<PAGE>
-----------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
___ SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
___ SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-14818
TRANS WORLD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1541629
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
38 Corporate Circle
Albany, New York 12203
(Address of principal executive offices, including zip code)
(518) 452-1242
(Registrant's telephone number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, 9,732,814 shares outstanding as of September 7,
1995
-----------------------------------------------------------------------------
<PAGE> TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -- July 29, 1995,
January 28, 1995 and July 30, 1994 3
Condensed Consolidated Statements of Income -- Thirteen
Weeks and Twenty-Six Weeks Ended July 29, 1995
and July 30, 1994 4
Condensed Consolidated Statements of Cash Flows --
Twenty-Six Weeks Ended July 29, 1995 and July 30, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
-2-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
July 29, January 28, July 30,
1995 1995 1994
-------- ----------- --------
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 8,248 $ 90,091 $ 8,011
Merchandise inventory 207,640 222,358 221,985
Other current assets 22,231 16,527 12,841
-------- -------- --------
Total current assets 238,119 328,976 242,837
-------- -------- --------
VIDEOCASSETTE RENTAL INVENTORY, NET 7,762 7,472 6,472
DEFERRED TAX ASSET 505 505 ---
FIXED ASSETS:
Property, plant and equipment 176,137 182,262 175,312
Less: Fixed asset write-off reserve 6,934 10,485 ---
Accumulated depreciation
and amortization 88,041 85,620 80,413
-------- -------- --------
81,162 86,157 94,899
-------- -------- --------
OTHER ASSETS 4,025 3,829 2,949
-------- -------- --------
TOTAL ASSETS $331,573 $426,939 $347,157
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 70,778 $135,493 $ 75,419
Notes payable 65,214 74,947 64,439
Income taxes payable --- 1,961 ---
Store closing reserve 5,374 9,276 ---
Current portion of long-term
debt and capital leases 4,183 6,618 12,747
Other current liabilities 5,360 7,250 7,825
-------- -------- --------
Total current liabilities 150,909 235,545 160,430
-------- -------- --------
LONG-TERM DEBT, less
current portion 59,716 59,770 54,101
CAPITAL LEASE OBLIGATIONS,
less current portion 6,611 6,671 6,866
OTHER LIABILITIES 5,075 5,476 4,714
-------- -------- --------
TOTAL LIABILITIES 222,311 307,462 226,111
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value;
20,000,000 shares authorized;
9,781,208, 9,731,208 and
9,731,208 issued, respectively) 97 97 97
Additional paid-in capital 24,236 24,236 24,236
Treasury stock, at cost (48,394,
48,394 & 48,394 shares,
respectively) (503) (503) (503)
Retained earnings 85,432 95,647 97,216
-------- -------- --------
Total shareholders' equity 109,262 119,477 121,046
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $331,573 $426,939 $347,157
======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-3-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
July 29, July 30,
1995 1994
-------- --------
<S> <C> <C>
Sales $104,292 $106,978
Cost of sales 68,977 67,503
-------- --------
Gross profit 35,315 39,475
Selling, general and administrative expenses 37,558 37,329
Depreciation and amortization 4,110 4,146
-------- --------
Loss from operations (6,353) (2,000)
Interest expense 3,845 2,667
-------- --------
Loss before income tax benefit (10,198) (4,667)
Income tax benefit (4,069) (1,862)
-------- --------
NET LOSS ($6,129) ($2,805)
======== ========
LOSS PER SHARE ($0.63) ($0.29)
======== ========
Weighted average number of common
shares outstanding 9,733 9,708
======== ========
Twenty-Six Weeks Ended
-----------------------
July 29, July 30,
1995 1994
-------- --------
<S> <C> <C>
Sales $216,204 $216,178
Cost of sales 141,235 135,873
-------- --------
Gross profit 74,969 80,305
Selling, general and administrative expenses 76,291 74,891
Depreciation and amortization 8,355 8,314
-------- --------
Loss from operations (9,677) (2,900)
Interest expense 7,319 4,899
-------- --------
Loss before income tax benefit (16,996) (7,799)
Income tax benefit (6,781) (3,112)
-------- --------
NET LOSS ($10,215) ($4,687)
======== ========
LOSS PER SHARE ($1.05) ($0.48)
======== ========
Weighted average number of common
shares outstanding 9,726 9,713
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-4-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------
July 29, July 30,
1995 1994
-------- --------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES ($65,513) ($68,551)
------- -------
INVESTING ACTIVITIES:
Acquisition of property and equipment (3,758) (10,197)
Purchases of videocassette rental
inventory, net of amortization (290) (306)
------- -------
Net cash used by investing activities (4,048) (10,503)
------- -------
FINANCING ACTIVITIES:
Net increase (decrease) in revolving line of credit (9,733) 64,439
Payments of long-term debt and capital
lease obligations (2,549) (3,079)
Other --- (341)
------- -------
Net cash provided (used) by financing activities (12,282) 61,019
------- -------
Net decrease in cash and cash equivalents (81,843) (18,035)
Cash and cash equivalents, beginning of period 90,091 26,046
------- -------
Cash and cash equivalents, end of period $ 8,248 $ 8,011
======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
-5-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
consist of Trans World Entertainment Corporation and its subsidiaries (the
"Company"), all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated. Joint venture investments,
none of which were material, are accounted for using the equity method.
The unaudited interim condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in these consolidated
financial statements reflects all normal, recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of such financial
statements. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
applicable to interim financial statements.
These unaudited condensed consolidated financial statements should be
read in conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 28,
1995.
Note 2. Restructuring Reserve
During the fourth quarter of 1994 the Company recorded a pre-tax
restructuring charge of $21 million to reflect the anticipated costs
associated with a program to close 143 stores through the first quarter of
1996. The restructuring charge included the write-down of fixed assets,
estimated cash payments to landlords for early termination of operating leases
and the cost of returning product to the Company's distribution center and
vendors. The charge also included estimated legal and consulting fees,
including those that the Company was obligated to pay on behalf of its lenders
while working to renegotiate its credit agreements. Management believes that
the reserve balance at the end of the second quarter is sufficient to cover
the costs of closing the remaining stores included in the restructuring
program.
-6-
<PAGE>
<TABLE>
<CAPTION>
Total costs charged to the restructuring reserves during the first half of
1995 are summarized as follows:
First First Second Second
Quarter Quarter Quarter Quarter
Beginning Charges Charges Ending
Reserve Against Against Reserve
Balance Reserve Reserve Balance
-------------------------------------------
(in thousands)
Non-cash write-offs
-------------------
<S> <C> <C> <C> <C>
Leasehold improvements $ 7,077 $ 393 $ 1,351 $ 5,333
Furniture and fixtures 3,408 917 890 1,601
Excess inventory shrinkage 944 0 240 704
-------------------------------------------
Total non-cash 11,429 1,310 2,481 7,638
-------------------------------------------
Cash outflows
-------------
Lease obligations 4,250 568 457 3,225
Return penalties and related costs 2,725 325 625 1,775
Termination benefits 200 135 27 38
Consulting and legal fees 1,157 1,004 521 (368)
-------------------------------------------
Total cash outflows 8,332 2,032 1,630 4,670
-------------------------------------------
Total $19,761 $3,342 $ 4,111 $12,308
===========================================
</TABLE>
Note 3. Seasonality
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the fourth fiscal quarter. In the past three fiscal
years, the fourth quarter has represented substantially all of the Company's
net income for the year.
Note 4. Earnings (Loss) Per Share
Earnings (Loss) per share is based on the weighted average number of
common shares outstanding during each fiscal period. Common stock
equivalents, which relate to employee stock options, are excluded from the
calculations, as their inclusion would have an anti-dilutive impact on the
loss per share.
-7-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen Weeks Ended July 29, 1995 Compared to Thirteen Weeks Ended July 30,
1994
------------------------------------------------------------------------------
Sales. The Company's sales declined $2.7 million or 2.5% for the second
quarter ended July 29, 1995 compared to the second quarter of 1994. This
sales decrease is primarily due to the net store count decrease of 72 stores
since the second quarter of 1994 and a 4.8% quarterly decline in comparable
store sales.
In the Company's music division, the second quarter comparable store sales
declined 4.7% from the second quarter of 1994 while the video division
declined 1.6% from the second quarter of 1994. The video rental division
had a second quarter comparable sales decline of 10.8% compared to the second
quarter of 1994. The comparable store sales decline is primarily attributed
to a weaker new music release schedule in the second quarter of 1995 and lower
traffic in the shopping malls. The Company currently expects this trend will
continue into the third quarter based on the upcoming new music release
schedule. Based on available industry sales information this trend is
consistent throughout the industry. The increasing competition from
electronics retailers and books superstores that are expanding in the music
business has also contributed to the current sales trend.
Gross Profit. Gross profit as a percentage of sales decreased from 36.9%
to 33.9% in the second quarter ended July 29, 1995, compared to the second
quarter in 1994. The decrease was due to continued price competition,
increased promotional activity, and costs associated with returning product to
vendors as the Company reduces inventory levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") as a percentage of sales increased from 34.9%
to 36.0% in the second quarter of 1995 compared to the second quarter of 1994.
The increase in SG&A as a percent of sales was primarily due to the reduced
leverage of overhead expenses because of the decrease in comparable store
sales.
Interest Expense. Interest expense increased $1.2 million in the second
quarter of 1995 compared to the second quarter of 1994. This increase was due
to an increase in the interest rate the Company is paying on its long-term
debt and borrowings under its revolving credit facilities.
Net Loss. The $6.1 million net loss for the second quarter ended July 29,
1995 compares to a $2.8 million net loss in the second quarter of 1994. The
increased loss is due to the decline in comparable store sales combined with
reduced gross margin rate, the expense growth in the stores, and the increase
in interest expense. To achieve a profitable fiscal quarter comparable store
sales growth would have had to increase substantially over the sales in the
second quarter of 1994.
-8-
<PAGE>
Twenty-Six Weeks Ended July 29, 1995 Compared to Twenty-Six Weeks Ended July
30, 1994
------------------------------------------------------------------------------
Sales. The Company's sales remained flat for the first half of 1995
compared to the first half of 1994. During the first half of the year,
comparable store sales declined approximately 3.4%.
Gross Profit. Gross profit as a percentage of sales declined to 34.7% for
the first half of 1995 from 37.1% from the first half of 1994. This decline
was due to continued price competition, increased promotional activity, and
costs associated with returning product to vendors as the Company reduces
inventory levels.
Selling, General and Administrative Expenses. SG&A as a percentage of
sales increased from 34.6% to 35.3% in the first half of 1995 compared to the
first half of 1994. The increase was primarily due to the decline in
comparable store sales.
Interest Expense. Interest expense increased $2.4 million in the first
half of 1995 compared to the first half of 1994. The increase is primarily
attributed to the increase in the Company's weighted average borrowing rate.
Net Loss. The $10.2 million net loss for the first half of 1995 compares
to a $4.7 million net loss in the first half of 1994. The increased loss is
due to the decline in comparable store sales, the reduced gross margin rate,
the expense growth in the stores, and the increase in interest expense.
-9-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Sources of Capital. Cash used by operating and investing
activities in the first half of the fiscal year are financed through
borrowings under the Company's revolving credit facilities, which permit
aggregate borrowings of up to $72.3 million.
The Company's cash flow from operating activities typically decreases
significantly during the second quarter and year-to-date periods due to
repayments of accounts payable and lower sales at this time of year. During
the first half of 1995 the Company's cash flow used by operations was $65.5
million, which is comparable to the $68.6 million in the first half of 1994.
The most significant uses of cash in the period were the $64.7 million in
normal reductions of accounts payable and $3.9 million of expenditures
relating to the Company's underperforming store closing program. Cash flow
from the reduction of merchandise inventory was $14.7 million in the first
half of 1995 compared to $17.0 million in the first half of 1994.
The Company currently expects that inventory leverage will improve as it
continues to return slow moving inventory to vendors in the third fiscal
quarter. The level of the revolving credit facilities is considered adequate
to finance the seasonally higher inventory requirements in the second half of
the year. At fiscal year end and through the first half of fiscal 1996,
inventory reduction will continue due to the additional store closings. The
corresponding improvement to inventory leverage will be important to maintain
or reduce the absolute level of borrowings on the Company's revolving credit
facilities.
The Company is currently in compliance with all covenants under its credit and
long-term note agreements as of and for the periods ended July 29, 1995. The
Company will be in compliance with the covenants if the Company is profitable
for the 1995 fiscal year.
CAPITAL EXPENDITURES
The Company opened five new stores and closed fifty-two stores in the second
quarter of 1995, ending the period with 616 stores in operation and total
retail square footage of 2.4 million. In addition, the Company is also a
joint venture partner in 10 Incredible Universe stores with Tandy Corporation.
Management plans to open one store in the third quarter and less than 10
stores for the entire fiscal year. Capital expenditures related to the
Company's seven new stores, store remodels and the automation of the
distribution facility were $3.7 million for the first half of 1995. The
Company expects that the total capital expenditures for fiscal 1995 will be
slightly less than the original plan of $10.6 million, net of construction
allowances. Any excess cash flow will be used primarily to retire debt.
Total retail square footage is estimated to be approximately 2.2 million at
the end of the 1995 fiscal year.
The terms of the Company's revolving credit and long-term debt agreements
require the Company to meet certain financial and operating ratios, and limit
the Company's ability, among other things, to incur indebtedness, to make
certain investments and to pay dividends. The foregoing restrictions, as well
as the possibility that certain of the financial ratios may not be maintained,
could limit the Company's ability to obtain future financing and to engage in
certain corporate activities.
-10-
<PAGE>
PROVISION FOR BUSINESS RESTRUCTURING
During the fourth quarter of 1994 the Company undertook a comprehensive
examination of store profitability and adopted a business restructuring plan
that included the closing of 143 stores out of 712 stores then open and
operating. As a result of the restructuring plan, the Company recorded a
pre-tax charge of $21 million against earnings. The components of the
restructuring charge included approximately $8.7 million in reserves for
future cash outlays, and approximately $12.3 million in asset write-offs.
Fifty-two stores were closed in the second quarter of 1995 bringing the total
closures to 103 through the end of the second quarter of 1995. Asset
write-offs charged to the reserve account totaled $2.5 million in the second
quarter of 1995 and $4.7 million since the inception of the business
restructuring plan. Cash expenditures charged to the store closing reserve
totaled $1.6 million in the second quarter of 1995 and $4.0 million since the
inception of the business restructuring plan.
The cash outflows for store closings in the first two quarters and outflows
for the remainder of the year have been financed and will continue to be
financed through disposition of merchandise inventory from the closed stores.
The timing of continued store closures will depend somewhat on the Company's
ability to negotiate reasonable lease termination agreements and continued
review of the opportunities to accelerate the closing of underperforming
stores.
Annual sales associated with the stores closed in the second quarter of 1995
totaled $25.5 million in 1994. Because the store closures will not be
completed until early 1996, the Company will not receive most of the earnings
or cash flow benefits from the restructuring program until fiscal 1996.
-11-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
The Company's 1995 Annual Meeting of Shareholders was held on July 14,
1995. At the meeting, all of management's nominees for directors were
elected to the Board of Directors. In addition, the amendment to the 1990
Stock Option Plan for Non-Employee Directors were approved, with 8,863,984
votes for, 256,419 votes against, and 12,132 votes withheld.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(A) Exhibits
Exhibit No. Description Page No.
----------- ----------- --------
4.1 Amended and Restated Note
Agreement
4.2 Amended and Restated Revolving
Credit Agreement
(B) Reports on Form 8-K - None.
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered.
-12-
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS WORLD ENTERTAINMENT CORPORATION
September 12, 1995 By: /s/ ROBERT J. HIGGINS
---------------------
Robert J. Higgins
President and Director
(Principal Executive Officer)
September 12, 1995 By: /s/ JOHN J. SULLIVAN
--------------------
John J. Sullivan
Senior Vice President - Finance
Chief Financial Officer
(Chief Financial and
Accounting Officer)
-13-
TRANS WORLD ENTERTAINMENT CORPORATION
and
RECORD TOWN, INC.
AMENDED AND RESTATED
NOTE AGREEMENT
Dated as of June 29, 1995
$17,500,000
VARIABLE RATE SENIOR NOTES DUE JULY 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
1. THE NOTES 1
1.1 Background 1
1.2 Authorization of Amendment and Restatement 1
1.3 Amendment and Restatement 2
1.4 Acquisition for Investment 3
1.5 Failure of Conditions 3
1.6 Expenses; Issue Taxes 3
2. WARRANTIES AND REPRESENTATIONS 4
2.1 Subsidiaries 4
2.2 Corporate Organization and Authority 5
2.3 Business, Property, Debt, Liens and Restrictions 5
2.4 Financial Statements; Material Adverse Change 5
2.5 Full Disclosure 6
2.6 Pending Litigation; Compliance with Law 6
2.7 Title to Properties 7
2.8 Patents and Trademarks 7
2.9 Sale of Notes is Legal and Authorized;
Obligations are Enforceable 7
2.10 No Defaults 8
2.11 Governmental Consent 8
2.12 Taxes 8
2.13 Margin Securities 8
2.14 ERISA 9
2.15 Company Actions 9
2.16 Restated Credit Agreement; Restated 1993
Noteholder Agreement 9
3. CLOSING CONDITIONS 10
3.1 Opinions of Counsel 10
3.2 Compliance with this Agreement 10
3.3 Private Placement Number 10
3.4 Other Purchasers 10
3.5 Restated Credit Agreement 10
3.6 Restated 1993 Noteholder Agreement 10
3.7 Intercreditor Agreement 11
3.8 Restructuring Fee 11
3.9 Expenses 11
3.10 Interest on Existing Notes 11
3.11 Subsidiary Guaranties 11
3.12 Proceedings Satisfactory 11
4. DIRECT PAYMENT 12
<PAGE>
TABLE OF CONTENTS (continued)
Page
5. REPAYMENTS 12
5.1 Mandatory Early Repayments 12
5.2 Early Repayment Option 12
5.3 Notice of Optional Repayment 12
5.4 Repayment Upon Change of Control 13
5.5 Repayment Upon Material Asset Sale 13
6. REGISTRATION; SUBSTITUTION OF NOTES 14
6.1 Registration of Notes 14
6.2 Exchange of Notes 14
6.3 Replacement of Notes 14
7. COMPANY BUSINESS COVENANTS 14
7.1 Payment of Taxes and Claims 15
7.2 Maintenance of Properties and Corporate Existence 15
7.3 Maintenance of Office 16
7.4 Liens and Encumbrances 16
7.5 Limitations On Debt Incurrence; Prepayments and
Amendments 18
7.6 Subsidiary Debt 18
7.7 Current Ratio 18
7.8 Maintenance of Ownership 18
7.9 Fixed Charge Ratio 19
7.10 Tangible Net Worth 19
7.11 Tangible Net Worth of Record Town 19
7.12 Distributions and Investments 19
7.13 Sale of Property and Subsidiary Stock 19
7.14 Merger and Consolidation 19
7.15 Guaranties 20
7.16 ERISA Compliance 20
7.17 Transactions with Affiliates 20
7.18 Tax Consolidation 20
7.19 Acquisition of Notes 20
7.20 Lines of Business 21
7.21 Required Subsidiary Guaranties 21
7.22 Limitations on Preferred Stock 21
7.23 Limitation on Inventory Turnover 21
7.24 Maintenance of Consolidated EBITDA 21
7.25 Limitation on Capital Expenditures 22
7.26 Limitation on Leases 22
7.27 Limitation on Sale and Leaseback 22
7.28 Limitation on Changes in Fiscal Year 22
7.29 Limitation on Debt to Consolidated Tangible
Net Worth 22
7.30 Store Openings and Closings 23
<PAGE>
TABLE OF CONTENTS (continued)
Page
7.31 No Amendment of Debt Instruments 23
8. INFORMATION AS TO COMPANY 23
8.1 Financial and Business Information 23
8.2 Officers' Certificates 26
8.3 Accountants' Certificates 26
8.4 Inspection 26
8.5 Quarterly Meetings 27
8.6 Additional Financial Information 27
9. EVENTS OF DEFAULT 27
9.1 Nature of Events 27
9.2 Default Remedies 28
9.3 Annulment of Acceleration of Notes 29
10. INTERPRETATION OF THIS AGREEMENT 29
10.1 Terms Defined 29
10.2 Accounting Principles 38
10.3 Directly or Indirectly 38
10.4 Governing Law 39
11. MISCELLANEOUS 39
11.1 Notices 39
11.2 Reproduction of Documents 39
11.3 Survival 39
11.4 Successors and Assigns 40
11.5 Amendment and Waiver 40
11.6 Duplicate Originals 40
EXHIBIT A -- Purchaser Information
EXHIBIT B -- Form of Note
EXHIBIT C -- Disclosure Schedules
EXHIBIT D -- Form of Matthew H. Mataraso Legal Opinion
EXHIBIT E -- Form of Jones, Day, Reavis & Pogue Legal Opinion
EXHIBIT F -- Form of Subsidiary Guaranty
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION
RECORD TOWN, INC.
38 Corporate Circle
Albany, New York 12203
AMENDED AND RESTATED
NOTE AGREEMENT
$17,500,000
Variable Rate Senior Notes due July 31, 1996
As of June 29, 1995
TO EACH OF THE PURCHASERS
LISTED ON EXHIBIT A
Dear Purchaser:
Trans World Entertainment Corporation (formerly Trans World Music Corp.,
the "Company"), a New York corporation, and Record Town, Inc. ("Record Town"),
a New York corporation and a Wholly-Owned Restricted Subsidiary of the
Company, hereby jointly and severally agree with you as follows:
1. THE NOTES
1.1 Background.
Pursuant to the Note and Security Agreement dated as of June 20, 1991 (the
"Existing Note Agreement"), the Company issued Seventeen Million Five Hundred
Thousand Dollars ($17,500,000) in aggregate principal amount of its nine and
eighteen one-hundredths percent (9.18%) Notes due June 30, 1998 (the "Existing
Notes"). The Existing Notes have been unconditionally guaranteed by Record
Town and are substantially in the form of Attachment B attached to the
Existing Note Agreement. The aggregate principal amount of Existing Notes
currently outstanding is Seventeen Million Five Hundred Thousand Dollars
($17,500,000). The Company has requested the amendment and restatement, in
their entirety, of the Existing Note Agreement and the Existing Notes as
provided for in this Agreement.
1.2 Authorization of Amendment and Restatement.
Each of the Company and Record Town hereby authorizes, agrees and consents
to the Amendment and Restatement in their entirety of the Existing Note
Agreement and the Existing Notes as provided for herein. The Existing Notes,
as amended and restated by Exhibit B to this Agreement, shall be hereinafter
referred to individually as a "Note" and, collectively, as the "Notes". The
obligations of the Company and Record Town under the Notes and this Agreement
shall be guaranteed on a senior basis by all Required Guarantors. The Company
<PAGE>
and Record Town hereby authorize the execution and delivery to the Purchaser
of the Notes, which Notes shall:
(a) be substituted in the place of the Existing Notes;
(b) be dated the Effective Date;
(c) mature on July 31, 1996;
(d) bear interest (computed on the basis of a 360-day year of twelve
30-day months) on the unpaid principal balance thereof at a rate equal to the
greater of
(i) one and fifty one-hundredths percent (1.5%) per annum over the
Prime Rate, or
(ii) ten and fifty one-hundredths percent (10.5%) per annum;
but in no event at a rate which exceeds the highest rate allowed by applicable
law, payable monthly (in arrears) on the final day of each calendar month in
each year, commencing on July 31, 1995, until the principal amount thereof
shall be due and payable;
(e) bear interest, payable on demand, on any overdue principal (including
any overdue prepayment of principal) and (to the extent permitted by
applicable law) on any overdue installment of interest, at a rate equal to the
greater of
(i) one and fifty one-hundredths percent (1.5%) per annum over the
rate otherwise applicable thereto, or
(ii) twelve percent (12.0%) per annum;
but in no event at a rate which exceeds the highest rate allowed by applicable
law; and
(f) be in the form of the Note set out in Exhibit B hereto.
The term "Notes" as used herein shall include each Note delivered pursuant to
any provision of this Agreement, and each Note delivered in substitution or
exchange for any such Note. Whether or not specifically provided in any
particular Section of this Agreement, Record Town will be jointly and
severally liable with the Company for all obligations under the Notes and this
Agreement.
1.3 Amendment and Restatement.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 of this Agreement, you, by your execution of this Agreement, hereby
agree and consent to the Amendment and Restatement in its entirety of the
Existing Note Agreement by this Agreement and the termination of the Waiver
Agreement, and, upon the satisfaction of such conditions precedent, the
Existing Note Agreement and the Waiver Agreement shall be deemed so amended
and restated or terminated, as the case may be. Subject to the satisfaction
<PAGE>
of the conditions precedent set forth in Section 3 of this Agreement, you, by
your execution of this Agreement, hereby agree and consent to the Amendment
and Restatement in their entirety of the Existing Notes and the substitution
of the Notes therefor. On the Effective Date, the Company agrees, subject to
the satisfaction of the conditions precedent set forth in Section 3 of this
Agreement, to execute and deliver to you the aggregate principal amount of
Notes set forth opposite your name on the schedule attached to this Agreement
as Exhibit A, in replacement of your Existing Notes. Contemporaneously with
the receipt by you of such Notes, you agree to re-deliver to the Company for
cancellation the Existing Notes held by you. All amounts owing under, and
evidenced by, the Existing Notes as of the Effective Date shall continue to be
outstanding under, and shall after the Effective Date be evidenced by, the
Notes, and shall be payable in accordance with this Agreement.
1.4 Acquisition for Investment.
You represent to the Company and Record Town, and by agreeing to the
amendmentand restatement of the Existing Note Agreement and the substitution
of the Notes for the Existing Notes it is specifically understood and agreed,
that you are acquiring the Notes for investment for your own account and the
account of your affiliated entities and with no present intention of
distributing or reselling the Notes or any part thereof to anyone other than
an affiliated entity, but without prejudice to your right at all times to:
(a) sell or otherwise dispose of all or any part of the Notes
under a registration statement filed under the Securities Act, or in a
transaction exempt from the registration requirements of the Securities Act;
(b) have control over the disposition of all of your assets to the
fullest extent required by any applicable insurance law.
It is understood that, in making the representations set out in Sections 2.9
and 2.11 hereof, the Company and Record Town are relying, to the extent
applicable, upon your representation in the immediately preceding sentence.
1.5 Failure of Conditions.
If the conditions specified in Section 3 hereof have not been fulfilled on
or prior to June 30, 1995, this Agreement shall terminate, and the Existing
Note Agreement and the Existing Notes shall continue to be in full force and
effect.
1.6 Expenses; Issue Taxes.
(a) Generally. Whether or not the transactions contemplated by this
Agreement are consummated, the Company will promptly (and in any event within
thirty (30) days of receiving any statement or invoice therefor) pay all
expenses relating to this Agreement, including but not limited to:
(i) the cost of reproducing this Agreement, any Subsidiary
Guaranty, the Notes and the other documents delivered in connection with this
Agreement;
<PAGE>
(ii) the reasonable fees and disbursements of your special
counsel and financial advisor;
(iii) your out-of-pocket expenses;
(iv) all expenses relating to any Subsidiary Guaranty;
(v) all expenses relating to any amendments or waivers pursuant to
the provisions of this Agreement or "workouts" with respect hereto; and
(vi) all costs and expenses, including attorneys' fees,
incurred by the holder of any Note in attending any meeting held pursuant to
Section 8.5 or enforcing any rights under this Agreement or in the Notes or in
responding to any subpoena or other legal process issued in connection with
this Agreement or the transactions contemplated hereby, including without
limitation, costs and expenses incurred in any bankruptcy case.
The Company will also pay all taxes in connection with the issuance and
sale of the Notes and in connection with any modification of the Notes and
will save you harmless against any and all liabilities with respect to such
taxes.
(b) Special Counsel and Financial Advisor. Without limiting the
generality of the foregoing, it is agreed and understood that the Company will
pay, on the Effective Date, the fees and disbursements of your special counsel
and financial advisor which are reflected in the statements of your special
counsel and financial advisor, respectively, delivered on or before the
Effective Date; and promptly upon receipt of supplemental statements after the
Effective Date, the Company will pay such additional fees and disbursements of
your special counsel and financial advisor which were not reflected in the
statements of your special counsel and financial advisor, respectively, on the
Effective Date.
(c) Survival. The obligations of the Company under this Section 1.6
shall survive the payment of the Notes and the termination of this Agreement.
2. WARRANTIES AND REPRESENTATIONS
To induce you to enter into this Agreement, the Company and Record Town
jointly and severally warrant and represent to you that as of the Effective
Date each of the following statements will be true and correct:
2.1 Subsidiaries.
Part 2.1 of Exhibit C to this Agreement correctly identifies:
(a) each of the Company's Subsidiaries (indicating which Subsidiaries
are Restricted Subsidiaries), its jurisdiction of incorporation and the
percentage of its Voting Stock owned by the Company and by each other
Subsidiary, and
<PAGE>
(b) each of the Company's Affiliates (other than Subsidiaries) and the
nature of their affiliation.
The Company and each Subsidiary is the legal and beneficial owner of all of
the shares of Voting Stock it purports to own of each Subsidiary, free and
clear in each case of any Lien. All such shares have been duly issued and are
fully paid and nonassessable.
2.2 Corporate Organization and Authority.
The Company, and each Subsidiary,
(a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation,
(b) has all requisite power and authority and all necessary licenses,
permits, franchises and other governmental authorizations to own and operate
its Properties and to carry on its business as now conducted and as presently
proposed to be conducted, and
(c) has duly qualified and is authorized to do business and is in good
standing as a foreign corporation in each jurisdiction where the character of
its Properties or the nature of its activities makes such qualification
necessary.
2.3 Business, Property, Debt, Liens and Restrictions.
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1995 filed by the Company with the Securities and Exchange
Commission and previously delivered to you correctly describes the general
nature of the business and principal Properties of the Company and its
Subsidiaries.
(b) Part 2.3(b) of Exhibit C to this Agreement correctly lists all
outstanding Debt of (including all Guaranties of the Company and the
Subsidiaries of such Debt), and all Liens (other than those permitted by
Clauses (1) - (6) of Section 7.4(a)) on Property of, the Company and its
Restricted Subsidiaries. Neither the Company nor any Subsidiary has agreed or
consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien not permitted by Section 7.4(a).
(c) Neither the Company nor any Subsidiary is a party to any
agreement, or subject to any charter or other corporate restriction, which
restricts its right or ability to incur Debt, other than this Agreement, the
Restated 1993 Noteholder Agreement and the Restated Credit Agreement.
2.4 Financial Statements; Material Adverse Change.
(a) (i) The consolidated balance sheet of the Company and its
Subsidiaries as of January 28, 1995 and the related statements of income,
retained earnings and changes in cash flows for the fiscal year ended on such
<PAGE>
date, all accompanied by reports thereon containing opinions without
qualification, by KPMG Peat Marwick LLP, independent certified public
accountants, (ii) the consolidated balance sheets of the Company and its
Subsidiaries as of January 29, 1994, January 30, 1993, February 1, 1992 and
February 2, 1991 and the related statements of income, retained earnings and
changes in cash flows for the fiscal years ended on such dates, all
accompanied by reports thereon containing opinions without qualification, by
Ernst & Young LLP, independent certified public accountants, and (iii) the
consolidated balance sheet of the Company and its Subsidiaries as of April 29,
1995 and the related statements of income, retained earnings and changes in
cash flows for the three months ended on such date, copies of which have been
delivered to you, have been prepared in accordance with generally accepted
accounting principles consistently applied, and present fairly the financial
position of the Company and its Subsidiaries as of such dates and the results
of their operations for such periods. Such consolidated financial statements
include the accounts of all Subsidiaries for all periods during which a
subsidiary relationship has existed.
(b) Since January 28, 1995, there have been no materially adverse
changes in the Properties, business, prospects, operating results or condition
(financial or otherwise) of either Record Town or of the Company and its
Subsidiaries, taken as a whole.
2.5 Full Disclosure.
The financial statements referred to in Section 2.4 do not, nor does this
Agreement or any written statement furnished by or on behalf of the Company or
Record Town to you in connection with this Agreement, contain any untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein or herein not misleading, in light of the
circumstances under which they were made. There is no agreement, restriction
or other factual matter which the Company has not disclosed to you in writing
which materially affects adversely nor, so far as the Company can now
reasonably foresee, will materially affect adversely the Properties, business,
prospects, operating results or condition (financial or otherwise) of either
Record Town or the Company and its Subsidiaries, taken as a whole, or the
ability of the Company or Record Town to perform this Agreement and the Notes.
2.6 Pending Litigation; Compliance with Law.
There are no proceedings or investigations pending, or to the knowledge of
the Company or Record Town threatened, against or affecting the Company or any
Subsidiary in or before any court, governmental authority or agency or
arbitration board or tribunal which, individually or in the aggregate, might
materially and adversely affect the Properties, business, prospects, operating
results or condition (financial or otherwise) of either Record Town or the
Company and its Subsidiaries, taken as a whole, or the ability of Record Town
or the Company to perform this Agreement and the Notes. Neither the Company
nor any Subsidiary is in default with respect to any order, decree or judgment
of any court, governmental authority or agency or arbitration board or
tribunal or in violation of any laws or governmental rules or regulations
where such default or violation might materially and adversely affect the
Properties, business, prospects, operating results or condition (financial or
otherwise) of either Record Town or the Company and its Subsidiaries, taken as
a whole, or the ability of the Company or Record Town to perform this
Agreement and the Notes.
<PAGE>
2.7 Title to Properties.
The Company, and each Subsidiary, has good and marketable title in fee
simple (or its equivalent under applicable law) to all the real Property, and
has good title to all the other Property, it purports to own, including that
reflected in the most recent balance sheet referred to in Section 2.4 (except
as sold or otherwise disposed of in the ordinary course of business), free
from Liens not permitted by Section 7.4(a).
2.8 Patents and Trademarks.
The Company, and each Subsidiary, owns or possesses all the patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing necessary for the present and planned future conduct
of its business, without any known conflict with the rights of others.
2.9 Sale of Notes is Legal and Authorized; Obligations are Enforceable.
(a) Sale of Notes is Legal and Authorized. Each of the issuance, sale
and delivery of the Notes by the Company and Record Town, the execution and
delivery hereof by each of the Company and Record Town and compliance by each
of the Company, Record Town and each other Subsidiary with all of the
provisions hereof and of the Notes:
(i) is within the corporate powers of the Company, Record Town and
each such Subsidiary, respectively; and
(ii) is legal and does not conflict with, result in any breach
of any of the provisions of, constitute a default under, or result in the
creation of any Lien upon any Property of the Company or any Subsidiary under
the provisions of, any agreement, charter instrument, bylaw, or other
instrument to which the Company or any Subsidiary is a party or by which any
of them or their respective Properties may be bound.
(b) Obligations are Enforceable. Assuming the due execution and
delivery by the Purchasers of this Agreement, each of this Agreement and the
Notes has been duly authorized by all necessary action on the part of each of
the Company and Record Town, has been executed and delivered by duly
authorized officers of each of the Company and Record Town and constitutes the
legal, valid and binding obligation of each of the Company and Record Town,
enforceable in accordance with its terms except that the enforceability hereof
and of the Notes may be:
(i) limited by applicable bankruptcy, reorganization, arrangement,
insolvency, moratorium or other similar laws affecting the enforceability of
creditors' rights generally; and
(ii) subject to the availability of equitable remedies.
<PAGE>
2.10 No Defaults.
No event has occurred and no condition exists which, upon the issuance of
the Notes and the execution and delivery of this Agreement, would constitute a
Default or an Event of Default. Neither the Company nor any Subsidiary is in
violation in any respect of any term of any charter instrument, by-law or
other instrument to which it is a party or by which it or any of its Property
may be bound.
2.11 Governmental Consent.
Neither the nature of the Company or of any Subsidiary, or of any of their
respective businesses or Properties, nor any relationship between the Company
or any Subsidiary and any other Person, nor any circumstance in connection
with the offer, issue, sale or delivery of the Notes or the execution,
delivery and performance of this Agreement is such as to require a consent,
approval or authorization of, or filing, registration or qualification with,
any governmental authority on the part of the Company or any Subsidiary in
connection with the execution, delivery and performance of this Agreement or
the offer, issue, sale or delivery of the Notes.
2.12 Taxes.
(a) All tax returns required to be filed by the Company or any
Subsidiary in any jurisdiction have in fact been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary, or upon any of their respective Properties, income or franchises,
which are due and payable have been paid. Neither the Company nor any
Subsidiary knows of any proposed additional tax assessment against it.
Federal income tax returns of the Company and its Subsidiaries have been
audited by the Internal Revenue Service or the statute of limitations has run
for all years to and including the fiscal year ending February 1, 1992 and
there is no liability for such tax asserted against the Company or any
Subsidiary for that or any prior year.
(b) The provisions for taxes on the books of the Company and each
Subsidiary are adequate for all open years, and for its current fiscal period.
The amount of the reserve for Federal income taxes reflected in the
consolidated balance sheet of the Company and its Subsidiaries as of January
28, 1995 is an adequate provision for such Federal income taxes, if any, as
may be payable by the Company and its Subsidiaries for the fiscal years 1992
through 1994, the only open years.
2.13 Margin Securities.
None of the transactions contemplated in this Agreement will violate or
result in a violation of Section 7 of the Exchange Act or any regulations
issued pursuant thereto, including, without limitation, Regulations G, T and X
of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II
or require that any filing be made under any thereof. Neither the Company nor
any Subsidiary owns or intends to carry or purchase any "margin stock" within
the meaning of said Regulation G, including margin stock originally issued by
it.
<PAGE>
2.14 ERISA.
Neither the Company nor any Related Person of the Company now maintains
any "employee pension benefit plan", as such term is defined in Section 3 of
ERISA (herein referred to as a "Pension Plan"), nor has the Company nor any
Related Person maintained a Pension Plan in the past. No employee of the
Company or of any of its Related Persons is entitled, as the result of current
employment by the Company or any Subsidiary, to participate in any
"multiemployer pension plan" as such term is defined in Section 4001(a)(3) of
ERISA.
2.15 Company Actions.
Neither the Company, Record Town nor any other Subsidiary has taken any
action or permitted any condition to exist which would have been prohibited by
Section 7 if such Section had been binding and effective at all times during
the period from January 28, 1995 to and including the Effective Date.
2.16 Restated Credit Agreement; Restated 1993 Noteholder Agreement.
(a) The Company has delivered to the Purchaser true, complete and
correct copies of each of the Restated Credit Agreement and the Restated 1993
Noteholder Agreement (together, the "Other Restructuring Documents"), together
with all exhibits, schedules and disclosure letters referred to therein or
delivered pursuant thereto, and all amendments thereto, waivers relating
thereto and other side letters or agreements affecting the terms thereof.
None of such documents and agreements has been amended or supplemented, nor
have any of the provisions thereof been waived, except pursuant to a written
agreement or instrument which has heretofore been consented to by the
Purchaser and no consent or waiver has been granted by the Company or any
Subsidiaries thereunder. Each of the Other Restructuring Documents has been
duly executed and delivered by the Company, and, to the best of the Company's
knowledge, by each other party thereto and is a legal, valid and binding
obligation of the Company, and, to the best of the Company's knowledge, of
each other party thereto, enforceable, in all material respects, in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the rights of creditors generally
and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
(b) The representations and warranties of the Company, any Subsidiary
and each other party to the Other Restructuring Documents are, to the best of
the Company's knowledge, true and correct in all material respects on the
Effective Date as if made on and as of such date. Such representations and
warranties, together with the definitions of all defined terms used therein,
are by this reference deemed incorporated herein mutatis mutandis, and the
Purchaser is entitled to rely on the accuracy of such representations and
warranties.
(c) To the best of the Company's knowledge, each party to the Other
Restructuring Documents has complied in all material respects with all terms
and provisions contained therein on its part to be observed.
3. CLOSING CONDITIONS
The amendment and restatement of the Existing Note Agreement and the
Existing Notes, and the substitution of the Notes for the Existing Notes are
subject to the satisfaction, on or before June 30, 1995, of the following
conditions precedent:
3.1 Opinions of Counsel.
You shall have received from
(a) Matthew H. Mataraso, counsel for the Company and Record Town, and
(b) Jones, Day, Reavis & Pogue, special counsel for the Company and
Record Town,
closing opinions, each dated as of the Effective Date, substantially in the
respective forms set forth in Exhibits D and E hereto and as to such other
matters as you may reasonably request. This Section 3.1 shall constitute
direction by the Company to such counsel to deliver such closing opinions to
you.
3.2 Compliance with this Agreement.
The Company and Record Town shall have performed and complied with all
agreements and conditions contained herein which are required to be performed
or complied with by the Company and Record Town, respectively, on or prior to
the Effective Date, and such performance and compliance shall remain in effect
on the Effective Date.
3.3 Private Placement Number.
The Company shall have obtained from Standard & Poor's Corporation and
furnished to you a private placement number for the Notes.
3.4 Other Purchasers.
The Company, Record Town and all holders of Notes shall have entered into
this Agreement and each party thereto shall be prepared to perform its
respective obligations hereunder.
3.5 Restated Credit Agreement.
The Company, Record Town and the Banks shall have entered into the
Restated Credit Agreement, which agreement, and all documents and instruments
executed and delivered in connection therewith, shall be in form and substance
satisfactory to you.
3.6 Restated 1993 Noteholder Agreement.
The Company, Record Town and each of the 1993 Noteholders shall have
entered into an agreement amending the Existing 1993 Noteholder Agreement,
<PAGE>
which agreement, and all documents and instruments executed and delivered in
connection therewith, shall be in form and substance satisfactory to you.
3.7 Intercreditor Agreement.
You, each of the 1993 Noteholders and the Banks shall have executed and
delivered an Intercreditor Agreement (the "Intercreditor Agreement"), and such
Intercreditor Agreement, and all documents and instruments executed and
delivered in connection therewith, shall be in form and substance satisfactory
to all parties thereto, and such Intercreditor Agreement shall be in full
force and effect.
3.8 Restructuring Fee.
In consideration of your willingness to enter into the transactions
contemplated hereby, the Company shall have paid to each Purchaser, and each
Purchaser shall have received, a restructuring fee equal to the product of:
(a) twenty-five one-hundredths of one percent (0.25%); times
(b) the outstanding principal amount of the Notes held by such
Purchaser on the Effective Date.
Such payment shall be made by wire transfer of immediately available funds to
the account to which the Company is obligated to make payments of interest in
respect of the Notes.
3.9 Expenses.
All fees and disbursements required to be paid pursuant to Section
1.6(a)(ii), Section 1.6(a)(iii) and Section 1.6(b) hereof shall have been paid
in full.
3.10 Interest on Existing Notes.
The Company shall have paid to you all accrued interest on the Existing
Notes to (but not including) the Effective Date at the rate of 11.18% per
annum.
3.11 Subsidiary Guaranties
Each Subsidiary (other than Record Town) shall have executed and delivered
an agreement to the effect and substantially in the form of Exhibit F hereto
unconditionally guarantying payment of the Notes.
3.12 Proceedings Satisfactory.
All proceedings taken in connection with the issuance of the Notes and all
documents and papers relating thereto shall be satisfactory to you and your
special counsel. You and your special counsel shall have received copies of
such documents and papers as you or they may reasonably request in connection
therewith, all in form and substance satisfactory to you and your special
counsel.
<PAGE>
4. DIRECT PAYMENT
The Company agrees that, notwithstanding any provision in this Agreement
or the Notes to the contrary, it will pay all sums becoming due to any
institutional holder of Notes in the manner provided in Exhibit A or in any
other manner as any institutional holder may designate to the Company in
writing (without presentment of or notation on the Notes).
5. REPAYMENTS
5.1 Mandatory Early Repayments.
(a) In addition to paying the entire remaining principal amount and
interest due on the Notes at maturity, the Company and Record Town agree on a
joint and several basis to repay, and there shall become due and payable, Six
Hundred Twenty-Five Thousand and 00/100 Dollars ($625,000.00) principal amount
of the Notes on June 30, 1995 and One Million and 00/100 Dollars
($1,000,000.00) principal amount of the Notes on January 31, 1996. Each such
repayment shall be at one hundred percent (100%) of the principal amount
repaid, together with interest accrued thereon to the date of repayment.
(b) The early repayment of any of the Notes pursuant to Section 5.2 or
Section 5.5 or the acquisition of the Notes by the Company or any Subsidiary
shall not reduce or otherwise affect the obligations of the Company or Record
Town to make any repayment required by Section 5.1(a). If at any time one or
more holders of the Notes shall be repaid in whole pursuant to Section 5.4
(each such repayment herein called an "Extraordinary Repayment"), then the
principal amount of the Notes required to be repaid pursuant to Section 5.1(a)
on each principal payment date following such Extraordinary Repayment shall be
automatically reduced to an amount which equals the product of (i) the
principal amount of the Notes required to be repaid on such date multiplied
(ii) by a fraction the numerator of which shall equal $47,500,000 minus the
cumulative aggregate principal amount repaid pursuant to Section 5.4 after
giving effect to such Extraordinary Repayment and the denominator of which
shall equal $47,500,000.
5.2 Early Repayment Option.
Subject to Section 7.5(b) of this Agreement, the Company and Record Town
may prepay the Notes, in whole or in part, at any time at a price equal to the
principal amount to be repaid together with interest on the principal amount
so repaid accrued to the repayment date. All such optional repayments shall
be allocated among the outstanding Notes held by each holder, as nearly as may
be practicable, on a pro rata basis in proportion to the respective unpaid
principal amounts so held.
5.3 Notice of Optional Repayment.
The Company will give notice of any optional repayment of the Notes to
each holder of the Notes not less than ten (10) days nor more than sixty (60)
days before the date fixed for repayment, specifying:
<PAGE>
(a) such date;
(b) the principal amount of the Notes and of such holder's Notes to be
repaid on such date; and
(c) the accrued interest applicable to the repayment.
Notice of repayment having been so given, the principal amount of the Notes
specified in such notice, together with the accrued interest thereon, shall
become due and payable on the repayment date.
5.4 Repayment Upon Change of Control.
The Company or Record Town will repay, and there shall be due and payable
on the forty-fifth (45th) day following notice by the Company to the holders
of Notes of a proposed Change of Control pursuant to Section 8.1(i) (or on the
next succeeding Business Day if such forty-fifth (45th) day is not a Business
Day), all of the Notes held by each holder of Notes; provided, that a holder
of any Note may give notice to the Company on or before the thirtieth (30th)
day following receipt by such holder of such notice from the Company, that
such holder elects to forego such repayment pursuant to this Section 5.4, of
the Notes held by it. Any such repayment must be effective prior to the
effective time of any proposed Change of Control. The amount required to be
paid to such holder shall be equal to one hundred percent (100%) of the
principal amount of the Notes so repaid, together with interest accrued
thereon to the date of repayment.
If the Company shall fail to provide the notice required by Section
8.1(i), any holder of the Notes upon acquisition of knowledge of the failure
by the Company to comply with the notice requirements of Section 8.1(i) may
give notice to the Company of such failure. The Company shall immediately
provide a copy of such notice to each other holder of the Notes and for
purposes of the foregoing provisions of this Section 5.4, the date upon which
such notice was given by such holder to the Company shall be deemed to be the
date of notice by the Company of such proposed Change of Control.
5.5 Repayment Upon Material Asset Sale.
Not more than two Business Days following the consummation of any sale of
Property of the Company or its Subsidiaries in one transaction or a series of
related transactions, other than a sale of inventory in the ordinary course of
the Company's business or in connection with store closings, which sale
results in net proceeds equal to or greater than $500,000, the Company and
Record Town will repay, and there shall become due and payable, an amount
equal to the product of (a) the net proceeds of such sale multiplied by (b) a
fraction, the numerator of which shall equal $17,500,000 and the denominator
of which is $140,000,000. Nothing in this Section 5.5 shall be deemed to
permit such an asset sale without the consent of the Purchaser obtained in
accordance with Sections 7.13 and 11.5 of this Agreement.
<PAGE>
6. REGISTRATION; SUBSTITUTION OF NOTES
6.1 Registration of Notes.
The Company will cause to be kept at its office maintained pursuant to
Section 7.3, a register for the registration and transfer of the Notes. The
names and addresses of the holders of the Notes, the transfer thereof and the
names and addresses of the transferees of any of the Notes will be registered
in the register. The Person in whose name any Note is registered shall be
deemed and treated as the owner and holder thereof for all purposes of this
Agreement, and the Company shall not be affected by any notice or knowledge to
the contrary.
6.2 Exchange of Notes.
Upon surrender of any Note to the Company at its office maintained
pursuant to Section 7.3, the Company, upon request, will execute and deliver,
at its expense (except as provided below), new Notes in exchange therefor, in
denominations of at least One Hundred Thousand Dollars ($100,000) (except as
may be necessary to reflect any principal amount not evenly divisible by One
Hundred Thousand Dollars ($100,000)), in an aggregate principal amount equal
to the unpaid principal amount of the surrendered Note. Each such new Note
(a) shall be payable to such Person as the surrendering holder may request and
(b) shall be dated and bear interest from the date to which interest has been
paid on the surrendered Note or dated the date of the surrendered Note if no
interest has been paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any transfer.
6.3 Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any Note
and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided, if the holder of the Note is an institutional
investor, its own agreement of indemnity shall be deemed to be satisfactory),
or
(b) in the case of mutilation, upon surrender and cancellation of the
Note,
the Company at its expense will execute and deliver a new Note of like tenor,
dated and bearing interest from the date to which interest has been paid on
the lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest has been paid thereon.
7. COMPANY BUSINESS COVENANTS
The Company and Record Town covenant that on and after the date of this
Agreement until the Notes are paid in full:
<PAGE>
7.1 Payment of Taxes and Claims.
The Company, and each Subsidiary, will pay, before they become delinquent,
(a) all taxes, assessments and governmental charges or levies imposed
upon it or its Property other than deficiencies which arise in the ordinary
course and are identified through audits and with respect to which (i)
adequate book reserves have been established with respect thereto and (ii)
such amounts due are paid by the Company or such Subsidiary immediately upon
final determination that such amounts are due, and
(b) all claims or demands of any kind (including but not limited to
those of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons) which, if unpaid, might result in the creation of a Lien upon
its Property;
provided, that items in clauses (a) and (b) above need not be paid while being
contested in good faith and by appropriate proceedings, if and for so long as
(i) adequate book reserves have been established with respect thereto and (ii)
the owning Person's title to its Property is not materially adversely affected
and its use of the Property in the ordinary course of its business is not
materially interfered with.
7.2 Maintenance of Properties and Corporate Existence.
The Company will, and will cause each Subsidiary to:
(a) Property. Maintain its Property in good condition, subject to
ordinary wear and tear, and make all necessary renewals, replacements,
additions, betterments and improvements thereto; provided that nothing
contained in this Section 7.2 shall prevent the Company from closing any
specific store location pursuant to Section 7.13 hereof;
(b) Insurance. Maintain, with financially sound and reputable
insurers, insurance with respect to its Properties and business against such
casualties and contingencies, of such types (including public liability,
larceny, embezzlement or other criminal misappropriation insurance) as is
customary in the case of corporations of established reputations engaged in
the same or a similar business and similarly situated, and in amounts
acceptable to the Purchaser.
(c) Financial Records. Keep accurate books of records and accounts in
which full and correct entries will be made of all its business transactions,
and will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with generally accepted
accounting principles;
(d) Corporate Existence and Rights. Do or cause to be done all things
necessary (i) to preserve and keep in full force and effect its existence,
rights and franchises and (ii) to maintain each Restricted Subsidiary as a
Restricted Subsidiary, except as otherwise permitted by Sections 7.13 and
7.14; and
(e) Compliance with Law. Not be in violation of any laws, ordinances,
orders, judgments or decrees or governmental rules and regulations to which it
<PAGE>
is subject and will not fail to maintain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its Properties
or to the conduct of its business, if such violation or failure to maintain
might reasonably be expected to materially adversely affect the Properties,
business, prospects, operating results or condition (financial or otherwise)
of Record Town or the Company and its Subsidiaries, taken as a whole.
7.3 Maintenance of Office.
The Company and Record Town each will maintain an office in the State of
New York where notices, presentations and demands in respect of this Agreement
or the Notes may be made upon it. Such offices shall be maintained at 38
Corporate Circle, Albany, New York 12203 until such time as the Company shall
notify the holders of the Notes of a change of location.
7.4 Liens and Encumbrances.
(a) Negative Pledge. Neither the Company nor any Restricted
Subsidiary will (1) cause or permit or (2) agree or consent to cause or permit
in the future (upon the happening of a contingency or otherwise), any of its
Property, whether now owned or hereafter acquired, to be subject to a Lien
except:
(1) Liens securing the payment of taxes, assessments, governmental
charges or levies, or the claims or demands of mechanics, carriers,
warehousemen, landlords and other like Persons, provided, that (A) they do not
in the aggregate materially reduce the value of any Properties subject to such
Liens or materially interfere with their use in the ordinary course of
business and (B) if appropriate, all claims which such Liens secure are being
actively contested in good faith and by appropriate proceedings;
(2) Liens incurred or deposits made in the ordinary course of
business (A) in connection with worker's compensation, unemployment insurance,
social security and other like laws, or (B) to secure the performance of
letters of credit, bids, tenders, sales contracts, leases, statutory
obligations, surety, appeal and performance bonds and other similar
obligations in each case not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the deferred purchase price
of Property (except for payment of the purchase price of inventory acquired
with the use of letters of credit in the ordinary course of business);
(3) Liens on Property of a Restricted Subsidiary, provided, they
secure only obligations owing to the Company or another Restricted Subsidiary;
(4) Liens created by or resulting from any litigation or
proceedings that are being contested in good faith, and Liens arising out of
judgments or awards against the Company or any Restricted Subsidiary,
provided, that (A) the Company or such Restricted Subsidiary is in good faith
prosecuting an appeal or proceedings for review of such Liens incurred by the
<PAGE>
Company or any Restricted Subsidiary for the purpose of obtaining a stay or
discharge in the course of any legal proceeding to which the Company or such
Restricted Subsidiary is a party, so long as the Company has set aside
adequate accounting reserves; and (B) such Liens do not in the aggregate
materially reduce the value of any of the Properties subject to the Liens or
materially interfere with their use in the ordinary conduct of the owning
company's business;
(5) Liens or deposits in connection with leases, subleases,
easements, rights of way, restrictions and other similar encumbrances granted
to others in the ordinary course of business so long as they do not in the
aggregate materially reduce the value of any Properties subject to the Liens;
(6) Easements, rights-of-way, or restrictions and other similar
encumbrances incurred in the ordinary course of business and not interfering
with the ordinary conduct of the business of the Company or any Restricted
Subsidiary;
(7) Purchase Money Mortgages or conditional sale, finance lease or
other title retention agreements or other Liens incurred, taken subject to or
assumed in connection with the purchase, lease, improvement or construction of
Property or to secure indebtedness incurred solely for the purpose of
financing the acquisition, lease, construction or improvement of any of such
Property to be subject to such mortgages, agreements or other Liens, provided,
however, that such Purchase Money Mortgages (A) shall be permitted by Section
7.5(a)(iv) and (B) shall not encumber any assets of the Company other than the
Property so purchased;
(8) Liens arising by operation of law and in the ordinary course
of business in the form of rights of setoff, appropriation and application
against the deposits and credits of the Company or any Restricted Subsidiary
in favor of the banks where such deposits or credits are located, and
including any rights arising pursuant to a participation or similar
contractual agreement among any such bank and other banks which are members of
a group providing credit to the Company whereby such bank agrees to share such
rights of setoff with other banks which are members of such group; and
(9) Liens set forth on Part 2.3(b) of Exhibit C hereto.
(b) Equal and Ratable Lien; Equitable Lien. In case any Property is
subjected to a Lien in violation of Section 7.4(a), the Company will make or
cause to be made provision whereby the Notes will be secured equally and
ratably with all other obligations secured thereby, and in any case the Notes
shall have the benefit, to the full extent that, and with such priority as,
the holders may be entitled thereto under applicable law, of an equitable Lien
on such Property securing the Notes. Such violation of Section 7.4(a) shall
constitute an Event of Default hereunder, whether or not any such provision is
made pursuant to this Section 7.4(b).
<PAGE>
7.5 Limitations On Debt Incurrence; Prepayments and Amendments.
Neither the Company nor any Restricted Subsidiary will:
(a) be or become liable for any Adjusted Funded Debt other than:
(i) the Notes; (ii) the 1993 Notes; (iii) indebtedness not to exceed
$75,000,000 in aggregate principal amount (the "Credit Agreement Debt")
outstanding under the Restated Credit Agreement; (iv) indebtedness to others
incurred for the purpose of purchasing equipment, to the extent permitted by
Section 7.25, used or useful in the ordinary course of business of the Company
or its Subsidiaries (provided that the aggregate amount of all such
indebtedness shall not exceed $2,000,000 in any fiscal year); and (v) other
indebtedness outstanding on the Effective Date and reflected on the
consolidated balance sheet of the Company as of January 28, 1995,
(b) make any optional prepayment of any Debt or consent to any
optional reduction of the Commitment if, as a result thereof, the amount of
the Commitment and the outstanding principal amounts of the Notes and of the
1993 Notes do not bear the same relative proportion to one another as was the
case on the Effective Date, or
(c) amend any agreement governing or evidencing any Debt.
7.6 Subsidiary Debt.
No Restricted Subsidiary, except for Record Town, will become liable for,
have outstanding, or permit its Property to be subject to, any Prior
Indebtedness.
7.7 Current Ratio.
As of the last day of the first, second and fourth fiscal quarters of the
Company during each fiscal year, Consolidated Current Assets shall be not less
than 140% of Consolidated Current Liabilities. As of the last day of the
third fiscal quarter of the Company during each fiscal year, Consolidated
Current Assets shall be not less than 125% of Consolidated Current
Liabilities. For purposes of computations made to determine compliance with
this Section 7.7, the actual cash balance of the Company and the Restricted
Subsidiaries shall be deemed to be reduced by the amount thereof in excess of
the product of $10,000 multiplied by the number of retail stores of the
Company and the Restricted Subsidiaries actually open for business on the date
of such computation, and any such excess shall be deemed to reduce accounts
payable.
7.8 Maintenance of Ownership.
The Company shall at all times directly or indirectly own, free and clear
of all Liens (except as otherwise permitted by Section 7.4(a)(4)), 100% of the
outstanding capital stock of Record Town.
<PAGE>
7.9 Fixed Charge Ratio.
The Company shall maintain, at the end of each of the first, second and
third fiscal quarter of each fiscal year, Consolidated Income Available for
Fixed Charges of not less than 120% of Consolidated Fixed Charges for the
immediately preceding 12 month period. The Company shall maintain, at the end
of the fourth fiscal quarter of each fiscal year, Consolidated Income
Available for Fixed Charges of not less than 115% of Consolidated Fixed
Charges for the immediately preceding 12 month period.
7.10 Tangible Net Worth.
The Company will maintain Consolidated Tangible Net Worth of not less than
$103,000,000 at the end of each of the first three fiscal quarters of each
fiscal year, and $112,000,0000 at the end of each fiscal year.
7.11 Tangible Net Worth of Record Town.
The Company will at all times cause Record Town to maintain Tangible Net
Worth of not less than $10,000,000.
7.12 Distributions and Investments.
Neither the Company nor any Restricted Subsidiary will declare, make or
become obligated to make any Distribution or make or become obligated to make
any Restricted Investment.
7.13 Sale of Property and Subsidiary Stock.
Neither the Company nor any Restricted Subsidiary will (x) sell, lease, or
otherwise transfer any of its Property (including, without limitation, the
sale or discount of accounts receivable or notes receivable), or (y) permit
any Restricted Subsidiary to issue or transfer any shares of its stock or any
other Securities exchangeable or convertible into its stock (such stock and
other Securities being called "Subsidiary Stock"), if the effect would be to
reduce the direct or indirect proportionate interest of the Company in the
outstanding Subsidiary Stock of the Restricted Subsidiary whose shares are the
subject of the transaction, provided that these restrictions do not apply to:
(1) the issue of directors' qualifying shares; and
(2) the transfer of Property (other than Subsidiary Stock) in the
ordinary course of business.
7.14 Merger and Consolidation.
The Company will not, and will not permit any Restricted Subsidiary to, be
a party to any merger or consolidation or sell, lease or otherwise transfer
all or substantially all of its Property.
<PAGE>
7.15 Guaranties.
Neither the Company nor any Restricted Subsidiary will become liable for
any Guaranty (except a Guaranty of any indebtedness, dividend or other
obligation as to which the Company or a Restricted Subsidiary of which the
Company enjoys at least 80% of the Economic Benefit is the primary obligor),
unless (i) such Guaranty is permitted by Sections 7.5, 7.6 and 7.7, to the
extent applicable, and (ii) the maximum amount of indebtedness, dividend or
other obligation being guaranteed can be mathematically determined at the time
the Guaranty is issued.
7.16 ERISA Compliance.
Neither the Company nor any Related Person will at any time permit any
Pension Plan maintained by it to:
(i) engage in any "prohibited transaction" as such term is
defined in Section 4975 of the Internal Revenue Code of 1986, as amended, or
described in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA, whether or not waived; or
(iii) terminate under circumstances which could result in the
imposition of a Lien on the Property of the Company or any Restricted
Subsidiary pursuant to Section 4068 of ERISA.
7.17 Transactions with Affiliates.
Neither the Company nor any Restricted Subsidiary will enter into any
transaction, including, without limitation, the purchase, sale or exchange of
Property or the rendering of any service, with any Affiliate except upon fair
and reasonable terms no less favorable to the Company or such Subsidiary than
would be obtained in a comparable arm's-length transaction with a Person not
an Affiliate.
7.18 Tax Consolidation.
The Company will not file or consent to the filing of any consolidated
income tax return with any Person other than a Subsidiary.
7.19 Acquisition of Notes.
Neither the Company nor any Restricted Subsidiary nor any Affiliate will,
directly or indirectly, acquire or make any offer to acquire any Notes unless
the Company or such Restricted Subsidiary or Affiliate has offered to acquire
Notes, pro rata, from all holders of the Notes and upon the same terms. In
case the Company acquires any Notes, such Notes shall thereafter be cancelled
and no Notes shall be issued in substitution therefor.
<PAGE>
7.20 Lines of Business.
Neither the Company nor any Subsidiary will engage in any line of business
if as a result thereof the business of the Company and its Subsidiaries taken
as a whole would not be substantially the same as what it was at January 28,
1995 as described in the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1995.
7.21 Required Subsidiary Guaranties.
The Company shall cause its Subsidiaries other than Record Town to enter
into a guaranty of the Notes pursuant to an agreement to the effect and
substantially in the form of Exhibit F hereto. Each Subsidiary required to
execute a Subsidiary Guaranty pursuant to the provisions of Section 3.11 or
this Section 7.21 shall be a "Required Guarantor".
7.22 Limitations on Preferred Stock.
Neither the Company, Record Town nor any other Restricted Subsidiary will
issue (i) any Preferred Stock which by its terms (or by the terms of any
Security into which it is convertible or for which it is exchangeable) is
exchangeable for Debt at the option of the holder thereof on or prior to July
31, 2000 or (ii) any Special Preferred Stock unless the issuance of such
Special Preferred Stock is permitted at such time pursuant to Section 7.5.
7.23 Limitation on Inventory Turnover.
The Company will not permit Inventory Turnover to fall below the following
amounts at the end of the following fiscal quarters of each fiscal year:
Fiscal Quarter Amount
______________ ______
First .3
Second .6
Third .7
Fourth 1.4
7.24 Maintenance of Consolidated EBITDA.
The Company shall maintain Consolidated EBITDA at not less than the
following amounts for each of the periods set out below:
Period (dates inclusive) Amount
_______________________ ______
1/29/95 to 4/29/95 ($1,000,000)
1/29/95 to 7/29/95 ($2,000,000)
1/29/95 to 10/28/95 ($2,000,000)
1/29/95 to 2/3/96 $24,000,000
2/4/96 to 5/4/96 ($1,000,000)
<PAGE>
7.25 Limitation on Capital Expenditures.
The Company and the Restricted Subsidiary shall not make capital
expenditures which, in the aggregate, exceed the following amounts in the
following fiscal years:
Period (dates inclusive) Amount
_______________________ ______
1/29/95 to 2/3/96 $10,600,000
2/4/96 to 7/31/96 $6,000,000
7.26 Limitation on Leases.
Neither the Company nor any Restricted Subsidiary shall be or become
liable under any agreement for the lease, hire or use of any personal property
if the sum of (a) the aggregate maximum amount of all obligations of the
Company and its Restricted Subsidiaries pursuant to all such agreements in the
current or any future fiscal year plus (b) the aggregate outstanding
indebtedness permitted under Section 7.5(a)(iv) hereof would exceed
$2,000,000. Anything contained in this Section to the contrary
notwithstanding, this provision shall not apply to a Financing Lease.
7.27 Limitation on Sale and Leaseback.
Neither the Company nor any Restricted Subsidiary shall enter into any
arrangement with any Person whereby the Company or any Restricted Subsidiary
shall sell or transfer any Property, whether now owned or hereafter acquired,
and thereafter rent or lease such Property or other Property which the Company
or such Restricted Subsidiary intends to use for substantially the same
purpose or purposes as the Property being sold or transferred.
7.28 Limitation on Changes in Fiscal Year.
The Company shall not permit its fiscal year or the fiscal year of any
Restricted Subsidiary to end on a day other than the Saturday closest to the
last day of January, or change the method of determining fiscal quarters.
7.29 Limitation on Debt to Consolidated Tangible Net Worth.
The Company shall not permit the ratio of (a) total liabilities of the
Company and its Restricted Subsidiaries to (b) Consolidated Tangible Net Worth
to exceed:
(i) 2.15 to 1.0 at any fiscal year-end;
(ii) 2.30 to 1.0 as of the end of the first fiscal quarter of each
fiscal year;
(iii) 2.50 to 1.0 as of the end of the second fiscal quarter of
each fiscal year; and
(iv) 3.0 to 1.0 as of the end of the third fiscal quarter of each
fiscal year.
<PAGE>
For purposes of computations made to determine compliance with this Section
7.29, (x) Consolidated Tangible Net Worth shall be deemed to be reduced by the
amount (the "Excess") by which cash on hand or cash equivalents as reflected
on the Company's balance sheet exceeds the product of $10,000 multiplied by
the number of retail stores of the Company and the Restricted Subsidiaries
actually open for business on the date of computation, and (y) the Excess
shall be deemed to reduce total liabilities dollar for dollar.
7.30 Store Openings and Closings.
(a) Store Openings. The Company shall not, and shall not permit
any Restricted Subsidiary to, (i) open any new store other than relocations
and twenty-two (22) new stores, in each case, to the extent specifically
provided for during the period from the Effective Date through July 31, 1996
in the Company's business plan as presented to the Purchaser on January 23,
1995 (the "Business Plan"), or (ii) enter into any lease in connection with or
for the purpose of opening any new store other than the seventeen (17) new
leases specifically provided for during the period from the Effective Date
through July 31, 1996 in the Business Plan, provided, however, that the
capital expenditures with respect to the opening of a new store may not
exceed, in the aggregate, Ten Million Six Hundred Thousand Dollars
($10,600,000) during the 1995 fiscal year, and Six Million Dollars
($6,000,000) during the 1996 fiscal year, and provided, further, that in the
ordinary course of business the Company and Record Town may enter into
renewals of existing store leases.
(b) Store Closings. As of the end of each fiscal quarter, the number
of retail stores closed during the period from January 29, 1995 through such
date shall be not less than the number of retail stores scheduled for closure
during such period as set forth in the Business Plan.
7.31 No Amendment of Debt Instruments.
The Company shall not, without the prior written consent of the Purchaser,
amend, modify or supplement any of the terms of the Other Restructuring
Documents (other than any such amendment, modification or change which would
extend the maturity or reduce the amount of any payment of principal thereof
or which would reduce the rate or extend the date for payment of interest
thereon).
8. INFORMATION AS TO COMPANY
8.1 Financial and Business Information.
The Company will deliver to you, and to each other institutional holder of
outstanding Notes, and, in the case of 8.1(b) below, to the National
Association of Insurance Commissioners, Securities Valuation Office, 195
Broadway, 19th Floor, New York, New York 10007:
(a) Quarterly Statements. Within sixty (60) days after the end of
each of the first three quarterly fiscal periods in each fiscal year of the
Company, two copies of:
<PAGE>
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries and of the Company and its Restricted Subsidiaries
as at the end of that quarter, and
(ii) consolidated statements of income, retained earnings and
cash flows of the Company and its consolidated subsidiaries, and of the
Company and its Restricted Subsidiaries, for that quarter and (in the case of
the second and third quarters) for the portion of the fiscal year ending with
that quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail
and certified by a principal financial officer of the Company as presenting
fairly the financial condition of the companies being reported upon and as
having been prepared in accordance with generally accepted accounting
principles consistently applied;
(b) Annual Statements. Within ninety (90) days after the end of each
fiscal year of the Company, two copies of:
(i) a consolidating and consolidated balance sheet of the
Company and its consolidated subsidiaries, and of the Company and its
Restricted Subsidiaries, as at the end of that year, and
(ii) consolidating and consolidated statements of income,
retained earnings and cash flows of the Company and its consolidated
subsidiaries, and of the Company and its Restricted Subsidiaries, for that
year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and, in the case of such consolidated financial statements,
accompanied by an opinion of independent certified public accountants of
recognized national standing stating that such financial statements fairly
present the financial condition of the companies being reported upon and have
been prepared in accordance with generally accepted accounting principles
consistently applied (except for changes in application in which such
accountants concur), and that the examination of such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards, and accordingly included such tests of
the accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
other report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company or any Subsidiary;
(d) SEC and Other Reports. Promptly upon their becoming available one
copy of each report, notice or proxy statement sent by the Company to
stockholders generally, and of each periodic report and any registration
statement, prospectus or written communication (other than transmittal
letters) in respect thereof filed by the Company with, or received by the
Company in connection therewith from, any securities exchange or the
Securities and Exchange Commission or any successor agency;
<PAGE>
(e) ERISA. Immediately upon becoming aware of the occurrence of any
(i) "reportable event" as such term is defined in Section 4043
of ERISA, or
(ii) "accumulated funding deficiency" as such term is defined
in Section 302 of ERISA, or
(iii) "prohibited transaction", as such term is defined in
Section 4975 of the Internal Revenue Code of 1986, as amended, or described in
Section 406 of ERISA,
in connection with any Pension Plan or any trust created thereunder, a notice
specifying the nature thereof, what action the Company or a Related Person is
taking or proposes to take with respect thereto, and, when known, any action
taken by the Internal Revenue Service with respect thereto;
(f) Notice of Default or Event of Default. Immediately upon becoming
aware of the existence of any Default or Event of Default hereunder or a
Default or Event of Default under the Restated Credit Agreement (as defined
therein), or a Default or Event of Default under the Restated 1993 Noteholder
Agreement (as defined therein), a notice describing its nature and the action
the Company is taking with respect thereto;
(g) Notice of Claimed Default. Immediately upon becoming aware that
the holder of any Note or of any Debt or Security of the Company or any
Subsidiary has given notice or taken any other action with respect to a
claimed default or Event of Default, a notice specifying the notice given or
action taken by such holder, the nature of the claimed default or Event of
Default and the action the Company is taking with respect thereto;
(h) Report on Proceedings. Within fifteen (15) days after the Company
obtains knowledge thereof, notice of any litigation (provided, that notice
need not be given of any litigation fully covered by insurance and with
respect to which such coverage is not disputed) or any governmental proceeding
pending against the Company or any Subsidiary in which the damages sought
exceed Five Hundred Thousand Dollars ($500,000) or which might otherwise
materially adversely affect the Properties, business, prospects, operating
results or condition (financial or otherwise) of Record Town or of the Company
and its Subsidiaries, taken as a whole, or of any Guarantor;
(i) Change of Control. Not later than two (2) Business Days after
knowledge that a Change of Control is proposed to occur, a notice specifying
(1) the date on which such proposed Change of Control is expected to occur and
describing such Change of Control in detail, and (2) that each holder of Notes
shall be repaid in full at par pursuant to Section 5.4 unless the Company
receives a notice from the holder within thirty (30) days of such holder's
receipt of the Company's notice, or as otherwise provided in Section 5.4,
indicating that such holder elects to forego the Section 5.4 repayment; and
<PAGE>
(j) Requested Information. With reasonable promptness, such other
data and information as from time to time may be reasonably requested.
8.2 Officers' Certificates.
Each set of financial statements delivered pursuant to Section 8.1(a) or
8.1(b) will be accompanied by a certificate of the President or a Vice
President and the Treasurer or an Assistant Treasurer of the Company setting
forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish compliance with the requirements
of Section 7 during the period covered by the income statements being
furnished; and
(b) Event of Default -- a statement that the signers have reviewed the
relevant terms of this Agreement and have made, or caused to be made, under
their supervision, a review of the transactions and condition of the Company
and its Subsidiaries from the beginning of the period covered by the income
statements being furnished and that the review has not disclosed the existence
during such period of any Default or Event of Default or, if any such Default
or Event of Default existed or exists, describing its nature and the action
the Company has taken with respect thereto.
8.3 Accountants' Certificates.
Each set of annual financial statements delivered pursuant to Section
8.1(b) will be accompanied by a certificate of the accountants who certify
such financial statements, stating that they have reviewed this Agreement and
whether, in making their audit, they have become aware of any Default or Event
of Default, and, if any Default or Event of Default then exists, describing
its nature.
8.4 Inspection.
The Company will permit your representatives and the representatives of
each other institutional holder of the Notes, at the Company's expense, to
visit and inspect any of the Properties of the Company or any Subsidiary, to
examine and make copies and abstracts of all their books of account, records,
and other papers, and to discuss their respective affairs, finances and
accounts with their respective officers, employees and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss the finances and affairs of the Company and its Subsidiaries) all at
reasonable times and as often as may be reasonably requested. All nonpublic
information furnished to you pursuant to this Agreement shall be treated as
confidential information by you. You agree to use your reasonable efforts to
refrain from disclosing such information to any other Person (excluding any of
your officers, employees, agents or counsel), except (1) in connection with
selling or otherwise realizing upon your interest in the Notes, (2) as may be
necessary or desirable in connection with a request by governmental agency,
regulatory or supervisory authority or court having or claiming jurisdiction
over you including, without limitation, the National Association of Insurance
Commissioners, (3) information obtained from a third party which is not
subject to the provisions of this Section 8.4, (4) information is otherwise
<PAGE>
publicly available, (5) in connection with the enforcement of your rights
hereunder or under the Note and (6) disclosures to other Purchasers or any
subsequent holders of the Notes.
8.5 Quarterly Meetings.
Within thirty (30) days after the end of each fiscal quarter of the
Company, Robert J. Higgins, and such other representatives of the Company as
the Purchaser may request, shall make themselves available at a reasonably
convenient location to meet with representatives of the Purchaser to discuss
the Company's budget, Business Plan and other finances and affairs of the
Company, provided, however, that this requirement may be waived with respect
to any quarter by the holders of not less than seventy-five percent (75%) of
the outstanding principal amount of the Notes.
8.6 Additional Financial Information.
The Company shall promptly deliver monthly unaudited financial statements
(substantially consistent with the requirements of Part I, Item 1 of Form 10-Q
under the Securities Exchange Act of 1934, as amended) to each holder of
Notes; provided, that the Company shall not be obligated to provide such
financial statements during any fiscal quarter if at the end of each of the
four immediately preceding fiscal quarters, Consolidated Income Available for
Fixed Charges for the preceding twelve (12) month period is greater than 150%
of Consolidated Fixed Charges for such immediately preceding twelve (12) month
period.
9. EVENTS OF DEFAULT.
9.1 Nature of Events.
An "Event of Default" shall exist if any of the following occurs and is
continuing:
(a) Principal Payments. Failure to make any payments of principal on
any Note on or before the date such payment is due;
(b) Interest Payments. Failure to pay interest or any other amount on
any Note on or before the fifth (5th) day after the date such payment is due;
(c) Particular Covenant Defaults. Failure to comply with any covenant
contained in Sections 7.2, 7.4 through 7.31, or 8.1;
(d) Other Defaults. Failure to comply with any other provision of
this Agreement, which continues for a period of thirty (30) days or more;
(e) Warranties or Representations. Any warranty or representation by
or on behalf of the Company or Record Town contained herein or in any
instrument delivered in compliance with or in reference hereto or thereto
shall prove to have been false or misleading in any material respect or any
warranty or representation by or on behalf of any Subsidiary contained in a
Subsidiary Guaranty shall prove to have been false or misleading in any
material respect;
<PAGE>
(f) Default on Other Debt. Failure by the Company or any Restricted
Subsidiary, to make any payment due on any other Debt or Security which
individually or in the aggregate and including the face amount thereof plus
accrued interest thereon, exceeds Two Million Dollars ($2,000,000), or any
event shall occur or any condition shall exist, the effect of which is to
cause (or permit any holder of such other Debt or Security or a trustee to
cause) such other Debt or Security, or a portion thereof, to become due prior
to its stated maturity or prior to its regularly scheduled dates of payment;
(g) Involuntary Bankruptcy Proceedings. A custodian, receiver,
liquidator or trustee of the Company or any Restricted Subsidiary, or of any
of the Property of either, is appointed or takes possession and such
appointment or possession remains in effect for more than sixty (60) days; or
the Company, or any Restricted Subsidiary, is adjudicated bankrupt or
insolvent; or an order for relief is entered under the Federal Bankruptcy Code
against the Company or any Restricted Subsidiary; or any of the Property of
either is sequestered by court order and the order remains in effect for more
than sixty (60) days; or a petition is filed against the Company or any
Restricted Subsidiary under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed within
sixty (60) days after filing;
(h) Voluntary Petitions. The Company, or any Restricted Subsidiary,
files a petition in voluntary bankruptcy or seeking relief under any provision
of any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, or consents to the filing of any petition against it
under any such law;
(i) Assignments for Benefit of Creditors, etc. The Company or a
Restricted Subsidiary makes an assignment for the benefit of its creditors, or
generally fails to pay its debts as they become due, or consents to the
appointment of or taking possession by a custodian, receiver, liquidator or
trustee of the Company, or a Restricted Subsidiary, or of all or any part of
the Property of either;
(j) Undischarged Final Judgments. Final judgment or judgments for the
payment of money aggregating in excess of Five Hundred Thousand Dollars
($500,000) is or are outstanding against one or more of the Company and its
Restricted Subsidiaries and any one of such judgments has been outstanding for
more than thirty (30) days from the date of its entry and has not been
discharged in full or stayed; or
(k) Other Restructuring Documents. Failure to comply with any
provision under the Other Restructuring Documents such that an Event of
Default (as defined therein) shall occur, whether or not such Event of Default
is waived by the 1993 Noteholders or the Banks.
9.2 Default Remedies.
(a) If an Event of Default described in Sections 9.1(g) through 9.1(i)
occurs, the entire outstanding principal amount of the Notes automatically
shall become immediately due and payable, without the taking of any action on
<PAGE>
the part of any holder of the Notes or any other Person and without the giving
of any notice with respect thereto. If an Event of Default described in
Section 9.1(a) or 9.1(b) exists, any holder of Notes may, at its option,
exercise any right, power or remedy permitted by law, including but not
limited to the right by notice to the Company to declare the Notes held by
such holder to be immediately due and payable. The Company shall notify each
holder of its receipt of any such notice from any other and of the contents
such notice. If any other Event of Default exists, the holder or holders of
at least fifty-one percent (51%) in outstanding principal amount of the Notes
(exclusive of Notes owned by the Company, Restricted Subsidiaries and
Affiliates) may exercise any right, power or remedy permitted by law,
including but not limited to the right by notice to the Company to declare all
the outstanding Notes immediately due and payable. Upon any acceleration the
principal of the Notes declared due or automatically becoming due shall become
immediately due and payable together with all interest accrued thereon without
any presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, and the Company will immediately pay the entire
principal of and interest accrued on such Notes.
(b) No course of dealing or delay or failure on the part of any holder
of the Notes to exercise any right shall operate as a waiver of such right or
otherwise prejudice such holder's rights, powers and remedies. The Company
will pay or reimburse the holders of the Notes, to the extent permitted by
law, for all costs and expenses, including but not limited to reasonable
attorneys' fees, incurred by them in collecting any sums due on the Notes or
in otherwise enforcing any of their rights.
9.3 Annulment of Acceleration of Notes.
If a declaration is made pursuant to Section 9.2(a), the holders of at
least seventy-five percent (75%) of the outstanding principal amount of the
Notes (exclusive of Notes owned by the Company, Restricted Subsidiaries and
Affiliates) may annul such declaration and the consequences thereof if no
judgment or decree has been entered for the payment of any monies due pursuant
to such declaration and if all sums payable under the Notes and this Agreement
(except principal or interest which has become due solely by reason of such
declaration) have been duly paid. No such annulment shall extend to or waive
any subsequent Default or Event of Default.
10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined.
As used in this Agreement (including Exhibits), the following terms have
the respective meanings set forth below or in the Section indicated:
Adjusted Funded Debt -- with respect to any Person, means, without
duplication:
(1) liabilities for borrowed money, other than Current Debt;
(2) liabilities secured by any Lien existing on Property owned by the
Person (whether or not those liabilities have been assumed), other than
Current Debt;
<PAGE>
(3) the aggregate amount of Guaranties by the Person, other than
Guaranties of Current Liabilities of other Persons;
(4) the aggregate Redemption Price of all outstanding Special
Preferred Stock of such Person; and
(5) any other obligations (other than deferred taxes), including
without limitation, Financing Leases, which are required by generally accepted
accounting principles to be shown as liabilities on its balance sheet and
which are payable or which are unpaid more than one year from their creation.
Adjusted Tangible Assets -- all assets except the following:
(1) deferred assets, other than prepaid insurance, prepaid supplies
and prepaid taxes;
(2) patents, copyrights, trademarks, tradenames, franchises, good
will, experimental or research and development expense and other similar
intangibles;
(3) Restricted Investments;
(4) unamortized debt discount and expense;
(5) assets located and notes and receivables due from obligors
domiciled outside the United States, Puerto Rico or Canada; and
(6) interests in any Subsidiary or joint venture in which the Company
owns less than 49% of the Voting Stock.
Affiliate -- a Person (other than a Restricted Subsidiary) (1) which,
directly or indirectly, controls, or is controlled by, or is under common
control with, the Company, (2) which owns 5% or more of the Voting Stock of
the Company or (3) 5% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
owned by the Company or a Subsidiary. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Banks -- means, collectively, Chemical Bank, Chase Manhattan Bank, N.A.,
NBD Bank, N.A. and NatWest Bank N.A. (formerly National Westminster Bank USA).
Business Day -- any day other than a Saturday, Sunday or other day on
which commercial banking institutions in Connecticut, Massachusetts or New
York are authorized or obligated by law or executive order to be closed.
Business Plan -- Section 7.30(a).
<PAGE>
Change of Control -- any of the following
(1) a Person or group of Persons acting in concert (other than a
Permitted Holder) becoming the beneficial owner of more than 50% (by number of
votes) of the Voting Stock of the Company; or
(2) a majority of the board of directors of the Company is replaced
within any two-year period, excluding replacements due to resignations
initiated by the incumbent board of directors or resignations due to the death
or disability of any members of the incumbent board of directors.
Commitment -- the obligation of the Banks to make loans and extend letters
of credit pursuant to the Restated Credit Agreement.
Company -- the introductory sentence hereof.
Consolidated Current Assets -- at any date, means the amount at which the
current assets of the Company and all Restricted Subsidiaries would be shown
on a consolidated balance sheet of such Persons at such date, after
eliminating inter-company items, in accordance with generally accepted
accounting principles.
Consolidated Current Liabilities -- at any date, means the amount at which
the current liabilities of the Company and all Restricted Subsidiaries
(excluding, for purposes of computing current liabilities, indebtedness under
the Notes and the 1993 Notes) would be shown on a consolidated balance sheet
of such Persons at such date, plus (without duplication) the aggregate amount
of their Guaranties of current liabilities of other Persons outstanding at
such date.
Consolidated EBITDA -- with respect to any period means, Consolidated Net
Income for such period plus, to the extent deducted in determining
Consolidated Net Income, depreciation and amortization expenses, interest
expenses with respect to Debt and all federal, state and foreign income taxes.
Consolidated Fixed Charges -- with respect to the Company and its
Restricted Subsidiaries means for any period the sum of: (1) interest
expenses with respect to their liabilities for borrowed money for such period,
(2) imputed interest expenses on capitalized lease obligations for such
period, and (3) fixed minimum rental expenses of real estate leases for such
period, in each case determined on a consolidated basis.
Consolidated Income Available For Fixed Charges -- with respect to the
Company and all Restricted Subsidiaries, means for any period the sum of (1)
Consolidated EBITDA, and (2) all fixed minimum rent expenses with respect to
leases of real property, in each case determined on a consolidated basis for
such period.
Consolidated Net Income -- for any period, means net earnings after income
taxes of the Company and each Restricted Subsidiary (only for the period
during which it is a Restricted Subsidiary) determined on a consolidated
basis, provided that there shall be excluded therefrom after giving effect to
any related tax effect:
<PAAGE>
(1) any gain arising from any write-up of assets;
(2) any net gain or loss arising from the sale or disposition of
capital assets (or reserves relating thereto);
(3) items classified as extraordinary or nonrecurring (including any
restructuring reserves);
(4) any writeoff of deferred financing costs; and
(5) the cumulative effect of changes in accounting principles in the
year of adoption of such change.
Consolidated Tangible Net Worth -- at any date means, the excess of (i)
all amounts that would in conformity with GAAP be included in shareholders'
equity on a consolidated balance sheet of the Company prepared as of such
date, over (ii) the aggregate amount carried as of such date as consolidated
assets on the books of the Company consisting of (x) goodwill, licenses,
patents, trademarks, unamortized debt discount and expense, and other
intangibles, (y) the cost of investments in excess of the net asset value
thereof at the time of acquisition by the Company, and (z) writeups in the
value of assets of the Company subsequent to the Effective Date.
Credit Agreement Debt -- Section 7.5.
Current Debt -- with respect to any Person means all its liabilities for
borrowed money and all liabilities secured by any Lien existing on Property
owned by that Person (whether or not those liabilities have been assumed)
which, in either case, are payable on demand or within one year from their
creation, plus the aggregate amount of all Guaranties by that Person of such
liabilities of other Persons, but specifically excluding at all times all of
the debt (whenever due) classified as long term debt on the consolidated
balance sheet of the Company as of January 28, 1995.
Current Liabilities -- at any date, means the amount at which the current
liabilities of a Person would be shown on a balance sheet at such date, plus
(without duplication) the aggregate amount of their Guaranties of current
liabilities of other Persons outstanding at such date after eliminating
intercompany items, in accordance with generally accepted accounting
principles.
Debt -- with respect to any Person, means its Current Debt and Adjusted
Funded Debt.
Default -- an event or condition which will, with the lapse of time or the
giving of notice or both, become an Event of Default.
Disqualified Preferred Stock -- means, with respect to any Person, any
Preferred Stock of such Person which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or
upon the happening of any event, matures or is redeemable or is exchangeable
for Debt, in whole or in part, on or prior to July 31, 2000.
<PAGE>
Distribution -- means:
(1) dividends or other distributions in respect of capital stock of
the Company (except distributions of such stock pursuant to a stock split or
stock dividend; provided that no stock dividend shall be paid in any capital
stock of the Company other than its common stock).
(2) the redemption or acquisition of such stock or of warrants, rights
or other options to purchase such stock (except when solely in exchange for
such stock) unless made, contemporaneously, from the net proceeds of a sale of
such stock.
Any Distribution of Property other than cash shall be valued at fair market
value.
Economic Benefit -- with respect to Section 7.15 shall mean all rights, of
whatever nature and with respect to all classes of capital stock of, or equity
interests in, an entity to participate in any distribution with respect to
such capital stock or equity interests, whether in the form of dividends, upon
liquidation or otherwise.
Effective Date -- means the date (not later than June 30, 1995) upon which
all of the conditions set forth in Section 3 shall have been satisfied.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default -- Section 9.1.
Excess -- Section 7.29.
Exchange Act -- means the Securities Exchange Act of 1934, as amended.
Existing 1993 Noteholder Agreement -- means that certain Note Agreement,
dated as of July 2, 1993, and amended as of January 30, 1994, among the
Company, Record Town and each of the 1993 Noteholders.
Existing Note Agreement -- Section 1.1.
Existing Notes -- Section 1.1.
Extraordinary Repayment -- Section 5.1(b).
Financing Lease -- any lease which is shown or is required to be shown in
accordance with generally accepted accounting principles as a liability on a
balance sheet of the lessee thereunder.
GAAP -- means generally accepted accounting principles in effect in the
United States of America, at the time of the applicable report, applied in a
manner consistent with that employed in the preparation of the financial
statements described in Section 8.1.
<PAGE>
Guarantors -- means at any time each direct or indirect Subsidiary, if
any, of the Company meeting the requirements of Section 7.21.
Guaranty -- by any Person means all obligations of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend or other
obligation of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including obligations incurred through an agreement,
contingent or otherwise, by such Person:
(i) to purchase such indebtedness or obligation or any Property or
assets constituting security therefor,
(ii) to advance or supply funds
(1) for the purchase or payment of such indebtedness or
obligation, or
(2) to maintain working capital or any balance sheet or income
statement condition;
(iii) to lease Property, or to purchase Securities or other Property
or services, primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the primary obligor to make
payment of the indebtedness or obligation; or
(iv) otherwise to assure the owner of the indebtedness or
obligation against loss;
but excluding endorsements in the ordinary course of business of negotiable
instruments for deposit or collection.
The amount of any Guaranty shall be deemed to be the maximum amount for
which such Person may be liable as guarantor, upon the occurrence of any
contingency or otherwise, under or by virtue of its Guaranty.
Intercreditor Agreement -- Section 3.7.
Inventory Turnover -- means, at a particular date, the "Cost of Sales" as
disclosed on the Company's year-to-date consolidated statements of income
divided by the "Merchandise Inventory" amount set forth on the Company's
consolidated balance sheets for such date.
Lien -- any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether the interest
is based on common law, statute or contract, and including but not limited to
the security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting Property. For
the purposes of this Agreement, the Company or a Restricted Subsidiary shall
<PAGE>
be deemed to be the owner of any Property which it has acquired or holds
subject to a Financing Lease or 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, and such retention or
vesting shall be deemed to create a Lien on the Property.
1993 Noteholders -- means Hartford Life Insurance Company, Hartford
Accident and Indemnity Company, The Equitable Life Assurance Society of the
United States, Equitable Variable Life Insurance Company, Massachusetts Mutual
Life Insurance Company and Phoenix American Life Insurance Company.
1993 Notes -- means those notes issued and sold to the 1993 Noteholders by
the Company pursuant to the Existing 1993 Noteholder Agreement, of which the
aggregate principal amount of $47,500,000 is currently outstanding.
Notes -- Section 1.2.
Other Restructuring Documents -- Section 2.16.
Pension Plan -- Section 2.15.
Permitted Holder -- means collectively Robert J. Higgins and his estate,
spouse, children, heirs, legatees, and legal representatives, and any bona
fide trust of which one or more of the foregoing are the sole beneficiaries or
the grantors thereof and over which trust one or more of the foregoing acts as
trustee and possesses the power to direct the management thereof.
Person -- an individual, partnership, corporation, trust or unincorporated
organization, and a government or agency or political subdivision thereof.
Preferred Stock -- means, with respect to any Person, any class or classes
of capital stock (however designated) which is preferred as to the payment of
dividends or distributions or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over any
other class of capital stock of such person.
Prime Rate -- means, with respect to any month, the highest prime rate of
interest that is charged to the Company or Record Town by any of the Banks at
any time during such month with respect to borrowings under the Restated
Credit Agreement.
Prior Indebtedness -- means without duplication:
(1) unsecured Adjusted Funded Debt and Current Debt of Restricted
Subsidiaries, other than Record Town (except for debt to the Company or a
Restricted Subsidiary);
(2) Adjusted Funded Debt and Current Debt of the Company and its
Restricted Subsidiaries, other than Record Town (except for debt to the
Company or a Restricted Subsidiary), secured by any Lien on the Property of
the Company or any Restricted Subsidiary; and
<PAGE>
(3) the redemption or liquidation value (whichever is greater) of all
equity Securities of Restricted Subsidiaries (other than common stock) which
are not legally and beneficially owned by the Company and its Restricted
Subsidiaries.
For purposes of this definition only, Adjusted Funded Debt and Current Debt of
Restricted Subsidiaries shall not include the Guaranties by the Restricted
Subsidiaries of the obligations of the Company under this Agreement.
Property -- any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Purchase Money Mortgage -- any Lien on Property existing at the time of
the original acquisition by the Company or a Restricted Subsidiary of such
Property or granted or retained in connection with the acquisition or
improvement by the Company or a Restricted Subsidiary of such Property in
order to permit or facilitate the financing of such acquisition or
improvement.
Purchasers -- shall mean the purchasers listed on Exhibit A attached
hereto.
Record Town -- the introductory sentence hereof.
Redemption Price -- with respect to any Special Preferred Stock, the
highest aggregate price at which such Special Preferred Stock is redeemable at
any time or under any circumstance on or prior to July 31, 2000.
Related Person -- any Person (whether or not incorporated) which is under
common control with the Company within the meaning of Section 414(c) of the
Internal Revenue Code of 1986, as amended, or of Section 4001(b) of ERISA.
Required Guarantor -- Section 7.21.
Restated Credit Agreement -- means those separate Amended and Restated
Revolving Credit Agreements, dated as of the date hereof, among the Company,
Record Town and each of the Banks.
Restated 1993 Noteholder Agreement -- means that certain Amended and
Restated Note Agreement, dated as of the date hereof, among the Company,
Record Town and each of the 1993 Noteholders.
Restricted Investments -- all Property, including all investments in any
Person, whether by acquisition of stock, indebtedness, other obligation or
security, or by loan, advance, capital contribution, or otherwise, except:
(1) investments in one or more Restricted Subsidiaries or any
corporation which concurrently with such investment becomes a Restricted
Subsidiary;
(2) Property to be used in the ordinary course of business;
<PAGE>
(3) current assets arising from the sale of goods and services in
the ordinary course of business;
(4) advances to and guaranties of loans to employees for expenses
incurred in the ordinary course of business;
(5) investments in direct obligations of the United States with
final maturities not in excess of one year from the date of acquisition;
(6) investments in certificates of deposit maturing within one
year from the date of acquisition issued by a bank organized under the laws of
the United States having capital, surplus, and undivided profits, aggregating
at least $100,000,000;
(7) investments in commercial paper issued by any corporation
organized under the laws of the United States rated in the highest category by
Moody's Investors Service, Inc. or Standard & Poor's Corporation;
(8) investments in money market funds registered under the
Investment Company Act of 1940 which invest in securities which are permitted
under clause (5), (6), or (7) above;
(9) investments in tax-exempt municipal bonds maturing not more
than one year from the date of issue and which have at least a "MIG-1" rating
from Moody's Investors Services, Inc. or an "SP-1" rating from Standard and
Poor's Corporation;
(10) guaranties by the Company of long-term leases of Restricted
Subsidiaries; and
(11) investments in licensed departments or retail (including,
without limitation, retail mail order) joint ventures in the music, video, or
entertainment businesses.
Restricted Subsidiary -- Record Town, Media Logic and any other
Subsidiary,
(1) organized under the laws of the United States or a
jurisdiction thereof;
(2) which conducts substantially all of its business and has
substantially all of its Property within the United States; and
(3) which has been designated by the Company as a Restricted
Subsidiary by notice to each of the holders of the Notes outstanding at the
time.
Once the Company has designated any Subsidiary as a Restricted Subsidiary, it
may not terminate such designation.
Securities Act -- means the Securities Act of 1933, as amended.
Security -- shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
<PAGE>
Special Preferred Stock -- any Preferred Stock which by its terms (or by
the terms of any Security into which it is convertible or for which it is
exchangeable) is either redeemable at the option of the holder thereof or is
automatically redeemable upon the happening of any event (other than the
occurrence of a stated specific date of mandatory redemption thereof).
Subsidiary -- a corporation, partnership or entity of which at least 80%
of the outstanding Voting Stock is at the time, directly or indirectly, owned
or controlled by the Company.
Subsidiary Guaranty -- a guaranty of the Notes to the effect and
substantially in the form of Exhibit F hereto.
Subsidiary Stock -- Section 7.13.
Tangible Net Worth -- at any time means the shareholders' equity of any
company (including Preferred Stock, but not including Disqualified Preferred
Stock), excluding any patents, copyrights, trademarks, tradenames, franchises,
goodwill, experimental expense and other similar intangible assets.
Voting Stock -- Securities or other interests the holders of which are
ordinarily, in the absence of contingencies, entitled to elect the corporate
directors (or Persons performing similar functions).
Waiver Agreement -- means the letter agreement dated as of January 28,
1995, as amended, among the Company, Record Town and the Purchasers.
Wholly-Owned Restricted Subsidiary -- any Restricted Subsidiary, all of
the equity Securities (except directors' qualifying shares) of which are owned
by the Company and/or the Company's other Wholly-Owned Restricted
Subsidiaries.
10.2 Accounting Principles.
Where the character or amount of any asset or liability or item of income
or expense is required to be determined or any consolidation or other
accounting computation is required to be made under this Agreement, this shall
be done in accordance with generally accepted accounting principles at the
time in effect, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
10.3 Directly or Indirectly.
Where any provision in this Agreement refers to any action which a Person
is prohibited from taking, the provision shall be applicable whether such
action is taken directly or indirectly by such Person, including actions taken
by or on behalf of any partnership in which such Person is a general partner
and all liabilities of such partnerships shall be considered liabilities of
such Person for purposes of this Agreement.
<PAGE>
10.4 Governing Law.
This Agreement and the Notes shall be governed by and construed in
accordance with New York law.
11. MISCELLANEOUS
11.1 Notices.
(a) All notices or other communications under this Agreement or the
Notes shall be in writing and shall be mailed by first class mail, postage
prepaid,
(i) if to you, in the manner provided in Exhibit A to this
Agreement, or in any other manner as you may have advised the Company in
writing, or
(ii) if to the Company or Record Town, at its address shown at
the beginning of this Agreement, or at such other address as it may have
furnished in writing to you and all other holders of the Notes.
(b) Any notice so addressed and mailed by registered or certified mail
shall be deemed to be given when so mailed.
11.2 Reproduction of Documents.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by you at the closing hereunder (except the
Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to you, may be reproduced by you
by any photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process and you may destroy any original
document so reproduced. The Company agrees and stipulates that any such
reproduction shall, to the extent permitted by applicable law, be admissible
in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not
such reproduction was made by you in the regular course of business) and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
11.3 Survival.
All warranties, representations, and covenants made by the Company or
Record Town herein or on any certificate or other instrument delivered by it
or on its behalf under or in reference to this Agreement shall be considered
to have been relied upon by you and shall survive the delivery to you of the
Notes regardless of any investigation made by you or on your behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representations by the Company and Record Town hereunder.
<PAGE>
11.4 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, except that the Company's right
to require you to accept the Notes in accordance with Section 1.3 shall be
personal to the Company and shall not be assignable or transferable to any
other Person (including successors at law) whether voluntarily or
involuntarily. The provisions of this Agreement are intended to be for the
benefit of all holders, from time to time, of the Notes, and shall be
enforceable by any holder, whether or not an express assignment to such holder
of rights under this Agreement has been made by you or your successor or
assign.
11.5 Amendment and Waiver.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with (and only with) the written consent of the
Company, Record Town and the holders of at least seventy-five percent (75%) of
the outstanding principal amount of the Notes (exclusive of Notes owned by the
Company, Restricted Subsidiaries and Affiliates); provided, that no such
amendment or waiver of any of the provisions of Sections 1 through 4 shall be
effective as to you unless consented to by you in writing; and provided
further, that no such amendment or waiver shall, without the written consent
of the holders of all the outstanding Notes, (i) subject to Section 9.3,
change the amount or time of any repayment or payment of principal or the rate
or time of payment of interest, (ii) amend Section 7.21, (iii) amend Section
9, or (iv) amend this Section 11.5. Executed or true and correct copies of
any amendment or waiver effected pursuant to the provisions of this Section
11.5 shall be delivered by the Company to each holder of outstanding Notes
promptly following the date on which the same shall become effective. No such
amendment or waiver shall extend to or affect any provision or obligation not
expressly amended or waived.
11.6 Duplicate Originals.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
[The remainder of this page has been intentionally left blank.]
[The next page is the signature page.]
<PAGE>
If this Agreement is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart of this Agreement and return such
counterpart to the Company, whereupon this Agreement will become binding
between us in accordance with its terms.
Very truly yours,
TRANS WORLD ENTERTAINMENT CORPORATION
By /s/ Robert J. Higgins
_________________________
Name: Robert J. Higgins
Title: President
RECORD TOWN, INC.
By /s/ Robert J. Higgins
_________________________
Name: Robert J. Higgins
Title: President
Accepted:
AETNA LIFE INSURANCE COMPANY
By /s/ Peter C. Nilsen
_______________________
Name: Peter C. Nilsen
Title: Investment Manager
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
TRANS WORLD ENTERTAINMENT CORP.
(formerly Trans World Music Corp.)
RECORD TOWN, INC.
and
CHASE MANHATTAN BANK, N.A.
DATED AS OF
June 29, 1995
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS 2
Section 1.1 Defined Terms 2
Section 1.2 Use of Defined Terms 16
Section 1.3 Accounting Terms 17
SECTION 2. AMOUNT AND TERMS OF CREDIT 17
Section 2.1 The Commitment 17
Section 2.2 The Note 18
Section 2.3 Letters of Credit 19
Section 2.4 Notice of Borrowing 21
Section 2.5 Fees 21
Section 2.6 Termination or Reduction of Commitment 22
Section 2.7 Prepayments 24
Section 2.8 Computation of Interest and Commitment Fee; Payments 26
Section 2.9 Requirements of Law 26
Section 2.10 Use of Proceeds 29
SECTION 3. CONDITIONS OF BORROWING 30
Section 3.1 Conditions of Effectiveness 30
Section 3.2 Conditions of All Loans 33
SECTION 4. REPRESENTATIONS AND WARRANTIES 34
Section 4.1 Corporate Existence 35
Section 4.2 Corporate Power and Authorizatio 35
Section 4.3 No Legal Bar to Loans 36
Section 4.4 No Material Litigation 36
Section 4.5 No Default 37
Section 4.6 Ownership of Properties; Liens 37
Section 4.7 Taxes 37
Section 4.8 Financial Condition 38
Section 4.9 Filing of Statements and Reports 38
Section 4.10 ERISA 39
Section 4.11 Environmental Matters 40
Section 4.12 Insurance 41
Section 4.13 Insurance Debt Restructuring Documents 42
Section 4.14 Accuracy and Completeness of Information 43
Section 4.15 Labor Matters 44
Section 4.16 Leaseholds, Permits, etc. 45
Section 4.17 Subsidiaries 45
Section 4.18 Existing Indebtedness 46
Section 4.19 Company Actions 46
SECTION 5. AFFIRMATIVE COVENANTS 46
Section 5.1 Financial Statements 47
Section 5.2 Payment of Obligations 50
Section 5.3 Maintenance of Properties; Insurance 50
Section 5.4 Notices 50
Section 5.5 Conduct of Business and Maintenance of Existence 52
Section 5.6 Inspection of Property, Books and Records 52
Section 5.7 Hazardous Material 53
Section 5.8 Subsidiary Guarantees 53
Section 5.9 Compliance with Law 54
Section 5.10 Maintenance of Office 54
Section 5.11 Quarterly Meetings 54
<PAGE>
SECTION 6. NEGATIVE COVENANTS 55
Section 6.1 Limitation of Indebtedness 55
Section 6.2 Limitation on Liens 56
Section 6.3 Limitation on Contingent Obligations 58
Section 6.4 Limitation on Capital Expenditures 59
Section 6.5 Prohibition of Fundamental Changes 59
Section 6.6 Limitations on Dividends and StockAcquisitions 60
Section 6.7 Limitation on Investments, Loans and Advances 60
Section 6.8 Prohibition of Certain Prepayments 62
Section 6.9 Limitation on Leases 62
Section 6.10 Limitation on Sale and Leaseback 63
Section 6.11 Limitation on Current Ratio 63
Section 6.12 Maintenance of Consolidated Tangible Net Worth 63
Section 6.13 Limitation on Debt to Consolidated Tangible Net Worth 64
Section 6.14 Limitation on Inventory Turnover 64
Section 6.15 No Amendment of Debt Instruments 65
Section 6.16 Maintenance of Accounts 66
Section 6.17 Limitation on Transactions With Affiliates 66
Section 6.18 Limitation on Chages in Fiscal Year 66
Section 6.19 Limitation on Lines of Business 67
Section 6.20 Minimum Consolidated EBITDA 67
Section 6.21 Limitation on Material Asset Sales 67
Section 6.22 Maintenance of Ownership 67
Section 6.23 Tangible Net Worth of Record Town 67
Section 6.24 Tax Consolidation 68
Section 6.25 Limitations on Preferred Stock 68
Section 6.26 New Stores and Leases 68
Section 6.27 Fixed Charge Ratio 69
SECTION 7. EVENTS OF DEFAULT 69
Section 7.1 Events of Default 69
SECTION 8. MISCELLANEOUS 75
Section 8.1 Limited Role of Bank 75
Section 8.2 Choice of Law Construction 76
Section 8.3 Consent to Jurisdiction 76
Section 8.4 Waiver of Jury Trial 77
Section 8.5 Notices 77
Section 8.6 Entire Agreement; No Waiver; Cumulative
Remedies; Amendments; Setoff 79
Section 8.7 Reference to Subsidiaries and Guarantors 80
Section 8.8 Captions 80
Section 8.9 Exhibits and Schedules 81
Section 8.10 Payment of Fees 81
Section 8.11 Survival of Agreements 81
Section 8.12 Successors and Assigns 81
Section 8.13 Interest 85
Execution 86
Schedule I Bank Percentages
Schedule II Liens
Schedule III Subsidiaries
Schedule IV Existing Indebtedness
Exhibit A Form of Note
Exhibit B Guarantee
Exhibit C Monthly Reports
<PAGE>
CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 29, 1995, between
TRANS WORLD ENTERTAINMENT CORP. (formerly known as Trans World Music Corp.),
a New York corporation (herein called the "Company"), RECORD TOWN, INC., a New
York corporation ("Record Town" and together with the Company, the
"Companies"), and CHASE MANHATTAN BANK, N.A. (the "Bank").
WHEREAS, the Company is party to separate identical credit agreements
(collectively, the "Existing Credit Agreements") dated as of June 11, 1993, as
amended, with each of the Bank and Chemical Bank, NatWest Bank N.A. and NBD
Bank (collectively, the "Other Banks" and, together with the Bank, the
"Banks");
WHEREAS, the Company is party to a certain Note and Security Agreement
dated June 20, 1991, with Aetna Life Insurance Company (the "Existing Aetna
Agreement") and a certain Note Agreement dated as of July 2, 1993, as amended
(the "Existing Note Agreement" and together, with the Existing Aetna
Agreement, the "Existing Insurance Company Agreements"), with the Noteholders
party thereto (the "Noteholders");
WHEREAS, as part of a global restructuring of the Company's funded
indebtedness, the Companies and each of the Banks and Noteholders have agreed
to amend and restate each of the Existing Credit Agreements and the Existing
Insurance Company Agreements in the form of the Bank Credit Agreements and the
Insurance Debt Restructuring Documents, respectively.
NOW THEREFORE, in consideration of the mutual premises and covenants
contained herein, the Companies and the Bank agree as follows:
W I T N E S S E T H:
SECTION 1.
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings, unless the context otherwise requires:
"Accumulated Funding Deficiency" shall have the meaning set forth in
Section 302 of ERISA.
"Adjusted Tangible Assets" shall mean, at any date, all assets of the
Company, whether owned directly or indirectly, as reported on its consolidated
balance sheets, less reserves for depreciation, obsolescence, amortization,
valuation and other appropriate reserves required by GAAP, except:
(i) deferred assets, other than prepaid insurance and prepaid taxes;
(ii) patents, copyrights, trademarks, trade names, franchises, good
will, experimental expense, and other similar intangibles;
(iii) investments permitted pursuant to Section 6.7 of this
Agreement;
(iv) unamortized debt discount and expense;
(v) assets located and notes and receivables due from obligors
domiciled outside the United States of America, Puerto Rico or Canada; and
(vi) interests in any Subsidiary or joint venture in which the
Company owns less than 49% of the Voting Stock.
<PAGE>
"Aetna Debt" shall mean the indebtedness outstanding, not to exceed
$17,500,000, in respect of the Aetna Note Agreement.
"Aetna Note Agreement" shall mean the Amended and Restated Note and
Security Agreement dated the date hereof between the Company and Aetna Life
Insurance Company
"Affiliate" shall mean any Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with, the Company or
any Subsidiary. For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (a) vote 5% or more of the Voting
Stock of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Agreement" shall mean this Amended and Restated Credit Agreement and any
amendments or supplements hereto.
"Application(s)" shall mean each of the commercial Letter of Credit
applications and standby Letter of Credit applications referred to in Section
2.3 hereof.
"Assignee" shall have the meaning set forth in Section 8.12(c).
"Bank Credit Agreements" shall mean, collectively, this Agreement and the
other substantially identical agreements dated the date hereof between the
Companies and the Other Banks.
"Bank Outstandings" shall mean the aggregate amount of Loans and Letter of
Credit Outstandings under the Bank Credit Agreements.
"Bank's Pro Rata Share" of any sum or amount shall be computed by
multiplying such sum or amount by a fraction, the numerator of which is 10 and
the denominator of which is 75.
"Business Day" shall mean a day other than a Saturday, Sunday or other day
on which the Bank is authorized to close under the laws of the State of New
York.
"Change of Control" shall mean either of the following:
(1) a Person or group of Persons acting in concert (other than a
Permitted Holder) becoming the beneficial owner of more than 50% (by number of
votes) of the Voting Stock of either of the Companies; or
(2) a majority of the board of directors of the Company is replaced
within any two-year period, excluding replacements due to resignations
initiated by the incumbent board of directors or resignations due to the death
or disability of any members of the incumbent board of directors.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment" shall have the meaning set forth in Section 2.1, as from time
to time reduced in accordance with the Agreement.
"Commitment Period" shall mean the period from and including the date
hereof to but not including the Termination Date, or such earlier date as the
Commitment shall terminate as provided herein.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA.
<PAGE>
"Consolidated EBITDA" means, with respect to the Company and its
Subsidiaries for any period, the Consolidated Net Income for such period plus,
to the extent deducted in determining such Consolidated Net Income,
depreciation and amortization expense, interest expenses with respect to the
Company's liabilities for borrowed money and capitalized leases, and all
federal, state and foreign income taxes.
"Consolidated Fixed Charges" shall mean with respect to the Company and
its Subsidiaries, at any date, the sum of: (1) interest expenses with respect
to its liabilities for borrowed money, (2) imputed interest expense on
capitalized lease obligations, and (3) all fixed minimum rent expenses of real
estate leases, in each case determined on a consolidated basis.
"Consolidated Income Available for Fixed Charges" with respect to the
Company and its Subsidiaries, means for any period the sum of: (1)
Consolidated EBITDA and (2) all fixed minimum rent expenses of real estate
leases, in each case determined on a consolidated basis.
"Consolidated Net Income" means for any period, the aggregate net income
of the Company and its Subsidiaries for such period on a consolidated basis,
determined in accordance with GAAP, provided that there shall be excluded
therefrom after giving effect to any related tax effect, (a) gains and losses
from sales of assets or reserves relating thereto, (b) items classified as
extraordinary or non-recurring (including any restructuring reserves), (c) the
write-off of deferred financing costs and (d) the cumulative effect of changes
in accounting principles in the year of adoption of such change.
"Consolidated Tangible Net Worth" shall mean, at any time, the amount by
which (i) all amounts that would, in conformity with GAAP, be included in
shareholders' equity on the Consolidated Balance Sheets of the Company and its
Subsidiaries, exceeds (ii) the aggregate amount carried as assets on the books
of the Company and its Subsidiaries for goodwill, licenses, patents,
trademarks, unamortized debt discount and expense, and other intangibles as
determined in conformity with GAAP, for cost of investments in excess of net
assets at the time of acquisition by the Company or any Subsidiary, and for
any write-up in the book value of any assets of the Company or any Subsidiary
resulting from reevaluation thereof subsequent to the date hereof.
"Default" shall mean any of the events specified in Section 7 hereof,
whether or not any requirement for the giving of notice or the lapse of time
or both or any other condition has been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" shall mean any of the events specified in Section 7
hereof, provided that any requirement for the giving of notice or the lapse of
time or both has been satisfied.
"Fiscal Year" shall mean the fiscal year of the Company which ends on the
Saturday closest to January 31.
"GAAP" shall mean generally accepted accounting principles in effect in
the United States of America, at the time of the applicable report, applied in
a manner consistent with that employed in the preparation of the financial
statements described in Section 4.8.
"Guarantee" shall mean any guarantee referred to in Sections 3.1(c),
3.1(d) and 5.8 hereof.
"Guarantor" shall mean any guarantors required pursuant to Sections 3.1(c)
or 3.1(d).
<PAGE>
"Insolvency" shall mean with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of such term as used
in Section 4245 of ERISA.
"Insurance Company Debt" shall mean, collectively, the Aetna Debt and the
Note Agreement Debt and any refinancing of such Debt in whole or in part
provided, however, that no such refinancing of the Insurance Company debt
shall provide for (i) a greater amount of indebtedness, (ii) a higher interest
rate on borrowed amounts or, (iii) greater mandatory amortization of the
Insurance Company Debt prior to the Termination Date than that required as of
the date hereof under the terms of the Insurance Company Restructuring
Documents.
"Insurance Debt Restructuring Documents" shall mean the Aetna Note
Agreement and Note Agreement.
"Inventory Turnover" shall mean, at a particular date, the "Cost of Sales"
as disclosed on the Company's year-to-date consolidated statements of income
divided by the "Merchandise Inventory" amount set forth on the Company's
consolidated balance sheets for such date.
"Letters of Credit" shall mean any and all commercial letters of credit
and standby letters of credit, including any and all Subsidiary Letters of
Credit, issued by the Bank for the account of the Companies hereunder under
the terms of any Application.
"Letter of Credit Commitment" shall mean the Bank's Pro Rata Share of
$1,000,000.
"Letter of Credit Outstandings" shall mean, at a particular time, the sum
of the amount then available to be drawn under any Letters of Credit then
outstanding plus the amounts of any drawings on any Letters of Credit honored
by the Bank, which have not been reimbursed by the Companies.
"Letter of Credit Termination Date" shall mean the first Business Day
which falls on or after the date which is 30 days prior to the Termination
Date.
"Loans" shall mean any advance made by the Bank to or for the benefit of
the Company under the terms and conditions of this Agreement including the
amounts of any drawings on any Letters of Credit honored by the Bank, which
have not been reimbursed by the Companies.
"Loan Documents" shall mean any and all of the Agreement, the Note, any
Application, any agreements or documents referred to in Section 3 hereof and
all other documents and instruments executed in connection herewith.
"Material Asset Sale" shall mean a sale of Property of the Company or its
Subsidiaries in one or more of a series of related transactions, other than
sales of inventory in the ordinary course of the Company's business or in
connection with store closings, resulting in Net Asset Sale Proceeds equal to
or greater than $500,000.00.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Asset Sale Proceeds" shall mean, with respect to any asset sale, the
fair market value of the aggregate amount of consideration received by the
Company or any Subsidiary, as the case may be, from such asset sale, after (a)
<PAGE>
provision for all income or other taxes payable as a result of such asset sale
and (b) payment of all brokerage commissions and other reasonable fees and
expenses related to such asset sale. For purposes of this definition, the
fair market value of non-cash consideration shall be determined in good faith
by the Board of Directors of the Company.
"Note Agreement" shall mean that certain Amended and Restated Note
Agreement, dated the date hereof, among the Company and the insurance
companies listed as purchasers thereof.
"Note Agreement Debt" shall mean the indebtedness outstanding, not to
exceed $47,500,000, in respect of the Note Agreement.
"Note" shall mean the promissory note and all attachments thereto
described in Section 2.2 hereof.
"Participants" shall have the meaning set forth in Section 8.1(b) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Holder" shall mean Robert J. Higgins, his spouse, any of his
children and his estate, heirs and legal representatives, and any bona fide
trust of which one or more of the foregoing are the sole beneficiaries and
over which one or more of the foregoing acts as trustee and possesses the
power to direct the management thereof.
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company trust, unincorporated association, joint venture,
government authority or other entity of whatever nature.
"Plan" shall mean at any particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Company or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Preferred Stock" shall mean, with respect to any Person, any class or
classes of capital stock (however designated) which is preferred as to the
payment of dividends or distributions or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over
any other class of capital stock of such Person.
"Prime Rate" shall mean the fluctuating rate of interest publicly
announced by the Bank at its principal office from time to time as its Prime
Rate, which Prime Rate is not intended to be the lowest rate of interest
charged by the Bank to its borrowers.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Real Property" has the meaning set forth in Section 4.11(a) hereto.
"Reorganization" shall mean, with respect to any Multiemployer Plan, the
condition that such Plan is in reorganization within the meaning of such term
as used in Section 4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the 30-day notice period
is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. e
2615.
<PAGE>
"Responsible Officer" shall mean with respect to any certificate, report
or notice to be delivered or given hereunder or knowledge of any Default or
Event of Default hereunder, unless the context otherwise requires, the
president, chief executive officer, chief financial officer, principal
accounting officer or treasurer of the Company or Record Town or other
executive officer of the Company or Record Town who in the normal performance
of his or her operational duties would have knowledge of the subject matter
relating to such certificate, report or notice.
"Restricted Subsidiary" shall mean a Subsidiary,
(i) organized under the laws of the United States or a jurisdiction
thereof;
(ii) which conducts substantially all of its business and has
substantially all of its Property within the United States; and
(iii) a Subsidiary so designated by the Company.
"Significant Subsidiary" shall mean any Subsidiary that has, as of the
balance sheet date for the Company's most recent fiscal quarter, in excess of
$500,000 in Adjusted Tangible Assets.
"Single Employer Plan" shall mean any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Subsidiary" shall mean, as of any date, any corporation more than 50% of
whose issued and outstanding Voting Stock (except directors' qualifying
shares, if required by law) on such date is owned by the Company, directly or
through one or more Subsidiaries.
"Subsidiary Letter of Credit" shall mean any commercial letters of credit
or standby letters of credit issued by the Bank for the account of any
Subsidiary.
"Subsidiary Letter of Credit Outstandings" shall mean at a particular
time, the sum of the amount of any Subsidiary Letters of Credit then
outstanding plus the amount of any drawings on any Subsidiary Letters of
Credit honored by the Bank, which have not been reimbursed by the Subsidiary.
"Tangible Net Worth" of any Person shall mean, at any time, the amount by
which (i) all amounts that would, in conformity with GAAP, be included in
shareholders' equity on the balance sheets of such Person, exceeds (ii) the
aggregate amount carried as assets on the books of such Person for (a)
goodwill, licenses, patents, trademarks, unamortized debt discount and
expense, and other intangibles as determined in conformity with GAAP, (b) cost
of investments in excess of net assets at the time of acquisition by such
Person, and (c) any write-up in the book value of any assets of such Person
resulting from reevaluation thereof subsequent to the date hereof.
"Termination Date" shall mean July 31, 1996.
"Variable Rate" shall mean the rate equal to the sum of (x) the Prime Rate
plus (y) 1.50%.
<PAGE>
"Voting Stock" shall mean the shares of capital stock and any other
securities of any Person entitled to vote generally for the election of
directors of such Person or any other securities (including, without
limitation, rights and options), convertible into, exchangeable into or
exercisable for, any of the foregoing (whether or not presently exercisable,
convertible or exchangeable).
Section 1.2 Use of Defined Terms. All terms defined in this Agreement
shall have the defined meanings when used in the Note, certificates, reports
or other documents made or delivered pursuant to this Agreement unless the
context shall otherwise require.
Section 1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
SECTION 2.
AMOUNT AND TERMS OF CREDIT
Section 2.1 The Commitment. (a) Subject to the terms and conditions of
this Agreement, the Bank agrees to make Loans to the Companies and, at the
sole discretion of the Bank, issue Letters of Credit for the account of the
Company, or Subsidiary Letters of Credit for the account of a Subsidiary, at
any time and from time to time during the Commitment Period in an aggregate
principal amount equal to the Bank's Pro Rata Share of the Bank Outstandings
at such time, but not exceeding the sum of $10,000,000.00 at any one time
outstanding (herein, as the same shall be reduced from time to time pursuant
to Section 2.6 hereof, called the "Commitment"). During the Commitment
Period, the Companies may use the Commitment by borrowing, repaying and
reborrowing and by having Letters of Credit issued on their behalf, or
Subsidiary Letters of Credit issued on behalf of a Subsidiary, all in
accordance with the terms and conditions of this Agreement. Notwithstanding
anything to the contrary contained herein, the Commitment shall be reduced by
any Letter of Credit Outstandings and all Loans made under this Agreement
shall mature and be due and payable on the Termination Date.
(b) The credit agreement between the Bank and the Company dated June
11, 1993, as amended, and the Waiver Agreement dated as of January 31, 1995,
as amended, are hereby terminated and/or amended and restated in their
entireties as provided herein as of the date of this Agreement.
Section 2.2 The Note. The Company shall execute and deliver to the Bank a
Note, substantially in the form annexed hereto as Exhibit "A" (the "Note"),
with appropriate insertions therein. The Note shall be used to evidence such
borrowing, repayment and reborrowing hereunder. The Note shall bear interest
as follows:
(a) During the Commitment Period, each Loan shall bear interest on the
unpaid principal amount thereof at a rate per annum equal to the higher of (i)
10.5% and (ii) the Variable Rate. Interest on Loans shall be payable monthly
on the first Business Day of each month commencing on the first such date
after a Loan is made and upon payment or prepayment in full of the unpaid
principal amount thereof.
(b) If an Event of Default shall have occurred hereunder, and for so
long as such Event of Default shall be continuing, the principal amount of
Loans then outstanding shall thereafter bear interest at a rate per annum
which is 2% above the rate which would otherwise be applicable pursuant to the
terms of this Section 2.2.
<PAGE>
Section 2.3 Letters of Credit. (a) The Company shall execute and deliver
to the Bank an appropriate Application for issuance of any Letter of Credit in
the form being used by the Bank at the time of any request to issue a Letter
of Credit, with appropriate insertions therein (hereafter "Application").
Upon receipt thereof, the Bank, in its sole discretion, will issue a
commercial Letter of Credit or standby Letter of Credit, as required, on
behalf of the designated beneficiary for the account of the Company with the
requested face amount and expiration date.
(b) Each Letter of Credit shall expire no later than the Letter of
Credit Termination Date.
(c) Notwithstanding anything to the contrary contained herein, (I) the
Letter of Credit Outstandings shall not exceed the Letter of Credit Commitment
and (II) the sum of (i) the aggregate outstanding principal amount of the
Loans plus (ii) the aggregate Letter of Credit Outstandings shall not exceed
the lesser of (x) the Commitment and (y) the Bank's Pro Rata Share of the Bank
Outstandings.
(d) The expiration of an undrawn Letter of Credit shall be deemed a
repayment of Loans in an amount equal to the face amount of such expired
Letter of Credit. If there is no default in existence at the time of such
Letter of Credit expiration, the Company shall adjust its immediately
following borrowings or repayments under the Credit Agreements to ensure that
the share of the Bank Outstandings of each Bank and its respective assigns
shall equal the percentage set forth on Schedule I hereto opposite such Bank's
name. Whenever a Default exists under this Agreement, the Bank shall be
obligated to purchase from each of the other Banks and their respective
assigns participations in loans outstanding under each such Bank's respective
Bank Credit Agreement in the amount necessary to ensure that after such
purchases, the Banks' and their respective assigns respective share of the
Bank Outstandings shall equal the percentage set forth on Schedule I hereto
opposite such Bank's name. The Bank hereby agrees that upon the expiration of
undrawn letters of credit issued by any of the other Banks at such time as a
default is continuing under such Bank's Credit Agreement, the Bank will sell
participations in the Loans to the other Banks and their respective assigns to
the extent necessary to ensure that the respective share of the Bank
Outstandings at such time of each Bank and its respective assigns shall equal
the applicable percentage set forth on Schedule I hereto.
(e) The payment by the Bank of a draft drawn under any Letter of
Credit or Subsidiary Letter of Credit shall constitute for all purposes of
this Agreement the making of a Loan, in the amount of such draft.
Section 2.4 Notice of Borrowing. The Company shall give the Bank prior
telephonic notice of the date and the amount of each borrowing pursuant to the
Commitment no later than 1:00 p.m. on the borrowing date. On the date
specified in such notice, the Bank will make the proceeds of such Loan
available to the Companies by credit to an account of the Companies maintained
with the Bank, in immediately available funds. Each borrowing pursuant to the
Commitment shall be in an aggregate principal amount of $100,000 or any whole
multiple thereof.
Section 2.5 Fees. (a) The Company agrees to pay to the Bank a commitment
fee for the period from and including the date hereof to and including the
Termination Date, computed at the rate of 1/4 of 1% per annum on the average
daily unused portion of the Commitment in effect during the period for which
payment is made; all Letter of Credit outstandings shall be included in
calculating the used portion of the Commitment. Such commitment fee shall be
payable to the Bank on the first Business Day of each August, November,
February and May of each year, commencing on August, 1995, and ending on the
Termination Date.
<PAGE>
(b) The Company agrees to pay to the Bank all fees and customary and
usual charges in connection with the Letters of Credit as required under the
Applications.
Section 2.6 Termination or Reduction of Commitment. (a) The Company shall
have the right, upon not less than three (3) Business Days prior written
notice to the Bank, to terminate the Commitment in whole at any time, or to
reduce the Commitment in part from time to time or to accelerate the
Termination Date. Any termination of the Commitment shall be accompanied by
payment in full of the unpaid principal amount of the Note, together with
accrued interest thereon, and the payment of any commitment fee then accrued
hereunder. Any acceleration of the Termination Date also shall be accompanied
by the payment of any commitment fee then accrued hereunder and the deposit
with the Bank of cash in the amount of all Letter of Credit Outstandings. All
cash so deposited shall be used to reimburse the Bank for any amounts due to
the Bank under any Letter of Credit which has been drawn upon after the
acceleration of the Termination Date and not reimbursed by the Company. Any
partial reduction in the Commitment shall be in an aggregate principal amount
of $500,000 or a multiple thereof and shall reduce permanently the Commitment
then in effect hereunder.
(b) On the dates set forth below, the Commitment shall be
automatically reduced by the Bank's Pro Rata Share of the following amounts:
June 30, 1995 $2,678,571.43
January 31, 1996 $4,285,714.29
(c) Not more than two Business Days following the consummation of a
Material Asset Sale, the Commitment shall be automatically reduced by an
amount equal to the product of (i) the Net Asset Proceeds of such sale
multiplied by (ii) a fraction, the numerator of which is 10 and the
denominator of which is 140.
(d) In addition to, and without duplication of, the Commitment
reductions required by Subsection (c) above and those occurring on June 30,
1995, January 31, 1996 and July 31, 1996, simultaneously with any payment of
Insurance Company Debt, the Commitment shall be automatically reduced by an
amount equal to the product of (i) the aggregate amount of such payment of
Insurance Company Debt multiplied by (ii) a fraction, the numerator of which
is 10 and the denominator of which is 65.
(e) All reductions and terminations of the Commitment and the
respective commitments of the Other Banks shall be made concurrently such that
the reduction of the Commitment shall be equal to the Bank's Pro Rata Share of
the aggregate reduction of all the Banks' respective commitments made at such
time.
(f) The Commitment once terminated or reduced may not be reinstated or
increased.
Section 2.7 Prepayments. (a) The Company may prepay any Loan without
premium or penalty in whole at any time or in any part from time to time.
Partial prepayments of the Note shall be made in conjunction with prepayments
of the notes held by the Other Banks such that the Bank's prepayment shall be
in a principal amount equal to the Bank's Pro Rata Share of the aggregate
amount of the partial prepayments made to the Banks at such time and shall be
in the principal amount of $100,000 or multiples thereof together with payment
of accrued interest thereon to the date of the prepayment.
<PAGE>
(b) The Company shall notify the Bank of any prepayment no later than
12:00 noon on the date thereof.
(c) If, at any time whether before or after giving effect to any
termination or reduction of the Commitment pursuant to Section 2.6, the sum of
(i) the outstanding aggregate principal amount of the Loans and (ii) the
Letter of Credit Outstandings exceeds the lesser of (x) the amount of the
Commitment and (y) the Bank's Pro Rata Share of the Bank Outstandings, the
Company shall pay or prepay Loans and, to the extent the Loans have been
repaid in full, cash collateralize outstanding Letters of Credit, on the date
of such termination or reduction in an aggregate principal amount equal to
such excess, together with interest thereon accrued to the date of such
payment or prepayment.
(d) The Company agrees that commencing December 15 of each Fiscal Year
through the day the Company begins the clean-up required in subsection (e)
below, the Company shall apply all cash and cash equivalents in excess of
$10,000,000 ratably among the Banks in proportion to their respective
commitments to reduce or cash collateralize the amounts outstanding under the
Bank Credit Agreements.
(e) For a period of not less than 15 consecutive days during the
period commencing on December 25 and ending on the last day of each Fiscal
Year, the aggregate outstanding principal amount of Bank Outstandings shall be
reduced to zero and any outstanding Letters of Credit shall be fully cash
collateralized, provided, that subsequent to the last day of the Fiscal Year
the Company shall be permitted to reborrow all amounts so used to cash
collateralize outstanding Letters of Credit.
Section 2.8 Computation of Interest and Commitment Fee; Payments.
Commitment fees, if any, and interest shall be calculated on the basis of a
360 day year for the actual days elapsed. Any change in the applicable
interest rate on a Loan resulting from a change in the Prime Rate shall become
effective as of the opening of business on the day on which such change in the
Prime Rate shall become effective. All payments (including prepayments) by
the Companies on account of principal and interest on Loans and the commitment
fee hereunder shall be made to the Bank at its office located at One Chase
Square, Rochester, New York 14643, in lawful money of the United States of
America in immediately available funds. If any payment on a Loan becomes due
and payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day and interest thereon shall be
payable at the then applicable rate during such extension. The Company hereby
authorizes and directs the Bank to charge any account of the Company
maintained at any office of the Bank with the amount of any such commitment
fee, interest or principal when the same becomes due and payable under the
terms of this Agreement, the Note, the Applications or any other document
executed in connection herewith or therewith.
Section 2.9 Requirements of Law. (a) In the event of a change after the
date hereof in any law, regulation, treaty or directive or in the
interpretation or application thereof or compliance by the Bank with any
request or directive (whether or not having the force of law) from any central
bank or other governmental authority, agency or instrumentality:
(i) does or shall subject the Bank to any tax of any kind
whatsoever with respect to this Agreement, the Note, the Applications or any
loans made hereunder, or changes the basis of taxation of payments to the Bank
of principal, commitment fee, interest or any other amount payable hereunder
(except for changes in the rate of any tax presently imposed on the Bank); or
<PAGE>
(ii) does or shall impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Bank of
issuing or maintaining any Letter of Credit or Subsidiary Letter of Credit or
of making, renewing (or maintaining) advances or extensions of credit to the
Companies or to reduce any amount receivable from the Companies thereunder
then, in any such case, the Companies shall promptly pay to the Bank, upon its
demand, any additional amounts necessary to compensate the Bank for such
additional cost or reduced amount receivable which the Bank deems to be
material as determined by the Bank with respect to this Agreement, the Note,
the Letters of Credit issued hereunder or the Loans made hereunder. If the
Bank becomes entitled to claim any additional amounts pursuant to this Section
2.9(a), it shall promptly notify the Companies of the event by reason of which
it has become so entitled. A certificate setting forth calculations as to any
additional amounts payable pursuant to the foregoing sentence submitted by the
Bank to the Companies shall be conclusive in the absence of manifest error.
(b) If after the date hereof, the Bank shall have determined that the
adoption or amendment of or change to or in any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or
directive regarding capital adequacy (whether or not having the force of law)
or any such authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on the Bank's capital as a
consequence of its obligations hereunder to a level below that which the Bank
could have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies with respect to capital adequacy) by an
amount deemed by the Bank to be material, then from time to time, within 15
days after demand by the Bank, the Companies shall pay to the Bank such
additional amount or amounts as will compensate the Bank for such reduction.
The Bank will promptly notify the Companies of any event of which it has
knowledge, occurring after the date hereof, which will entitle the Bank to
compensation pursuant to this Section 2.9(b). The Companies shall not be
liable in respect of any reduced amount of any sum received or receivable by
the Bank pursuant to this Section 2.9(b) with respect to any sums or fees
payable hereunder or accrued by the Bank prior to the date that is 60 calendar
days following the date of the notice to the Companies that is required
hereunder, regardless of when such interest or fees are payable.
Section 2.10 Use of Proceeds. (a) Neither of the Companies is engaged
principally, nor as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any "margin stock"
as such term or terms of similar purport and effect shall be defined in
Regulation U of the Board of Governors of the Federal Reserve System as now
and from time to time hereafter in effect. No part of the proceeds of any
borrowing hereunder will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock. If requested by the Bank, the Company will furnish to the Bank
a statement in conformity with the requirements of Federal Reserve Form U-1
referred to in said Regulation U and to the foregoing effect. No part of the
proceeds of the loans hereunder will be used for any purpose which violates,
or which is inconsistent with, the provisions of Regulation X of said Board of
Governors.
(b) The proceeds of the Loans shall be used for general corporate
purposes of the Companies.
<PAGE>
SECTION 3.
CONDITIONS OF BORROWING
Section 3.1 Conditions of Effectiveness. The obligation of the Bank to
make the initial loan hereunder shall be subject to the fulfillment of the
following conditions precedent:
(a) Legal Opinions. There shall have been delivered to the Bank on
the date of such Loan (i) an opinion of Matthew H. Mataraso, Esq., counsel to
the Companies, in form and substance reasonably satisfactory to the Bank,
dated the date hereof, to the same effect as Sections 4.1, 4.2, 4.3, 4.4 and
4.5 hereof and to the further effect that this Agreement, the Guarantees, and
the Note have been duly authorized, executed and delivered by a duly
authorized officer of the Companies and the Guarantors respectively, and (ii)
an opinion of Jones, Day, Reavis & Pogue, special counsel to the Companies, in
form and substance reasonably satisfactory to the Bank, dated the date hereof,
to the effect that this Agreement, the Guarantees, and the Note constitute
valid obligations of the Companies and the Guarantors respectively, are
legally binding upon them and enforceable (except as may be limited by any
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
law affecting creditors' rights generally and general equitable principles) in
accordance with their terms.
(b) Corporate Proceedings. Each of the Companies shall have furnished
to the Bank (in form and substance satisfactory to the Bank) a copy, certified
by an appropriate officer of each of the Companies on the date of such loan,
of the resolutions of the Board of Directors of each of the Companies
authorizing all borrowings herein provided for and the execution, delivery and
performance of this Agreement, the Note and any other documents required to be
executed in connection herewith.
(c) Subsidiary Guarantee. Media Logic shall have executed and
delivered to the Bank the Guarantee, substantially in the form of Exhibit "B"
annexed hereto and made a part hereof, of the prompt and unconditional payment
of all present and future obligations and liabilities of the Companies to the
Bank, accompanied by a copy (in form and substance satisfactory to the Bank)
of the resolutions of the Board of Directors of such guarantor and certified
by an appropriate officer of such guarantor, authorizing the execution,
delivery and performance by such guarantor of the Guarantee and of the
delivery of the same to the Bank.
(d) Additional Guarantees. In addition to the Guarantee of Media
Logic as required pursuant to Section 3.1(c) hereof, the Company shall provide
further guarantees to the Bank from Subsidiaries so that at all times
including the date hereof Subsidiaries having in the aggregate Tangible Net
Worth and Adjusted Tangible Assets which contribute at least 90% of the
Consolidated Tangible Net Worth and Adjusted Tangible Assets, respectively, of
the Company shall be either obligors or guarantors of the Loan. Furthermore,
the Company will provide a guaranty from any Subsidiary having Tangible Net
Worth and Adjusted Tangible Assets equal to 5% or more of the Consolidated
Tangible Net Worth and Consolidated Adjusted Tangible Assets, respectively, of
the Company.
(e) Insurance Company Restructuring Documents. The Companies shall
have entered into the Insurance Company Restructuring Documents in form and
substance satisfactory to the Bank.
<PAGE>
(f) Payment of Fees and Expenses. The Company shall have paid to the
Bank in immediately available funds a fee in an amount equal to $25,000.00 and
all expenses incurred by the Bank in connection herewith including, without
limitation, the reasonable fees and expenses of Wachtell, Lipton, Rosen & Katz
and Policano and Manzo incurred in connection herewith.
(g) Interest on Existing Notes. The Company shall have paid to the
Bank all accrued interest on amounts outstanding under its Existing Credit
Agreement to (but not including) the Effective Date at the Variable Rate, and
additional interest on such outstanding amounts for the period from April 28,
1995 to (but not including) the Effective date at a rate equal to the excess,
if any, of the rate which would have been payable on the Note pursuant to
Section 2.2(a) if the Note had been outstanding at all times from and after
April 28, 1995, and the Variable Rate.
Section 3.2 Conditions of All Loans. The obligation of the Bank to make
any Loan to be made by it or issue any Letter of Credit hereunder shall be
subject to the following conditions precedent:
(a) Representations and Warranties; No Default. The representations
and warranties contained in Section 4 hereof shall be true and correct on the
date of the making of such Loans or issuing such Letters of Credit, and no
Default or Event of Default shall have occurred and be continuing on such
date. Each borrowing by the Company or issuance of a Letter of Credit
hereunder shall constitute a representation by the Company as of the date of
each such borrowing that the conditions contained in the foregoing sentence
have been satisfied and the Company is not aware of any condition which, after
notice or lapse of time or both, could become a Default or Event of Default.
(b) Legal Matters. All other instruments and legal and corporate
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory, in form and substance to the Bank and its counsel, and
counsel to the Bank shall have received copies of all documents which it may
have reasonably requested in connection therewith.
SECTION 4.
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make the
Loans or issue Letters of Credit herein provided for, each of the Companies
hereby represents and warrants to the Bank that:
Section 4.1 Corporate Existence. The Companies and each Subsidiary is
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power to own its assets
and to transact the business in which it is presently engaged, and is duly
qualified as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification.
Section 4.2 Corporate Power and Authorization. The Companies have the
corporate power, authority and legal right to make, deliver and perform this
Agreement, the Applications and the Note and to borrow hereunder and have
taken all necessary corporate action to authorize the borrowings on the terms
and conditions of this Agreement, the Applications and the Note. No consent
of any other party (including stockholders of the Companies), and no consent,
license, approval or authorization of, or registration or declaration with,
any governmental authority, bureau or agency is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement, the Applications or the Note with respect to the Companies. This
Agreement is, and the Note when delivered hereunder will be, legal, valid and
binding obligations of the Companies enforceable against the Companies in
accordance with their respective terms.
<PAGE>
Section 4.3 No Legal Bar to Loans. The execution, delivery and
performance of this Agreement, the Applications and the Note by the Companies,
will not violate any provision of any existing law or regulation or of any
order or decree of any court or governmental instrumentality, or of the
respective Certificates of Incorporation or By-Laws of the Companies, or of
any mortgage, indenture, contract or other agreement to which either of the
Companies is a party or by which the Companies and any of their properties or
assets may be bound, and will not result in the creation or imposition of any
lien, charge or encumbrance on, or security interest in, any of its properties
pursuant to the provisions of such mortgage, indenture, contract or other
agreement.
Section 4.4 No Material Litigation. No litigation or administrative
proceedings of or before any court, tribunal or governmental body is presently
pending, or, to the knowledge of the Companies, threatened against the Company
or any Subsidiary or any of its or their properties or with respect to this
Agreement, the Applications or the Note, which, if adversely determined,
would, in the opinion of the Company, have a material adverse effect on the
business, assets or financial condition of the Company or such Subsidiary.
Section 4.5 No Default. The Companies are not in default in any material
manner in the payment or performance of any of their respective obligations or
in the performance of any material contract, agreement or other instrument to
which either is a party or by which either of the Companies or any of their
assets may be bound, and no Default hereunder has occurred and is continuing.
Section 4.6 Ownership of Properties; Liens. The Company and each
Subsidiary has good and marketable title to all of their respective properties
and assets, real and personal, and none of such properties and assets are
subject to any mortgage, lien, pledge, charge, encumbrance, security interest
or title retention or other security agreement or arrangement of any nature
whatsoever other than Permitted Liens and except as listed on Schedule II
hereto.
Section 4.7 Taxes. The Company and each Subsidiary has filed or caused to
be filed all tax returns which to the knowledge of the Company are required to
be filed, and has paid all taxes shown to be due and payable on said returns
or on any assessments made against them (other than those being contested in
good faith by appropriate proceedings for which adequate reserves have been
provided on the books of the Company or its Subsidiary, as the case may be),
and no tax liens have been filed and, to the best knowledge of the Company, no
material claims are being asserted with respect to any taxes.
Section 4.8 Financial Condition. The consolidated balance sheet of the
Company and its Subsidiaries as of January 28, 1995 and the related statements
of income, retained earnings and cash flow for the fiscal period ended on said
date, heretofore furnished to the Bank, present fairly the consolidated
financial condition of the Company and its Subsidiaries, taken as a whole, as
of the date of said balance sheet, and the consolidated results of their
operations for such period. All such financial statements have been prepared
in accordance with GAAP applied on a basis consistent with that of the
preceding year, and since the date of the financial statement mentioned above,
there has been no material adverse change in the condition, financial or
otherwise, of the Company and such Subsidiaries, taken as a whole, from that
<PAGE>
shown by said statement as of said date. Neither the Company nor any of its
Subsidiaries had any material obligation, liability or commitment, direct or
contingent, which is required by GAAP to be disclosed and is not reflected in
the foregoing consolidated statements (and the related notes thereto) as of
said date.
Section 4.9 Filing of Statements and Reports. The Company and each
Subsidiary has filed copies of all statements and reports which, to the
knowledge of the Company, are required to be filed with any governmental
authority, agency, commission, board or bureau.
Section 4.10 ERISA. No Reportable Event has occurred during the
immediately preceding six-year period with respect to any Plan, and each Plan
has complied and has been administered in all material respects with
applicable provisions of ERISA and the Code. The present value of all
benefits vested under each Single Employer Plan maintained by the Company or
any Commonly Controlled Entity (based on those assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such vested benefits.
Neither the Company nor any Commonly Controlled Entity has during the
immediately preceding six-year period had a complete or partial withdrawal
liability from any Multiemployer Plan and neither the Company nor any Commonly
Controlled Entity would become subject to any liability under ERISA if the
Company or any Commonly Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the most recent valuation date applicable thereto.
Neither the Company nor any Commonly Controlled Entity has received notice
that any Multiemployer Plan is in Reorganization or Insolvent nor, to the best
knowledge of the Company, is any such Reorganization or Insolvency reasonably
likely to occur. The present value (determined using actuarial and other
assumptions which are reasonable in respect of the benefits provided and the
employees participating) of the liability of the Company and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined
in Section (1) of ERISA) does not, in the aggregate, exceed the assets under
all such Plans allocable to such benefits.
Section 4.11 Environmental Matters. (a) To the best knowledge of the
Company, none of the real property owned or leased at 38 Corporate Circle,
Albany, New York, by the Company or any Subsidiary (such Property, the "Real
Property") contains, or has previously contained, any hazardous or toxic waste
or substances or underground storage tanks.
(b) To the best knowledge of the Company, the Real Property is in
compliance with all applicable federal, state and local environmental
standards and requirements affecting such Real Property, and there are no
environmental conditions which could interfere with the continued use of the
Real Property.
(c) Neither the Company nor any Subsidiary has received any notices of
violations or advisory action by regulatory agencies regarding environmental
control matters or permit compliance.
(d) Hazardous waste has not been transferred from any of the Real
Property to any other location which is not in compliance with all applicable
environmental laws, regulations or permit requirements.
(e) With respect to the Real Property, there are no proceedings,
governmental administrative actions or judicial proceedings pending or, to the
best knowledge of the Company or any Subsidiary, contemplated under any
federal, state or local law regulating the discharge of hazardous or toxic
materials or substances into the environment, to which the Company or any
Subsidiary is named as a party.
<PAGE>
Section 4.12 Insurance. All policies of insurance of any kind or nature
maintained by or issued to the Company or to any Subsidiaries, including,
without limitation, policies of life, fire, theft, product liability, public
liability, property damage, other casualty, employee fidelity, worker's
compensation, employee health and welfare, title, property and liability
insurance, are in full force and effect in all material respects and are of a
nature and provide such coverage as is sufficient and as is customarily
carried by companies of similar size and character.
Section 4.13 Insurance Debt Restructuring Documents. (a) The Company has
delivered to the Bank true, complete and correct copies of each of the
Insurance Debt Restructuring Documents (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto, if any)
and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been consented to by the Bank and no consent or waiver has been
granted by the Company or any Subsidiaries thereunder. Each of the Insurance
Debt Restructuring Documents has been duly executed and delivered by the
Company and, to the best of the Company's knowledge, by each other party
thereto and is a legal, valid and binding obligation of the Company, and, to
the best of the Company's knowledge, of each other party thereto, enforceable,
in all material respects, in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting the rights of creditors generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
(b) The representations and warranties of the Company, any Subsidiary
and each other party to the Insurance Debt Restructuring Documents are, to the
best of the Company's knowledge, true and correct in all material respects on
the date hereof as if made on and as of such date. Such representations and
warranties, together with the definitions of all defined terms used therein,
are by this reference deemed incorporated herein mutatis mutandis, and each
Bank is entitled to rely on the accuracy of such representations and
warranties.
(c) To the best of the Company's knowledge, each party to the
Insurance Debt Restructuring Documents has complied in all material respects
with all terms and provisions contained therein on its part to be observed.
Section 4.14 Accuracy and Completeness of Information. All information,
reports and other papers and data with respect to the Company and the
Subsidiaries furnished to the Bank by the Companies, or on behalf of the
Companies, were, at the time so furnished, complete and correct in all
material respects, or have been subsequently supplemented by other
information, reports or other papers or data, to the extent necessary to give
the Bank a true and accurate knowledge of the subject matter in all material
respects. All projections with respect to the Company and the Subsidiaries
were prepared and presented in good faith by the Company based upon facts and
assumptions that the Company believes to be reasonable in light of current and
foreseeable conditions, it being recognized by the Bank that such projections
as to future events are not to be viewed as facts and that actual results
during the period or periods covered by any such projections may differ from
the projected results. No document furnished or statement made in writing to
the Bank by or on behalf of the Company in connection with the negotiation,
preparation or execution of this Agreement contains any untrue statement of a
material fact, or omits to state any such material fact necessary in order to
make the statements contained therein not misleading, in either case which has
not been corrected, supplemented or remedied by subsequent documents furnished
or statements made in writing to the Bank.
<PAGE>
Section 4.15 Labor Matters. There are no strikes pending or, to the
Company's knowledge, threatened against the Company or any of the Subsidiaries
which, individually or in the aggregate, could reasonably be expected to have
a material adverse effect on the Company's business taken as a whole. The
hours worked and payments made to employees of the Company and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable requirement of law. All material payments due from the
Company and the Subsidiaries, on account of wages and employee health and
welfare insurance and other benefits have been paid or accrued as a liability
on the books of the Company or such Subsidiary.
Section 4.16 Leaseholds, Permits, etc. Each of the Company and the
Subsidiaries possesses or has the right to use, all leaseholds, easements,
franchises and permits and all authorizations and other rights which are
material to and necessary for the conduct of its business. Except for such
noncompliance with the foregoing which could not reasonably be expected to
have a material adverse effect, all the foregoing are in full force and
effect, and each of the Company and the Subsidiaries, as the case may be, is
in substantial compliance with the foregoing without any known conflict with
the valid rights of others. No event has occurred which permits, or after
notice or lapse of time or both would permit, the revocation or termination of
any such leasehold, easement, franchise, license or other right, which
termination or revocation, considered as a whole, could reasonably be expected
to have a material adverse effect on the Company's business taken as a whole.
4.17 Subsidiaries. Schedule III to this Agreement correctly identifies:
(a) each of the Company's Subsidiaries, its jurisdiction of
incorporation and the percentage of its Voting Stock owned by the Company and
by each other Subsidiary, and
(b) each of the Company's Affiliates (other than Subsidiaries) and the
nature of their affiliation.
The Company and each Subsidiary is the legal and beneficial owner of all of
the shares of Voting Stock it purports to own of each Subsidiary, free and
clear in each case of any Lien. All such shares have been duly issued and are
fully paid and nonassessable.
Section 4.18 Existing Indebtedness. Schedule IV hereto correctly lists
indebtedness for borrowed money of the Company and the Subsidiaries existing
on the date hereof including all guarantees of the Company and the
Subsidiaries of such indebtedness.
Section 4.19 Company Actions. Neither the Company, Record Town nor any
other Subsidiary has taken any action or permitted any condition to exist
which would have been prohibited by Section 6 if such Section had been binding
and effective at all times during the period from January 28, 1995 to and
including the Effective Date.
<PAGE>
SECTION 5.
AFFIRMATIVE COVENANTS
The Companies hereby covenant that so long as the Note, or any amounts
owed in connection with any Letters of Credit or otherwise remain outstanding
and unpaid or so long as the Commitment remains unterminated, the Companies
will, unless otherwise consented to in writing by the Bank:
Section 5.1 Financial Statements. Furnish to the Bank: (a) as soon as
available, but in any event not later than 90 days after the close of each
Fiscal Year, a copy of the annual audit report for such year for the Company
and its Subsidiaries, including therein consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal year, and related
consolidated statements of income, retained earnings and cash flow of the
Company and its Subsidiaries for such fiscal year, setting forth in each case
in comparative form the corresponding figures for the preceding fiscal period,
all in reasonable detail, prepared in accordance with GAAP, such financial
statements certified by independent certified public accountants of recognized
standing selected by the Company;
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each Fiscal
Year, unaudited consolidated balance sheets of the Company and its
Subsidiaries as at the end of such fiscal quarter, and unaudited consolidated
statements of income, retained earnings and cash flow of the Company and its
Subsidiaries for the period from the beginning of such fiscal year to the end
of such fiscal quarter, setting forth in comparative form the corresponding
figures for the preceding fiscal period, all in reasonable detail, prepared in
accordance with GAAP and certified by the chief financial officer of the
Company (subject to normal year-end audit adjustment);
(c) concurrently with the delivery of the financial statements
referred to in clause (a) above, the accountant's management letter and a
certificate of such independent certified public accountants stating that in
making the examination necessary for certifying such financial statements no
knowledge was obtained of any Events of Default or Defaults hereunder, except
as specifically indicated;
(d) concurrently with the delivery of the financial statements
referred to in clauses (a) and (b) above, a certificate of the chief financial
officer of the Company certifying, to the best of his knowledge, that there
are no Events of Default or Defaults thereunder except as specifically
indicated, together with a computation by such chief financial officer (which
shall be in reasonable detail) that substantiates compliance with Sections
6.11, 6.12, 6.13, 6.14 and 6.27 of this Agreement;
(e) promptly after the same are sent, copies of all financial
statements and reports which the Company sends to its stockholders, and
promptly after the same are filed, notification of all financial statements
and reports which the Company may make to, or file with any governmental
authority, agency, commission board or bureau and thereafter copies of such
statements and reports as reasonably requested by the Bank;
(f) as soon as possible and in any event within 30 days after the
Company knows or has reason to know of the following events: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan or any withdrawal from, or the termination, Reorganization or Insolvency
of, any Multiemployer Plan to which the Company has an obligation to continue
or (ii) the institution of proceedings or the taking of any other action by
the PBGC, the Company or any Commonly Controlled Entity, or any Multiemployer
Plan with respect to the withdrawal from, or the terminating, Reorganization
or Insolvency of, any Plan the Company shall deliver to the Bank a certificate
of the chief financial officer of the Company setting forth the details
thereof and the action that the Company or the Commonly Controlled Entity
proposes to take with respect thereto;
<PAGE>
(g) promptly, such additional financial information as the Bank may
from time to time reasonably request; and
(h) the monthly reports and other information listed on Exhibit C
hereto.
Section 5.2 Payment of Obligations. Pay and discharge, and cause the
Subsidiaries to pay and discharge, at or before maturity, all of their
respective material obligations and liabilities, in accordance with normal
business practices, including without limitation tax liabilities, except where
the same may be contested in good faith, and will maintain, and cause the
Subsidiaries to maintain, in accordance with GAAP, reserves for the accrual of
any of the same.
Section 5.3 Maintenance of Properties; Insurance. Keep and cause the
Subsidiaries to keep, all properties useful and necessary in the business of
the Company and the Subsidiaries in good working order and condition; will
maintain, and cause the Subsidiaries to maintain, with financially sound
insurance companies, insurance on all their properties in such amounts,
acceptable to the Bank, as the Companies deem proper in accordance with
business practices against such risks as are usually insured in the same
general area and by companies engaged in the same or similar business; and
will furnish to the Bank, upon written request all information as to the
insurance carried.
Section 5.4 Notices. Within five Business Days after a Responsible
Officer obtains knowledge thereof, give notice in writing to the Bank of (a)
the existence of any Default under this Agreement or the other Bank Credit
Agreements, the Insurance Debt Restructuring Documents, or any Applications or
under any other material instrument or agreement of the Company or any
Subsidiary or the existence of any fact or circumstance which, after notice or
lapse of time or both, could become a Default or an Event of Default, (b) any
notice delivered to the Company, or any other action taken by, any of the
Banks or the Noteholders with respect to a claimed default or event of default
under any of the other Bank Credit Agreements or the Insurance Debt
Restructuring Documents, (c) any litigation, proceeding, investigation or
dispute which may exist at any time between the Company or any Subsidiary and
any governmental regulatory body which might substantially interfere with the
normal business operations of the Company or any Subsidiary, (d) all
litigation and proceedings affecting the Company or any Subsidiary in which
the amount involved is $500,000 or more and not covered by insurance or in
which injunctive or similar relief is sought, (e) any material change in the
credit and payment terms provided to the Company and the Subsidiaries by their
principal suppliers, (f) a proposed Change of Control which the Company
reasonably expects to occur and (g) the proposed closing date of each Material
Asset Sale provided, however, that in no event shall such notice be provided
less than 10 Business Days prior to the actual consummation thereof.
Section 5.5 Conduct of Business and Maintenance of Existence. Continue,
and cause the Subsidiaries to continue, to engage in business of the same
general type as now conducted by the Company and the Subsidiaries, and
preserve, renew and keep in full force and effect their corporate existence
and take all reasonable action to maintain their rights, privileges and
franchises necessary or desirable in the normal conduct of business; provided
that nothing herein contained shall prevent the Company or any Subsidiary from
discontinuing a part of its business which is not a substantial part of the
business of the Company or such Subsidiary, if such discontinuance is, in the
opinion of the Board of Directors of the Company, in the interest of the
Company and not disadvantageous to the Bank.
<PAGE>
Section 5.6 Inspection of Property, Books and Records. Permit, and cause
the Subsidiaries to permit, any representatives of the Bank to (a) visit and
inspect any of their respective properties, (b) conduct an environmental audit
of any of their respective properties and (c) examine and make abstracts from
any of the books and records of the Company and any Subsidiary at any
reasonable time and as often as may reasonably be desired.
Section 5.7 Hazardous Material. Indemnify the Bank against any liability,
loss, cost, damage, or expense (including, without limitation, reasonable
attorneys' fees) arising from (a) the imposition or recording of a lien by any
local, state, or federal government or governmental agency or authority
pursuant to any federal, state or local statute or regulation relating to
hazardous or toxic wastes or substances or the removal thereof ("Cleanup
Laws"); (b) claims of any private parties regarding violations of Cleanup
Laws; and (c) costs and expenses (including, without limitation, reasonable
attorneys' fees and fees incidental to the securing of repayment of such costs
and expenses) incurred by the Bank in connection with the removal of any such
lien or in connection with compliance by the Bank with any statute, regulation
or other issued pursuant to any Cleanup Laws by any local, state or federal
government or governmental agency or authority.
Section 5.8 Subsidiary Guarantees. Subject to the terms of Section
3.1(d), cause any Subsidiary acquired after the date hereof to execute and
deliver to the Bank a guarantee substantially in the form of the Guarantee
annexed hereto as Exhibit "B," within ten days after the acquisition thereof,
together with certified copies of the resolutions of the Board of Directors of
such Subsidiary authorizing the execution, delivery and performance thereof
with appropriate shareholder consents or approvals attached.
Section 5.9 Compliance with Law. Not be in violation of any laws,
ordinances, orders, judgments or decrees or governmental rules and regulations
to which it is subject and will not fail to maintain any licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its Properties or to the conduct of its business, if such violation or failure
to maintain might reasonably be expected to materially adversely affect the
Properties, business, prospects, operating results or condition (financial or
otherwise) of Record Town or the Company and its Subsidiaries, taken as a
whole.
Section 5.10 Maintenance of Office. The Company and Record Town each will
maintain an office in the state of New York where notices, presentations and
demands in respect of this Agreement or the Notes may be made upon it. Such
offices shall be maintained at 38 Corporate Circle, Albany, New York 12203
until such time as the Company shall notify the Bank of a change of location.
Section 5.11 Quarterly Meetings. Within thirty (30) days after the end of
each fiscal quarter of the Company, Robert J. Higgins, and such other
representatives of the Company as the Banks may request, shall make themselves
available at a reasonably convenient location to meet with representatives of
the Banks to discuss the Company's budget, business plan and other finances
and affairs of the Company, provided, however, that this requirement may be
waived with respect to any quarter by the Banks holding not less than
seventy-five percent (75%) of the Bank Outstandings.
<PAGE>
SECTION 6.
NEGATIVE COVENANTS
The Companies hereby covenant that so long as the Note or any amounts
owing in connection with the Letters of Credit or otherwise remain outstanding
and unpaid or so long as the Commitment remains unterminated, the Companies
will not, nor will they permit any Subsidiary to, directly or indirectly,
without the prior written consent of the Bank:
Section 6.1 Limitation of Indebtedness. Create, incur, assume or suffer
to exist, any indebtedness for borrowed money, or any indebtedness which
constitutes the deferred purchase price of any property or assets, except (a)
the Notes; (b) accounts payable (other than for borrowed money) incurred in
the ordinary course of business as presently conducted provided that the same
shall not be overdue or, if overdue, are being contested in good faith and by
appropriate proceedings; (c) indebtedness between wholly-owned Subsidiaries
and between any wholly-owned Subsidiary and the Company; (d) other
indebtedness owing by the Company or any Subsidiary on the date of this
Agreement and which was reflected on the balance sheet referred to in Section
4.8 hereof; (e) indebtedness to others incurred for the purpose of purchasing
equipment, to the extent permitted by Section 6.4, used or useful in the
ordinary course of the business of the Company or its Subsidiaries (provided
that the aggregate amount of all such indebtedness shall not exceed $2,000,000
in any Fiscal Year); and (f) the Insurance Company Debt.
Section 6.2 Limitation on Liens. (a) Create, incur, assume or suffer to
exist, any mortgage, pledge, lien, charge, security interest or encumbrance of
any kind upon any of its property or assets, income or profits, whether now
owned or hereafter acquired, except (i) the liens and security interests
existing as of the date of this Agreement referred to in the financial
statements referred to in Section 4.8 hereof, provided, however, that such
liens and security interests shall not spread to cover other or additional
indebtedness or property of the Company or any of its Subsidiaries; (ii) liens
for taxes not yet due or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Company or such Subsidiary, as the case may be,
in accordance with GAAP; (iii) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like liens arising in the ordinary course
of business for sums which are not overdue for a period of more than 30 days
or which are being contested in good faith and by appropriate proceedings;
(iv) pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation; (v) deposits to
secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course
of business; (vi) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the Property subject thereto or interfere
with the ordinary conduct of the business of the Company or the Subsidiaries;
(vii) purchase money liens and security interests securing indebtedness
permitted by Section 6.1(e) hereof, provided, however, that such liens and
security interests shall not encumber any assets of the Company other than the
equipment so purchased; and (viii) any rights of set off available to the
Bank.
(b) In case any Property is subjected to a Lien in violation of
Section 6.2(a), the Company will make or cause to be made provision whereby
the Note will be secured equally and ratably with all other obligations
secured thereby, and in any case the Note shall have the benefit, to the full
extent that, and with such priority as, the holders may be entitled thereto
under applicable law, or an equitable Lien on such Property securing the Note.
Such violation of Section 6.2(a) shall constitute an Event of Default
hereunder, whether or not any such provision is made pursuant to this Section
6.2(b).
<PAGE>
Section 6.3 Limitation on Contingent Obligations. Assume, guarantee,
indorse or otherwise in any way be or become responsible or liable for the
obligations of any Person (all such transactions being herein called
"guarantees"), whether by agreement to purchase or repurchase obligations, or
by agreement to supply funds for the purpose of paying, or enabling such
entity to pay, any obligations (whether through purchasing stock, making a
loan, advance or capital contribution or by means of agreeing to maintain or
cause such entity to maintain, a minimum working capital or net worth of any
such entity, or otherwise), except (a) guarantees by indorsement of
instruments for deposit or collection in the ordinary course of business; (b)
existing guarantees in respect of existing indebtedness of Subsidiaries,
provided that the indebtedness in respect of which such guarantees are given
is permitted by Section 6.1 hereof; and (c) guarantees of the obligations of
Subsidiaries (other than Record Town) under operating leases for retail
locations used by the Company or any Subsidiary in the ordinary course of
business provided that the aggregate exposure under such guarantees shall not
exceed $1,000,000 at any time.
Section 6.4 Limitation on Capital Expenditures. Subject to Section 6.9
hereof, make capital expenditures not to exceed the following amounts in the
following fiscal years:
Fiscal Year Amount
___________ ______
1995 $10,600,000
1996 6,000,000
Section 6.5 Prohibition of Fundamental Changes. Enter into any
transaction of merger or consolidation or liquidate or dissolve itself (or
suffer any liquidation or dissolution) or convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of related transactions,
all or a substantial part of its property, business, or assets, including its
accounts receivable, or stock or securities convertible into stock of any
Subsidiary, except that: (a) any Subsidiary may be voluntarily liquidated,
dissolved or merged into, or consolidated with, the Company (provided that the
Company shall be the continuing or surviving corporation) or with or into any
one or more wholly-owned Subsidiaries (provided that a wholly-owned Subsidiary
shall be the continuing or surviving corporation and shall continue to be
wholly-owned by the Company), and (b) any Subsidiary may sell, lease, transfer
or otherwise dispose of any of its assets to the Company or to a wholly-owned
Subsidiary.
Section 6.6 Limitations on Dividends and Stock Acquisitions. Declare or
pay any dividends or make any other distribution (whether in cash or property)
on any shares of its capital stock now or hereafter outstanding, or purchase,
redeem, retire or otherwise acquire for value any shares of its capital stock
or warrants or options therefor now or hereafter outstanding (all such
dividends, distributions, purchases and other actions being hereinafter
collectively called "Stock Payments") except that (a) a Subsidiary may make
Stock Payments and (b) the Company may declare stock splits and pay dividends
payable solely in shares of any class of its capital stock.
Section 6.7 Limitation on Investments, Loans and Advances. Make or suffer
to exist any advances or loans to, or investments (by way of transfers of
property, contributions to capital, acquisitions of stock, or securities or
evidences of indebtedness, acquisitions of businesses or acquisitions of
assets other than in the ordinary course of business, or otherwise) in, any
person, firm, corporation or other business entity, except (a) investments in
certificates of deposit issued by any of the Banks, provided, however, that
such certificates of deposit shall have a maturity of one year or less from
the date of purchase; (b) investments in direct obligations of the United
<PAGE>
States of America or any agency thereof, or marketable obligations directly
and fully guaranteed by the United States of America, or commercial paper,
provided, however, that any such obligations or commercial paper shall have a
maturity date of one year or less from the date of purchase and any such
commercial paper is rated "A-1" by Standard & Poors Corporation (or has a
similar rating by any similar nationally recognized organization which rates
commercial paper) and provided further, however, that such investments shall
be permitted solely at such times as there shall be no Loans outstanding under
this Agreement and all Letters of Credit shall be fully cash collateralized;
(c) investments in money market funds registered under the Investment Company
Act of 1940 which invest in securities which are permitted under clause (b)
above, provided, however, that such investments shall be permitted solely at
such times as there shall be no Loans outstanding under this Agreement and all
Letters of Credit shall be fully cash collateralized; and (d) loans and
advances by the Company to, and investments by the Company in the stock of,
any existing Subsidiary outstanding or in effect on the date hereof as set
forth on Exhibit E; (e) stock or obligations issued in settlement of claims
against any other person by reason of an event of bankruptcy or composition or
readjustment of debt or reorganization of any debtor of the Company or any
Subsidiary; (f) investments in financial instruments of the Bank; and (g)
investments of new capital in licensed operations and joint ventures in
specialty retailing in an aggregate amount not to exceed the sum of such
investments made prior to the date hereof plus $5,000,000.
Section 6.8 Prohibition of Certain Prepayments. Without the prior written
consent of the Bank, make any payments in any Fiscal Year in respect of the
principal of any debt, with a maturity of more than one year, for borrowed
money or for the deferred purchase price of property or services, except at
the stated maturity of the Insurance Company Debt or as required by mandatory
prepayment provisions relating thereto; provided, however, that the Company
shall be permitted to make additional prepayments of the Insurance Company
Debt but only to the extent that any such payment of the Insurance Company
Debt shall be accompanied by a reduction of the Commitment as provided in
Section 2.6 hereof.
Section 6.9 Limitation on Leases. Enter into any agreement, or be or
become liable under any agreement, for the lease, hire or use of any personal
property entered into in the ordinary course of business which would cause (a)
the sum of (x) the aggregate maximum amount of all obligations of the Company
and its Subsidiaries pursuant to such agreements plus (y) the aggregate
outstanding indebtedness permitted under Section 6.1(e) hereof to exceed (b)
$2,000,000 in any Fiscal Year. Anything contained in this Section 6.9 to the
contrary notwithstanding, this provision shall not apply to retail store
leases or leases required to be capitalized under generally accepted
accounting principles.
Section 6.10 Limitation on Sale and Leaseback. Enter into any arrangement
with any Person whereby the Company or any Subsidiary shall sell or transfer
any personal property, whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which the Company or such
Subsidiary intends to use for substantially the same purpose or purposes as
the property being sold or transferred.
<PAGE>
Section 6.11 Limitation on Current Ratio. Permit the ratio of current
assets to current liabilities of the Company to be less than 1.4 to 1.0 at the
end of each of the first, second and fourth quarterly periods of each Fiscal
Year and 1.25 to 1.0 at the end of the third quarterly period of each Fiscal
Year, excluding for purposes of such computation of current liabilities, the
Aetna Debt and the Note Agreement Debt. For all calculations herein, the
actual cash balance of the Company shall be reduced by the amount in excess of
$10,000 per retail store actually open for business on the date of such
computation. Such excess shall be applied to reduce accounts payable in the
pro forma computation of the Current Ratio under this Section 6.11.
Section 6.12 Maintenance of Consolidated Tangible Net Worth. Permit the
Consolidated Tangible Net Worth to be less than an amount equal to
$103,000,000 at the end of each of the first three quarterly periods of each
Fiscal Year and $112,000,000 at the end of each Fiscal Year.
Section 6.13 Limitation on Debt to Consolidated Tangible Net Worth.
Permit the ratio of (a) total liabilities to (b) Consolidated Tangible Net
Worth to exceed (i) 2.15 to 1.0 at the end of any Fiscal Year; (ii) 2.3 to 1.0
as of the end of the first quarterly period of any Fiscal Year; (iii) 2.5 to
1.0 as of the end of the second quarterly period of any Fiscal Year; or (iv)
3.0 to 1.0 as of the end of the third quarterly period of any Fiscal Year.
For all calculations herein, the actual cash balance shall be reduced by the
amount in excess of $10,000 per retail store actually open for business on the
date of such computation. Such excess shall be applied to reduce accounts
payable in the pro forma computation of Debt to Consolidated Tangible Net
Worth under this Section 6.13.
Section 6.14 Limitation on Inventory Turnover. Permit Inventory Turnover
to fall below the following amounts at the end of the following quarterly
periods of each Fiscal Year:
Fiscal Quarter Amount
_____________ ______
first .3
second .6
third .7
fourth 1.4
Section 6.15 No Amendment of Debt Instruments. Amend, modify or
supplement or permit or consent to any amendment, modification or supplement
of any of the terms of the other Bank Credit Agreements or the Insurance Debt
Restructuring Documents (other than any such amendment, modification or change
which would extend the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend the date for
payment of interest thereon).
Section 6.16 Maintenance of Accounts. Maintain any cash balances or cash
management accounts other than at one or more of the Banks, provided, however,
that the Company may continue to maintain, in a manner consistent with past
practices, existing store accounts at one or more other banks.
Notwithstanding anything to the contrary contained in the preceding sentence,
if another financial institution offers to provide cash management services to
the Company on terms more favorable than those offered by the Banks, the
Company shall provide the Banks with the opportunity to match such offer. If
none of the Banks choose to match such offer, the Company shall be permitted
to transfer its cash management account to the financial institution making
such offer.
<PAGE>
Section 6.17 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate
(other than the Company or any wholly-owned Subsidiary) unless such
transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Company's or such Subsidiary's business and (c) upon
fair and reasonable terms no less favorable to the Company or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate.
Section 6.18 Limitation on Changes in Fiscal Year. Permit the Fiscal Year
of the Company to end on a day other than the Saturday closest to the last day
of January or change the Company's method of determining fiscal quarters.
Section 6.19 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in
which the Company and its Subsidiaries are engaged on the date of this
Agreement or which are reasonably related thereto.
Section 6.20 Minimum Consolidated EBITDA. Permit Consolidated EBITDA to
be less than the following amounts for any of the following periods:
For the period from January
29, 1995 to April 29, 1995 ($1,000,000)
For the period from January
29, 1995 to July 29, 1995 ($2,000,000)
For the period from January
29, 1995 to October 28, 1995 ($2,000,000)
For the period from January
29, 1995 to February 3, 1996 $24,000,000
For the period from February
4, 1996 to May 4, 1996 ($1,000,000)
Section 6.21 Limitation on Material Asset Sales. Enter into a contract
for or consummate a Material Asset Sale.
Section 6.22 Maintenance of Ownership. At any time fail to directly or
indirectly own, free and clear of all Liens (except as otherwise permitted by
Section 6.2(a)), 100% of the outstanding capital stock of Record Town.
Section 6.23 Tangible Net Worth of Record Town. Permit Record Town and
Record Town's subsidiaries to maintain, at any time, Tangible Net Worth of
less than $60,000,000 for each of the first three quarterly periods of each
Fiscal Year and $70,000,000 at the end of each Fiscal Year.
Section 6.24 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.
Section 6.25 Limitations on Preferred Stock. Issue, or permit Record Town
or any other Restricted Subsidiary to issue, any Preferred Stock which by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable) is exchangeable for debt at the option of the holder
thereof on or prior to July 31, 2000.
Section 6.26 New Stores and Leases. (i) Open or permit any Restricted
Subsidiary to open, any new store other than relocations and the 22 new
stores, in each case, to the extent specifically provided for during the
<PAGE>
period from the Effective Date through July 31, 1996 in the Company's business
plan as presented to the Banks on January 26, 1995, or (ii) enter or permit
any Restricted Subsidiary to enter into any lease in connection with or for
the purpose of opening any new store other than the 17 new leases specifically
provided for during the period from the Effective Date through July 31, 1996
in the Company's business plan as presented to the Banks on January 26, 1995,
provided, however, that in the ordinary course of business the Company and
Record Town may enter into renewals of existing store leases.
Section 6.27 Fixed Charge Ratio. Maintain, at the end of each of the
first, second and third quarterly periods of each Fiscal Year, Consolidated
Income Available for Fixed Charges of less than 120% of Consolidated Fixed
Charges for the immediately preceding 12 month period and, at the end of the
Fiscal Year then ending, Consolidated Income Available for Fixed Charges of
less than 115% of Consolidated Fixed Charges for the immediately preceding 12
month period.
SECTION 7.
EVENTS OF DEFAULT
Section 7.1 Events of Default. Upon the occurrence of any of the
following:
(a) failure by the Companies to pay the principal of the Note or the
principal amount of any obligations of the Companies in respect of any Letters
of Credit, when due, or failure to pay any interest on the Note or any fee
within five Business Days after any such interest or fee becomes due or
failure to pay any other obligation of the Companies to the Bank when due,
inclusive of any applicable grace or other cure period;
(b) if any representation or warranty made by the Companies in this
Agreement or in any certificate, financial or other statement furnished at any
time under or in connection with this Agreement shall prove to have been
incorrect, untrue or misleading in any material respect when made;
(c) default by the Company in the observance or performance of any
covenant or agreement contained in Section 5.1, Section 5.3, Section 5.4,
Section 5.8, or Section 6 of this Agreement;
(d) default by the Company in the observance or performance of any
other covenant or agreement contained in this Agreement and the continuance of
the same for 30 days after notice of such default is given the Company by the
Bank;
(e) if the Company or any Subsidiary shall (i) default in the payment
of principal or interest on any obligation for borrowed money that has an
outstanding balance of over $500,000 (other than the Note), or for the
deferred purchase price of property that has an outstanding balance of over
$500,000, in each case beyond the period of grace, if any, provided with
respect thereto; (ii) default in the payment of principal or interest on any
obligations for borrowed money or for the deferred purchase price of property,
in each case beyond the period of grace, if any, if the aggregate principal
amount of such obligations in default at any one time exceeds $2,000,000; or
(iii) default in the performance or observance of any other term, condition or
agreement contained in any such obligation or in any agreement relating
thereto if the effect thereof is to cause or permit the holder or holders of
such obligation (or a trustee on behalf of such holder or holders) to cause,
such obligation to become due prior to its stated maturity;
<PAGE>
(f) (i) the Company or any of its Significant Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution, composition or other relief with respect to it or its debts, or
(B) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its property, or the
Company or any of its Significant Subsidiaries shall make a general assignment
for the benefit of its creditors; or (ii) there shall be commenced against the
Company or any of its Significant Subsidiaries any case, proceeding or other
action of a nature referred to in clause (i) above or seeking issuance of a
warrant of attachment, execution, distraint or similar process against all or
any substantial part of its property, which case, proceeding or other action
(x) results in the entry of any order for relief or (y) remains undismissed,
undischarged or unbonded for a period of 45 days; or (iii) the Company or any
of its Significant Subsidiaries shall take any action indicating its consent
to, approval of, or acquiescence in, or in furtherance of, any of the acts set
forth in its clause (i) or (ii) above; or (iv) the Company or any of its
Significant Subsidiaries shall generally not, or shall be unable to, pay its
debts as they become due or shall admit in writing its inability to pay its
debts;
(g) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a
Reportable Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of the
Bank, likely to result in the termination of such Plan for purposes of Title
IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or
is, in the reasonable opinion of the Bank, likely to, incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or exist
with respect to a Plan; and in each case in clauses (i) through (vi) above,
such event or condition, together with all other such events or conditions, if
any, could subject the Company or any of its Subsidiaries to any tax, penalty
or other liabilities in the aggregate material in relation to the business,
operations, property or financial or other condition of the Company;
(h) final judgment for the payment of money in excess of $500,000
(other than the insured claims) shall be rendered against the Company or any
Significant Subsidiary and the same shall remain undischarged or unbonded for
the period of 30 days during which execution of such judgment shall not be
effectively stayed;
(i) default by any Guarantor upon its Guarantee of the Note pursuant
to the terms thereof or if any such Guarantee shall cease to be in full force
and effect or shall be declared to be null and void; or
(j) an Event of Default shall occur under any one or more of the
Insurance Company Restructuring Documents whether or not such Event of Default
is waived by Aetna or the Noteholders; or
(k) a Change of Control;
<PAGE>
then (i) if such event is an event specified in paragraph (f) above, then the
Commitment shall immediately terminate and the Note and all obligations of the
Company with respect to the Letters of Credit, together with accrued interest
thereon shall be immediately due and payable without notice or demand and (ii)
if such event is any other such event specified above the Bank may declare, by
notice to the Companies, the Commitment immediately terminated and the Note,
and all obligations of the Companies with respect to the Letters of Credit, to
be forthwith due and payable, whereupon the Commitment shall be immediately
terminated and the principal amount of the Note and all obligations of the
Companies with respect to the Letters of Credit, together with accrued
interest thereon and accrued fees, shall become immediately due and payable
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived, anything contained herein, in the Note, or
the Applications to the contrary notwithstanding. The Bank may exercise and
enforce any and all other rights and remedies available to it, whether arising
under this Agreement or the Notes or under applicable law, in any manner
deemed appropriate by the Bank, including suit in equity, action at law, or
other appropriate proceedings, whether for the specific performance (to the
extent permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or in aid of the exercise of any power granted in
this Agreement or the Notes.
SECTION 8.
MISCELLANEOUS
Section 8.1 Limited Role of Bank. The relationship between the Companies
and the Bank shall be solely that of borrower and lender, respectively. The
Bank shall not have any fiduciary responsibilities to the Companies under the
Loan Documents and no joint venture exists between the Companies and the Bank.
The Companies and the Bank each hereby severally acknowledge that there are no
representations, warranties, covenants, undertakings or agreements by the
parties hereto as to the Loan Documents except as specifically provided herein
and therein.
Section 8.2 Choice of Law Construction. The Loan Documents (other than
those containing a contrary express choice of law provision) shall be
construed in accordance with the internal laws (without reference to the law
of conflicts) of the State of New York. If any provision of the Loan
Documents shall be or become unenforceable or illegal under any law, the other
provisions shall remain in full force and effect.
Section 8.3 Consent to Jurisdiction. (a) The Companies hereby irrevocably
submit to the nonexclusive jurisdiction of any United States federal or New
York State court sitting in New York City and/or Albany, New York in any
action or proceedings arising out of or relating to any Loan or proceedings
arising out of or relating to any Loan Documents and the Companies hereby
irrevocably agree that all claims in respect of such action or proceedings may
be heard and determined in any court and irrevocably waive any objection they
may now or hereafter have as to the venue of any such action or proceeding
brought in such a court or the fact that such court is an inconvenient forum.
(b) The Companies irrevocably and unconditionally consent to the
service of process in any such action or proceedings in any of the aforesaid
courts by the mailing of copies of such process to it, by certified or
registered mail at its address specified in Section 8.5.
<PAGE>
Section 8.4 WAIVER OF JURY TRIAL. THE BANK AND THE COMPANIES, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER THE BANK NOR THE COMPANIES SHALL
SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE BANK OR THE COMPANIES EXCEPT BY
A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
Section 8.5 Notices. (a) Except as otherwise provided in Section 2.4
hereof, all notices and other communications hereunder shall be in writing and
shall be delivered or sent to the Companies at:
38 Corporate Circle
Albany, New York 12203
Facsimile no. (518) 869-4819
Attention: Robert J. Higgins,
with a copy to
Matthew H. Mataraso
111 Washington Avenue
Albany, New York 12210
Facsimile no. (518) 449-5812
and to the Bank at:
Chase Manhattan Bank, N.A.
One Chase Square
New York, NY 14643
Attention: Roger Odell, Vice President
or to such other address as may be designated by the Companies or the Bank by
notice to the other parties hereto. All notices and other communications
shall be deemed to have been given at the time of actual delivery thereof to
such address, or if sent by certified or registered mail, postage prepaid, to
such address, on the third Business Day after the date of mailing, or, if sent
by Federal Express or other recognized overnight deliver service, prepaid, to
such address, on the Business Day following the date of deposit with such
delivery service prior to such service's next day delivery deadline.
(b) Notice by the Companies to the Bank with respect to terminations
or reductions of the Commitment pursuant to Section 2.6, requests for Loans
pursuant to Section 2.4, and notices of prepayment pursuant to Section 2.7
shall be irrevocable and binding on the Companies.
(c) Any notice to be given by the Companies to the Bank pursuant to
Section 2.4 may be given by telephone and all such notices shall be confirmed
in writing in the manner provided in Section 8.5(a). Any such confirmation
may be communicated to the Bank via facsimile at the number set forth in
Section 8.5(a). Any such notice given by telephone shall be deemed effective
upon receipt thereof by the party to whom such notice is to be given.
Section 8.6 Entire Agreement; No Waiver; Cumulative Remedies; Amendments;
Setoff; Counterparts. (a) This Agreement and the other Loan Documents
constitute the entire agreement among the parties hereto and thereto as to the
subject matter hereof and thereof and supersede any previous agreement, oral
or written, as to such subject matter.
<PAGE>
(b) No failure to exercise and no delay in exercising, on the part of
the Bank, any right, power or privilege hereunder or under the Note, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law. No modification, or waiver of any provision of this
Agreement, the Applications, or the Note, nor consent to any departure by the
Company from the provisions hereof or thereof, shall be effective unless the
same shall be in writing from the Bank and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which it is
given. No notice to the Companies shall entitle the Companies to any other or
further notice in other or similar circumstances unless expressly provided for
herein. No course of dealing between the Companies and the Bank shall operate
as a waiver of any of the rights of the Bank under this Agreement, the
Applications or the Note.
(c) In addition to any rights or remedies of the Bank provided by law,
upon the occurrence of any Event of Default, the Bank is hereby authorized,
without notice to the Companies, to setoff and appropriate and apply all
deposits (general and special) and other indebtedness at any time held or
owing by the Bank to or for the credit or the account of the Companies against
and on account of all obligations, liabilities and claims of the Companies to
the Bank or any of the Other Banks, and in such amounts as the Bank may elect,
although such obligations, liabilities and claims may be contingent or
unmatured.
(d) This Agreement may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument.
Section 8.7 Reference to Subsidiaries and Guarantors. If the Company has
no Subsidiaries, and/or if there are no guarantors, then the provisions of
this Agreement relating to Subsidiaries shall be deemed surplusage without
affecting the applicability of the provisions of this Agreement to the Company
alone.
Section 8.8 Captions. The captions of the various sections and
subsections of this Agreement have been inserted only for the purposes of
convenience, and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement.
Section 8.9 Exhibits and Schedules. The exhibits and Schedules hereto
shall constitute integral parts of this Agreement.
Section 8.10 Payment of Fees. The Company agrees to pay all costs and
expenses of the Bank in enforcing or preserving any of the rights and remedies
available to the Bank under this Agreement, the Note, any Letters of Credit,
any Applications, or under any other documents, instruments or writings
executed and delivered to the Bank in connection herewith including, without
limitation, reasonable legal fees, costs and disbursements.
Section 8.11 Survival of Agreements. All agreements, representations and
warranties made herein and in any certificates delivered pursuant hereto shall
survive the execution and delivery of this Agreement, the Note, and the making
and renewal of Loans hereunder, and shall continue in full force and effect
until such indebtedness of the Company under the Note has been paid in full.
Section 8.12 Successors and Assigns. (a) This Agreement shall be binding
upon and inure to the benefit of the Companies and the Bank and their
respective successors and assigns, except that the Companies may not transfer
or assign any of their rights or interests hereunder without the prior written
consent of the Bank.
<PAGE>
(b) The Bank may, without the consent of the Company or the other
Banks, in the ordinary course of its commercial banking business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("Participants") participating interests in the Loans, the Note, the
Commitment or any other interest of the Bank hereunder and under the other
Loan Documents ("Participations"); provided that (i) any such sale of
participating interests must be in a minimum amount equal to the lesser of (A)
$1,000,000 and (B) the Commitment then in effect, and (ii) after giving effect
to any such sale, the Bank must have either (x) retained at least $1,000,000
of the Commitment not subject to any participating interests or (y) sold
participating interests to Participants (or assignments to Assignees) in 100%
of its Loans and the Commitment. In the event of any such sale by the Bank of
a Participation, the Bank's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, the Bank shall remain solely
responsible for the performance thereof, the Bank shall remain the holder of
the Note for all purposes under this Agreement and the other Loan Documents,
and the Companies shall continue to deal solely and directly with the Bank in
connection with the Bank's rights and obligations under this Agreement and the
other Loan Documents. Each of the Companies agree that if amounts outstanding
under this Agreement and the Note are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event
of Default, each Participant shall be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement
and any Note to the same extent as if the amount of its Participation were
owing directly to it as the Bank under this Agreement of the Note. Each of
the Parent and the Borrower also agrees that each Participant shall be
entitled to the benefits of Section 2.9 with respect to its Participation in
the Commitment and the Loans outstanding from time to time as if it were the
Bank; provided, that no Participant shall be entitled to receive any greater
amount pursuant to such Section than the Bank would have been entitled to
receive in respect of the amount of the Participation transferred to such
Participant had not such transfer occurred.
(c) The Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time, assign to either (1) any other bank or financial institution having
capital surplus of at least $300,000,000 or (2) with the consent of the
Company and each of the Other Banks, which consent shall not be unreasonably
withheld or delayed, to any other Person (in each case, an "Assignee") all or
any part of its rights and obligations under this Agreement and the Note;
provided that (i) any such assignment must be in a minimum amount equal to the
lesser of (x) $1,000,000 and (y) the Commitment, and (ii) after giving effect
to any such assignment, the Bank shall have either (x) sold all its rights and
obligations hereunder and under the Note or (y) retained at least $1,000,000
of the Commitment. The Bank shall notify the Company of each assignment and
the identity of each Assignee. Upon notification to the Companies of an
assignment, from and after the effective date of such assignment, (1) the
Assignee thereunder shall be a party hereto and have the rights and
obligations of the Bank hereunder with a Commitment as set forth therein and
(2) the Bank shall, to the extent provided in such assignment, be released
from its obligations under this Agreement (and, in the case of an assignment
covering all or the remaining portion of the Bank's rights and obligations
under this Agreement, the Bank shall cease to be a party hereto; provided that
the provisions of Section 2.9 and Section 8.6 shall continue to benefit such
assigning Lender to the extent required by such Sections).
<PAGE>
(d) Each of the Companies authorizes the Bank to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
any and all financial information in the Bank's possession concerning the
Companies and their respective Affiliates which has been delivered to the Bank
by or on behalf of the Companies pursuant to this Agreement or which has been
delivered to the Bank by or on behalf of the Companies in connection with the
Bank's credit evaluation of the Companies and their respective Affiliates
prior to becoming a party to this Agreement.
(e) Nothing herein shall prohibit the Bank from pledging or assigning
the Note to any Federal Reserve Bank in accordance with applicable law.
Section 8.13 Interest. Anything in this Agreement or in the Note to the
contrary notwithstanding, the Bank shall not charge, take or receive, and the
Companies shall not be obligated to pay, interest in excess of the maximum
rate from time to time permitted by applicable law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
(Corporate Seal)
TRANS WORLD ENTERTAINMENT CORP.
______________________ By:____________________________
Attest Robert J. Higgins,
President
(Corporate Seal) RECORD TOWN, INC.
______________________ By:____________________________
Attest Robert J. Higgins,
President
CHASE MANHATTAN BANK, N.A.
______________________ By:____________________________
Attest Name: Roger A. Odell
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS, AND THE CONSOLIDATED STATEMENTS OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<CIK> 0000795212
<NAME> TRANS WORLD ENTERTAINMENT CORPORATION
<MULTIPLIER> 1,000
<CAPTION>
Amount
Item Description (in thousands, except per share data)
----------------- -------------------------------------
<S> <C>
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JUL-29-1995
<PERIOD-TYPE> 6-MOS
<CASH> 8,248
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 207,640
<CURRENT-ASSETS> 238,119
<PP&E> 176,137
<DEPRECIATION> 88,041
<TOTAL-ASSETS> 331,573
<CURRENT-LIABILITIES> 150,909
<BONDS> 66,327
0
0
<COMMON> 97
<OTHER-SE> 109,165
<TOTAL-LIABILITY-AND-EQUITY> 331,573
<SALES> 216,204
<TOTAL-REVENUES> 216,204
<CGS> 141,235
<TOTAL-COSTS> 141,235
<OTHER-EXPENSES> 84,646
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,319
<INCOME-PRETAX> (16,996)
<INCOME-TAX> (6,781)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,215)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
