<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
Quarterly Report Pursuant to section 13 or 15(d) of
the Securities and Exchange Act of 1934
--------------------
For the Quarter ended Commission File Number
March 31, 1998 0-14903
Baldwin Piano & Organ Company
(Exact name of registrant as specified in its charter)
Delaware 31-1091812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
422 Wards Corner Road
Loveland, Ohio 45140-8390
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (513) 576-4500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-
The number of shares of the Common Stock outstanding of Baldwin Piano &
Organ Company, as of May 1, 1998 is 3,445,710.
<PAGE> 2
BALDWIN PIANO & ORGAN COMPANY
INDEX
Page
Number
- ------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997.............. 3
Unaudited Condensed Consolidated Statements of Earnings
for the three months ended
March 31, 1998 and 1997 .................... 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the three months ended
March 31, 1998 and 1997 .................... 5
Notes to Unaudited Condensed Consolidated Financial
Statements, March 31, 1998 ....................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..... 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ............................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................ 12
Item 2. Changes in Securities and Use of Proceeds ........ 12
Item 3. Defaults upon Senior Securities .................. 12
Item 4. Submission of Matters to a Vote
of Security Holders ................... 12
Item 5. Other Information ................................ 13
Item 6. Exhibits and Reports on Form 8-K ................. 14
Signatures ................................................. 15
Exhibit Index .............................................. 16
2
<PAGE> 3
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
-------- ------------
<S> <C> <C>
Current assets:
Cash ............................... $ 346 $ 680
Receivables, net ................... 23,970 23,201
Inventories ........................ 42,252 36,649
Deferred income taxes .............. 2,460 2,460
Other current assets ............... 3,652 4,423
--------- ---------
Total current assets ..... 72,680 67,413
--------- ---------
Installment receivables,
less current portion ............... 15,505 16,502
Property, plant and equipment, net ....... 21,391 18,262
Other assets ............................. 12,214 12,183
--------- ---------
Total assets ............. $ 121,790 $ 114,360
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .. $ 3,125 $ 900
Accounts payable ................... 9,452 10,812
Income taxes payable ............... 458 575
Accrued liabilities ................ 6,044 7,221
--------- ---------
Total current liabilities 19,079 19,508
--------- ---------
Long-term debt, less current portion ..... 35,027 27,650
Deferred income taxes .................... 237 237
Other liabilities ........................ 6,238 6,142
--------- ---------
Total liabilities ........ 60,581 53,537
--------- ---------
Shareholders' equity:
Common stock ....................... 42 42
Additional paid-in capital ......... 12,481 12,381
Retained earnings .................. 55,152 54,783
--------- ---------
67,675 67,206
Less cost of treasury shares ....... (6,466) (6,383)
--------- ---------
Total shareholders' equity 61,209 60,823
--------- ---------
Total liabilities and
shareholders' equity .. $ 121,790 $ 114,360
========= =========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE> 4
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except net earnings per share)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1998 1997
------- -------
<S> <C> <C>
Net sales ................................. $31,687 $27,309
Cost of goods sold ........................ 26,373 22,533
------- -------
Gross profit ........................ 5,314 4,776
Income on the sale of
installment receivables ............. 1,804 1,873
Interest income on installment receivables 430 253
Other operating income, net ............... 417 734
------- -------
7,965 7,636
Operating expenses:
Selling, general and administrative . 6,452 6,202
Provision for doubtful accounts ..... 330 254
------- -------
Operating profit ............... 1,183 1,180
Interest expense .......................... 585 796
------- -------
Earnings before income taxes ... 598 384
Income taxes .............................. 228 138
------- -------
Net earnings ................... $ 370 $ 246
======= =======
Basic earnings per share .................. $ 0.11 $ 0.07
======= =======
Diluted earnings per share ................ $ 0.11 $ 0.07
======= =======
Weighted average number of common shares .. 3,445 3,425
======= =======
Weighted average number of common and
common equivalent shares ............ 3,520 3,472
======= =======
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE> 5
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
INCREASE (DECREASE) IN CASH 1998 1997
- --------------------------- ----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net earnings ............................... $ 370 $ 246
Reconciliations of net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization .... 704 669
Provision for doubtful accounts .. 330 254
Changes in working capital ....... (8,387) (4,054)
-------- --------
Net cash used in operating activities ...... (6,983) (2,885)
-------- --------
Cash flows from investing activities
Additions to property, plant and
equipment ............................. (3,759) (631)
-------- --------
Net cash used in investing activities ...... (3,759) (631)
-------- --------
Cash flows from financing activities:
Installment receivables written ............ (21,776) (19,161)
Installment receivables liquidated ......... 3,774 1,738
Proceeds from sale of installment
receivables ........................... 18,808 16,589
Borrowing on long-term debt ................ 9,602 4,462
-------- --------
Net cash provided by financing
activities ............................ 10,408 3,628
-------- --------
Net (decrease) increase in cash .................. (334) 112
Cash at beginning of quarter ..................... 680 774
-------- --------
Cash at end of quarter ........................... $ 346 $ 886
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ------------------------------------------------
Cash paid during the quarter for:
Interest ................................... $ 609 $ 768
======== ========
Income taxes ............................... $ 165 $ 110
======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
<PAGE> 6
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(in thousands of dollars)
(1) BASIS OF REPORTING FOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements included herein
have been prepared by Baldwin Piano & Organ Company ("Baldwin" or "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
and Form 10-K for the year ended December 31, 1997.
The financial statements presented herewith reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair statement of the results for the three month
periods ended March 31, 1998 and 1997. Results of operations for interim periods
are not necessarily indicative of results to be expected for an entire year.
(2) INVENTORIES
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
FIFO cost:
Raw material ......................... $ 18,958 $ 18,406
Work-in-process ...................... 10,619 8,865
Finished goods ....................... 22,811 19,306
-------- --------
52,388 46,577
Less revaluation to LIFO ................... (10,136) (9,928)
-------- --------
Net inventories ............ $ 42,252 $ 36,649
======== ========
</TABLE>
6
<PAGE> 7
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
FIRST QUARTER OF 1998 COMPARED
TO THE FIRST QUARTER OF 1997
First quarter net sales in 1998 increased 16 percent to $31.7 million,
up from $27.3 million in the first quarter of 1997. First quarter net earnings
rose to $370,000 from $246,000 in the first quarter of 1997. Excluding the cost
of the proxy contest, first quarter 1997 net earnings were $358,000.
Due to the phase-out of consignment in the second half of 1997, gross
profit in the first quarter of 1998 was $320,000 less than it would have been
with consignment. In addition, first quarter 1998 operating results were less
favorably affected by Statement of Financial Accounting Standards No. 125
(SFAS), "Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities" than in 1997: $205,000 in 1998 vs. $325,000 in
1997.
First quarter 1998 sales for the Company's music business increased by
$1.6 million (8%). Sales of Baldwin grand pianos were up 32 percent; primarily
due to increased piano availability.
Contract Electronics first quarter sales in 1998 were $10.7 million,
compared with $8.1 million in the first quarter of 1997; an increase of 32
percent. Sales to new customers represented 70 percent of the increase.
Retail financing's first quarter 1998 revenue was $2.2 million; a 5
percent gain; up from $2.1 million in the first quarter of 1997. Without the
effect of SFAS No. 125, the revenue increase would have been 11 percent.
Other net operating income in the first quarter of 1998 was $417,000, a
decrease of $317,000 compared with $734,000 in the first quarter of 1997. This
decrease was primarily due to lower display income from the Music Division's
dealers resulting from the phase-out of the consignment inventory program.
7
<PAGE> 8
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
Selling, general and administrative expenses in the first quarter of
1998 were $6.5 million; an increase of $300,000 from $6.2 million in the first
quarter of 1997. This increase combined with first quarter 1997 proxy contest
costs resulted in an aggregate increase of $500,000. The $300,000 increase was
higher Contract Electronics sales representative fees due to higher sales, and
higher management relocation expenses.
Interest expense decreased by $211,000; from $796,000 in the first
quarter of 1997 to $585,000 in the first quarter of 1998. This decrease resulted
from the Company's lower debt levels due to the decrease in inventories.
Inventory at the end of the first quarter of 1998 was $11.5 million less than at
the end of the first quarter of 1997.
INFLATION, OPERATIONS AND INTEREST RATES
Cost inflation can affect the Company's results. However, the Company has
generally been able to offset the impact of higher employment costs per hour and
higher raw material unit costs by improved efficiency and increases in sales
prices.
The operations of the Company and its predecessors are subject to Federal,
state and local laws regulating the discharge of materials into the environment.
The Company does not anticipate that any environmental matters currently known
to the Company will result in any material liability.
The Company and its subsidiaries' operating results are sensitive to
changes in interest rates primarily because of fixed interest rates on
installment receivables contracts and floating interest rates on a substantial
portion of indebtedness. Additionally, the buyer of the installment receivables
earns interest on the outstanding principal balance of the contracts based upon
a floating interest rate provision.
The Company can partially offset the effect of interest rate changes by
increasing interest rates on its new installment receivable contracts. In
November 1997 and December 1996, the Company entered into two-year interest rate
cap agreements in order to reduce the potential impact of increases in interest
rates on $20 million and $44 million, respectively, of floating-rate long-term
debt. The agreements entitle the Company to receive from the counterparty, on a
monthly basis,
8
<PAGE> 9
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
interest income to the extent the one-month commercial paper rate exceeds 12%.
The Company is exposed to credit losses in the event of nonperformance by the
counterparty to its interest rate caps, but has no off-balance sheet credit risk
of accounting loss. The Company anticipates, however, that the counterparty will
be able to satisfy their obligations under the contracts. The Company does not
obtain collateral or other security to support financial instruments subject to
credit risk, but monitors the credit standing of the counterparty.
The annual rate of interest under the Company's revolving Credit
Facility is equal to 1.5 percentage points above LIBOR, or under certain
specified circumstances, 0.5 percentage points per annum above the Prime Rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant working capital to support its
operations. Under Baldwin's traditional consignment inventory program, inventory
levels would increase during each year to support its high fourth quarter
seasonal sales demand. During 1997 the Company phased out its consignment
inventory program. This phase-out accounted for a large portion of the decrease
in inventory and the increase in receivables that occurred in 1997. Also during
1997 and 1998, installment receivables increased as a result of a larger
portfolio of installment contracts.
On October 17, 1997 the Company replaced its short-term $50 million
revolving line of credit with a long-term, secured $40 million revolving Credit
Facility expiring on October 1, 2000; however the Company can terminate the
agreement at any time with sixty days' notice. Under the Credit Facility, the
lenders have made available a line of credit based upon certain percentages of
the carrying value of the company's inventories and accounts receivable. The
annual rate of interest under the Credit Facility is equal to 1.5 percentage
points above LIBOR, or under certain specified circumstances, 0.5 percentage
points per annum above the Prime Rate. At March 31, 1998, the rate under the
Credit Facility was 7.2% and the Company has approximately $1.0 million of
additional borrowing available under this Credit Facility.
On April 27, 1998 the Company increased its Credit Facility to $43.8
million. The additional borrowing capacity is needed to prepare
9
<PAGE> 10
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
for the normal seasonal build-up of inventory for fourth quarter sales. In
addition, the Company expects to make capital expenditures of between $3 to $7
million over the next 12 to 18 month period. These capital expenditures will be
funded through operating cash flows and borrowings. The Company anticipates the
capital expenditures will enhance its future competitiveness and profitability.
The Company's debt agreements contain covenants that require the
Company to maintain certain financial ratios and tangible net worth within
defined amounts.
In October, 1997, the Company's finance subsidiary (Finance) amended
its agreements with an independent entity to sell substantially all of its
installment receivable contracts up to a maximum outstanding principal amount of
$150 million. Certain installment receivables are not eligible for sale and are
retained by Finance. Finance continues to service all installment receivables
sold. At the time of each installment receivable sale, Finance receives cash
equal to the unpaid principal balance of the contracts, less a purchase discount
applied to the principal balance of the contacts sold. The purchase discount is
adjusted at each receivable sale using the loss experience and effective yield
of the portfolio.
The buyer of the installment receivables earns interest on the
outstanding principal balance of the contracts based upon a floating interest
rate provision. Over the duration of the contracts, the difference between the
actual yield on the installment contracts sold and the amount retained by the
buyer under the floating interest rate provisions is remitted to Finance as a
service fee. In February 1994, Finance entered into a five year interest rate
swap agreement in order to reduce the potential impact of an increase in
interest rates on $20 million of installment contracts.
Proceeds from the sale of installment receivables amounted to $18.8
million for the three months ended March 31, 1998 and $16.6 million for the
comparable period in 1997. This increase in 1998 compared to 1997 is largely the
result of an increase in the volume of new installment contracts written at
traditional keyboard dealers and at Company sponsored "event sales".
Under the sale agreements, Finance is required to repurchase accounts
that become more than 120 days past due or accounts that are deemed
uncollectible. The repurchase price is equal to the remaining unpaid principal
balance of the contract on the date repurchased, less
10
<PAGE> 11
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
-----------------------------------------------------------
the related purchase discount. Finance is responsible for all credit losses
associated with the sold receivables, and is contingently liable for
approximately $90.5 million of installment receivables sold. The Company
believes an adequate allowance has been provided for all uncollectible
receivables.
Capital expenditures amounted to $3.8 million in the first quarter of
1998 and $600,000 in the comparable period of 1997. At March 31, 1998, the
Company has outstanding capital commitments of $600,000. The Company is
negotiating a Term Loan facility with its present lenders.
YEAR 2000
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Company's major computer systems consist
of third-party software. The conclusion of the Company's research is that the
latest existing releases of this software contain the necessary changes to
correct any significant Year 2000 problems, and as a matter of ongoing policy,
in order to assure continuing contractual vendor support, the Company intends to
install and implement these new releases of third-party software.
The Year 2000 problem is a result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather that the year 2000, which would result in
miscalculations or system failures.
Based on preliminary information, costs of addressing potential
problems are not currently expected to have a material adverse impact on the
Company's financial position, results of operations or cash flows in future
periods. However, if the Company, its customers or vendors are unable to resolve
such processing issues in a timely manner, it could result in a material
financial risk. Accordingly, the Company plans to devote the necessary resources
to resolve all significant Year 2000 issues in a timely manner.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
----------------------------------------
ABOUT MARKET RISK
-----------------
Not applicable
11
<PAGE> 12
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in its normal
course of business. The Company does not believe that any existing claim or suit
will have a material adverse effect on the business or financial condition of
the Company.
The operations of the Company and its predecessors are subject to
federal, state and local laws regulating the discharge of pollutants into the
environment. The Company does not anticipate that any environmental matters
currently known to the Company will result in proceedings against the Company or
in any material liability.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) No changes have been made to the instruments defining the right of
the holders of the Company's common stock or to the rights of such shareholders.
(b) On September 4, 1996, the Company and The Provident Bank, as Rights
Agent, entered into a Rights Agreement (the "Rights Agreement"). Pursuant to the
terms of the Rights Agreement, and Board of Directors of the Company authorized
the issuance of one common share purchase right (a "Right") with respect to each
outstanding share of common stock as of September 10, 1996. On April 20, 1998,
the Board of Directors of the Company authorized the redemption of the Rights at
the redemption price of one cent ($0.01) per Right specified in the Rights
Agreement (the "Redemption Price"). The sum of the Redemption Price amounts was
paid to Provident Bank for redistribution to the holders of the outstanding
Rights who were holders on April 20, 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is not in default nor has it defaulted on any indebtedness.
The Company is not obligated to pay any dividends or other payment to any of its
shareholders.
12
<PAGE> 13
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the
first quarter of 1998.
ITEM 5. OTHER INFORMATION
On March 10, 1998, the Company's Board of Directors appointed John H.
Gutfreund to fill a vacancy on the Board of Directors for the term expiring at
the Company's 1998 Annual Meeting of Shareholders. Mr. Gutfreund and the
Company's incumbent directors were also nominated for re-election at the 1998
Annual Meeting to be held on May 18, 1998 as described in the Company's
definitive proxy materials relating to that meeting.
In April 1998, the Company increased its borrowing availability under
its secured revolving credit facility from $40 million to $43.8 million. The
Company anticipates that such increased borrowing capacity will facilitate the
Company's ability to prepare for its normal seasonal inventory build up for
fourth quarter sales and to fund in part the Company's anticipated increase in
capital expenditures over the next 12 to 18 months.
13
<PAGE> 14
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.1 Second Amendment to Credit Agreement, between
Baldwin Piano & Organ Company and The Fifth Third
Bank and NBD Bank, N.A., dated April 27, 1998.
10.2 Termination Agreement, between Keyboard Acceptance
Corporation, Retailer Funding Corporation, General
Electric Capital Corporation, Bankers Trust
Company, PaineWebber Incorporated - as successor to
Kidder, Peabody & Co. Incorporated, Lehman
Commercial Paper, Inc. and Conn Credit Corporation,
dated March 20, 1998.
10.3 Third Amendment to Guaranty Agreement, between
Baldwin Piano & Organ Company, Keyboard Acceptance
Corporation, Retailer Funding Corporation, General
Electric Capital Corporation, dated March 20, 1998.
10.4 Second Amended and Restated Purchase and
Administration Agreement, between Baldwin Piano &
Organ Company, Keyboard Acceptance Corporation and
Retailer Funding Corporation, dated March 20, 1998.
19 1998 First Quarter Report to Shareholders of the
Company.
99.1 Press Release, dated February 23, 1998 announcing
results for the fourth quarter and year ended
December 31, 1997, incorporated by reference to the
Form 10-K of the Company for the period ended
December 31, 1997.
99.2 Press Release, dated March 10, 1998 announcing the
appointment of John H. Gutfreund to the Company's
board of directors.
99.3 Press Release, dated April 21, 1998 announcing the
Company's financial results for the first quarter
of 1998.
27 Financial Data Schedule.
------------------------------
Index to Exhibits appears on sequentially numbered page 16.
(b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the first
quarter of 1998.
14
<PAGE> 15
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALDWIN PIANO & ORGAN COMPANY
DATE: May 13, 1998 BY: /S/ KAREN L. HENDRICKS
---------------------- ------------------------
Karen L. Hendricks, Chairman,
Chief Executive Officer and
President
DATE: May 13, 1998 BY: /S/ PERRY H. SCHWARTZ
---------------------- -----------------------
Perry H. Schwartz, Executive
Vice President and Chief
Financial Officer
15
<PAGE> 16
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
10.1 Second Amendment to Credit Agreement, between Baldwin Piano &
Organ Company and The Fifth Third Bank and NBD Bank, N.A.,
dated April 27, 1998.
10.2 Termination Agreement, between Keyboard Acceptance
Corporation, Retailer Funding Corporation, General Electric
Capital Corporation, Bankers Trust Company, PaineWebber
Incorporated - as successor to Kidder, Peabody & Co.
Incorporated, Lehman Commercial Paper, Inc. and Conn Credit
Corporation, dated March 20, 1998.
10.3 Third Amendment to Guaranty Agreement, between Baldwin Piano &
Organ Company, Keyboard Acceptance Corporation, Retailer
Funding Corporation, General Electric Capital Corporation,
dated March 20, 1998.
10.4 Second Amended and Restated Purchase and Administration
Agreement, between Baldwin Piano & Organ Company, Keyboard
Acceptance Corporation and Retailer Funding Corporation, dated
March 20, 1998.
19 1997 First Quarter Report to Shareholders of the Company.
99.1 Press Release, dated February 23, 1998 announcing results for
the fourth quarter and year ended December 31, 1997,
incorporated by reference to the Form 10-K of the Company for
the period ended December 31, 1997.
99.2 Press Release, dated March 10, 1998 announcing the appointment
of John H. Gutfreund to the Company's board of directors.
99.3 Press Release, dated April 21, 1998 announcing the Company's
financial results for the first quarter of 1998.
27 Financial Data Schedule.
16
<PAGE> 17
BALDWIN
FIRST QUARTER
STATEMENT 1998
BUSINESSES
MUSIC PRODUCTS DIVISION
Grand pianos, vertical pianos, computerized auto-player piano
systems and digital pianos.
Company owned retail outlets in Altanta, Georgia; Cincinnati,
Ohio; Indianapolis and Fort Wayne, Indiana; Lexington and
Louisville, Kentucky.
Independent keyboard dealers (400).
RETAIL FINANCING DIVISION
Point-of-sale consumer financing for new and used pianos, and
special promotion programs.
Piano leasing programs.
CONTRACT ELECTRONICS DIVISION
Printed circuit board assemblies, design, engineering, testing,
electro-mechanical and mechanical assemblies, post-production repair and order
fulfillment.
HOME OFFICE
422 Wards Corner Road, Loveland, OH 45140-8390,
(513)576-4500 e-mail:[email protected]
web sites: www.baldwinpiano.com or www.pianovelle.com
MANUFACTURING LOCATIONS
Conway, Fayetteville and Trumann, Arkansas; Greenwood,
Mississippi; Juarez, Mexico
REGISTRAR AND TRANSFER AGENT
The Provident Bank, One East Fourth Street,
Cincinnati, OH 45202
Balwin Piano & Organ Company common stock is traded on
The Nasdaq National Market; Symbol: BPAO
[PICTURE]
[BALDWIN LOGO]
422 Wards Corner Road, Loveland, OH 45140-8390
MUSIC RETAIL CONTRACT
[PICTURE] [PICTURE] [PICTURE]
PRODUCTS FINANCING ELECTRONICS
<PAGE> 18
TO OUR SHAREHOLDERS
May 4, 1998
First quarter sales grew 16 percent to $31.7 million, up from $27.3 million
a year ago. First quarter net earnings rose to $370,000, or 11 cents per share,
versus last year's $246,000, or 7 cents per share. However, in the first quarter
of 1997, earnings from ongoing operations were $358,000, or 10 cents per share.
Due to the phase out of consignment in the second half of 1997, gross profit
in first quarter 1998 was $320,000 less than it would have been with
consignment. In addition, first quarter operating performance was also
negatively impacted by FAS-125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. FAS-125 increased current
net earnings 4 cents per share, compared with an increase of 6 cents per share a
year ago.
Phasing out consignment sales reduced interest expense and made our sales
force more productive, reflected in part, in the first quarter's sales increase.
The phase-out program is almost cost neutral but, has important longer term
benefits to the business.
Over the past 18 months, we put a strategic plan in place to turn the
Company around and generate profitable growth. This plan is working and all
three of our businesses are progressing on schedule. Continued strong demand for
pianos drove sales up 8 percent, with acoustic sales up and digital music sales
down slightly. Our line of grand pianos showed the greatest sales increase. In
addition, more than 10 percent of all grand pianos sold in the first quarter
included our ConcertMaster computerized player system.
Contract Electronics sales also continued the strong pace set in the fourth
quarter with first quarter sales up 32 percent to $10.7 million from $8.1
million during the same period last year. New business represented 70 percent of
the increase. The success of Contract Electronics' strategy is based on the
division's ability to develop a powerful base of core customers, generate new
business in select niches, and leverage the Baldwin name and reputation for high
quality and excellent customer service.
Our retail financing business also experienced gains in the first quarter.
Reported first quarter revenue was $2.2 million, a 5 percent gain, up from $2.1
million in the first quarter of 1997. However, without the impact of FAS-125,
revenue growth was 11 percent.
We are optimistic that our three businesses will show greater gains in
profitability during the balance of 1998. Continued implementation of our
strategic plan will require a further increase in capital expenditures. For a 12
to 18 month period, we have a major opportunity to fund several important
projects that will produce superior returns and significantly enhance our future
competitiveness and profitability. While we expect capital expenditures of
between $7 to $10 million over the next year or so, this should not be viewed as
a trend but as a one-time investment in our future.
/s/ Karen L. Hendricks
- ----------------------
Karen L. Hendricks
Chairman, Chief Executive Officer and President
CONSOLIDATED SUMMARY OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
(in thousands, except earnings per share) March 31,
-----------------------
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 31,687 $ 27,309
Cost of goods sold 26,373 22,533
- --------------------------------------------------------------------------------------------
Gross profit 5,314 4,776
Income on the sale of installment receivables 1,804 1,873
Interest income on installment receivables 430 253
Other operating income 417 734
Selling, general and administrative expenses (6,782) (6,456)
Interest expense (585) (796)
- --------------------------------------------------------------------------------------------
Earnings before income taxes 598 384
Income taxes (228) (138)
- --------------------------------------------------------------------------------------------
Net earnings $ 370 $ 246
============================================================================================
Basic earnings per share $ 0.11 $ 0.07
- --------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.11 $ 0.07
- --------------------------------------------------------------------------------------------
Basic number of shares outstanding (000) 3,445 3,425
- --------------------------------------------------------------------------------------------
Diluted number of shares outstanding (000) 3,520 3,472
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY BALANCE SHEETS (UNAUDITED)
Three Months Ended
March 31,
------------------
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Receivables, net $ 23,970 $ 15,590
Inventories 42,252 53,740
Other current assets 6,458 8,423
- --------------------------------------------------------------------------------------------
Total current assets 72,680 77,753
Installment receivables, less current portion 15,505 12,071
Property, plant and equipment, net 21,391 16,478
Other assets 12,214 7,866
- --------------------------------------------------------------------------------------------
Total assets $ 121,790 $ 114,168
============================================================================================
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 3,125 $ 35,588
Other current liabilities 15,954 12,508
- --------------------------------------------------------------------------------------------
Total current liabilities 19,079 48,096
Long-term debt, less current portion 35,027 3,125
Other liabilities 6,475 6,426
Shareholders' equity 61,209 56,521
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 121,790 $ 114,168
============================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.1
------------
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Second Amendment") dated as
of April 27, 1998 is by and among BALDWIN PIANO & ORGAN COMPANY, a Delaware
corporation, (hereinafter, together with its successors in title and assigns
called "Borrower" or "Baldwin"), THE FIFTH THIRD BANK, an Ohio banking
corporation, as Agent (in such capacity, the "Agent"), THE FIFTH THIRD BANK
("Fifth Third"), as a Lender, and NBD BANK, N.A., a national banking
association, ("NBD") as a Lender, (Fifth Third and NBD are hereinafter
collectively the "Lenders" and each individually a "Lender").
PRELIMINARY STATEMENT
---------------------
WHEREAS, Borrower, Agent and Lenders have entered into a Credit
Agreement dated as of October 16, 1997, as amended by a First Amendment dated as
of October 16, 1997 (the "Credit Agreement"); and
WHEREAS, Borrower have requested Agent and Lenders to make additional
credit in the amount of $3,800,000 available to Borrower and to make various
other revisions to the Credit Agreement as set forth herein; and
WHEREAS, Borrower, Agent and Lenders now wish to amend the Credit
Agreement in accordance with the terms and provisions hereof;
NOW, THEREFORE, the parties hereto agree to supplement and amend the
Credit Agreement upon such terms and conditions as follows:
1. CAPITALIZED TERMS. All capitalized terms used herein shall have the
meanings assigned to them in the Credit Agreement unless the context hereof
requires otherwise. Any definitions as capitalized terms set forth herein shall
be deemed incorporated into the Credit Agreement as amended by this Second
Amendment.
2. EXHIBITS. Exhibit C to the Credit Agreement, Form of Borrowing Base
Certificate, is hereby amended in its entirety by Exhibit C to this Second
Amendment and Exhibit D to the Credit Agreement Form of Revolving Promissory
Note, is hereby amended in its entirety by Exhibit D to this Second Amendment.
3. TOTAL CREDIT FACILITY. Section 3.1 of the Credit Agreement is hereby
amended to in its entirety to read as follows:
"Section 3.1. TOTAL CREDIT FACILITY. In consideration of
Baldwin's payment and performance of its Obligations and subject to the
terms and conditions contained in this Credit Agreement, the Lenders
agree to provide, and Baldwin agrees to accept, until the earlier of 45
days following the Second Amendment Closing Date and the closing of a
new $10,000,000 term loan facility among the Borrower, Agent and
Lenders (on terms substantially similar to the Credit Agreement, but in
any event,
<PAGE> 2
- 2 -
satisfactory to the Lenders) an aggregate credit facility of up to
Forty-Three Million Eight Hundred Thousand and 00/100 Dollars
($43,800,000.00), and thereafter an aggregate credit facility of up to
Forty Million and 00/100 Dollars ($40,000,000.00) (the "TOTAL CREDIT"),
subject to the terms and conditions hereof (the "CREDIT FACILITY"). No
Loans need be made by the Lenders if Baldwin is in Default or if there
exists any Unmatured Default. This is an agreement regarding the
extension of credit, and not the provision of goods or services."
4. ELIGIBLE ACCOUNTS AND ELIGIBLE INVENTORY. Section 3.2(a)(i) and
Section 3.2(a)(ii) of the Credit Agreement are hereby amended to in their
entirety to read as follows:
"(i) ELIGIBLE ACCOUNTS. On receipt of each Borrowing
Base Certificate, in the form of Exhibit C, together with such
supporting information as Agent may require from time to time
(the "BORROWING BASE CERTIFICATE"), Agent will credit Baldwin
with the lesser of: (i) eighty-five percent (85%) of the net
amount of the Eligible Accounts which are, absent error or
other discrepancy, listed in such Borrowing Base Certificate
("ELIGIBLE ACCOUNT AVAILABILITY"); and (ii) Fifteen Million
and 00/100 Dollars ($15,000,000.00). For purposes hereof, the
net amount of Eligible Accounts at any time shall be the face
amount of such Eligible Accounts LESS any and all returns,
discounts (which may, at Agent's option, be calculated on
shortest terms), credits, rebates, allowances, or excise taxes
of any nature at any time issued, owing, claimed by Account
Debtors, granted, outstanding, or payable in connection with
such Accounts at such time.
"(ii) ELIGIBLE INVENTORY. On receipt of each
Borrowing Base Certificate, Agent will credit Baldwin with the
lesser of: (i) seventy-five percent (75%) of the Value of
Eligible Inventory which is, absent error or other
discrepancy, listed in such Borrowing Base Certificate, and
(ii) Thirty Million Dollars and 00/100 Dollars
($30,000,000.00)."
5. FINANCIAL COVENANTS. (a) Section 10.3(a)(iii) of the Credit
Agreement is hereby amended to in its entirety to read as follows:
"(iii) a ratio of Current Tangible Assets to current
liabilities of not less than One and Three Tenths to One (1.3
to 1), PROVIDED HOWEVER for the calculation of current
liabilities for this Section 10.3(a)(iii) only, current
liabilities shall be exclusive of up to $3,800,000 of
Baldwin's Indebtedness to the Lenders in excess of $40,000,000
under the Loans;"
6. REAFFIRMATION OF COVENANTS, WARRANTIES AND REPRESENTATIONS. Borrower
hereby agrees and covenants that all representations and warranties in the
Credit Agreement, including without limitation all of those warranties and
representations set forth in Article 9, are true and accurate as of the date
hereof. Borrower further reaffirms all covenants in the Credit Agreement, and
reaffirm each of the affirmative covenants set forth in Section 10.1, the
negative covenants set forth
<PAGE> 3
- 3 -
in Section 10.2 and the financial covenants set forth in Section 10.3 thereof,
as if fully set forth herein, except to the extent modified by this Second
Amendment.
7. CONDITIONS PRECEDENT TO CLOSING OF SECOND AMENDMENT. On or prior to
the closing of the Second Amendment (hereinafter the "Second Amendment Closing
Date"), each of the following conditions precedent shall have been satisfied:
(a) PROOF OF CORPORATE AUTHORITY. Agent shall have received
from Borrower copies, certified by a duly authorized officer to be true
and complete on and as of the Second Amendment Closing Date, of records
of all action taken by Borrower to authorize (i) the execution and
delivery of this Second Amendment and all other certificates, documents
and instruments to which it is or is to become a party as contemplated
or required by this Second Amendment, and (ii) its performance of all
of its obligations under each of such documents.
(b) DOCUMENTS. Each of the documents to be executed and
delivered at the Second Amendment Closing and all other certificates,
documents and instruments to be executed in connection herewith shall
have been duly and properly authorized, executed and delivered by
Borrower and shall be in full force and effect on and as of the Second
Amendment Closing Date.
(c) LEGALITY OF TRANSACTIONS. No change in applicable law
shall have occurred as a consequence of which it shall have become and
continue to be unlawful (i) for Agent and each Lender to perform any of
its agreements or obligations under any of the Loan Documents, or (ii)
for Borrower to perform any of its agreements or obligations under any
of the Loan Documents.
(d) PERFORMANCE, ETC. Except as set forth herein, Borrower
shall have duly and properly performed, complied with and observed each
of its covenants, agreements and obligations contained in each of the
Loan Documents. Except as set forth herein, no event shall have
occurred on or prior to the Second Amendment Closing Date, and no
condition shall exist on the Second Amendment Closing Date, which
constitutes a Default or an Event of Default.
(e) PROCEEDINGS AND DOCUMENTS. All corporate, governmental and
other proceedings in connection with the transactions contemplated on
the Second Amendment Closing Date, each of the other Loan Documents and
all instruments and documents incidental thereto shall be in form and
substance reasonably satisfactory to Provident.
(f) CHANGES; NONE ADVERSE. Since the date of the most recent
balance sheets of Borrower delivered to Provident, no changes shall
have occurred in the assets, liabilities, financial condition,
business, operations or prospects of Borrower which, individually or in
the aggregate, are material to Borrower, and Provident shall have
completed such review of the status of all current and pending legal
issues as Agent shall deem necessary or appropriate.
<PAGE> 4
- 4 -
8. MISCELLANEOUS. (a) Borrower shall reimburse Agent for all fees and
disbursements of legal counsel to Agent which shall have been incurred by Agent
in connection with the preparation, negotiation, review, execution and delivery
of this Second Amendment and the handling of any other matters incidental
hereto.
(b) All of the terms, conditions and provisions of the
Agreement not herein modified shall remain in full force and effect. In the
event a term, condition or provision of the Agreement conflicts with a term,
condition or provision of this Second Amendment, the latter shall govern.
(c) This Second Amendment shall be governed by and shall be
construed and interpreted in accordance with the laws of the State of Ohio.
(d) This Second Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
(e) This Second Amendment may be executed in several
counterparts, each of which shall constitute an original, but all which together
shall constitute one and the same agreement.
[Remainder of page intentionally left blank. Signature page follows.]
<PAGE> 5
IN WITNESS WHEREOF, this Second Amendment has been duly executed and
delivered by or on behalf of each of the parties as of the day and in the year
first above written.
BALDWIN PIANO & ORGAN COMPANY,
Borrower
By: /s/ Perry H. Schwartz
-------------------------------------
Name: Perry H. Schwartz
------------------------------------
Title: Executive Vice President & Chief
-----------------------------------
Financial Officer
-----------------------------------------
THE FIFTH THIRD BANK, Agent
By: /s/ Robert Ries
-------------------------------------
Name: Robert Ries
------------------------------------
Title: Vice President
-----------------------------------
THE FIFTH THIRD BANK, Lender
By: /s/ Robert Ries
-------------------------------------
Name: Robert Ries
------------------------------------
Title: Vice President
-----------------------------------
NBD BANK, N. A., Lender
By: /s/ Edward Hathaway
-------------------------------------
Name: Edward Hathaway
------------------------------------
Title: Vice President
-----------------------------------
<PAGE> 6
EXHIBIT C
---------
FORM OF BORROWING BASE CERTIFICATE
----------------------------------
<TABLE>
<CAPTION>
BALDWIN PIANO & ORGAN COMPANY Report # __________ Today's date __________________________________
Accounts Reported as of ___________________
Inventory Reported as of __________________
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
I. ELIGIBLE ACCOUNT AVAILABILITY
- ----------------------------------------------------------------------------------------------------------------------
A. ELIGIBLE ACCOUNT AVAILABILITY
1. Accounts $___________
LESS:
2. Due greater than 60 Days from date of sale ___________
3. Contract Electronics unpaid greater than 90 Days
and others greater than 120 days ___________
4. Entire Account, if 50% or more unpaid greater than 90
Days ___________
5. Affiliate Accounts ___________
6. Consignment Receivables greater than 120 Days ___________
7. Conditional ___________
8. Non U.S./Canada ___________
9. Non Reps & Warr. (per ss.9.18 of Credit Agreement) ___________
10. Demonstration/Loan ___________
11. Progress/Barter/Contra ___________
12. Personal/family/household ___________
13. Agent Designated Accounts ___________
14. TOTAL INELIGIBLE (sum lines 2 through 13) (___________)
15. SUBTOTAL ___________
16. LESS: ELIGIBLE ACCOUNT NET AVAILABILITY
(15% times Line 15) (___________)
17. TOTAL ELIGIBLE ACCOUNT
AVAILABILITY
(Line 15, Less Line 16) $
==========
18. TOTAL CREDIT FOR ELIGIBLE ACCOUNTS
(Lesser of Line 17, or $15,000,000) $___________
- ----------------------------------------------------------------------------------------------------------------------
II. ELIGIBLE INVENTORY AVAILABILITY
- ----------------------------------------------------------------------------------------------------------------------
A. ELIGIBLE INVENTORY AVAILABILITY
19. INVENTORY (Wholesale Dealer Cost) LESS: __________
20. Work in Progress (___________)
21. Spare Parts/Shipping and Packaging
Materials (___________)
FORM OF BORROWING BASE CERTIFICATE 540177
</TABLE>
<PAGE> 7
- 2 -
<TABLE>
<S> <C> <C> <C> <C>
22. Defective Inventory (___________)
23. Returned or repossessed (___________)
24. Non U.S./Canada (___________)
25. TOTAL INELIGIBLE INVENTORY:
(Sum of Lines 20 through 24) (__________)
26. SUBTOTAL __________
27. LESS: NET ELIGIBLE INVENTORY
(25% times Line 26) (__________)
28. TOTAL ELIGIBLE INVENTORY AVAILABILITY
(Line 26 minus Line 27) __________
29. TOTAL CREDIT FOR ELIGIBLE INVENTORY
(The Lesser of Line 28, or $30,000,000) $__________
- ----------------------------------------------------------------------------------------------------------------------
III. ELIGIBLE RAW MATERIALS AVAILABILITY
- ----------------------------------------------------------------------------------------------------------------------
The Sum of :
30. Value of Raw Materials/electronic (Baldwin's Cost) ____________
31. Times 10% X .10 = $
----------- ----------
32. PLUS: The Value of all other Raw Materials
(Baldwin's Cost)
33. Times 50% X .50 = +
----------- ----------
34. TOTAL ==========
35. Raw Materials Availability
(Lesser of Line 34 or $5,000,000) _____________
======================================================================================================================
36. TOTAL BORROWING BASE AVAILABILITY
(Sum of Lines 18, 29 and 35) $____________
======================================================================================================================
37. Lesser of Line 36 and $40,000,000.00 (or $43,800,000.00,
as determined by the Credit Agreement) $____________
38. LESS: Outstanding Standby Letters of Credit (____________)
39. LESS: Outstanding Revolving Credit Balance
(____________)
======================================================================================================================
TOTAL AVAILABILITY TO BORROWERS $____________
(Sum of Lines 37, 38 and 39)
======================================================================================================================
We certify that the foregoing report is true and correct.
BALDWIN PIANO & ORGAN COMPANY
-----------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
FORM OF BORROWING BASE CERTIFICATE 540177
</TABLE>
<PAGE> 8
EXHIBIT D
---------
FORM OF AMENDED AND RESTATED REVOLVING PROMISSORY NOTE(1)
[$21,900,000.00] Cincinnati, Ohio
[April, ___, 1998]
THIS AMENDED AND RESTATED REVOLVING CREDIT NOTE ("Note") is made and
entered into as of the date hereof by BALDWIN PIANO & ORGAN COMPANY, a Delaware
corporation, (the "Borrower") to the order of [THE FIFTH THIRD BANK/NBD BANK,
N.A.] (hereinafter, together with its permitted successors and assigns, called
"Bank").
This Note has been executed and delivered pursuant to a certain Credit
Agreement dated as of October 16, 1997, as amended by First Amendment to Credit
Agreement dated October 16, 1997 and Second Amendment to Credit Agreement dated
as of April, 27, 1998, by and among Borrower, The Fifth Third Bank, an Ohio
banking corporation, as "Agent", and the Banks listed therein (collectively, and
as the same may be further amended, modified or restated, the "Credit
Agreement"), and is subject to the terms and conditions of the Credit Agreement,
including without limitation, acceleration upon the terms provided therein. All
capitalized terms used herein shall have the meanings assigned to them in the
Credit Agreement unless the context hereof requires otherwise.
Borrower, for value received, promises to pay to the order of Bank, at
Agent's Head Office, for the account of Bank in accordance with the Credit
Agreement, the principal sum of TWENTY ONE MILLION NINE HUNDRED THOUSAND AND
00/100 DOLLARS ($21,900,000.00) until the earlier of 45 days following the date
of this note or the closing of a new $10,000,000 term loan upon the terms and
conditions set forth in the Second Amendment to the Credit Agreement, and
thereafter $20,000,000.00 (the "Credit Commitment") or so much thereof as is
loaned by Bank pursuant to the provisions hereof and the terms and provisions of
the Credit Agreement, together with interest on the unpaid principal amount as
defined, determined and adjusted pursuant to the Credit Agreement ("Interest
Rate"). Interest shall be due and payable monthly in arrears on the first day of
each month, commencing on November 1, 1997 and thereafter. All interest under
this Note shall be computed on the basis of the actual number of days elapsed
over an assumed year consisting
- --------
1 This Amended and Restated Revolving Promissory Note is issued upon
surrender of and in exchange for a Revolving Promissory Note dated October 16,
1997, in the original principal amount of $20,000,000.00 having a maturity date
of October 1, 2002. The issuance of this Amended and Restated Revolving
Promissory Note is to reflect the various amendments that have been made to the
terms of the Credit Agreement, including but not limited to Lender replacing the
Revolving Promissory Note, and Lender extending to Borrowers, as hereinafter
defined, additional funds under the Revolving Promissory Loan. This Amended and
Restated Revolving Promissory Note shall not be construed as a novation or be
construed in any manner as an extinguishment of the obligations arising under
the original Revolving Promissory Note, or to affect the priority of the
security interest granted in connection with any promissory notes executed
pursuant to the Credit Agreement as defined herein.
AMENDED AND RESTATED REVOLVING PROMISSORY NOTE 540177
<PAGE> 9
- 2 -
of three hundred sixty (360) days. Principal and all remaining accrued interest
shall be due and payable on or before October 1, 2000, or as otherwise provided
in the Credit Agreement.
This Note is subject to mandatory prepayment upon the terms and
conditions set forth in the Credit Agreement. This Note may be prepaid in whole
or in part as set forth in the Credit Agreement.
If this Note is accelerated pursuant to the Credit Agreement or if a
Default or an Event of Default with respect to any monetary payment under the
Credit Agreement shall have occurred and during the period in which such Default
or Event of Default is continuing, the outstanding principal and all accrued
interest as well as any other Obligations due Bank or Agent under any Loan
Document shall bear interest at three percent (3%) above the Interest Rate.
Subject to the terms and conditions of the Credit Agreement and until
the earlier of October 1, 2000 or the earlier termination of the Credit
Agreement in accordance with its terms, Borrower may borrow, repay and reborrow
from Bank and Bank hereby agrees to lend and relend to Borrower such amounts not
to exceed Bank's Participation Percentage of the Total Credit as the Borrower
may from time to time request.
The Borrower hereby: (i) waives presentment, demand, notice of demand,
protest, notice of protest, notice of presentment and notice of nonpayment and
any other notice required to be given by law, except as otherwise specifically
provided in the Credit Agreement, in connection with the delivery, acceptance,
performance, default or enforcement of this Note, of any indorsement or guaranty
of this Note; and (ii) consents to any and all delays, extensions, renewals or
other modifications of this Note or waivers of any term hereof or the failure to
act on the part of Agent or Bank or any indulgence shown by Agent or Bank, from
time to time and in one or more instances, (without notice to or further assent
from Borrower) and agrees that no such action, failure to act or failure to
exercise any right or remedy, on the part of Agent or Bank shall in any way
affect or impair the obligations of Borrower or be construed as a waiver by Bank
of, or otherwise affect, any of Bank's rights under this Note, or under any
indorsement or guaranty of this Note. Subject to the terms of the Credit
Agreement, Borrower further agrees to reimburse Agent and Bank for all advances,
charges, costs and expenses, including reasonable attorney's fees, incurred or
paid in exercising any right, power or remedy conferred by this Note, or in the
enforcement thereof.
Anything herein to the contrary notwithstanding the obligations of
Borrower under this Note, the Credit Agreement or any other Loan Documents shall
be subject to the limitation that payments of interest shall not be required to
the extent that receipt of any such payment by any Bank would be contrary to the
provisions of law applicable to such Bank limiting the maximum rate of interest
that may be charged or collected by the Bank. Without limiting the generality of
the foregoing, all calculations of the rate of interest contracted for, charged
or received under this Note which are made for the purposes of determining
whether such rate of interest exceeds the maximum rate of interest permitted by
applicable law shall be made, to the extent permitted by applicable law, by
amortizing,
AMENDED AND RESTATED REVOLVING PROMISSORY NOTE 540177
<PAGE> 10
- 3 -
prorating, allocating and spreading in equal parts during the period of the full
stated term of this Note, all interest at any time contracted for, charged or
received in connection with the indebtedness evidenced by this Note, and then to
the extent that any excess remains, all such excess shall be automatically
credited against and in reduction of the principal balance, and any portion of
said excess which exceeds the principal balance shall be paid by Bank to
Borrower, it being the intent of the parties hereto that under no circumstances
shall Borrower be required to pay any interest in excess of the highest rate
permissible under applicable law.
The provisions of this note shall be governed by and interpreted in
accordance with the laws of Ohio.
The undersigned hereby designates all courts of record sitting in
Cincinnati, Ohio and having jurisdiction over the subject matter, state and
federal, as forums where any action, suit or proceeding in respect of or arising
from or out of this Note, its making, validity or performance, may be prosecuted
as to all parties, their successors and assigns, and by the foregoing
designation the undersigned consents to the jurisdiction and venue of such
courts.
TIME IS OF THE ESSENCE IN THE PERFORMANCE OF THE OBLIGATIONS
OF THIS NOTE.
IN WITNESS WHEREOF, the undersigned has executed this Revolving Credit
Note as of the day and year set forth above.
BALDWIN PIANO & ORGAN
COMPANY,
a Delaware corporation
By:
-------------------------
Name:
-----------------------
Title:
----------------------
AMENDED AND RESTATED REVOLVING PROMISSORY NOTE 540177
<PAGE> 1
Exhibit 10.2
------------
TERMINATION AGREEMENT
TERMINATION AGREEMENT, dated as of March 20, 1998 (this
"Termination Agreement"), among Retailer Funding Corporation, a Delaware
corporation ("RFC"), General Electric Capital Corporation, a New York
corporation ("GECC"), Bankers Trust Company, a New York corporation ("BTCo"),
PaineWebber Incorporated, as successor to Kidder, Peabody & Co. Incorporated, a
Delaware corporation ("Kidder"), Lehman Commercial Paper, Inc., a Delaware
corporation ("Lehman"), Keyboard Acceptance Corporation, a Delaware corporation
("KAC") (formerly known as BPO Finance Corporation ("BPO")), Conn Credit
Corporation, a Texas corporation ("Conn") (all together as the "Parties").
WHEREAS, RFC and GECC entered into the Liquidity Agreement
dated as of October 1, 1990 and amended by the First Amendment dated as of
February 15, 1994 and the Second Amendment dated as of November 1, 1996 (as
amended, the "Baldwin Liquidity Agreement");
WHEREAS, RFC and GECC entered into the Liquidity Agreement
dated as of June 1, 1993 (the "Conn Liquidity Agreement");
WHEREAS, RFC and GECC entered into the Security Agreement
dated as of June 28, 1988 and amended by the First Amendment dated as of
February 15, 1994 (as amended, the "Security Agreement");
WHEREAS, RFC and BTCo entered into, and GECC consented to, the
Depositary Agreement dated as of June 28, 1988 (the "Depositary Agreement");
WHEREAS, GECC, Kidder and BPO entered into the Indemnification
Agreement dated as of October 1, 1990 (the "BPO-Kidder Indemnification
Agreement");
WHEREAS, GECC, Kidder and Conn entered into the
Indemnification Agreement dated as of June 1, 1993 (the "Kidder-Conn
Indemnification Agreement");
WHEREAS, GECC, Lehman and Keyboard entered into the
Indemnification Agreement dated as of December 1, 1994 (the "Lehman-Keyboard
Indemnification Agreement");
WHEREAS, GECC, Lehman and Conn entered into the
Indemnification Agreement dated as of December 1, 1994 (the "Lehman-Conn
Indemnification Agreement");
WHEREAS, RFC and Lehman entered into the Commercial Paper
Dealer Agreement dated as of December 9, 1994 (the "Lehman Commercial Paper
Dealer Agreement");
WHEREAS, RFC and Kidder entered into the Commercial Paper
Dealer Agreement dated as of June 28, 1988 (the "Kidder Commercial Paper Dealer
Agreement" and together with the Baldwin Liquidity Agreement, the Conn Liquidity
Agreement, the Security
<PAGE> 2
Agreement, the Depositary Agreement, the BPO-Kidder Indemnification Agreement,
the Kidder-Conn Indemnification Agreement, the Lehman-Keyboard Indemnification
Agreement, the Lehman-Conn Indemnification Agreement and the Lehman Commercial
Paper Dealer Agreement, the "Agreements");
NOW, THEREFORE, each of the Parties hereto agrees that, as of
the date hereof, each of the Agreements to which it is a party, is hereby
terminated and, except as expressly provided in each of the Agreements, is of no
further force or effect.
IN WITNESS WHEREOF, each of the Parties hereto has caused a
counterpart of this Termination Agreement to be duly executed as of the date
first above written.
RETAILER FUNDING CORPORATION
By: /s/ William J. Mayer
--------------------------------
Name: William J. Mayer
Title: Assistant Secretary
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Steven Kluger
--------------------------------
Name: Steven Kluger
Title: Vice President
BANKERS TRUST COMPANY
By: /s/ Julianne Marledge
--------------------------------
Name: Julianne Marledge
Title: Principal
-2-
<PAGE> 3
PAINEWEBBER INCORPORATED
By: /s/ Karen A. Rockey
--------------------------------
Name: Karen A. Rockey
Title: Corporate Vice President
LEHMAN COMMERCIAL PAPER, INC.
By: /s/ Wendy Mangiaracina
--------------------------------
Name: Wendy Mangiaracina
Title: Vice President
KEYBOARD ACCEPTANCE CORPORATION
By: /s/ Perry H. Schwartz
--------------------------------
Name: Perry H. Schwartz
Title: Executive Vice President and Chief
Financial Officer
CONN CREDIT CORPORATION
By: /s/ David R. Atnip
--------------------------------
Name: David R. Atnip
Title: Secretary/Treasurer
-3-
<PAGE> 1
Exhibit 10.3
------------
THIRD AMENDMENT
---------------
THIRD AMENDMENT (the "Third Amendment") dated as of March 20,
1998 to the Guaranty Agreement dated as of October 1, 1990, as amended on
February 15, 1994 and on October 31, 1997 (as amended, the "Guaranty
Agreement"), among Retailer Funding Corporation (the "Company"), Keyboard
Acceptance Corporation (formerly BPO Finance Corporation) ("KAC"), Baldwin Piano
& Organ Company ("Baldwin") and General Electric Capital Corporation (the
"Guarantor"). Except as otherwise defined herein, capitalized terms used herein
and defined, either directly or by reference to the Purchase and Administration
Agreement shall be used herein as so defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, KAC, Baldwin and the Guarantor have
entered into the Guaranty Agreement and now desire to amend certain provisions
of the Guaranty Agreement;
NOW, THEREFORE, it is agreed:
1. Section 2(a) of the Guaranty Agreement is hereby amended by
deleting the reference to "503(b)(xi)" and replacing the deleted language with a
reference to "5.03(b)(xii)".
2. Section 3(a) of the Guaranty Agreement is hereby amended by
deleting the reference to "503(a)(i)" and replacing the deleted language with a
reference to "5.03(a)(1)(ii)".
3. This Third Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Guaranty Agreement.
4. This Third Amendment shall become effective (the "Third
Amendment Effective Date") on the date on which the Company, KAC, Baldwin and
GECC shall have each executed and delivered to the others a counterpart of this
Third Amendment.
5. From and after the Third Amendment Effective Date, all
references to the Guaranty Agreement in the Guaranty Agreement, each of the
other Company Documents and each of the Seller Documents shall be deemed to be
references to the Guaranty Agreement as amended hereby.
6. The parties hereto expressly agree and consent to any
merger of the Company with and into Retailer Funding, L.L.C. ("RFLCC") and
acknowledge and agree that from and after the date of any such merger RFLLC
shall be the Company for all purposes of the Guaranty Agreement with all of the
rights and obligations of the Company thereunder.
7. This Third Amendment may be executed on separate
counterparts by the parties hereto, each of which when so executed and delivered
shall be an original, but all of
<PAGE> 2
which shall constitute one and the same instrument.
8. This Third Amendment and the rights and obligations
hereunder shall be construed in accordance with and governed by the laws of the
State of New York.
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<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Third Amendment to be duly executed and delivered as of the
date first above written.
RETAILER FUNDING CORPORATION
By:/s/ William J. Mayer
--------------------------------
Name: William J. Mayer
Title: Assistant Secretary
KEYBOARD ACCEPTANCE CORPORATION
(formerly BPO Finance Corporation)
By:/s/ Perry H. Schwartz
--------------------------------
Name: Perry H. Schwartz
Title: Executive Vice President and Chief
Financial Officer
BALDWIN PIANO & ORGAN COMPANY
By:/s/ Perry H. Schwartz
--------------------------------
Name: Perry H. Schwartz
Title: Executive Vice President and Chief
Financial Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By:/s/ Steven Kluger
--------------------------------
Name: Steven Kluger
Title: Vice President
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<PAGE> 1
Exhibit 10.4
------------
================================================================================
SECOND AMENDED AND RESTATED
PURCHASE AND ADMINISTRATION AGREEMENT
Dated as of March 20, 1998
Among
RETAILER FUNDING CORPORATION,
KEYBOARD ACCEPTANCE CORPORATION
and
BALDWIN PIANO & ORGAN COMPANY
================================================================================
<PAGE> 2
SECOND AMENDED AND RESTATED
PURCHASE AND ADMINISTRATION AGREEMENT
SECOND AMENDED AND RESTATED PURCHASE AND ADMINISTRATION
AGREEMENT (the "Agreement") dated as of March 20, 1998 among RETAILER FUNDING
CORPORATION, a Delaware corporation (together with its successors and assigns,
hereinafter referred to as the "Company"), KEYBOARD ACCEPTANCE CORPORATION, a
Delaware corporation (together with its successors and assigns hereinafter
referred to as the "Seller") and BALDWIN PIANO & ORGAN COMPANY, a Delaware cor-
poration (together with its successors and assigns, hereinafter referred to as
the "Parent"), to which General Electric Capital Corporation ("GECC") and Edison
Asset Securitization, L.L.C., a Delaware limited liability company ("Edison"),
have joined as consenting parties.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Seller and the Parent entered into a
Purchase and Administration Agreement dated as of October 1, 1990, which
Purchase and Administration Agreement was amended by a First Amendment dated as
of February 15, 1994, a Second Amendment dated as of December 1, 1994, a Third
Amendment dated as of December 1, 1995, and a Fourth Amendment dated as of
November 1, 1996, and which Purchase and Administration Agreement was amended
and restated by an Amended and Restated Purchase and Administration Agreement
dated as of October 31, 1997 (such Purchase and Administration Agreement as so
amended and restated, the "Original Agreement");
WHEREAS, the Company, the Seller and the Parent wish to
further amend and restate the Original Agreement and GECC and Edison wish to
consent to such further amendment and restatement;
WHEREAS, Edison is a multi-seller commercial paper conduit
administered by GECC;
WHEREAS, the Company's existing commercial paper program is
being terminated, with the intention that the Company will obtain funding for
its operations from Edison (and primarily from Edison's commercial paper
program);
WHEREAS, the Company, Edison and GECC have entered into the
Funding Agreement, pursuant to which Edison will make loans to the Company to
fund the Company's existing and hereafter arising purchases of Receivables, such
loans to the Company to be funded in the ordinary course with proceeds of
Edison's Commercial Paper;
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<PAGE> 3
WHEREAS, Edison and GECC have entered into the Liquidity Loan
Agreement in connection with the Funding Agreement;
WHEREAS, it is contemplated that following the purchase and
assignment of Receivables from the Seller by the Company hereunder, the Seller
will, as agent for the Company, collect the sums due thereon from the obligors
on the Receivables and account to the Company therefor as provided for herein;
and
WHEREAS, the Company has requested the Seller to undertake the
collection and servicing responsibilities in respect of the Receivables owned by
the Company from time to time;
NOW, THEREFORE, the parties hereto agree that the Original
Agreement is amended and restated in its entirety as of the date hereof as
follows (as hereby amended and restated, the "Agreement"):
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. As used herein the following terms
shall have the meanings herein specified:
"Additional Assignment" shall have the meaning set forth in
Section 2.02 hereof.
"Additional Receivable" shall have the meaning set forth in
Section 2.02 hereof.
"Adjustment Payment" shall have the meaning specified in
Section 5.06 hereof.
"Aggregate Interest Component" shall mean, with respect to any
Settlement Period, the amount of interest accrued during such Settlement Period
on all Commercial Paper outstanding at any time during such Settlement Period
calculated by reference to the Edison CP Rate for such Settlement Period;
provided, that, with respect to the Settlement Period ending on March 31, 1998,
the Aggregate Interest Component shall be the foregoing amount plus the amount
of any interest accrued through March 20, 1998 on any commercial paper issued by
the Company to make or maintain purchases of Receivables pursuant to Sections
2.01 or 2.02 hereof.
"Applicable Program Fee Percentage" shall mean, with respect
to any Settlement Period, (a) if Consolidated Book Net Worth is $35,000,000 or
less, 1.75%, (b) if Consolidated Book Net Worth is greater than $35,000,000 and
less than or equal to $40,000,000, 1.50%, (c) if Consolidated Book Net Worth is
greater than $40,000,000 and less than or equal to $50,000,000, 1.25%, or (d) if
Consolidated Book Net Worth is greater than $50,000,000, 1.00%.
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<PAGE> 4
"Blocked Deposit Account" shall have the meaning specified in
Section 5.02(b).
"Blocked Deposit Agreement" means an agreement by and among
the Seller, the Company, the Collateral Agent and a Blocked Deposit Bank in
substantially the form attached hereto as Annex F, establishing a Blocked
Deposit Account and specifying the rights of the Company and the Collateral
Agent in such Blocked Deposit Account.
"Blocked Deposit Bank" means any bank maintaining one or more
Blocked Deposit Accounts.
"Book Net Worth" shall mean, with respect to any Person, the
total assets less the total liabilities of such Person, as determined in
accordance with GAAP.
"Business Day" shall mean a day on which (x) each of GECC and
the Collateral Agent is open at its respective address specified in this
Agreement for the purpose of conducting its business and (y) Bankers Trust
Company is open for the purpose of conducting a banking business.
"Carrying Costs" shall mean, with respect to any Settlement
Period, the sum of (i) the Aggregate Interest Component for such Settlement
Period PLUS (ii) the aggregate amount of interest accrued during such Settlement
Period with respect to all Loans outstanding during such Settlement Period PLUS
(iii) the Program Fee payable with respect to such Settlement Period PLUS (iv)
the fixed interest component, if any, payable by the Company on the notional
principal amount of SWAPs outstanding at any time during such Settlement Period
accrued from the first day through the last day of such Settlement Period
whether or not such fixed interest component is due and owing during such
Settlement Period PLUS (v) the amount, if any, paid by the Company during such
Settlement Period in connection with any termination of any SWAP MINUS (vi) the
sum of (1) the variable interest component, if any, receivable by the Company on
the notional principal amount of SWAPs outstanding at any time during such
Settlement Period accrued from the first day through the last day of such
Settlement Period whether or not such variable interest component is due and
owing during such Settlement Period and (2) the amount, if any, received by the
Company during such Settlement Period in connection with any termination of any
SWAP.
"Cash Percentage" shall mean at any time 90%, as the same may
be adjusted from time to time in accordance with the policies and criteria set
forth on Annex C hereto.
"Collateral Agent" shall mean GECC as collateral agent for
certain secured creditors of the Company.
"Collection Account" shall mean that certain special purpose
restricted deposit account established with Bankers Trust Company on behalf of
the Company identified as the
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<PAGE> 5
RFC/BPO Collection Account, Account No. 50-205-995.
"Collection Agent" shall have the meaning set forth in Section
5.01 hereof.
"Collection Agent Event of Default" shall have the meaning set
forth in Section 5.05 hereof.
"Collections" shall mean (i) all payments received in respect
of the Receivables, in the form of cash, checks, wire transfers, ATM transfers
or any other form of payment in accordance with the terms of a Receivable or
otherwise, (ii) all proceeds from the sale or other disposition of the
collateral securing a Receivable, (iii) any Adjustment Payments made pursuant to
Section 5.06 hereof and (iv) any dealer recourse payments or reserves which
dealer recourse payments or reserves are applied in respect of a Receivable.
"Commercial Paper" shall mean commercial paper issued by
Edison to fund or maintain advances made by Edison to the Company under the
Funding Agreement that are utilized by the Company to make or maintain purchases
of Receivables pursuant to Sections 2.01 or 2.02 hereof, each note evidencing
such Commercial Paper being referred to herein as a "Commercial Paper Note."
"Commercial Paper Rate" means, for any Settlement Period, the
rate for commercial paper having a maturity of 30 days as published by the
Board of Governors of the Federal Reserve System in "Statistical Release H.15
(519), Selected Interest Rates," or any successor publication, under the heading
"Commercial Paper Financial" on the Settlement Date occurring during such
Settlement Period, or if such rate is not so published on such Settlement Date,
the Commercial Paper Rate shall be the last Commercial Paper Rate in effect
prior to such Settlement Date; PROVIDED, HOWEVER, that if the rate so published
is a discount rate, the Commercial Paper Rate for such Settlement Period shall
be the rate resulting from GECC's converting such discount rate to an
interest-bearing equivalent rate per annum.
"Commitment" shall mean the obligation of Edison to make
advances to the Company under the Funding Agreement with respect to the Seller
in the maximum principal amount at any time outstanding of $100,000,000, as such
amount may be increased from time to time as provided in Section 2.04 hereof.
"Company" shall have the meaning assigned to that term in the
introduction to this Agreement.
"Company Default" shall mean any event which with notice or
lapse of time, or both, would become a Company Event of Default.
"Company Documents" shall mean this Agreement, the Funding
Agreement and
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<PAGE> 6
the Guaranty.
"Company Event of Default" shall mean any of the following
events:
(a) PAYMENTS. Failure by the Company (x) to pay the
principal of the advances made to it under the Funding Agreement when
due, or (y) to pay any interest on the advances made to it under the
Funding Agreement within five days after such amount becomes due; or
(b) REPRESENTATIONS. Any representation or warranty
or statement made or deemed made by the Company in this Agreement or in
any other Company Document or in any document entered into in
connection herewith or therewith shall prove to have been incorrect
when made in any material respect; or
(c) COVENANTS. Failure by the Company to observe or
perform any covenant or agreement contained herein or in any other
Company Document and not constituting a Company Event of Default under
any other clause of this definition and the continuance of such default
for 10 days after the Company shall have become aware of such default;
or
(d) VOLUNTARY BANKRUPTCY PROCEEDINGS OF THE COMPANY.
Either (i) the Company shall become insolvent or generally fail to pay,
or admit in writing its inability to pay, its debts as they become due,
or shall voluntarily commence any proceeding or file any petition under
any bankruptcy, insolvency or similar law or seeking dissolution or
reorganization or the appointment of a receiver, trustee, custodian or
liquidator for itself or a substantial portion of its property, assets
or business or to effect a plan or other arrangement with its
creditors, or shall file any answer admitting the jurisdiction of the
court and the material allegations of an involuntary petition filed
against it in any bankruptcy, insolvency or similar proceeding, or
shall be adjudicated bankrupt, or shall make a general assignment for
the benefit of creditors, or shall consent to, or acquiesce in the
appointment of, a receiver, trustee, custodian or liquidator for itself
or a substantial portion of its property, assets or business or (ii)
corporate action shall be taken by the Company for the purpose of
effectuating any of the foregoing; or
(e) INVOLUNTARY BANKRUPTCY PROCEEDINGS AGAINST THE
COMPANY. Involuntary proceedings or an involuntary petition shall be
commenced or filed against the Company under any bankruptcy, insolvency
or similar law or seeking the dissolution or reorganization of the
Company or the appointment of a receiver, trustee, custodian or
liquidator for the Company of a substantial part of the property,
assets or business of the Company, or any writ, order, judgment,
warrant of attachment, execution or similar process shall be issued or
levied against a substantial part of the property, assets or business
of the Company, and such proceeding or petition shall not be dismissed,
or such writ, order,
-5-
<PAGE> 7
judgment, warrant of attachment, execution or similar process shall not
be released, vacated or fully bonded, within sixty (60) days after
commencement, filing or levy, as the case may be.
"Consolidated Book Net Worth" shall mean, with respect to any
Settlement Period, the Book Net Worth of the Parent and its Subsidiaries as of
the last day of the preceding Settlement Period.
"Cumulative SWAP Payable" shall mean, as of any date of
determination thereof, the amount, if any, by which (x) the fixed interest
component payable by the Company on the notional principal amount of all
outstanding SWAPs accrued from the preceding SWAP Payment Date for each such
SWAP through the last day of the preceding Settlement Period exceeds (y) the
variable interest component receivable by the Company on the notional principal
amount of all outstanding SWAPs accrued from the preceding SWAP Payment Date for
each such SWAP through the last day of the preceding Settlement Period.
"Cut-Off Date" shall mean September 30, 1990.
"Daily Accrual Factor" shall mean, with respect to any day, a
fraction the numerator of which is the number of days that have elapsed in the
current calendar month prior to such day and the denominator of which is the
total number of days in the current calendar month.
"Debt" shall mean at any time any lease obligation which, in
accordance with generally accepted accounting principles and practice, has been
or should be capitalized on the books of the lessee and debt created, issued,
guaranteed (whether directly or indirectly by any guaranty), incurred or assumed
for money borrowed or for the deferred (for 60 days or more) purchase price of
property or services purchased, excluding, however, any purchase price which is
accounted for as an account payable, any other account payable (other than for
borrowed money) and accrued expenses incurred in the ordinary course of
business; PROVIDED in each case that the same are not overdue in a material
amount or, if overdue, are being contested in good faith and by appropriate
proceedings.
"Deferred Purchase Price" shall have the meaning set forth in
Section 2.03 hereof.
"Deposits Letter of Credit" shall mean an irrevocable letter
of credit in a stated amount of $1,500,000 naming the Collateral Agent as
beneficiary and permitting the Collateral Agent to make drawings thereunder for
any amounts required to be deposited in the Collection Account by the Seller or
the Collection Agent which are not so deposited on the date due; provided that
such letter of credit must be in form and substance satisfactory to the
Collateral Agent and must be issued by a banking institution approved by the
Collateral Agent.
"Documents" shall mean all documentation relating to the
Receivables including,
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<PAGE> 8
without limitation, credit applications, billing statements and computer records
and programs.
"EBITDA" shall mean, for any period, the consolidated net
income (or net loss) of the Parent and its Subsidiaries for such period as
determined in accordance with GAAP, PLUS the sum of the following amounts of the
Parent and its Subsidiaries for such period to the extent included in the
determination of such net income (or net loss), (i) depreciation expense, (ii)
amortization expense, (iii) interest expense, and (iv) income tax expense.
"Edison" shall mean Edison Asset Securitization, L.L.C., a
limited liability company organized under the laws of the State of Delaware.
"Edison CP Rate" shall mean, with respect to any Settlement
Period, the daily weighted average interest rate per annum for all commercial
paper of Edison outstanding at any time during such Settlement Period, as
calculated and reported by Edison to the Company for inclusion in the related
monthly Settlement Statement.
"Effective Yield" shall mean the ratio (expressed as a
percentage) computed as of the last day of each Settlement Period by dividing
(a) the product of (x) 2 and (y) the sum of (1) the aggregate amount of all
interest and finance charges (and excluding in any event any late fees,
prepayment fees or other similar charges) accruing in respect of all Eligible
Receivables during the period of six consecutive Settlement Periods then ended
and (2) the amount, if any, by which (i) the variable interest component, if
any, receivable by the Company on the notional principal amount of all SWAPs
outstanding at any time during the period of six consecutive Settlement Periods
then ended accrued from the first day through the last day of such six-month
period whether or not such variable interest component is due and owing during
such six-month period EXCEEDS (ii) the fixed interest component, if any, payable
by the Company on the notional principal amount of SWAPs outstanding at any time
during such six-month period accrued from the first day through the last day of
such six-month period whether or not such fixed interest component is due and
owing during such six-month period by (b) the average Unpaid Balance of all
Eligible Receivables as of the first day of each of the seven consecutive
Settlement Periods commencing with the first Settlement Period occurring during
such six-month period.
"Effective Yield Adjuster" shall mean, with respect to any
Settlement Period, an amount (but not less than zero) equal to the product of
(a) 1.5 and (b) the amount, if any, by which (x) 13.37% exceeds (y) the
Effective Yield as of the last day of the preceding Settlement Period.
"Eligible Receivable" shall mean each Receivable:
(a) which was originated in compliance with all applicable
requirements of law (including, without limitation, all laws, rules and
regulations relating to truth in lending, fair credit billing, fair
credit reporting, fair debt collection practices and privacy) and
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<PAGE> 9
which as of the date of this Purchase Agreement complies with all
applicable requirements of law;
(b) with respect to which all consents, licenses, approvals or
authorizations of, or registrations or declarations with, any
governmental authority required to be obtained, effected or given by
the Seller or the Parent in connection with the creation or the execu-
tion, delivery and performance of such Receivable, have been duly
obtained, effected or given and are in full force and effect;
(c) as to which, at the time of the sale of such Receivable to
the Company, the Seller was the sole owner thereof and had good and
marketable title thereto free and clear of all Liens;
(d) which is the legal, valid and binding payment obligation
of the Obligor thereon enforceable against such Obligor in accordance
with its terms and is not subject to any right of rescission, setoff,
counterclaim or defense (including the defense of usury) or to any
repurchase obligation or return right;
(e) which constitutes "chattel paper" under and as defined in
Article 9 of the UCC of all applicable jurisdictions;
(f) which was established in accordance with the normal credit
extension procedures and standards of the Parent, the Seller or
Wurlitzer in the regular and ordinary course of the business of the
Parent, the Seller or Wurlitzer, as the case may be, and, subject to
review and approval by the Company of the applicable policies,
procedures and underwriting, may include Receivables originated from
non-Parent dealer programs;
(g) which is denominated and payable in U.S. dollars and is
only payable in the United States of America;
(h) other than a Receivable (A) as to which (i) as of the
Cut-Off Date (or in the case of Additional Receivables, as of the last
day of the preceding Settlement Period), any payment, or part thereof,
remains unpaid for 30 days or more past the due date for such payment
determined by reference to the original contractual payment terms
thereof, or (ii) the Obligor thereon shall generally not be paying its
debts as such debts become due or shall have admitted in writing its
inability to pay its debts generally or shall have made a general
assignment for the benefit of creditors or any proceeding shall have
been instituted by or against such Obligor seeking to adjudicate it a
bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of its or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtor or seeking the entry
of an order for relief or the appointment of a receiver, trustee or
other similar official for it or for any substantial part of its
property or such Obligor shall
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<PAGE> 10
have taken any corporate action to authorize any of the foregoing, or
(iii) all of the original obligors obligated thereon are deceased, or
(B) which, consistent with the internal credit and collection policies
of the Seller, the Parent or Wurlitzer, has been or should have been
written off as uncollectible;
(i) the terms of which at the time of its transfer to the
Company have not been modified or waived except as permitted under this
Purchase Agreement;
(j) which has no Obligor thereon that is an officer, director
or employee of the Parent, the Seller or any Subsidiary of the Parent;
and
(k) which bears interest on the principal balance thereof or
provides for the payment of finance charges in respect of the amount
financed at a rate per annum of not less than 9.9% (or such lower rate
as shall be approved from time to time by the Collateral Agent in a
particular case or generally, with the Collateral Agent hereby
approving a rate of not less than 6.9% per annum with respect to
Receivables constituting not more than 10% of the Outstanding Principal
Receivables) and is in substantially the form of one of the form
contracts previously approved by the Company with such changes therein
as may be necessary or desirable from time to time in light of local
statutes or regulations.
"Excess Finance Charge Amount" shall mean with respect to any
Settlement Period (i) the aggregate Collections received during such Settlement
Period allocable to Finance Charge Receivables LESS (ii) the Carrying Costs with
respect to such Settlement Period.
"Expiration Date" shall mean October 31, 2001.
"Facility Fee" shall have the meaning specified in Section
7.08 hereof.
"Finance Charge Receivables" shall mean all interest, finance
charges, late fees, prepayment fees or other fees which become due or owing
under a Receivable after the Cut-Off Date or, in the case of Additional
Receivables, the applicable Notice Date.
"Fixed Amount" shall mean, at any time, the aggregate notional
principal amount of all SWAPs outstanding at such time.
"Funding Agreement" shall mean that certain Receivables
Funding Agreement dated as of March 20, 1998, by and among the Company, Edison
and GECC, as operating and collateral agent.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
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<PAGE> 11
"GECC" shall mean General Electric Capital Corporation, a New
York corporation.
"Guarantor" shall mean General Electric Capital Corporation as
issuer of the Guaranty.
"Guaranty" shall mean that certain Guaranty Agreement dated as
of October 1, 1990, among GECC, the Company, Seller and Parent, as amended by
the amendments dated as of February 15, 1994, October 31, 1997 and March
20,1998, and as the same may be further amended, modified or supplemented from
time to time.
"Guaranty Fee" shall mean the fee payable by the Company to
GECC in respect of the Guaranty.
"Guaranty Letter of Credit" shall mean an irrevocable letter
of credit naming GECC as beneficiary and permitting GECC to make drawings
thereunder from time to time, in an aggregate principal amount not less than 2%
of the Outstanding Principal Receivables as of the earlier of (x) the Settlement
Date in the calendar month preceding the date of the related payment under the
Guaranty and (y) the Wind-Down Date, for any amounts required to be reimbursed
to GECC under the Guaranty which are not so reimbursed on the date due; provided
that such letter of credit must be in form and substance satisfactory to GECC
and must be issued by The Fifth Third Bank, NBD Bank, N.A. or another banking
institution approved by GECC.
"Ineligible Receivables" shall mean all Receivables which were
not Eligible Receivables on the date such Receivables were sold and assigned to
the Company pursuant to the terms of this Agreement.
"Initial Purchase Date" shall have the meaning set forth in
Section 2.01 hereof.
"Intercreditor Agreement" shall mean that certain letter
agreement dated as of October 31, 1997 by and among the Company, GECC, The Fifth
Third Bank, Seller and Parent, as the same shall be amended, modified or
supplemented from time to time in accordance with the terms thereof.
"Interest" shall mean, for any Person, determined on a
consolidated basis in accordance with GAAP, for any period, the net interest
expense for such period, PLUS (a) interest expense capitalized for such period
to the extent deducted in the determination of such net interest expense, LESS
(b) the sum of the following amounts with respect to such Person to the extent
included in such net interest expense of such Person for such period: (A) the
amount of amortized debt discount, (B) charges relating to write-ups or
write-downs in the book or carrying value of existing indebtedness, and (C) any
increase in pay-in-kind interest payable.
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<PAGE> 12
"Interest Component" shall mean (a) the portion of the face
amount of Commercial Paper issued on a discount basis representing the discount
incurred in respect thereof and (b) the amount of interest payable in respect of
such Commercial Paper issued on an interest-bearing basis.
"Interest Deficiency Payment" shall have the meaning set forth
in Section 5.07 hereof.
"KAC Obligations" shall mean all obligations and liabilities
of the Seller or the Collection Agent to the Company, Edison, GECC or the
Collateral Agent, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to become
due, under or in connection with this Agreement, including but not limited to
the obligation to make deposits of Collections and Seller Payables as provided
herein.
"Lien" shall mean any mortgage, pledge, assignment, lien,
security interest or other charge or encumbrance of any kind, including the
retained security title of a conditional vendor or a lessor.
"Liquidity Loan Agreement" shall mean that certain Liquidity
Loan Agreement dated as of March 20, 1998, between Edison and GECC as Liquidity
Agent, Liquidity Lender, Operating Agent and Collateral Agent as the same may be
amended, modified or supplemented from time to time in accordance with the terms
thereof.
"Loan Rate" shall mean a rate per annum which shall be equal
to (i) prior to the Termination Date, and provided that no Seller Default or
Seller Event of Default shall have occurred and be continuing, the sum of (x)
the Applicable Program Fee Percentage plus (y) the Commercial Paper Rate in
effect from time to time and (ii) subsequent to the Termination Date, or if a
Seller Default or a Seller Event of Default shall have occurred and be
continuing, 4% in excess of the Prime Rate in effect from time to time.
"Loans" shall mean advances made by Edison to the Company that
are (a) utilized by the Company to make or maintain purchases of Receivables
pursuant to Sections 2.01 or 2.02 hereof and (b) funded or maintained by Edison
otherwise than through the issuance of Commercial Paper.
"Lockbox Account" shall have the meaning specified in Section
5.02(a).
"Moody's" shall mean Moody's Investors Service, Inc.
"Notice Date" shall mean, with respect to each Purchase Date
subsequent to the Initial Purchase Date, the last day of the calendar month
preceding such Purchase Date.
"Obligor" shall mean, with respect to any Receivable, the
Person or Persons
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obligated to make payments with respect to such Receivable, including any
guarantor thereof.
"Origination Agreement" shall mean any agreement pursuant to
which KAC acquires a Receivable or agrees with a manufacturer to provide
financing to dealers or purchasers that results in the origination or
acquisition by KAC of Receivables.
"Outstanding Principal Receivables" shall mean at any time,
all Principal Receivables which have not been paid (but only to the extent
unpaid) and which do not constitute Uncollectible Receivables or Repurchased
Receivables.
"Outstanding Unpaid Receivable Losses Funding Amount" shall
mean, as of any date of determination thereof, the aggregate Unpaid Receivables
Losses Funding Amounts for all prior Settlement Periods which have not been paid
from the Excess Finance Charge Amount or the Purchase Discount Collections in
any subsequent Settlement Period or otherwise.
"Over-Collateralization Amount" shall mean with respect to any
Purchase Date an amount equal to the product of (a) the Outstanding Principal
Receivables being purchased on such Purchase Date and (b) the Purchase Discount.
"Parent" means Baldwin Piano & Organ Company, a Delaware
corporation.
"Parent Credit Agreement" shall mean that certain Credit
Agreement dated October 16, 1997 by and among Parent, the Fifth Third Bank, as
agent, and the lenders party thereto, as the same may be amended, modified or
supplemented from time to time in accordance with the terms thereof.
"Parent Event" shall have the meaning provided in Section
6.05(c).
"Person" shall mean and include an individual, a partnership,
a corporation (including a business trust), a joint stock company, a trust, a
limited liability company, an unincorporated association, a joint venture or
other entity or a government or an agency or political subdivision thereof.
"Portfolio Settlement Statement" shall have the meaning
provided in Section 5.04 hereof.
"Prime Rate" shall mean a rate per annum equal to the rate
which Bankers Trust Company announces from time to time as its prime lending
rate, changing when and as said prime lending rate changes.
"Principal Component" shall mean (A) the excess of the face
amount of Commercial Paper issued on a discount basis over the Interest
Component thereof and (B) the principal amount of Commercial Paper issued on an
interest-bearing basis.
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"Principal Receivables" shall mean all amounts due or owing in
respect of a Receivable other than Finance Charge Receivables.
"Program Fee" shall mean, with respect to each Settlement
Period, an amount equal to the sum of (i) the product of (x) the Applicable
Program Fee Percentage with respect to such Settlement Period MULTIPLIED BY (y)
the actual number of days elapsed during such Settlement Period divided by 360
MULTIPLIED BY (z) the average daily amount of Commercial Paper outstanding
during such Settlement Period plus (ii) the product of (x) 0.50% MULTIPLIED BY
(y) the number of days elapsed during such Settlement Period divided by 360
MULTIPLIED BY (z) an amount equal to (1) the Commitment MINUS (2) the sum of the
average daily amount of Commercial Paper outstanding during such Settlement
Period and the average daily amount of Loans outstanding during such Settlement
Period.
"Purchase Date" shall have the meaning set forth in Section
2.02 hereof.
"Purchase Discount" shall mean 10%, as the same may be
adjusted from time to time in accordance with the policies and criteria set
forth on Annex C hereto.
"Purchase Discount Collections" shall mean, with respect to
any Settlement Period, the product of (x) the sum of (i) the Collections
received during such Settlement Period allocable to Principal Receivables plus
(ii) the amount of any repurchase payment made by the Seller pursuant to Section
3.05 hereof on the Settlement Date immediately succeeding such Settlement Period
which is allocable to Principal Receivables plus (iii) the amount of any
purchase payment made by the Collection Agent pursuant to Section 5.02(c) hereof
on the Settlement Date immediately succeeding such Settlement Period which is
allocable to Principal Receivables, and (y) the Purchase Discount.
"Receivable" shall mean a retail installment sales contract
executed by the respective Obligor and identified by account number, account
name and outstanding principal balance on Schedule I hereto; PROVIDED that from
and after each Purchase Date subsequent to the Initial Purchase Date, each
Additional Receivable identified on Schedule I to an Additional Assignment
delivered in accordance with Section 2.02 hereof shall be a Receivable and
Schedule I hereto shall be deemed to be amended and supplemented to include each
such Additional Receivable; and PROVIDED FURTHER, that from and after the date
of any repurchase of a Receivable by the Seller in accordance with Section 3.05
hereof or by the Collection Agent in accordance with Section 5.02(c) hereof,
such Repurchased Receivable shall no longer be a Receivable.
"Receivable Losses" shall mean, with respect to any Settlement
Period, the Unpaid Balance of the Receivables which became Uncollectible
Receivables during such Settlement Period.
"Receivable Losses Funding Amount" shall mean, with respect to
any Settlement
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Period, the product of (x) the Cash Percentage and (y) the Receivables Losses
for such Settlement Period.
"Recoveries" shall mean, with respect to any Settlement
Period, all Collections received during such Settlement Period in respect of
Receivables which became Uncollectible Receivables prior to the first day of
such Settlement Period.
"Repurchased Receivable" shall mean any Receivable which is
repurchased by the Seller pursuant to Section 3.05 hereof.
"Retail Purchase Agreement" shall mean the Retail Accounts
Receivable Purchase Agreement dated as of October 1, 1990 by and among the
Parent, Wurlitzer and the Seller as amended, supplemented and modified through
the date hereof.
"S&P" shall mean Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies, Inc.
"Seller" shall mean Keyboard Acceptance Corporation (formerly
BPO Finance Corporation), a Delaware corporation.
"Seller Default" shall mean any event which with notice or
lapse of time, or both, would become a Seller Event of Default.
"Seller Documents" shall mean and include this Agreement, the
Guaranty, the Assignment and each Additional Assignment.
"Seller Event of Default" shall mean the occurrence of any of
the following events:
(a) REPRESENTATIONS. Any representation or warranty or
statement made or deemed made by the Seller in the Seller Documents or
in any document, certificate or financial or other statement delivered
in connection therewith shall prove to have been incorrect when made in
any material respect; or
(b) VOLUNTARY BANKRUPTCY PROCEEDINGS OF THE SELLER OR THE
PARENT. Either (i) the Seller or the Parent shall become insolvent or
generally fail to pay, or admit in writing its inability to pay, its
debts as they become due, or shall voluntarily commence any proceeding
or file any petition under any bankruptcy, insolvency or similar law of
the United States or any political subdivision thereof or seeking
dissolution or reorganization or the appointment of a receiver,
trustee, custodian or liquidator for itself or a substantial portion of
its property, assets or business located in the United States or to
effect a plan or other arrangement with its creditors located in the
United States, or shall file any answer admitting the jurisdiction of
the court and the material allegations of an involuntary
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petition filed against it in any bankruptcy, insolvency or similar
proceeding brought under the laws of the United States or any political
subdivision thereof, or shall be adjudicated bankrupt in the United
States, or shall make a general assignment for the benefit or creditors
located in the United States, or shall consent to, or acquiesce in the
appointment of, a receiver, trustee, custodian or liquidator for itself
or a substantial portion of its property, assets or business located in
the United States or (ii) corporate action shall be taken by the Seller
or the Parent for the purpose of effectuating any of the foregoing; or
(c) INVOLUNTARY BANKRUPTCY PROCEEDINGS AGAINST THE SELLER OR
THE PARENT. Involuntary proceedings or an involuntary petition shall be
commenced or filed against the Seller or the Parent under any
bankruptcy, insolvency or similar law of the United States or any
political subdivision thereof or seeking the dissolution or
reorganization of the Seller or the Parent or the appointment of a
receiver, trustee, custodian or liquidator for the Seller or the Parent
or a substantial part of the property, assets or business of the Seller
or the Parent, or any writ, order, judgment, warrant of attachment,
execution or similar process shall be issued or levied against a
substantial part of the property, assets or business of the Seller or
the Parent, and such proceeding or petition shall not be dismissed, or
such writ, order, judgment, warrant of attachment, execution or similar
process shall be issued or levied against a substantial part of the
property, assets or business of the Seller or the Parent, and such
proceeding or petition shall not be released, vacated or fully bonded,
within sixty (60) days after commencement, filing or levy, as the case
may be; or
(d) CROSS-DEFAULT. A final judgment or judgments for the
payment of money in excess of $50,000 in the aggregate shall have been
rendered against the Seller or the Parent and the same shall have
remained unsatisfied and in effect, without stay of execution, for a
period of 30 consecutive days after the period for appellate review
shall have elapsed; or any bond, debenture, note or other evidence of
Debt of the Seller or the Parent in an aggregate principal amount in
excess of $50,000 shall have become due before its stated maturity by
the acceleration of the maturity thereof by reason of default or shall
have become due by its terms and shall not be promptly paid or
extended; or any default or event of default under the Parent Credit
Agreement; or any indenture, credit or loan agreement or other
agreement or instrument under which Debt of the Seller or the Parent in
an aggregate principal amount in excess of $50,000 is outstanding or by
which the same is evidenced shall have occurred and be continuing; or
(e) SELLER DOCUMENTS. The Seller shall default in any of its
obligations under the Seller Documents and such default shall continue
unremedied for at least (x) two Business Days if a monetary default or
(y) ten days if any other default.
"Seller Payables" shall mean (i) the obligation of the Seller
to repurchase, pursuant to Section 3.05 hereof, any Receivable which was not an
Eligible Receivable on the
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<PAGE> 17
date such Receivable was sold by the Seller to the Company, (ii) the Seller's
obligation to make Interest Deficiency Payments pursuant to Section 5.07 hereof,
and (iii) all other amounts owed by the Seller to the Company from time to time
pursuant to this Agreement.
"Senior Indebtedness" shall have the meaning specified in
Section 7.07(c) hereof.
"Servicing Fee" shall have the meaning specified in Section
7.06 hereof.
"Settlement Date" shall mean, with respect to each Settlement
Period, the fifteenth Business Day following the last day of such Settlement
Period.
"Settlement Period" shall mean the period of time commencing
on the first day in a calendar month to and including the last day in such
calendar month, PROVIDED that the initial Settlement Period shall commence on
October 1, 1990 and end on October 31, 1990.
"Settlement Statement" shall have the meaning provided in
Section 5.04 hereof.
"Subsidiary" of any Person means any corporation, of which
more than 50% of the total voting power of voting securities shall at the time
be owned or controlled, either directly or indirectly, by such Person or one or
more other Subsidiaries of such Person.
"Support Agreements" shall mean letter agreements in the form
attached hereto as Annex H executed by certain officers of the Parent.
"SWAP" shall mean an interest rate exchange agreement (i)
entered into by the Company at the request of the Seller as provided in Section
5.09 hereof and (ii) satisfying all of the terms and conditions of Section
5.3(d) of the Funding Agreement.
"SWAP Advance" shall have the meaning specified in Section
5.10 hereof.
"SWAP Counterparty" shall mean, with respect to any SWAP, the
party thereto other than the Company.
"SWAP Deficit" shall have the meaning specified in Section
5.10 hereof.
"SWAP Excess" shall mean, with respect to any Settlement
Period, the amount, if any, by which (x) the variable interest component, if
any, receivable by the Company on the notional principal amount of SWAPs
outstanding at any time during such Settlement Period accrued from the first day
through the last day of such Settlement Period whether or not such variable
interest component is due and owing during such Settlement Period EXCEEDS (y)
the fixed interest component, if any, payable by the Company on the notional
principal amount of SWAPs outstanding at any time during such Settlement Period
accrued from the first day through the last day of such Settlement Period
whether or not such fixed interest component is
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due and owing during such Settlement Period.
"SWAP Notice" shall have the meaning specified in Section 5.09
hereof.
"SWAP Payment Date" shall mean any day designated as a payment
date pursuant to the terms of a SWAP.
"SWAP Shortfall" shall mean, with respect to any Settlement
Period, the amount, if any, by which (x) the fixed interest component, if any,
payable by the Company on the notional principal amount of SWAPs outstanding at
any time during such Settlement Period accrued from the first day through the
last day of such Settlement Period whether or not such fixed interest component
is due and owing during such Settlement Period EXCEEDS (y) the variable interest
component, if any, receivable by the Company on the notional principal amount of
SWAPs outstanding at any time during such Settlement Period accrued from the
first day through the last day of such Settlement Period whether or not such
variable interest component is due and owing during such Settlement Period.
"SWAPs Sub-Account" shall mean that certain special purpose
restricted deposit sub-account of the Collection Account established with
Bankers Trust Company on behalf of the Company identified as the RFC/BPO SWAPs
Sub-Account of the Collection Account, Account No. 11822.
"Tangible Net Worth" shall mean of any Person, at any date,
determined on a consolidated basis in accordance with GAAP, the total assets of
such Person (which shall be valued at cost less normal depreciation) less:
(a) all items which are treated as intangibles in accordance
with GAAP, including, without limitation, (i) excess cost over book
value of businesses acquired; (ii) patents and patent rights; (iii)
trademarks and trade names; (iv) copyrights; (v) goodwill; (vi)
organization cost; (vii) government licenses; (viii) franchises; (ix)
mailing lists; (x) exploration permits; (xi) import and export permits;
and (xii) bond or debenture discounts; and
(b) Total Liabilities.
"Termination Date" shall mean the date on which Edison or the
Company shall have given the Seller notice that (a) any rating agency that has
rated the Commercial Paper shall have given the Commercial Paper a rating of
less than "A-1+," in the case of S&P, or less than "P-1," in the case of
Moody's, or that any such rating is no longer in full force and effect; (b) the
Outstanding Principal Receivables divided by the sum of the Principal Component
of the outstanding Commercial Paper (after giving effect to the issuance of all
Commercial Paper being issued on the date of determination) and the principal
amount of outstanding Loans shall be less
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than or equal to 1.05; (c) a Company Default or a Company Event of Default shall
have occurred and be continuing; or (d) a Seller Default or a Seller Event of
Default shall have occurred and be continuing.
"Total Liabilities" of any Person means, at any date, the
total liabilities of such Person and its Subsidiaries at such date determined on
a consolidated basis in accordance with GAAP.
"UCC" shall mean, with respect to any state, the Uniform
Commercial Code as from time to time in effect in such state.
"Uncollectible Receivable" shall mean any Receivable (i) which
has been written off as uncollectible by the Seller in its capacity as
Collection Agent for the Company pursuant to this Agreement, in accordance with
the customary and usual servicing procedures of the Seller and the Parent for
servicing retail installment sale contracts or (ii) as to which any payment, or
part thereof, remains unpaid for 121 days or more past the due date for such
payment determined by reference to the original contractual payment terms of
such Receivable.
"Unpaid Balance" shall mean with respect to any Receivable the
aggregate amount required to prepay in full the principal of, and all interest,
finance, prepayment and other fees or charges of any kind payable in respect of,
such Receivable.
"Unpaid Receivable Losses Funding Amount" shall mean, with
respect to any Settlement Period, the amount, if any, by which (x) the
Receivable Losses Funding Amount with respect to such Settlement Period exceeds
(y) the sum of (1) the Excess Finance Charge Amount for such Settlement Period
and (2) the Purchase Discount Collections for such Settlement Period.
"Weekly Activity Report" shall have the meaning specified in
Section 5.04(b).
"Wind-Down Date" shall mean the earliest to occur of (i) the
Settlement Date immediately following any period of three consecutive Settlement
Periods in which the Receivable Losses exceeds an annualized rate equal to 12%
of the average outstanding Principal Receivables, (ii) the first Settlement Date
to occur after (y) the Termination Date or (z) the 30th day following the date
on which GECC gives the Seller notice of its decision to cease providing credit
support for the purchase of Additional Receivables by the Company, (iii) the
first Settlement Date on which the product of the Cash Percentage and the
Unpaid Balance of the Receivables is less than or equal to the greater of (x)
$25,000,000 or (y) the Fixed Amount at such time, (iv) October 31, 2001, (v) the
first Settlement Date to occur after any date on which the Seller is not a
Subsidiary of the Parent unless Edison shall have given its prior written
consent to such change in the ownership of the Seller, (vi) the first Settlement
Date on which the Outstanding Principal Receivables divided by the sum of the
Principal Component of outstanding Commercial Paper and the principal amount of
outstanding Loans shall be less than
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1.09, as such number may be adjusted from time to time in accordance with the
policies and criteria set forth on Annex C hereto, (vii) the 120th day following
the delivery by the Seller of a termination notice in accordance with the
provisions of Section 2.04(b) of this Agreement, (viii) the first Settlement
Date on which the ratio of (a) all Outstanding Principal Receivables that are
less than 31 days past due to (b) all Outstanding Principal Receivables, is less
than 85% or (ix) the date which is eighteen (18) months prior to the expiry date
of the Guaranty Letter of Credit, as such expiry date may be extended from time
to time.
"Written" or "in writing" shall mean any form of written
communication or communication by means of telex, telecopier or telegraph.
"Wurlitzer" shall mean The Wurlitzer Company, a Delaware
corporation which is a wholly-owned subsidiary of the Parent.
ARTICLE II
PURCHASE OF ELIGIBLE RECEIVABLES
Section 2.01 THE INITIAL PURCHASE. (a) Subject to and upon the
terms and conditions herein set forth, the Company shall purchase from the
Seller, and the Seller shall sell and assign to the Company, on October 25, 1990
(the "Initial Purchase Date"), pursuant to the form of Sale and Assignment
attached hereto as Annex D, all right, title and interest of the Seller in, to
and under the Receivables existing on the Cut-Off Date, together with all monies
due or to become due and all amounts received with respect thereto (including
all Finance Charge Receivables), all proceeds thereof, including the proceeds
of any sale or disposition of any goods or merchandise subject thereto and all
right, title and interest of the Seller in, to and under the Retail Purchase
Agreement in respect thereof. The purchase price for such Receivables shall
consist of (1) an amount equal to the product of (x) the Outstanding Principal
Receivables on the Cut-Off Date and (y) the Cash Percentage, which amount shall
be paid by the Company in cash to the Seller on the Initial Purchase Date and
(2) the Deferred Purchase Price specified in Section 2.03.
(b) In connection with such sale, the Seller shall, at its own
expense, on or prior to the Initial Purchase Date (1) indicate in its computer
files that the Receivables have been transferred to the Company, (2) deliver to
the Company a computer printout containing a true and complete list showing for
each Receivable, as of the Cut-Off Date: (i) its account number, (ii) its
account name and (iii) the unpaid principal balance thereof and (3) execute and
file UCC-1 financing statements with respect to the Receivables now existing
and hereafter acquired by the Company from the Seller pursuant to this Agreement
meeting the requirements of the UCC and all other applicable state law in such
manner and in such jurisdictions as are necessary to perfect the sale of the
Receivables from the Seller to the Company.
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Section 2.02 ADDITIONAL PURCHASES. (a) Subject to and upon the
terms and conditions herein set forth, on the first Settlement Date and on each
Settlement Date thereafter prior to the earlier of a Wind-Down Date or the date
of a Collection Agent Event of Default specified in Section 5.05(g) (the Initial
Purchase Date and each such Settlement Date on which a purchase shall occur, a
"Purchase Date"), the Seller shall offer to sell and assign to the Company, and
the Company shall purchase from the Seller, all right, title and interest of the
Seller in, to and under each retail installment sale contract originated by the
Parent, the Seller or Wurlitzer during or prior to the preceding Settlement
Period which satisfies each of the criteria specified in the definition of
Eligible Receivable (each such retail installment sale contract, an "Additional
Receivable"), together with all monies due or to become due and all amounts
received with respect thereto (including Finance Charge Receivables), and all
proceeds thereof, including the proceeds of any sale or disposition of any goods
or merchandise subject thereto and all right, title and interest of the Seller
in, to and under the Retail Purchase Agreement or any other Origination
Agreement in respect thereof. The purchase price for such Additional Receivables
shall consist of (1) an amount equal to the product of (x) the Outstanding
Principal Receivables being purchased as of the Notice Date and (y) the Cash
Percentage, which shall be payable in cash on such Purchase Date and (2) the
Deferred Purchase Price specified in Section 2.03. All such subsequent sales and
assignments shall be made pursuant to the form of Additional Assignment attached
hereto as Annex E. No purchase of Receivables shall be made pursuant to this
Section 2.02 (i) after a Wind-Down Date shall have occurred or (ii) if after
giving effect thereto the Outstanding Principal Receivables would exceed the
Commitment. If at any time the Commercial Paper shall no longer be rated at
least "P-1" in the case of Moody's and "A-1" in the case of S&P, the Seller
shall not be obligated to offer to sell and assign Additional Receivables to the
Company, but may, at its option, unless a Wind-Down Date shall have occurred,
elect to do so, in which event the Company shall be obligated to purchase such
Additional Receivables from the Seller in accordance with the terms hereof.
(b) In connection with each sale pursuant to Section 2.02(a)
hereof, the Seller shall, at its own expense, on or prior to the related
Purchase Date (1) deliver to the Company an executed Additional Assignment which
shall have attached thereto as Schedule I a list identifying each Additional
Receivable being sold and assigned to the Company on such Purchase Date by
account number, account name and outstanding principal balance, (2) indicate in
its own computer files that such Additional Receivables have been transferred to
the Company pursuant to this Agreement, (3) make such additional UCC financing
statement filings, if any, as may be necessary under the UCC and applicable law
to perfect the sale of such Additional Receivables from the Seller to the
Company and (4) mark each Additional Receivable with a legend stating that such
Additional Receivable has been transferred to the Company pursuant to this
Agreement.
Section 2.03 DEFERRED PURCHASE PRICE. On the Initial Purchase
Date and on each subsequent Purchase Date the Company shall create an obligation
(the "Deferred Purchase
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Price") in favor of the Seller in respect of the Receivables purchased on such
Purchase Date in an amount equal to the Over-Collateralization Amount, which
shall represent contingent deferred purchase price for such Receivables and
shall be payable only to the extent provided in, and solely in accordance with
the terms of, Section 5.03(b) and Section 7.07 hereof. The Deferred Purchase
Price will be reduced on each Settlement Date by an amount equal to the sum of
(i) the Purchase Discount Collections plus (ii) the product of (x) the Purchase
Discount and (y) the Receivable Losses for such preceding Settlement Period.
Section 2.04 INCREASE OF COMMITMENT. (a) The Seller shall have
the right from time to time to increase the Commitment to an amount not in
excess of $150,000,000 by giving at least thirty days' prior written notice to
the Company, Edison and GECC; PROVIDED that, unless such increase in the
Commitment causes the Commitment to equal $150,000,000 such increase must be in
an amount equal to $10,000,000 or an integral multiple thereof and there must
not have been more than one prior increase in the Commitment during the
preceding twelve months. Any such increase in the Commitment shall be effective
on the scheduled date specified in the Seller's notice.
(b) The Seller shall have the right, at any time and from time
to time, to request in writing that the Commitment be increased to an amount in
excess of $150,000,000. Upon the concurrence of the Company, Edison and GECC, in
their sole and absolute discretion, this Agreement shall be amended to reflect
the increased Commitment. In the event that (x) the Seller requests an increase
in the Commitment pursuant to this Section 2.04(b), such request is accompanied
by financial and portfolio projections supporting the amount of such increase,
the Seller has provided the Company with such information as the Company shall
reasonably request in connection with its approval process, and the sum of the
outstanding Commercial Paper and Loans on the date of such request is in excess
of $142,500,000 and (y) GECC, Edison and the Company shall not have agreed to
such increase within 90 days following the date of such request, the Seller
shall have the right to terminate this Agreement, without any premium or penalty
whatsoever, by providing the Company with 120 days' prior written notice
thereof.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 3.01 REPRESENTATIONS AND WARRANTIES OF SELLER. The
Seller represents and warrants to the Company that:
(a) Each of the Seller and the Parent has been duly organized
and is validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to own its
properties and to conduct its business as presently conducted. Each of
the Seller and the Parent is duly qualified to do business and is in
good
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standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals,
in each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals would have a material adverse effect on the
conduct of the Seller's or the Parent's business.
(b) The sale of Receivables pursuant to this Agreement, the
performance of its obligations under this Agreement and the
consummation of the transactions herein contemplated have been duly
authorized by all requisite corporate action and will not conflict with
or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of its property or assets or
upon that of the Parent or any Subsidiary pursuant to the terms of any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it, the Parent or any Subsidiary is a party or
by which it, the Parent or any Subsidiary is bound or to which any
property or assets of it, the Parent or any Subsidiary is subject, nor
will such action result in any violation of the provisions of its
articles of incorporation or by-laws or of any statute or any order,
rule or regulation of any federal or state court or governmental agency
or body having jurisdiction over it, the Parent or any Subsidiary or
any of their respective properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or any such regulatory authority or other such governmental
agency or body is required to be obtained by or with respect to the
Seller, the Parent or any Subsidiary for the sale of Receivables or the
consummation of the transactions contemplated by this Agreement.
(c) This Agreement has been duly executed and delivered by the
Seller and constitutes a valid and legally binding obligation of the
Seller, enforceable against the Seller in accordance with its terms,
except that the enforceability thereof may be subject to (a) the
effects of any applicable bankruptcy, insolvency, reorganization,
receivership, conservatorship or other laws, regulations and
administrative orders affecting the rights of creditors generally and
(b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or law). This
Agreement has been duly executed and delivered by the Parent and
constitutes a valid and legally binding obligation of the Parent,
enforceable against the Parent in accordance with its terms, except
that the enforceability thereof may be subject to (a) the effects of
any applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship or other laws, regulations and administrative orders
affecting the rights of creditors generally and (b) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or law).
(d) The Seller is, as of the time of the transfer to the
Company of each Receivable being sold to the Company on the Initial
Purchase Date, and will be, as of the time of the transfer to the
Company of each Receivable sold to the Company on any subsequent
Purchase Date, the sole owner of such Receivable free from any lien,
security
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interest, encumbrance or other right, title or interest of any Person.
Each Receivable existing on the Initial Purchase Date has been, and in
the case of Additional Receivables sold hereafter such Additional
Receivables will be, on the applicable Purchase Date, conveyed to the
Company free and clear of any Lien.
(e) There is no effective financing statement (or similar
statement or instrument of registration under the law of any
jurisdiction) now on file or registered in any public office filed by
or against the Seller, the Parent or any Subsidiary or purporting to be
filed on behalf of the Seller, the Parent or any Subsidiary covering
any interest of any kind in any Receivables which are being, or which
hereafter will be, sold to the Company, and the Seller will not execute
nor will there be on file in any public office any effective financing
statement (or similar statement or instrument of registration under the
laws of any jurisdiction) or statements relating to such Receivables,
except in each case any financing statements filed in respect of and
covering the purchase of the Receivables by the Company pursuant to
this Agreement, the security interest created pursuant to the Security
Agreement and the security interests created pursuant to the Funding
Agreement.
(f) All filings and recordings (including pursuant to the UCC)
required to perfect the title of the Company in each Receivable sold
hereunder have been accomplished and are in full force and effect and
the Seller shall at its expense perform all acts and execute all
documents reasonably requested by the Company at any time and from time
to time to evidence, perfect, maintain and enforce the title or the
security interest of the Company or the Collateral Agent in the
Receivables and the priority thereof.
(g) All Receivables sold and assigned to the Company on the
Initial Purchase Date are Eligible Receivables and all Receivables sold
and assigned to the Company on any Purchase Date subsequent to the
Initial Purchase Date will be Eligible Receivables as of such Purchase
Date.
(h) As of the Initial Purchase Date, Schedule I to this
Agreement is, and as of the applicable Purchase Date with respect to
Additional Receivables, Schedule I to the applicable Additional
Assignment will be, an accurate and complete listing of all the
Receivables as of the Cut-Off Date or the last day of the Settlement
Period preceding such Purchase Date, as the case may be, and the
information contained therein with respect to such Receivables is true
and correct as of such date. As of the Initial Purchase Date the
aggregate amount of the Outstanding Principal Receivables was
$45,486,051.16.
(i) With respect to the Receivables existing as of the Cut-Off
Date, this Agreement and the Sale and Assignment referred to in Section
2.01, and, in the case of Additional Receivables sold to the Company
hereafter, the related Additional Assignment, constitute a valid sale,
transfer and assignment to the Company of all right, title and interest
in the Receivables and Additional Receivables and the proceeds thereof,
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or, if this Agreement does not constitute a sale of such property, it
constitutes a grant of a "security interest" in such property to the
Company, which, in the case of existing Receivables and the proceeds
thereof, is enforceable upon execution and delivery of this Agreement
and which will be enforceable with respect to Additional Receivables
and the proceeds thereof upon the transfer and assignment of such
Additional Receivables to the Company. Upon the filing of the financing
statements described in Section 3.01(f) and, in the case of the
Additional Receivables hereafter sold to the Company and the proceeds
thereof, upon the transfer thereof to the Company, the Company shall
have a first priority perfected security or ownership interest in such
property. Except as otherwise provided in this Agreement, neither the
Seller nor the Parent nor any Subsidiary of the Parent nor any Person
claiming through or under the Seller, the Parent or any Subsidiary of
the Parent has any claim to or interest in the Collection Account or
the Cash Collateral Account.
Section 3.02 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Seller that:
(a) The Company has been duly organized and is validly
existing and in good standing under the laws of the State of Delaware,
with full power and authority to own its properties and to transact the
business in which it is now engaged or in which it proposes to engage.
(b) The purchase by the Company of Receivables pursuant to
this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under or, except as
contemplated hereby and by the Funding Agreement, result in the
creation or imposition of any lien, charge or encumbrance upon any of
the property or assets of the Company pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company is a party or by which it is bound
or to which any of the property or assets of the Company is subject,
nor will such action result in any violation of the provisions of the
certificate of incorporation, by-laws or other similar documents of the
Company or of any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or
any of its properties or assets; and no consent, approval,
authorization, order, registration or qualification of or with any
court or any such regulatory authority or other governmental agency or
body is required for the purchase by the Company of Receivables
hereunder.
(c) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except that the enforceability thereof may be subject
to (a) bankruptcy, insolvency, reorganization,
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moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
law).
Section 3.03 COVENANTS OF SELLER. The Seller covenants and
agrees with the Company as follows:
(a) The chief executive office of each of the Seller, the
Parent and Wurlitzer is located in Loveland, Ohio. Originals or
duplicates of Documents evidencing all Receivables are kept at, and
only at, said offices, or at Parent offices located in Loveland, Ohio,
and neither the Parent nor the Seller nor Wurlitzer will move its chief
executive office or permit the Documents and books evidencing the
Receivables to be moved unless (i) the Seller shall have given to the
Company and GECC not less than 45 days' prior written notice thereof,
clearly describing the new location, and (ii) the Seller shall have
taken such action, satisfactory to the Company and GECC, to maintain
the title or ownership of the Company and any security interest of, or
any filing in respect of title of, the Company or the Collateral Agent
in the Receivables at all times fully perfected and in full force and
effect.
(b) The Seller, the Parent and Wurlitzer shall duly fulfill
all obligations on their part to be fulfilled under or in connection
with the Receivables, including complying with all requirements of law
applicable thereto, and will do nothing to impair the right, title and
interest of the Company in the Receivables; PROVIDED, HOWEVER, that an
adjustment or compromise of a Receivable pursuant to Section 5.06
shall not be deemed to be a violation of this paragraph.
(c) The Seller agrees to indemnify, defend and hold the
Company harmless from and against any and all loss, liability, damage,
judgment, claim, deficiency or expense (including interest, penalties,
reasonable attorneys' fees and disbursements and amounts paid in
settlement) to which the Company may become subject insofar as such
loss, liability, damage, judgment, claim, deficiency or expense arises
out of, is based upon or relates to (i) a breach by the Seller of any
warranty, representation, covenant or agreement contained in this
Agreement; (ii) any Receivable sold by the Seller to the Company
hereunder on any Purchase Date not being an Eligible Receivable on the
date of purchase by the Company; (iii) any breach by the Seller, the
Parent or a Subsidiary of any obligation under a Receivable or under
any other agreement between the Seller, the Parent or a Subsidiary and
the Obligor under the related Receivable or any indebtedness or
liability at any time owing to or in favor of such Obligor by the
Seller, the Parent or any Subsidiary in connection therewith; (iv) any
claim or demand of a Person claiming a Receivable sold by the Seller to
the Company hereunder or claiming any interest therein adverse to the
Company; or (v) this Agreement or the acquisition or ownership by the
Company of the Receivables; provided, that the Seller shall have no
liability for any loss,
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claim or amount pursuant to this clause (v) to the extent that such
loss, claim or amount is found to have resulted from the negligence,
bad faith or willful misconduct of the Company or a breach by the
Company of its obligations hereunder. The obligations of the Seller
under this Section 3.03(c) shall be considered to have been relied upon
by the Company and shall survive the execution and delivery of this
Agreement regardless of any investigation made by the Company or on its
behalf.
(d) The Seller shall defend each Receivable sold by it to the
Company and not repurchased by it against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse
to the Company through the Seller, the Parent or a Subsidiary.
(e) The Seller will not execute any effective financing
statement (or similar statement or instrument of registration under the
laws of any jurisdiction) or statements relating to any Receivables
sold to the Company, except any financing statements filed or to be
filed in respect of and covering the purchase of the Receivables by the
Company pursuant to this Agreement and the security interest created in
favor of the Collateral Agent pursuant to the Funding Agreement.
(f) The Seller shall at its expense perform all acts and
execute all documents reasonably requested by the Company at any time
to evidence, perfect, maintain and enforce the title or the security
interest of the Company or the Collateral Agent in the Receivables and
the priority thereof. The Seller will, at the reasonable request of a
duly authorized officer of the Company, execute and deliver financing
statements relating to or covering the Receivables sold to the Company
(reasonably satisfactory in form and substance to the Company) and,
where permitted by law, the Seller will authorize the Company to file
one or more financing statements signed only by the Company.
(g) The Seller shall use all reasonable measures to prevent or
minimize any loss being realized on a Receivable in which the Company
owns an interest and shall take all reasonable steps to recover the
full amount of such loss. The Seller shall, at its own expense, take
such steps as are necessary to maintain perfection of the security
interest created by each Receivable in the related goods and
merchandise subject thereto. The Seller shall use its best efforts,
consistent with prudent servicing procedures, to repossess or otherwise
convert the ownership of the goods or merchandise securing any
Receivable which becomes an Uncollectible Receivable. The Seller shall
follow such practices and procedures for servicing the Receivables as
would be customary and usual for a prudent commercial lender under
similar circumstances, including using reasonable efforts to realize
upon any recourse to the dealer of the goods or merchandise securing a
Receivable and selling such goods or merchandise at a public or private
sale.
(h) The Seller agrees to immediately cease selling Receivables
to the
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Company pursuant to this Agreement upon the occurrence of a Wind-Down
Date.
(i) Except for the sale of Receivables to the Company pursuant
to the terms hereof, the Seller shall not sell all or substantially all
of its property and assets to, or consolidate with or merge into, any
other corporation, unless (x) the obligations of the Seller under this
Agreement shall be expressly and effectively assumed by such transferee
or purchasing or successor corporation, (y) immediately after giving
effect to such sale, transfer or other disposition or consolidation or
merger, no Seller Event of Default shall have occurred and be
continuing and (z) unless such transferee or purchasing or successor
corporation is the Parent, the Seller shall have obtained the prior
written consent of GECC; PROVIDED that nothing contained in this
Agreement shall prevent the Seller from merging into itself any other
corporation which is a Subsidiary of the Parent or acquiring by
purchase or otherwise all or any part of the, share capital, other
securities or property of any other corporation which is a Subsidiary
of the Parent, provided that no Seller Event of Default shall have
occurred and be continuing or would result from such transaction.
(j) The Seller shall permit the Company, the Collateral Agent
or their duly authorized representatives, attorneys or auditors to
inspect the Receivables, the Documents and the related accounts,
records and computer systems maintained by the Seller at such times as
the Company or the Collateral Agent may reasonably request. Upon
instructions from the Company or the Collateral Agent, the Seller shall
release any Document to the Company or the Collateral Agent, as the
case may be.
(k) The Seller shall deliver to the Company, (i) on or before
March 30, 1991 and (ii) on each March 30th thereafter, an officer's
certificate signed by the President or any Vice President of the
Seller, dated as of December 31 of the preceding year, stating that (a)
a review of the activities of the Seller during the preceding 12-month
period and of its performance under this Agreement has been made under
such officer's supervision and (b) to the best of such officer's
knowledge, based on such review, the Seller has fulfilled its
obligations under the Agreement throughout such year, or, if there has
been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status
thereof.
(l) The Seller shall provide such cooperation, information and
assistance, and prepare and supply the Company with such data regarding
the performance by the Obligors of their obligations under the
Receivables and the performance by the Seller of its obligations under
the Seller Documents, as may be reasonably requested by the Company
from time to time in connection with any audit of the financial
statements or books and records of the Company.
(m) The Seller shall maintain its facility from which it
services the Receivables
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in its present condition, ordinary wear and tear excepted, or such
other facility of similar quality, security and safety as the Seller
may select from time to time. The Seller shall make all property tax
payments, lease payments and all other payments with respect to such
facility. The Seller shall, until the payment in full of all Senior
Indebtedness, (i) ensure that the Collateral Agent shall have complete
and unrestricted access during regular business hours upon reasonable
notice, at the Seller's expense, to such facility and all computers and
other systems relating to the servicing of the Receivables and all
persons employed at such facility, (ii) use its best efforts to retain
the employees based at such facility to provide assistance to the
Collateral Agent and (iii) continue to store on a daily basis all
back-up files relating to the Receivables and the servicing of the
Receivables at the current facilities used for such purpose or such
other storage facility of similar quality, security and safety as the
Seller may select from time to time. The Seller shall cooperate with
the Collateral Agent in connection with the writing and development of
a conversion program (to be retained by the Collateral Agent) in
respect of all computer files relating to the Receivables or the
servicing and collection thereof (including but not limited to each of
the computer files listed on Schedule 3.03(m) hereto).
(n) Seller shall at all times maintain in effect interest-rate
cap agreements with respect to no less than 80% of an amount equal to
(i) the Outstanding Principal Receivables, LESS (ii) the Fixed Amount.
With respect to any interest-rate cap purchased or maintained
hereunder, Seller shall use its best efforts to secure the
acknowledgment of its counterparty that Seller's right to receive
payments thereunder is subject to a first priority Lien in favor of the
Collateral Agent or shall otherwise assign such right to the Collateral
Agent.
(o) As long as this Agreement remains in effect, Seller shall
deliver or cause to be delivered to Company:
(1) Within 30 days after the end of each fiscal
month, Parent's consolidated and consolidating unaudited
balance sheet as of the close of such month and the related
statements of income and cash flow for such month, all
prepared by Parent in conformity with GAAP, and accompanied by
the certification of Parent's chief executive officer or chief
financial officer that such financial statements present
fairly the financial position of Parent as at the end of such
month and that there is no Seller Event of Default or
Collection Agent Event of Default, or event which with the
passage of time or the giving of notice or both would
constitute a Seller Event of Default or Collection Agent Event
of Default.
(2) Within 120 days after the close of each fiscal
year of the Parent, a copy of Parent's annual financial
statements, consisting of a balance sheet and statements of
income and cash flow, all prepared in conformity with GAAP,
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certified without qualification, except for changes in
accounting principles with which the accountants agree,
litigation or tax controversies which are being contested in
good faith, by the independent certified public accountants
regularly retained by Parent and acceptable to Seller, and
accompanied by a certificate from such accountants to the
effect that during the course of their examination they have
not become aware of any Seller Event of Default or Collection
Agent Event of Default, or event which with the passage of
time or giving of notice or both would constitute a Seller
Event of Default or Collection Agent Event of Default (it
being understood that such accountants shall not be required
to undertake any investigation other than as may be required
in accordance with generally accepted auditing standards and
that such accountants must have actual knowledge of such
Seller Event of Default or Collection Agent Event of Default
other than of a financial or accounting nature).
(3) Not later than December 15 of each year, on a
consolidated and consolidating basis;
(i) projected balance sheets for the
forthcoming 12 fiscal months, month by month;
(ii) a projected cash flow statement,
including reasonable details of cash disbursements,
for the forthcoming 12 fiscal months, month by month;
and
(iii) a projected income statement for the
forthcoming 12 months, month by month, together with
appropriate supporting details as requested by
Seller.
(4) Such other information respecting the business,
financial condition or prospects of the Parent or the Seller
as Seller or GECC may, from time to time, request.
Section 3.04 REPRESENTATIONS AND WARRANTIES DEEMED MADE. The
sale of Additional Receivables on each Purchase Date pursuant to Section 2.02 of
this Agreement shall be deemed to constitute a representation and warranty by
the Seller that the representations and warranties made under Section 3.01 of
this Agreement are true and correct on such Purchase Date as if made on such
Purchase Date.
Section 3.05 RECEIVABLE REPURCHASES. In the event that any
Receivable sold by the Seller to the Company on any Purchase Date pursuant to
the terms hereof was not an Eligible Receivable on the applicable Purchase Date,
the Seller shall repurchase such Receivable on the Settlement Date following the
Settlement Period in which (i) the Company or the Collateral
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Agent requests the Seller to repurchase such Receivable or (ii) the Seller or
the Parent discovers that such Receivable was not an Eligible Receivable on such
applicable Purchase Date. The purchase price for any such Receivable shall be an
amount equal to the Unpaid Balance thereof as of the last day of the Settlement
Period preceding such Settlement Date. The Seller's obligation to repurchase
Receivables pursuant to this Section 3.05 shall constitute a Seller Payable.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company hereunder on each Purchase Date (including the
Initial Purchase Date) shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the Seller contained
in this Agreement shall be true and correct on such Purchase Date and
the Seller shall be in compliance in all material respects with its
respective obligations hereunder.
(b) On or prior to such Purchase Date, there shall have been
made and there shall be in full force and effect all filings
(including, without limitation, UCC filings), recordings and/or
registrations, and there shall have been given, or taken, any notice or
any other similar action as may be necessary or, to the extent
requested by the Company, advisable, in order to establish, perfect,
protect and preserve the right, title and interest, remedies, powers,
privileges, liens and security interests of the Company and the
Collateral Agent granted pursuant to this Agreement or the Funding
Agreement, as the case may be, and the Company and the Collateral Agent
shall have received evidence satisfactory to them of all of the
foregoing.
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall
be satisfactory in form and sub stance to the Company and the Company
shall have received from the Seller copies of all documents (including,
without limitation, records of corporate proceedings) relevant to the
transactions herein contemplated as the Company may have reasonably
requested.
(d) The Company shall be permitted by the Funding Agreement to
purchase Receivables on such Purchase Date and shall have cash in the
Collection Account or shall have obtained funding from Edison in an
amount sufficient to fund such purchase.
(e) The Seller shall be in compliance in all material respects
with its obligations hereunder.
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(f) No Company Event of Default described in clause (d) or (e)
of the definition of Company Event of Default shall have occurred and
be continuing.
(g) No Seller Event of Default shall have occurred and be
continuing.
(h) The Wind-Down Date shall not have occurred.
(i) No Collection Agent Event of Default as defined in Section
5.05 hereof shall have occurred.
(j) Each of the Parent Credit Agreement and the Intercreditor
Agreement shall be in full force and effect and no event of default
under the Parent Credit Agreement shall have occurred and be
continuing.
(k) The Guaranty Letter of Credit shall be in full force and
effect and there shall be available for drawing thereunder an amount
that is not less than 2% of the Outstanding Principal Receivables after
giving effect to the purchase to be made on such Purchase Date.
(l) The Seller and GECC shall have received Support Agreements
executed by the chief executive officer, treasurer and data processing
manager of the Parent and the president and data processing manager of
the Seller.
ARTICLE V
ADMINISTRATION, COLLECTIONS AND OTHER OBLIGATIONS
Section 5.01 APPOINTMENT OF COLLECTION AGENT. Until such time
as the Company shall notify the Seller in writing pursuant to Section 5.05
hereof of the revocation of such power and authority, the Company hereby
appoints the Seller as its agent ("Collection Agent") to collect all amounts
owing under or on account of all Receivables purchased by the Company from the
Seller and to perform as administrative agent for the Company all tasks and
duties in connection therewith that may be necessary or advisable and permitted
for carrying out the transactions contemplated by this Agreement and the Funding
Agreement. The Collection Agent shall keep separate records on behalf of the
Company covering the transactions contemplated by this Agreement including the
identity and collection status of each Receivable purchased by the Company from
the Seller and the Seller Payables. In collection of the Receivables, the
Collection Agent shall exercise the same care that it has exercised in handling
similar matters for its own account, and shall create and administer policies
and practices consistent with the policies and practices applied in handling
similar matters for its own account and as if it had not sold the Receivables to
the Company. The Collection Agent is further authorized, upon prior notice to
GECC and subject to Section 5.05, to delegate certain of its service,
collection,
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enforcement and administrative duties hereunder with respect to the Receivables
to the Parent or, with the prior written consent of GECC, to any other Person
who agrees to conduct such duties in accordance with this Agreement; PROVIDED,
HOWEVER, that the Collateral Agent shall have notified S&P and Moody's in
writing in advance of any such proposed delegation of its duties to a Person
other than the Parent and neither S&P nor Moody's shall have advised that it
would or might reduce the rating of the Commercial Paper as a result thereof;
and PROVIDED FURTHER, that no delegation will relieve the Collection Agent of
its liability and responsibility with respect to such duties. Upon the
revocation of the power and authority granted pursuant to the first sentence of
this Section 5.01, the Company shall appoint a successor Collection Agent in
accordance with Section 5.05 hereof.
Section 5.02 COLLECTIONS. (a) The Seller shall take or cause
to be taken all such action as may be necessary or advisable to collect each
Receivable from time to time, all in accordance with applicable laws, rules and
regulations and with reasonable care and diligence. The Seller will keep and
maintain at its own cost and expense satisfactory and complete records of the
Receivables sold to the Company by it, including, but not limited to, a record
of all payments received and all other dealings therewith, and the Seller will
make the same available to the Company at any reasonable time upon demand. The
Seller shall, at its own cost and expense, deliver such books and records and
all Documents relating to the Receivables to the Company or to its
representatives at any time upon its demand. The Seller shall identify in form
and manner satisfactory to the Company, such Receivables and the other books,
records and Documents of the Seller pertaining to such Receivables with an
appropriate reference to the fact that such Receivables have been sold and
assigned to the Company and that the Company is the lawful owner thereof and has
legal title therein. All payments made by obligors with respect to the
Receivables are required to be sent to P.O. Box 691395, Cincinnati, Ohio
45269-1395 (the "Lockbox Account") maintained with The Provident Bank. The
Lockbox Account shall be established by the Seller and the Collection Agent in
the name of, and for the benefit of, the Collateral Agent pursuant to a lockbox
agreement in form and substance satisfactory to the Company and the Collateral
Agent and containing terms substantially the same as the form of Blocked Deposit
Agreement attached as Annex F hereto. Exclusive dominion and control of the
Lockbox Account shall be vested in the Collateral Agent, subject to the right of
the Collection Agent to have access thereto for purposes of its collection and
servicing duties hereunder. The Seller shall have no right to make withdrawals
from the Lockbox Account. The Collection Agent's right of access to the Lockbox
Account shall be revocable at the option of the Collateral Agent upon the
occurrence of any Seller Default, Seller Event of Default or Collection Agent
Event of Default. In addition, after the occurrence of any Seller Default, any
Seller Event of Default or any Collection Agent Event of Default, the Seller
agrees that it shall, upon the written request of the Company or the Collateral
Agent, notify all Obligors under Receivables sold to the Company by it to make
payment thereof to (i) one or more other bank accounts and/or post-office boxes
designated by the Company or the Collateral Agent and specified in such notice
or (ii) any successor Collection Agent appointed hereunder.
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(b) The Seller and the Collection Agent shall cause to be
established, and shall maintain thereafter, Account No. 0918906 (the "Blocked
Deposit Account") with The Provident Bank. The Blocked Deposit Account shall be
established in the name, and for the benefit, of the Collateral Agent pursuant
to a Blocked Deposit Agreement. The Collateral Agent shall have exclusive
dominion and control over, and the sole right of withdrawal from, the Blocked
Deposit Account. All funds received in the Lockbox Account shall be transferred
on the date received to the Blocked Deposit Account. In the event that,
notwithstanding the requirement that all Obligors be required to make payments
directly to the Lockbox Account, any Collections of Receivables are received by
the Seller, the Parent or the Collection Agent, such Collections shall be
deposited into the Lockbox Account or the Blocked Deposit Account on the date
received. The Collateral Agent shall on each Business Day cause the Collections
on deposit in the Blocked Deposit Account to be transferred to an account
designated by the Collection Agent; PROVIDED that the Collateral Agent shall
retain in the Blocked Deposit Account on each day its estimate of the amount, if
any, by which (A) the sum of (1) the Collections of Finance Charge Receivables
received in the Blocked Deposit Account during the current Settlement Period and
(2) the excess, if any, of the Collections of Principal Receivables received in
the Blocked Deposit during the current Settlement Period over the principal
amount of new retail installment sale contracts acquired by the Seller during
such Settlement Period that meet the criteria to be Eligible Receivables,
exceeds (B) an amount equal to the product of (x) the Daily Accrual Factor for
such day and (y) the amount available to be drawn on the Deposits Letter of
Credit on such day. All Collections released to the Seller pursuant to this
Section 5.02(b), will, pending remittance to the Collection Account as provided
in Section 5.03 hereof, be held by the Seller for the benefit of the Company and
shall be payable to the Company in accordance with Section 5.03 hereof.
(c) In performing its duties and obligations hereunder, the
Collection Agent (i) shall not impair the rights of the Company in any
Receivable, (ii) shall not amend the terms of any Receivable such that the
maturity of any payment due thereunder is extended more than 180 days, (iii)
shall not release any goods or merchandise securing a Receivable from the lien
created by such Receivable except as specifically provided for herein, and (iv)
shall be entitled to commence or settle any legal action to enforce collection
of any Receivable or to foreclose upon or repossess any goods or merchandise
securing such Receivable. In the event that the Collection Agent shall breach
any of its covenants set forth in clauses (i), (ii) or (iii) of this Section
5.02(c), the Collection Agent shall repurchase each Receivable affected thereby
on the Settlement Date following the Settlement Period in which such breach
occurs for a purchase price equal to the Unpaid Balance of such Receivable as of
the last day of such Settlement Period. For the purposes of Section 5.05 hereof,
the Collection Agent shall not be deemed to have breached its obligations under
this Section 5.02(c) unless it shall fail to so purchase any Receivable affected
by the Collection Agent's noncompliance with clauses (i), (ii) or (iii) of this
Section 5.02(c).
(d) All payments or other amounts collected or received by the
Collection
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Agent in respect of a Receivable shall be applied to the Unpaid Balance of such
Receivable and allocated first to the amount of any outstanding Finance Charge
Receivables due in respect thereof and then to the amount of any Principal
Receivables due in respect thereof.
Section 5.03 APPLICATION OF COLLECTIONS. (a) On the second
Business Day preceding each Settlement Date (a "Deposit Date"), (1) the
Collection Agent shall deposit or cause to be deposited in the Collection
Account an amount equal to (i) the aggregate purchase price of all Receivables
being purchased by the Collection Agent on such Settlement Date pursuant to
Section 5.02(c) hereof PLUS (ii) the aggregate amount of all Collections
released to it pursuant to Section 5.02(b) during the immediately preceding
Settlement Period MINUS (iii) the amount of any SWAP Advances made by the
Collection Agent out of such Collections pursuant to Section 5.10 hereof, (2)
the Seller shall deposit or cause to be deposited in the Collection Account the
aggregate amount of Seller Payables with respect to the immediately preceding
Settlement Period (including, but not limited to, the amount of any Interest
Deficiency Payment for such Settlement Period pursuant to Section 5.07 hereof
and the amount of the aggregate purchase price for any Receivables being
repurchased on such Settlement Date pursuant to Section 3.05 hereof), (3)
following a Settlement Period with respect to which a SWAP Excess existed, the
Collateral Agent shall transfer from the SWAPs Sub-Account of the Collection
Account to the Collection Account an amount equal to the lesser of (i) the
amount of the SWAP Excess and (ii) the amount then on deposit in the SWAPs
Sub-Account of the Collection Account and (4) the Collateral Agent shall
transfer from the Blocked Deposit Account to the Collection Account any amounts
retained in the Blocked Deposit Account as of the close of business on the last
day of the immediately preceding Settlement Period in accordance with Section
5.02(b). On the fifth Settlement Date following each Settlement Date on which
the Parent makes a Loss Shortfall Payment (as defined in the Guaranty) to the
Guarantor pursuant to Section 9(a) of the Guaranty, the Guarantor shall deposit
or cause to be deposited in the Collection Account an amount equal to such Loss
Shortfall Payment. On each Settlement Date, the Collateral Agent shall deposit
or cause to be deposited in the Collection Account the proceeds of any
Commercial Paper sold on such Settlement Date and any Loans made by Edison on
such Settlement Date, in each case to the extent such proceeds are not used to
pay Commercial Paper maturing on such Settlement Date.
(b) On each Settlement Date, the Company shall apply the
amounts then on deposit in the Collection Account (including any proceeds of any
Commercial Paper sold on such Settlement Date and any Loans made by Edison on
such Settlement Date, in each case to the extent such proceeds are not used to
pay Commercial Paper maturing on such Settlement Date) to the payment of the
following amounts in the following order of priority:
(i) an amount equal to (1) the Aggregate Interest Component
for the preceding Settlement Period LESS (2) the amount, if any, by
which the SWAP Excess with respect to such Settlement Period, if any,
exceeds the amount on deposit in the SWAPs Sub-Account of the
Collection Account at the opening of business on the preceding
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Deposit Date, shall be paid to Edison,
(ii) the amount of interest accrued during the preceding
Settlement Period with respect to all Loans that were repaid during
such Settlement Period with the proceeds of Commercial Paper shall be
paid to Edison,
(iii) an amount equal to (1) the SWAP Shortfall with respect to
the preceding Settlement Period LESS (2) the amount of any SWAP
Advances made by the Collection Agent out of the Collections for such
Settlement Period, shall be transferred to the SWAPs Sub-Account of the
Collection Account and applied in accordance with Section 5.03(c),
(iv) an amount equal to the lesser of (1) the Purchase Discount
Collections for the preceding Settlement Period and (2) the amount, if
any, by which (x) the sum of the Receivable Losses Funding Amount for
the preceding Settlement Period PLUS the Outstanding Unpaid Receivable
Losses Funding Amount for all prior Settlement Periods exceeds (y) the
Excess Finance Charge Amount for such preceding Settlement Period,
shall be paid to Edison,
(v) the amount of interest accrued during the preceding
Settlement Period with respect to all Loans which remain outstanding on
the last day of such Settlement Period shall be paid Edison,
(vi) the Purchase Price of Additional Receivables, if any,
being purchased on such Settlement Date pursuant to Section 2.02 shall
be paid to the Seller,
(vii) on each Settlement Date prior to the Wind-Down Date, an
amount equal to (1) the Purchase Discount Collections for the preceding
Settlement Period LESS (2) the amount, if any, by which (x) the sum of
the Receivable Losses Funding Amount for the preceding Settlement
Period PLUS the Outstanding Unpaid Receivable Losses Funding Amount
with respect to all prior Settlement Periods exceeds (y) the Excess
Finance Charge Amount for such preceding Settlement Period,
representing a portion of the Deferred Purchase Price created pursuant
to Section 2.03, shall be paid to the Seller,
(viii) prior to the Termination Date and provided that no Seller
Default or Seller Event of Default shall have occurred and be
continuing, the Recoveries with respect to the preceding Settlement
Period shall be paid to the Seller,
(ix) an amount equal to the Program Fee for the preceding
Settlement Period shall be used to pay the Guaranty Fee for such
preceding Settlement Period to GECC and any remaining balance of such
Program Fee shall be paid to Edison,
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(x) the Servicing Fee for the preceding Settlement Period
shall be paid to the Seller or, if the Seller is no longer the
Collection Agent, to the successor Collection Agent,
(xi) the amount of any outstanding Loans shall be paid to
Edison,
(xii) an amount equal to the lesser of (1) the Recoveries with
respect to the preceding Settlement Period and (2) the amount of any
unreimbursed payments made by the Guarantor pursuant to Section 2 of
the Guaranty, shall be paid to the Guarantor, and
(xiii) the balance, if any, shall be paid to Edison to reduce
amounts outstanding under the Funding Agreement.
(c) Any amounts received from any SWAP Counterparty on any
SWAP Payment Date shall be deposited in the SWAPs Sub-Account of the Collection
Account. On each SWAP Payment Date, amounts on deposit in the SWAPs Sub-Account
of the Collection Account (including any amounts received from any SWAP
Counterparty on such SWAP Payment Date) shall be applied by the Collateral Agent
to the payment of any amounts owing to any SWAP Counterparty on such SWAP
Payment Date. On each SWAP Payment Date, the excess of (x) any amounts remaining
on deposit in the SWAPs Sub-Account of the Collection Account after the payment
in full of all amounts owing to each SWAP Counterparty on such SWAP Payment Date
OVER (y) the Cumulative SWAP Payable as of such date for any SWAPs not payable
on such SWAP Payment Date, shall be transferred by the Collateral Agent to the
Collection Account and used for the payment of amounts owing to Edison under the
Funding Agreement.
(d) If as of the close of business on any Settlement Date, the
amount on deposit in the SWAPs Sub-Account of the Collection Account exceeds the
Cumulative SWAP Payable as of such date, then the amount of such excess shall be
transferred by the Collateral Agent to the Collection Account and used for the
payment of amounts owing to Edison under the Funding Agreement.
Section 5.04 SETTLEMENT STATEMENTS; WEEKLY REPORTS. (a) Not
later than the sixth Business Day following the last day of each Settlement
Period, the Seller shall deliver or cause to be delivered to the Company, Edison
and GECC a report in the form of Annex A hereto (each such report, a "Portfolio
Settlement Statement"). Not later than the tenth Business Day following the last
day of each Settlement Period, the Collateral Agent shall deliver to the Com-
pany, the Seller, Edison and GECC a report in the form of Annex B hereto (each
such report, a "Settlement Statement").
(b) Not later than 10:00 a.m. on the second Business Day in
each calendar week, the Seller shall deliver or cause to be delivered to the
Collateral Agent a report (each such
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report, a "Weekly Activity Report") in the form of Annex G hereto with respect
to the Receivables origination and collection activity during the preceding
calendar week.
Section 5.05 APPOINTMENT OF SUCCESSOR COLLECTION AGENT. Upon
the occurrence of any of the following events (each a "Collection Agent Event of
Default"), and so long as such Collection Agent Event of Default shall continue
unremedied:
(a) failure by the Seller to make any payments required to be
made by it hereunder or pursuant to any other Seller Document on the
day on which such payment is required to be made;
(b) failure on the part of the Seller duly to observe or
perform in any respect any other covenants or agreements of the Seller
contained herein or in any other Seller Document which continues
unremedied for a period of 15 days after written notice thereof; or the
delegation by the Seller of its duties hereunder, except as expressly
permitted in accordance with the terms hereof;
(c) any representation, warranty or certification made by the
Seller herein or in any other Seller Document proves to have been
incorrect when made and which continues to be incorrect for a period of
15 days after written notice thereof;
(d) a Seller Event of Default described in clauses (b) or (c)
of the definition of Seller Event of Default in this Agreement shall
have occurred and be continuing;
(e) the occurrence of an event of default under the Parent
Credit Agreement;
(f) the Parent's Tangible Net Worth at any time shall be less
than $40,000,000;
(g) the Parent's ratio of EBITDA (excluding any expenses in
connection with the closing of any factory of Parent) to Interest at
any time shall be less than 2.0:1, with EBITDA and Interest calculated
monthly based upon a rolling twelve-month period;
(h) the Parent's ratio of Total Liabilities to Tangible Net
Worth shall be more than 2.5:1;
(i) the Seller shall pay any dividend on its capital stock or
repurchase any shares thereof and, on the date of such payment or
repurchase (after giving effect to such payment or repurchase),
Seller's Book Net Worth is less than $4,000,000 based upon Seller's
most recent financial statements submitted to the Company; or
(j) the Parent shall employ any person as its chief executive
officer, treasurer or date processing manager, or the Seller shall
employ any person as its president or data
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processing manager, unless in each such case such person has executed
and delivered to the Company and GECC a Support Agreement;
the Company may, and upon the direction of GECC shall, notify the Seller in
writing of the revocation of the Seller's appointment as the Company's
Collection Agent hereunder. In addition, at any time following the occurrence of
a Wind-Down Date, the Company may, and upon the direction of GECC shall notify
the Seller in writing of the revocation of the Seller's appointment as
Collection Agent hereunder. Upon revocation of the Seller's appointment as
Collection Agent hereunder, the Company shall appoint GECC as its Collection
Agent and GECC shall perform all of the duties required of the Collection Agent
hereunder. In addition, following the receipt of such a written revocation
notice, the Seller will (i) deliver and turn over to the Collateral Agent or to
its representatives at any time on demand of the Collateral Agent all the
Seller's books and records pertaining to the Receivables and the servicing
thereof including, without limitation, all original sales slips, invoices,
credit files and computer tapes or disks relating to Receivables and/or (ii)
subject to the rights of any owner of any such premises or equipment that is
leased by the Seller, allow the Collateral Agent to occupy the premises of the
Seller where such books, records, contracts, credit files and computer tapes are
maintained and utilize such premises, the equipment thereon and any personnel of
the Seller that the Collateral Agent may wish to employ, to administer, service
and collect the Receivables.
The Seller agrees that upon receipt of written notification
from the Company of the revocation of the Seller's appointment as Collection
Agent hereunder, the Seller shall upon the written request of the Company (which
request may be contained in the notification of revocation) (i) notify all
Obligors under the Receivables sold to the Company by the Seller to make payment
thereof to a bank account(s) designated by the Company and specified in such
notice, and (ii) pay to the Company immediately all Collections then held or
thereafter received by the Seller of Receivables sold by it to the Company
together with all other payment obligations of the Seller hereunder owing to the
Company.
Section 5.06 COMPROMISE AND ADJUSTMENT. The Seller or the
Parent shall be entitled to compromise, adjust, modify or cancel any
indebtedness evidenced by any Receivable sold to the Company, or settle any
dispute, claim, suit or legal proceeding relating thereto all in accordance with
its then current business practices; PROVIDED, HOWEVER, that in such event the
Seller shall deposit an amount of cash equal to any reduction in the amount
payable under such Receivable (an "Adjustment Payment") into the Collection
Account on the Deposit Date following the Settlement Period in which such event
occurs.
Section 5.07 INTEREST DEFICIENCY PAYMENTS. On each Deposit
Date, the Seller shall deposit into the Collection Account an amount with
respect to the preceding Settlement Period (an "Interest Deficiency Payment")
equal to (a) the Carrying Costs for such Settlement Period less (b) that portion
of the aggregate amount scheduled to be paid on the Receivables during such
Settlement Period which is allocable to Finance Charge Receivables.
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Section 5.08 NET DEPOSITS. For so long as the Seller shall be
the Collection Agent hereunder, the Seller may make any remittances required to
be made to the Collection Account on any Deposit Date pursuant to Section
5.03(a) hereof net of any amounts which are to be distributed to the Seller on
the related Settlement Date pursuant to clauses (vi), (vii), (viii) and (x) of
Section 5.03(b) hereof, as specified in the Settlement Statement in respect of
such Settlement Period.
Section 5.09 SWAPS. Subject to the terms and conditions set
forth herein and in Section 5.3(d) of the Funding Agreement, the Company shall,
from time to time, upon receipt of not less than ten Business Days' prior notice
from the Seller (any such notice, a "SWAP Notice"), enter into one or more SWAPs
in the aggregate notional principal amount specified in such SWAP Notice;
PROVIDED that the aggregate notional principal amount of all SWAPs outstanding
at any time may not exceed $40,000,000. Each SWAP Notice shall designate (i) the
aggregate notional principal amount of the related SWAP (which notional
principal amount may not be less than $20,000,000), (ii) the term of the related
SWAP (which term may not be less than three years nor extend beyond the
Expiration Date then in effect) and (iii) the Business Day (not earlier than the
tenth Business Day following the date of such SWAP Notice) by which the Company
shall enter into the related SWAP. The Company shall not enter into any SWAP
unless the Company shall have notified the Seller of the pricing terms
applicable to such SWAP and the Seller shall have approved such pricing terms.
The Company shall not terminate any SWAP prior to the occurrence of a Wind-Down
Date. Upon or at any time following, the occurrence of a Wind-Down Date, the
Company may, in its sole discretion, elect to terminate any SWAP.
Section 5.10 SWAP ADVANCES. In the event that, on the Business
Day preceding any SWAP Payment Date, the amount on deposit in the SWAPs
Sub-Account of the Collection Account is insufficient to make the payments due
from the Company to all SWAP Counter parties under all SWAPs on such SWAP
Payment Date (the amount of such insufficiency, a "SWAP Deficit"), the
Collection Agent shall, to the extent available, remit Collections of Finance
Charge Receivables then held by the Collection Agent in an amount equal to such
SWAP Deficit to the SWAPs Sub-Account of the Collection Account (any amount so
remitted, a "SWAP Advance"). Collections required to be remitted by the
Collection Agent pursuant to this Section 5.10 on the Business Day preceding any
SWAP Payment Date shall be made to the SWAPs Sub-Account of the Collection
Account no later than 12:00 noon, New York City time, on the Business Day
preceding such SWAP Payment Date.
Section 5.11 GRANT OF SECURITY INTEREST; REMEDIES. (a) As
security for the prompt payment or performance in full when due of all of the
KAC Obligations, the Seller hereby assigns and pledges to the Company a security
interest in and lien upon, all of the Seller's right, title, and interest in and
to the following, in each case whether now or hereafter existing or in which the
Seller now has or hereafter acquires an interest and wherever the same may be
located (collectively, the "Seller Collateral");
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(i) all retail installment sale contracts, chattel paper
and/or accounts that have not been sold to the Company pursuant to
Sections 2.01 or 2.02 hereof, together with all monies due or to become
due and all amounts received with respect thereto, and all proceeds
thereof;
(ii) the Retail Purchase Agreement, including (i) all rights
of the Seller to receive moneys due and to become due under or pursuant
to the Retail Purchase Agreement, (ii) all rights of the Seller to
receive proceeds of any insurance, indemnity, warranty or guaranty with
respect to the Retail Purchase Agreement, (iii) claims of the Seller
for damages arising out of or for breach of or default under the Retail
Purchase Agreement and (iv) the right of the Seller to amend, waive or
terminate the Retail Purchase Agreement, to perform under the Retail
Purchase Agreement and to compel performance and otherwise exercise all
remedies and rights under the Retail Purchase Agreement;
(iii) the Blocked Deposit Account, all funds held in the
Blocked Deposit Account and all certificates and instruments, if any,
from time to time representing or evidencing each such account;
(iv) the Lockbox Account, all funds held in the Lockbox
Account, and all certificates and instruments, if any, from time to
time representing or evidencing the Lockbox Account or such funds; and
(v) all proceeds, accessions, substitutions, rents and profits
of any and all of the foregoing.
(b) If any KAC Obligation is not paid when due, then the
Company may exercise in respect of the Seller Collateral, in addition to any and
all other rights and remedies otherwise available to it, all of the rights and
remedies of a secured party upon default under the UCC (such rights and remedies
to be cumulative and nonexclusive), and may take the following remedial actions:
(i) The Company may, without notice except as specified below,
solicit and accept bids for and sell the Seller Collateral or any part
of the Seller Collateral in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the Company's or
Collateral Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Company may deem
commercially reasonable. The Seller agrees that, to the extent notice
of sale shall be required by law, at least ten Business Days' notice to
the Seller of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable
notification. The Company shall not be obligated to make any sale of
Seller Collateral regardless of notice of sale having been given. The
Company may adjourn any public or private sale from
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time to time by announcement at the time and place fixed for such sale,
and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Every such sale shall operate to
divest all right, title, interest, claim and demand whatsoever of the
Seller in and to the Seller Collateral so sold, and shall be a
perpetual bar, both at law and in equity, against the Seller, any
Person claiming the Seller Collateral through the Seller and their
respective successors or assigns.
(ii) Upon the completion of any sale under subsection (i)
above, the Seller will deliver or cause to be delivered all of the
Seller Collateral sold to the purchaser or pur chasers at such sale on
the date of sale, or within a reasonable time thereafter if it shall be
impractical to make immediate delivery, but in any event full title and
right of possession to such property shall pass to such purchaser or
purchasers forthwith upon the completion of such sale. Nevertheless, if
so requested by the Company or by any purchaser, the Seller shall
confirm any such sale or transfer by executing and delivering to such
purchaser all proper instruments of conveyance and transfer and
releases as may be designated in any such request.
(iii) At any sale under subsection (i) above, the Company or
the Collateral Agent may bid for and purchase the property offered for
sale and, upon compliance with the terms of sale, may hold, retain and
dispose of such property without further accountability therefor.
(iv) The Company may exercise at the Seller's expense any and
all rights and remedies of the Seller under or in connection with the
Retail Purchase Agreement or the other Seller Collateral, including any
and all rights of the Seller to demand or otherwise require payment of
any amount under, or performance of any provisions of, the Retail
Purchase Agreement.
ARTICLE VI
PARENT GUARANTEE
Section 6.01 UNCONDITIONAL PARENT GUARANTEE. For valuable
consideration, and to induce the Company to enter into this Agreement and Edison
to enter into the Funding Agreement, Parent hereby guarantees to the Company and
the Collateral Agent the performance of all obligations of the Seller pursuant
to this Agreement, including, without limitation, the performance of all
covenants and agreements herein set forth, the payment of all Seller Payables
and the deposit of all Collections in accordance with the terms hereof,
notwithstanding the occurrence of any Seller Default, Seller Event of Default
or Collection Agent Event of Default, or any termination of this Agreement.
Parent hereby unconditionally agrees that upon any default in the performance or
payment of any of Seller's obligations under this Agreement, Parent shall
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immediately perform or pay the same without setoff or counterclaim or any other
deduction whatsoever.
Section 6.02 VALIDITY. The obligation of Parent pursuant to
Section 6.01 hereof shall be unconditional regardless of the genuineness,
validity, regularity, or enforceability of the obligations of the Seller
pursuant to this Agreement or, to the fullest extent permitted by law, any other
circumstance that might constitute a legal or equitable discharge of a surety or
guarantor.
Section 6.03 WAIVERS. Parent hereby expressly waives
diligence, presentment, protest, and any requirement that any right or power be
exhausted or any action be taken against the Seller and all notice and demand
whatsoever.
Section 6.04 SUBROGATION. Parent shall not exercise any rights
it may acquire by way of subrogation, in whole or in part, to the rights of the
Company or the Collateral Agent against the Seller until the Company shall have
received payment in full of all of the Sellers' obligations under this
Agreement. Parent agrees that, to the fullest extent permitted by law, as
between Parent and the Company or the Collateral Agent, any amounts due pursuant
to this Article VI may be declared to be immediately due and payable as provided
herein notwithstanding any stay, injunction, or other prohibition preventing
such declaration as against the Seller and that, in the event of such
declaration, such obligations (whether or not due and payable by the Seller)
shall immediately become due and payable by Parent for purposes of, and to the
extent provided in, this Article VI.
Section 6.05 GRANT OF SECURITY INTEREST; REMEDIES. (a) As
security for the prompt payment or performance in full when due of all of the
obligations of the Parent hereunder (the "Parent Obligations"), the Parent (i)
hereby assigns and pledges to the Company a security interest in and lien upon,
all of the Parent's right, title, and interest in and to all issued and out-
standing capital stock of the Seller at any time owned by the Parent (the
"Stock") together with all proceeds thereof (the Stock and all such proceeds,
the "Parent Collateral") and (ii) hereby pledges and deposits as security with
the Company the Stock owned by the Parent on the date hereof and delivers to the
Company certificates therefor accompanied by stock powers duly executed in blank
by the Parent or such other instruments or transfer as are acceptable to the
Company.
(b) If the Parent shall acquire (by purchase, stock dividend
or otherwise) any additional Stock at any time or from time to time after the
date hereof, the Parent will forthwith pledge and deposit such Stock as security
with the Company and deliver to the Parent certificates therefor accompanied by
stock powers duly executed in blank by the Parent or such other instruments of
transfer as are acceptable to the Company.
(c) Unless and until the Parent shall have failed to perform
any of its obligations hereunder when due (any such failure, a "Parent Event")
the Parent shall be entitled to vote
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any and all Stock and to give consents, waivers or ratifications in respect
thereof, provided that no vote shall be cast or any consent, waiver or
ratification given or any action taken which would violate or be inconsistent
with any of the terms of this Agreement or any other instrument or agreement
referred to herein, or which would have the effect of impairing the position or
interests of the Company. All such rights of the Parent to vote and to give
consents, waivers and ratifications shall cease in case a Parent Event shall
occur and be continuing.
(d) Unless and until a Parent Event shall have occurred and be
continuing, all cash dividends payable in respect of the Stock shall be paid to
the Parent. The Company shall be entitled to receive directly, and to retain as
part of the Collateral: (i) all other or additional stock or securities or
property (other than cash) paid or distributed by way of dividend in respect of
the Stock; (ii) all other or additional stock or other securities or property
paid or distributed in respect of the Stock by way of stock-split, spin-off,
split-up, reclassification, combination of shares or similar rearrangement; and
(iii) all other or additional stock or other securities or property which may
be paid in respect of the Collateral by reason of any consolidation, merger,
exchange of stock, conveyance of assets, liquidation or similar corporate
reorganization.
(e) In case a Parent Event shall have occurred and be
continuing, the Company shall be entitled to exercise all of the rights, powers
and remedies of secured party upon default under the UCC (such rights and
remedies to be cumulative and non-exclusive), and the Company shall be entitled,
without limitation, to exercise the following rights, which the Parent hereby
agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the
Collateral otherwise payable under Section 6.05(d) to the Parent;
(ii) to transfer all or any part of the Stock into the
Company's name or the name of its nominee or nominees;
(iii) to vote all or any part of the Stock (whether or not
transferred into the name of the Company) and give all consents,
waivers and ratifications in respect of the Stock and otherwise act
with respect thereto as though it were the outright owner thereof (the
Parent hereby irrevocably constituting and appointing the Company the
proxy and attorney-in-fact of the Parent, with full power of
substitution to do so); and
(iv) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to
sell or of the time or place of sale or adjournment thereof or to
redeem of otherwise (all of which are hereby waived by the Parent), for
cash, on credit or for other property, for immediate or future delivery
without any assumption of credit risk, and its absolute discretion may
determine, provided that at least ten days' notice of the time and
place of any
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such sale shall be given to the Parent. The Parent hereby waives and
releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling the Collateral and
any other security for the Parent Obligations or otherwise. At any such
sale, unless prohibited by applicable law, the Company or the
Collateral Agent may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption.
Neither the Company nor the Collateral Agent shall be liable for
failure to collect or realize upon any or all of the Collateral or for
any delay in so doing nor shall any of them be under any obligation to
take any action whatsoever with regard thereto.
(f) All moneys collected by the Company upon any sale or other
disposition of the Collateral, together with all other moneys received by the
Company hereunder, shall be applied to the payment of all costs and expenses
incurred by the Company in connection with such sale, the delivery of the
Collateral or the collection of any such moneys (including, without limitation,
attorneys fees and expenses), and the balance of such moneys shall be held by
the Company and applied by it to satisfy the Parent Obligations. Upon payment in
full of all such Parent Obligations, any remaining balance will be paid to the
Parent.
ARTICLE VII
MISCELLANEOUS
Section 7.01 NOTICES, ETC. Except where telephonic
instructions or notices are authorized herein to be given, all notices, demands,
instructions and other communications required or permitted to be given to or
made upon any party hereto shall be in writing and shall be personally delivered
or sent by registered, certified or express mail, postage prepaid, return
receipt requested, or by telecopier or prepaid telegram (with messenger delivery
specified in the case of a telegram) and shall be deemed to be given for
purposes of this Agreement on the day that such writing is delivered or sent to
the intended recipient thereof in accordance with the provisions of this
Section. Unless otherwise specified in a notice sent or delivered in accordance
with the foregoing provisions of this Section, notices, demands, instructions
and other communications in writing shall be given to or made upon the
respective parties hereto at their respective addresses (or to their respective
telecopier numbers) indicated below, and, in the case of telephonic instructions
or notices, by calling the telephone number or numbers indicated for such party
below:
If to the Company:
Retailer Funding Corporation
c/o Edison Asset Securitization, L.L.C.
3001 Summer Street, 2nd Floor
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Stamford, Connecticut 06927
Attention: Manager, Conduit Administration
Telephone No.: (203)961-5488
Telecopier No.: (203) 961-2953
with a copy to:
General Electric Capital Corporation
7840 Roswell Road
Building 100 - Suite 200
Atlanta, Georgia 30350
Attention: William Mayer
Telephone No.: (770) 353-2477
Telecopier No.: (770) 353-2356
If to the Seller:
Keyboard Acceptance Corporation
422 Wards Corner Road
Loveland, Ohio 45140
Attention: Perry Schwartz
Telephone No.: (513) 576-4518
Telecopier No.: (513) 576-4588
If to the Parent:
Baldwin Piano & Organ Company
422 Wards Corner Road
Loveland, Ohio 45140
Attention: Perry Schwartz
Telephone No.: (513) 576-4518
Telecopier No.: (513) 576-4588
If to GECC or the Collateral Agent:
General Electric Capital Corporation
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7840 Roswell Road
Building 100 - Suite 200
Atlanta, Georgia 30350
Attention: William Mayer
Telephone No.: (770) 353-2477
Telecopier No.: (770) 353-2356
with copies to:
General Electric Capital Corporation
101 East Ridge Road
Danbury, Connecticut 06810
Attention: Sean P. Dunn
Telephone No.: (203) 830-6244
Telecopier No.: (203) 830-6297
and
General Electric Capital Corporation
3001 Summer Street
Stamford, Connecticut 06927
Attention: James Zollo
Telephone No.: (203) 357-3722
Telecopier No.: (203) 357-3555
If to Edison:
Edison Asset Securitization, L.L.C.
c/o General Electric Capital Corporation
3001 Summer Street, 2nd Floor
Stamford, Connecticut 06927
Attention: Manager, Conduit Administration
Telephone: (203) 961-5488
Facsimile: (203) 961-2953
with copies to:
General Electric Capital Corporation
3001 Summer Street, 2nd Floor
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<PAGE> 48
Stamford, Connecticut 06927
Attention: Manager, Conduit Administration
Telephone: (203) 961-5488
Facsimile: (203) 961-2953
Section 7.02 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Seller, the Parent and the Company and their respective
successors and assigns and shall inure to the benefit of the Seller, the Parent
and the Company and their respective successors and assigns; PROVIDED that,
except as permitted by Section 5.01 hereof, neither the Seller nor the Parent
shall assign any of its rights or obligations hereunder without the prior
written consent of the Company, Edison and GECC. The parties hereto expressly
agree and consent to any merger of the Company with and into Retailer Funding,
L.L.C., a Delaware limited liability company ("RFLLC") and acknowledge and agree
that from and after the date of such merger RFLLC shall be the Company for all
purposes of this Agreement with all of the rights and obligations of the Company
hereunder. Except as expressly permitted hereunder or in any of the Company
Documents, the Company shall not assign any of its rights or obligations
hereunder without the prior written consent of the Seller and GECC.
Section 7.03 SEVERABILITY CLAUSE. Any provisions of this
Agreement which are prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 7.04 AMENDMENTS; GOVERNING LAW. This Agreement and the
rights and obligations of the parties hereunder may not be changed orally but
only by an instrument in writing signed by the party against which enforcement
is sought and shall be construed in accordance with and governed by the laws of
the State of New York.
Section 7.05 SELLER'S OBLIGATIONS. It is expressly agreed
that, anything in this Agreement contained to the contrary notwithstanding, the
Seller, Wurlitzer and Parent shall be liable to perform all of the obligations
assumed by them under each Receivable and the Company shall have no obligations
or liability under the Receivables to any Obligor thereunder by reason of or
arising out of this Agreement nor shall the Company be required or obligated in
any manner to perform or fulfill any of the obligations of the Seller or the
Parent under or pursuant to any Receivable.
Section 7.06 SERVICING FEE. Subject to the provisions of
Section 5.03(b) hereof, the Company agrees to pay to the Collection Agent or any
successor Collection Agent, as the case may be, on each Settlement Date an
amount (the "Servicing Fee") in respect of its collection agent and related
duties hereunder during the immediately preceding Settlement Period equal to
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<PAGE> 49
the excess, if any, of (i) the aggregate Collections received during the
immediately preceding Settlement Period allocable to Finance Charge Receivables
over (ii) the sum of (1) the Carrying Costs for such immediately preceding
Settlement Period, (2) the Receivable Losses Funding Amount with respect to such
immediately preceding Settlement Period and (3) the Outstanding Unpaid
Receivable Losses Funding Amount for all prior Settlement Periods.
If any funds remain on deposit in the Collection Account on
the Expiration Date or any Collections of Receivables are received thereafter,
and after the payment in full of all of the Company's obligations under the
Funding Agreement, the Purchase Agreement, the Guaranty or in any other
agreement or document related thereto, an amount equal to such funds shall be
paid by the Company to the Seller as a special termination fee under this
Agreement.
Section 7.07 SUBORDINATION OF DEFERRED PURCHASE PRICE.
(a) SUBORDINATION OF LIABILITIES. The Seller, for itself and
its successors and assigns, covenants and agrees that, except as provided in
Section 5.03(b), the Deferred Purchase Price is hereby expressly subordinated,
to the extent and in the manner hereinafter set forth, to the prior payment in
full of all Senior Indebtedness (as defined in paragraph (f) of this Section
7.07). The provisions of this Section 7.07 shall constitute a continuing offer
to all persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders of Senior Indebtedness, and such holders are hereby made
obligees hereunder the same as if their names were written herein as such, and
they and/or each of them may proceed to enforce such provisions.
(b) COMPANY NOT TO MAKE PAYMENTS WITH RESPECT TO DEFERRED
PURCHASE PRICE. (i) Except to the limited extent provided in Section 5.03(b)
hereof, no payment shall be made in respect of the Deferred Purchase Price until
the Senior Indebtedness shall have been paid in full.
(ii) In the event that notwithstanding the provisions of the
preceding subsection (i) of this paragraph (b), the Company shall make any
payment on account of the Deferred Purchase Price at a time when payment is not
permitted by said subsection (i), such payment shall be held by any recipient of
such payment, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Senior Indebtedness or their representatives under
the agreements pursuant to which the Senior Indebtedness may have been issued,
as their respective interests may appear, for application PRO RATA to the extent
necessary to pay all Senior Indebtedness in full accordance with the terms of
such Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
(c) DEFERRED PURCHASE PRICE SUBORDINATED TO PRIOR PAYMENT OF
ALL SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE
COMPANY. Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency or receivership proceeding or
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<PAGE> 50
upon an assignment for the benefit of creditors or otherwise):
(i) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full of the principal thereof, premium,
if any, and interest (including postpetition interest) and all other
amounts due thereon before the holders of the Deferred Purchase Price
are entitled to receive any payment on account thereon;
(ii) any payment or distributions of assets of the Company or
any kind or character, whether in cash, property or securities to which
the holders of the Deferred Purchase Price would be entitled except for
the provisions of this Section 7.07, shall be paid by the liquidating
trustee or agent or other person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or
other trustee or agent, directly to the holders of Senior Indebtedness
or their representative or representatives under the agreements
pursuant to which the Senior Indebtedness may have been issued, to the
extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness; and
(iii) in the event that, notwithstanding the foregoing
provisions of this paragraph (c), any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, shall be received by holders of the Deferred Purchase Price
on account of any Deferred Purchase Price before all Senior
Indebtedness is paid in full, or effective provision made for its
payment, such payment or distribution shall be received and held in
trust for and shall be paid over to the holders of the Senior
Indebtedness remaining unpaid or unprovided for or their representative
or representatives under the agreements pursuant to which the Senior
Indebtedness may have been issued, for application to the payment of
such Senior Indebtedness until all such Senior Indebtedness shall have
been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
(d) SUBROGATION. Subject to the prior payment in full of all
Senior Indebtedness, the holders of the Deferred Purchase Price shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Company applicable to the Senior
Indebtedness until all amounts owing on the Senior Indebtedness shall be paid in
full, and for the purpose of such subrogation no payments or distributions to
the holders of the Senior Indebtedness by or on behalf of the Company or by or
on behalf of the holders of the Deferred Purchase Price by virtue of this
paragraph (d) which otherwise would have been made to the holders of the
Deferred Purchase Price shall, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holders of the Deferred Purchase
Price be deemed to be payment by the Company to or on account of the Senior
Indebtedness, it being understood that the provisions of this Section 7.07 are
and are intended solely for the purpose of defining the relative rights of the
holders of the Deferred Purchase Price on the one
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<PAGE> 51
hand, and the holders of the Senior Indebtedness, on the other hand.
(e) SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by an act or failure to
act on the part of the Company or by any act or failure to act in good faith by
any such holder, or by any noncompliance by the Company with the terms and
provisions hereof or any agreement related hereto or of the Funding Agreement or
any agreement related thereto regardless of any knowledge thereof which any such
holder may have or be otherwise charged with. The holders of the Senior
Indebtedness may, without in any way affecting the obligations of the holders of
the Deferred Purchase Price with respect thereto, at any time or from time to
time and in their absolute discretion, change the manner, place or terms of
payment of, or renew or alter, any Senior Indebtedness, or amend, modify or
supplement any agreement or instrument governing or referred to therein, or
exercise or refrain from exercising any other of their rights under the Senior
Indebtedness including, without limitation, the waiver of default thereunder or
the release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holders of the Deferred Purchase Price.
(f) SENIOR INDEBTEDNESS. The term "Senior Indebtedness" shall
mean all indebtedness whether principal, interest (post-petition or otherwise),
fees or any other amount of the Company owing under (i) the Funding Agreement
and all documents and instruments referred to therein including, without
limitation, the Loans and the Guaranty, and (ii) any renewal, extension,
restatement or refunding of any of the obligations referred to in the preceding
clause (i), PROVIDED that Senior Indebtedness shall not include the Deferred
Purchase Price.
(g) TRANSFER OF DEFERRED PURCHASE PRICE. The Seller for itself
and its successors and assigns, agrees that it will not sell, assign or
otherwise transfer any Deferred Purchase Price or any interest therein without
the prior written consent of GECC.
(h) SUSPENSION OF CERTAIN REMEDIES. Until such time as it has
been informed in writing by GECC that all Senior Indebtedness now or hereafter
existing has been paid in full, the Seller for itself and its successors and
assigns, will not (x) make demand or sue for any payment of or distribution in
respect of any Deferred Purchase Price except such as may be due pursuant to
Section 5.03(b) hereof or (y) commence, or join with any creditor in commencing,
any proceeding for the liquidation or dissolution of the Company or for a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property or an assignment for the benefit of
creditors for any marshalling of the assets and liabilities of the Company;
PROVIDED, HOWEVER, that nothing in this paragraph (h) shall prohibit the Seller,
its successors or assigns from participating in any proceeding which has been
commenced by any other person.
(i) Any Deferred Purchase Price remaining after the payment of
all Senior
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<PAGE> 52
Indebtedness will be paid by the Company to the Seller.
Section 7.08 FACILITY FEE. In consideration of the Company's
agreement to purchase Receivables hereunder from time to time, the Seller agrees
to pay or cause to be paid to the Company an annual fee (the "Facility Fee"),
payable in advance on the date of this Agreement and on each anniversary
thereof, in the amount of $35,000.
Section 7.09 BANKRUPTCY PETITION AGAINST THE COMPANY. Each of
the Seller and the Parent covenants and agrees that prior to the date which is
one year and one day after the payment in full of all Commercial Paper it will
not institute against, or join any other person in instituting against, the
Company or Edison any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any Federal or state
bankruptcy or similar law.
Section 7.10 SETOFF. Each of the Seller and the Parent hereby
irrevocably and unconditionally waives all right of setoff that it may have
under contract (including this Agreement), applicable law or otherwise with
respect to any funds or monies of the Company at any time held by or in the
possession of the Seller or the Parent.
Section 7.11 REMEDIES. In addition to any rights and remedies
now or hereafter granted under applicable law and not by way of limitation of
any such rights and remedies the Company shall have all of the rights and
remedies under the UCC as enacted in any applicable jurisdiction in addition to
the rights and remedies provided in this Agreement.
Section 7.12 COSTS, EXPENSES AND TAXES. The Seller agrees to
pay all reasonable costs and expenses in connection with the negotiation and
preparation of any amendments or modifications of (or supplements to) this
Agreement or the Funding Agreement and any and all other documents furnished
pursuant hereto or thereto or in connection herewith or therewith.
Section 7.13 OPTIONAL REPURCHASE. On any Settlement Date on
which the Unpaid Balance of the Receivables does not exceed $4,548,605, the
Seller shall have the right to reacquire all such Receivables at a price equal
to the Unpaid Balance thereof plus any accrued and unpaid Carrying Costs through
such Settlement Date. The amount of such purchase price shall be treated as a
Collection with respect to the Receivables and applied in accordance with
Article V hereof.
Section 7.14 FURTHER ASSURANCES. The Seller agrees to do such
further acts and things and to execute and deliver to the Company or the
Collateral Agent such additional assignments, agreements, powers and
instruments as are required by the Company to carry into effect the purposes of
this Agreement or to better assure and confirm unto the Company or the
Collateral Agent its rights, powers and remedies hereunder.
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<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have caused this
Purchase and Administration Agreement to be executed and delivered by their duly
authorized officers as of the date hereof.
RETAILER FUNDING CORPORATION
By /s/ William J. Mayer
------------------------------
Authorized Signatory
KEYBOARD ACCEPTANCE CORPORATION
By /s/ Perry H. Schwartz
------------------------------
Authorized Signatory
BALDWIN PIANO & ORGAN COMPANY
By /s/ Perry H. Schwartz
------------------------------
Authorized Signatory
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<PAGE> 54
Consented to:
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ Steven Kluger
---------------------------
Authorized Signatory
EDISON ASSET SECURITIZATION, L.L.C.
By /s/ Steven A. Poutin
---------------------------
Assistant Secretary
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<PAGE> 55
Annex C
-------
PURCHASE DISCOUNT ADJUSTMENT CRITERIA
-------------------------------------
Each of (1) the Purchase Discount, (2) the Cash Percentage and
(3) the ratio specified in clause (vi) of the definition of "Wind-Down Date", in
each case as specified in the Second Amended and Restated Purchase and
Administration Agreement dated as of March 20, 1998 among, Retailer Funding
Corporation (the "Company"), Keyboard Acceptance Corporation (the "Seller") and
Baldwin Piano & Organ Company, as amended (the "Agreement", to which Agreement
reference is hereby made for the meanings of all capitalized terms used herein
and not otherwise defined herein), is subject to modification from time to time
as follows:
1. The amount of over-collateralization shall be determined on
the basis of the loss experience and the Effective Yield of the Seller's
portfolio and shall be maintained at the sum of (1) the higher of (i) 10% and
(ii) three times the Seller's "Loss Experience" plus (2) the Effective Yield
Adjuster plus (3) the Uncollectible Receivable Adjuster. For the purposes of
this Annex C:
"Loss Experience" with respect to the Seller means the higher
of (x) the 12 month rolling gross average loss experience for
the Seller's portfolio (historically or on a going forward
basis) and (y) four times the loss experience of the Seller's
portfolio during the three consecutive month period with the
highest gross loss experience during the most recent three
year period.
"Benchmark Uncollectible Receivable Percentage" shall mean,
with respect to any Settlement Period, the higher of (x) the
average Uncollectible Receivable Percentage for the three
month period ending immediately prior to such Settlement
Period and (y) the average Uncollectible Receivable Percentage
for the twelve month period ending immediately prior to such
Settlement Period.
"Uncollectible Receivable Adjuster" shall mean, with respect
to any Settlement Period, an amount (but not less than zero)
equal to the product of (a) 1.5 and (b) the amount, if any, by
which (x) the Benchmark Uncollectible Receivable Percentage
for such Settlement Period exceeds (y) 8.75%.
"Uncollectible Receivable Percentage" shall mean, with respect
to any Settlement Period, the ratio (expressed as a
percentage) equal to (a) the product of (x) 12 and (y) the
Unpaid Balance of the Receivables that became Uncollectible
Receivables during such Settlement Period divided by (b) the
Outstanding Principal Receivables as of the first day of such
Settlement Period.
2. If the Loss Experience of the Seller's portfolio and/or the
Effective Yield Adjuster and/or the Uncollectible Receivable Adjuster increases,
the amount of over-
<PAGE> 56
Annex C
Page 2
collateralization will be adjusted upward by means of (i) an increase in the
Purchase Discount used in calculating the purchase price of Additional
Receivables for such number of Settlement Periods following the occurrence of
such increase in Loss Experience and/or the Effective Yield Adjuster as is
necessary to cause the aggregate over-collateralization for the portfolio as a
whole to be equal to the over-collateralization percentage specified in
paragraph 1 above, (ii) an adjustment in the Purchase Discount as it is used
for all other purposes to an amount equal to the sum of (1) the higher of 10%
and three times the Seller's Loss Experience plus (2) the Effective Yield
Adjuster plus (3) the Uncollectible Receivable Adjuster and (iii) corresponding
changes in the Cash Percentage and the ratio set forth in clause (vii) of the
definition of "Wind-Down Date".
3. If the Loss Experience of the Seller's portfolio and/or the
Effective Yield Adjuster and/or the Uncollectible Receivable Adjuster decreases,
the amount of over-collateralization will be adjusted downward (but not lower
than the higher of 10% and three times the Seller's Loss Experience) by means of
(i) a decrease in the Purchase Discount used in calculating the purchase price
of Additional Receivables for such number of Settlement Periods following the
occurrence of such decrease as is necessary to cause the aggregate over-
collateralization for the portfolio as a whole to be equal to the
over-collateralization percentage specified in paragraph 1 above, (ii) an
adjustment in the Purchase Discount as it is used for all other purposes to an
amount equal to the sum of (1) the higher of 10% and three times the Seller's
Loss Experience plus (2) the Effective Yield Adjuster plus (3) the Uncollectible
Receivable Adjuster and (iii) corresponding changes in the Cash Percentage and
the ratio set forth in clause (vii) of the definition of "Wind-Down Date".
<PAGE> 57
ANNEX D
-------
SALE AND ASSIGNMENT DATED OCTOBER , 1990
------------------------------------------
Subject to and upon the terms and conditions set forth in that
certain Purchase and Administration Agreement, dated as of October 1, 1990 (as
from time to time amended, the "Purchase Agreement") between Retailer Funding
Corporation, BPO Finance Corporation and Baldwin Piano & Organ Company, the
undersigned hereby sells and assigns to Retailer Funding Corporation, all right,
title and interest of the undersigned in, to and under the Receivables listed on
Schedule I attached hereto, together with all monies due or to become due and
all amounts received with respect thereto (including Finance Charge Receivables)
and all proceeds thereof, for a cash purchase price of $40,937,446.04.
Capitalized terms used herein and not otherwise defined herein
shall have the meanings specified in the Purchase Agreement.
BPO FINANCE CORPORATION
By
------------------------------
Authorized Signatory
Accepted:
RETAILER FUNDING CORPORATION
By
------------------------------
Authorized Signatory
<PAGE> 58
SCHEDULE I
----------
to
Sale and Assignment
and to
PURCHASE AND ADMINISTRATION AGREEMENT
-------------------------------------
(List of Receivables Being Sold)
<PAGE> 59
ANNEX E
-------
ADDITIONAL ASSIGNMENT
---------------------
This Additional Assignment (this "Assignment"), dated as of
____________, 199_, among Keyboard Acceptance Corporation, Baldwin Piano & Organ
Company (collectively with their successors and assigns, the "Seller"), and
Retailer Funding Corporation (together with its successors and assigns, the
"Company"), is executed and delivered pursuant to the Purchase and
Administration Agreement referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Seller and the Company are parties to the Second
Amended and Restated Purchase and Administration Agreement, dated as of March
20, 1998 (hereinafter as such agreement may have been, or may from time to time
be, amended, supplemented or otherwise modified, the "Purchase and
Administration Agreement");
WHEREAS, pursuant to Section 2.02(a) of the Purchase and
Administration Agreement, under certain conditions the Seller shall sell certain
Additional Receivables to the Company;
WHEREAS, the Seller now wishes to sell and the Company is
willing to purchase the Additional Receivables described on Schedule I hereto,
subject to the terms and conditions hereof and of the Purchase and
Administration Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1.01. DEFINITIONS. For all purposes of this
Assignment, except as other wise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings specified, either directly or by reference, in the Purchase and
Administration Agreement.
Section 2.01 CONVEYANCE. (a) For value received, the Seller
hereby sells, transfers, conveys and assigns to the Company all of the Seller's
right, title and interest in, to and under (i) all Additional Receivables listed
on Schedule I hereto, (ii) all monies due to or to become due and all amounts
received with respect to the foregoing (including all Finance Charge
Receivables), (iii) all proceeds thereof, including the proceeds of any sale or
other disposition of any goods or merchandise subject thereto and (iv) all
right, title and interest of the Seller in, to and under the Retail Purchase
Agreement or any other Origination Agreement in respect thereof. Effective as of
the date of this Additional Assignment, Schedule I to the Purchase and
Administration Agreement is amended and supplemented to include each Additional
Receivable listed on Schedule I hereto.
<PAGE> 60
Annex E
Page 2
(b) In connection with such sale and conveyance, the Seller
shall, at its own expense, on or prior to the date of this Assignment take all
such action as is required by Section 2.02(b) of the Purchase and Administration
Agreement.
Section 3.01. ACCEPTANCE BY THE COMPANY. The Company hereby
acknowledges its acceptance of all right, title and interest previously held by
the Seller in, to and under the Additional Receivables and other properties sold
and conveyed hereby.
Section 4.01. RECONFIRMATION OF REPRESENTATIONS AND WARRANTIES
OF THE SELLER. The Seller hereby represents and warrants to the Company that all
representations and warranties made by the Seller pursuant to Section 3.01 of
the Purchase and Administration Agreement are true and correct in all respects
as of the Purchase Date as if made on such date.
Section 5.01. COUNTERPARTS. This Assignment may be executed in
two or more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 6.01. GOVERNING LAW. This Assignment and the rights
and obligations of the parties hereunder shall be construed in accordance with
and governed by the laws of the State of New York.
<PAGE> 61
Annex E
Page 3
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be duly executed and delivered by their respective duly authorized officers
on the day and year first above written.
KEYBOARD ACCEPTANCE
CORPORATION
By
------------------------------
Title:
BALDWIN PIANO & ORGAN COMPANY
By
------------------------------
Title:
RETAILER FUNDING CORPORATION
By
------------------------------
Title:
<PAGE> 62
ANNEX F
-------
[FORM OF BLOCKED DEPOSIT AGREEMENT]
October ____, 1997
Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Re: Account No. 0918906
Gentlemen:
Keyboard Acceptance Corporation, a Delaware corporation (the
"Company") is in the business of purchasing accounts receivable from Baldwin
Piano & Organ Company ("Baldwin") and certain other persons. On behalf of the
Company, we hereby request that you execute this Letter Agreement. The Company,
Retailer Funding Corporation ("RFC"), and General Electric Capital Corporation
(the "Collateral Agent"), are parties to an Amended and Restated Purchase and
Administration Agreement dated as of October __, 1997 (the "Purchase
Agreement"). Capitalized terms used herein but not defined herein shall have the
meanings assigned to such terms in the Purchase Agreement.
Pursuant to the terms of the Purchase Agreement, the Company
has granted to the Collateral Agent, for its benefit and the benefit of RFC and
other Secured Parties, a pledge of and security interest in certain Block
Deposit Accounts and other collateral described therein, including the above
referenced account (the "Deposit Account") into which certain monies,
instruments and other property are deposited by the Company and Baldwin from
time to time, to secure the payment and performance of the obligations of the
Company under the Purchase Agreement. This Letter Agreement defines certain
rights and obligations with respect to the appointment of Provident Bank (the
"Deposit Account Bank") to maintain the Deposit Account.
Accordingly, the Company, Baldwin, RFC, the Collateral Agent
and the Deposit Account Bank agree as follows:
The Collateral Agent hereby appoints the Deposit Account Bank
to maintain the Deposit Account and authorizes the Deposit Account Bank, on the
terms and subject to the conditions set forth in this Letter Agreement, to
collect payments with respect to the Deposit Account. The Deposit Account Bank
hereby agrees to maintain the Deposit Account and act as a deposit account bank
for the Collateral Agent with respect to the Deposit Account on the terms and
subject to the conditions set forth in this Letter Agreement.
<PAGE> 63
Annex F
Page 2
Contemporaneously with the execution and delivery by the
Deposit Account Bank of this Letter Agreement, and for purposes of this Letter
Agreement, there exists with the Deposit Account Bank, or the Deposit Account
Bank shall establish and maintain, the Deposit Account for the benefit of the
Collateral Agent. The Deposit Account shall be designated with the title
"General Electric Capital Corporation, as Collateral Agent, Re: Keyboard
Acceptance Corporation". All payments received by the Deposit Account Bank
endorsed to the Deposit Account shall be deposited in the Deposit Account. Such
payments shall not be commingled with other funds of the Company or Baldwin. All
funds at any time on deposit in the Deposit Account shall be held by the Deposit
Account Bank for application strictly in accordance with the terms of this
Letter Agreement. The Deposit Account Bank agrees to give the Collateral Agent
prompt notice if the Deposit Account becomes subject to any writ, judgment,
warrant of attachment, execution or similar process.
The Deposit Account Bank hereby acknowledges that the Company
has assigned, pledged, granted, conveyed, transferred, delivered and set over to
the Collateral Agent, RFC and the Secured Parties a security interest in the
Deposit Account and all property and assets held therein.
The Collateral Agent shall have exclusive dominion and control
over, and sole right of withdrawal from, the Deposit Account. The Collateral
Agent shall possess all right, title and interest in all of the items from time
to time on deposit in the Deposit Account and the proceeds thereof. Neither the
Company nor Baldwin nor any other person or entity shall have any right, title
or interest in, or control or use of, or any right to withdraw any amount from
the Deposit Account. The Deposit Account Bank shall furnish the Company and the
Collateral Agent with statements, in the form and manner typical for the Deposit
Account Bank, of amounts of deposits in, and amounts withdrawn from, the Deposit
Account at such times as shall be reasonably requested by the Company or the
Collateral Agent.
For purposes of this Letter Agreement, each officer and
employee of the Collateral Agent listed on SCHEDULE A hereto, and any other
officer or employee of the Collateral Agent designated in writing by a person
listed on SCHEDULE A hereto, shall be authorized to act, and to give
instructions and notice, on behalf of the Collateral Agent hereunder and the
Deposit Account Bank shall be entitled to rely on such act, instruction or
notice without further inquiry.
The Company agrees to pay the Deposit Account Bank for the
services of the Deposit Account Bank in connection with the Deposit Account and
this Agreement. The Collateral Agent and the Secured Parties shall not have any
responsibility or liability for the payment of any such fee.
The Deposit Account Bank may perform any of its duties
hereunder by or through its officers, employees or agents and shall be entitled
to rely upon the advice of counsel as to its
<PAGE> 64
Annex F
Page 3
duties. The Deposit Account Bank shall not be liable to the Collateral Agent or
the Company for any action taken or omitted to be taken by it in good faith, nor
shall the Deposit Account Bank be responsible to the Collateral Agent or the
Company for the consequences of any oversight or error of judgment or be
answerable to the Collateral Agent or the Company for the same unless the same
shall happen through the Deposit Account Bank's gross negligence or willful
misconduct.
The Deposit Account Bank may resign at any time as Deposit
Account Bank hereunder by delivery to the Collateral Agent and the Company of
written notice of resignation not less than 30 days prior to the effective date
of such resignation. The Collateral Agent may close the Deposit Account at any
time by delivery of notice to the Deposit Account Bank at its address appearing
below. This Letter Agreement shall terminate upon receipt of such notice of
closing, or delivery of such notice of resignation, except that the Deposit
Account Bank shall promptly (i) transfer to the Collateral Agent all collected
funds, if any, then on deposit in, or otherwise to the credit of, the Deposit
Account, other than amounts retained for returned checks in the ordinary course
of business, (ii) deliver directly to the Collateral Agent at its office
specified below (or such other office or account as the Collateral Agent shall
specify) all checks, drafts and other instruments for the payment of money with
respect to the Deposit Account coming into the possession of the Deposit
Account Bank after one full business day has elapsed from Deposit Account Bank's
receipt of such notice, without depositing such checks, drafts or other instru-
ments in the Deposit Account or any other account and (iii) deliver any payments
relating to the Account Collateral coming into the possession of the Deposit
Account Bank after one full business day has elapsed from Deposit Account
Bank's receipt of such notice directly to the Collateral Agent.
The Company acknowledges that the Deposit Account Bank shall
incur no liability to the Company as a result of any action taken pursuant to
any instruction given by or on behalf of the Collateral Agent.
All notices and communications hereunder shall be in writing
(except where telephonic instructions or notices are authorized herein) and
shall be deemed to have been received and shall be effective on the day on which
delivered (including delivery by telecopy) (i) in the case of the Collateral
Agent, to General Electric Capital Corporation, 14131 Midway Road, 10th Floor,
Dallas, Texas 75244 to the attention of Harold Goehl, (ii) in the case of the
Deposit Account Bank, to Provident Bank, One East Fourth Street, Cincinnati,
Ohio 45202 to the attention of Thomas Blackburn and (iii) in the case of the
Company to 422 Wards Corner Road, Loveland, Ohio 45140 to the attention of Perry
Schwartz.
The Deposit Account Bank shall not assign or transfer any of
its rights or obligations hereunder (other than to the Collateral Agent)
without the prior written consent of the
<PAGE> 65
Annex F
Page 4
Collateral Agent. This Letter Agreement may be amended only by a written
instrument executed by the Company, RFC, the Collateral Agent and the Deposit
Account Bank, acting by their respective officers thereunto duly authorized. The
Deposit Account Bank hereby irrevocably waives any rights to setoff against, or
otherwise deduct from, any funds held in the Deposit Account for any
indebtedness or other claim owed by, the Company, Baldwin or any other person or
entity to the Deposit Account Bank. To the extent that the Deposit Account Bank
ever has any such rights, the Deposit Account Bank hereby expressly subordinates
all such rights to the rights of the Collateral Agent.
Nothing contained herein will require the Deposit Account Bank
to take any action in contravention of applicable laws (including, without
limitation, bankruptcy stay laws), any court order or the instructions of any
bankruptcy trustee.
The Company agrees to immediately reimburse the Deposit
Account Bank for the amount of any returned item if the Deposit Account does not
contain sufficient available funds to reimburse the Deposit Account Bank for the
amount of the returned item within fifteen (15) days after the date the Deposit
Account Bank is notified of the return of the item.
The Company hereby agrees to pay, indemnify, defend and hold
the Deposit Account Bank harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (including without
limitation, legal fees) with respect to the performance of this Agreement by the
Deposit Account Bank or any of the Deposit Account Bank's directors, officers,
agents or employees, unless arising from its or their own gross negligence or
willful misconduct. IN NO EVENT WILL THE DEPOSIT ACCOUNT BANK BE LIABLE FOR ANY
INDIRECT DAMAGES, LOST PROFITS, SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES
WHICH ARISE OUT OF OR IN CONNECTION WITH THE SERVICES CONTEMPLATED BY THIS
AGREEMENT. The provisions of this paragraph will survive termination of this
Agreement.
The Deposit Account Bank's obligations to the Collateral Agent
and the Secured Parties in respect of the Deposit Account shall be solely as set
forth in this Agreement, and shall not be affected by any other agreement
between the Company or Baldwin and the Collateral Agent or otherwise regarding
the Deposit Account.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF OHIO.
This Letter Agreement (i) shall inure to the benefit of, and
be binding upon, the Company, Baldwin, the Collateral Agent, RFC, the Deposit
Account Bank and their respective successors and assigns and (ii) may be
executed in two or more counterparts, each of which shall
<PAGE> 66
Annex F
Page 5
be deemed an original but all of which together shall constitute one and the
same instrument.
<PAGE> 67
Annex F
Page 6
IN WITNESS WHEREOF, the parties hereto have caused this Letter
Agreement to be executed by their duly authorized officers as of the date first
above written.
Very truly yours,
KEYBOARD ACCEPTANCE CORPORATION
By:
-----------------------------------
Name:
Title:
Agreed and accepted:
- -------------------------------
as Deposit Account Bank
By:
----------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION,
as Collateral Agent
By:
----------------------------
Name:
Title:
RETAILER FUNDING CORPORATION
By:
----------------------------
Name:
Title:
BALDWIN PIANO & ORGAN COMPANY
<PAGE> 68
Annex F
Page 7
By:
----------------------------
Name:
Title:
<PAGE> 69
EXHIBIT H
---------
SUPPORT LETTER AGREEMENT
________, 1997
Retailer Funding Corporation
c/o Ropes & Gray
One International Place
Boston, MA 02110
General Electric Capital Corporation
14131 Midway Road, 10th Floor
Dallas, TX 75244
Gentlemen:
In order to induce Retailer Funding Corporation ("RFC") to
continue to provide financing under the Amended and Restated Purchase and
Administration Agreement dated as of October ____, 1997 (the "Agreement") among
RFC, Keyboard Acceptance Corporation ("KAC") and Baldwin Piano & Organ Company
("Parent"), ____________ ("Executive")
personally agrees with each of you as follows:
1. All initially capitalized terms, if not separately defined
herein, shall have the meanings assigned to them in the Agreement.
2. If any of the followings events (each, a "Credit Event")
shall occur: (i) any KAC Obligation is not paid when due, (ii) any Parent Event
shall occur and be continuing, (iii) any Collection Agent Event of Default shall
occur and be continuing or (iv) KAC's appointment as Collection Agent is revoked
in accordance with the terms of the Agreement, then, upon your written request
made within 10 days after such Credit Event, Executive will commence to exercise
[his/her] best efforts in an appropriate manner to obtain or assist in obtaining
the maximum collections for your account with respect to all of the Receivables,
Seller Collateral and Parent Collateral; provided, however, that Executive was
employed by KAC or Parent at the time of such demand. Executive will assist in
the disposition of all such assets upon which you may have any lien or ownership
interest, and will exercise [his/her] best efforts to obtain purchasers for such
assets and obtain the maximum recovery from your liens. In such event, Executive
will act as your agent and representative by devoting as much time as you deem
appropriate to carry out the purposes of this agreement; PROVIDED, HOWEVER, that
Executive shall not be required to render any services hereunder after (i) the
date which is 9 months after the date on which you make your initial demand to
Executive hereunder or (ii) in the event that KAC or Parent is the subject of a
proceeding under title 11 of the United States Code, the date which is 6
<PAGE> 70
Exhibit H
Page 2
months following the date on which the automatic stay under Section 362 of title
11 of the United States Code is modified or lifted in such proceeding so that
you can foreclose on the Receivables, Seller Collateral and Parent Collateral;
PROVIDED, HOWEVER, Executive was employed by KAC or Parent on such date upon
which the automatic stay was modified or lifted. For such services, Executive
will be paid what you, in your reasonable discretion, deem appropriate
compensation but not less than [his/her] then current rate of compensation, and
the actual, reasonable expenses of Executive will be reimbursed by you.
3. Executive will use [his/her] best efforts as long as KAC or
Parent has outstanding any obligations arising under the Agreement to ensure
that:
a. full, complete and accurate records with respect to
the Receivables, Seller Collateral and Parent
Collateral are maintained at KAC's or Parent's
executive offices;
b. all of the Receivables, Seller Collateral and Parent
Collateral is adequately protected against theft,
pilferage or diminution in the event of any
liquidation; and
c. immediate notice is given to you in the event of any
breach of the provisions of the Agreement.
Executive will not do anything to delay, defeat, limit or
restrict your liens or the realization thereof.
-------------------------
[Name of Executive]
Acknowledged and agreed to
this ____ day of ________, 1997
RETAILER FUNDING CORPORATION
By
-----------------------------
Authorized Signatory
<PAGE> 71
Exhibit H
Page 3
GENERAL ELECTRIC CAPITAL CORPORATION,
as Collateral Agent
By
----------------------------
Authorized Signatory
<PAGE> 72
EXHIBIT H
---------
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I
DEFINITIONS.............................................................2
Section 1.01 Definitions......................................2
ARTICLE II
PURCHASE OF ELIGIBLE RECEIVABLES.......................................17
Section 2.01 The Initial Purchase............................17
Section 2.02 Additional Purchases............................18
Section 2.03 Deferred Purchase Price.........................18
Section 2.04 Increase of Commitment..........................19
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS..............................19
Section 3.01 Representations and Warranties of Seller........19
Section 3.02 Representations and Warranties of the Company...22
Section 3.03 Covenants of Seller.............................22
Section 3.04 Representations and Warranties Deemed Made......26
Section 3.05 Receivable Repurchases..........................27
ARTICLE IV
CONDITIONS PRECEDENT...................................................27
Section 4.01 Conditions to the Obligations of the Company....27
ARTICLE V
ADMINISTRATION, COLLECTIONS AND OTHER OBLIGATIONS......................28
Section 5.01 Appointment of Collection Agent.................28
<PAGE> 73
PAGE
----
Section 5.02 Collections.....................................29
Section 5.03 Application of Collections......................30
Section 5.04 Settlement Statements; Weekly Reports...........33
Section 5.05 Appointment of Successor Collection Agent.......33
Section 5.06 Compromise and Adjustment.......................34
Section 5.07 Interest Deficiency Payments....................35
Section 5.08 Net Deposits....................................35
Section 5.09 SWAPs...........................................35
Section 5.10 SWAP Advances...................................35
Section 5.11 Grant of Security Interest; Remedies.............35
ARTICLE VI
PARENT GUARANTEE.......................................................37
Section 6.01 Unconditional Parent Guarantee..................37
Section 6.02 Validity........................................37
Section 6.03 Waivers.........................................38
Section 6.04 Subrogation.....................................38
Section 6.05 Grant of Security Interest; Remedies............38
ARTICLE VII
MISCELLANEOUS..........................................................40
Section 7.01 Notices, etc....................................40
Section 7.02 Successors and Assigns..........................42
Section 7.03 Severability Clause.............................42
Section 7.04 Amendments; Governing Law.......................42
Section 7.05 Seller's Obligations............................42
Section 7.06 Servicing Fee...................................43
Section 7.07 Subordination of Deferred Purchase Price........43
Section 7.08 Facility Fee....................................45
Section 7.09 Bankruptcy Petition Against the Company.........46
Section 7.10 Setoff..........................................46
Section 7.11 Remedies........................................46
Section 7.12 Costs, Expenses and Taxes.......................46
Section 7.13 Optional Repurchase.............................46
Section 7.14 Further Assurances..............................46
(2)
<PAGE> 74
PAGE
----
ANNEX A Form of Monthly Portfolio Statement
ANNEX B Form of Monthly Settlement Statement
ANNEX C Purchase Discount Adjustment Criteria
ANNEX D Form of Sale and Assignment
ANNEX E Form of Additional Assignment
ANNEX F Form of Blocked Deposit Agreement
ANNEX G Form of Weekly Activity Report
ANNEX H Form of Support Agreement
(3)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 346
<SECURITIES> 0
<RECEIVABLES> 25,030
<ALLOWANCES> 1,060
<INVENTORY> 42,252
<CURRENT-ASSETS> 72,680
<PP&E> 38,427
<DEPRECIATION> 17,036
<TOTAL-ASSETS> 121,790
<CURRENT-LIABILITIES> 19,079
<BONDS> 35,027
0
0
<COMMON> 42
<OTHER-SE> 61,167
<TOTAL-LIABILITY-AND-EQUITY> 121,790
<SALES> 31,687
<TOTAL-REVENUES> 34,338
<CGS> 26,373
<TOTAL-COSTS> 26,373
<OTHER-EXPENSES> 6,452
<LOSS-PROVISION> 330
<INTEREST-EXPENSE> 585
<INCOME-PRETAX> 586
<INCOME-TAX> 228
<INCOME-CONTINUING> 370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 370
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
<PAGE> 1
Exhibit 99.2
[BALDWIN LETTERHEAD]
NEWS RELEASE
CONTACTS: Perry Schwartz Joel Pomerantz or Ken DiPaola
Baldwin Piano The Dilenschneider Group
(513) 576-4518 (212) 922-0900
BALDWIN PIANO NAMES
JOHN GUTFREUND TO BOARD OF DIRECTORS
LOVELAND, OH, March 10, 1998 -- Baldwin Piano and Organ Company
(NASDAQ:BPAO) today announced the appointment of prominent Wall Street financial
consultant John H. Gutfreund to the company's board of directors. Mr. Gutfreund
will occupy the board seat vacated last year by Baldwin's retiring chairman and
former CEO Robert S.Harrison.
Mr. Gutfreund, a leading Wall Street figure for over three decades, is
president of Gutfreund & Company, a New York-based financial consulting firm he
founded in 1991 to advise select corporations and financial institutions in the
U.S., Europe and Asia. From 1981 to 1991 Mr. Gutfreund was chief executive
officer and board chairman of Salomon Brothers, the international investment
banking firm.
"We are all delighted that John Gutfreund has agreed to join our
board," said Karen L. Hendricks, chairman and CEO of Baldwin. "He has been an
important Baldwin advisor for more than a year now, and he knows our company
well. His valuable perspective and insight will help us continue to build
enduring value for all Baldwin shareholders."
Mr. Gutfreund is affiliated with numerous corporations and
not-for-profit institutions. He is a director of New York's Montefiore Medical
Center and a member of The Brookings Institution and the Council on Foreign
Relations. He is a member of the Board of Trustees of the New York Public
Library and an Honorary Trustee, Oberlin College.
-more-
<PAGE> 2
-2-
Mr. Gutfreund is past Vice Chairman of the New York Stock Exchange;
past member of the Board of Directors of the Securities Industry Association,
and past Chairman of the Downtown Lower Manhattan Association. He has also
served as past President and member of the Board of Governors of the Bond Club
of New York; and is a past member of the Trilateral Commission.
Mr. Gutfreund received his B.A. degree from Oberlin College in 1951 and
served in the U.S. Army in Korea from 1951 - 1953.
Baldwin Piano & Organ Company has marketed keyboard musical products
for 136 years and has been providing consumer financing for the keyboard
industry for nearly a century. Baldwin, maker of America's best selling pianos,
also manufactures electronic and electro-mechanical components for Original
Equipment Manufacturers.
# # #
<PAGE> 1
Exhibit 99.3
[BALDWIN LETTERHEAD]
NEWS RELEASE
CONTACTS: Perry Schwartz - CFO Ken DiPaola or Joel Pomerantz
Baldwin Piano The Dilenschneider Group, Inc.
(513) 576-4518 (212) 922-0900
BALDWIN PIANO REPORTS FIRST QUARTER RESULTS
TOTAL SALES UP 16%; MUSIC SALES UP 8%;
CONTRACT ELECTRONICS SALES UP 32%
LOVELAND, OH, April 21, 1998 -- Baldwin Piano and Organ Company
(NASDAQ:BPAO) today announced results for the first quarter ended March 31,
1998.
First quarter sales grew 16 percent to $31.7 million, up from $27.3
million a year ago. First quarter net earnings rose to $370,000, or 11 cents per
share, versus last year's $246,000, or 7 cents per share. However, in the first
quarter of 1997, earnings from ongoing operations were $358,000, or 10 cents per
share.
Due to the phase out of consignment in the second half of 1997, gross
profit in first quarter 1998 was $320,000 less than it would have been with
consignment. In addition, first quarter operating performance was also
negatively impacted by FAS-125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. FAS-125 increased current
net earnings 4 cents per share, compared with an increase of 6 cents per share a
year ago.
Karen L. Hendricks, Chairman, President and Chief Executive Officer of
Baldwin said, "Phasing out consignment sales reduced interest expense and made
our sales force more productive, reflected, in part, in the first quarter's
sales increase. The phase-out program is almost cost neutral but, has important
longer term benefits to the business."
-more-
<PAGE> 2
-2-
Ms. Hendricks continued: "Over the past 18 months, we put a strategic
plan in place to turn Baldwin around and generate profitable growth. This plan
is working and all three of our businesses are progressing on schedule.
"Continued strong demand for pianos drove sales up 8 percent, with
acoustic sales up and digital music sales down slightly. Baldwin's line of grand
pianos showed the greatest sales increase. In addition, more than 10 percent of
all grand pianos sold in the first quarter included our ConcertMaster
computerized player system.
"Contract electronics sales also continued the strong pace set in the
fourth quarter with first quarter sales up 32 percent to $10.7 million up from
$8.1 million during the same period last year. New business represented 70
percent of the increase. The success of Contract Electronics' strategy is based
on the division's ability to develop a powerful base of core customers, generate
new business in select niches, and leverage the Baldwin name and reputation for
high quality and excellent customer service.
"Baldwin's retail financing businesses, also experienced gains in the
first quarter. Reported first quarter revenue was $2.2 million, a 5 percent
gain, up from $2.1 million in the first quarter of 1997. However, without the
impact of FAS-125, revenue growth was 11 percent."
Ms. Hendricks continued, "We are optimistic that our three businesses
will show greater gains in profitability during the balance of 1998. She added
that continued implementation of Baldwin's strategic plan will require a further
increase in capital expenditures. She said, "For a 12 to 18 month period, we
have a major opportunity to fund several important projects that will produce
superior returns and significantly enhance our future competitiveness and
profitability." While we expect capital expenditures of between $7 to $10
million over the next year or so, this should not be viewed as a trend but as a
one-time investment in Baldwin's future."
-more-
<PAGE> 3
-3-
Baldwin Piano & Organ Company has marketed keyboard musical products
for 136 years and has been providing consumer financing for the keyboard
industry for nearly a century. Baldwin, maker of America's best selling pianos,
also manufactures electronic and electro-mechanical components for Original
Equipment Manufacturers.
# # #
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995: This release contains forward looking statements that are subject to risks
and uncertainties, including, but not limited to, the impact of competitive
products and pricing, product demand and market acceptance, reliance on key
strategic alliances, fluctuations in operating results and other risks detailed
from time to time in the company's filings with the Securities and Exchange
Commission.
(Condensed Earnings Statement and Balance Sheet Attached)
<PAGE> 4
-4-
BALDWIN PIANO & ORGAN COMPANY AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
(IN THOUSANDS, EXCEPT NET EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales $ 31,687 $ 27,309
Cost of goods sold 26,373 22,533
--------- ---------
Gross profit 5,314 4,776
Interest income on installment receivables 2,234 2,126
Other operating income, net 417 734
Selling, general and administrative (1) (6,782) (6,456)
Interest expense (585) (796)
--------- ---------
Earnings before income taxes 598 384
Income taxes 228 138
--------- ---------
Net earnings (1) $ 370 $ 246
========= =========
Basic earnings per share $ 0.11 $ 0.07
========= =========
Diluted earnings per share $ 0.11 $ 0.07
========= =========
Average number of
shares outstanding 3,445 3,425
========= =========
Diluted number of shares outstanding 3,520 3,472
========= =========
</TABLE>
CONSOLIDATED SUMMARY BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
---------- ---------
<S> <C> <C>
Assets
Receivables, net $ 23,970 $ 15,590
Inventories 42,252 53,740
Other current assets 6,458 8,423
--------- ---------
Total current assets 72,680 77,753
Installment receivables, less current portion 15,505 12,071
Property, plant and equipment, net 21,391 16,478
Other assets 12,214 7,866
--------- ---------
Total assets $ 121,790 $ 114,168
========= =========
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 3,125 $ 35,588
Other liabilities 15,954 12,508
--------- ---------
Total current liabilities 19,079 48,096
Long-term debt, less current portion 35,027 3,125
Other liabilities 6,475 6,426
Shareholders' equity 61,209 56,521
--------- ---------
Total liabilities and shareholders' equity $ 121,790 $ 114,168
========= =========
</TABLE>
(1) Prior year S,G&A expense included one time expenses of $180,000 for a
proxy defense. The expense (and associated tax impact) reduced reported
net earnings by 3 cents per share for the first quarter of 1997.
