<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 AUGUST 3, 1996
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, 9,740,314 shares outstanding as of September 7,
1996
- -----------------------------------------------------------------------------
<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 -- August 3, 1996,
February 3, 1996 and July 29, 1995 3
Condensed Consolidated Statements of Income -- Thirteen
Weeks and Twenty-Six Weeks Ended August 3, 1996
and July 29, 1995 4
Condensed Consolidated Statements of Cash Flows --
Twenty-Six Weeks Ended August 3, 1996 and July 29, 1995 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
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
August 3, February 3, July 29,
1996 1996 1995
-------- ----------- --------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 7,783 $ 86,938 $ 8,248
Merchandise inventory 168,718 194,577 207,640
Refundable income taxes --- 8,308 ---
Deferred tax asset 8,465 8,465 9,596
Other current assets 12,069 11,008 12,635
-------- -------- --------
Total current assets 197,035 309,296 238,119
-------- -------- --------
VIDEOCASSETTE RENTAL INVENTORY, NET 7,163 6,722 7,762
DEFERRED TAX ASSET 430 430 505
FIXED ASSETS:
Property, plant and equipment 169,273 171,716 176,137
Less: Fixed asset write-off reserve 10,430 12,324 6,934
Accumulated depreciation
and amortization 93,401 89,391 88,041
-------- -------- --------
65,442 70,001 81,162
-------- -------- --------
OTHER ASSETS 3,525 3,882 4,025
-------- -------- --------
TOTAL ASSETS $273,595 $390,331 $331,573
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 76,517 $131,302 $ 70,778
Notes payable 19,813 65,260 65,214
Accrued expenses and other 7,686 6,266 5,360
Store closing reserve 17,152 24,275 5,374
Current portion of long-term
debt and capital leases 5,465 3,420 4,183
-------- -------- --------
Total current liabilities 126,633 230,523 150,909
-------- -------- --------
LONG-TERM DEBT, less
current portion 46,024 53,770 59,716
CAPITAL LEASE OBLIGATIONS,
less current portion 6,553 6,594 6,611
OTHER LIABILITIES 5,300 5,340 5,075
-------- -------- --------
TOTAL LIABILITIES 184,510 296,227 222,311
-------- -------- --------
SHAREHOLDERS' EQUITY
Common stock ($.01 par value;
20,000,000 shares authorized;
9,781,708, 9,731,208 and
9,731,208 issued, respectively) 98 97 97
Additional paid-in capital 24,413 24,236 24,236
Treasury stock, at cost (41,394,
48,394 & 48,394 shares,
respectively) (407) (503) (503)
Unearned compensation - restricted stock (162) --- ---
Retained earnings 65,143 70,274 85,432
-------- -------- --------
Total shareholders' equity 89,085 94,104 109,262
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $273,595 $390,331 $331,573
======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
August 3, July 29,
1996 1995
-------- --------
<S> <C> <C>
Sales $96,717 $104,292
Cost of sales 62,101 68,977
-------- --------
Gross profit 34,616 35,315
Selling, general and administrative expenses 31,666 37,558
Depreciation and amortization 3,527 4,110
-------- --------
Loss from operations (577) (6,353)
Interest expense 3,106 3,845
-------- --------
Loss before income tax benefit (3,683) (10,198)
Income tax benefit (1,291) (4,069)
-------- --------
NET LOSS ($2,392) ($6,129)
======== ========
LOSS PER SHARE ($0.25) ($0.63)
======== ========
Weighted average number of common
shares outstanding 9,739 9,733
======== ========
Twenty-Six Weeks Ended
-----------------------
August 3, July 29,
1996 1995
-------- --------
<S> <C> <C>
Sales $203,339 $216,204
Cost of sales 131,554 141,235
-------- --------
Gross profit 71,785 74,969
Selling, general and administrative expenses 66,363 76,291
Depreciation and amortization 7,180 8,355
-------- --------
Loss from operations (1,758) (9,677)
Interest expense 6,143 7,319
-------- --------
Loss before income tax benefit (7,901) (16,996)
Income tax benefit (2,770) (6,781)
-------- --------
NET LOSS ($5,131) ($10,215)
======== ========
LOSS PER SHARE ($0.53) ($1.05)
======== ========
Weighted average number of common
shares outstanding 9,737 9,726
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------
August 3, July 29,
1996 1995
-------- --------
<S> <C> <C>
NET CASH USED BY OPERATING ACTIVITIES ($26,812) ($65,513)
------- -------
INVESTING ACTIVITIES:
Acquisition of property and equipment (2,951) (3,758)
Purchases of videocassette rental
inventory, net of amortization (441) (290)
------- -------
Net cash used by investing activities (3,392) (4,048)
------- -------
FINANCING ACTIVITIES:
Net increase (decrease) in revolving line of credit (45,447) (9,733)
Payments of long-term debt and capital
lease obligations (3,520) (2,549)
Other 16 ---
------- -------
Net cash used by financing activities (48,951) (12,282)
------- -------
Net decrease in cash and cash equivalents (79,155) (81,843)
Cash and cash equivalents, beginning of period 86,938 90,091
------- -------
Cash and cash equivalents, end of period $ 7,783 $ 8,248
======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<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 February 3,
1996.
Note 2. Restructuring Reserve
The Company recorded a pre-tax restructuring charge of $35 million in 1995
to reflect the anticipated costs associated with a program to close 163 stores
through the first quarter of 1997. This charge is in addition to a $21
million restructuring charge recorded in fiscal 1994 to reflect the costs
associated with the closing of 179 stores (versus a plan of 143). The
restructuring charge includes 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 includes estimated legal, lender, and consulting fees, including
those that the Company was obligated to pay on behalf of its lenders while it
worked to renegotiate its credit agreements.
<PAGE>
<TABLE>
<CAPTION>
Total costs charged to the restructuring reserves during the first half of
1996 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)
<S> <C> <C> <C> <C>
Non-cash write-offs $13,906 $ 1,810 $ 1,139 $10,957
Cash outflows 22,693 2,300 3,768 16,625
------------------------------------------
Total $36,599 $ 4,110 $ 4,907 $27,582
==========================================
</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.
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is an analysis of the Company's results of operations, liquidity
and capital resources. To the extent that such analysis contains statements
which are not of a historical nature, such statements are forward-looking
statements, which involve risks and uncertainties. These risks include, but
are not limited to, changes in the competitive environment for the Company's
products, including the entry or exit of non-traditional retailers of the
Company's products to or from its markets; the release by the music industry
of an increased or decreased number of "hit releases"; general economic
factors in markets where the Company's products are sold; and other factors
discussed in the Company's filings with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Thirteen Weeks Ended August 3, 1996 (Second Quarter 1996) Compared to Thirteen
Weeks Ended July 29, 1995 (Second Quarter 1995)
- ------------------------------------------------------------------------------
Sales. The Company's total sales declined $7.6 million or 7.3% for the
second quarter ended August 3, 1996 compared to the second quarter ended July
29, 1995. The decrease in sales is due to the Company operating approximately
20% fewer stores offset by a comparable store sales increase of 3.4%. During
the past 12 months, the Company opened 2 stores and closed 119 stores,
resulting in a 347,000 net decrease in square footage to 2.0 million square
feet in operation.
Comparable store sales in the mall division increased 1.9% and comparable
store sales in the non-mall division increased 8.0%. The Company's video
rental stores had a 1.0% comparable sales decline.
Gross Profit. Gross profit as a percentage of sales increased to 35.8% in
the second quarter ended August 3, 1996, from 33.9% in the second quarter
ended July 29, 1995. The increase in the gross margin rate is due to an
improved merchandise mix, offset in part by increased merchandise shrink.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") as a percentage of sales decreased to 32.7%
in the second quarter of 1996, from 36.0% in the second quarter of 1995. The
increase in comparable store sales, closing of underperforming stores and
receipt of $2.5 million upon the termination of a business development
agreement led to the $5.9 million decrease in SG&A expenses.
Interest Expense. Interest expense decreased $0.7 million in the second
quarter ended August 3, 1996 compared to the second quarter ended July 29,
1995 due to a decrease in the weighted average outstanding borrowings
partially offset by an increase in the Company's weighted average interest
rates.
Net Loss. The $2.4 million net loss for the second quarter ended August
3, 1996 compares to a $6.1 million net loss in the second quarter ended July
29, 1995. The $3.7 million reduction in the loss for the quarter is due to
the comparable store sales increase, higher gross margin rate, lower SG&A
expenses and lower interest expense.
<PAGE>
Twenty-Six Weeks Ended August 3, 1996 Compared to Twenty-Six Weeks Ended July
29, 1995
- ------------------------------------------------------------------------------
Sales. The Company's sales decreased by $12.9 million or 6.0% in the
first half of 1996 compared to the first half of 1995 while the Company
operated approximately 20% fewer stores. During the first half of the year,
comparable store sales increased 4.8%.
Gross Profit. Gross profit as a percentage of sales increased to 35.3% in
the second quarter ended August 3, 1996, from 34.7% in the second quarter
ended July 29, 1995. The increase in the gross margin rate is due to an
improved merchandise mix, offset in part by increased merchandise shrink.
Selling, General and Administrative Expenses. SG&A as a percentage of
sales decreased to 32.6% in the first half of 1996 from 35.3% in the first
half of 1995. The $9.9 million decrease in SG&A was due to the increase in
comparable store sales, closing of underperforming stores and receipt of $2.5
million upon the termination of a business development agreement.
Interest Expense. Interest expense decreased $1.2 million in the first
half of 1996 compared to the first half of 1995. The decrease was due to a
decrease in the weighted average outstanding borrowings partially offset by an
increase in the Company's weighted average interest rates.
Net Loss. The $5.1 million net loss for the first half of 1996 compares
to a $10.2 million net loss in the first half of 1995. The $5.1 million
reduction in the loss for the first half is due to the comparable store sales
increase, higher gross margin rate, lower SG&A expenses and lower interest
expense.
<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 were financed through
borrowings under the Company's revolving credit facilities, which permit
aggregate borrowings of up to $61.2 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 volume at this time of year.
During the first half of 1996 the Company's cash flow used by operations was
$26.8 million, compared to $65.5 million in the first half of 1995. The most
significant uses of cash in the period were the $54.8 million in normal
reductions of accounts payable and $6.1 million of expenditures relating to
the Company's underperforming store closing program. Cash flow from the
reduction of merchandise inventory was $25.9 million in the first half of
1996.
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 1996 and through the first half of fiscal 1997,
inventory reduction will continue due to the additional store closings. The
Company is currently in compliance with all covenants under its credit and
long-term note agreements as of and for the period ended August 3, 1996.
CAPITAL EXPENDITURES
During the second quarter of 1996, the Company had capital expenditures of
$2.2 million. Total capital expenditures for the first half of 1996 were $3.0
million out of a planned fiscal 1996 capital expenditure budget of
approximately $12.0 million, net of construction allowances. During the first
half of 1996 two stores were relocated and no new stores were opened. Capital
expenditures and new store growth will continue to be curtailed throughout
1996 while management's strategy continues to be focused on closing
underperforming stores and reducing outstanding debt.
<PAGE>
PROVISION FOR BUSINESS RESTRUCTURING
During the fourth quarter of 1995 the Company undertook a comprehensive
examination of store profitability and adopted a second business restructuring
plan which when combined with the 1994 restructuring charge included closing
over 300 stores out of 700 stores in operation during 1994. Management
concluded that select retail entertainment markets had begun to reflect an
overcapacity of retail outlets, and large discount-priced electroncis stores
and other superstores were having an adverse impact on certain of the
Company's retail stores. This resulted in the Company recording a $35 million
pre-tax restructuring charge in 1995. The components of the restructuring
charge included approximately $24 million in reserves for future cash outlays
and approximately $11 million in asset writedowns. The cash outflows will be
financed from operating cash flows and liquidation of merchandise inventory
from the stores identified for closure. The timing of the store closures will
depend on the Company's ability to negotiate reasonable lease termination
agreements. Management will continually review the opportunity to accelerate
the closing of underperforming stores.
Twenty-six stores were closed in the second quarter of 1996, bringing the
total number of closures to 222 through the end of the second quarter of 1996.
Annual sales associated with the stores closed in the second quarter of 1996
totaled $13.1 million in 1995. Because the remaining store closures will be
phased out over 1996 and 1997, the Company will not receive most of the
earnings or cash flow benefits from the restructuring program until fiscal
1997.
<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 1996 Annual Meeting of Shareholders was held on June 5,
1996. At the meeting, all of management's nominees for directors were
elected to the Board of Directors.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(A) Exhibits
Exhibit No. Description Page No.
----------- ----------- --------
4.1 Amended and Restated Note Agreement among the Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Oaktree
Capital Management, LLC, as agent and on behalf of certain
funds and accounts, Fernwood Associates, L.P., Fernwood
Restructuring, Ltd. and Internationale Nederlanden (U.S.)
Capital Corporation
4.2 Amended and Restated Note Agreement among the Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4.3 Form of Amended and Restated Revolving Credit Agreement
entered into among the Company and each of NBD Bank, Bear,
Stearns & Co., Inc., Banco Santander Trust & Banking
Corporation (Bahamas) Ltd. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated
(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.
<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 17, 1996 By: /s/ ROBERT J. HIGGINS
---------------------
Robert J. Higgins
President and Director
(Principal Executive Officer)
September 17, 1996 By: /s/ JOHN J. SULLIVAN
--------------------
John J. Sullivan
Senior Vice President - Finance
Chief Financial Officer
(Chief Financial and
Accounting Officer)
TRANS WORLD ENTERTAINMENT CORPORATION
and
RECORD TOWN, INC.
AMENDED AND RESTATED
NOTE AGREEMENT
Dated as of July 26, 1996
$41,331,412.90
Variable Rate Senior Notes, Series A, Due July 31, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. THE NOTES 1
1.1 Background. 1
1.2 Authorization of Amendment and Restatement. 2
1.3 Amendment and Restatement. 3
1.4 Acquisition for Investment. 3
1.5 Failure of Conditions. 3
1.6 Expenses; Issue Taxes. 4
1.7 Restructuring Fee 5
2. WARRANTIES AND REPRESENTATIONS 5
2.1 Subsidiaries. 5
2.2 Corporate Organization and Authority. 5
2.3 Business, Property, Debt, Liens and Restrictions. 6
2.4 Financial Statements; Material Adverse Change. 6
2.5 Full Disclosure. 7
2.6 Pending Litigation; Compliance with Law. 7
2.7 Title to Properties. 7
2.8 Patents and Trademarks. 7
2.9 Sale of Notes is Legal and Authorized;
Obligations are Enforceable. 8
2.10 No Defaults. 8
2.11 Governmental Consent. 8
2.12 Taxes. 9
2.13 Margin Securities. 9
2.14 ERISA. 9
2.15 Company Actions. 9
2.16 Restated Credit Agreement; Restated Series B
Note Agreement 10
2.17 Movies Plus, Inc 10
3. CLOSING CONDITIONS 10
3.1 Opinions of Counsel. 11
3.2 Compliance with this Agreement. 11
3.3 Private Placement Number. 11
3.4 Execution and Delivery of this Agreement and
the Notes. 11
3.5 Restated Credit Agreement. 11
3.6 Restated Series B Note Agreement. 12
3.7 Intercreditor Agreement. 12
3.8 Restructuring Fee. 12
3.9 Expenses. 12
3.10 Interest on Existing Notes. 12
3.11 Subsidiary Guaranties. 13
3.12 Collateral Trust Indenture and Other
Security Documents. 13
3.13 Movies Plus Subordination 13
3.14 Representations And Warranties True 14
3.15 Authorization of Transactions 14
<PAGE>
3.16 Proceedings Satisfactory 14
4. DIRECT PAYMENT 14
5. REPAYMENTS 14
5.1 Mandatory Early Repayments. 14
5.2 Early Repayment Option. 15
5.3 Notice of Optional Repayment. 16
5.4 Repayment Upon Change of Control. 16
5.5 Repayment Upon Material Asset Sale or Tax Refund. 16
5.6 Repayment from Excess EBITDA 17
5.7 Partial Early Payments To Be Pro Rata 18
6. REGISTRATION; SUBSTITUTION OF NOTES 18
6.1 Registration of Notes. 18
6.2 Exchange of Notes. 18
6.3 Replacement of Notes. 19
7. COMPANY BUSINESS COVENANTS 19
7.1 Payment of Taxes and Claims. 19
7.2 Maintenance of Properties and Corporate Existence. 19
7.3 Maintenance of Office. 20
7.4 Liens and Encumbrances. 20
7.5 Limitations On Debt Incurrence; Prepayments
and Amendments. 22
7.6 Subsidiary Debt. 23
7.7 Current Ratio. 23
7.8 Maintenance of Ownership. 23
7.9 Fixed Charge Ratio. 23
7.10 Tangible Net Worth. 24
7.11 Tangible Net Worth of Record Town 24
7.12 Distributions and Investments. 24
7.13 Sale of Property and Subsidiary Stock. 25
7.14 Merger and Consolidation. 25
7.15 Guaranties. 25
7.16 ERISA Compliance. 25
7.17 Transactions with Affiliates. 26
7.18 Tax Consolidation. 26
7.19 Acquisition of Notes. 26
7.20 Lines of Business. 26
7.21 Required Subsidiary Guaranties. 26
7.22 Limitations on Preferred Stock. 26
7.23 Limitation on Inventory Turnover 27
7.24 Maintenance of Consolidated EBITDA. 27
7.25 Limitation on Capital Expenditures 27
7.26 Limitation on Leases 27
7.27 Limitation on Sale and Leaseback 27
7.28 Limitation on Changes in Fiscal Year 28
7.29 Limitation on Debt to Consolidated Tangible
Net Worth. 28
<PAGE>
7.30 Store Openings. 28
7.31 No Amendment of Debt Instruments; Maintenance
of Accounts 28
7.32 Revolver Sweep 29
7.33 Foreign Subsidiaries 29
8. INFORMATION AS TO COMPANY 29
8.1 Financial and Business Information. 29
8.2 Officers' Certificates. 32
8.3 Accountants' Certificates. 32
8.4 Inspection. 32
8.5 Quarterly Meetings. 33
8.6 Monthly Monitoring Reports. 33
8.7 Excess EBITDA. 33
8.8 Tax Reserve. 33
8.9 Additional Financial Information 33
9. EVENTS OF DEFAULT. 34
9.1 Nature of Events. 34
9.2 Default Remedies. 35
9.3 Annulment of Acceleration of Notes. 36
10. INTERPRETATION OF THIS AGREEMENT 36
10.1 Terms Defined. 36
10.2 Accounting Principles. 46
10.3 Directly or Indirectly. 46
10.4 Section Headings and Table of Contents;
Independent Construction. 46
10.5 Governing Law. 47
11. MISCELLANEOUS 47
11.1 Notices. 47
11.2 Reproduction of Documents. 48
11.3 Survival. 48
11.4 Successors and Assigns. 48
11.5 Amendment and Waiver. 48
11.6 Duplicate Originals. 49
11.7 Waiver and Release. 49
11.8 Indemnification. 51
ANNEX 1 -- Purchaser Information
EXHIBIT A -- Form of Note
EXHIBIT B -- Disclosure Schedules
EXHIBIT C-1 -- Form of Matthew H. Mataraso Legal Opinion
EXHIBIT C-2 -- Form of Jones, Day, Reavis & Pogue Legal Opinion
<PAGE>
EXHIBIT D -- Form of Intercreditor Agreement
EXHIBIT E -- Form of Subsidiary Guaranty
EXHIBIT F -- Form of Collateral Trust Indenture
EXHIBIT G -- Form of Security Agreement
EXHIBIT H -- Form of Trademark Security Agreement
EXHIBIT I -- Form of Pledge Agreement
EXHIBIT J -- Form of Concentration Bank Account Agreement
EXHIBIT K -- Form of Movies Plus Subordination Agreement
EXHIBIT L -- Contents of Monthly Report
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION
RECORD TOWN, INC.
38 Corporate Circle
Albany, New York 12203
AMENDED AND RESTATED
NOTE AGREEMENT
$41,331,412.90
Variable Rate Senior Notes, Series A, Due July 31, 1998
Dated as of July 26, 1996
TO EACH OF THE PURCHASERS
LISTED ON ANNEX 1
Dear Purchasers:
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 Subsidiary of the Company, hereby
jointly and severally agree with the Purchasers as follows:
1. THE NOTES
1.1 Background.
Pursuant to an Amended and Restated Note Agreement dated as of June 29,
1995 (the "Existing Note Agreement"), the Company and Record Town issued
Forty-Seven Million Five Hundred Thousand Dollars ($47,500,000) in aggregate
principal amount of their joint and several Variable Rate Senior Notes due
July 31, 1996 (the "Existing Notes"). The Existing Notes are substantially in
the form of Exhibit B attached to the Existing Note Agreement. The aggregate
principal amount of Existing Notes presently outstanding is $41,331,412.90.
Certain Events of Default have occurred under the Existing Note Agreement and
are currently the subject of the Waiver Agreement. The Company and Record
Town have requested an extension of the maturity date of the Existing Notes
and the modification of certain covenants and other provisions contained in
the Existing Note Agreement. The Purchasers have, subject to the satisfaction
of the conditions precedent set forth in Section 3 of this Agreement,
consented to certain of such requests in consideration of an increased rate of
interest and other modifications. The mutual agreement of the parties as to
such matters is set forth in the amendment and restatement of the Existing
Note Agreement and the Existing Notes provided for in this Agreement.
<PAGE>
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 A 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
and Record Town hereby authorize the execution and delivery to the Purchasers
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, 1998;
(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:
(i) prior to June 30, 1998, the greater of eleven and one-half percent
(11.50%) per annum or two and one-half percent (2.50%) per annum over the
Prime Rate, and
(ii) from and after June 30, 1998, the greater of fourteen percent
(14%) per annum or five percent (5.0%) per annum over the Prime Rate,
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, 1996 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
lesser of
(i) one percent (1.0%) per annum over the rate otherwise applicable
thereto, or
(ii) the highest rate allowed by applicable law; and
(f) be in the form of the Note set out in Exhibit A 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.
<PAGE>
1.3 Amendment and Restatement.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 of this Agreement, each Purchaser, by its execution of this
Agreement, hereby agrees and consents 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 of the conditions precedent set forth in Section 3 of this
Agreement, each Purchaser, by its execution of this Agreement, hereby agrees
and consents 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
each Purchaser the aggregate principal amount of Notes set forth opposite its
name on the schedule attached to this Agreement as Annex 1, in replacement of
its Existing Notes. Contemporaneously with the receipt by each Purchaser of
such Notes, such Purchaser hereby agrees to re-deliver to the Company for
cancellation the Existing Notes held by it. 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.
Each Purchaser represents to the Company and Record Town, and by agreeing
to the amendment and restatement of the Existing Note Agreement and the
substitution of the Notes for the Existing Notes it is specifically understood
and agreed, that it is acquiring the Notes for investment for its own account
or the account of its 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 its 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 its 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 the 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, 1996, this Agreement shall terminate, and the Existing
Note Agreement and the Existing Notes shall continue to be in full force and
effect.
<PAGE>
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 and the other Financing
Documents;
(ii) the reasonable fees and disbursements of the Purchasers'
special counsel, the Purchasers' financial advisor, and the Security
Trustee.
(iii) the Purchasers' out-of-pocket expenses;
(iv) all expenses relating to any Guaranty Agreement;
(v) all expenses relating to any amendments or waivers pursuant to
the provisions of this Agreement or "workouts" with respect hereto,
including, without limitation, all out-of-pocket fees, costs and expenses
paid or incurred by any holder of any Note or any security trustee acting
on behalf of any such holder in connection with the negotiation,
preparation, drafting, implementation, amendment, modification,
administration and enforcement of this Agreement, the Notes or any other
Financing Document, or for auditing, appraising, evaluating or otherwise
monitoring the Collateral or other credit support for the Notes; 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 each of the Purchasers 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 the Purchasers'
special counsel and financial advisor which are reflected in the statements
delivered by such Persons on or before 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.
<PAGE>
1.7 Restructuring Fee.
In consideration of the Purchasers' willingness to enter into the
transactions contemplated hereby, the Company shall pay to the Purchasers, on
a pro rata basis, a restructuring fee as described below. A portion of said
fee equal to one percent (1.0%) of the principal amount of Notes held by the
Purchasers on the Effective Date shall be payable on the Effective Date in
accordance with Section 3.8. A portion of said fee equal to one half of one
percent (0.50%) of the principal amount of the Notes held by the Purchasers on
July 31, 1997 shall be payable to the Purchasers on July 31, 1997, but said
amount shall not be payable (and the Company and Record Town shall not be
liable therefor) if the Notes are paid in full prior to July 31, 1997. A
portion of said restructuring fee equal to $1,696,429 shall be payable on the
earlier of August 1, 1998 or the acceleration of the Notes pursuant to Section
9.2, but said amount shall not be payable (and the Company and Record Town
shall not be liable therefor) if the N otes are paid in full prior to the
earlier of August 1, 1998 or such acceleration.
2. WARRANTIES AND REPRESENTATIONS
To induce each of the Purchasers to enter into this Agreement, the Company
and Record Town jointly and severally warrant and represent to each Purchaser
that as of the Effective Date each of the following statements will be true
and correct:
2.1 Subsidiaries.
Part 2.1 of Exhibit B 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.
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
<PAGE>
(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
February 3, 1996 filed by the Company with the Securities and Exchange
Commission and previously delivered to the Purchasers correctly describes the
general nature of the business and principal Properties of the Company and its
Subsidiaries.
(b) Part 2.3(b) of Exhibit B 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
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 Series B Note Agreement and the Restated Credit Agreement.
2.4 Financial Statements; Material Adverse Change.
(a) (i) The consolidated balance sheets of the Company and its
Subsidiaries as of February 3, 1996 and January 28, 1995, 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 KPMG Peat Marwick LLP,
independent certified public accountants, and (ii) the consolidated balance
sheets of the Company and its Subsidiaries as of January 29, 1994, January 30,
1993 and February 1, 1992 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, copies of
which have been delivered to the Purchasers, have been prepared in accordance
with generally accepted accounting principles consistently applied, and
present fairly the financial position of the Company and its Subsi diaries 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 February 3, 1996, there have been no materially adverse
changes in the Properties, business, prospects, operating results or condition
(financial or otherwise) of Record Town, the Company and the Subsidiaries,
taken as a whole.
<PAGE>
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 the Purchasers 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 the Purchasers
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 Record Town, the Company and the Subsidiaries, taken as a whole, or the
ability of the Company or Record Town to perform this Agreement, the Notes and
the other Financing Documents.
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 Record Town, the Company and
the Subsidiaries, taken as a whole, or the ability of Record Town or the
Company to perform this Agreement, the Notes and the other Financing
Documents. 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 Record Town, the Company and
the Subsidiaries, taken as a whole, or the ability of the Company or Record
Town to perform this Agreement, the Notes and the other Financing Documents.
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. Part
2.8 of Exhibit B to this Agreement correctly sets forth all of the trademarks,
service marks, trade names, copyrights, licenses and related rights owned by
the Company or any Subsidiary.
<PAGE>
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 of this Agreement, the Notes and the other Financing Documents by
each of the Company, Record Town and the Subsidiaries, and compliance by each
of the Company, Record Town and each of the Subsidiaries with all of the
provisions of each Financing Document to which it is a party:
(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, the
Notes and each other Financing Document has been duly authorized by all
necessary action on the part of each of the Company, Record Town and each
Subsidiary party thereto; has been executed and delivered by duly authorized
officers of each of the Company, Record Town and each Subsidiary party
thereto; and constitutes the legal, valid and binding obligation of each of
the Company, Record Town and each Subsidiary party thereto, enforceable in
accordance with its terms, except that the enforceability of this Agreement,
the Notes and each other Financing Document 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.
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 and each other
Financing Document, 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
<PAGE>
with the offer, issue, sale or delivery of the Notes or the execution,
delivery and performance of this Agreement and the other Financing Documents
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.
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 February
3, 1996 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 1995, 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.
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 February 3, 1996 to and including the Effective Date.
<PAGE>
2.16 Restated Credit Agreement; Restated Series B Note Agreement.
(a) The Company has delivered to the Purchasers true, complete and
correct copies of each of the Restated Credit Agreement and the Restated
Series B Note 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 each of the Purchasers 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 each
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.
2.17 Movies Plus, Inc.
Except for (i) Debt owed to the Company, Record Town or a Subsidiary, and
(ii) each of (A) its Guaranty Agreements and (B) its guarantee, in favor of
the Banks, of the obligations of the Company and Record Town under the
Restated Bank Agreement, the liabilities of Movies Plus, Inc., no portion of
which constitutes Debt, do not exceed $500,000 in the aggregate.
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 of the following conditions precedent:
<PAGE>
3.1 Opinions of Counsel.
The Purchasers 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 C-1 and C-2 hereto and as to such other
matters as they may reasonably request. This Section 3.1 shall constitute
direction by the Company to such counsel to deliver such closing opinions to
the Purchasers.
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. Each Purchaser shall have received a certificate,
dated the Effective Date and signed by a duly authorized officer of each of
the Company and Record Town, certifying that all of the agreements and
conditions specified in the immediately preceding sentence have been
satisfied.
3.3 Private Placement Number.
The Company shall have obtained from Standard & Poor's Corporation and
furnished to the Purchasers a private placement number for the Notes.
3.4 Execution and Delivery of this Agreement and the Notes.
The Company, Record Town and each Purchaser shall have entered into this
Agreement and each party hereto shall be prepared to perform its respective
obligations hereunder. Each of the Company, Record Town and the other
Purchasers shall have executed and delivered a counterpart of this Agreement
to each other party hereto. Each of the Purchasers shall have received one or
more Notes (in the amount(s) and bearing the registration number(s) set forth
below its name on Annex 1), dated the Effective Date and duly executed and
delivered by each of the Company and Record Town, in replacement of the
Existing Notes held by such Purchaser.
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 the Purchasers. The Company shall have delivered to each
Purchaser true, correct and complete copies of the Restated Credit Agreement
and all such documents and instruments, including all waivers relating thereto
and all side letters or agreements affecting the terms thereof.
<PAGE>
3.6 Restated Series B Note Agreement.
The Company, Record Town and the Series B Noteholder shall have entered
into an agreement amending and restating the Existing Series B Note Agreement,
which agreement and all documents and instruments executed and delivered in
connection therewith shall be in form and substance satisfactory to the
Purchasers.
3.7 Intercreditor Agreement.
The Purchasers, the Series B Noteholder and the Banks shall have executed
and delivered an Intercreditor Agreement in the form of Exhibit D (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 have been accepted and agreed to by each of the Company,
Record Town and the Security Trustee, and shall be in full force and effect.
3.8 Restructuring Fee.
The Company and Record Town shall have paid to each Purchaser, and each
Purchaser shall have received, a portion of the restructuring fee described in
Section 1.7 equal to the product of:
(a) one percent (1.0%); 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 of each Purchaser to which the Company and Record Town are
obligated to make payments of interest in respect of such Purchaser's 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 each of the Purchasers all accrued interest
on the Existing Notes held by such Purchaser to (but not including) the
Effective Date at the rate of 10.50% per annum, and additional interest on
such Purchaser's Existing Notes for the period from May 1, 1996 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 Notes pursuant to Section 1.2(d) if
the Notes had been outstanding at all times from and after May 1, 1996 over
10.50% per annum.
<PAGE>
3.11 Subsidiary Guaranties.
Each Subsidiary (other than Record Town) shall have executed and delivered
an agreement in the form of Exhibit E (collectively, the "Guaranty Agreement")
unconditionally guarantying payment of the Notes.
3.12 Collateral Trust Indenture and Other Security Documents.
(a) Each of the Company, Record Town, the Guarantors and the Security
Trustee shall have executed and delivered to each of the Purchasers an
original counterpart of a Collateral Trust Indenture, in the form of Exhibit F
(the "Collateral Trust Indenture"), and the Collateral Trust Indenture shall
be in full force and effect.
(b) Each of the Company, Record Town, the Guarantors and the Security
Trustee shall have executed and delivered to each of the Purchasers an
original counterpart of a Security Agreement, in the form of Exhibit G
(collectively the "Security Agreement"), and the Security Agreement shall be
in full force and effect.
(c) The Security Trustee and each of the Company, Record Town and the
Guarantors shall have executed and delivered to each of the Purchasers an
original counterpart of a Trademark Security Agreement, in the form of Exhibit
H (collectively, the "Trademark Security Agreement"), and the Trademark
Security Agreement shall be in full force and effect.
(d) The Security Trustee and Record Town shall have executed and
delivered to each if the Purchasers an original counterpart of a Pledge
Agreement, in the form of Exhibit I (the "Pledge Agreement"), and the Pledge
Agreement shall be in full force and effect.
(e) The Company, the concentration account bank named therein and the
Security Trustee shall have executed and delivered to each of the Purchasers
an original counterpart of a Depository Bank Agreement in the form of Exhibit
J (the "Concentration Bank Account Agreement"), and the Concentration Bank
Account Agreement shall be in full force and effect.
(f) The foregoing agreements shall secure the Notes and all of the
obligations under this agreement pari passu with the obligations due under the
Restated Series B Note Agreement and the Restated Credit Agreement; and each
of the Purchasers shall have received evidence satisfactory to it that the
Liens created by the foregoing agreements are valid and perfected Liens senior
to all other Liens upon the Collateral.
3.13 Movies Plus Subordination.
Each of the Company, Record Town and the Subsidiaries (other than Movies
Plus, Inc.) shall have executed and delivered a subordination agreement in the
form of Exhibit K (collectively, the "Movies Plus Subordination Agreement"),
and the Movies Plus Subordination Agreement shall be in full force and effect.
<PAGE>
3.14 Representations And Warranties True.
The warranties and representations set forth in Section 2 hereof shall be
true and correct as of the Effective Date.
3.15 Authorization of Transactions.
Each of the Company and Record Town shall have authorized, by all
necessary corporate action, the execution and delivery of this Agreement, the
Notes and each of the other documents and instruments executed and delivered
in connection herewith and the performance of all obligations of, and the
satisfaction of all conditions precedent pursuant to this Section 3 by, and
the consummation of all transactions contemplated by this Agreement by, the
Company and Record Town. The Purchasers shall have received a certificate
from each of the Company and Record Town, in form and substance satisfactory
to the Purchasers and their special counsel, certifying the adoption of
resolutions of the board of directors of the Company and Record Town, as the
case may be, authorizing such execution, delivery, performance, satisfaction
and consummation, which resolutions shall be attached to such certificate and
shall be in full force and effect. Each such certificate shall indicate that
there has been no resolution passed by suc h board of directors which
conflicts with, amends or rescinds such resolutions.
3.16 Proceedings Satisfactory.
All proceedings taken in connection with the issuance of the Notes and all
documents and papers relating thereto shall be satisfactory to each of the
Purchasers and their special counsel. The Purchasers and their special
counsel shall have received copies of such documents and papers as they may
reasonably request in connection therewith, all in form and substance
satisfactory to them.
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 Annex 1 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 on
each of the dates set out below, the principal amount of Notes set forth
opposite such date:
<PAGE>
Payment Date Principal Amount
08/30/96 1,526,785.71
11/30/96 678,571.43
02/28/97 5,089,285.71
05/30/97 678,571.43
08/30/97 678,571.43
11/30/97 678,571.43
02/28/98 1,357,142.86
05/30/98 678,571.43
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. In certain circumstances the amount of one or more of the
foregoing required repayments shall be deemed to have been reduced pursuant to
Section 5.1(b) or Section 5.6.
(b) Except as set forth in Section 5.6, the early repayment of any of
the Notes pursuant to Section 5.2, Section 5.5 or Section 5.6 or the
acquisition of the Notes by the Company or any Subsidiary shall not reduce or
otherwise affect the obligations of the Company and Record Town to make any
repayment required by Section 5.1(a); provided that if such early repayment is
made with the proceeds of a tax refund from a period prior to the Effective
Date (a "Tax Refund") or the proceeds of a sale of the stock or assets of
Movies Plus, Inc., ("Movies Plus Proceeds") such early repayment shall reduce
the next maturing repayments due under 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 w hich equals the product of (i) the
principal amount of the Notes required to be repaid on such date multiplied by
(ii) a fraction (A) the numerator of which shall equal $41,331,412.90 minus
the cumulative aggregate principal amount repaid pursuant to Section 5.4 after
giving effect to such Extraordinary Repayment and (B) the denominator of which
shall equal $41,331,412.90.
5.2 Early Repayment Option.
Subject to Section 7.5(b) of this Agreement, the Company and Record Town
may pay 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 early repayment date.
<PAGE>
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:
(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 and 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 or Tax Refund.
(a) Material Asset Sale. Not more than two Business Days following the
consummation of any sale of (x) any Property (other than Collateral) 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
proceeds equal to or greater than $500,000, or (y) any Collateral, the Company
and Record Town shall, subject to Section 5.5(c), pay (or cause the selling
<PAGE>
Subsidiary to pay) to the holders of the Notes an amount of principal equal to
the product of (i) the Net Asset Sale Proceeds attributable to such sale
multiplied by (ii) the Noteholders' Percentage. Nothing in this Section 5.5
shall be deemed to permit such an asset sale without the consent of the
holders of the Notes obtained in accordance with Sections 7.13 and 11.5 of
this Agreement.
(b) Tax Refunds. Not more than two Business Days following the receipt of
any Tax Refund, the Company and Record Town shall, subject to Section 5.5(c),
pay to the holders of the Notes an amount of principal equal to the product of
(i) the amount of such Tax Refund multiplied by (ii) the Noteholders'
Percentage.
(c) Certain Credits. Notwithstanding anything in Section 5.5(a) or
Section 5.5(b) to the contrary and so long as no Default or Event of Default
exists, no principal payment shall be due with respect to Movies Plus Proceeds
or the proceeds of any Tax Refund under either of such Sections at any time,
except to the extent that the aggregate amount of Movies Plus Proceeds and
proceeds from Tax Refunds received by the Company or Record Town at or prior
to such time exceeds the aggregate amount of principal payments actually made
pursuant to Section 5.1(a) at or prior to such time.
5.6 Repayment from Excess EBITDA.
In addition to all other payments of principal required by this Section 5,
on each Payment Date the Company and Record Town will pay to the holders of
the Notes a principal amount of Notes equal to the Noteholders' Percentage of
forty-five percent (45%) of Excess EBITDA for the then current fiscal year
(or, in the case of a February Payment Date, the fiscal year then most
recently ended). For purposes of this Agreement, "Excess EBITDA" for any
fiscal year shall mean the amount, if any, by which Consolidated EBITDA for
such fiscal year (calculated as of the end of the most recently ended fiscal
quarter) exceeds the EBITDA Cushion as of the end of such fiscal quarter.
If immediately prior to the August or November Payment Date in any fiscal
year the aggregate principal payments made with respect to such fiscal year
pursuant to this Section 5.6 (exclusive of amounts deemed to have reduced
payments due under Section 5.1(a)) are greater than the Noteholders'
Percentage of forty-five percent (45%) of Excess EBITDA for such fiscal year,
the amount of the next required payment due pursuant to Section 5.1(a) shall
be deemed reduced by the amount of such overage (the "Cumulative EBITDA
Overage"). The Cumulative EBITDA Overage, if any, existing immediately prior
to a February Payment Date, shall in no event be deemed to reduce the payment
required by Section 5.1(a) on such February Payment Date, but shall instead be
applied to the principal payments due on the Notes in inverse order of
maturity.
If there is Excess EBITDA for a fiscal year, the Company and Record Town,
not later than ninety (90) days after the end of such fiscal year, shall
multiply the amount of Excess EBITDA for such fiscal year by a fraction the
numerator of which shall be the aggregate amount of all federal, state, and
local income tax liabilities shown as payable on consolidated tax returns
filed or to be filed by the Company for such fiscal year, and the denominator
of which shall be the amount of Consolidated EBITDA for such fiscal year. If
the resulting number (the "Resulting Number") is less than forty percent (40%)
of such Excess EBITDA, the Company shall immediately make a principal payment
<PAGE>
to the Noteholders in an amount equal to the Noteholders' Percentage
multiplied by a number equal to the remainder of (i) forty percent (40%) of
such Excess EBITDA, minus (ii) the Resulting Number. Payments made pursuant
to the preceding sentence shall be applied to the principal payments due on
the Notes in inverse order of maturity . If the Resulting Number is greater
than forty percent (40%) of such Excess EBITDA and the Company and Record Town
have made all payments of principal and interest required to have been made
with respect to such fiscal year under this Section 5.6, the next principal
payment required by Section 5.1(a) shall be deemed reduced by an amount equal
to the Noteholders' Percentage multiplied by the remainder of the Resulting
Number minus forty percent (40%) of such Excess EBITDA.
5.7 Partial Early Payments To Be Pro Rata.
If there is more than one holder of the Notes, the aggregate principal
amount of each required or optional partial payment (except a payment pursuant
to Section 5.4, which shall be made as therein provided) of the Notes shall be
allocated in units of One Thousand Dollars ($1,000) or multiples thereof among
the holders of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid amounts of the Notes held by each such
holder.
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.
<PAGE>
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:
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,
<PAGE>
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 holders of the Notes.
(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 Subsidiary as a 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
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 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
<PAGE>
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 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;
(3) Liens on Property of a Subsidiary, provided, they secure only
obligations owing to the Company or another 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 Subsidiary,
provided, that (A) the Company or such Subsidiary is in good faith
prosecuting an appeal or proceedings for review of such Liens incurred
by the Company or any Subsidiary for the purpose of obtaining a stay
or discharge in the course of any legal proceeding to which the
Company or such 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 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) or Section 7.5(a)(v), 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
<PAGE>
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;
(9) Liens upon the Collateral created by one or more of the
Security Documents;
(10) Deposits in an aggregate amount not to exceed Five Hundred
Thousand Dollars ($500,000) to secure the reimbursement obligations of
the Company and/or Record Town in respect of standby or commercial
letters of credit issued for the account of the Company and/or Record
Town by parties other than the Banks; and
(11) Liens set forth on Part 2.3(b) of Exhibit B hereto,
provided, however, that such Liens shall not spread to cover other or
additional Debt or Property of the Company or any Subsidiary.
(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).
7.5 Limitations On Debt Incurrence; Prepayments and Amendments.
Neither the Company nor any Subsidiary will:
(a) be or become liable for any Adjusted Funded Debt other than:
(i) the Notes; (ii) the Series B Notes; (iii) indebtedness not to exceed
$65,260,126.26 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 (other than computers, cash
registers and related equipment referred to in clause (v) below), 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); (v) indebtedness incurred by the Company upon
reasonable and customary terms to replace and upgrade its (A) existing AS400
computer hardware and related equipment in an amount not to exceed Four
Million Dollars ($4,000,000) in the aggregate and (B) existing POS cash
register system in an amount not to exceed Six Million Dollars ($6,000,000) in
the aggregate; (vi) reimbursement obligations i n an aggregate amount not to
exceed Five Hundred Thousand Dollars ($500,000) secured by Liens permitted
under Section 7.4(a)(10) and incurred in respect of standby or commercial
<PAGE>
letters of credit issued by parties other than the Banks for the account of
the Company and/or Record Town; and (vii) other indebtedness outstanding on
the Effective Date and reflected on Exhibit B;
(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
Series B 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.
Nothing in this Section 7.5 shall permit an expenditure not permitted by
Section 7.25.
7.6 Subsidiary Debt.
No Subsidiary, except for Record Town, will become liable for, have
outstanding, or permit its Property to be subject to, any Prior Indebtedness.
Movies Plus, Inc. shall have no Debt other than Debt which is (i) owing to the
Company, Record Town, or a Guarantor and (ii) subject to the Movies Plus
Subordination Agreement.
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 150% 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 135% 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 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
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) and Section
7.4(a)(9)), 100% of the outstanding capital stock of Record Town and each
other Subsidiary; provided, however, that Record Town may contract for and
consummate a sale of all or substantially all of the capital stock of Movies
Plus, Inc. in accordance with Section 5.1(b).
7.9 Fixed Charge Ratio.
On the final day of the first and second fiscal quarter of each fiscal
year, Consolidated Income Available for Fixed Charges shall be not less than
100% of Consolidated Fixed Charges for the period of four (4) fiscal quarters
ended on such dates. On the final day of the third fiscal quarter of each
fiscal year and the fourth fiscal quarter of the 1996 fiscal year,
<PAGE>
Consolidated Income Available for Fixed Charges shall be not less than 110% of
Consolidated Fixed Charges for the period of four (4) fiscal quarters ended on
such dates. On the final day of the 1997 fiscal year, Consolidated Income
Available for Fixed Charges shall be not less than 115% of Consolidated Fixed
Charges for the fiscal year ended on such date.
7.10 Tangible Net Worth.
As of the final day of each fiscal quarter set forth below, the Company
will maintain Consolidated Tangible Net Worth of not less than the amount set
forth opposite such fiscal quarter:
Fiscal Quarter Amount
1st Quarter 1996 $75,000,000
2nd Quarter 1996 $75,000,000
3rd Quarter 1996 $75,000,000
4th Quarter 1996 $85,000,000
1st Quarter 1997 $80,000,000
2nd Quarter 1997 $80,000,000
3rd Quarter 1997 $80,000,000
4th Quarter 1997 $90,000,000
1st Quarter 1998 $80,000,000
7.11 Tangible Net Worth of Record Town.
As of the final day of each fiscal quarter set forth below, Record Town
will maintain Tangible Net Worth of not less than the amount set forth
opposite such fiscal quarter:
Fiscal Quarter Amount
1st Quarter 1996 $25,000,000
2nd Quarter 1996 $25,000,000
3rd Quarter 1996 $25,000,000
4th Quarter 1996 $35,000,000
1st Quarter 1997 $30,000,000
2nd Quarter 1997 $30,000,000
3rd Quarter 1997 $30,000,000
4th Quarter 1997 $40,000,000
1st Quarter 1998 $30,000,000
7.12 Distributions and Investments.
Neither the Company nor any Subsidiary will declare, make or become
obligated to make any Distribution or make or become obligated to make any
Restricted Investment.
<PAGE>
7.13 Sale of Property and Subsidiary Stock.
Neither the Company nor any 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
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 Subsidiary whose shares are the subject of
the transaction, provided that these restrictions do not apply to:
(1) the issue of directors' qualifying shares;
(2) the transfer of Property (other than Subsidiary Stock) in the
ordinary course of business; and
(3) the transfer of Property by Movies Plus, Inc. or the transfer
of the stock of Movies Plus, Inc., in each case, made in accordance
with Section 5.1(b).
7.14 Merger and Consolidation.
The Company will not, and will not permit any Subsidiary to, be a party to
any merger or consolidation or sell, lease or otherwise transfer all or
substantially all of its Property.
7.15 Guaranties.
Neither the Company nor any Subsidiary will become liable for any Guaranty
(except a Guaranty of any indebtedness, dividend or other obligation as to
which the Company or a 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 Subsidiary
pursuant to Section 4068 of ERISA.
<PAGE>
7.17 Transactions with Affiliates.
Neither the Company nor any 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 Subsidiary nor any Affiliate will, directly or
indirectly, acquire or make any offer to acquire any Notes unless the Company
or such 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.
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 each of its Subsidiaries other than Record Town,
on or before the later of the Effective Date or the tenth (10th) day after the
acquisition of such Subsidiary, to enter into a guaranty of the Notes pursuant
to an agreement to the effect and substantially in the form of Exhibit E
hereto. Each Subsidiary required to execute a Guaranty Agreement pursuant to
the provisions of Section 3.11 or this Section 7.21 shall be a "Required
Guarantor". The Company shall cause each Required Guarantor to deliver an
original executed copy of such Guaranty to each holder of Notes, together with
certified copies of the resolutions of the board of directors of such Required
Guarantor authorizing the execution, delivery and performance thereof, with
appropriate shareholder consents or approvals attached.
7.22 Limitations on Preferred Stock.
Neither the Company, Record Town nor any other 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.
<PAGE>
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 1.5
7.24 Maintenance of Consolidated EBITDA.
Consolidated EBITDA for each of the first three quarters of each fiscal
year shall be not less than ($2,000,000). Consolidated EBITDA for the fourth
fiscal quarter of 1996 shall be not less than $24,000,000. Consolidated
EBITDA for the fourth fiscal quarter of 1997 shall be not less than
$27,000,000.
7.25 Limitation on Capital Expenditures.
The Company and the Subsidiaries shall not make capital expenditures
which, in the aggregate, exceed the following amounts in the following fiscal
years:
Fiscal Year Beginning Amount
1996 $12,000,000
1997 $12,000,000
1998 (through July 31) $6,000,000
7.26 Limitation on Leases.
Neither the Company nor any 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
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 Subsidiary shall enter into any arrangement
with any Person whereby the Company or any 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 Subsidiary
intends to use for substantially the same purpose or purposes as the Property
being sold or transferred.
<PAGE>
7.28 Limitation on Changes in Fiscal Year.
The Company shall not permit its fiscal year or the fiscal year of any
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.
As of the final day of each fiscal quarter set forth below, the Company
shall not permit the ratio of (a) total liabilities of the Company and its
Subsidiaries to (b) Consolidated Tangible Net Worth, to exceed the amount set
forth opposite such fiscal quarter:
Fiscal Quarter Ratio
1st Quarter 1996 2.30 to 1
2nd Quarter 1996 2.50 to 1
3rd Quarter 1996 3.00 to 1
4th Quarter 1996 2.10 to 1
1st Quarter 1997 2.10 to 1
2nd Quarter 1997 2.30 to 1
3rd Quarter 1997 2.80 to 1
4th Quarter 1997 1.90 to 1
1st Quarter 1998 2.10 to 1
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 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.
The Company shall not, and shall not permit any Subsidiary to, (i) open
any new store other than relocations or (ii) enter into any lease in
connection with or for the purpose of opening any new store if, after giving
effect to the opening of such store or the entering into of such lease, a
default under Section 7.25 would exist; provided, however, that in the
ordinary course of business the Company and Record Town may enter into
renewals of existing store leases.
7.31 No Amendment of Debt Instruments; Maintenance of Accounts.
The Company shall not, without the prior written consent of all holders of
the Notes:
(a) 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); or
<PAGE>
(b) maintain any cash balances or cash management accounts other than
at one or more of the Banks or any other financial institution that has
executed a valid Concentration Bank Account Agreement satisfactory to the
Security Trustee; provided, however, that the Company may continue to
maintain, in a manner consistent with its past practices, existing store
accounts at one or more other banks whether or not such banks execute any such
agency agreement.
7.32 Revolver Sweep.
If on any date prior to the termination of the Commitment the aggregate
cash balances of the Company, Record Town and the Subsidiaries (including cash
on deposit and cash on hand) exceed the product of $15,000 multiplied by the
number of retail stores then being operated by the Company, Record Town and
the Subsidiaries, the Company shall, within one Business Day, cause the amount
of such excess to be applied, first, to a non-permanent reduction of the
outstanding indebtedness under the Restated Credit Agreement, and second, to
cash collateralize the letters of credit outstanding under the Restated Credit
Agreement.
7.33 Foreign Subsidiaries.
The Company shall not, and shall not permit any Subsidiary to, create or
permit to be created any Subsidiary under the laws of any jurisdiction other
than the United States of America or a jurisdiction thereof.
8. INFORMATION AS TO COMPANY
8.1 Financial and Business Information.
The Company will deliver to each Purchaser, and to each other
institutional holder of outstanding Notes, and, in the case of Section 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:
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries and of the Company and its 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 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
<PAGE>
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 consolidated balance sheet of the Company and its
consolidated subsidiaries, and of the Company and its Subsidiaries, as
at the end of that year, and
(ii) consolidated statements of income, retained earnings and
cash flows of the Company and its consolidated subsidiaries, and of
the Company and its 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;
(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,
<PAGE>
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 Series B Note
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;
(j) Monthly Information. Within thirty (30) days after the end of
each month, a report containing the information contemplated by Exhibit L
hereto. Such report shall be signed by the President, the Chief Financial
Officer or the Treasurer of the Company;
(k) Identity of Banks. Within fifteen (15) days after the Company
obtains knowledge of any transfer or other change in the ownership of any of
the Bank Notes, or, with reasonable promptness after a request therefor, the
Company shall deliver a notice to each holder of Notes setting forth the names
and addresses of each of the Banks and the respective Commitment of, and the
principal amount of the Loans (as defined in the Restated Credit Agreement)
owing to, each Bank at such time; and
(l) Requested Information. With reasonable promptness, such other
data and information as from time to time may be reasonably requested.
<PAGE>
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 representatives of each Purchaser 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 each Purchaser pursuant to
this Agreement shall be treated as confidential information by such Purchaser.
Each Purchaser agrees to use reasonable efforts to refrain from disclosing
such information to any other Person (excluding any of the Purchasers'
officers, employees, agents or counsel), except (1) in connection with selling
or otherwise realizing upon such Purchaser's 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 such Purchaser, 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 that is
otherwise publicly available, (5) in connection with the enforcement of such
Purchaser's rights hereunder or under the Notes and (6) disclosures to other
Purchasers or any subsequent holders of the Notes.
<PAGE>
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 holders of the Notes may request, shall make themselves available at a
reasonably convenient location to meet with representatives of the holders of
the Notes 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 Monthly Monitoring Reports.
The Company and Record Town shall pay up to $5,000.00 per month of the
fees and expenses of Policano & Manzo, L.L.C. (or other financial consultant
acceptable to the Banks, the holders of the Series B Notes and the holders of
the Notes) incurred to produce monthly monitoring reports of the type
heretofore furnished. The Company and Record Town shall give such financial
consultant such access to its books and records as is necessary to permit such
consultant to produce such reports on a timely basis.
8.7 Excess EBITDA.
As soon as possible and in any event at least three (3) days before each
Payment Date, the Company shall furnish to each holder of Notes a statement,
certified by the chief financial officer of the Company, setting forth in
reasonable detail the computation of (a) Consolidated EBITDA, (b) Excess
EBITDA and (c) the Cumulative EBITDA Overage for the relevant fiscal period
then most recently ended, and the resulting principal payment, if any,
required by Section 5.6.
8.8 Tax Reserve.
As soon as possible and in any event no later than ninety (90) days after
the end of each fiscal year, the Company shall furnish to each holder of Notes
a statement, certified by the chief financial officer of the Company, setting
forth in reasonable detail the computations required by the third paragraph of
Section 5.6 of this Agreement, including, as appropriate, the amount of any
payment due to the holders of Notes pursuant to such paragraph or the amount
by which the next payment required by Section 5.1(a) shall be reduced pursuant
to such paragraph.
8.9 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.
<PAGE>
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 7.32, or 8.1 or to make any payment
required by Section 1.7;
(d) Other Defaults. Failure to comply with any other provision of
this Agreement or any other Financing Document, which failure 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, in any Financing
Document 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 Guaranty Agreement or any Financing Document shall prove to
have been false or misleading in any material respect;
(f) Default on Other Debt. Failure by the Company or any 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 Five Hundred Thousand Dollars ($500,000), 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 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 Subsidiary, is adjudicated bankrupt or insolvent; or an order for relief
is entered under the Federal Bankruptcy Code against the Company or any
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 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;
<PAGE>
(h) Voluntary Petitions. The Company, or any 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
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 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
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 holders of the Series B Notes 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
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, Subsidiaries and Affiliates) may
exercise any right, power or remedy permit ted 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
<PAGE>
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, 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;
(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;
<PAGE>
(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 Person in which the Company owns less than 49% of
the Voting Stock.
Aetna -- means Aetna Life Insurance Company.
Affiliate -- a Person (other than a 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.
Bank Notes -- the promissory notes issued to evidence indebtedness under
the Restated Credit Agreement.
Banks -- at any time, means and includes each of the holders of Bank Notes
at such time.
Business Day -- any day other than a Saturday, Sunday or other day on
which commercial banking institutions in the State of New York are authorized
or obligated by law or executive order to be closed.
Business Plan -- means the Company's Three Year Strategic Business Plan,
dated as of December 12, 1995, as updated and supplied by the Company to the
holders of the Notes prior to the Effective Date.
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.
Collateral -- has the meaning ascribed to such term in the Collateral
Trust Indenture.
Collateral Trust Indenture -- Section 3.12.
Commitment -- the obligation of the Banks to make loans and extend letters
of credit pursuant to the Restated Credit Agreement.
<PAGE>
Company -- the introductory sentence hereof.
Consolidated Current Assets -- at any date, means the amount at which the
current assets of the Company and all 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 Subsidiaries (excluding, for
purposes of computing current liabilities, indebtedness under the Notes and
the Series B 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
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 Subsidiaries, means on any date 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 the period of
four fiscal quarters ended on such date.
Consolidated Net Income -- for any period, means net earnings after income
taxes of the Company and each Subsidiary (only for the period during which it
is a Subsidiary) determined on a consolidated basis, provided that there shall
be excluded therefrom after giving effect to any related tax effect:
(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.
<PAGE>
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.
Cumulative EBITDA Overage -- Section 5.6.
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 February 3, 1996.
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.
Distribution -- means and includes:
(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); and
(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.
<PAGE>
Any Distribution of Property other than cash shall be valued at fair market
value.
EBITDA Cushion -- with respect to any fiscal quarter end shall mean the
amount set forth in the table below opposite the date of such quarter end.
Quarter End EBITDA Level
April 1996 $ 5,574,000
July 1996 $ 5,518,000
October 1996 $ 8,382,000
January 1997 $36,418,000
April 1997 $ 8,610,000
July 1997 $10,446,000
October 1997 $14,424,000
January 1998 $46,431,000
April 1998 $10,000,000
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 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.
Excess EBITDA -- Section 5.6
Excess Tax Reserve -- Section 5.6
Exchange Act -- means the Securities Exchange Act of 1934, as amended.
Existing Note Agreement -- Section 1.1.
Existing Notes -- Section 1.1.
Existing Series B Note Agreement -- means that certain Amended and
Restated Note Agreement, dated as of June 29, 1995, among the Company, Record
Town and Aetna.
Extraordinary Repayment -- Section 5.1(b).
<PAGE>
Financing Documents-- means the Restated Credit Agreement and the notes
issued pursuant thereto, the Restated Series B Note Agreement, the Series B
Notes, this Agreement, the Notes, the Guaranty Agreements, the Security
Documents, the Intercreditor Agreement and the Collateral Trust Indenture.
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.
Guarantor -- means, at any time, Media Logic, Inc., Trans World Fixture
Company, Inc., Saturday Matinee, Inc., Movies Plus, Inc., and each other
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.
<PAGE>
Guaranty Agreements -- Section 3.11
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 Subsidiary shall 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.
Movies Plus Proceeds -- Section 5.1(b).
Noteholders' Percentage -- shall mean a fraction the numerator of which is
47.5 and the denominator of which is 140.
Net Asset Sale Proceeds -- means, 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)
provision for all income or other taxes payable as a result of such asset sale
and (b) payment of brokerage commissions and other reasonable fees and
expenses related to such asset sale. For purposes of this definition, the
board of directors of the Company shall determine in good faith the fair
market value of non-cash consideration.
Notes -- Section 1.2.
Other Restructuring Documents -- Section 2.16.
Payment Date -- the final day of each February, May, August and November
in each year.
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, sole proprietorship, corporation,
business trust, limited liability company, joint stock company, unincorporated
organization, joint venture, governmental authority or other entity of
whatever nature.
<PAGE>
Pledge Agreement -- Section 3.12.
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, at any time, the prime rate of interest that is
charged to the Company and Record Town by the Banks at such time with respect
to borrowings under the Restated Credit Agreement.
Prior Indebtedness -- means without duplication:
(1) unsecured Adjusted Funded Debt and Current Debt of Subsidiaries,
other than Record Town (except for debt to the Company or a Subsidiary);
(2) Adjusted Funded Debt and Current Debt of the Company and its
Subsidiaries, other than Record Town (except for debt to the Company or a
Subsidiary), secured by any Lien on the Property of the Company or any
Subsidiary; and
(3) the redemption or liquidation value (whichever is greater) of all
equity Securities of Subsidiaries (other than common stock) which are not
legally and beneficially owned by the Company and its Subsidiaries.
For purposes of this definition only, Adjusted Funded Debt and Current Debt of
Subsidiaries shall not include the Guaranties by the 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 Subsidiary of such Property or
granted or retained in connection with the acquisition or improvement by the
Company or a Subsidiary of such Property in order to permit or facilitate the
financing of such acquisition or improvement.
Purchasers -- shall mean the purchasers listed on Annex 1 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.
<PAGE>
Required Guarantor -- Section 7.21.
Restated Credit Agreement -- means, collectively, those certain Amended
and Restated Revolving Credit Agreements, each dated as of the date hereof,
among the Company, Record Town and each of NBD Bank, Bear Stearns & Co., Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banco Santander Trust &
Banking Corporation (Bahamas) Ltd.
Restated Series B Note Agreement -- means that certain Amended and
Restated Note Agreement, dated as of the date hereof, among the Company,
Record Town and the Series B Noteholder, pursuant to which the Company and
Record Town have issued the Series B Notes.
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 Subsidiaries or any corporation which
concurrently with such investment becomes a Subsidiary;
(2) Property to be used in the ordinary course of business;
(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 Subsidiaries;
and
<PAGE>
(11) investments in licensed departments or retail (including,
without limitation, retail mail order) joint ventures in the music, video,
or entertainment businesses.
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.
Security Agreement -- Section 3.12.
Security Documents -- means the Collateral Trust Indenture, the Security
Agreement, the Pledge Agreement, the Concentration Bank Account Agreement, the
Trademark Security Agreement and the Movies Plus Subordination Agreement, as
the same may be amended from time to time.
Security Trustee -- IBJ Schroder Bank & Trust Company, in its capacity as
Security Trustee under the Collateral Trust Indenture, and its successors in
such capacity.
Series B Noteholder -- at any time, means:
(a) if such time is prior to the Effective Date, the holder or holders
of the promissory notes issued and outstanding at such time under the
Existing Series B Note Agreement; and
(b) if such time is on or after the Effective Date, the holder or
holders of the Series B Notes issued and outstanding at such time.
Series B Notes -- means and includes each of the joint and several
Variable Rate Senior Notes, Series B, Due July 31, 1998, issued by the Company
and Record Town in the aggregate principal amount of $15,227,362.80 pursuant
to the Restated Series B Note Agreement.
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 50%
of the outstanding Voting Stock is at the time, directly or indirectly, owned
or controlled by the Company.
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.
Tax Refund -- Section 5.1(b).
<PAGE>
Tax Reserve Deficiency -- Section 5.6
Trademark Security Agreement -- Section 3.12.
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 March 11, 1996,
as amended, among the Company, Record Town and the Purchasers.
Wholly-Owned Subsidiary -- any 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 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.
10.4 Section Headings and Table of Contents; Independent Construction.
(a) Section Headings and Table of Contents, etc. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement appear
as a matter of convenience only, do not constitute a part hereof and shall not
affect the construction hereof. The words "herein," "hereof," "hereunder" and
"hereto" refer to this Agreement as a whole and not to any particular Section
or other subdivision. References to Sections are, unless otherwise specified,
references to Sections of this Agreement. References to Annexes and Exhibits
are, unless otherwise specified, references to Exhibits and Annexes attached
to this Agreement.
(b) Independent Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being independent
of each other covenant contained herein, and compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
<PAGE>
10.5 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) Method; Address. All communications hereunder or under the Notes
shall be in writing, shall be delivered by
(i) nationwide overnight courier, and
(ii) facsimile transmission, and
shall be addressed, if to the Company and/or Record Town, at the address and
telecopy number of the Company, as follows:
Trans World Entertainment Corp.
38 Corporate Circle
Albany, New York 12203
Attention: Robert J. Higgins
Telecopy No.: (518) 869-4819
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: David S. Kurtz
Telecopy No.: (312) 782-8585
and if to any of the holders of the Notes,
(A) if such holder is a Purchaser, at the address set forth on
Annex 1 for such holder, and further including any parties referred to on such
Annex 1 which are required to receive notices in addition to such holder, and
(B) if such holder is not a Purchaser, at the address and telecopy
number set forth in the register for the registration and transfer of Notes
maintained pursuant to Section 6.1 for such holder,
or to any such party at such other address as such party may designate by
notice duly given in accordance with this Section 11.1.
(b) When Given. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the address
<PAGE>
of the addressee (whether or not delivery is accepted) or received by the
telecopy machine of the recipient. Any communication not so addressed and
delivered shall be ineffective.
11.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by any of the Purchasers at the closing
hereunder (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to any of
the Purchasers, may be reproduced by any Purchaser by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process and such Purchaser 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 such
Purchaser in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction s hall 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 each Purchaser and shall survive the delivery to
each of the Purchasers of the Notes regardless of any investigation made by
any of the Purchasers or on any of the Purchasers' behalf. All statements in
any such certificate or other instrument shall constitute warranties and
representations by the Company and Record Town hereunder.
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 neither the Company
nor Record Town may transfer or assign any of their rights or interests
hereunder without the prior written consent of the holders of the Notes. 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 any Purchaser or any Purchaser's 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, 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 any Purchaser unless consented to by such Purchaser in writing; and
provided further, that no such amendment or waiver shall, without the written
<PAGE>
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.
11.7 Waiver and Release.
For and in consideration of the agreements contained in this Agreement and
the Notes, and other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, each of the Company and
Record Town (the Company and Record Town being collectively referred to in
this Section 11.7 as the "Releasors") does hereby jointly and severally fully
RELEASE, REMISE, ACQUIT, IRREVOCABLY WAIVE and FOREVER DISCHARGE each of the
Purchasers, together with their respective predecessors, successors, assigns,
subsidiaries, affiliates and agents and all of their respective past, present
and future officers, directors, shareholders, employees, contractors and
attorneys, and the predecessors, heirs, successors and assigns of each of them
(the Purchasers and all of the foregoing being collectively referred to in
this Section 11.7 as the "Released Parties"), from and with respect to any and
all Claims (as defined below).
As used in this Section 11.7, the term "Claims" shall mean and include any
and all, and all manner of, action and actions, cause and causes of action,
suits, disputes, controversies, claims, debts, sums of money, offset rights,
defenses to payment, agreements, promises, notes, bonds, bills, covenants,
losses, damages, judgments, executions and demands of whatever nature, known
or unknown, whether in contract, in tort or otherwise, at law or in equity,
for money damages or dues, recovery of property, or specific performance, or
any other redress or recompense which have accrued or may ever accrue, may
have been had, may be now possessed, or may or shall be possessed in the
future by or on behalf of any one or more of the Releasors against any one or
more of the Released Parties for, upon, by reason of, on account of, or
arising from or out of, or by virtue of, any transaction, event or occurrence,
duty or obligation, indemnification, agreement, promise, warranty, covenant or
representation, breach of fiduciar y duty, breach of any duty of fair dealing,
breach of confidence, breach of funding commitment, undue influence, duress,
economic coercion, conflict of interest, negligence, bad faith, malpractice,
violations of federal or state securities laws or the Racketeer Influenced and
Corrupt Organizations Act, intentional or negligent infliction of mental
distress, tortious interference with contractual relations, tortious
interference with corporate governance or prospective business advantage,
breach of contract, deceptive trade practices, libel, slander, usury,
conspiracy, wrongful acceleration of any indebtedness, wrongful foreclosure or
attempt to foreclose on any collateral relating to any indebtedness, action or
inaction, relationship or activity, service rendered, matter, cause or thing,
<PAGE>
whatsoever, express or implied, transpiring, entered into, created or existing
from the beginning of time to the date of the execution of this Agreement in
respect of the Existing Notes or the Existing Note Agreement, and sha ll
include, but not be limited to, any and all Claims in connection with, as a
result of, by reason of, or in any way related to or arising from the
existence of any relationships or communications by and between the Releasors
and the Released Parties with respect to the Existing Notes, the agreements
pursuant to which the Existing Notes were issued, and all agreements,
documents and instruments related thereto, as presently constituted and as the
same may from time to time be amended.
The Releasors acknowledge that they may hereafter discover facts different
from or in addition to those they now know or believe to be true with respect
to the Claims herein released. Notwithstanding the foregoing, the Releasors
agree that this Section 11.7 shall survive the termination hereof and shall
remain effective in all respects and waive the right to make any new,
different or additional claim on account of such different or additional
facts. The Releasors acknowledge that no representation or warranty of any
kind or character has been made to the Releasors by any one or more of the
Released Parties or any agent, representative or attorney of the Released
Parties to induce the execution of this Agreement containing this Section
11.7.
The Releasors hereby represent and warrant unto the Released Parties that
(a) the Releasors have the full right, power, and authority to execute
and deliver this Agreement containing this Section 11.7 without the necessity
of obtaining the consent of any other party;
(b) the Releasors have received independent legal advice from
attorneys of their choice with respect to the advisability of granting the
release provided herein, and with respect to the advisability of executing
this Agreement containing this Section 11.7;
(c) the Releasors have not relied upon any statements, representations
or promises of any of the Released Parties in executing this Agreement
containing this Section 11.7, or in granting the release provided herein;
(d) the Releasors have not entered into any other agreements or
understandings relating to the Claims;
(e) the terms of this Section 11.7 are contractual, not a mere
recital, and are the result of negotiation among all the parties; and
(f) this Section 11.7 has been carefully read by, and the contents
hereof are known and understood by, and it is signed freely by the Releasors.
The Releasors covenant and agree not to bring any claim, action, suit or
proceeding regarding or related in any manner to the matters released hereby,
and the Releasors further covenant and agree that this Section 11.7 is a bar
to any such claim, action, suit or proceeding.
All prior discussions and negotiations regarding the Claims have been and
are merged and integrated into, and are superseded by, this Section 11.7. The
Releasors understand, agree and expressly assume the risk of any fact not
recited, contained or embodied in this Section 11.7 which may hereafter turn
out to be other than, different from, or contrary to, the facts now known to
the Releasors or believed by the Releasors to be true, and further agree that
this Section 11.7 shall not be subject to termination, modification, or
rescission, by reason of any such difference in facts.
<PAGE>
11.8 Indemnification.
The Company and Record Town agree to indemnify the Purchasers and their
respective directors, officers, employees, agents and attorneys from, and hold
each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation, litigation or other proceedings) relating to, or in connection
with, the Notes including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).
<PAGE>
If this Agreement is satisfactory to each Purchaser, 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:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By /s/Victor Khosla
----------------
Name: Victor Khosla
Title: Managing Director
OAKTREE CAPITAL MANAGEMENT, LLC, as agent
and on behalf of certain funds and accounts
By /s/Bruce A. Karsh
-----------------
Name: Bruce A. Karsh
Title: President
By /s/Kenneth Liang
----------------
Name: Kenneth Liang
Title: Managing Director
& General Counsel
<PAGE>
FERNWOOD ASSOCIATES, L.P.
By /s/Ian R. MacKenzie
-------------------
Name: Ian R. MacKenzie
Title: General Partner
<PAGE>
FERNWOOD RESTRUCTURINGS LTD.
By /s/Ian R. MacKenzie
-------------------
Name: Ian R. MacKenzie
Title: General Partner
<PAGE>
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By /s/Joan M. Chiappe
------------------
Name: Joan M. Chiappe
Title: Vice President
TRANS WORLD ENTERTAINMENT CORPORATION
and
RECORD TOWN, INC.
AMENDED AND RESTATED
NOTE AGREEMENT
Dated as of July 26, 1996
$15,227,362.80
Variable Rate Senior Notes, Series B, Due July 31, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. THE NOTES 1
1.1 Background. 1
1.2 Authorization of Amendment and Restatement. 2
1.3 Amendment and Restatement. 3
1.4 Acquisition for Investment. 3
1.5 Failure of Conditions. 3
1.6 Expenses; Issue Taxes. 4
1.7 Restructuring Fee 5
2. WARRANTIES AND REPRESENTATIONS 5
2.1 Subsidiaries. 5
2.2 Corporate Organization and Authority. 5
2.3 Business, Property, Debt, Liens and Restrictions. 6
2.4 Financial Statements; Material Adverse Change. 6
2.5 Full Disclosure. 7
2.6 Pending Litigation; Compliance with Law. 7
2.7 Title to Properties. 7
2.8 Patents and Trademarks. 7
2.9 Sale of Notes is Legal and Authorized;
Obligations are Enforceable. 8
2.10 No Defaults. 8
2.11 Governmental Consent. 8
2.12 Taxes. 9
2.13 Margin Securities. 9
2.14 ERISA. 9
2.15 Company Actions. 9
2.16 Restated Credit Agreement; Restated Series A
Note Agreement 10
2.17 Movies Plus, Inc 10
3. CLOSING CONDITIONS 10
3.1 Opinions of Counsel. 11
3.2 Compliance with this Agreement. 11
3.3 Private Placement Number. 11
3.4 Execution and Delivery of this Agreement and
the Notes 11
3.5 Restated Credit Agreement. 11
3.6 Restated Series A Note Agreement. 12
3.7 Intercreditor Agreement. 12
3.8 Restructuring Fee. 12
3.9 Expenses. 12
3.10 Interest on Existing Notes. 12
3.11 Subsidiary Guaranties. 13
3.12 Collateral Trust Indenture and Other
Security Documents. 13
3.13 Movies Plus Subordination 13
3.14 Representations And Warranties True 14
3.15 Authorization of Transactions 14
<PAGE>
3.16 Proceedings Satisfactory 14
4. DIRECT PAYMENT 14
5. REPAYMENTS 14
5.1 Mandatory Early Repayments. 14
5.2 Early Repayment Option. 15
5.3 Notice of Optional Repayment. 16
5.4 Repayment Upon Change of Control. 16
5.5 Repayment Upon Material Asset Sale or Tax Refund. 16
5.6 Repayment from Excess EBITDA 17
5.7 Partial Early Payments To Be Pro Rata 18
6. REGISTRATION; SUBSTITUTION OF NOTES 18
6.1 Registration of Notes. 18
6.2 Exchange of Notes. 18
6.3 Replacement of Notes. 18
7. COMPANY BUSINESS COVENANTS 19
7.1 Payment of Taxes and Claims. 19
7.2 Maintenance of Properties and Corporate Existence. 19
7.3 Maintenance of Office. 20
7.4 Liens and Encumbrances. 20
7.5 Limitations On Debt Incurrence; Prepayments
and Amendments. 22
7.6 Subsidiary Debt. 23
7.7 Current Ratio. 23
7.8 Maintenance of Ownership. 23
7.9 Fixed Charge Ratio. 23
7.10 Tangible Net Worth. 24
7.11 Tangible Net Worth of Record Town 24
7.12 Distributions and Investments. 24
7.13 Sale of Property and Subsidiary Stock. 24
7.14 Merger and Consolidation. 25
7.15 Guaranties. 25
7.16 ERISA Compliance. 25
7.17 Transactions with Affiliates. 25
7.18 Tax Consolidation. 26
7.19 Acquisition of Notes. 26
7.20 Lines of Business. 26
7.21 Required Subsidiary Guaranties. 26
7.22 Limitations on Preferred Stock. 26
7.23 Limitation on Inventory Turnover 26
7.24 Maintenance of Consolidated EBITDA. 27
7.25 Limitation on Capital Expenditures 27
7.26 Limitation on Leases 27
7.27 Limitation on Sale and Leaseback 27
7.28 Limitation on Changes in Fiscal Year 27
7.29 Limitation on Debt to Consolidated Tangible
Net Worth. 28
<PAGE>
7.30 Store Openings. 28
7.31 No Amendment of Debt Instruments; Maintenance
of Accounts 28
7.32 Revolver Sweep 29
7.33 Foreign Subsidiaries 29
8. INFORMATION AS TO COMPANY 29
8.1 Financial and Business Information. 29
8.2 Officers' Certificates. 32
8.3 Accountants' Certificates. 32
8.4 Inspection. 32
8.5 Quarterly Meetings. 33
8.6 Monthly Monitoring Reports. 33
8.7 Excess EBITDA. 33
8.8 Tax Reserve. 33
8.9 Additional Financial Information 33
9. EVENTS OF DEFAULT. 34
9.1 Nature of Events. 34
9.2 Default Remedies. 35
9.3 Annulment of Acceleration of Notes. 36
10. INTERPRETATION OF THIS AGREEMENT 36
10.1 Terms Defined. 36
10.2 Accounting Principles. 46
10.3 Directly or Indirectly. 46
10.4 Section Headings and Table of Contents;
Independent Construction. 46
10.5 Governing Law. 47
11. MISCELLANEOUS 47
11.1 Notices. 47
11.2 Reproduction of Documents. 48
11.3 Survival. 48
11.4 Successors and Assigns. 48
11.5 Amendment and Waiver. 48
11.6 Duplicate Originals. 49
11.7 Waiver and Release. 49
11.8 Indemnification. 51
ANNEX 1 -- Purchaser Information
EXHIBIT A -- Form of Note
EXHIBIT B -- Disclosure Schedules
EXHIBIT C-1 -- Form of Matthew H. Mataraso Legal Opinion
EXHIBIT C-2 -- Form of Jones, Day, Reavis & Pogue Legal Opinion
<PAGE>
EXHIBIT D -- Form of Intercreditor Agreement
EXHIBIT E -- Form of Subsidiary Guaranty
EXHIBIT F -- Form of Collateral Trust Indenture
EXHIBIT G -- Form of Security Agreement
EXHIBIT H -- Form of Trademark Security Agreement
EXHIBIT I -- Form of Pledge Agreement
EXHIBIT J -- Form of Concentration Bank Account Agreement
EXHIBIT K -- Form of Movies Plus Subordination Agreement
EXHIBIT L -- Contents of Monthly Report
<PAGE>
TRANS WORLD ENTERTAINMENT CORPORATION
RECORD TOWN, INC.
38 Corporate Circle
Albany, New York 12203
AMENDED AND RESTATED
NOTE AGREEMENT
$15,227,362.80
Variable Rate Senior Notes, Series B, Due July 31, 1998
Dated as of July 26, 1996
TO THE PURCHASER
LISTED ON ANNEX 1
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 Subsidiary of the Company, hereby
jointly and severally agree with the Purchaser as follows:
1. THE NOTES
1.1 Background.
Pursuant to an Amended and Restated Note Agreement dated as of June 29,
1995 (the "Existing Note Agreement"), the Company and Record Town issued
Seventeen Million Five Hundred Thousand Dollars ($17,500,000) in aggregate
principal amount of their joint and several Variable Rate Senior Notes due
July 31, 1996 (the "Existing Notes"). The Existing Notes are substantially in
the form of Exhibit B attached to the Existing Note Agreement. The aggregate
principal amount of Existing Notes presently outstanding is $15,227,362.80.
Certain Events of Default have occurred under the Existing Note Agreement and
are currently the subject of the Waiver Agreement. The Company and Record
Town have requested an extension of the maturity date of the Existing Notes
and the modification of certain covenants and other provisions contained in
the Existing Note Agreement. The Purchasers have, subject to the satisfaction
of the conditions precedent set forth in Section 3 of this Agreement,
consented to certain of such requests in consideration of an increased rate of
interest and other modifications. The mutual agreement of the parties as to
such matters is set forth in the amendment and restatement of the Existing
Note Agreement and the Existing Notes provided for in this Agreement.
<PAGE>
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 A 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
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, 1998;
(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:
(i) prior to June 30, 1998, the greater of eleven and one-half percent
(11.50%) per annum or two and one-half percent (2.50%) per annum over the
Prime Rate, and
(ii) from and after June 30, 1998, the greater of fourteen percent
(14%) per annum or five percent (5.0%) per annum over the Prime Rate,
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, 1996 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
lesser of
(i) one and one-half percent (1.50%) per annum over the rate otherwise
applicable thereto, or
(ii) the highest rate allowed by applicable law; and
(f) be in the form of the Note set out in Exhibit A 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.
<PAGE>
1.3 Amendment and Restatement.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 of this Agreement, the Purchaser, by its execution of this
Agreement, hereby agrees and consents 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 of the conditions precedent set forth in Section 3 of this
Agreement, the Purchaser, by its execution of this Agreement, hereby agrees
and consents 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
the Purchaser the aggregate principal amount of Notes set forth opposite its
name on the schedule attached to this Agreement as Annex 1, in replacement of
its Existing Notes. Contemporaneously with the receipt by the Purchaser of
such Notes, the Purchaser hereby agrees to re-deliver to the Company for
cancellation the Existing Notes held by it. 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.
The Purchaser represents to the Company and Record Town, and by agreeing
to the amendment and restatement of the Existing Note Agreement and the
substitution of the Notes for the Existing Notes it is specifically understood
and agreed, that it is acquiring the Notes for investment for its own account
or the account of its 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 its 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 its 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 the 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, 1996, this Agreement shall terminate, and the Existing
Note Agreement and the Existing Notes shall continue to be in full force and
effect.
<PAGE>
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 and the other Financing
Documents;
(ii) the reasonable fees and disbursements of the Purchaser's
special counsel, the Purchaser's financial advisor, and the Security
Trustee.
(iii) the Purchaser's out-of-pocket expenses;
(iv) all expenses relating to any Guaranty Agreement;
(v) all expenses relating to any amendments or waivers pursuant to
the provisions of this Agreement or "workouts" with respect hereto,
including, without limitation, all out-of-pocket fees, costs and expenses
paid or incurred by any holder of any Note or any security trustee acting
on behalf of any such holder in connection with the negotiation,
preparation, drafting, implementation, amendment, modification,
administration and enforcement of this Agreement, the Notes or any other
Financing Document, or for auditing, appraising, evaluating or otherwise
monitoring the Collateral or other credit support for the Notes; 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 the Purchaser 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 the Purchaser's
special counsel and financial advisor which are reflected in the statements
delivered by such Persons on or before 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.
<PAGE>
1.7 Restructuring Fee.
In consideration of the Purchaser's willingness to enter into the
transactions contemplated hereby, the Company shall pay to the Purchaser, on a
pro rata basis, a restructuring fee as described below. A portion of said fee
equal to one percent (1.0%) of the principal amount of Notes held by the
Purchasers on the Effective Date shall be payable on the Effective Date in
accordance with Section 3.8. A portion of said fee equal to one half of one
percent (0.50%) of the principal amount of the Notes held by the Purchasers on
July 31, 1997 shall be payable to the Purchasers on July 31, 1997, but said
amount shall not be payable (and the Company and Record Town shall not be
liable therefor) if the Notes are paid in full prior to July 31, 1997. A
portion of said restructuring fee equal to $625,000 shall be payable on the
earlier of August 1, 1998 or the acceleration of the Notes pursuant to Section
9.2, but said amount shall not be payable (and the Company and Record Town
shall not be liable therefor) if the Note s are paid in full prior to the
earlier of August 1, 1998 or such acceleration.
2. WARRANTIES AND REPRESENTATIONS
To induce the Purchaser to enter into this Agreement, the Company and
Record Town jointly and severally warrant and represent to the Purchaser that
as of the Effective Date each of the following statements will be true and
correct:
2.1 Subsidiaries.
Part 2.1 of Exhibit B 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.
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
<PAGE>
(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
February 3, 1996 filed by the Company with the Securities and Exchange
Commission and previously delivered to the Purchaser correctly describes the
general nature of the business and principal Properties of the Company and its
Subsidiaries.
(b) Part 2.3(b) of Exhibit B 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
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 Series A Note Agreement and the Restated Credit Agreement.
2.4 Financial Statements; Material Adverse Change.
(a) (i) The consolidated balance sheets of the Company and its
Subsidiaries as of February 3, 1996 and January 28, 1995 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 KPMG Peat Marwick LLP,
independent certified public accountants, and (ii) the consolidated balance
sheets of the Company and its Subsidiaries as of January 29, 1994, January 30,
1993 and February 1, 1992 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, copies of
which have been delivered to the Purchaser, have been prepared in accordance
with generally accepted accounting principles consistently applied, and
present fairly the financial position of the Company and its Subsidi aries 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 February 3, 1996, there have been no materially adverse
changes in the Properties, business, prospects, operating results or condition
(financial or otherwise) of Record Town, the Company and the Subsidiaries,
taken as a whole.
<PAGE>
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 the Purchaser 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 the Purchaser
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 Record Town, the Company and the Subsidiaries, taken as a whole, or the
ability of the Company or Record Town to perform this Agreement, the Notes and
the other Financing Documents.
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 Record Town, the Company and
the Subsidiaries, taken as a whole, or the ability of Record Town or the
Company to perform this Agreement, the Notes and the other Financing
Documents. 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 Record Town, the Company and
the Subsidiaries, taken as a whole, or the ability of the Company or Record
Town to perform this Agreement, the Notes and the other Financing Documents.
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. Part
2.8 of Exhibit B to this Agreement correctly sets forth all of the trademarks,
service marks, trade names, copyrights, licenses and related rights owned by
the Company or any Subsidiary.
<PAGE>
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 of this Agreement, the Notes and the other Financing Documents by
each of the Company, Record Town and the Subsidiaries, and compliance by each
of the Company, Record Town and each of the Subsidiaries with all of the
provisions of each Financing Document to which it is a party:
(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 Purchaser of this Agreement, each of this Agreement, the Notes
and each other Financing Document has been duly authorized by all necessary
action on the part of each of the Company, Record Town and each Subsidiary
party thereto; has been executed and delivered by duly authorized officers of
each of the Company, Record Town and each Subsidiary party thereto; and
constitutes the legal, valid and binding obligation of each of the Company,
Record Town and each Subsidiary party thereto, enforceable in accordance with
its terms, except that the enforceability of this Agreement, the Notes and
each other Financing Document 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.
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 and each other
Financing Document, 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
<PAGE>
with the offer, issue, sale or delivery of the Notes or the execution,
delivery and performance of this Agreement and the other Financing Documents
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.
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 February
3, 1996 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 1995, 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.
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 February 3, 1996 to and including the Effective Date.
<PAGE>
2.16 Restated Credit Agreement; Restated Series A Note Agreement.
(a) The Company has delivered to the Purchaser true, complete and
correct copies of each of the Restated Credit Agreement and the Restated
Series A Note 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 Co
mpany'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.
2.17 Movies Plus, Inc.
Except for (i) Debt owed to the Company, Record Town or a Subsidiary, and
(ii) each of (A) its Guaranty Agreements and (B) its guarantee, in favor of
the Banks, of the obligations of the Company and Record Town under the
Restated Bank Agreement, the liabilities of Movies Plus, Inc., no portion of
which constitutes Debt, do not exceed $500,000 in the aggregate.
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 of the following conditions precedent:
<PAGE>
3.1 Opinions of Counsel.
The Purchaser 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 C-1 and C-2 hereto and as to such other
matters as they may reasonably request. This Section 3.1 shall constitute
direction by the Company to such counsel to deliver such closing opinions to
the Purchaser.
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. The Purchaser shall have received a certificate, dated
the Effective Date and signed by a duly authorized officer of each of the
Company and Record Town, certifying that all of the agreements and conditions
specified in the immediately preceding sentence have been satisfied.
3.3 Private Placement Number.
The Company shall have obtained from Standard & Poor's Corporation and
furnished to the Purchaser a private placement number for the Notes.
3.4 Execution and Delivery of this Agreement and the Notes
The Company, Record Town and the Purchaser shall have entered into this
Agreement and each party hereto shall be prepared to perform its respective
obligations hereunder. Each of the Company, Record Town and the Purchaser
shall have executed and delivered a counterpart of this Agreement to each
other party hereto. The Purchaser shall have received one or more Notes (in
the amount(s) and bearing the registration number(s) set forth below its name
on Annex 1), dated the Effective Date and duly executed and delivered by each
of the Company and Record Town, in replacement of the Existing Notes held by
the Purchaser.
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 the Purchaser. The Company shall have delivered to the
Purchaser true, correct and complete copies of the Restated Credit Agreement
and all such documents and instruments, including all waivers relating thereto
and all side letters or agreements affecting the terms thereof.
<PAGE>
3.6 Restated Series A Note Agreement.
The Company, Record Town and each of the Series A Noteholders shall have
entered into an agreement amending and restating the Existing Series A Note
Agreement, which agreement and all documents and instruments executed and
delivered in connection therewith shall be in form and substance satisfactory
to the Purchaser.
3.7 Intercreditor Agreement.
The Purchaser, each of the Series A Noteholders and the Banks shall have
executed and delivered an Intercreditor Agreement in the form of Exhibit D
(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 have been accepted and agreed to by each of the
Company, Record Town and the Security Trustee, and shall be in full force and
effect.
3.8 Restructuring Fee.
The Company and Record Town shall have paid to the Purchaser, and the
Purchaser shall have received, a portion of the restructuring fee described in
Section 1.7 equal to the product of:
(a) one percent (1.0%); times
(b) the outstanding principal amount of the Notes held by the
Purchaser on the Effective Date.
Such payment shall be made by wire transfer of immediately available funds to
the account of the Purchaser to which the Company and Record Town are
obligated to make payments of interest in respect of the Purchaser's 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 the Purchaser all accrued interest on the
Existing Notes held by the Purchaser to (but not including) the Effective Date
at the rate of 10.50% per annum, and additional interest on the Purchaser's
Existing Notes for the period from May 1, 1996 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 Notes pursuant to Section 1.2(d) if the Notes had
been outstanding at all times from and after May 1, 1996 over 10.50% per
annum.
<PAGE>
3.11 Subsidiary Guaranties.
Each Subsidiary (other than Record Town) shall have executed and delivered
an agreement in the form of Exhibit E (collectively, the "Guaranty Agreement")
unconditionally guarantying payment of the Notes.
3.12 Collateral Trust Indenture and Other Security Documents.
(a) Each of the Company, Record Town, the Guarantors and the Security
Trustee shall have executed and delivered to the Purchaser an original
counterpart of a Collateral Trust Indenture, in the form of Exhibit F (the
"Collateral Trust Indenture"), and the Collateral Trust Indenture shall be in
full force and effect.
(b) Each of the Company, Record Town, the Guarantors and the Security
Trustee shall have executed and delivered to the Purchaser an original
counterpart of a Security Agreement, in the form of Exhibit G (collectively
the "Security Agreement"), and the Security Agreement shall be in full force
and effect.
(c) The Security Trustee and each of the Company, Record Town and the
Guarantors shall have executed and delivered to the Purchaser an original
counterpart of a Trademark Security Agreement, in the form of Exhibit H
(collectively, the "Trademark Security Agreement"), and the Trademark Security
Agreement shall be in full force and effect.
(d) The Security Trustee and Record Town shall have executed and
delivered to the Purchaser an original counterpart of a Pledge Agreement, in
the form of Exhibit I (the "Pledge Agreement"), and the Pledge Agreement shall
be in full force and effect.
(e) The Company, the concentration account bank named therein and the
Security Trustee shall have executed and delivered to the Purchaser an
original counterpart of a Depository Bank Agreement in the form of Exhibit J
(the "Concentration Bank Account Agreement"), and the Concentration Bank
Account Agreement shall be in full force and effect.
(f) The foregoing agreements shall secure the Notes and all of the
obligations under this agreement pari passu with the obligations due under the
Restated Series A Note Agreement and the Restated Credit Agreement; and the
Purchaser shall have received evidence satisfactory to it that the Liens
created by the foregoing agreements are valid and perfected Liens senior to
all other Liens upon the Collateral.
3.13 Movies Plus Subordination.
Each of the Company, Record Town and the Subsidiaries (other than Movies
Plus, Inc.) shall have executed and delivered a subordination agreement in the
form of Exhibit K (collectively, the "Movies Plus Subordination Agreement"),
and the Movies Plus Subordination Agreement shall be in full force and effect.
<PAGE>
3.14 Representations And Warranties True.
The warranties and representations set forth in Section 2 hereof shall be
true and correct as of the Effective Date.
3.15 Authorization of Transactions.
Each of the Company and Record Town shall have authorized, by all
necessary corporate action, the execution and delivery of this Agreement, the
Notes and each of the other documents and instruments executed and delivered
in connection herewith and the performance of all obligations of, and the
satisfaction of all conditions precedent pursuant to this Section 3 by, and
the consummation of all transactions contemplated by this Agreement by, the
Company and Record Town. The Purchaser shall have received a certificate from
each of the Company and Record Town, in form and substance satisfactory to the
Purchaser and its special counsel, certifying the adoption of resolutions of
the board of directors of the Company and Record Town, as the case may be,
authorizing such execution, delivery, performance, satisfaction and
consummation, which resolutions shall be attached to such certificate and
shall be in full force and effect. Each such certificate shall indicate that
there has been no resolution passed by such bo ard of directors which
conflicts with, amends or rescinds such resolutions.
3.16 Proceedings Satisfactory.
All proceedings taken in connection with the issuance of the Notes and all
documents and papers relating thereto shall be satisfactory to the Purchaser
and its special counsel. The Purchaser and its special counsel shall have
received copies of such documents and papers as they may reasonably request in
connection therewith, all in form and substance satisfactory to them.
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 Annex 1 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 on
each of the dates set out below, the principal amount of Notes set forth
opposite such date:
<PAGE>
Payment Date Principal Amount
08/30/96 $562,500.00
11/30/96 $250,000.00
02/28/97 $1,875,000.00
05/30/97 $250,000.00
08/30/97 $250,000.00
11/30/97 $250,000.00
02/28/98 $500,000.00
05/30/98 $250,000.00
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. In certain circumstances the amount of one or more of the
foregoing required repayments shall be deemed to have been reduced pursuant to
Section 5.1(b) or Section 5.6.
(b) Except as set forth in Section 5.6, the early repayment of any of
the Notes pursuant to Section 5.2, Section 5.5 or Section 5.6 or the
acquisition of the Notes by the Company or any Subsidiary shall not reduce or
otherwise affect the obligations of the Company and Record Town to make any
repayment required by Section 5.1(a); provided that if such early repayment is
made with the proceeds of a tax refund from a period prior to the Effective
Date (a "Tax Refund") or the proceeds of a sale of the stock or assets of
Movies Plus, Inc., ("Movies Plus Proceeds") such early repayment shall reduce
the next maturing repayments due under 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 w hich equals the product of (i) the
principal amount of the Notes required to be repaid on such date multiplied by
(ii) a fraction (A) the numerator of which shall equal $15,227,362.80 minus
the cumulative aggregate principal amount repaid pursuant to Section 5.4 after
giving effect to such Extraordinary Repayment and (B) the denominator of which
shall equal $15,227,362.80.
5.2 Early Repayment Option.
Subject to Section 7.5(b) of this Agreement, the Company and Record Town
may pay 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 early repayment date.
<PAGE>
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:
(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 and 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 or Tax Refund.
(a) Material Asset Sale. Not more than two Business Days following the
consummation of any sale of (x) any Property (other than Collateral) 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
proceeds equal to or greater than $500,000, or (y) any Collateral, the Company
and Record Town shall, subject to Section 5.5(c), pay (or cause the selling
<PAGE>
Subsidiary to pay) to the holders of the Notes an amount of principal equal to
the product of (i) the Net Asset Sale Proceeds attributable to such sale
multiplied by (ii) the Noteholders' Percentage. Nothing in this Section 5.5
shall be deemed to permit such an asset sale without the consent of the
holders of the Notes obtained in accordance with Sections 7.13 and 11.5 of
this Agreement.
(b) Tax Refunds. Not more than two Business Days following the receipt of
any Tax Refund, the Company and Record Town shall, subject to Section 5.5(c),
pay to the holders of the Notes an amount of principal equal to the product of
(i) the amount of such Tax Refund multiplied by (ii) the Noteholders'
Percentage.
(c) Certain Credits. Notwithstanding anything in Section 5.5(a) or
Section 5.5(b) to the contrary and so long as no Default or Event of Default
exists, no principal payment shall be due with respect to Movies Plus Proceeds
or the proceeds of any Tax Refund under either of such Sections at any time,
except to the extent that the aggregate amount of Movies Plus Proceeds and
proceeds from Tax Refunds received by the Company or Record Town at or prior
to such time exceeds the aggregate amount of principal payments actually made
pursuant to Section 5.1(a) at or prior to such time.
5.6 Repayment from Excess EBITDA.
In addition to all other payments of principal required by this Section 5,
on each Payment Date the Company and Record Town will pay to the holders of
the Notes a principal amount of Notes equal to the Noteholders' Percentage of
forty-five percent (45%) of Excess EBITDA for the then current fiscal year
(or, in the case of a February Payment Date, the fiscal year then most
recently ended). For purposes of this Agreement, "Excess EBITDA" for any
fiscal year shall mean the amount, if any, by which Consolidated EBITDA for
such fiscal year (calculated as of the end of the most recently ended fiscal
quarter) exceeds the EBITDA Cushion as of the end of such fiscal quarter.
If immediately prior to the August or November Payment Date in any fiscal
year the aggregate principal payments made with respect to such fiscal year
pursuant to this Section 5.6 (exclusive of amounts deemed to have reduced
payments due under Section 5.1(a)) are greater than the Noteholders'
Percentage of forty-five percent (45%) of Excess EBITDA for such fiscal year,
the amount of the next required payment due pursuant to Section 5.1(a) shall
be deemed reduced by the amount of such overage (the "Cumulative EBITDA
Overage"). The Cumulative EBITDA Overage, if any, existing immediately prior
to a February Payment Date, shall in no event be deemed to reduce the payment
required by Section 5.1(a) on such February Payment Date, but shall instead be
applied to the principal payments due on the Notes in inverse order of
maturity.
If there is Excess EBITDA for a fiscal year, the Company and Record Town,
not later than ninety (90) days after the end of such fiscal year, shall
multiply the amount of Excess EBITDA for such fiscal year by a fraction the
numerator of which shall be the aggregate amount of all federal, state, and
local income tax liabilities shown as payable on consolidated tax returns
filed or to be filed by the Company for such fiscal year, and the denominator
of which shall be the amount of Consolidated EBITDA for such fiscal year. If
the resulting number (the "Resulting Number") is less than forty percent (40%)
of such Excess EBITDA, the Company shall immediately make a principal payment
<PAGE>
to the Noteholders in an amount equal to the Noteholders' Percentage
multiplied by a number equal to the remainder of (i) forty percent (40%) of
such Excess EBITDA, minus (ii) the Resulting Number. Payments made pursuant
to the preceding sentence shall be applied to the principal payments due on
the Notes in inverse order of maturity . If the Resulting Number is greater
than forty percent (40%) of such Excess EBITDA and the Company and Record Town
have made all payments of principal and interest required to have been made
with respect to such fiscal year under this Section 5.6, the next principal
payment required by Section 5.1(a) shall be deemed reduced by an amount equal
to the Noteholders' Percentage multiplied by the remainder of the Resulting
Number minus forty percent (40%) of such Excess EBITDA.
5.7 Partial Early Payments To Be Pro Rata.
If there is more than one holder of the Notes, the aggregate principal
amount of each required or optional partial payment (except a payment pursuant
to Section 5.4, which shall be made as therein provided) of the Notes shall be
allocated in units of One Thousand Dollars ($1,000) or multiples thereof among
the holders of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid amounts of the Notes held by each such
holder.
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
<PAGE>
(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:
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,
<PAGE>
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 holders of the Notes.
(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 Subsidiary as a 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
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 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
<PAGE>
performance of 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;
(3) Liens on Property of a Subsidiary, provided, they secure only
obligations owing to the Company or another 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 Subsidiary, provided,
that (A) the Company or such Subsidiary is in good faith prosecuting an
appeal or proceedings for review of such Liens incurred by the Company or
any Subsidiary for the purpose of obtaining a stay or discharge in the
course of any legal proceeding to which the Company or such 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 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) or Section 7.5(a)(v), 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 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;
<PAGE>
(9) Liens upon the Collateral created by one or more of the
Security Documents;
(10) Deposits in an aggregate amount not to exceed Five Hundred
Thousand Dollars ($500,000) to secure the reimbursement obligations of the
Company and/or Record Town in respect of standby or commercial letters of
credit issued for the account of the Company and/or Record Town by parties
other than the Banks; and
(11) Liens set forth on Part 2.3(b) of Exhibit B hereto,
provided, however, that such Liens shall not spread to cover other or
additional Debt or Property of the Company or any Subsidiary.
(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).
7.5 Limitations On Debt Incurrence; Prepayments and Amendments.
Neither the Company nor any Subsidiary will:
(a) be or become liable for any Adjusted Funded Debt other than:
(i) the Notes; (ii) the Series A Notes; (iii) indebtedness not to exceed
$65,260,126.26 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 (other than computers, cash
registers and related equipment referred to in clause (v) below), 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); (v) indebtedness incurred by the Company upon
reasonable and customary terms to replace and upgrade its (A) existing AS400
computer hardware and related equipment in an amount not to exceed Four
Million Dollars ($4,000,000) in the aggregate and (B) existing POS cash
register system in an amount not to exceed Six Million Dollars ($6,000,000) in
the aggregate; (vi) reimbursement obligations i n an aggregate amount not to
exceed Five Hundred Thousand Dollars ($500,000) secured by Liens permitted
under Section 7.4(a)(10) and incurred in respect of standby or commercial
letters of credit issued by parties other than the Banks for the account of
the Company and/or Record Town; and (vii) other indebtedness outstanding on
the Effective Date and reflected on Exhibit B;
(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
<PAGE>
the Commitment and the outstanding principal amounts of the Notes and of the
Series A 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.
Nothing in this Section 7.5 shall permit an expenditure not permitted by
Section 7.25.
7.6 Subsidiary Debt.
No Subsidiary, except for Record Town, will become liable for, have
outstanding, or permit its Property to be subject to, any Prior Indebtedness.
Movies Plus, Inc. shall have no Debt other than Debt which is (i) owing to the
Company, Record Town, or a Guarantor and (ii) subject to the Movies Plus
Subordination Agreement.
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 150% 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 135% 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 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
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) and Section
7.4(a)(9)), 100% of the outstanding capital stock of Record Town and each
other Subsidiary; provided, however, that Record Town may contract for and
consummate a sale of all or substantially all of the capital stock of Movies
Plus, Inc. in accordance with Section 5.1(b).
7.9 Fixed Charge Ratio.
On the final day of the first and second fiscal quarter of each fiscal
year, Consolidated Income Available for Fixed Charges shall be not less than
100% of Consolidated Fixed Charges for the period of four (4) fiscal quarters
ended on such dates. On the final day of the third fiscal quarter of each
fiscal year and the fourth fiscal quarter of the 1996 fiscal year,
Consolidated Income Available for Fixed Charges shall be not less than 110% of
Consolidated Fixed Charges for the period of four (4) fiscal quarters ended on
such dates. On the final day of the 1997 fiscal year, Consolidated Income
Available for Fixed Charges shall be not less than 115% of Consolidated Fixed
Charges for the fiscal year ended on such date.
<PAGE>
7.10 Tangible Net Worth.
As of the final day of each fiscal quarter set forth below, the Company
will maintain Consolidated Tangible Net Worth of not less than the amount set
forth opposite such fiscal quarter:
Fiscal Quarter Amount
1st Quarter 1996 $75,000,000
2nd Quarter 1996 $75,000,000
3rd Quarter 1996 $75,000,000
4th Quarter 1996 $85,000,000
1st Quarter 1997 $80,000,000
2nd Quarter 1997 $80,000,000
3rd Quarter 1997 $80,000,000
4th Quarter 1997 $90,000,000
1st Quarter 1998 $80,000,000
7.11 Tangible Net Worth of Record Town.
As of the final day of each fiscal quarter set forth below, Record Town
will maintain Tangible Net Worth of not less than the amount set forth
opposite such fiscal quarter:
Fiscal Quarter Amount
1st Quarter 1996 $25,000,000
2nd Quarter 1996 $25,000,000
3rd Quarter 1996 $25,000,000
4th Quarter 1996 $35,000,000
1st Quarter 1997 $30,000,000
2nd Quarter 1997 $30,000,000
3rd Quarter 1997 $30,000,000
4th Quarter 1997 $40,000,000
1st Quarter 1998 $30,000,000
7.12 Distributions and Investments.
Neither the Company nor any 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 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
Subsidiary to issue or transfer any shares of its stock or any other
Securities exchangeable or convertible into its stock (such stock and other
<PAGE>
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 Subsidiary whose shares are the subject of
the transaction, provided that these restrictions do not apply to:
(1) the issue of directors' qualifying shares;
(2) the transfer of Property (other than Subsidiary Stock) in the
ordinary course of business; and
(3) the transfer of Property by Movies Plus, Inc. or the transfer
of the stock of Movies Plus, Inc., in each case, made in accordance with
Section 5.1(b).
7.14 Merger and Consolidation.
The Company will not, and will not permit any Subsidiary to, be a party to
any merger or consolidation or sell, lease or otherwise transfer all or
substantially all of its Property.
7.15 Guaranties.
Neither the Company nor any Subsidiary will become liable for any Guaranty
(except a Guaranty of any indebtedness, dividend or other obligation as to
which the Company or a 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 Subsidiary
pursuant to Section 4068 of ERISA.
7.17 Transactions with Affiliates.
Neither the Company nor any 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.
<PAGE>
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 Subsidiary nor any Affiliate will, directly or
indirectly, acquire or make any offer to acquire any Notes unless the Company
or such 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.
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 each of its Subsidiaries other than Record Town,
on or before the later of the Effective Date or the tenth (10th) day after the
acquisition of such Subsidiary, to enter into a guaranty of the Notes pursuant
to an agreement to the effect and substantially in the form of Exhibit E
hereto. Each Subsidiary required to execute a Guaranty Agreement pursuant to
the provisions of Section 3.11 or this Section 7.21 shall be a "Required
Guarantor". The Company shall cause each Required Guarantor to deliver an
original executed copy of such Guaranty to each holder of Notes, together with
certified copies of the resolutions of the board of directors of such Required
Guarantor authorizing the execution, delivery and performance thereof, with
appropriate shareholder consents or approvals attached.
7.22 Limitations on Preferred Stock.
Neither the Company, Record Town nor any other 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:
<PAGE>
Fiscal Quarter Amount
First .3
Second .6
Third .7
Fourth 1.5
7.24 Maintenance of Consolidated EBITDA.
Consolidated EBITDA for each of the first three quarters of each fiscal
year shall be not less than ($2,000,000). Consolidated EBITDA for the fourth
fiscal quarter of 1996 shall be not less than $24,000,000. Consolidated
EBITDA for the fourth fiscal quarter of 1997 shall be not less than
$27,000,000.
7.25 Limitation on Capital Expenditures.
The Company and the Subsidiaries shall not make capital expenditures
which, in the aggregate, exceed the following amounts in the following fiscal
years:
Fiscal Year Beginning Amount
1996 $12,000,000
1997 $12,000,000
1998 (through July 31) $ 6,000,000
7.26 Limitation on Leases.
Neither the Company nor any 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
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 Subsidiary shall enter into any arrangement
with any Person whereby the Company or any 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 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
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.
<PAGE>
7.29 Limitation on Debt to Consolidated Tangible Net Worth.
As of the final day of each fiscal quarter set forth below, the Company
shall not permit the ratio of (a) total liabilities of the Company and its
Subsidiaries to (b) Consolidated Tangible Net Worth, to exceed the amount set
forth opposite such fiscal quarter:
Fiscal Quarter Ratio
1st Quarter 1996 2.30 to 1
2nd Quarter 1996 2.50 to 1
3rd Quarter 1996 3.00 to 1
4th Quarter 1996 2.10 to 1
1st Quarter 1997 2.10 to 1
2nd Quarter 1997 2.30 to 1
3rd Quarter 1997 2.80 to 1
4th Quarter 1997 1.90 to 1
1st Quarter 1998 2.00 to 1
2nd Quarter 1998 2.10 to 1
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 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.
The Company shall not, and shall not permit any Subsidiary to, (i) open
any new store other than relocations or (ii) enter into any lease in
connection with or for the purpose of opening any new store if, after giving
effect to the opening of such store or the entering into of such lease, a
default under Section 7.25 would exist; provided, however, that in the
ordinary course of business the Company and Record Town may enter into
renewals of existing store leases.
7.31 No Amendment of Debt Instruments; Maintenance of Accounts.
The Company shall not, without the prior written consent of all holders of
the Notes:
(a) 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); or
(b) maintain any cash balances or cash management accounts other than
at one or more of the Banks or any other financial institution that has
executed a valid Concentration Bank Account Agreement satisfactory to the
Security Trustee; provided, however, that the Company may continue to
maintain, in a manner consistent with its past practices, existing store
accounts at one or more other banks whether or not such banks execute any such
agency agreement.
<PAGE>
7.32 Revolver Sweep.
If on any date prior to the termination of the Commitment the aggregate
cash balances of the Company, Record Town and the Subsidiaries (including cash
on deposit and cash on hand) exceed the product of $15,000 multiplied by the
number of retail stores then being operated by the Company, Record Town and
the Subsidiaries, the Company shall, within one Business Day, cause the amount
of such excess to be applied, first, to a non-permanent reduction of the
outstanding indebtedness under the Restated Credit Agreement, and second, to
cash collateralize the letters of credit outstanding under the Restated Credit
Agreement.
7.33 Foreign Subsidiaries.
The Company shall not, and shall not permit any Subsidiary to, create or
permit to be created any Subsidiary under the laws of any jurisdiction other
than the United States of America or a jurisdiction thereof.
8. INFORMATION AS TO COMPANY
8.1 Financial and Business Information.
The Company will deliver to the Purchaser, and to each other institutional
holder of outstanding Notes, and, in the case of Section 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:
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries and of the Company and its 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 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:
<PAGE>
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries, and of the Company and its Subsidiaries, as at
the end of that year, and
(ii) consolidated statements of income, retained earnings and
cash flows of the Company and its consolidated subsidiaries, and of the
Company and its 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;
(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;
<PAGE>
(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 Series A Note
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;
(j) Monthly Information. Within thirty (30) days after the end of
each month, a report containing the information contemplated by Exhibit L
hereto. Such report shall be signed by the President, the Chief Financial
Officer or the Treasurer of the Company;
(k) Identity of Banks. Within fifteen (15) days after the Company
obtains knowledge of any transfer or other change in the ownership of any of
the Bank Notes, or, with reasonable promptness after a request therefor, the
Company shall deliver a notice to each holder of Notes setting forth the names
and addresses of each of the Banks and the respective Commitment of, and the
principal amount of the Loans (as defined in the Restated Credit Agreement)
owing to, each Bank at such time; and
(l) Requested Information. With reasonable promptness, such other
data and information as from time to time may be reasonably requested.
<PAGE>
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 representatives of the Purchaser 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 the Purchaser pursuant to
this Agreement shall be treated as confidential information by the Purchaser.
The Purchaser agrees to use reasonable efforts to refrain from disclosing such
information to any other Person (excluding any of the Purchaser's officers,
employees, agents or counsel), except (1) in c onnection with selling or
otherwise realizing upon the Purchaser's 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 the Purchaser, 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 that is
otherwise publicly available, (5) in connection with the enforcement of the
Purchaser's rights hereunder or under the Notes and (6) disclosures to any
subsequent holders of the Notes.
<PAGE>
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 holders of the Notes may request, shall make themselves available at a
reasonably convenient location to meet with representatives of the holders of
the Notes 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 Monthly Monitoring Reports.
The Company and Record Town shall pay up to $5,000.00 per month of the
fees and expenses of Policano & Manzo, L.L.C. (or other financial consultant
acceptable to the Banks, the holders of the Series A Notes and the holders of
the Notes) incurred to produce monthly monitoring reports of the type
heretofore furnished. The Company and Record Town shall give such financial
consultant such access to its books and records as is necessary to permit such
consultant to produce such reports on a timely basis.
8.7 Excess EBITDA.
As soon as possible and in any event at least three (3) days before each
Payment Date, the Company shall furnish to each holder of Notes a statement,
certified by the chief financial officer of the Company, setting forth in
reasonable detail the computation of (a) Consolidated EBITDA, (b) Excess
EBITDA and (c) the Cumulative EBITDA Overage for the relevant fiscal period
then most recently ended, and the resulting principal payment, if any,
required by Section 5.6.
8.8 Tax Reserve.
As soon as possible and in any event no later than ninety (90) days after
the end of each fiscal year, the Company shall furnish to each holder of Notes
a statement, certified by the chief financial officer of the Company, setting
forth in reasonable detail the computations required by the third paragraph of
Section 5.6 of this Agreement, including, as appropriate, the amount of any
payment due to the holders of Notes pursuant to such paragraph or the amount
by which the next payment required by Section 5.1(a) shall be reduced pursuant
to such paragraph.
8.9 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.
<PAGE>
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 7.32, or 8.1 or to make any payment
required by Section 1.7;
(d) Other Defaults. Failure to comply with any other provision of
this Agreement or any other Financing Document, which failure 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, in any Financing
Document 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 Guaranty Agreement or any Financing Document shall prove to
have been false or misleading in any material respect;
(f) Default on Other Debt. Failure by the Company or any 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 Five Hundred Thousand Dollars ($500,000), 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 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 Subsidiary, is adjudicated bankrupt or insolvent; or an order for relief
is entered under the Federal Bankruptcy Code against the Company or any
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 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;
<PAGE>
(h) Voluntary Petitions. The Company, or any 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
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 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
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 holders of the Series A Notes 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
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, Subsidiaries and Affiliates) may
exercise any right, power or remedy permit ted 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
<PAGE>
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, 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;
(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;
<PAGE>
(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 Person in which the Company owns less than 49% of
the Voting Stock.
Affiliate -- a Person (other than a 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.
Bank Notes -- the promissory notes issued to evidence indebtedness under
the Restated Credit Agreement.
Banks -- at any time, means and includes each of the holders of Bank Notes
at such time.
Business Day -- any day other than a Saturday, Sunday or other day on
which commercial banking institutions in the State of New York are authorized
or obligated by law or executive order to be closed.
Business Plan -- means the Company's Three Year Strategic Business Plan,
dated as of December 12, 1995, as updated and supplied by the Company to the
holders of the Notes prior to the Effective Date.
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.
Collateral -- has the meaning ascribed to such term in the Collateral
Trust Indenture.
Collateral Trust Indenture -- Section 3.12.
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.
<PAGE>
Consolidated Current Assets -- at any date, means the amount at which the
current assets of the Company and all 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 Subsidiaries (excluding, for
purposes of computing current liabilities, indebtedness under the Notes and
the Series A 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
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 Subsidiaries, means on any date 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 the period of
four fiscal quarters ended on such date.
Consolidated Net Income -- for any period, means net earnings after income
taxes of the Company and each Subsidiary (only for the period during which it
is a Subsidiary) determined on a consolidated basis, provided that there shall
be excluded therefrom after giving effect to any related tax effect:
(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'
<PAGE>
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.
Cumulative EBITDA Overage -- Section 5.6.
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 February 3, 1996.
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.
Distribution -- means and includes:
(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); and
(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.
<PAGE>
EBITDA Cushion -- with respect to any fiscal quarter end shall mean the
amount set forth in the table below opposite the date of such quarter end.
Quarter End EBITDA Level
April 1996 $ 5,574,000
July 1996 $ 5,518,000
October 1996 $ 8,382,000
January 1997 $36,418,000
April 1997 $ 8,610,000
July 1997 $10,446,000
October 1997 $14,424,000
January 1998 $46,431,000
April 1998 $10,000,000
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 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.
Excess EBITDA -- Section 5.6
Excess Tax Reserve -- Section 5.6
Exchange Act -- means the Securities Exchange Act of 1934, as amended.
Existing Note Agreement -- Section 1.1.
Existing Notes -- Section 1.1.
Existing Series A Note Agreement -- means that certain Amended and
Restated Note Agreement, dated as of June 29, 1995, among the Company, Record
Town and the Series A Noteholders.
Extraordinary Repayment -- Section 5.1(b).
Financing Documents-- means the Restated Credit Agreement and the notes
issued pursuant thereto, the Restated Series B Note Agreement, the Series B
<PAGE>
Notes, this Agreement, the Notes, the Guaranty Agreements, the Security
Documents, the Intercreditor Agreement and the Collateral Trust Indenture.
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.
Guarantor -- means, at any time, Media Logic, Inc., Trans World Fixture
Company, Inc., Saturday Matinee, Inc., Movies Plus, Inc., and each other
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.
Guaranty Agreements -- Section 3.11
<PAGE>
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 Subsidiary shall 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.
Movies Plus Proceeds -- Section 5.1(b).
Net Asset Sale Proceeds -- means, 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)
provision for all income or other taxes payable as a result of such asset sale
and (b) payment of brokerage commissions and other reasonable fees and
expenses related to such asset sale. For purposes of this definition, the
board of directors of the Company shall determine in good faith the fair
market value of non-cash consideration.
Noteholders' Percentage -- shall mean a fraction the numerator of which is
17.5 and the denominator of which is 140.
Notes -- Section 1.2.
Other Restructuring Documents -- Section 2.16.
Payment Date -- the final day of each February, May, August and November
in each year.
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, sole proprietorship, corporation,
business trust, limited liability company, joint stock company, unincorporated
organization, joint venture, governmental authority or other entity of
whatever nature.
Pledge Agreement -- Section 3.12.
<PAGE>
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, at any time, the prime rate of interest that is
charged to the Company and Record Town by the Banks at such time with respect
to borrowings under the Restated Credit Agreement.
Prior Indebtedness -- means without duplication:
(1) unsecured Adjusted Funded Debt and Current Debt of Subsidiaries,
other than Record Town (except for debt to the Company or a Subsidiary);
(2) Adjusted Funded Debt and Current Debt of the Company and its
Subsidiaries, other than Record Town (except for debt to the Company or a
Subsidiary), secured by any Lien on the Property of the Company or any
Subsidiary; and
(3) the redemption or liquidation value (whichever is greater) of all
equity Securities of Subsidiaries (other than common stock) which are not
legally and beneficially owned by the Company and its Subsidiaries.
For purposes of this definition only, Adjusted Funded Debt and Current Debt of
Subsidiaries shall not include the Guaranties by the 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 Subsidiary of such Property or
granted or retained in connection with the acquisition or improvement by the
Company or a Subsidiary of such Property in order to permit or facilitate the
financing of such acquisition or improvement.
Purchaser -- shall mean the purchaser listed on Annex 1 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.
<PAGE>
Restated Credit Agreement -- means, collectively, those certain Amended
and Restated Revolving Credit Agreements, each dated as of the date hereof,
among the Company, Record Town and each of NBD Bank, Bear Stearns & Co., Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banco Santander Trust &
Banking Corporation (Bahamas) Ltd.
Restated Series A Note Agreement -- means that certain Amended and
Restated Note Agreement, dated as of the date hereof, among the Company,
Record Town and the Series A Noteholders, pursuant to which the Company and
Record Town have issued the Series A Notes.
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 Subsidiaries or any corporation which
concurrently with such investment becomes a Subsidiary;
(2) Property to be used in the ordinary course of business;
(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 Subsidiaries;
and
(11) investments in licensed departments or retail (including,
without limitation, retail mail order) joint ventures in the music, video,
or entertainment businesses.
<PAGE>
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.
Security Agreement -- Section 3.12.
Security Documents -- means the Collateral Trust Indenture, the Security
Agreement, the Pledge Agreement, the Concentration Bank Account Agreement, the
Trademark Security Agreement and the Movies Plus Subordination Agreement, as
the same may be amended from time to time.
Security Trustee -- IBJ Schroder Bank & Trust Company, in its capacity as
Security Trustee under the Collateral Trust Indenture, and its successors in
such capacity.
Series A Noteholders -- at any time, means:
(a) if such time is prior to the Effective Date, the holders of the
promissory notes issued and outstanding at such time under the Existing Series
B Note Agreement; and
(b) if such time is on or after the Effective Date, the holder or
holders of the Series B Notes issued and outstanding at such time.
Series A Notes -- means and includes each of the joint and several
Variable Rate Senior Notes, Series A, Due July 31, 1998, issued by the Company
and Record Town in the aggregate principal amount of $41,331,412.90 pursuant
to the Restated Series A Note Agreement.
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 50%
of the outstanding Voting Stock is at the time, directly or indirectly, owned
or controlled by the Company.
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.
Tax Refund -- Section 5.1(b).
Tax Reserve Deficiency -- Section 5.6
Trademark Security Agreement -- Section 3.12.
<PAGE>
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 March 11, 1996,
as amended, among the Company, Record Town and the Purchaser.
Wholly-Owned Subsidiary -- any 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 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.
10.4 Section Headings and Table of Contents; Independent Construction.
(a) Section Headings and Table of Contents, etc. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement appear
as a matter of convenience only, do not constitute a part hereof and shall not
affect the construction hereof. The words "herein," "hereof," "hereunder" and
"hereto" refer to this Agreement as a whole and not to any particular Section
or other subdivision. References to Sections are, unless otherwise specified,
references to Sections of this Agreement. References to Annexes and Exhibits
are, unless otherwise specified, references to Exhibits and Annexes attached
to this Agreement.
(b) Independent Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being independent
of each other covenant contained herein, and compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
<PAGE>
10.5 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) Method; Address. All communications hereunder or under the Notes
shall be in writing, shall be delivered by
(i) nationwide overnight courier, and
(ii) facsimile transmission, and
shall be addressed, if to the Company and/or Record Town, at the address and
telecopy number of the Company, as follows:
Trans World Entertainment Corp.
38 Corporate Circle
Albany, New York 12203
Attention: Robert J. Higgins
Telecopy No.: (518) 869-4819
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: David S. Kurtz
Telecopy No.: (312) 782-8585
and if to any of the holders of the Notes,
(A) if such holder is the Purchaser, at the address set forth on
Annex 1 for such holder, and further including any parties referred to on such
Annex 1 which are required to receive notices in addition to such holder, and
(B) if such holder is not the Purchaser, at the address and
telecopy number set forth in the register for the registration and transfer of
Notes maintained pursuant to Section 6.1 for such holder,
or to any such party at such other address as such party may designate by
notice duly given in accordance with this Section 11.1.
(b) When Given. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the address
<PAGE>
of the addressee (whether or not delivery is accepted) or received by the
telecopy machine of the recipient. Any communication not so addressed and
delivered shall be ineffective.
11.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by the Purchaser at the closing hereunder
(except the Notes themselves), and (c) financial statements, certificates and
other information previously or hereafter furnished to the Purchaser, may be
reproduced by the Purchaser by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process and the Purchaser
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 the Purchaser in
the regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be a dmissible 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 the Purchaser and shall survive the delivery to
the Purchaser of the Notes regardless of any investigation made by the
Purchaser or on the Purchaser's behalf. All statements in any such
certificate or other instrument shall constitute warranties and
representations by the Company and Record Town hereunder.
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 neither the Company
nor Record Town may transfer or assign any of their rights or interests
hereunder without the prior written consent of the holders of the Notes. 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 the Purchaser or the Purchaser's 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, 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 the Purchaser unless consented to by the Purchaser in writing; and provided
<PAGE>
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 C ompany 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.
11.7 Waiver and Release. For and in consideration of the agreements
contained in this Agreement and the Notes, and other good and valuable
consideration, the receipt and sufficiency of all of which are hereby
acknowledged, each of the Company and Record Town (the Company and Record Town
being collectively referred to in this Section 11.7 as the "Releasors") does
hereby jointly and severally fully RELEASE, REMISE, ACQUIT, IRREVOCABLY WAIVE
and FOREVER DISCHARGE the Purchaser, together with its predecessors,
successors, assigns, subsidiaries, affiliates and agents and all of their
past, present and future officers, directors, shareholders, employees,
contractors and attorneys, and the predecessors, heirs, successors and assigns
of each of them (the Purchaser and all of the foregoing being collectively
referred to in this Section 11.7 as the "Released Parties"), from and with
respect to any and all Claims (as defined below).
As used in this Section 11.7, the term "Claims" shall mean and include any
and all, and all manner of, action and actions, cause and causes of action,
suits, disputes, controversies, claims, debts, sums of money, offset rights,
defenses to payment, agreements, promises, notes, bonds, bills, covenants,
losses, damages, judgments, executions and demands of whatever nature, known
or unknown, whether in contract, in tort or otherwise, at law or in equity,
for money damages or dues, recovery of property, or specific performance, or
any other redress or recompense which have accrued or may ever accrue, may
have been had, may be now possessed, or may or shall be possessed in the
future by or on behalf of any one or more of the Releasors against any one or
more of the Released Parties for, upon, by reason of, on account of, or
arising from or out of, or by virtue of, any transaction, event or occurrence,
duty or obligation, indemnification, agreement, promise, warranty, covenant or
representation, breach of fiduciar y duty, breach of any duty of fair dealing,
breach of confidence, breach of funding commitment, undue influence, duress,
economic coercion, conflict of interest, negligence, bad faith, malpractice,
violations of federal or state securities laws or the Racketeer Influenced and
Corrupt Organizations Act, intentional or negligent infliction of mental
distress, tortious interference with contractual relations, tortious
interference with corporate governance or prospective business advantage,
breach of contract, deceptive trade practices, libel, slander, usury,
conspiracy, wrongful acceleration of any indebtedness, wrongful foreclosure or
attempt to foreclose on any collateral relating to any indebtedness, action or
<PAGE>
inaction, relationship or activity, service rendered, matter, cause or thing,
whatsoever, express or implied, transpiring, entered into, created or existing
from the beginning of time to the date of the execution of this Agreement in
respect of the Existing Notes or the Existing Note Agreement, and sha ll
include, but not be limited to, any and all Claims in connection with, as a
result of, by reason of, or in any way related to or arising from the
existence of any relationships or communications by and between the Releasors
and the Released Parties with respect to the Existing Notes, the agreements
pursuant to which the Existing Notes were issued, and all agreements,
documents and instruments related thereto, as presently constituted and as the
same may from time to time be amended.
The Releasors acknowledge that they may hereafter discover facts different
from or in addition to those they now know or believe to be true with respect
to the Claims herein released. Notwithstanding the foregoing, the Releasors
agree that this Section 11.7 shall survive the termination hereof and shall
remain effective in all respects and waive the right to make any new,
different or additional claim on account of such different or additional
facts. The Releasors acknowledge that no representation or warranty of any
kind or character has been made to the Releasors by any one or more of the
Released Parties or any agent, representative or attorney of the Released
Parties to induce the execution of this Agreement containing this Section
11.7.
The Releasors hereby represent and warrant unto the Released Parties that
(a) the Releasors have the full right, power, and authority to execute
and deliver this Agreement containing this Section 11.7 without the necessity
of obtaining the consent of any other party;
(b) the Releasors have received independent legal advice from
attorneys of their choice with respect to the advisability of granting the
release provided herein, and with respect to the advisability of executing
this Agreement containing this Section 11.7;
(c) the Releasors have not relied upon any statements, representations
or promises of any of the Released Parties in executing this Agreement
containing this Section 11.7, or in granting the release provided herein;
(d) the Releasors have not entered into any other agreements or
understandings relating to the Claims;
(e) the terms of this Section 11.7 are contractual, not a mere
recital, and are the result of negotiation among all the parties; and
(f) this Section 11.7 has been carefully read by, and the contents
hereof are known and understood by, and it is signed freely by the Releasors.
The Releasors covenant and agree not to bring any claim, action, suit or
proceeding regarding or related in any manner to the matters released hereby,
and the Releasors further covenant and agree that this Section 11.7 is a bar
to any such claim, action, suit or proceeding.
All prior discussions and negotiations regarding the Claims have been and
are merged and integrated into, and are superseded by, this Section 11.7. The
Releasors understand, agree and expressly assume the risk of any fact not
recited, contained or embodied in this Section 11.7 which may hereafter turn
out to be other than, different from, or contrary to, the facts now known to
<PAGE>
the Releasors or believed by the Releasors to be true, and further agree that
this Section 11.7 shall not be subject to termination, modification, or
rescission, by reason of any such difference in facts.
11.8 Indemnification. The Company and Record Town agree to indemnify
the Purchaser and its directors, officers, employees, agents and attorneys
from, and hold each of them harmless against, any and all losses, liabilities,
claims, damages or expenses incurred by any of them arising out of or by
reason of any investigation or litigation or other proceedings (including any
threatened investigation, litigation or other proceedings) relating to, or in
connection with, the Notes including, without limitation, the reasonable fees
and disbursements of counsel incurred in connection with any such
investigation, litigation or other proceedings (but excluding any such losses,
liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified).
<PAGE>
If this Agreement is satisfactory to the Purchaser, 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:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/Victor Khosla
----------------
Name: Victor Khosla
Title: Managing Director
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
TRANS WORLD ENTERTAINMENT CORPORATION
RECORD TOWN, INC.
and
NBD Bank,
DATED AS OF
July 26, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS 2
Section 1.1 Defined Terms 2
Section 1.2 Use of Defined Terms 22
Section 1.3 Accounting Terms 22
SECTION 2. AMOUNT AND TERMS OF CREDIT 22
Section 2.1 The Commitment 22
Section 2.2 The Notes; Interest 23
Section 2.3 Letters of Credit 24
Section 2.4 Notice of Borrowing 27
Section 2.5 Fees 28
Section 2.6 Termination or Reduction of Commitment 29
Section 2.7 Prepayments 34
Section 2.8 Computation of Interest and Commitment
Fee 35
Section 2.9 Requirements of Law 36
Section 2.10 Pro Rata Treatment and Payments;
Use of Proceeds 39
SECTION 3. CONDITIONS OF BORROWING 41
Section 3.1 Conditions of Effectiveness 41
Section 3.2 Conditions of All Loans 46
SECTION 4. REPRESENTATIONS AND WARRANTIES 47
Section 4.1 Corporate Existence 47
Section 4.2 Corporate Power and Authorization 47
Section 4.3 No Legal Bar to Loans 49
Section 4.4 No Material Litigation 49
Section 4.5 No Default 50
Section 4.6 Ownership of Properties; Liens 50
Section 4.7 Taxes 50
Section 4.8 Financial Condition 51
Section 4.9 Filing of Statements and Reports 51
Section 4.10 ERISA 52
Section 4.11 Environmental Matters 53
Section 4.12 Insurance 54
<PAGE>
Section 4.13 Institutional Investor Debt
Restructuring Documents 54
Section 4.14 Accuracy and Completeness
of Information 56
Section 4.15 Labor Matters 57
Section 4.16 Leaseholds, Permits, etc. 57
Section 4.17 Subsidiaries 58
Section 4.18 Existing Indebtedness 59
Section 4.19 Company Actions 59
Section 4.20 Security Documents 59
Section 4.21 Patents and Trademarks 60
Section 4.22 Movies Plus, Inc. 60
SECTION 5. AFFIRMATIVE COVENANTS 60
Section 5.1 Financial Statements 61
Section 5.2 Payment of Obligations 65
Section 5.3 Maintenance of Properties; Insurance 65
Section 5.4 Notices 65
Section 5.5 Conduct of Business and Maintenance of
Existence 67
Section 5.6 Inspection of Property, Books and Records 67
Section 5.7 Hazardous Material 68
Section 5.8 Subsidiary Guarantees 68
Section 5.9 Compliance with Law 69
Section 5.10 Maintenance of Office 69
Section 5.11 Quarterly Meetings 69
Section 5.12 Monthly Monitoring Reports 70
SECTION 6. NEGATIVE COVENANTS 70
Section 6.1 Limitation of Indebtedness 70
Section 6.2 Limitation on Liens 72
Section 6.3 Limitation on Contingent Obligations 74
Section 6.4 Limitation on Capital Expenditures 74
Section 6.5 Prohibition of Fundamental Changes 75
Section 6.6 Limitations on Dividends and Stock
Acquisitions 76
Section 6.7 Limitation on Investments, Loans and
Advances 76
Section 6.8 Prohibition of Certain Prepayments 78
Section 6.9 Limitation on Leases 78
Section 6.10 Limitation on Sale and Leaseback 79
Section 6.11 Maintenance of Current Ratio 79
Section 6.12 Maintenance of Consolidated Tangible
Net Worth 79
<PAGE>
Section 6.13 Limitation on Debt to Consolidated
Tangible Net Worth 80
Section 6.14 Maintenance of Inventory Turnover 81
Section 6.15 No Amendment of Debt Instruments 82
Section 6.16 Maintenance of Accounts 82
Section 6.17 Limitation on Transactions
with Affiliates 83
Section 6.18 Limitation on Changes in Fiscal Year 83
Section 6.19 Limitation on Lines of Business 83
Section 6.20 Minimum Consolidated EBITDA 84
Section 6.21 Limitation on Material Asset Sales. 84
Section 6.22 Maintenance of Ownership 85
Section 6.23 Maintenance of Tangible Net Worth
of Record Town 85
Section 6.24 Tax Consolidation 85
Section 6.25 Limitations on Preferred Stock 86
Section 6.26 New Stores and Leases 86
Section 6.27 Maintenance of Fixed Charges Ratio 86
Section 6.28 Foreign Subsidiaries 87
SECTION 7. EVENTS OF DEFAULT 87
Section 7.1 Events of Default 87
SECTION 8. MISCELLANEOUS 94
Section 8.1 Limited Role of the Bank 94
Section 8.2 Choice of Law Construction 95
Section 8.3 Consent to Jurisdiction 95
Section 8.4 WAIVER OF JURY TRIAL 96
Section 8.5 Notices 96
Section 8.6 Entire Agreement; No Waiver; Cumulative
Remedies; Amendments; Setoff; Counterparts 98
Section 8.7 Reference to Subsidiaries and Guarantors 100
Section 8.8 Captions 100
Section 8.9 Exhibits and Schedules 100
Section 8.10 Expenses; Indemnity 101
Section 8.11 Survival of Agreements 103
Section 8.12 Successors and Assigns 103
Section 8.13 Interest 106
Section 8.14 Waiver and Release 107
Execution 112
<PAGE>
Schedule I Commitments and Commitment Percentages
Schedule II Liens
Schedule III Subsidiaries
Schedule IV Existing Indebtedness
Schedule V UCC Filing Offices
Exhibit A Form of Note
Exhibit B Form of Guarantee
Exhibit C Monthly Reports
Exhibit D Form of Movie Plus Subordination Agreement
Exhibit E Form of Amended and Restated Intercreditor Agreement
Exhibit F Form of Bank Depository Agreement
Exhibit G Form of Collateral Trust Indenture
Exhibit H Form of Security Agreement
Exhibit I Form of Trademark Security Agreement
Exhibit J Form of Pledge Agreement
<PAGE>
CREDIT AGREEMENT
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated as of July 26,
1996, between TRANS WORLD ENTERTAINMENT CORP. (formerly 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 NBD Bank (collectively with its successors and assigns, the
"Bank").
WHEREAS, the Companies are parties to separate identical amended and
restated credit agreements (collectively, the "Existing Credit Agreements")
dated as of June 29, 1995, as amended, with each of the Banks or their
predecessors in interest;
WHEREAS, the Companies are parties to (i) the Series A Note Agreement
(as defined below) and (ii) the Series B Note Agreement (as defined below);
WHEREAS the Noteholders parties to the Series A Note Agreement and the
Series B Note Agreement, together with their respective successors and
assigns, are referred to herein collectively as the "Noteholders";
WHEREAS, as part of a global restructuring of the Companies' funded
indebtedness, the Companies and each of the Banks and Noteholders have agreed
to amend and restate the Existing Credit Agreements in the form of the Credit
<PAGE>
Agreements and to enter into the Institutional Investor Debt Restructuring
Documents (as defined below).
NOW THEREFORE, in consideration of the mutual premises and covenants
contained herein, the parties hereby agree as follows:
SECTION 1.
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the following
terms have the following meanings, unless the context otherwise requires:
"Accumulated Funding Deficiency" has the meaning set forth in Section
302 of ERISA.
"Adjusted Tangible Assets" means, 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;
<PAGE>
(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 Person in which the Company owns less than
49% of the Voting Stock.
"Affiliate" means any Person that, directly or indirectly, controls,
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" means this Amended and Restated Credit Agreement and any
amendments or supplements hereto.
<PAGE>
"Application(s)" means any commercial Letter of Credit applications
and standby Letter of Credit applications requesting the Bank to open a Letter
of Credit or Subsidiary Letter of Credit.
"Assignee" has the meaning set forth in Section 8.12(c).
"Bank Depository Agreement" means an agreement dated as of the date
hereof in the form attached as Exhibit F-1 or F-2 hereto.
"Bank Outstandings" means the aggregate amount of Loans and Letter of
Credit Outstandings (as each term is defined in the applicable Credit
Agreement) under the Credit Agreements.
"Banks" means, collectively, the Bank and the lenders parties to the
other Credit Agreements and each of their successors and assigns.
"Banks' Percentage" means 53.571%.
"Bank's Pro Rata Share" of any sum or amount means the product of such
sum or amount multiplied by the Bank's Commitment Percentage.
<PAGE>
"Business Day" means a day other than a Saturday, Sunday or other day
on which the Bank is authorized or required to close under the laws of the
State of New York.
"Change of Control" means 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.
"Cleanup Laws" has the meaning given in Section 5.7.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" has the meaning set forth in the Collateral Trust
Indenture.
"Collateral Proceeds" has the meaning given in Section 2.6(f).
<PAGE>
"Collateral Trust Indenture" means the Collateral Trust Indenture
dated as of the date hereof, in the form attached hereto as Exhibit G, as the
same may be amended, modified and supplemented from time to time.
"Commitment" means, with respect to any Bank, the Commitment amount
set forth opposite such Bank's name on Schedule I, as such amount may be
reduced from time to time in accordance with this Agreement and the other
Credit Agreements. Unless otherwise specified, as used herein Commitment
shall refer to the Bank's Commitment.
"Commitment Percentage" means, with respect to each Bank, the
percentage set forth opposite such Bank's name on Schedule I. Schedule I shall
be deemed amended from time to time to reflect the assignment by any Bank of
all or any portion of its Commitment.
"Commitment Period" means the period from and including the date
hereof to but not including the Termination Date, or such earlier date as the
Commitment terminates as provided herein.
"Commonly Controlled Entity" means 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" means, with respect to the Company and
its Subsidiaries for any period, the sum of: (1) interest expenses for such
period in respect of liabilities for borrowed money, (2) imputed interest
expense for such period on capitalized lease obligations and (3) all fixed
minimum rent expenses for such period in respect of real estate leases, in
each case determined on a consolidated basis.
"Consolidated Income Available for Fixed Charges" means, with respect
to the Company and its Subsidiaries for any period, the sum of: (1)
Consolidated EBITDA for such period and (2) all fixed minimum rent expenses
for such period in respect 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, (1) gains
<PAGE>
and losses from sales of assets or reserves relating thereto, (2) items
classified as extraordinary or non-recurring (including any restructuring
reserves), (3) the write-off of deferred financing costs and (4) the
cumulative effect of changes in accounting principles in the year of adoption
of such change.
"Consolidated Tangible Net Worth" means, at any time, the amount by
which (x) 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 (y) 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.
"Core Stores" means the stores of the Companies and the Subsidiaries
other than the Non-Core Stores.
"Credit Agreements" means, collectively, this Agreement and the other
substantially identical amended and restated revolving credit agreements,
<PAGE>
dated as of even date herewith between the Companies and the lenders parties
thereto.
"Cumulative EBITDA Overage" has the meaning given in Section 2.6(e).
"Default" means 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.
"Depository Bank" means, at any time, any bank or other financial
institution party at such time to a valid Bank Depository Agreement with the
Company and the Security Trustee.
"Effective Date" means the date that each condition set forth in
Section 3.1 has been either satisfied or waived by the Bank.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Estimated Net Excess Cash Flow," for any period, means the product of
(i) Excess Cash Flow for such period multiplied by (ii) .60.
"Event of Default" means 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.
<PAGE>
"Excess Cash Flow" means, for any period set forth below, the excess
of (x) Consolidated EBITDA for such period over (y) the amount set forth below
for such period:
Period Amount
For the period from February 4, 1996 to May 4, 1996 $5,574,000
For the period from February 4, 1996 to August 4, 1996 $5,518,000
For the period from February 4, 1996 to November 4, 1996 $8,382,000
For the period from February 4, 1996 to February 1, 1997 $36,418,000
For the period from February 2, 1997 to May 2, 1997 $8,610,000
For the period from February 2, 1997 to August 2, 1997 $10,446,000
For the period from February 2, 1997 to November 2, 1997 $14,424,000
For the period from February 2, 1997 to January 31, 1998 $46,431,000
For the period from February 1, 1998 to May 1, 1998 $10,000,000
"Existing Credit Agreements" has the meaning set forth in the first
Recital.
"Fiscal Year" means the fiscal year of the Company which ends on the
Saturday closest to January 31.
<PAGE>
"Fixed Charges Ratio" means, for any period, the ratio of Consolidated
Income Available for Fixed Charges for such period to Consolidated Fixed
Charges for such period.
"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 4.8.
"Guarantee" means any guarantee referred to in Sections 3.1(c), 3.1(d)
and 5.8.
"Guarantor" means any guarantors required pursuant to Sections 3.1(c),
3.1(d) or 5.8.
"Insolvency" means, with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning given in Section 4245
of ERISA.
"Institutional Investor Debt" means, collectively, the Series A Debt
and the Series B Debt and any refinancing of such Debt in whole or in part,
provided, however, that no such refinancing of any Institutional Investor Debt
shall provide for or result in (i) a greater principal amount of indebtedness
than the amount of such indebtedness outstanding immediately prior to such
refinancing, (ii) a higher interest rate on borrowed amounts or (iii) greater
mandatory amortization of the Institutional Investor Debt prior to the
Termination Date than that required as of the date hereof under the terms of
the Institutional Investor Debt Restructuring Documents.
<PAGE>
"Institutional Investor Debt Restructuring Documents" means the Series
A Note Agreement and Series B Note Agreement.
"Intercreditor Agreement" means the Amended and Restated Intercreditor
Agreement dated as of the date hereof among the Banks and the Noteholders.
"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.
"Letter of Credit Outstandings" means, 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 prior to such time that have not been reimbursed by the Companies.
"Letter of Credit Termination Date" means the first Business Day which
falls on or after the date which is 30 days prior to the Termination Date.
<PAGE>
"Letters of Credit" means 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.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Loans" means any advance made by the Bank to or for the benefit of
the Companies under the terms and conditions of this Agreement including the
amounts of any drawings on any Letters of Credit honored by the Bank that have
not been reimbursed by the Companies.
"Loan Documents" means any and all of the Agreement, the Notes, the
Security Documents, the Guarantees, any Application, any agreements or
documents referred to in Section 3 and all other documents and instruments
executed in connection herewith.
<PAGE>
"Material Asset Sale" means a sale of (x) any 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 or (y) any Collateral.
"Measurement Period" has the meaning given in Section 2.6(e).
"Movie Plus" means Movie Plus, Inc., a New York corporation and
wholly-owned subsidiary of Record Town.
"Movie Plus Assets" means collectively the stock of Movie Plus pledged
under the Pledge Agreement and the assets of Movie Plus.
"Movie Plus Subordination Agreement" has the meaning given in Section
3.1(j).
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Asset Sale Proceeds" means, 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 (x)
<PAGE>
provision for all income or other taxes payable as a result of such asset sale
and (y) payment of all brokerage commissions and other reasonable fees and
expenses related to such asset sale. For purposes of this definition, the
Board of Directors of the Company shall determine in good faith the fair
market value of non-cash consideration.
"Non-Core Stores" means, at any time, stores the Company has scheduled
at such time to close.
"Note" means the promissory note and all attachments thereto described
in Section 2.2.
"Noteholders" has the meaning set forth in the third Recital.
"Participants" has the meaning set forth in Section 8.12(b).
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Holder" means 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.
<PAGE>
"Permitted Liens" has the meaning given in Section 6.2(a).
"Person" means an individual, sole proprietorship, partnership,
corporation, business trust, limited liability company, joint stock company,
unincorporated organization, joint venture, government authority or other
entity of whatever nature.
"Plan" means at any particular time, any employee benefit plan 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.
"Pledge Agreement" means the Pledge Agreement dated the date hereof in
the form attached hereto as Exhibit J.
"Preferred Stock" means, with respect to any Person, any class or
classes of capital stock (however designated) 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.
<PAGE>
"Prime Rate" means the fluctuating rate of interest identified in the
Wall Street Journal from time to time as the Prime Rate.
"Property" means 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).
"Reorganization" means, with respect to any Multiemployer Plan, the
condition that such Plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event" means 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 subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. e 2615.
"Responsible Officer" means, 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
<PAGE>
of his or her operational duties would have knowledge of the subject matter
relating to such certificate, report or notice.
"Restructuring Fee" has the meaning given in Section 2.5(d).
"Resulting Number" has the meaning set forth in Section 2.6(e)(ii).
"Scheduled Reduction" has the meaning given in Section 2.6(b).
"Scheduled Reduction Date" has the meaning given in Section 2.6(b).
"Security Agreement" means the Security Agreement dated as of the date
hereof in the form attached hereto as Exhibit H.
"Security Documents" means, collectively, the Security Agreement, the
Movies Plus Subordination Agreement, the Collateral Trust Indenture, the Bank
Depository Agreement, the Pledge Agreement and the Trademark Security
Agreement.
"Security Trustee" means IBJ Schroder Bank & Trust Company in its
capacity as Security Trustee under the Collateral Trust Indenture.
<PAGE>
"Series A Debt" means the indebtedness outstanding, not to exceed
$41,331,413, in respect of the Series A Note Agreement.
"Series A Note Agreement" means that certain Amended and Restated Note
Agreement, dated as of even date herewith, among the Companies and the
institutional investors listed as purchasers on Annex 1 thereto, pursuant to
which the Companies have issued their Variable Rate Senior Notes, Series A,
due July 31, 1998.
"Series B Debt" means the indebtedness outstanding, not to exceed
$15,227,363, in respect of the Series B Note Agreement.
"Series B Note Agreement" means the Amended and Restated Note
Agreement dated as of even date herewith, between the Companies and the Person
listed as the purchaser on Annex 1 thereto, pursuant to which the Companies
have issued the Variable Rate Senior Notes, Series B, due July 31, 1998.
"Significant Subsidiary" means 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.
<PAGE>
"Single Employer Plan" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Subsidiary" means, as of any date, any Person 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" means any commercial letters of credit
or standby letters of credit issued by the Bank for the account of any
Subsidiary.
"Tangible Net Worth" of any Person means, at any time, the amount by
which (x) all amounts that would, in conformity with GAAP, be included in
shareholders' equity on the balance sheets of such Person, exceeds (y) the
aggregate amount carried as assets on the books of such Person for (1)
goodwill, licenses, patents, trademarks, unamortized debt discount and
expense, and other intangibles as determined in conformity with GAAP, (2) cost
of investments in excess of net assets acquired at the time of acquisition by
such Person, and (3) any write-up in the book value of any assets of such
Person resulting from reevaluation thereof subsequent to the date hereof.
<PAGE>
"Tax Refund" means all rights of the Companies to any refunds of any
federal, state, local or foreign income taxes paid by the Companies prior to
the Effective Date.
"Termination Date" means July 31, 1998.
"Trademark Security Agreement" means the Trademark Security Agreement,
dated as of the date hereof, in the form attached hereto as Exhibit I.
"Variable Rate" means
(i) during the period commencing May 1, 1996, through and including
June 29, 1998, the rate equal to the sum of (x) the Prime Rate plus (y)
2%; and
(ii) for the period from and after June 30, 1998, the sum of (x)
the Prime Rate plus (y) 5%.
"Voting Stock" means 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).
<PAGE>
Section 1.2 Use of Defined Terms. All terms defined in this Agreement
have the defined meanings when used in the Notes, certificates, reports or
other documents made or delivered pursuant to this Agreement unless the
context requires otherwise.
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 and the Intercreditor Agreement, the Bank will make Loans to
the Companies, at any time and from time to time during the Commitment Period,
in an aggregate principal amount equal to the excess of the Bank's Commitment
at such time over the Bank's Pro Rata Share of the Bank Outstandings at such
time. 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, all Loans made
under this Agreement mature and become due and payable on the Termination
Date.
<PAGE>
(b) As of the date of this Agreement, the Existing Credit Agreement
dated as of June 29, 1995, between the Companies and the Bank or its
predecessor in interest, is hereby amended and restated in its entirety as
provided herein.
Section 2.2 The Notes; Interest. The Companies 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 will
evidence the borrowings, repayments and reborrowings hereunder, and each Loan
by the Bank to the Companies and each repayment made on account of the
principal amount of such Loans will be recorded by the Bank on its books and
Schedule I to the Note, provided that the failure of the Bank to make any such
recordation shall not affect the Loans or the obligation of the Companies to
make a payment when due of any amounts owing hereunder or under the Note in
respect of the Loans evidenced by the Note. Interest will accrue on
outstanding Loans as follows:
(a) During the time periods set forth below, each Loan shall bear
interest at the higher of (x) the Variable Rate in effect at such time and
(y) the following rates:
<PAGE>
Time Period Minimum Rate
Prior to May 1, 1996 10.5%
From May 1, 1996, through and 11.0%
including June 29, 1998
From and after June 30, 1998 14.0%
Interest on Loans shall be payable monthly on the first Business Day of
each month and upon payment or prepayment in full of the unpaid principal
amount thereof.
(b) If an Event of Default occurs and for so long as such Event of
Default continues, interest will accrue on the principal amount of Loans
then outstanding at a rate per annum 2% above the rate otherwise
applicable pursuant to Section 2.2(a).
Section 2.3 Letters of Credit. (a) If the Company executes and
delivers to the Bank an appropriate Application for issuance of any Letter of
Credit or Subsidiary Letter of Credit with appropriate insertions therein
(hereafter "Application"), the Bank, in its sole and absolute discretion, may,
but is not required to, issue a commercial Letter of Credit or standby Letter
of Credit or Subsidiary Letter of Credit, as the case may be, on behalf of the
designated beneficiary for the account of the Company with the requested face
amount and expiration date.
<PAGE>
(b) Each Letter of Credit and Subsidiary Letter of Credit will expire
no later than the Letter of Credit Termination Date.
(c) Notwithstanding anything to the contrary contained herein, (x) the
sum, without duplication, of (i) the aggregate outstanding principal amount of
the Loans plus (ii) the aggregate Letter of Credit Outstandings shall not
exceed (y) the Bank's Pro Rata Share of the Bank Outstandings.
(d) The reimbursement obligations of the Company with respect to any
Letter of Credit are unconditional and irrevocable and shall be paid strictly
in accordance with the terms of this Agreement under all circumstances,
including, without limitation, the following: (i) the existence of any claim,
set-off, defense or other right which the Company or any Subsidiary may have
at any time against any beneficiary, or any transferee, of any Letter of
Credit or any Subsidiary Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Bank or any other
Person, whether in connection with this Agreement, the other Credit Agreements
transactions contemplated herein, or any unrelated transaction; (ii) any
statement or any other document presented under any Letter of Credit or
Subsidiary Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; (iii) payment by the Bank unde r any Letter of
Credit or Subsidiary Letter of Credit against presentation of a draft or
certificate which does not comply with the terms of such Letter of Credit or
<PAGE>
Subsidiary Letter of Credit or any other circumstances or happening
whatsoever, whether or not similar to any of the foregoing (unless such
payment, circumstance or happening constitutes gross negligence or willful
misconduct of the Issuer).
(e) 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
Credit Agreement in the amount necessary to ensure that after such purchases,
the Banks' and their respective assigns respective shares of the Bank
Outstandings equal the percentage set forth on Schedule I hereto opposite such
Bank's name. The Bank hereby agrees that upon the e xpiration 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
<PAGE>
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.
(f) 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 12:00 noon New York City time on the borrowing
date. Each borrowing from the Bank pursuant to the Commitment must be in an
aggregate principal amount of $100,000 or any whole multiple thereof. On the
date specified in such notice from the Company, subject to the terms and
conditions of this Agreement, the Bank will make the amount of such borrowing
available to the Companies by credit to an account of the Companies maintained
with a Depository Bank in immediately available funds.
<PAGE>
Section 2.5 Fees. (a) The Company shall 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 3/4 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. The Company shall pay such
commitment fee to the Bank on the first Business Day of each August, November,
<PAGE>
February and May of each year, commencing on August 1, 1996, and on the
Termination Date.
(b) The Company shall pay to the Bank all fees and customary and usual
charges arising in connection with the Letters of Credit as required under the
Applications.
(c) On July 31, 1997, the Company shall pay to the Bank a fee equal to
1% of the Commitment in effect as of such date.
(d) On the Termination Date or such earlier date as the Commitment is
terminated and the Loans are due and payable (as the result of an Event of
Default or otherwise), the Company shall pay to the Bank a restructuring fee
(the "Restructuring Fee") equal to the Bank's Pro Rata Share of $2,678,571.
If the Company repays in full all amounts owing in respect of the Bank
Outstandings and the Institutional Investor Debt and terminates the
Commitments on or before the Termination Date or such earlier date as the
Loans have become due and payable, the Restructuring Fee is waived.
Section 2.6 Termination or Reduction of Commitment. (a) Upon not less
than three (3) Business Days prior written notice to the Bank, the Company has
the right 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.
Upon any termination of the Commitment, the Companies must pay the unpaid
principal amount of the Note in full, together with accrued interest thereon
and any commitment fee then accrued hereunder. Upon any acceleration of the
Termination Date, the Companies must also deposit cash with the Bank in an
amount equal to 105% of the aggregate then undrawn and unexpired amount of
Letters of Credit. The Bank shall use all cash so deposited to reimburse
amounts due under any Letter of Credit drawn upon after the Termination Date.
Any partial reduction in the Commitment must be in an aggregate principal
amount of $500,000 or a multiple thereof and will reduce permanently the
Commitment then in effect hereunder.
(b) Subject to the adjustments described in Section 2.6(e)(i), on the
dates set forth below (each a "Scheduled Reduction Date"), the Commitment will
automatically reduce (each such reduction, a "Scheduled Reduction") by the
Bank's Pro Rata Share of the following amounts:
<PAGE>
Scheduled
Reduction Scheduled
Date Reduction
August 30, 1996 $2,410,714.29
November 30, 1996 $1,071,428.57
February 28, 1997 $8,035,714.29
May 30, 1997 $1,071,428.57
August 30, 1997 $1,071.428.57
November 30, 1997 $1,071,428.57
February 28, 1998 $2,142,857.14
May 30, 1998 $1,071,428.57
The Commitment will reduce to zero on the Termination Date.
(c) Except as otherwise provided in Section 2.6(f), not more than two
Business Days following the consummation of a Material Asset Sale, the
Commitment will automatically reduce in an amount equal to the Bank's Pro Rata
Share of the product of (i) the Net Asset Sale Proceeds of such sale
multiplied by (ii) the Banks' Percentage.
(d) In addition to, but without duplication of, the Commitment
reductions described in subsections (b), (c), (e) and (f) of this Section 2.6,
simultaneously with any payment of Institutional Investor Debt made by or on
behalf of either or both of the Companies (other than payments required by the
terms of the Institutional Investor Debt Restructuring Documents as in effect
<PAGE>
as of the date hereof), the Commitment will automatically reduce in an amount
equal to the Bank's Pro Rata Share of the product of (i) the aggregate amount
of such payment of Institutional Investor Debt multiplied by (ii) a fraction,
the numerator of which is 75 and the denominator of which is 65.
(e) (i) In addition to all other Commitment reductions required by
this Section 2.6, on each Scheduled Reduction Date, the Commitment will
further reduce automatically by an amount equal to the Bank's Pro Rata Share
of the Banks' Percentage of forty-five percent (45%) of Excess Cash Flow for
the most recently ended period described in the definition of "Excess Cash
Flow" (in each case, the "Measurement Period"). If, immediately prior to the
August or November Scheduled Reduction Date in any Fiscal Year, the aggregate
amount of Commitment reductions made pursuant to this Section 2.6(e) during
such Fiscal Year (exclusive of any reductions which have previously decreased
Scheduled Commitment Reductions) is greater than the Bank's Pro Rata Share of
the Banks' Percentage of forty-five percent (45%) of Excess Cash Flow for the
relevant Measurement Period, the amount of the next Scheduled Commitment
Reduction will decrease by the amount of such overage (the "Cumulative EBITDA
Overage"). The Cumulative EBITDA Overage, if any, existing immediately prior
to a February Scheduled Reduction Date will not decrease the amount of the
Scheduled Commitment Reduction on such date, but instead will decrease
Scheduled Commitment Reductions in the inverse order of such reductions.
<PAGE>
(ii) If the Company has Excess Cash Flow for a Fiscal Year, then, not
later than the date 90 days after the end of such Fiscal Year, the Company
shall multiply the amount of such Excess Cash Flow by a fraction, the
numerator of which shall be the aggregate of all federal, state and local
income tax liabilities shown as payable on consolidated tax returns filed or
to be filed by the Company for such Fiscal Year, and the denominator of which
shall be the amount of Consolidated EBITDA for such Fiscal Year. If the
resulting number (the "Resulting Number") is less than forty percent (40%) of
Excess Cash Flow for such Fiscal Year, the Commitment will automatically
reduce by the Bank's Pro Rata Share of the Banks' Percentage of the remainder
of (i) forty percent (40%) of such Excess Cash Flow minus (ii) the Resulting
Number. No such reduction of the Commitment described in the immediately
preceding sentence will affect the amount of any Scheduled Reduction. If such
Resulting Number is greater than forty perce nt (40%) of such Excess Cash
Flow, and the Companies have made all required payments with respect to such
Fiscal Year as a result of Commitment reductions made under this Section
2.6(e), the August Scheduled Reduction will be decreased by the Bank's Pro
Rata Share of the Banks' Percentage of the remainder of (i) Resulting Number
minus (ii) forty percent (40%) of such Excess Cash Flow.
<PAGE>
(f) The Commitment will reduce automatically by an amount equal to the
Bank's Pro Rata Share of the Banks' Percentage of (i) all proceeds of Tax
Refunds the Company receives and (ii) all Net Asset Sale Proceeds the Company
or its Subsidiaries receives in respect of the Movies Plus Assets
(collectively, the "Collateral Proceeds"). So long as no Default or Event of
Default has occurred, the Commitment reduction described in the immediately
preceding sentence will occur at any time only to the extent that the
aggregate amount of Collateral Proceeds the Company has received at or prior
to such time exceeds the aggregate amount of Scheduled Commitment Reductions
that have occurred at or prior to such time. Each Commitment reduction
described in this subsection (f) will decrease the amount of the next
Scheduled Reduction on a dollar for dollar basis until reduced to zero.
(g) The Commitment once terminated or reduced may not be reinstated or
increased.
(h) 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.
<PAGE>
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.
Optional partial prepayments of the Note must be made in the aggregate
principal amount of $100,000 or multiples thereof together with payment of
accrued interest thereon to the date of the prepayment.
(b) The Company shall notify the Bank of any prepayment no later than
12:00 noon on the date thereof, specifying the date and amount of the
prepayment. If the Company gives such notice, the amount specified in the
notice is due and payable on the date specified therein, together with accrued
interest to such date on the amount repaid.
(c) Whether before or after giving effect to any termination or
reduction of the Commitment pursuant to Section 2.6, the Company shall
promptly pay or prepay Loans and, to the extent the Loans are repaid in full,
cash collateralize outstanding Letters of Credit, in an aggregate principal
amount, together with interest thereon accrued to the date of such payment or
prepayment, equal to the excess at any time of (x) the sum, without
duplication, of (i) the outstanding aggregate principal amount of the Loans
and (ii) the Letter of Credit Outstandings over (y) the lesser of (i) the
Commitment and (ii) the Bank's Pro Rata Share of the Bank Outstandings.
<PAGE>
(d) At the end of each Business Day the Company shall apply all cash
and cash equivalents in excess of $15,000 per open store on such date to pay
or cash collateralize the Bank Outstandings.
(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 may reborrow all amounts so used to cash collateralize outstanding
Letters of Credit.
Section 2.8 Computation of Interest and Commitment Fee Payments. (a)
Commitment fees, if any, and interest shall be calculated on the basis of a
360 day year for the actual days elapsed. If a change in the Prime Rate
causes a change in the interest rate applicable to Bank Outstandings, the
change will be effective as of the opening of business on the day the change
in the Prime Rate becomes effective. If any payment on a Loan becomes due and
payable on a day other than a Business Day, the maturity thereof will be
extended to the next succeeding Business Day and the Company shall pay
interest thereon at the then applicable rate during such extension. The
Company hereby authorizes the Bank to charge any account of the Company
<PAGE>
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 Notes, the Applications or any other Loan
Document.
(b) The Companies shall make all payments (including prepayments) on
account of principal of, interest on, and fees owing in respect of the Loans
to the Bank at the following account/office:
Section 2.9 Requirements of Law. (a) (i) The Companies shall promptly
pay to the Bank, upon its demand, any and all additional amounts necessary to
compensate the Bank for any additional cost or reduced amount receivable in
respect of this Agreement, the Note, any Letters of Credit issued hereunder or
the Loans made hereunder which the Bank deems to be material resulting from 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 which:
<PAGE>
(x) (1) does or will 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
(2) does or will impose on the Bank any other condition; and
(y) increases the cost to the Bank of issuing or maintaining any
Letter of Credit or Subsidiary Letter of Credit or increases the cost to
the Bank of making, renewing (or maintaining) advances or extensions of
credit to the Companies or to reduce any amount receivable from the
Companies thereunder.
(ii) 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 together
with a certificate setting forth calculations as to any additional amounts
<PAGE>
payable pursuant to the foregoing sentence. Any such calculations submitted
by the Bank to the Companies will be conclusive in the absence of manifest
error.
(b) If after the date hereof, the Bank determines 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 su ch
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 entitles the Bank to
compensation pursuant to this Section 2.9(b). The Companies will not be
liable in respect of any reduced amount or 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.
<PAGE>
Section 2.10 Pro Rata Treatment and Payments; Use of Proceeds. (a)
Each borrowing by the Companies from the Banks under the Credit Agreements,
each payment by the Company on account of any commitment fee or any other fee
payable under the Credit Agreements and any reduction of the Commitments of
the Banks shall be made pro rata according to the Commitment Percentages of
the Banks. Each payment (including each prepayment) by the Companies on
account of principal of and interest on the Loans shall be made pro rata
according to the respective outstanding principal amounts of the Loans then
held by the Banks. All payments (including prepayments) to be made by the
Companies hereunder and under the Note, whether on account of principal,
interest, fees or otherwise, shall be made without setoff or counterclaim and
shall be made prior to 12:00 Noon, New York City time, on the due date thereof
to the Bank, at the office specified in Section 2.8(b), in United States
dollars and in immediately available funds.
<PAGE>
(b) 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 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.
(c) The proceeds of the Loans shall be used for general corporate
purposes of the Companies.
SECTION 3.
CONDITIONS OF BORROWING
Section 3.1 Conditions of Effectiveness. The effectiveness of this
Agreement and the obligation of the Bank to make the initial Loan hereunder is
subject to the prior or concurrent fulfillment of the following conditions:
<PAGE>
(a) Legal Opinions. The Companies shall have caused to be delivered
to the Bank (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 and to the further effect that this Agreement, the Guarantees, the
Security Documents 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 same effect as Section 4.20 and to
the further effect that this Agreement, the Guarantees, the Security
Documents 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,
inso lvency, moratorium or other similar law affecting creditors' rights
generally and general equitable principles) in accordance with their
terms.
<PAGE>
(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 such date,
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 Security Documents, the Note and
any other documents required to be executed in connection herewith.
(c) Subsidiary Guarantee. Each Subsidiary shall have executed and
delivered to the Bank a Guarantee of the prompt and unconditional payment
of all present and future obligations and liabilities of the Companies to
the Bank, substantially in the form of Exhibit "B" annexed hereto and made
a part hereof. Each Guarantee will be 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) Other Credit Agreements. The Companies shall have entered into
the other Credit Agreements in form and substance satisfactory to the Bank
and such agreements shall be in full force and effect.
<PAGE>
(e) Institutional Investor Debt Restructuring Documents. The
Companies shall have entered into the Institutional Investor Debt
Restructuring Documents in form and substance satisfactory to the Bank and
such agreements shall be in full force and effect.
(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 the Bank's
Pro Rata Share of $978,901.90 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, all
other out-of-pocket fees, costs and expenses paid or incurred by the Bank
in connection with the negotiation, preparation, drafting, implementation,
amendment, modification, administration and enforcement of this Agreement,
the Note and the Security Documents, or for auditing, appraising,
evaluating or otherwise monitoring the Collateral or other credit support
for the Note.
(g) Interest on Existing Notes. The Company shall have paid to the
Bank all accrued interest on amounts outstanding under the Existing Credit
Agreements to (but not including) the Effective Date calculated at the
rate specified in Section 2.2(a).
<PAGE>
(h) Intercreditor Agreement. The Noteholders and the Banks shall have
executed and delivered 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.
(i) Collateral Trust Indenture and Other Security Documents.
(i) Each of the Company, Record Town, the Guarantors, the Security
Trustee, the Banks and the Noteholders shall have executed and
delivered to the Bank an original counterpart of the Collateral Trust
Indenture, and the Collateral Trust Indenture shall be in full force
and effect.
(ii) Each of the Company, Record Town, the Guarantors and the
Security Trustee shall have executed and delivered to the Bank an
original counterpart of the Security Agreement, and the Security
Agreement shall be in full force and effect.
<PAGE>
(iii) The Security Trustee and each of the Company, Record Town
and the Guarantors shall have executed and delivered to the Bank an
original counterpart of the Trademark Security Agreement, and the
Trademark Security Agreement shall be in full force and effect.
(iv) The Security Trustee and the Company shall have executed
and delivered to the Bank an original counterpart of the Pledge
Agreement, and the Pledge Agreement shall be in full force and effect.
(v) The Company, the Security Trustee and each financial
institution with whom the Company maintains a cash management account
listed on Annex 1 to the Security Agreement shall have executed and
delivered to the Bank an original counterpart of a Bank Depository
Agreement, and each such Bank Depository Agreement shall be in full
force and effect.
(vi) The foregoing agreements shall secure the Note and all of
the obligations under this Agreement pari passu with the obligations
due under the other Credit Agreements and the Institutional Investor
Debt Restructuring Documents; and the Bank shall have received
evidence satisfactory to it that the Liens created by the foregoing
agreements are valid and perfected Liens senior to all other Liens
upon the Collateral.
<PAGE>
(j) Movies Plus Subordination. Each of the Company, Record Town and
the Subsidiaries (other than Movies Plus) shall have executed and
delivered to the Bank a subordination agreement in the form of Exhibit D
(collectively, the "Movies Plus Subordination Agreement"), and the Movies
Plus Subordination Agreement shall be in full force and effect.
Section 3.2 Conditions of All Loans. The obligation of the Bank to
make any Loan is subject to the following conditions precedent:
(a) Representations and Warranties; No Default. The representations
and warranties contained in Section 4 are true and correct on the date of
the making of such Loans or issuing of such Letters of Credit, and no
Default or Event of Default has occurred and is continuing on such date.
Each borrowing by the Companies or issuance of a Letter of Credit or
Subsidiary Letter of Credit hereunder constitutes a representation by the
Companies as of the date of each such borrowing that the conditions
contained in the foregoing sentence have been satisfied and that neither
of the Companies is aware of any condition which, after notice or lapse of
time or both, could become a Default or Event of Default.
<PAGE>
(b) Legal Matters. All other instruments and legal and corporate
proceedings in connection with the transactions contemplated by this
Agreement are satisfactory, in form and substance to the Bank and its
counsel, and counsel to the Bank has 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 and issue the Letters of Credit herein provided for, each of the
Companies hereby represents and warrants to the Bank that:
Section 4.1 Corporate Existence. Each of 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.
<PAGE>
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 Security Documents, 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 Security
Documents, 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
Security Documents, 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.
Section 4.3 No Legal Bar to Loans. The execution, delivery and
performance of this Agreement, the Security Documents, the Applications and
the Note by the Companies, does 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
<PAGE>
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 or any
of their properties or assets may be bound, and does 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 Security Documents, 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.
<PAGE>
Section 4.6 Ownership of Properties; Liens. Each of the Companies 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 is 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 best knowledge of the
Companies 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 Companies, 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 February 3, 1996 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
<PAGE>
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 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 GA AP 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 best
knowledge of the Companies, 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
<PAGE>
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 d ate 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
<PAGE>
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 by the Company or any Subsidiary or
leased by the Company at 38 Corporate Circle, Albany, New York (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.
<PAGE>
(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.
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 Institutional Investor Debt Restructuring Documents. (a)
The Company has delivered to the Bank true, complete and correct copies of
each of the Institutional Investor Debt Restructuring Documents (including all
exhibits, schedules and disclosure letters referred to therein or delivered
pursuant thereto, if any) and all waivers relating thereto and otherside
<PAGE>
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
Institutional Investor Debt Restructuring Documents has been duly executed and
delivered by the Companies and, to the best of the Companies' knowledge, by
each other party thereto and is a legal, valid and binding obligation of the
Companies, 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 Institutional Investor Debt Restructuring
Documents are, to the best of the Companies' 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 the Bank is entitled to rely on the accuracy of such
representations and warranties.
<PAGE>
(c) To the best of the Companies' knowledge, each party to the
Institutional Investor 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 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 sta tement 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
<PAGE>
not been corrected, supplemented or remedied by subsequent documents furnished
or statements made in writing to the Bank.
Section 4.15 Labor Matters. There are no strikes pending or, to the
best of the Companies' 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 Companies and the
Subsidiaries possesses or has the right to use, all leaseholds, easements,
franchises and permits and all authorizations and other rights which are
<PAGE>
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 on the Company's business taken as a whole, 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.
Section 4.17 Subsidiaries. Schedule III to this Agreement correctly
identifies:
(a) each Subsidiary, 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
<PAGE>
clear in each case of any Lien other than any such Lien created by the
Security Documents. 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 February 3, 1996 to and
including the date hereof.
Section 4.20 Security Documents. Each of the Security Documents is
effective to create in favor of the Security Trustee, for the ratable benefit
of the Banks and the Noteholders, legal, valid and enforceable security
interests in the Collateral described therein and the proceeds thereof, and
when financing statements in appropriate form are filed in the offices
specified on Schedule V hereof, each such security interest will constitute a
fully perfected Lien on, and security interest in, all right, title and
<PAGE>
interest of the Companies in such Collateral and the proceeds thereof, as
security for the Secured Obligations (as defined in the relevant Security
Document), in each case prior and superior in right to any other Person.
Section 4.21 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.
Section 4.22 Movies Plus, Inc. The liabilities of Movies Plus do not
exceed $500,000 in the aggregate except for (i) indebtedness owed to the
Company, Record Town or a Subsidiary (all of which is subject to the Movie
Plus Subordination Agreement) and (ii) the Guarantee.
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
shall, unless otherwise consented to in writing by the Bank:
<PAGE>
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 Year, all in reasonable
detail, prepared in accordance with GAAP and certified by independent
certified public accountants of recognized standing selected by the
Company, and delivered by such accountants without qualification of any
kind;
(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 such fiscal quarters and for the period
<PAGE>
from the beginning of such Fiscal Year to the end of such fiscal quarter,
setting forth in each case, in comparative form, the corresponding figures
for the preceding Fiscal Year, 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, 6.20, 6.23 and 6.27 of
this Agreement;
<PAGE>
(e) promptly after the same are sent, copies of all financial
statements and reports the Company sends to its stockholders, and promptly
after the same are filed, notification of all financial statements and
reports 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 the Bank reasonably requests;
(f) 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 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;
<PAGE>
(g) promptly, such additional financial information as the Bank may
from time to time reasonably request;
(h) the monthly reports and other information listed on Exhibit C
hereto;
(i) as soon as possible and in any event at least three days before
each Scheduled Reduction Date, a statement, certified by the chief
financial officer of the Company, setting forth in reasonable detail the
computation, calculated in accordance with GAAP, of Excess Cash Flow for
the relevant period most recently ended and the resulting Commitment
reduction, if any, required by Section 2.6(e)(i); and
(j) as soon as possible and in any event no later than 90 days after
the end of each Fiscal Year, a statement, certified by the chief financial
officer of the Company, setting forth in reasonable detail the
computation, calculated in accordance with GAAP, of each of the following:
(i) the tax liabilities incurred in respect of Excess Cash Flow for such
Fiscal Year, (ii) the Resulting Number for such Fiscal Year and (iii) the
adjustment to the Commitment or the next Scheduled Reduction, if any,
required by Section 2.6(e)(ii).
<PAGE>
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;
maintain, and cause the Subsidiaries to maintain, with financially sound
insurance companies, insurance on all of their respective 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
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)
<PAGE>
the existence of any Default or default under the Institutional Investor Debt
Restructuring Documents, the other Credit Agreements, the other Loan Documents
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 either or both of the Companies, 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 Credit Agreements or the Institutional
Investor 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 b usiness 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 any litigation 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, (g) the
identity of any assignee of any Noteholder or any other Bank and (h) 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.
<PAGE>
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.
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.
<PAGE>
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 rule 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.
<PAGE>
Section 5.9 Compliance with Law. Comply with all laws, ordinances,
orders, judgments or decrees or governmental rules and regulations to which it
is subject and maintain all licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its Properties or to
the conduct of its business, if the failure to do so 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. 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. The Companies shall maintain such
office at 38 Corporate Circle, Albany, New York 12203 until such time as the
Company notifies the Bank and the Security Trustee of a change of location.
Section 5.11 Quarterly Meetings. Within 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 aggregate Commitment of all the Banks.
<PAGE>
Section 5.12 Monthly Monitoring Reports. The Company and Record Town
shall pay up to $5,000 per month of the fees and expenses of Policano & Manzo,
L.L.C. (or other financial consultant acceptable to the Banks and the
Noteholders) incurred to produce monitoring reports of the type heretofore
furnished. The Company and Record Town shall give such financial consultant
such access to its books and records as is necessary to permit such consultant
to produce such reports on a timely basis.
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
shall not, and shall not 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
<PAGE>
which constitutes the deferred purchase price of any property or assets,
except (a) the Bank Outstandings; (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 that are Guarantors and between any
wholly-owned Subsidiary that is a Guarantor and the Company provided, however,
that in the case of Movie Plus solely to the extent such Indebtedness is
subject to the Movie Plus Subordination Agreement; (d) other indebtedness
owing by the Company or any Subsidiary on the date of this Agreement and
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); (f) indebtedness incurred by the Company upon reasonable and customary
terms to replace and upgrade its (i) existing AS400 computer hardware and
related equipment in an amount not to exceed $4 million dollars in the
aggregate and (ii) existing POS cash register system in an amount not to
exceed $6 million dollars in the aggregate, (g) reimbursement obligations in
an aggregate amount not to exceed $500,000 secured by Liens permitted under
<PAGE>
Section 6.2(ix) and incurred in respect of standby or commercial letters of
credit issued by parties other than the Banks for the account of the Companies
and (h) the Institutional Investor Debt. Nothing contained in this Section
6.1 permits an expenditure not otherwise permitted by Section 6.4.
Section 6.2 Limitation on Liens. (a) Create, incur, assume or suffer
to exist, any Lien upon any of their respective property or assets, income or
profits, whether now owned or hereafter acquired, except (i) the Liens
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 shall not spread to cover other or additional indebtedness or property
of the Companies or any of the 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
<PAGE>
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
Companies or the Subsidiaries; (vii) purchase money Liens securing
indebtedness permitted by Section 6.1(e) hereof, provided, however, that such
Liens shall not encumber any assets of the Companies or the Subsidiaries other
than the equipment so purchased; (viii) any rights of set off available to the
Bank; (ix) deposits in an aggregate amount not to exceed $500,000 to secure
the Companies' reimbursement obligations in respect of standby or commercial
letters of credit issued for the account of the Companies by parties other
than the Banks and (x) Liens granted to the Security Trustee pursuant to the
Security Documents (the Liens described in clauses (i)-(x) above,
collectively, the "Permitted Liens").
(b) In case any Property is subjected to a Lien in violation of
Section 6.2(a), the Company shall 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 will have the benefit, to the full
<PAGE>
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.
Any violation of Section 6.2(a) will constitute an Event of Default, whether
or not any such provision is made pursuant to this Section 6.2(b).
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)
guarantees of the Companies' indebtedness outstanding in respect of this
Agreement and the Institutional Investor Debt Restructuring Documents; (c)
existing guarantees in respect of existing indebtedness of the Subsidiaries,
provided that the indebtedness in respect of which such guarantees are given
is permitted by Section 6.1 hereof; and (d) guarantees of the obligations of
the 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.
<PAGE>
Section 6.4 Limitation on Capital Expenditures. Subject to Section
6.9 hereof, make capital expenditures that exceed in the aggregate the
following amounts in the following fiscal years:
Fiscal Year Amount
1996 $12,000,000
1997 $12,000,000
1998 (through Termination Date) $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 (but the Company
must be the continuing or surviving corporation) or with or into any one or
more wholly-owned Subsidiaries (but a wholly-owned Subsidiary must be the
continuing or surviving corporation and must 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.
<PAGE>
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
<PAGE>
such certificates of deposit must have a maturity of one year or less from the
date of purchase; (b) at such times as no Loans are outstanding under this
Agreement and all Letters of Credit are fully cash collateralized, investments
in direct obligations of the United 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 must ha ve a maturity date of one year or less from the
date of purchase and any such commercial paper must be rated "A-1" by Standard
& Poors Corporation (or must have a similar rating by any similar nationally
recognized organization which rates commercial paper); (c) at such times as no
Loans are outstanding under this Agreement and all Letters of Credit are fully
cash collateralized, investments in money market funds registered under the
Investment Company Act of 1940 which invest in securities which are permitted
under clause (b) above; (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 Schedule III; (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; and (f)
<PAGE>
investments of new capital in licensed operations and joint ventu res in
specialty retailing in an aggregate amount not to exceed the sum of such
investments made prior to June 29, 1995 plus $5,000,000.
Section 6.8 Prohibition of Certain Prepayments. Make any payments in
any Fiscal Year in respect of the principal of any debt, with a maturity of
more than one year from the date of such payment, for borrowed money or for
the deferred purchase price of property or services, except in respect of the
Bank Outstandings and at the stated maturity of the Institutional Investor
Debt or as required by mandatory prepayment provisions relating thereto;
provided, however, that the Company may make additional prepayments of the
Institutional Investor Debt but only to the extent that any such payment of
the Institutional Investor Debt is accompanied by a reduction of the
Commitment as provided in Section 2.6(d) 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 does not apply to retail store leases
or leases required to be capitalized under GAAP.
<PAGE>
Section 6.10 Limitation on Sale and Leaseback. Enter into any
arrangement with any Person whereby the Company or any Subsidiary sells or
transfers any personal property, whether now owned or hereafter acquired, and
thereafter rents or leases 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.
Section 6.11 Maintenance of Current Ratio. Permit the ratio of
current assets of the Company and the Subsidiaries to current liabilities of
the Company and the Subsidiaries, in each case on a consolidated basis, to be
less than 1.5 to 1.0 at the end of each of the first, second and fourth
quarterly periods of each Fiscal Year and 1.35 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 Institutional Investor Debt. For all
calculations herein, the actual cash balance of the Company will 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 will be applied to reduce accounts
payable in the pro forma computation of the current ratio under this Section
6.11.
<PAGE>
Section 6.12 Maintenance of Consolidated Tangible Net Worth. Permit
the Consolidated Tangible Net Worth to be less than the following amounts at
the end of the following quarterly periods:
Period/Fiscal Year Amount
1st Q 1996 $75,000,000
2nd Q 1996 $75,000,000
3rd Q 1996 $75,000,000
4th Q 1996 $85,000,000
1st Q 1997 $80,000,000
2nd Q 1997 $80,000,000
3rd Q 1997 $80,000,000
4th Q 1997 $90,000,000
1st Q 1998 $80,000,000
Section 6.13 Limitation on Debt to Consolidated Tangible Net Worth.
Permit the ratio of (a) total liabilities of the Company and the Subsidiaries
on a consolidated basis to (b) Consolidated Tangible Net Worth to exceed the
following amounts as of the end of the following quarterly periods:
<PAGE>
Period/Fiscal Year Ratio
1st Q 1996 2.30
2nd Q 1996 2.50
3rd Q 1996 3.00
4th Q 1996 2.10
1st Q 1997 2.10
2nd Q 1997 2.30
3rd Q 1997 2.80
4th Q 1997 1.90
1st Q 1998 2.10
For all calculations in this Section 6.13, the actual cash balance of the
Company will 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 will
be applied to reduce accounts payable in the pro forma computation of
liabilities to Consolidated Tangible Net Worth under this Section 6.13.
Section 6.14 Maintenance of Inventory Turnover. Permit Inventory
Turnover to fall below the following amounts as of the end of the following
quarterly periods:
<PAGE>
Period/Fiscal Year Turns Per Year
1st Q 1996 .30
2nd Q 1996 .60
3rd Q 1996 .70
4th Q 1996 1.50
1st Q 1997 .30
2nd Q 1997 .60
3rd Q 1997 .70
4th Q 1997 1.50
1st Q 1998 .30
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 Credit Agreements or the Institutional
Investor 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 or any other
financial institution that has executed a valid Bank Depository Agreement
satisfactory to the Security Trustee, provided, however, that the Company may
<PAGE>
continue to maintain, in a manner consistent with past practices, existing
store accounts at one or more other banks whether or not such banks execute
any such agency agreement.
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 that 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.
<PAGE>
Section 6.20 Minimum Consolidated EBITDA. Permit Consolidated EBITDA
to be less than the following amounts for any of the following periods:
Period Amount
For the period from February 4, 1996 to May 4, 1996 ($2,000,000)
For the period from February 4, 1996 to August 4, 1996 ($2,000,000)
For the period from February 4, 1996 to November 4, 1996 ($2,000,000)
For the period from February 4, 1996 to February 1, 1997 $24,000,000
For the period from February 2, 1997 to May 2, 1997 ($2,000,000)
For the period from February 2, 1997 to August 2, 1997 ($2,000,000)
For the period from February 2, 1997 to November 2, 1997 ($2,000,000)
For the period from February 2, 1997 to January 31, 1998 $27,000,000
For the period from February 1, 1998 to May 1, 1998 ($2,000,000)
Section 6.21 Limitation on Material Asset Sales. Enter into a
contract for or consummate a Material Asset Sale except that the Company may
contract for and consummate the sale of all or substantially all of the Movie
Plus Assets for a cash purchase price not less than the fair market value
thereof as determined in good faith by the board of directors of the Company.
If such a sale is consummated, the Commitment will reduce as provided in
Section 2.6.
<PAGE>
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 Maintenance of Tangible Net Worth of Record Town. Permit
Record Town and Record Town's subsidiaries to maintain Tangible Net Worth of
less than the following amounts as of the end of the following fiscal
quarters:
Period/Fiscal Year Amount
1st Q 1996 $25,000,000
2nd Q 1996 $25,000,000
3rd Q 1996 $25,000,000
4th Q 1996 $35,000,000
1st Q 1997 $30,000,000
2nd Q 1997 $30,000,000
3rd Q 1997 $30,000,000
4th Q 1997 $40,000,000
1st Q 1998 $30,000,000
Section 6.24 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary.
<PAGE>
Section 6.25 Limitations on Preferred Stock. Issue, or permit Record
Town or any other 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 Subsidiary
to open, any new store other than relocations, or (ii) enter or permit any
Subsidiary to enter into any lease in connection with or for the purpose of
opening any new store if, after giving effect to the opening of such store or
the entering into of such lease, a default under Section 6.4 would exist.
Section 6.27 Maintenance of Fixed Charges Ratio. Permit the Fixed
Charges Ratio for the period of four fiscal quarters ended as of the last day
of each of the following fiscal quarters to be less than the amounts set forth
opposite such fiscal quarters:
Period/Fiscal Year Amount
1st Q 1996 1.00
2nd Q 1996 1.00
3rd Q 1996 1.10
4th Q 1996 1.10
1st Q 1997 1.00
2nd Q 1997 1.00
3rd Q 1997 1.10
4th Q 1997 1.15
1st Q 1998 1.00
<PAGE>
Section 6.28 Foreign Subsidiaries. Create or permit to be created any
Subsidiary under the laws of any jurisdiction other than the United States or
a jurisdiction thereof.
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
within five Business Days of the date when due inclusive of any applicable
grace or other cure period;
<PAGE>
(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 5.5, 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 or any other Loan
Document (except to the extent a shorter time period is provided for in
the applicable Loan Document) 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 (i) defaults 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) defaults 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
<PAGE>
any, if the aggregate principal amount of such obligations in default at
any one time exceeds $2,000,000; or (iii) defaults 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;
(f) (i) the Company or any of its Significant Subsidiaries commences
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 is
<PAGE>
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 s imilar 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 takes 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 generally does not, or is unable to, pay its debts as they
become due or admits in writing its inability to pay its debts;
(g) (i) any Person engages 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, exists with respect to any Plan, (iii) a
<PAGE>
Reportable Event occurs with respect to, or proceedings commence to have a
trustee appointed, or a trustee is 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
terminates for purposes of Title IV of ERISA, (v) the Company or any
Commonly Controlled Entity incurs or, in the reasonable opinion of the
Bank, is 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 occurs or exists 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) is rendered against the Company or any
Significant Subsidiary and the same remains undischarged or unbonded for
the period of 30 days during which execution of such judgment is not
effectively stayed;
<PAGE>
(i) default by any Guarantor upon its Guarantee of the Note pursuant
to the terms thereof or if any such Guarantee ceases to be in full force
and effect or is declared to be null and void;
(j) an Event of Default under any one or more of the other Credit
Agreements or the Institutional Investor Debt Restructuring Documents
whether or not such Event of Default is waived by the applicable Banks or
Noteholders; or
(k) a Change of Control;
then (i) if such event is an event specified in paragraph (f) above, the
Commitment shall immediately terminate and the Note and all obligations of the
Companies 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, by notice to the Companies, declare 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
<PAGE>
notice of any kind, all of which are hereby expressly waived, anything
contained herein, in the Note, or the Applications to the contrary
notwithstanding. With respect to all Letters of Credit not previously
presented for drawing at the time of an acceleration pursuant to this
paragraph, the Company shall at such time deposit in a cash collateral account
opened by the Bank an amount equal to 105% of the aggregate then undrawn and
unexpired amount of such Letters of Credit. The Bank shall apply amounts held
in such cash collateral account to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit have expired or been fully drawn upon, if any, to repay other
obligations of the Companies hereunder and under the other Loan Documents, the
other Credit Agreements and the Institutional Investor Debt Restructuring
Documents. After all such Letters of Credit have expired or been fully drawn
upon, the principal and interest outstanding in respect of the Notes have been
satisfied and all other obligations of the Company hereunder and under the
other Loan Documents, the other Cre dit Agreements and the Institutional
Investor Debt Restructuring Documents have been paid in full, the Bank shall
return the balance, if any, in such cash collateral account to the Companies
(or such other Person as may be lawfully entitled thereto). The Bank may
<PAGE>
exercise and enforce any and all other rights and remedies available to it,
whether arising under this Agreement or the Note 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 Note or in aid of the exercise of any power granted
in this Agreement or the Note.
SECTION 8.
MISCELLANEOUS
Section 8.1 Limited Role of the Bank. The relationship between the
Companies and the Bank is solely that of borrowers and lender, respectively.
The Bank has no 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 acknowledges 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) will 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 is or becomes unenforceable or illegal under any applicable law, the
other provisions will remain in full force and effect.
<PAGE>
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 or Albany, New York
in any action or proceedings arising out of or relating to any Loan or Loan
Documents and all claims in respect of such action or proceedings may be heard
and determined in any such court and the Companies hereby irrevocably waive
any objection either 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 the address specified in Section 8.5.
<PAGE>
Section 8.4 WAIVER OF JURY TRIAL. THE BANK AND THE COMPANIES, AFTER
CONSULTING 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. NONE
OF THE BANK OR THE COMPANIES WILL 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 WILL NOT BE DEEMED 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 must be in writing and
must 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 -
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601
Facsimile No.: (312) 782-8585
Attention: David S. Kurtz
<PAGE>
and to the Bank at:
NBD Bank
with a copy to
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Chaim J. Fortgang
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 will
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 delivery 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
will be irrevocable and binding on the Companies.
(c) Any notice given by the Companies to the Bank pursuant to Section
2.4 may be given by telephone and all such notices must be confirmed in
<PAGE>
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 will be 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.
(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, will
operate as a waiver thereof; nor will 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
Companies from the provisions hereof or thereof, will be effective unless the
same is in writing from the Bank and then such waiver or consent will be
effective only in the specific instance and for the purpose for which it is
<PAGE>
given. No notice to the Companies will 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 can or will
constitute a waiver of any of the rights of the Bank under this Agreement or
the other Loan Documents.
(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, 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.
<PAGE>
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 and/or Guarantors will 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 in no manner modify, explain, enlarge or restrict any of the
provisions of this Agreement.
Section 8.9 Exhibits and Schedules. The exhibits and Schedules hereto
constitute integral parts of this Agreement.
Section 8.10 Expenses; Indemnity. (a) The Companies are obligated,
jointly and severally, to pay all reasonable out-of-pocket expenses incurred
by the Bank in connection with the preparation and administration of this
Agreement and the other Loan Documents or in connection with any amendments,
modifications or waivers of the provisions hereof or thereof (whether or not
the transactions hereby or thereby contemplated shall be consummated) or
incurred by the Bank in connection with the enforcement or protection of its
rights in connection with this Agreement and the other Loan Documents or in
connection with the Loans made or Letters of Credit issued hereunder,
including the fees, charges and disbursements of Wachtell, Lipton, Rosen &
Katz, counsel for the Bank and Policano & Manzo LLC, financial consultant to
the Bank.
<PAGE>
(b) The Companies hereby, jointly and severally, indemnify the Bank,
each Affiliate of the Bank and each of their respective directors, officers,
employees and agents (each such person being called an "Indemnitee") against,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, charges
and disbursements, incurred by or asserted against any Indemnitee arising out
of, in any way connected with, or as a result of (i) the execution and
delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated thereby, the performance by the parties thereto of
their respective obligations thereunder or the consummation of the
transactions contemplated thereby, (ii) the use of proceeds of the Loans or
the issuance of Letters of Credit, (iii) any claim, litigation, investigation
or proceeding relating to any of the foregoing, whether or not any Indemnitee
is a party thereto, or (iv) any actual or alle ged presence or release of
hazardous materials on any property owned or operated by the Companies or any
of the Subsidiaries, or any environmental claim related in any way to the
<PAGE>
companies or the Subsidiaries; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee.
(c) The provisions of this Section 8.10 will remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitment, the
expiration of any Letter of Credit, the invalidity or unenforceability of any
term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Bank. All amounts due under this
Section 8.10 shall be payable on written demand therefor.
Section 8.11 Survival of Agreements. All agreements, representations
and warranties made herein and in any certificates delivered pursuant hereto
will survive the execution and delivery of this Agreement, the Note, and the
making and renewal of Loans hereunder, and will continue in full force and
effect until such indebtedness of the Companies under the Note has been paid
in full.
<PAGE>
Section 8.12 Successors and Assigns. (a) This Agreement is binding
upon and inures 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.
(b) The Bank may, without the consent of the Companies 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 such 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 its Commitment not subject to any participating interests or (y) sold
participating interests to Participants (or assignments to Assignees) in 100%
of its Loans and Commitment. If the Bank sells a participation, the Bank's
obligations under this Agreement to the other parties to this Agreement will
remain unchanged, the Bank will remain s olely responsible for the performance
thereof, the Bank will 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 its rights and
obligations under this Agreement and the other Loan Documents. If amounts
<PAGE>
outstanding under this Agreement and the Note are due or unpaid, or have been
declared or have become due and payable upon the occurrence of an Event of
Default, each Participant will have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and the Note to
the same extent as if the amount of its Participation were owing directly to
it as the Bank under this Agreement or the Note. Each Participant is 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 is entitled to receive any greater amount
pursuant to such Section than the participating 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 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 the
Commitment, the Loans, its rights and obligations under this Agreement and the
<PAGE>
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 must 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. Notwithstanding the foregoing, the consent of
the Company is not required for an assignment made when a Default has occurred
and is continuing. The Bank shall no tify the Companies 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 will be a party hereto and have the rights and obligations
of the Bank hereunder with a Commitment as set forth herein and (2) the Bank
will, 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 will cease to be a party hereto except that the provisions
of Section 2.9 and Section 8.6 will continue to benefit the Bank to the extent
required by such Sections).
(d) Each of the Companies authorizes the Bank to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee,
<PAGE>
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 prohibits 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 will not be obligated to pay, interest in excess of the maximum
rate from time to time permitted by applicable law.
Section 8.14 Waiver and Release. (a) For and in consideration of the
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of all of which are hereby
acknowledged, each of the Company and Record Town (the Company and Record Town
being collectively referred to in this Section 8.14 as the "Releasors") does
hereby jointly and severally fully RELEASE, REMISE, ACQUIT, IRREVOCABLY WAIVE
and FOREVER DISCHARGE the Bank, together with its predecessors, successors,
assigns, subsidiaries, Affiliates and agents and all of its past, present and
<PAGE>
future officers, directors, shareholders, employees, contractors and
attorneys, and the predecessors, heirs, successors and assigns of each of them
(the Bank and all of the foregoing being collectively referred to in this
Section 8.14 as the "Released Parties"), from and with respect to any and all
Claims (as defined below).
(b) As used in this Section 8.14, the term "Claims" means and includes
any and all, and all manner of, action and actions, cause and causes of
action, suits, disputes, controversies, claims, debts, sums of money, offset
rights, defenses to payment, agreements, promises, notes, bonds, bills,
covenants, losses, damages, judgments, executions and demands of whatever
nature, known or unknown, whether in contract, in tort or otherwise, at law or
in equity, for money damages or dues, recovery of property, or specific
performance, or any other redress or recompense which have accrued or may ever
accrue, may have been had, may be now possessed, or may or shall be possessed
in the future by or on behalf of any one or more of the Releasors against any
one or more of the Released Parties for, upon, by reason of, on account of, or
arising from or out of, or by virtue of, any transaction, event or occurrence,
duty or obligation, indemnification, agreement, promise, warranty, covenant or
representation, breach of fiducia ry duty, breach of any duty of fair dealing,
breach of confidence, breach of funding commitment, undue influence, duress,
economic coercion, conflict of interest, negligence, bad faith, malpractice,
violations of federal or state securities laws or the Racketeer Influenced and
Corrupt Organizations Act, intentional or negligent infliction of mental
<PAGE>
distress, tortious interference with contractual relations, tortious
interference with corporate governance or prospective business advantage,
breach of contract, deceptive trade practices, libel, slander, usury,
conspiracy, wrongful acceleration of any indebtedness, wrongful foreclosure or
attempt to foreclose on any collateral relating to any indebtedness, action or
inaction, relationship or activity, service rendered, matter, cause or thing,
whatsoever, express or implied, transpiring, entered into, created or existing
from the beginning of time to the date of the execution of this Agreement in
respect of the Existing Credit Agreement, and shall include, but no t be
limited to, any and all Claims in connection with, as a result of, by reason
of, or in any way related to or arising from the existence of any
relationships or communications by and between the Releasors and the Released
Parties with respect to the Existing Credit Agreement, and all agreements,
documents and instruments related thereto, as presently constituted and as the
same may from time to time be amended.
<PAGE>
(c) The Releasors acknowledge that they may hereafter discover facts
different from or in addition to those they now know or believe to be true
with respect to the Claims herein released. Notwithstanding the foregoing,
the Releasors agree that this Section 8.14 will survive the termination hereof
and will remain effective in all respects and waive the right to make any new,
different or additional claim on account of such different or additional
facts. The Releasors acknowledge that no representation or warranty of any
kind or character has been made to the Releasors by any one or more of the
Released Parties or any agent, representative or attorney of the Released
Parties to induce the execution of this Agreement containing this Section
8.14.
(d) The Releasors hereby represent and warrant unto the Released
Parties that
(i) the Releasors have the full right, power, and authority to
execute and deliver this Agreement containing this Section 8.14 without
the necessity of obtaining the consent of any other party;
(ii) the Releasors have received independent legal advice from
attorneys of their choice with respect to the advisability of granting the
release provided herein, and with respect to the advisability of executing
this Agreement containing this Section 8.14;
<PAGE>
(iii) the Releasors have not relied upon any statements,
representations or promises of any of the Released Parties in executing
this Agreement containing this Section 8.14, or in granting the release
provided herein;
(iv) the Releasors have not entered into any other agreements
or understandings relating to the Claims;
(v) the terms of this Section 8.14 are contractual, not a mere
recital, and are the result of negotiation among all the parties; and
(vi) this Section 8.14 has been carefully read by, and the
contents hereof are known and understood by, and it is signed freely by
the Releasors.
(e) The Releasors covenant and agree not to bring any claim, action,
suit or proceeding regarding or related in any manner to the matters released
hereby, and the Releasors further covenant and agree that this Section 8.14 is
a bar to any such claim, action, suit or proceeding.
(f) All prior discussions and negotiations regarding the Claims have
been and are merged and integrated into, and are superseded by, this Section
8.14. The Releasors understand, agree and expressly assume the risk of any
fact not recited, contained or embodied in this Section 8.14 which may
<PAGE>
hereafter turn out to be other than, different from, or contrary to, the fact
now known to the Releasors or believed by the Releasors to be true, and
further agree that this Section 9.15 is not subject to termination,
modification, or rescission, by reason of any such difference in facts.
<PAGE>
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.
TRANS WORLD ENTERTAINMENT CORP.
By: /s/ Robert J. Higgins
--------------------
Robert J. Higgins,
President
RECORD TOWN, INC.
By: /s/ Robert J. Higgins
--------------------
Robert J. Higgins,
President
NBD Bank
By: /s/ Phillip D. Martin
--------------------
Phillip D. Martin
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-1-1997
<PERIOD-START> FEB-4-1996
<PERIOD-END> AUG-3-1996
<PERIOD-TYPE> 6-MOS
<CASH> 7,783
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 168,718
<CURRENT-ASSETS> 197,035
<PP&E> 169,273
<DEPRECIATION> 93,401
<TOTAL-ASSETS> 273,595
<CURRENT-LIABILITIES> 126,633
<BONDS> 52,577
0
0
<COMMON> 98
<OTHER-SE> 88,987
<TOTAL-LIABILITY-AND-EQUITY> 273,595
<SALES> 203,339
<TOTAL-REVENUES> 203,339
<CGS> 131,554
<TOTAL-COSTS> 131,554
<OTHER-EXPENSES> 73,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,143
<INCOME-PRETAX> (7,901)
<INCOME-TAX> (2,770)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,131)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
