicago decreased
$12,500 per month effective May 1, 1997.
<PAGE>
On April 24, 1997, the Company and NationsCredit entered into a credit
agreement which consists of a $8,500,000 revolving credit facility with
a three-year term expiring in April 2000. Of the $8,500,000 in
availability, $3,750,000 is structured as a term loan, amortized over
five years, due in monthly installments of $62,500 plus interest over a
three-year period with the balance due April 2000. The Company used the
proceeds of the term loan to pay off its indebtedness to Norwest Bank
(see Note 2). Additional borrowings against the line of credit in April
1997 were utilized to pay accounts payable and other current
obligations. The Company's new term debt agreement provides a reduced
principal payment and a longer amortization period than its prior term
debt agreement. The Company's new revolving line of credit will add
flexibility and allow for increased borrowings against available
collateral. These changes will have a significant impact on the
Company's availability under the line of credit.
On June 27, 1997, the Company obtained mortgage financing on its two
facilities in Edina, Minnesota. The Company borrowed $700,000 using the
facilities as collateral. The mortgage financing has an interest rate of
prime plus 2.25% and requires amortization over 60 months with a
three-year term resulting in a monthly principal payment of $11,667. The
proceeds were used to further reduce accounts payable and other current
liabilities. The $700,000 of mortgage financing was part of the credit
facility provided by NationsCredit.
In the opinion of management, the aforementioned actions will enable the
Company to fulfill its obligations in the normal course at least through
fiscal 1998.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries,
after elimination of intercompany balances and transactions.
Inventory - Inventory consists of videotapes, tape reels, tape
cassettes, electronic components, and other supplies used in recording
of film, videotape production, and equipment maintenance and is stated
at the lower of cost (first-in, first-out) or market.
Depreciation - Depreciation on buildings, improvements, machinery, and
equipment is computed using the straight-line basis over their estimated
useful lives. Assets under capital leases and leasehold improvements are
amortized on a straight-line basis over their estimated useful lives.
Buildings and improvements 15 - 30 years
Leasehold improvements 2 - 15 years
Machinery and equipment 5 - 10 years
The Company is depreciating machinery and equipment using accelerated
methods for income tax purposes.
Goodwill - Goodwill was being amortized over a 25-year life using the
straight-line method. At March 31, 1996, the Company recognized a
goodwill impairment charge of $1,060,330. The amount of the impairment
charge was based on estimates of future cash flows from the Company's
Chicago subsidiary compared to the carrying value of the goodwill. This
analysis has resulted in full impairment of previously recorded
goodwill.
<PAGE>
Net (Loss) Earnings per Share - Net (loss) earnings per share are
computed based on the weighted average number of common shares
outstanding during the year. Common share equivalents, consisting of
stock options and warrants to purchase common shares attached to the
subordinated debt, had an antidilutive effect on net loss per share for
the year ended March 31, 1997 and 1996 and, therefore, were not included
in the calculation of weighted average number of common shares
outstanding during these years. There were no common share equivalents
outstanding during the year ended March 31, 1995.
Revenue Recognition and Trade Accounts Receivable - Beginning in 1986,
the Company commenced performance on major government contracts which
are performed over extended periods of time and are based on fixed
prices. Sales and profits on these contracts are recorded under the
percentage-of-completion method of accounting. During the years ended
March 31, 1997, 1996, and 1995, sales under these contracts accounted
for 20%, 22%, and 27%, respectively, of total sales. Included in
accounts receivable at March 31, 1997, 1996, and 1995 are $482,000,
$659,000, and $319,000 of billings under government contracts and
$119,000, $197,000, and $584,000, respectively, of unbilled sales from
government contracts.
Proprietary Programming and Infomercials - During fiscal 1996, the
Company began producing proprietary programming for future sale to the
broadcast industry and began producing infomercials during fiscal 1997.
During fiscal 1997, the Company recognized an impairment charge of
$361,000. The amount of the impairment charge was based on estimates of
future cash flows attributed to the Company's proprietary programming
and infomercials compared to the carrying value of these assets. This
analysis resulted in full impairment of both proprietary programming and
infomercials.
Restricted Cash - Restricted cash consists of customer payments received
on contracts to be utilized for preproduction costs.
Estimated Fair Value - The estimated fair value of cash, trade accounts
receivable, accounts payable, notes payable, and long-term debt
approximates their carrying value due to the relatively short-term
nature of the instruments and/or due to the short-term floating interest
rates on the borrowing and/or due to interest rates approximating rates
currently available to the Company. The estimated fair value of notes
receivable approximates the net carrying value, as management believes
the respective interest rates are commensurate with the credit, interest
rates, and prepayment risks involved.
Management Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual
results could differ from those amounts.
Stock-Based Compensation - Effective April 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages,
but does not require, compensation cost to be measured based on the fair
value of the equity instrument awarded. Companies are permitted,
however, to continue to apply Accounting Principles Board (APB) Opinion
No. 25, which recognizes compensation cost for employee awards based on
the intrinsic value of the equity instrument awarded. The Company
continues to apply APB Opinion No. 25 with regard to measurement of
compensation cost.
<PAGE>
New Accounting Pronouncement - The Financial Accounting Standards Board
recently issued SFAS No. 128, Earnings Per Share, which is effective for
financial statements for both interim and annual periods ending after
December 15, 1997. Early adoption of the statement is not permitted. Due
to the limited amount of common stock equivalents (Note 1), management
does not currently estimate that SFAS No. 128 will have a material
effect on earnings per share.
2. FINANCING
At March 31, 1997, the Company had a line of credit with a bank which is
secured by the Company's accounts receivable. Maximum borrowings under
the credit agreement were determined by an accounts receivable borrowing
base calculation or $1,750,000, whichever was less. Outstanding amounts
bear interest at prime plus 2-3/4% (11.25% at March 31, 1997). At March
31, 1997 there was a balance outstanding of $1,127,199 on the line of
credit and the borrowing limit was $1,010,000.
<TABLE>
<CAPTION>
March 31
---------------------------------
1997 1996
<S> <C> <C>
Term note payable in monthly installments of principal
plus interest at prime plus 2-3/4% (11.25% at
March 31, 1997) (see below) $ 2,565,000 $ 3,695,000
First mortgage note payable in monthly installments of
$2,098 including interest at 9% through August 2002 107,611 122,373
First mortgage note payable in monthly installments of
$3,740 including interest at 8-7/8% through January 1997 34,331
Subordinated notes convertible to common shares,
one-third payable annually beginning July 31, 1998.
Interest payable annually beginning July 31, 1997 at 10.5% 562,500
Capital lease obligations (Note 4) 95,965 100,706
-------------- --------------
3,331,076 3,952,410
Less payments due within one year 851,610 3,844,659
-------------- --------------
$ 2,479,466 $ 107,751
============== ==============
</TABLE>
The subordinated notes issued are convertible to 225,000 shares of
common stock at $2.50 per share.
On April 24, 1997, the Company and NationsCredit entered into a credit
agreement which consists of a $8,500,000 revolving credit facility with
a three-year term expiring in April 2000 which includes a $3,750,000
term note that is to be repaid in 36 monthly installments, based on a
five-year amortization, with the balance due April 2000. Interest on
loans outstanding under the credit agreement is based on prime plus
2.25%. The agreement includes certain nonfinancial covenants. Proceeds
from the new credit agreement were used to pay off the line of credit
and the term note payable outstanding at March 31, 1997.
On June 27, 1997, the Company obtained mortgage financings on its two
facilities in Edina, Minnesota. The Company borrowed $700,000 using the
facilities as collateral. The mortgage financing has an interest rate of
prime plus 2.25% amortization over 60 months with a three-year term
resulting in a monthly principal payment of $11,667.
<PAGE>
Aggregate maturities of long-term debt calculated under the terms of the
new credit agreement, exclusive of capital lease obligations, for the
years ending March 31 are as follows:
1998 $ 814,927
1999 955,161
2000 956,817
2001 476,129
2002 23,112
Thereafter 9,631
--------------
$ 3,235,777
==============
3. INCOME TAXES
The provision (benefit) for income taxes for the years ended March 31
consists of:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Currently (refundable) payable:
Federal $ (341,000) $ (140,000) $ 108,000
State (26,000) (11,000) 24,000
------------ ------------ ------------
(367,000) (151,000) 132,000
Deferred (340,000) (398,000) (27,000)
------------ ------------ ------------
$ (707,000) $ (549,000) $ 105,000
============ ============ ============
</TABLE>
Reconciliations between the income tax provisions computed at the
federal statutory rate and the income tax provisions recorded are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income tax (benefit) expense at statutory rates (35%) $ (755,000) $ (1,038,000) $ 55,000
State income tax expense less applicable federal
benefit (101,000) (80,000) 13,000
Valuation allowance 97,000
Nondeductible expenses 20,000 494,000 40,000
Other 32,000 75,000 (3,000)
------------ ------------- ------------
$ (707,000) $ (549,000) $ 105,000
============ ============= ============
</TABLE>
During the year ended March 31, 1997, the Company established a
valuation allowance of $97,000 on the deferred tax assets, reducing the
total to an amount that management believes will ultimately be realized.
<PAGE>
Temporary differences that give rise to the net deferred tax assets and
liabilities at March 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net current deferred tax assets:
Severance and other $ 72,000 $ 133,000
Allowance for doubtful accounts 52,000 40,000
Vacation accrual 67,000 81,000
Real estate tax accrual (21,000) (24,000)
Profit on unbilled government contracts (6,000) (10,000)
Prepaid items (3,000) (4,000)
------------ ------------
161,000 216,000
Less valuation allowance 97,000
------------ ------------
$ 64,000 $ 216,000
============ ============
Net noncurrent deferred tax liability:
Depreciation $ 728,000 $ 926,000
Severance and other (12,000) (123,000)
Alternative minimum tax credit and NOL carryforwards (652,000) (239,000)
Deferred restructure charge (8,000)
------------ ------------
$ 64,000 $ 556,000
============ ============
</TABLE>
4. COMMITMENTS
Capital Leases - Included in machinery and equipment at March 31, 1997
and 1996 is $118,945 and $1,701,340 of equipment under capital lease.
The accumulated amortization at March 31, 1997 and 1996 for these assets
is $23,789 and $1,121,115, respectively.
Amortization of capital leases for the years ended March 31, 1997, 1996,
and 1995 included in the consolidated statements of operations was
$28,789, $243,048, and $212,985, respectively.
Minimum future payments for capital leases in effect at March 31, 1997
are as follows:
1998 $ 47,928
1999 47,928
2000 19,963
------------
115,819
Less portion representing interest 19,854
------------
$ 95,965
============
Operating Leases - The Company leases facilities in Minneapolis and
Chicago under operating leases.
The downtown Minneapolis facility is leased under the terms of a
ten-year lease which commenced in October 1991 and provides for monthly
rental of $4,133. The lease has a five-year renewal option.
The Nicollet Mall facility in Minneapolis is leased under terms which
provide for monthly payments of $1,140. This lease runs through June
1997 at which time the lease becomes month-to-month and either party may
terminate the lease by giving 45 days notice.
<PAGE>
The Edina Warehouse lease provides for monthly payments of $832 through
January 31, 1998.
The Chicago facility has two operating leases as follows:
o Under the terms of a noncancelable lease commencing September 1993 and
expiring in April 2002, monthly rental of $15,010 is required during
the initial 44 months of the lease decreasing to $3,129 per month for
the balance of the lease. The Company has recorded rent expense on a
straight-line basis recognizing deferred rent for the difference
between cash payments and recorded expense. The lease has a five-year
renewal option.
o Under the terms of a lease dated February 24, 1997 and running through
December 1997, minimum monthly rental of $11,500 is required. However,
either party may terminate this lease by giving the other party
written notice 45 days prior to termination. The Company has given
such notice and this lease will terminate July 18, 1997.
All leases provide for additional rental based on shared operating
expenses.
Minimum future payments for operating leases and related sublease
payments to be received at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Net
Deferred Operating
Cash Rent Lease
Rents Expense Expense
<S> <C> <C> <C>
Year Ending March 31:
1998 $ 138,302 $ 37,385 $ 175,687
1999 87,144 60,180 147,324
2000 87,144 60,180 147,324
2001 87,144 60,180 147,324
2002 62,346 60,180 122,526
Thereafter 3,129 5,015 8,144
-------------- ------------- --------------
$ 465,209 $ 283,120 $ 748,329
============== ============= ==============
</TABLE>
The Company also rents various types of production equipment. Total
rental expenses for facilities and equipment were $390,000, $393,000,
and $412,000 for the years ended March 31, 1997, 1996, and 1995,
respectively.
Employment Agreement and Severance Charges - The Company had an
employment agreement with its former President through May 1998. The
agreement provided for annual base salary plus increases as determined
by the Board of Directors. The agreement also contained noncompete
provisions which required the continued payment, under certain
circumstances, of the annual base salary. The former President resigned
effective April 1, 1996. As part of a severance agreement, he will be
compensated as per the agreement receiving his annual base salary of
$172,000 through May 8, 1998. The present value of these future
payments, $323,000, has been expensed as severance charges in fiscal
1996.
In addition to the $323,000 severance agreement, the Company recorded
additional expense applicable to actual and estimated consulting
services, legal services, and other severance compensation of $161,834
and $120,000 for the years ended March 31, 1997 and 1996, respectively.
<PAGE>
Legal Proceedings - The Company was a defendant in an action relating to
the sale of the business and certain assets of its Kansas City
subsidiary. This action was settled on November 20, 1995. The Company,
without admitting liability, paid the plaintiffs $10,000 in settlement
of the litigation.
5. COMMON STOCK AND STOCK OPTIONS
In June 1993, the Company adopted an Incentive Stock Option Plan
providing for the issuance of 80,000 shares of the Company's common
stock at not less than fair market value at the date of grant. During
fiscal 1997, the number of shares the Board is authorized to issue was
increased to 200,000.
In 1997, the Company adopted SFAS No. 123, Accounting for Stock Based
Compensation. As permitted by SFAS No. 123, the Company has elected to
continue following the guidance of APB 25 for measurement and recognition
of stock-based transactions with employees (see Note 1). No compensation
cost has been recognized for the awards made in the form of stock
options. If compensation cost had been determined based on the fair value
at the dates for awards under those plans, consistent with the method
provided in SFAS No. 123, the Company's net loss and loss per share would
have been reduced to the pro forma amounts indicated:
1997 1996
Net (loss):
As reported $ (1,455,823) $ (2,415,977)
Pro forma (1,476,548) (2,418,265)
(Loss) per share:
As reported (1.07) (1.73)
Pro forma (1.09) (1.73)
Stock Options - All stock option grants are reviewed and approved by the
Compensation Committee of the Board of Directors or by the Board of
Directors. Stock options are granted by the Board of Directors or
Compensation Committee at the fair market value of the Company's common
stock on the date of the grant. The Board determines when the options
will be exercisable. Options to purchase 6,000 shares at a price of $3.00
per share were granted during fiscal 1996 and became exercisable on the
date of grant. During fiscal year 1997, options to purchase 65,000 shares
at $2 per share were granted (vesting ratably over three years beginning
November 4, 1997), options to purchase 4,000 shares at $2 per share were
granted which become exercisable November 4, 1997, and options to
purchase 10,000 shares at $2 per share were granted which became
exercisable April 1, 1997.
<PAGE>
A summary of the status of the stock options as of March 31, 1997 and
1996 and changes during the years ended on those dates are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Stock Options Shares Price
<S> <C> <C> <C>
Year ended March 31, 1996 - granted and outstanding 6,000 $ 3.00
Year ended March 31, 1997 - granted 79,000 $ 2.00
---------
Options outstanding at March 31, 1997 85,000 $ 2.07
=========
Options exercisable at March 31, 1997 6,000 $ 3.00
=========
</TABLE>
The weighted average fair value of each option grant during the years
ended March 31, 1997 and 1996 is estimated as $1.14 and $1.17,
respectively, on the date of grant using the Black-Scholes option-pricing
model. The following weighted-average assumptions are used in the
Black-Scholes model for grants in 1997 and 1996, respectively; dividend
yield of 0% for both years, expected volatility of 52.0% and 41.8%,
risk-free interest rates of 10.75% and 9.00%, and expected lives of three
to five years.
The following tables summarize information about stock options
outstanding at March 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- -------------------------------------------
Shares Shares
Outstanding Weighted Exercisable Weighted
at Remaining Average at Average
March 31, Contractual Exercise March 31, Exercise
Exercise Price 1997 Life Price 1997 Price
<S> <C> <C> <C> <C> <C> <C>
$2.00 79,000 4.7 $2.00 0 0
$3.00 6,000 1.5 $3.00 6,000 $3.00
</TABLE>
6. EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan as set forth under
Section 401(k) of the Internal Revenue Code covering substantially all
of its employees. Under this plan, the Company contributes to the plan
an amount equal to 50% of an employee's contribution up to a maximum
Company contribution of 2-1/2% of an employee's covered compensation.
The cost of these contributions was approximately $84,000, $83,000, and
$80,000 for the years ended March 31, 1997, 1996, and 1995,
respectively.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
of Northwest Teleproductions, Inc. on Form S-8 (File No. 33-69036) of our report
dated June 27, 1997, appearing in this Annual Report on Form 10-KSB of Northwest
Teleproductions, Inc. and subsidiaries for the year ended March 31, 1997.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
July 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-30-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 532,617
<SECURITIES> 0
<RECEIVABLES> 2,078,455
<ALLOWANCES> 120,622
<INVENTORY> 196,238
<CURRENT-ASSETS> 3,628,862
<PP&E> 25,627,888
<DEPRECIATION> 19,726,772
<TOTAL-ASSETS> 9,834,218
<CURRENT-LIABILITIES> 4,729,787
<BONDS> 0
0
0
<COMMON> 13,564
<OTHER-SE> 577,123
<TOTAL-LIABILITY-AND-EQUITY> 9,834,218
<SALES> 11,852,758
<TOTAL-REVENUES> 11,852,758
<CGS> 11,518,677
<TOTAL-COSTS> 11,518,677
<OTHER-EXPENSES> 2,017,525
<LOSS-PROVISION> 57,200
<INTEREST-EXPENSE> 489,953
<INCOME-PRETAX> (2,162,823)
<INCOME-TAX> (707,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (1,455,823)
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
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