UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______to_______
Commission file number 0-16986
ACCLAIM ENTERTAINMENT, INC.
----------------------------------------------------------
(Exact name of the registrant as specified in its charter)
Delaware 38-2698904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Acclaim Plaza, Glen Cove, New York 11542
--------------------------------------------
(Address of principal executive offices)
(516) 656-5000
-------------------------------
(Registrant's telephone number)
71 Audrey Avenue, Oyster Bay, New York 11771 (516) 624-8888
------------------------------------------------------------
(Former address and telephone number)
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___
As at April 3, 1995, approximately 44,850,000 shares of Common Stock of the
registrant were outstanding.
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in 000s, except per share data)
February 28, August 31,
1995 1994
____ ____
ASSETS
CURRENT ASSETS
Cash $ 38,198 $ 34,676
Marketable securities 66,962 1,926
Accounts receivable - net 140,354 164,794
Inventories 22,790 15,295
Prepaid expenses 33,715 23,214
Other current assets 6,758 10,796
-------- --------
TOTAL CURRENT ASSETS 308,777 250,701
-------- --------
OTHER ASSETS
Fixed assets - net 25,900 15,638
Excess of cost over net assets acquired - net of
accumulated amortization of $7,403 and $5,951,
respectively 61,105 59,400
Other assets 30,273 10,139
-------- --------
TOTAL ASSETS $426,055 $335,878
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $28,984 $69,376
Short-term borrowings 5,044 1,757
Accrued expenses 47,148 43,914
Income taxes payable 5,851 2,031
Current portion of long-term debt 40,196 1,538
Obligation under capital leases - current 322 265
-------- --------
TOTAL CURRENT LIABILITIES 127,545 118,881
-------- --------
LONG-TERM LIABILITIES
Long-term debt 196 40,196
Obligation under capital leases - noncurrent 558 719
Other long-term liabilities 956 839
-------- --------
TOTAL LIABILITIES 129,255 160,635
-------- --------
MINORITY INTEREST 1,750 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 1,000 shares
authorized;
None issued -- --
Common stock, $0.02 par value; 50,000 shares authorized;
44,760 and 39,348 shares issued and
outstanding, respectively 895 787
Additional paid in capital 154,463 69,246
Retained earnings 135,796 106,571
Treasury stock (807) (807)
Foreign currency translation adjustment 1,699 (554)
Unrealized gain on marketable securities 3,004 --
-------- --------
TOTAL STOCKHOLDERS' EQUITY 295,050 175,243
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $426,055 $335,878
-------- --------
See note to consolidated financial statements.
2
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(in 000s, except per share data)
Three Months Ended Six Months Ended
February 28, February 28,
1995 1994 1995 1994
-------- -------- -------- --------
NET REVENUES $157,430 $115,531 $318,377 $242,891
COST OF REVENUES 71,039 51,167 146,592 107,285
-------- -------- -------- --------
GROSS PROFIT 86,391 64,364 171,785 135,606
-------- -------- -------- --------
OPERATING EXPENSES
Selling, advertising, general and
administrative expenses 60,726 45,233 116,665 93,631
Operating interest 1,027 394 1,912 1,072
Depreciation and amortization 1,992 865 3,572 1,681
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 63,745 46,492 122,149 96,384
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 22,646 17,872 49,636 39,222
OTHER INCOME (EXPENSE)
Interest income 398 272 832 507
Interest expense (919) (34) (1,749) (215)
Other (expense) income 1,056 28 1,206 (325)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 23,181 18,138 49,925 39,189
PROVISION FOR INCOME TAXES 9,600 7,500 20,700 16,215
-------- -------- -------- --------
NET EARNINGS $ 13,581 $ 10,638 $ 29,225 $ 22,974
-------- -------- -------- --------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.29 $ 0.24 $ 0.62 $ 0.51
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 47,450 45,100 47,450 45,100
-------- -------- -------- --------
See note to consolidated financial statements.
3
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<TABLE>
<CAPTION>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(in 000s, except per share data)
Preferred Stock (1) Common Stock Common Foreign Unrealized
Issued Issued Additional Stock Due Currency Gain/Loss On
Paid-In Retained Treasury From Translation Marketable
Shares Amount Shares Amount Capital Earnings Stock MCA Adjustments Securities Total
------ ------ ------ ------ ---------- -------- -------- --------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance August 31, 1992 -- -- 23,303 $466 $ 30,533 $ 33,579 -- $(807) $ 935 -- $ 64,706
------ ------ ------ ---- -------- -------- ----- ----- ------- ------ --------
Net Earnings -- -- -- -- -- 28,185 -- -- -- -- 28,185
Exercise of Stock Options -- -- 1,536 31 6,716 -- -- -- -- -- 6,747
50% Stock Dividend -- -- 12,420 248 -- (248) -- -- -- -- --
Tax Benefit from
Exercise of Stock Options -- -- -- -- 1,128 -- -- -- -- -- 1,128
Shares Received from MCA -- -- -- -- -- -- $(807) 807 -- -- --
Foreign Currency
Translation Loss -- -- -- -- -- -- -- -- (3,899) -- (3,899)
------ ------ ------ ---- -------- -------- ----- ----- ------- ------ --------
Balance August 31, 1993 -- -- 37,259 745 38,377 61,516 (807) 0 (2,964) -- 96,867
------ ------ ------ ---- -------- -------- ----- ----- ------- ------ --------
Net Earnings -- -- -- -- -- 45,055 -- -- -- -- 45,055
Issuances -- -- 971 19 14,981 -- -- -- -- -- 15,000
Exercise of Stock Options -- -- 1,118 23 7,435 -- -- -- -- -- 7,458
Tax Benefit from
Exercise of Stock Options -- -- -- -- 8,453 -- -- -- -- -- 8,453
Foreign Currency
Translation Gain -- -- -- -- -- -- -- -- 2,410 -- 2,410
------ ------ ------ ---- -------- -------- ----- ----- ------- ------ --------
Balance August 31, 1994 -- -- 39,348 787 69,246 106,571 (807) 0 (554) -- 175,243
------ ------ ------ ---- -------- -------- ----- ----- ------- ------ --------
Net Earnings -- -- -- -- -- 29,225 -- -- -- -- 29,225
Issuances -- -- 5,182 104 83,659 -- -- -- -- -- 83,763
Exercise of Stock Options -- -- 230 4 997 -- -- -- -- -- 1,001
Tax Benefit from
Exercise of Stock Options -- -- -- -- 561 -- -- -- -- -- 561
Foreign Currency
Translation Gain -- -- -- -- -- -- -- -- 2,253 -- 2,253
Unrealized Gain (Loss) on
Marketable Securities -- -- -- -- -- -- -- -- -- 3,004 3,004
------ ------ ------ ---- -------- -------- ----- ----- ------- ------ --------
Balance February 28, 1995 -- -- 44,760 $895 $154,463 $135,796 $(807) $ 0 $ 1,699 $3,004 $295,050
------ ------ ------ ---- -------- -------- ----- ----- ------- ------ --------
<FN>
(1) The Company is authorized to issue 1,000 shares of preferred
stock at a par value of $0.01 per share, none of which shares is
presently issued and outstanding.
</TABLE>
See note to consolidated financial statements.
4
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(in 000s, except per share data)
Six Months Ended
February 28,
1995 1994
------ ------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Cash received from customers $351,926 $271,270
Cash paid to suppliers and employees (326,504) (255,272)
Interest received 832 507
Interest paid (3,661) (1,287)
Income taxes (paid) (14,223) (9,368)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,370 5,850
------- -------
CASH FLOWS (USED IN) PROVIDED BY
INVESTING ACTIVITIES
Sale of marketable securities 12,694 (10,413)
Acquisition of Iguana Entertainment, Inc. (5,513) --
Acquisition of fixed assets,
excluding capital leases (18,409) (1,354)
Disposal of fixed assets 2 2
Acquisition of other assets 2,445 (672)
------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (8,781) (12,437)
------- -------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 6,193 10,993
Repayment of short-term borrowings (3,025) (14,231)
Payment of mortgage (1,342) (43)
Exercise of stock options 1,002 1,105
Payment of obligation under capital leases (153) (160)
------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,675 (2,336)
------- -------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 1,258 959
------- -------
NET INCREASE (DECREASE) IN CASH 3,522 (7,964)
CASH AT BEGINNING OF PERIOD 34,676 25,745
------- -------
CASH AT END OF PERIOD $38,198 $17,781
------- -------
5
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Continued)
(in 000s, except per share data)
Six Months Ended
February 28,
1995 1994
------- -------
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net Earnings $29,225 $22,974
------- -------
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,572 1,681
Loss on disposal of equipment 7 2
Gain on sale of marketable securities (1,107)
(Decrease) Increase in allowance for returns and disco (6,455) 4,237
Deferred income taxes 2,117 (2,717)
Decrease (Increase) in accounts receivable 32,845 (7,151)
(Increase) in inventories (7,245) (456)
(Increase) in prepaid expenses (10,421) (1,838)
(Increase) in other current assets (75) (260)
(Decrease) in trade accounts payable (41,361) (21,764)
Increase in accrued expenses 2,909 7,279
Increase in income taxes payable 4,359 3,863
------- -------
Total adjustments (20,855) (17,124)
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 8,370 $ 5,850
------- -------
Supplemental schedule of noncash investing and financing activities:
In fiscal 1995, the Company purchased all of the capital stock of Iguana
Entertainment, Inc. for $5,513, net of cash received. In connection with the
acquisition, liabilities assumed were as follows:
Fair value of assets acquired $ 5,525
Cash paid for the capital stock (5,515)
-------
Liabilities assumed $ 10
-------
In fiscal 1994, the Company purchased all of the capital stock of Acclaim Comics
for $62,805, net of cash received. In connection with the acquisition,
liabilities assumed were as follows:
Fair value of assets acquired $67,478
Cash paid for the capital stock (50,588)
Fair market value of common stock issued (15,000)
-------
Liabilities assumed $ 1,890
-------
See note to consolidated financial statements.
6
<PAGE>
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Interim Period Reporting
The data contained in these financial statements are unaudited and are subject
to year-end adjustments; however, in the opinion of management, all known
adjustments (which consist only of normal recurring accruals) have been made to
present fairly the consolidated operating results for the unaudited periods.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Acclaim Entertainment, Inc. ("Acclaim"), together with its subsidiaries
(Acclaim and its subsidiaries are collectively hereinafter referred to as the
"Company"), is an entertainment publisher which engages in or plans to engage in
(i) the publication of interactive entertainment software ("Software") for use
with interactive entertainment hardware platforms; (ii) the development and
publication of comic books, which commenced in July 1994 through the acquisition
of Acclaim Comics, Inc. ("Acclaim Comics"), formerly Voyager Communications
Inc.; (iii) the marketing of its motion capture technology and studio services,
which commenced in the first quarter of fiscal 1995; (iv) the distribution of
coin-operated arcade games, which is anticipated to commence in fiscal 1996
(and, with respect to redemption games, will commence upon the consummation of
the proposed acquisition by the Company of Lazer-Tron Corporation, which is
anticipated to occur in late fiscal 1995); (v) the distribution of Software for
affiliated labels, which commenced in the first quarter of fiscal 1995; and (vi)
the electronic distribution of interactive entertainment through the partnership
(the "Joint Venture") established in October 1994 between a subsidiary of
Acclaim and a subsidiary of Tele-Communications, Inc. ("TCI"). See "Recent
Developments." To date, the Company's principal business has been as a leading
publisher of Software for dedicated interactive entertainment hardware platforms
("Entertainment Platforms").
The interactive entertainment industry is characterized by rapid
technological change, resulting in hardware platform and related Software
product cycles. No single hardware platform or system has achieved long-term
dominance. The Company's strategy is to publish Software for the hardware
platforms that currently dominate the market and to develop Software for the
hardware platforms that the Company believes will become dominant in the future,
rather than to be the first Software publisher for an emerging hardware
platform; in order to promote its strategic relationships, however, the Company
may from time to time publish Software for a hardware platform before it attains
mass market appeal. The Company's revenues have traditionally been derived from
sales of Software for the then dominant platforms. Accordingly, the Company's
revenues are subject to fluctuation during transition periods when new hardware
platforms have been introduced but none has achieved mass market acceptance or
become dominant.
From inception through fiscal 1991, substantially all of the Company's
revenues were derived from sales of Software for the 8-bit Nintendo
Entertainment System ("NES"). Although the Company commenced the publication of
Software for Game Boy, the portable system marketed by Nintendo Co., Ltd.
(Japan) (Nintendo along with its subsidiary, Nintendo of America, Inc., are
collectively hereinafter referred to as "Nintendo"), in fiscal 1990, for the
Super Nintendo Entertainment System ("SNES") in fiscal 1991 and for Genesis and
Game Gear, the 16-bit dedicated and portable hardware systems, respectively,
marketed by Sega Enterprises Ltd. ("Sega") in fiscal 1992, the Company did not
derive significant revenues from the sale of portable or 16-bit Software
8
<PAGE>
until fiscal 1992. The 16-bit systems are more sophisticated than the 8-bit
systems, producing faster and more complex images with more lifelike animation
and better sound effects and, by 1993, had replaced the 8-bit Entertainment
Platform as the dominant Entertainment Platform. In fiscal 1994, most of the
Company's revenues were derived from sales of Software for the 16-bit SNES and
Genesis systems. The Company anticipates that most of its revenues in fiscal
1995 will be derived from sales of Software for the 16-bit Entertainment
Platforms.
The Company anticipates that the interactive entertainment industry will
undergo significant changes in both the short- and long-term future due, in
large part, to the introduction of the next generation of Entertainment
Platforms incorporating 32- and 64-bit processors, as well as the success of
personal computer/compact disk/multimedia hardware systems ("PC CD Systems"),
the development of remote and electronic delivery systems and the entry and
participation of new companies in the industry. The new hardware platforms may
use read-only memory ("ROM") cartridges, compact disk ("CD"), flash memory
and/or other technologies as the dominant software storage device. Additional
CD platforms, including personal computer systems for which Software products
are published, are currently marketed by Philips, Sega, Commodore, Apple, IBM,
IBM- compatible manufacturers and The 3DO Company. Atari launched Jaguar, its
64-bit cartridge- based system, in November 1993 and Sega launched 32X, its
32-bit cartridge-based attachment for its 16-bit Genesis system, in November
1994. Sega and Sony launched their 32-bit CD-based systems in Japan in November
1994. Nintendo, Sega and Sony Corporation have announced plans to release new
32- or 64-bit CD-based or ROM cartridge-based systems in the U.S. later this
calendar year.
The Company believes that sales of new 16-bit hardware systems peaked in
calendar 1993. Based on historical industry cycles, management believes that
16-bit Software sales peaked in calendar 1994 (the year following the peak year
for hardware sales). The Company as well as industry analysts anticipate, based
on Software sales information for calendar year 1994 and the continuing decline
in 16-bit hardware sales, that the market for 16-bit Software will decline in
calendar 1995.
Although the Company believes that hardware incorporating 32- and 64-bit
processors will become the dominant Entertainment Platforms in the interactive
entertainment industry over the next few years, the Company is unable to predict
which, if any, of the newly introduced or announced platforms will achieve
commercial success or the timing thereof or their impact on the industry. The
Company intends to develop and/or publish Software for the systems that it
perceives as having the potential to achieve mass market acceptance; in order to
promote its strategic relationships, however, the Company may from time to time
publish Software for a hardware platform before it attains mass market appeal.
No assurance can be given that the Company will correctly identify the systems
with such potential or be successful in publishing Software for such platforms
and systems. The uncertainty associated with the transition from 16-bit
cartridge-based Entertainment Platforms to the next generation Entertainment
Platforms decreases the
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Company's ability to predict with any certainty its results of operations and
profitability during this transition phase.
Historically, management believed that the floppy and personal computer
market was characterized by (i) numerous hardware and software
incompatibilities; (ii) high price points for multimedia PC hardware; (iii) a
large number of software titles; and (iv) technological limitations of the
hardware systems for gaming as compared to the Entertainment Platforms.
Accordingly, the Company participated in this category through distribution
agreements which, in the opinion of management, provided the greatest return on
the investment of time and effort needed to service a fragmented market.
However, based on management's belief that this category now has sufficient mass
market penetration to warrant publishing Software directly, and due to
technological advancements incorporated in the newer PC CD Systems and the
higher gross margins realized by publishers of Software for this category, in
the second quarter of fiscal 1995, the Company commenced marketing Software for
PC CD Systems.
The Company commenced the development and sale of Software for the Sega
CD system in fiscal 1994 and for Sega's 32X in the second quarter of fiscal
1995. The Company has announced that it is developing Software for Sega's
Saturn system, Nintendo's Ultra 64 system and Sony's CD- based PSX, formerly
known as "Play Station". However, management believes that the installed base
of the new generation of Entertainment Platforms will not rival the current
installed base of 16- bit Entertainment Platforms in the near-term. As a
result, the sales growth of Software for these new Entertainment Platforms and
PC CD Systems may not offset the decline in sales of Software for the 16-bit
Entertainment Platforms in this calendar year and, as a result, overall industry
growth rates may decline in the near-term.
Based on the decline of the 16-bit hardware market and the related
slowdown in retail sell- through of 16-bit Software on an industry-wide basis,
management believes that retailers, in order to reduce inventory levels, may
reduce purchases of the Company's 16-bit Software in the next several fiscal
quarters as compared to prior fiscal quarters. Any such reduction in retail
purchasing, to the extent not offset by growth in Software sales for the new
Entertainment Platforms and PC CD Systems, would decrease the Company's rate of
growth as discussed below. As retail sell-through of 16-bit Software continues
to slow down, this may result in a build up of retail inventory which, in turn,
may force the Company to liquidate excess inventory levels at retail by offering
price protection and other concessions to its customers in future periods. As
the transition to the next generation of Entertainment Platforms continues and
as new Entertainment Platforms achieve market acceptance, the risk of returns of
the Company's 16-bit Software titles has increased and will continue to
increase. Although management believes that it has adequate reserves for such
concessions and returns, no assurance can be given that future price protection,
returns and other similar concessions will not exceed such reserves. In
addition, the Company has incurred and expects to continue to incur higher
marketing expenses in connection with the sale of 16-bit Software, which higher
expenses may adversely affect the Company's profitability.
Due in part to the decline of the market for Software for 16-bit
Entertainment Platforms in 1995 and the related transition to the next
generation of Entertainment Platforms, the Company believes that it will
experience a lower rate of growth in fiscal 1995 and fiscal 1996 as compared to
fiscal 1994 and a materially lower rate of growth, if any, in the third and
fourth quarters of fiscal 1995 as compared to
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the first and second quarters of fiscal 1995.
The release of individual "hit" Software products or families of
products can significantly affect revenues. Historically, "hit" products or
families of products have accounted for significant portions of the Company's
gross revenues during particular periods. In prior periods, the Simpsons family
of products and the WWF family of products have accounted for significant
portions of the Company's gross revenues. Continuing this historic pattern, in
the quarter ended February 28, 1994, the NBA Jam family of products accounted
for a significant portion of the Company's gross revenues and in the quarter
ended February 28, 1995, the NBA Jam Tournament Edition family of products
accounted for a significant portion of the Company's gross revenues. In the six
months ended February 28, 1994, each of the Mortal Kombat and NBA Jam family of
products accounted for a significant portion of the Company's gross revenues and
in the six months ended February 28, 1995, each of the Mortal Kombat II and NBA
Jam Tournament Edition family of products accounted for a significant portion of
the Company's gross revenues.
The timing of the release of Software products can cause quarterly
revenue and earnings fluctuations. A significant portion of the Company's
revenues in any quarter are generally derived from Software products or families
of products first shipped in that quarter. Product development schedules are
difficult to predict due in large part to the difficulty of scheduling
accurately the creative process and, with respect to Software for new hardware
platforms, the use of new development tools for new platforms and the learning
process associated with development for new technologies including the Company's
own motion capture and related technologies. As the industry trend toward more
sophisticated Entertainment Platforms continues, the related Software products
frequently include more original, creative content and are more complex to
develop and, accordingly, cause additional development and scheduling risk. As
a result, the Company's quarterly results of operations are difficult to predict
and the failure to meet product development schedules or even minor delays in
product deliveries could cause a shortfall in shipments in any given quarter,
which could cause the results of operations and net income for such quarter to
fall significantly below anticipated levels.
The Company's ability to sustain its current results of operations and
profitability and to generate sales growth in the future will be dependent in
large part on (i) the Company's ability to identify, develop and publish "hit"
Software titles for the hardware platforms that are viable in the mass market,
(ii) the growth of the interactive entertainment Software market and (iii) the
Company's ability to develop and generate revenues from its other entertainment
operations. In addition, the Company has incurred and expects to continue to
incur increased research and development as well as general and administrative
expenses in connection with the start-up of its new business operations (for
e.g., coin-operated games). If the Company is not successful in generating
revenues from these new businesses, its profitability will be adversely
affected.
RESULTS OF OPERATIONS
The following table sets forth certain statements of consolidated
earnings data as a percentage of net revenues for the periods indicated:
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Three Months Ended Six Months Ended
February 28, February 28,
1995 1994 1995 1994
----- ----- ----- -----
Domestic revenues 81.9% 72.8% 75.9% 75.2%
Foreign revenues 18.1 27.2 24.1 24.8
----- ----- ----- -----
Net revenues 100.0 100.0 100.0 100.0
Cost of revenues 45.1 44.3 46.0 44.2
----- ----- ----- -----
Gross profit 54.9 55.7 54.0 55.8
Selling, advertising, general and
administrative expenses 38.5 39.2 36.7 38.5
Operating interest 0.7 0.3 0.6 0.4
Depreciation and amortization 1.3 0.7 1.1 0.7
----- ----- ----- -----
Total operating expenses 40.5 40.2 38.4 39.6
Earnings from operations 14.4 15.5 15.6 16.1
Earnings before income taxes 14.7 15.7 15.7 16.1
Net earnings 8.6 9.2 9.2 9.5
NET REVENUES
The increase in the Company's net revenues from $115.5 million for the
quarter ended February 28, 1994 to $157.4 million for the quarter ended February
28, 1995 and from $242.9 million for the six months ended February 28, 1994 to
$318.4 million for the six months ended February 28, 1995 was predominantly due
to increased unit sales of 16-bit Software and, to a lesser extent, sales of its
CD Software. The dollar increase in the Company's foreign revenues in the six
months ended February 28, 1995 as compared to the six months ended February 28,
1994 was due to increased unit sales of 16-bit Software in the European market.
The Company's foreign revenues for the quarter ended February, 28, 1995 did not
increase as compared to those for the quarter ended February 28, 1994. The
percentage decrease in foreign revenues during the quarter ended February 28,
1995 as compared to the quarter ended February 28, 1994 was due to the high
proportion of the Company's revenues for the quarter ended February 28, 1995
being derived from domestic sales of NBA Jam Tournament Edition. The Company
believes that its foreign revenues will be greater in fiscal 1995 as compared to
fiscal 1994, both in dollars and as a percentage of the Company's revenues.
However, the Company does not anticipate that its foreign revenues in fiscal
1995 will reach the percentage levels achieved in fiscal 1992 or 1993. To date,
the Company has not generated material revenues from any of its operations other
than Software publishing and no assurance can be given that the Company will be
able to generate such revenues in the future.
The Company is substantially dependent on Nintendo as the sole
manufacturer of Super NES and Game Boy hardware and Software for those platforms
and as the sole licensor of the proprietary information and the technology
needed to develop Software for those platforms; and on Sega as the sole
manufacturer of Genesis, Master System, Game Gear, 32X and Sega CD
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hardware and a portion of Software for those platforms and as the sole licensor
of the proprietary information and the technology needed to develop Software for
those platforms. For the quarters ended February 28, 1994 and 1995, the Company
derived 42% and 47% of its gross revenues, respectively, from sales of
Nintendo-compatible products and 58% and 46% of its gross revenues,
respectively, from sales of Sega-compatible products. The Company anticipates
that the proportion of its revenues derived from Nintendo-compatible products as
compared to Sega- compatible products will remain relatively constant during
fiscal 1995 despite quarter to quarter fluctuations.
The majority of the Company's gross revenues were derived from the
following product categories:
Three Months Ended Six Months Ended
February 28 February 28,
1995 1994 1995 1994
----- ----- ----- -----
Portable Software 8.2% 17.5% 10.0% 14.9%
16-Bit Software 81.1 78.2 80.8 80.6
CD Software 6.7 -- 5.7 --
GROSS PROFIT
Gross profit fluctuates as a result of four factors: (i) the level of
domestic manufacturing of Genesis and Sega CD Software; (ii) the percentage of
foreign sales; (iii) the percentage of foreign sales to third party
distributors; and (iv) the percentage of CD Software sales.
The Company arranges for the manufacture of its worldwide Genesis and
Sega CD Software under a license granted by Sega. The Company believes that it
has improved cash flows and better control over the flow of its inventory as a
result of the decreased lead time resulting from its ability to manufacture
Software. The cost of Software manufactured by the Company, together with the
royalties payable to Sega for such manufacturing, is lower than the cost of the
Company's Software products when manufactured by Sega. The royalty payable to
Sega for Software manufactured by the Company is included as an operating
expense, rather than as part of cost of revenues and increased levels of
manufacturing by the Company result in higher gross profit as a percentage of
net revenues.
The Company's margins on foreign sales are typically lower than those on
domestic sales due to higher prices charged by hardware licensors for Software
distributed by the Company outside North America. The Company's margins on
foreign sales to third party distributors are approximately one- third lower
than those on sales that the Company makes directly to foreign retailers.
The Company's margins on sales of CD Software are higher than those on
cartridge Software as
13
<PAGE>
a result of significantly lower product costs. As the percentage of sales of
the Company's CD Software increases, the Company expects that its gross margin
will also increase.
Management anticipates that the Company's future gross profit will be
affected by (i) the percentage of Software sales for PC CD Systems and sales
related to the Company's new businesses and (ii) the percentage of returns,
price protection and other similar concessions in respect of the Company's
16-bit Software sales. The Company's gross margins on coin-operated arcade
games are anticipated to be lower than on its cartridge Software. Although
gross margins on sales of Software for PC CD Systems are and are anticipated to
continue to be higher than those on sales of cartridge Software, management
believes that it will be required to effect stock- balancing programs for such
products to allow for the historically higher rate of return of PC CD Software.
As the percentage of sales of PC CD Software increases, management anticipates
that its reserves for such returns will increase, thereby offsetting a portion
of the higher gross margins generated from PC CD Software sales. Additionally,
if returns and other similar concessions to retailers in respect of 16-bit
Software sales increase materially during the transition phase to the next
generation of Entertainment Platforms, the Company's gross margins would be
adversely affected.
Gross profit increased from $64.4 million (56% of net revenues) for the
quarter ended February 28, 1994 to $86.4 million (55% of net revenues) for the
quarter ended February 28, 1995 and from $135.6 million (56% of net revenues)
for the six months ended February 28, 1994 to $171.8 million (54% of net
revenues) for the six months ended February 28, 1995, predominantly due to
increased sales volume. The percentage decrease is predominantly due to a
higher level of SNES Software (not manufactured by the Company) as compared to
Genesis Software (manufactured by the Company) sold in the quarter and six
months ended February 28, 1995. The Company's gross profit is higher on sales
of Genesis Software compared to SNES Software, particularly Genesis Software
manufactured by the Company.
The Company purchases substantially all of its products at prices
payable in United States dollars. Appreciation of the yen could result in
increased prices charged by either Nintendo or Sega to the Company (although, to
date, neither Nintendo nor Sega has effected such a price increase), which the
Company may not be able to pass on to its customers and which could adversely
affect its results of operations.
OPERATING EXPENSES
Selling, advertising, general and administrative expenses increased from
$45.2 million (39% of net revenues) for the quarter ended February 28, 1994 to
$60.7 million (39% of net revenues) for the quarter ended February 28, 1995 and
from $93.6 million (39% of net revenues) for the six months ended February 28,
1994 to $116.7 million (37% of net revenues) for the six months ended February
28, 1995. The percentage decrease is predominantly attributable to decreased
14
<PAGE>
royalties payable to Sega as a result of a lower proportion of sales of Genesis
Software manufactured by the Company in the quarter ended February 28, 1995.
The dollar increase is predominantly attributable to increased sales volume,
increased advertising expense and increased general and administrative expenses.
Advertising expenses increased from $10.8 million for the quarter ended February
28, 1994 to $16.2 million for the quarter ended February 28, 1995, primarily due
to increased television advertising. General and administrative expenses
increased from $7.8 million for the quarter ended February 28, 1994 to $11.7
million for the quarter ended February 28, 1995, primarily due to increased
overhead costs associated with the increase in the number of the Company's
employees. The number of the Company's employees has increased primarily as a
result of expansion of the Company's product development and advanced technology
departments, the acquisitions completed by the Company in the last year and the
start-up of the Company's coin-operated arcade business. The Company
anticipates that its overhead expenses relating to employees will continue to
increase in dollars and as a percentage of net revenues as it continues to
expand its operations and as competition for trained personnel in the
interactive entertainment industry becomes increasingly intense.
Operating interest expense was $0.4 million (0.3% of net revenues) for
the quarter ended February 28, 1994 and $1.0 million (0.7% of net revenues) for
the quarter ended February 28, 1995 and $1.1 million (0.4% of net revenues) for
the six months ended February 28, 1994 and $1.9 million (0.6% of net revenues)
for the six months ended February 28, 1995. The increase is primarily
attributable to the increase in the prime rate during the quarter and six
months ended February 28, 1995.
Depreciation and amortization increased from $0.9 million (0.7% of net
revenues) for the quarter ended February 28, 1994 to $2.0 million (1.3% of net
revenues) for the quarter ended February 28, 1995 and from $1.7 million (0.7% of
net revenues) for the six months ended February 28, 1994 to $3.6 million (1.1%
of net revenues) for the six months ended February 28, 1995. The increase is
primarily attributable to increased amortization of the excess of costs over net
assets acquired arising from the acquisition of Acclaim Comics and increased
depreciation relating to the acquisition of the new corporate headquarters.
SEASONALITY
The Company's business is seasonal, with higher revenues and operating
income typically occurring during its first, second and fourth fiscal quarters
(which correspond to the Christmas and post-Christmas selling season). With the
maturation of the market for 16-bit Software and the related shift in the buying
pattern of certain of the Company's consumers (i.e., the bulk of purchases being
made before the Christmas season), management believes the Company's 16-bit
Software business will become increasingly seasonal. The timing of the delivery
of Software titles and the releases of new products cause significant
fluctuations in the Company's quarterly revenues and earnings.
15
<PAGE>
Liquidity And Capital Resources
The Company's primary source of liquidity during the quarter and six
months ended February 28, 1994 and 1995 was cash flows from operations and, to a
lesser extent, from the sale during the quarter ended February 28, 1995 of a
portion of the shares of TCI's Class A common stock received in exchange for
shares of the Company's common stock. See "Recent Developments."
The Company generally purchases inventory, other than inventory
manufactured domestically, by opening letters of credit when placing the
purchase order. At February 28, 1994 and 1995, amounts outstanding under
letters of credit were approximately $13.7 million and $14.6 million,
respectively.
The Company has a revolving credit and security agreement with its
principal domestic bank in the amount of $70 million, which agreement expires on
January 31, 1996. The Company draws down working capital advances and opens
letters of credit against the facility in amounts determined on a formula based
on factored receivables and inventory, which advances are secured by the
Company's assets. This bank also acts as the Company's factor for the majority
of its North American receivables, which are assigned on a nonrecourse,
pre-approved basis. The factoring charge is 0.25% of the receivables assigned
and the interest on advances is at the bank's prime rate minus one half percent.
At February 28, 1995, the Company had approximately $30 million available under
such facility.
The Company currently has a $25 million trade finance facility with
another bank. The Company's Asian and European subsidiaries currently have
independent facilities totalling approximately $20 million and $25 million,
respectively, with various banks.
In connection with its acquisition by the Company, Acclaim Comics
entered into a credit agreement with Midland Bank plc ("Midland") for a loan
(the "Loan") of $40 million, which is guaranteed by Acclaim and certain of its
subsidiaries. In connection with the establishment of the Joint Venture and the
related stock swap with TCI (see "Recent Developments"), the Company has reached
an agreement in principle with Midland pursuant to which it has agreed that it
will repay $15 million of the Loan and that the remaining $25 million principal
amount of the Loan will be amortized over a four and one-half year period. If
this agreement in principle is not formalized on or prior to April 14, 1995, the
Loan will be required to be repaid in full on April 14, 1995.
The Company completed the purchase of a 70,000 square foot building and
an adjoining parcel of land in April 1994. The Company incurred capital
expenditures of approximately $4.5 million for improvements to the property for
the quarter ended February 28, 1995 and $7.3 million for the six months ended
February 28, 1995, which were financed with cash flows from operations. It is
anticipated that the completion of improvements to the property will require an
additional $2 million during fiscal 1995. The Company intends to finance such
improvements with cash flows from
16
<PAGE>
operations.
Management believes that cash flow from operations and the Company's
borrowing facilities will be adequate to provide for the Company's liquidity and
capital needs for the foreseeable future.
The Company is party to various litigations arising in the course of its
business. The Company believes that the resolution of these litigations will
not have a material adverse effect on the Company's liquidity or financial
condition. The Company is also party to a class action litigation relating to
the nonrenewal of the Company's license agreement with WMS Industries, Inc.
Discovery in the class action litigation is in the early stages. The Company
believes that the action is without merit and lacks any basis in fact and
intends to defend the action vigorously.
RECENT DEVELOPMENTS
On March 22, 1995, Acclaim and Acclaim Arcade Holdings, Inc.
("Holdings"), a wholly owned subsidiary of Acclaim, entered into an Agreement
and Plan of Merger (the "Agreement") with Lazer-Tron Corporation ("Lazer-Tron")
pursuant to which Acclaim agreed to acquire Lazer-Tron through the merger (the
"Merger") of Holdings with and into Lazer-Tron. Lazer-Tron designs,
manufactures and licenses interactive entertainment redemption games.
Lazer-Tron shareholders holding approximately 20% of the stock entitled to vote
on the Merger have agreed to vote in favor of the Merger. Lazer-Tron's Board of
Directors has agreed, subject to its fiduciary obligations, to recommend that
its shareholders vote in favor of the Merger. The consummation of the Merger is
subject to various conditions including certain regulatory approvals, third
party consents and the approval of Lazer-Tron's shareholders. Acclaim intends
to account for the Merger as a pooling of interests.
In October 1994, the Company entered into the Joint Venture for the
development, acquisition and electronic distribution of entertainment software
on interactive networks, as well as for the development of a standard for
broadband network gaming to be incorporated into advanced set-top boxes. In
connection with the establishment of the Joint Venture, the Company entered into
an exchange agreement (the "Exchange Agreement") with TCI and another subsidiary
of TCI ("TCI Sub") pursuant to which the Company agreed to sell to TCI Sub
4,348,795 shares of the Company's common stock for not less than 3,403,405
shares of TCI Class A Common Stock, subject to certain adjustments. On January
31, 1995, the Company's stockholders at its annual meeting approved a charter
amendment authorizing additional shares of common stock and the transactions
contemplated by the Exchange Agreement. The closing occurred on February 2,
1995.
17
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
On January 31, 1995, at the Annual Meeting of the Company's
stockholders, the stockholders (i) elected the following directors: Gregory E.
Fischbach (by a vote of 30,724,916 shares for, 174,548 shares withheld and no
abstentions or broker non-votes); James Scoroposki (by a vote of 30,725,457
shares for, 174,007 shares withheld and no abstentions or broker non-votes);
Robert Holmes (by a vote of 30,726,031 shares for, 173,433 shares withheld and
no abstentions or broker non-votes); Bernard J. Fischbach (by a vote of
30,708,798 shares for, 190,666 shares withheld and no abstentions or broker
non-votes); Michael Tannen (by a vote of 30,717,483 shares for, 181,981 shares
withheld and no abstentions or broker non-votes); Robert H. Groman (by a vote of
30,715,217 shares for, 184,247 shares withheld and no abstentions or broker
non-votes); and James Scibelli (by a vote of 30,723,807 shares for, 175,657
shares withheld and no abstentions or broker non-votes); (ii) approved, by a
vote of 30,356,233 shares for, 417,520 shares against and abstentions or broker
non-votes with respect to 125,711 shares, an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock, par value $0.02 per share (the "Common Stock") of the Company from
50,000,000 to 100,000,000 shares; (iii) approved, by a vote of 21,876,632 shares
for, 281,883 shares against and abstentions or broker non-votes with respect to
8,740,949 shares, the terms of the exchange agreement with TCI and TCI GameCo
Holdings, Inc. ("TCI Sub"), pursuant to which the Company issued and sold to TCI
Sub 4,348,795 shares of Common Stock in exchange for 3,403,405 shares of TCI's
Class A common stock (see "Recent Developments"); (iv) approved, by a vote of
20,687,815 shares for, 1,514,716 shares against and abstentions or broker
non-votes with respect to 8,696,933 shares, the increase from 9,000,000 to
15,000,000 in the number of shares with respect to which options may be granted
under, and certain other changes to, the Company's 1988 Stock Option Plan; (v)
approved, by a vote of 28,536,710 shares for, 1,035,151 shares against and
abstentions and broker non-votes with respect to 1,327,603 shares, the terms of
the amendments to employment agreements of Messrs. G. Fischbach, Scoroposki and
Holmes; and (vi) ratified the appointment of Grant Thornton as auditors for the
year ending August 31, 1995 by a vote of 30,692,138 shares for, 112,481 shares
against and abstentions or broker non-votes with respect to 94,845 shares.
Item 6. Exhibits and Reports on Form 8-K
Current Reports on Form 8-K:
A report on Form 8-K dated February 2, 1995 was filed with respect to
the Company's sale to TCI GameCo Holdings, Inc. of 4,348,795 shares of Common
Stock in exchange for 3,403,405 shares of TCI Class A common stock.
Exhibit No. Description
----------- -----------
10.1 Revolving Credit and Security Agreement, dated as of
January 1, 1993, between Acclaim Entertainment, Inc.,
Acclaim Distribution Inc., LJN Toys Ltd., Acclaim
Entertainment Canada Ltd. and Arena Entertainment Inc.,
as borrowers, and BNY Financial Corporation, as lender,
as amended and restated on February 28, 1995.
10.2 Restated and amended factoring agreement, dated as of
February 28, 1995 between Acclaim Entertainment Inc.
and BNY Financial Corporation.
11 Computation of per share earnings
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACCLAIM ENTERTAINMENT, INC.
By: Robert Holmes April 3, 1995
---------------
Robert Holmes,
President and
Chief Operating Officer
By: Anthony Williams April 3, 1995
------------------
Anthony Williams,
Executive Vice President and
Chief Financial and Accounting Officer
19
<PAGE>
Exhibit No. Description
----------- -----------
10.1 Revolving Credit and Security Agreement, dated as of
January 1, 1993, between Acclaim Entertainment, Inc.,
Acclaim Distribution Inc., LJN Toys Ltd., Acclaim
Entertainment Canada Ltd. and Arena Entertainment Inc.,
as borrowers, and BNY Financial Corporation, as lender,
as amended and restated on February 28, 1995.
10.2 Restated and amended factoring agreement, dated as of
February 28, 1995 between Acclaim Entertainment Inc.
and BNY Financial Corporation.
11 Computation of per share earnings
20
<PAGE>
REVOLVING CREDIT
AND SECURITY AGREEMENT
between
Acclaim Entertainment, Inc.
Acclaim Distribution Inc.,
LJN Toys, Ltd.,
Acclaim Entertainment Canada, Ltd. and
Arena Entertainment Inc. (as Borrowers)
and
BNY FINANCIAL CORPORATION
as Lender
As of January 1, 1993
As Amended and Restated on February 28, 1995
<PAGE>
TABLE OF CONTENTS PAGE
----
I. DEFINITIONS 2
1.1 Accounting Terms 2
1.2 General Terms 2
1.3 Uniform Commercial Code Terms 19
II. ADVANCES, PAYMENT, LENDER GUARANTEES AND LETTERS OF CREDIT 19
2.1 (a) Advances 19
(b) Discretionary Overformula Advances 20
(c) General 20
2.2 Procedure for Advances 21
2.3 Disbursement of Advance Proceeds 21
2.4 Repayment of Obligations 22
2.5 Repayment of Overformula Amount Advances 22
2.6 Statement of Account 22
2.7 Lender Guarantees, Letters of Credit and Acceptances 23
2.8 Issuance of Letters of Credit; Creation of Acceptances;
Indemnity 23
2.9 Requirements For Issuance of Lender Guarantees, Letters
of Credit, and Acceptances 24
2.10 Maximum Advance Compliance Certificates 25
2.11 Joint and Several Obligations 26
III. INTEREST AND FEES 26
3.1 Interest/Special Provisions Applicable to LIBO Rate
Advances 26
3.2 Letter of Credit Fees 27
3.3 Closing Fee 27
3.4 Unused Facility Fee 28
3.5 Due Diligence/Audit Fees 28
3.6 Computation of Interest and Fees 28
3.7 Maximum Charges 29
3.8 Increased Costs 29
3.9 Capital Adequacy 30
3.10 Fixed Rate Lending Unlawful 30
3.11 Deposits Unavailable 31
3.12 Funding Losses 31
3.13 Survival 32
IV. COLLATERAL GENERAL TERMS 32
4.1 Security Interest in the Collateral 32
4.2 Perfection of Security Interest 32
4.3 Disposition of Collateral 33
4.4 Inspection of Premises 33
4.5 Receivables 33
4.6 Inventory 34
4.7 Maintenance of Equipment 34
4.8 Exculpation of Liability 34
V. REPRESENTATIONS AND WARRANTIES 34
5.1 Authority 34
5.2 Formation and Qualification 35
<PAGE>
5.3 Solvency 35
5.4 Litigation 35
5.5 Financial Statements 36
5.6 ERISA 36
5.7 Patents, Trademarks, Copyrights and Licenses 36
5.8 Licenses and Permits 36
5.9 Default of Indebtedness 37
5.10 No Default 37
5.11 Margin Regulations 37
5.12 Environmental Warranties 37
5.13 Validity, etc 38
5.14 Subsidiaries 38
5.15 Disclosure and Notice to Lending 38
5.16 Survival of Representations and Warranties 39
VI. COVENANTS 39
6.1 Payment of Fees 39
6.2 Conduct of Business and Maintenance of Existence and
Assets 39
6.3 Violations 39
6.4 Tangible Net Worth of AEI and its consolidated
Subsidiaries 40
6.5 Working Capital of AEI and its consolidated Subsidiaries 40
6.6 Capital Expenditures 40
6.7 Ratio of Total Indebtedness to Tangible Net Worth 41
6.8 Fixed Charge Ratio 41
6.9 Maximum Losses 41
6.10 Pledge of Credit 41
6.11 Payment of Indebtedness 41
6.12 Additional Material Subsidiaries/Corporate Guarantors 41
6.13 Fiscal Year 42
6.14 Corporate Changes 42
6.15 Environmental Liabilities 43
6.16 Additional Assurances 43
VII. CONDITIONS PRECEDENT 44
7.1 Conditions Precedent to Each Advance 44
VIII. NOTICES, INFORMATION FINANCIAL STATEMENTS, REPORTS,
COMPLIANCE CERTIFICATES 45
8.1 Disclosure and Notice of Certain Items 45
8.2 Schedules 46
8.3 Environmental Certificates 47
8.4 Litigation 47
8.5 Default Related Notices 47
8.6 Government Receivables 48
8.7 Annual Financial Statements 48
8.8 Quarterly Financial Statements 48
8.9 Monthly Financial Statements 49
8.10 Other Information and Reports 49
8.11 Projected Operating Budget 49
8.12 Variances From Operating Budget 50
8.13 Compliance Certificates 50
<PAGE>
IX. EVENTS OF DEFAULT 50
X. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT 53
10.1 Rights and Remedies 53
10.2 Lender's Discretion 55
10.3 Setoff 55
10.4 Rights and Remedies not Exclusive 55
XI. WAIVERS AND JUDICIAL PROCEEDINGS 55
11.1 Waiver of Notice 55
11.2 Delay 55
11.3 Jury Waiver 56
XII. EFFECTIVE DATE AND TERMINATION 56
12.1 Term 56
12.2 Early Termination Fee 56
12.3 End of Term 57
12.4 Termination 57
XIII.COLLECTIVE BORROWING 58
13.1 Request for Collective Borrowing 58
13.2 Single Account 58
13.3 Power of Attorney for AEI from Borrowers 58
13.4 Indemnification 59
XIV. MISCELLANEOUS 59
14.1 Governing Law 59
14.2 Restated and Amended Agreement 59
14.3 Application of Payments 59
14.4 Indemnity 59
14.5 Forum Selection and Consent to Jurisdiction 60
14.6 Notice 60
14.7 Severability 61
14.8 Expenses 61
14.9 Injunctive Relief 62
14.10 Captions 62
14.11 Counterparts 62
14.12 Construction 62
14.13 Confidentiality 62
14.14 Successors and Assigns 64
EXHIBITS
EXHIBIT A Corporate Guarantee
EXHIBIT B Letter of Credit Supplement Agreement
EXHIBIT C Maximum Advance Compliance Certificate
EXHIBIT D Request Re: LIBO Rate Advances
EXHIBIT E Legal Opinion
EXHIBIT F Financial Covenants Compliance Certificate
<PAGE>
SCHEDULES
3.2 Letter of Credit Fees (see "Eligible
Receivables" definition)
5.2 States of Qualification and Good Standing
(Borrowers)
5.4 Litigation
5.7 Patents, Trademarks, Copyrights and Licenses
5.8 Licenses and Permits
5.12 Environmental Matters
5.14 Subsidiaries
8.1 Physical Collateral Locations (Borrowers)
<PAGE>
REVOLVING CREDIT
AND
SECURITY AGREEMENT
As of January 1, 1993
(As Amended and Restated on February 28, 1995)
Revolving Credit and Security Agreement dated as of
January 1, 1993 between Acclaim Entertainment, Inc., a Delaware
corporation ("AEI"), Acclaim Distribution Inc., a Delaware
corporation ("ADI"), LJN Toys, Ltd., a New York corporation
("LJN"), Acclaim Entertainment Canada, Ltd., a Canadian
corporation ("AEC") and Arena Entertainment Inc., a Delaware
corporation ("Arena") and BNY FINANCIAL CORPORATION ("BNY"), a
corporation organized under the laws of the State of New York as
amended and restated on February 28, 1995.
IN CONSIDERATION of the mutual covenants and
undertakings herein contained, Borrowers and Lender hereby agree
as follows:
I. DEFINITIONS.
1.1 Accounting Terms. As used in this Agreement
or any certificate, report or other document made or delivered
pursuant to this Agreement, accounting terms not defined in
Section 1.2 or elsewhere in this Agreement and accounting terms
partly defined in Section 1.2 to the extent not defined, shall
have the respective meanings given to them under GAAP.
1.2 General Terms. For purposes of this
Agreement the following terms shall have the following meanings:
"Acceptances" shall have the meaning set forth in
Section 2.7 hereof.
"Advances" shall mean and include the Revolving
Rate Advances and the LIBO Rate Advances.
"AEI" shall have the meaning set forth in the
introductory paragraph to this Agreement, together with any
permitted successors and assigns in accordance with this
Agreement.
"Affiliate" of any Person shall mean (a) any
Person (other than a Subsidiary) which, directly or indirectly,
is in control of, is controlled by, or is under common control
with such Person, or (b) any Person who is a director or officer
(i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes
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<PAGE>
of this definition, control of a Person shall mean the power,
direct or indirect, (x) to vote (A) 50% or more of the securities
having ordinary voting power for the election of directors of
such Person with respect to a person other than AEI or (B) forty
percent (40%) or more of the securities having ordinary voting
power for the election of directors of AEI, or (y) to direct or
cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agreement" shall mean this Revolving Credit and
Security Agreement, as amended, supplemented, or modified from
time to time.
"Alternate Base Rate" shall mean, for any day, a
rate per annum equal to the higher of (i) the Prime Rate in
effect on such day and (ii) the Federal Funds Rate in effect on
such day plus 1/2 of 1%.
"Bank" shall mean The Bank of New York.
"Borrower" shall mean each of the Borrowers and
any of their respective permitted successors and assigns in
accordance with this Agreement.
"Borrowers" shall mean all of AEI, ADI, LJN, AEC
and Arena and all of their respective permitted successors and
assigns in accordance with this Agreement.
"Business Day" shall mean any day other than a day
on which commercial banks in New York are authorized or required
by law to close.
"Capital Expenditures" shall mean any and all
payments by any of the Borrowers for the acquisition of any fixed
assets or improvements, including without limitation any
obligation as a lessee which, in accordance with GAAP, would
appear or be disclosed on the balance sheet of any Borrower as a
capital lease, or for replacements, substitutions, or additions
thereto, that have a useful life of more than one year and that
are required to be capitalized under GAAP.
"Change of Ownership" shall mean (a) any transfer
(whether in one or more transactions) of ownership by the
Original Owners to a Person who is neither an Original Owner nor
an Affiliate of an Original Owner which would result in the
ownership by the Original Owners of less than ten percent (10%)
in the aggregate of the common stock of AEI (including for the
purposes of the calculation of percentage ownership, any shares
of common stock into which any capital stock of AEI held by any
of the Original Owners is convertible or for which any such
shares of the capital stock of AEI or of any other Person may be
exchanged and any shares of common stock of AEI held by any of
the Original Owners is convertible or for which any such share of
the capital stock of AEI or of any other Person may be exchanged
-3-
<PAGE>
and any shares of common stock issuable to such Original Owners
upon exercise of any warrants, options or similar rights which
may at the time of calculation be held by such Original Owners),
or (b) any merger, consolidation or sale of substantially all of
the property or assets of the Borrowers, any of the Material
Subsidiaries or any of the Corporate Guarantors except to the
extent permitted hereunder.
"Charges" shall mean all taxes, charges, fees,
executions, attachments, seizures, warrants, imposts,
injunctions, levies or other assessments or similar process,
including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation and property taxes, custom
duties, fees, and charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the Pension Benefit
Guaranty Corporation or any environmental agency or superfund),
upon the Collateral or any of the Borrowers.
"Claims" shall mean all security interests, Liens,
claims or encumbrances held or asserted by any Person against any
or all of the Collateral, other than (A) Charges, or (B)
Permitted Encumbrances.
"Closing Fee" shall have the meaning set forth in
Section 3.3 hereof.
"Collateral" shall mean and include all of the
present and future assets and property falling within the
following categories, of each of the Borrowers, as well as of
each of the Material Subsidiaries incorporated in any state
within the United States of America, however and whenever arising
and wherever located:
(a) all Receivables;
(b) all Equipment;
(c) all General Intangibles; provided, that,
any copyright, patent, trademark, trade
secret or other related property owned
by any Borrower or Material Subsidiary
shall only be included herein as
Collateral if it shall be copyrighted,
patented, trademarked, or otherwise used
in the United States of America;
(d) all Inventory;
(e) all Credit Balances;
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<PAGE>
(f) all of the right, title and interest in
and of each of the Borrowers, as well as each of the Material
Subsidiaries to (i) its goods and other personal property
including but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the
Receivables; (ii) all of the rights of each and all of the
Borrowers and/or the Material Subsidiaries as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor,
including stoppage in transit, set off, detinue, replevin,
reclamation and repurchase; (iii) all additional amounts due to
any of the Borrowers and/or the Material Subsidiaries from any
Customer relating to the Receivables; (iv) other personal
property, including warranty claims relating to any goods
securing this Agreement; (v) if and when obtained by any of the
Borrowers and/or the Material Subsidiaries, all real and personal
property of third parties in which any of such Borrowers and/or
the Material Subsidiaries has been granted a lien or security
interest as security for the payment or enforcement of
Receivables; and (vi) any other goods, personal property or real
property now owned or hereafter acquired in which any of the
Borrowers and/or the Material Subsidiaries has expressly granted
a security interest or may in the future expressly grant a
security interest to the Lender hereunder, or in any amendment or
supplement hereto, or under any other agreement between the
Lender on the one hand and any of the Borrowers or Material
Subsidiaries on the other hand; provided, that, any copyright,
patent, trademark, trade secret or other related property owned
by any Borrower or Material Subsidiary shall only be included
herein as Collateral if it shall be copyrighted, patented,
trademarked, or otherwise used in the United States of America;
(g) all of the ledger sheets, ledger cards,
files, correspondence, records, books of account, business
papers, computers, computer software (owned by any of the
Borrowers or any Material Subsidiary or in which any of them has
an interest), computer programs, tapes, disks and documents of
each of the Borrowers, as well as each of the Material
Subsidiaries, relating to subparagraphs (a), (b), (c), (d), or
(f), of this Paragraph; and
(h) all proceeds andproducts of subparagraphs (a), (b), (c),
(d), (e), (f), or (g), in whatever form, including, but not limited
to: cash, deposit accounts (whether or not comprised solely of
proceeds), certificates of deposit, insurance proceeds (including
hazard, flood and credit insurance), negotiable instruments and other
instruments for the payment of money, chattel paper, security
agreements or documents.
Notwithstanding the foregoing, the term "Collateral"
shall not include: (1) any assets or property of Acclaim Comics,
Inc., Acclaim Cable Holdings, Inc., Acclaim Corporate Center 1,
Inc., Oyster Bay Warehouse Corp. and/or ACTC, L.P.; (2) any
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<PAGE>
capital stock or any equity and/or partnership interest held by
any of the Borrowers; or (3) any copyright, patent, trademark,
trade secret or other related property and any General
Intangibles in respect thereof licensed by any Borrower or
Material Subsidiary to the extent that the license agreement
covering the same restricts any Borrower's or any Material
Subsidiary's right to grant a consensual Lien therein.
"Contract Rate" means an interest rate per annum
equal: (a) in the case of LIBO Rate Advances, to the sum of (i)
the applicable LIBO Rate, plus (ii) two percent (2%) and (b) in
the case of all other Advances, to the Revolving Advance Rate.
"Corporate Guarantor(s)" shall mean: (a) each
Borrower with respect to the Obligations of any and all other
Borrowers; and (b) with respect to the Obligations of each and
all of the Borrowers, (i) Oyster Bay Warehouse Corp., a New York
corporation, Acclaim Corporate Center 1, Inc., a New York
corporation and Iguana Entertainment, Inc., a Texas corporation;
(ii) all other existing and future Subsidiaries of any of the
Borrowers incorporated in any state within the United States of
America; and (iii) all existing and future Material Subsidiaries
of any of the Borrowers not incorporated within any state within
the United States of America; except with respect to
subparagraphs (ii) and (iii) immediately above, to the extent
otherwise provided in Section 6.12 hereof.
"Corporate Guarantee(s)" shall mean Guarantees
substantially in the form of Exhibit A hereto, guaranteeing
Obligations of each and all of the Borrowers to the Lender.
"Credit Balances" means any and all existing or
future credit balances, and any and all other rights to receive
monies and/or other payments now or hereafter due to each and all
of the Borrowers under the Factoring Agreements of any of such
parties at any time and from time to time in effect, including
without limitation, any Factoring Agreement(s) now or hereafter
in place between any of the Borrowers and the Lender.
"Credit Risk" shall have the meaning set forth in
the Factoring Agreements.
"Current Assets" at a particular date, means all
of the assets of AEI and its consolidated Subsidiaries, taken as
a whole, which would, in conformity with GAAP, be included under
current assets on a balance sheet of AEI and its consolidated
Subsidiaries, taken as a whole as at such date.
"Current Liabilities" at a particular date, means
all amounts which would, in conformity with GAAP, be included
under current liabilities on a balance sheet of AEI and its
consolidated Subsidiaries, taken as a whole as at such date.
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<PAGE>
"Customer" shall mean and include each account
debtor with respect to any of the Receivables and/or the
prospective purchaser of goods, services or both with respect to
any contract or other arrangement with any Borrowers, pursuant to
which such Borrower is to deliver any personal property or is to
perform any services.
"Default" means an event or circumstance, which
upon the giving of notice or the passage of time or both, would
become an Event of Default.
"Default Rate" means a rate equal to three-quarters of one
percent (3/4%) per annum in excess of the Contract Rate or the
Overformula Rate, as the case may be.
"Dollar" and the sign "$" shall mean lawful money
of the United States of America.
"Early Termination Fee" shall mean a fee of $125,000 per
month or part thereof, calculated from the effective termination
date of the Agreement in accordance with Section 10.1 or Section
12.1(a)(ii) hereof, through and including January 31, 1996, or
should such effective termination date occur after January 31,
1996, through and including January 31 in the Calendar Year next
occurring (notwithstanding any termination in accordance with
Section 10.1 or 12.1(a)(ii) hereunder and/or any effective
termination date of this Agreement that may occur, pursuant to the
terms hereof, on a date earlier than the last day of such Term).
"EBIDTA" means, for any period, the net income
before interest and taxes of AEI and its consolidated
Subsidiaries, taken as a whole, exclusive of depreciation,
amortization, extraordinary gains and losses and all other non-
cash charges, determined purusant to GAAP for such period.
"Eligible Inventory" shall mean and include: (i)
all finished goods interactive entertainment software Inventory
of each of the Borrowers (but not of any of the Material
Subsidiaries) which is: (a) less than 60 days old; and (b)
located in the United States of America (or, in the case of such
Inventory of AEC, in Ontario, Canada; provided that subject to
Section 2.1(a)(2) hereof, no Advances in excess of $5,000,000
in the aggregate at any time shall be made in respect of such AEC
Inventory located in Ontario, Canada) and (ii) all raw material
Inventory of each of the Borrowers (but not of any of the
Material Subsidiaries) consisting of read-only memory computer
chips utilized in the manufacture or assembly of any of the
Borrowers' products and which raw material is: (a) located in
the United States of America, or in Lender's sole discretion, in
Mexico; and (b) not, in Lender's opinion, obsolete, or
unmerchantable; provided that subject to Sectio 2.1(a)(2) hereof,
no Advances in excess of $2,000,000 in the aggregate at any time
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shall be made in respect of any such raw material Inventory,
wherever located,
and all of which Inventory shall in each
instance: (1) be in good condition; (2) be readily saleable at
prices not less than cost; and (3) exclude any work-in-process,
and which Inventory Lender, in its reasonable discretion
exercised in good faith, shall not otherwise deem ineligible,
based on such considerations as Lender may from time to time deem
appropriate including, without limitation, whether (A) the
Inventory is subject to a perfected, first priority security
interest in favor of Lender, other than Permitted Encumbrances,
(B) third party waivers requested by the Lender have been
executed (in form and substance reasonably acceptable to the
Lender) and delivered to the Lender by landlords or warehousemen
and (C) the Inventory conforms to all standards imposed by any
governmental agency, division or department thereof which has
regulatory authority over such goods or the use or sale thereof.
"Eligible Receivables" shall mean each Receivable
arising in the ordinary course of the business of each of the
Borrowers (but not of any of the Material Subsidiaries) and which
Lender, in its reasonable credit judgment exercised in good
faith, shall deem to be an Eligible Receivable, based on such
considerations as Lender may from time to time deem appropriate.
Without limiting the foregoing, a Receivable shall generally not
be deemed eligible unless such Receivable is an assigned, credit
approved Receivable under any Borrower's Factoring Agreement with
the Lender, or is an assigned non-credit approved Receivable
created by any Borrower which at all times is acceptable to the
Lender and, in each case, is subject to Lender's perfected
security interest and no other Lien, other than Permitted
Encumbrances, and is evidenced by an invoice or other documentary
evidence satisfactory to Lender. In Lender's sole discretion ,
exercised at any time and from time to time, however, Eligible
Receivables may also include Receivables which have not been
assigned to Lender under the Factoring Agreements subject to such
limitations and/or conditions the Lender may establish.
Notwithstanding the foregoing, Eligible Receivables shall also
include Receivables owed by those Customers listed on a schedule
to later be prepared and which must be mutually acceptable to the
Lender and to AEI on behalf of the Borrowers, to be designated as
Schedule 1.2 hereto (each, a "Special Customer"), which to the
extent of the limitations more fully set forth on said Schedule,
shall be Eligible Receivables, subject to: (i) Lender's right to
later withdraw or adjust the eligible nature or amount of any
such Special Customer Receivables, in Lender's reasonable
discretion, exercised in good faith at any time and from time to
time; and/or (ii) to Special Customer Receivables also becoming
automatically ineligible, upon the occurrence of any of the
events or circumstances described in subparagraphs (a) through
(q) set forth immediatly below, except to the extent any such
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<PAGE>
subparagraph(s) may expressly state otherwise. In addition, no
Receivable shall be an Eligible Receivable if:
(a) it arises out of a sale made by any
Borrower to any Subsidiary or Affiliate of any of the Borrowers,
or to a Person controlled by any such Subsidiary or Affiliate;
(b) it is due or unpaid more than one
hundred and twenty (120) days after the original invoice date;
(c) more than sixty (60) days have elapsed
from the due date of the original invoice;
(d) more than fifty percent (50%) of the
aggregate account balance of Receivables due from the Customer
are more than thirty (30) days past due;
(e) fifty percent (50%) or more of the
Receivables from the Customer, other than in the case of one of
the Special Customers, are not deemed Eligible Receivables
hereunder;
(f) any other material breach of a covenant,
representation or warranty contained in this Agreement or in any
of the Factoring Agreements of any of the Borrowers has occurred
and is continuing with respect to such Receivable;
(g) and to the extent that an offset or
"contra" account may exist (such as in any instance where the
Customer is also the creditor or supplier of a Borrower, or the
Customer has disputed liability, or the Customer has made any
claim with respect to any other Receivable due from such Customer
to a Borrower, or the Receivable otherwise is or may become
subject to any right of setoff by the Customer), but any balance
in excess of such offset or "contra" account which balance the
Customer has acknowledged and agreed to remit to the Lender in a
timely manner may be considered an Eligible Receivable;
(h) the Lender does not remain on the Credit
Risk as to such Receivable and the Customer thereunder has
commenced a voluntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or made an assignment for
the benefit of creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in
respect of the Customer in an involuntary case under any state or
federal bankruptcy laws, as now constituted or hereafter amended,
or if any other petition or other application for relief under
any state or federal bankruptcy law has been filed against the
Customer, or if the Customer has failed, suspended business,
ceased to be solvent, called a meeting of its creditors, or
consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant
portion of its assets or affairs;
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<PAGE>
(i) the sale is to an Customer outside the
continental United States, Canada or Mexico, unless the sale is
on letter of credit, guaranty or acceptance terms, in each case
acceptable to Lender in its reasonable discretion;
(j) the sale to the Customer is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval,
consignment or any other repurchase or return basis or its
evidenced by chattel paper;
(k) Lender is otherwise not satisfied in its
reasonable discretion exercised in good faith with the credit
standing of the Customer other than in the case of one of the
Special Customers;
(l) the Customer is the United States of
America, any state or locality, or any department, agency or
instrumentality of any of them, unless: (i) and to the extent
that: (y) the governmental Customer consists of any branch of
the armed services of the United States of America and; (z) the
aggregate outstanding amount of such Receivables described in
subdivision (y) above does not exceed five percent (5%) of the
total outstanding amount of Receivables at any time assigned to
Lender; or (ii) each Borrower assigns its right to payment of
such Receivables to Lender pursuant to the Assignment of Claims
Act of 1940, as amended (31 U.S.C. Sub-Section 203 et seq.) and
has otherwise complied with other applicable statutes or
ordinances;
(m) the goods giving rise to such Receivable
have not been shipped and delivered to and accepted by the
Customer or the services giving rise to such Receivable have not
been performed by Borrower and accepted by the Customer or the
Receivable otherwise does not represent a final sale;
(n) the Receivables of the Customer, other
than in the case of one of the Special Customers, exceed a credit
limit determined by Lender, in its sole discretion, to the extent
such Receivable exceeds such limit;
(o) and to the extent that the Receivable is
or may be, in Lender's reasonable judgment exercised in good
faith, subject to any offset, deduction, defense, dispute, or
counterclaim or is contingent in any respect or for any reason;
(p) and to the extent that any return,
rejection or repossession of the merchandise covered by the
Receivable has occurred;
(q) such Receivable is not payable to any of
the Borrowers; or
(r) and to the extent that the aggregate
amount of outstanding Receivables of a Customer exceeds 20% or
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<PAGE>
more of the aggregate amount of all Eligible Receivables then
outstanding.
"Environmental Claim" means any notice, warning,
claim, administrative, regulatory or judicial action, suit, Lien,
order, judgment, decree, demand or other written communication by
any Person alleging or asserting any Borrower's or predecessor's
in interest liability or potential liability for investigatory
costs, cleanup costs, governmental response costs, damages to
natural resources or other property, other damages, personal
injuries, injunctive relief, fines or penalties arising out of,
based on or resulting from (a) the presence, release or
threatened release into the environment of any Hazardous Material
at any location, whether or not owned by any Borrower relating to
or arising from the ownership or operation of any facility, or
(b) the violation, or alleged violation, of any Environmental
Laws.
"Environmental Laws" means any and all government
rules, now or hereafter in effect, relating to (a) the
environment and natural resources, (b) emissions, discharges,
releases or threatened releases of Hazardous Materials into the
enviornment, including, without limitation, ambient air, surface
water, groundwater or land, (c) the treatment, storage, disposal,
transport or handling of Hazardous Materials, or (d) the
manufacture, processing, distribution or use of Hazardous
Materials.
"Equipment" shall mean and include all of the
goods (excluding Inventory) , whether now owned or hereafter
acquired and wherever located including, without limitation, all
equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all
replacements and substitutions therefor or accessions thereto.
"ERISA" shall have the meaning set forth in
Section 5.6 hereof.
"Event of Default" shall mean the occurrence of
any of the events or circumstances set forth in Article IX
hereof, provided that any requirement contained in this Agreement
for the giving of notice, the lapse of time, or both, in
accordance with this Agreement, has been satisfied.
"Factoring Agreement(s)" shall mean the
Factoring Agreements between Lender and each of the Borrowers, as
now or hereafter constituted, as each has been and may be
amended, modified and supplemented from time to time.
"Federal Funds Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or if such
day is not a Business Day, for the next preceding Business Day)
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<PAGE>
by the Federal Reserve Bank of New York or, if such rate is not
so published for any day which is a Business Day, the average of
quotations for such day on such transactions received by the Bank
from three Federal funds brokers of recognized standing selected
by the Bank.
"Fixed Charge Ratio" means, at any point in time
as of which it may be determined, EBIDTA divided by Fixed Charge
Expenses.
"Fixed Charge Expenses" means the sum of the
following, determined in each case for the relevant period of
time: (a) all interest expenses, including in respect of any
Indebtedness;(b) all expenses in relation to any taxes, levies,
imposts and similar liabilities, together with any related
charges, withholdings and liabilities; and (c) all expenses in
respect of repayment of lease obligations, in each instance
determined in accordance with GAAP.
"Formula Amount" shall have the meaning set forth
in Section 2.1(a).
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time. For all purposes of this Agreement, however,
notwithstanding GAAP, all Advances hereunder will be accounted
for by the Borrowers as Current Liabilities or, in accordance
with past practices, the "due from Factor" account of AEI and
the other Borrowers will be accounted for and included within
their respective Receivables net of all Advances under this
Agreement.
"General Intangibles" shall mean and include all
of the general intangibles , whether now owned or hereafter
acquired, including, without limitation, all choses in action,
causes of action, corporate or other business records,
inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control
procedures, trademarks, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, Customer lists, tax refunds,
tax refund claims, computer programs, all claims under
guaranties, security interests or other security held by or
granted to any of them, as the case may be, to secure payment of
any of the Receivables by an Customer, all rights of
indemnification and all other intangible property of every kind
and nature (other than Receivables).
"Hazardous Material" shall mean, collectively, any
oil or petroleum product, asbestos in any form that is or could
become friable, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls,
hazardous waste, hazardous material, hazardous substance, toxic
substance, contaminant, chemical or pollutant, including thermal
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<PAGE>
discharges as defined by, and to the extent regulated as such
under, any Environmental Laws.
"HKSB" shall have the meaning set forth in the
definition of Permitted Encumbrances herein.
"Indebtedness" of a Person at a particular date
shall mean all obligations of such Person which in accordance
with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise) and in any
event, without limitation, shall include all indebtedness, debt
and other similar monetary obligations of such Person whether
direct or guaranteed, and all premiums, if any, due at the
required prepayment dates of such indebtedness, and all
indebtedness secured by a Lien on assets owned by such Person,
whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person. Any indebtedness of
such Person resulting from the acquisition by such Person of any
assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and
incurring of the indebtedness secured thereby, whether or not
actually so created, assumed or incurred.
"Interest Determination Date" shall have the
meaning set forth in Section 3.1(b).
"Interest Period" means, relative to any Advances
constituting LIBO Rate Advances, the period beginning on (and
including) the date on which such LIBO Rate Advances are made,
extended or converted into LIBO Rate Advances pursuant hereto and
ending on (but excluding) the day which numerically corresponds
to such date one, two or three months thereafter (or, if such
month has no numerically corresponding day, on the last Business
Day of such month), in any such case, as a Borrower may select in
accordance with Section 3.1 hereof.
"Inventory" shall mean all of the now owned or
hereafter acquired goods, merchandise and other personal
property, wherever located, to be furnished under any contract of
service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind,
nature or description which are or might be used or consumed in
their respective businesses or used in selling or furnishing such
goods, merchandise and other personal property, and all documents
of title or other documents representing them.
"Lender" shall mean BNY and its successors or
assigns.
"Lender Guarantee(s)" shall have the meaning set
forth in Section 2.7 hereof.
"Letter(s) of Credit" shall have the meaning set
forth in Section 2.7 hereof.
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<PAGE>
"LIBO Rate" means, relative to any Interest Period
for LIBO Rate Advances, the rate of interest equal to the average
(rounded upwards, if necessary, to the nearest 1/100th of 1%) of
the rates per annum at which Dollar deposits in immediately
available funds are offered to the Bank's LIBOR Office in the
London, England interbank eurodollar market as at or about 11:00
a.m. London time, three Business Days prior to the beginning of
such Interest Period for delivery on the first day of such
Interest Period, and in an amount comparable to the amount of the
LIBO Rate Advances and the relevant Interest Period.
"LIBO Rate Advances" means any and all Advances
(or any portion thereof) requested to be made, converted or
extended by Lender as Advances bearing interest, when and to the
extent that the interest rate therefore is determined by
reference to the LIBO Rate (Reserve Adjusted), which LIBO Rate
Advances when requested to be made, converted or extended, shall
each be in an aggregate principal amount of not less $5,000,000
and in integral multiples of $1,000,000, in excess of $5,000,000.
"LIBO Rate (Reserve Adjusted)" means, relative to
any Advances or any portion thereof to be made, extended or
maintained as, or converted into, LIBO Rate Advances for any
Interest Period, a rate per annum (rounded upwards, if necessary,
to the nearest 1/100th of 1%) determined pursuant to the
following formula:
LIBO Rate LIBO Rate
--------- = ---------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO
Rate Advances will be determined by the Lender on the basis of
the LIBOR Reserve Percentage in effect three Business Days before
the first day of such Interest Period.
"LIBOR Office" means the office of the Bank at 48
Wall Street, New York, New York or such other office of the Bank
as designated from time to time by the Bank, whether or not
outside the United States.
"LIBOR Reserve Percentage" means, relative to any
LIBO Rate Advances for any Interest Period, the reserve
percentage applicable to the Bank (expressed as a decimal) and
equal to the daily average of the stated maximum aggregate
reserve requirements (including all basic, emergency,
supplemental, marginal and other reserves and taking into account
any transitional adjustments or other scheduled changes in
reserve requirements) specified under regulations issued from
time to time by the Federal Reserve Board and then applicable to
assets or liabilities consisting of or including "Eurocurrency
Liabilities," as currently defined in Regulation D of the Federal
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Reserve Board, having a term approximately equal or comparable to
such Interest Period.
"Lien" shall mean any mortgage, deed of trust,
pledge, hypothecation, assignment, security interest, lien,
Charge, Claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement, in respect of any
asset of any of the Borrowers or any of the Material
Subsidiaries, of any kind or nature whatsoever including, without
limitation, any conditional sale or other title retention
agreement, any lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement
to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Loan Account" shall have the meaning set forth in
Section 13.2(a).
"Material Adverse Effect" shall mean a material
adverse effect on (i) the financial condition, operations,
performance, assets, properties, liabilities, or business of AEI
and its consolidated Subsidiaries, taken as a whole, (ii) the
ability of any of the Borrowers to pay or perform its respective
Obligations in accordance with the terms thereof, (iii) the
Collateral or the value of the Collateral, taken as a whole, or
Liens on the Collateral taken as a whole in favor of Lender, or
the perfection or priority of any such Lien, subject to any
Permitted Encumbrances, or (iv) any of Lender's material rights
or remedies under this Agreement or any of the Other Documents.
"Material Subsidiary(ies)" shall mean and include
each and all of the existing and hereafter acquired or formed
Subsidiaries of any of the Borrowers and/or of any of the
Corporate Guarantors, which has an aggregate asset value at any
time and in any instance of $5,000,000 or more, other than each
of Acclaim Comics, Inc, ACTC, L.P., Oyster Bay Warehouse Corp.,
Acclaim Corporate Center 1, Inc. and Acclaim Cable Holdings, Inc.
"Maturity Date" shall mean as to any particular
month, six (6) business days after the average due date of all
Receivables purchased by Lender during such month from each
Borrower under the Factoring Agreements, taking into account all
credits issued to Customers, all as more fully set forth in the
Factoring Agreements.
"Maximum Loan Amount" shall be an amount to be
selected by AEI on behalf of all of the Borrowers on a combined
basis from time to time, subject to and in accordance with
Section 2.1(a) hereof, and which amount as so selected shall, at
all times during the Term be not less than $15,000,000 and not
more than $70,000,000.
"Midland" shall have the meaning set forth within
the definition of Permitted Encumbrances herein.
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<PAGE>
"Money Borrowed" shall mean, as applied to
Indebtedness, money borrowed and Indebtedness represented by
notes payable and drafts accepted, representing extensions of
credit, all obligations evidenced by bonds, debentures, notes or
other similar instruments, all Indebtedness upon which interest
charges are customarily paid, and all Indebtedness issued or
assumed as full or partial payment for property.
"Monthly Advances" shall have the meaning set
forth in Section 3.1 hereof.
"Net Worth" at a particular date, shall mean all
amounts which would be included under shareholders' equity on a
consolidated balance sheet of AEI and its consolidated
Subsidiaries determined in accordance with GAAP as at such date.
"Obligations" shall mean and include any and all
of the Indebtedness and/or liabilities of each and all of the
Borrowers to the Lender, or to any corporation that directly or
indirectly controls or is controlled by or is under common
control with Lender of every kind, nature and description, direct
or indirect, secured or unsecured, joint, several, joint and
several, absolute or contingent, due or to become due, now
existing or hereafter arising, contractual or tortious,
liquidated or unliquidated, regardless of how such indebtedness
or liabilities arise or by what agreement or instrument they may
be evidenced or whether evidenced by any agreement or instrument,
including, but not limited to, all Advances under this Agreement,
any and all of the other Indebtedness and/or liabilities of each
and all of the Borrowers under this Agreement, the Other
Documents, or under any other agreement between or concerning the
Lender and any Borrower, and all obligations of each of the
Borrowers to or for the benefit of the Lender to perform acts or
refrain from taking any action.
"Original Owners" shall mean James R. Scoroposki
and Gregory E. Fischbach.
"Other Documents" shall mean any and all
agreements, instruments, amendments and other documentation,
including, without limitation, the Factoring Agreements, the
Letter of Credit Financing Supplements, intercreditor agreements,
Uniform Commercial Code financing statements, Corporate
Guarantees, security agreements, pledges, powers of attorney,
consents, and all other writings between or concerning the Lender
on the one hand and any of the Borrowers, Material Subsidiaries
or Corporate Guarantors on the other hand, whether heretofore,
now or hereafter executed and/or delivered to Lender, in respect
of the transactions contemplated by this Agreement.
"Overformula Amount" shall have the meaning set
forth in Section 2.1(b) hereof.
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"Overformula Rate" means a rate equal to one-half
of one percent (1/2%) per annum in excess of the Contract Rate,
"Payment Office" shall mean initially 1290 Avenue
of the Americas, New York, New York 10104; thereafter, such other
office of Lender, if any, which it may from time to time
designate by notice to the Borrower to be the Payment Office.
"Permitted Encumbrances" shall mean (a) Liens in
favor of Lender; (b) Liens for taxes, assessments or other
governmental charges not delinquent, or, being contested in good
faith and by appropriate proceedings and with respect to which
proper reserves have been taken by the applicable Borrower; (c)
Liens disclosed in the financial statements of a Borrower
covering periods of time after November 30, 1994 and delivered to
Lender, the existence of which Liens Lender has consented to in
writing; (d) deposits or pledges to secure obligations under
workmen's compensation, social security or similar laws, or under
unemployment insurance; (e) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature arising in the ordinary
course of the business of a Borrower; (f) judgment liens against
a Borrower that have been stayed or bonded and mechanics',
workmen's, materialmen's or other like liens arising in the
ordinary course of business of a Borrower with respect to
obligations which are not due or which are being contested in
good faith by a Borrower; (g) Liens placed upon fixed assets
(including Equipment) of a Borrower hereafter acquired to secure
a portion of the purchase price thereof, provided that any such
Lien shall not encumber any other property of such Borrower; (h)
mortgage in favor of National Westminster Bank with respect to
the real estate located at 71 Audrey Avenue, Oyster Bay, NY
11771; (i) Liens not exceeding $250,000, individually or in the
aggregate at any time and from time to time outstanding and
Liens individually or in the aggregate at any time and from time
to time outstanding in excess of $250,000 which are bonded to
Lender's satisfaction and discharged within 90 days from the date
thereof; (j) Liens in favor of the Hongkong and Shanghai Banking
Corporation Limited (together with its related concerns, herein
"HKSB") concerning AEI, with respect to which the Lender is
party to an intercreditor agreement dated February 26, 1990 as
amended and supplemented; (k) Liens in favor of Midland Bank plc
(together with its related concerns, herein "Midland") concerning
the Borrower, Acclaim Comics, Inc. and certain of AEI's other
Subsidiaries, with respect to which the Lender is a party to an
intercreditor agreement dated July 29, 1994 as amended and
supplemented; (l) Liens in favor of the Standard Chartered Bank
concerning AEI, provided that an intercreditor agreement
acceptable, in form and substance to the Lender in its reasonable
discretion, has been entered into with the Standard Chartered
Bank in respect of such Liens; and (m) Liens on, and with respect
to financing obtained concerning 70 Glen Street, Glen Cove, New
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York, as well as improvements thereon, not to exceed $20,000,000
in the aggregate.
"Person" shall mean an individual, a partnership,
a corporation, a business trust, a joint stock company, a trust,
an unincorporated association, a joint venture, a governmental
authority or any other entity of whatever nature.
"Plan" shall mean any pension plan covered by
Title IV of ERISA, that any of the Borrowers or any entity which
is under common control with any of them maintains, contributes
to, or has an obligation to contribute to.
"Prime Rate" for the purpose of this Agreement
means the rate of interest publicly announced from time to time
by the Bank at its principal office in New York as its prime rate
or prime lending rate, which is determined from time to time by
the Bank as a means of pricing some loans to its Customers and is
neither tied to any external rate of interest or index nor does
it necessarily reflect the lowest rate of interest actually
charged by the Bank to any particular class or category of
Customers of the Bank.
"Questionnaire" shall mean the Factoring Agreement
certification(s) executed by officers of each of the Borrowers
and delivered to Lender.
"Receivables" shall mean and include all of the
accounts, contract rights, instruments, documents, chattel paper,
general intangibles relating to accounts, drafts and
acceptances, and all other forms of obligations owing, arising
out of or in connection with the sale or lease of Inventory or
the rendition of services, all guarantees and other security
therefor, whether secured or unsecured, now existing or hereafter
created or arising, and whether or not specifically sold or
assigned to the Lender hereunder.
"Reportable Event" shall mean a Reportable Event
as defined in Section 4043(b) of ERISA.
"Restatement Effective Date" shall mean February
1, 1995.
"Reserves" shall have the meaning set forth in
Section 2.1(a) hereof.
"Revolving Advance Rate" shall mean an interest
rate per annum equal to the Alternate Base Rate minus one-half of
one percent (.50%).
"Revolving Rate Advance(s)" shall have the meaning
set forth in Section 2.1 (c) hereof.
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"Subsidiary" of any Person shall mean a
corporation or other entity whose shares of stock or other
ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of
the directors of such corporation, or other Persons performing
similar functions for such entity, are owned, directly or
indirectly, by such Person.
"Tangible Net Worth" at a particular date means
(a) the aggregate amount of all assets of AEI and its
consolidated Subsidiaries, taken as a whole, and as may be
properly classified as such in accordance with GAAP consistently
applied, excluding such assets as are properly classified as
intangible assets under GAAP to the extent that such intangible
assets were created or acquired by AEI or any of its consolidated
Subsidiaries after January 5, 1995, less (b) the aggregate amount
of all liabilities of AEI and its consolidated Subsidiaries
taken as a whole, and as may be properly classified as such in
accordance with GAAP consistently applied.
"Term" shall mean January 1, 1993 through and
including January 31, 1996, as same may be extended, reduced or
terminated in accordance with the provisions of Section 12.1
hereof.
"Unused Facility Fee" shall have the meaning set
forth in Section 3.4 hereof.
"Value" or "Valuation" shall mean, with respect to
Eligible Inventory, the lower of cost or market value thereof,
determined on a first in, first-out basis.
"Working Capital" at a particular date, shall mean
the excess, if any, of Current Assets over Current Liabilities at
such date.
1.3 Uniform Commercial Code Terms. All terms
used herein and defined in the Uniform Commercial Code as adopted
in the State of New York shall have the meaning given therein
unless otherwise defined herein.
II. ADVANCES, PAYMENT, LENDER GUARANTEES AND LETTERS
OF CREDIT.
2.1 (a) Advances. Subject to the terms and
conditions set forth in this Agreement, Lender will during the
Term hereof make Advances to the Borrowers on a combined basis
and will for the Borrowers' combined account, subject to Section
2.7 hereof, issue Lender Guarantees, issue or cause to be issued
Letters of Credit and/or create Acceptances, in a maximum
aggregate amount outstanding at any time and from time to time
hereunder equal to: (i) the lesser of (x) the Maximum Loan Amount
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or (y) the Formula Amount, minus (ii) all issued and outstanding
Letters of Credit, Lender Guarantees and Acceptances.
The "Formula Amount" shall mean the sum of the following amounts
at any time and from time to time:
(1) 70% of Eligible Receivables; plus
(2) 50% of the Value of the Eligible
Inventory; provided, however, that the maximum amount of all
outstanding Advances against Eligible Inventory shall not exceed
$10,000,000 in the aggregate at any one time; plus
(3) 50% of the first cost of goods to be
imported under Letters of Credit which remain outstanding; less
(4) in each case, such reserves, established
in Lender's reasonable discretion execised in good faith, as
Lender may deduct in relation to Obligations chargeable to the
account(s) of any of the Borrowers or which may be chargeable
to the account(s) of any of the Borrowers thereafter
("Reserves").
AEI shall have the right on behalf of all of
the Borrowers to decrease or increase such Maximum Loan Amount as
of the beginning of each fiscal quarter during the Term hereof,
upon Lender's receipt from AEI of prior written notice of any
such request for an decrease or increase, given at least ten (10)
days in advance of the beginning of the relevant fiscal quarter,
provided however, that no such right shall apply to permit
increases in the Maximum Loan Amount should any Event of Default
have occurred which is continuing. As of the Restatement
Effective Date, the Maximum Loan Amount shall be $60,000,000.00.
(b) Discretionary Overformula Advances;
Notwithstanding anything herein to the contrary, the aggregate
amount of all Obligations at any time and from time to time
outstanding hereunder to all of the Borrowers, on a combined
basis and inclusive of all Advances, Letters of Credit, Lender
Guarantees and Acceptances, shall not exceed the lesser of the
Maximum Loan Amount or the Formula Amount (any such excess
amount, is herein referred to as an "Overformula Amount"). Any
Advances made by Lender or any Obligations which may be otherwise
outstanding at any time or from time to time constituting such an
Overformula Amount are to be made available by Lender or to
otherwise be permitted to exist in the sole and absolute
discretion of the Lender and shall be subject to Section 2.5
hereof.
(c) General. All Advances under this Agreement,
except for those Advances requested and made as, converted to,
or extended as LIBO Rate Advances, including without limitation
all Advances requested by a Borrower or deemed requested by a
Borrower hereunder (individually, a "Revolving Rate Advance" and
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collectively, "Revolving Rate Advances"), shall bear interest at
the Revolving Advance Rate.
2.2 Procedure for Advances. A Borrower may
request that Advances be made by Lender subject to this
Agreement, to or for such Borrower's benefit, by notifying the
Lender prior to: (a) in the case of LIBO Rate Advances, 11:00
a.m. (New York City time) three Business Days prior to the date
on which Borrower requests Lender to incur the same ; or (b) in
the case of Revolving Rate Advances, l:00 p.m. (New York City
time) on the Business Day of Borrower's request to incur
Revolving Rate Advances hereunder. Should any of the Borrowers
fail to pay any of its Obligations owing under this Agreement or
any of the Other Documents, as and when due, including without
limitation any fees, expenses, costs, principal, interest or any
other charges owing or required to be paid by any such Borrower,
to such extent, the same may at Lender's option and to the extent
permitted by law, be deemed an irrevocable request for a
Revolving Rate Advance to be made by the Lender as of the date
such payment is due, in the amount required to pay in full such
Obligations and the Lender is authorized to and may make such
Advances on behalf of such Borrower, provided that the Lender
then applies any such Advances toward payment of such
Obligations. To the extent any such amounts referred to under
this Section 2.2 are paid or expended by Lender, the same shall
(without duplication of amounts covered by the previous sentence
and added to the Obligations hereunder) be considered
"Revolving Rate Advances" hereunder and such amounts shall be
added to the Obligations.
2.3 Disbursement of Advance Proceeds. All
Advances shall be disbursed: (a) in the case of LIBO Rate
Advances, on the third Business Day following the date of the
request therefor made in accordance with Section 2.2(a) above;
and (b) in the case of Revolving Rate Advances, on the Business
Day so requested or deemed requested in accordance with Section
2.2(b), in each such instance by 3:00 p.m. New York time, on the
relevant Business Day on which the funds are to be disbursed by
Lender and which shall be disbursed from whichever office or
other place the Lender may designate from time to time and,
together with any and all other Obligations of Borrowers to
Lender, shall be charged to the Loan Account of Borrowers on the
Lender's books. During the Term, Borrowers may use the Advances
by borrowing, prepaying and reborrowing, all in accordance with
the terms and conditions hereof. The proceeds of each Advance
requested by a Borrower or deemed to have been requested by a
Borrower under Section 2.2 hereof shall be made available to
such Borrower on the day specified in the first sentence of this
Section 2.3, by way of (i) credit to such Borrower's operating
account at such bank as Borrower may designate following
notification to Lender, in immediately available federal or other
immediately available funds; (ii) payments or remittances to
third parties, in accordance with such Borrower's instructions to
Lender or (iii) with respect to Advances deemed to have been
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requested pursuant to Section 2.2 hereof, disbursements to or by
the Lender in payment thereof
2.4 Repayment of Obligations.
(a) All Obligations of the Borrowers to the
Lender shall be due and payable in full on the last day of the
Term, subject to: (i) repayment on demand of any Overformula
Amount; and (ii) earlier prepayment or acceleration, in each
instance as herein provided.
(b) Each Borrower agrees that, in computing
the charges under this Agreement, all items of payment shall be
deemed applied by Lender on account of the Obligations on the
Maturity Date each month. The Lender is not, however, required
to credit the Loan Account of the Borrowers for the amount of
any item of payment which the Lender in its reasonable discretion
does not believe will ultimately yield good, cleared funds and
the Lender may conditionally credit any such item and thereafter
charge the Loan Account of the Borrowers for the amount of any
item of payment which is returned to the Lender unpaid.
(c) All payments of principal, interest and
other amounts payable hereunder, or under any of the related
agreements shall be made to the Lender at the Payment Office not
later than 1:00 P.M. (New York City Time) on the due date
therefor in lawful money of the United States of America in
Federal or other funds immediately available to the Lender.
Lender shall have the right to effectuate payment of any and all
Obligations due and owing hereunder or under any of the Other
Documents, by charging the Loan Account of the Borrowers or by
making Revolving Rate Advances as provided in Section 2.2 hereof.
(d) The Borrowers shall pay principal,
interest, and all other amounts payable hereunder and/or under
any of the Other Documents, without any deduction whatsoever,
including, but not limited to, any deduction for any setoff or
counterclaim.
2.5 Repayment of Overformula Amount Advances.
The aggregate balance of all Obligations outstanding at any time
and constituting an Overformula Amount shall be due and payable
to Lender on demand, at the place designated by Lender and
notwithstanding any term or provision hereof to the contrary.
2.6 Statement of Account. Lender shall
maintain, in accordance with its customary procedures and subject
to Article XIII hereof, the Loan Account, as more fully described
in Section 13.2 hereof, in the name of AEI on behalf of each and
all of the Borrowers, in which shall be recorded the date and
amount of each Advance made by Lender and the date and amount of
each payment in respect thereof; provided, however, the failure
by Lender to record the date and amount of any Advance shall not
adversely affect Lender. For each month, Lender shall send to
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AEI, on behalf of the Borrowers, a statement showing the
accounting for the Advances made, payments made or credited in
respect thereof, and other transactions between Lender and
Borrowers during such month. The monthly statements shall be
deemed correct and binding upon the Borrowers in the absence of
manifest error and shall constitute an account stated between
Lender and each Borrower unless Lender receives a written
statement of a Borrower's specific exceptions thereto within
ninety (90) days after such statement is received by AEI. The
records of Lender with respect to the Loan Account shall be prima
facie evidence of the amounts of all Obligations, including with
limitation all Advances and other charges thereto and of payments
applicable thereto.
2.7 Lender Guarantees, Letters of Credit and
Acceptances. Subject to the terms and conditions hereof, Lender
shall (a) issue lender guarantees ("Lender Guarantees")
guaranteeing the payment or performance by a Borrower of its
obligations under commercial documentary letters of credit issued
for the account of such Borrower from time to time during the
term of this Agreement, or (b) issue or cause the issuance of
Letters of Credit ("Letters of Credit"), for the account of a
Borrower or (c) accept, or cause to be accepted, drafts for the
account of a Borrower under such Letters of Credit
("Acceptances"); provided, however, that Lender will not be
required to issue or cause to be issued any Lender Guarantees or
Letters of Credit or accept or cause to be accepted any
Acceptances to the extent that the face amount of such requested
Lender Guarantees, Letters of Credit and Acceptances would then
cause the sum of all outstanding Obligations (to the extent not
duplicative), inclusive of the face amount of Lender Guarantees
plus outstanding Letters of Credit plus outstanding Acceptances
to exceed the lesser of (x) the Maximum Loan Amount or (y) the
Formula Amount. Subject to the other terms and provisions
hereof, the maximum amount of outstanding Lender Guarantees,
Letters of Credit and Acceptances shall not exceed $50,000,000 in
the aggregate at any time or from time to time. All
disbursements or payments related to Lender Guarantees, Letters
of Credit or Acceptances shall be deemed to be Revolving Rate
Advances and shall bear interest at the Revolving Advance Rate
unless made as, converted to or extended by Lender as LIBO Rate
Advances in accordance with this Agreement; unfunded Lender
Guarantees, Letters of Credit that have not been drawn upon and
unmatured Acceptances shall not bear interest. Letters of
Credit shall be subject to the terms and conditions set forth in
the Letter of Credit Supplement Agreement attached hereto as
Exhibit B.
2.8 Issuance of Letters of Credit; Creation of
Acceptances; Indemnity;
(a) A Borrower may request Lender to issue
or cause the issuance of a Letter of Credit or create an
Acceptance by delivering to Lender at the Payment Office,
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Lender's standard form of Letter of Credit Financing Supplement,
together with Bank's standard form of Letter of Credit
Application (collectively, the "Letter of Credit Application")
and any draft, if applicable, completed to the satisfaction of
Lender; and such other certificates, documents and other papers
and information as Lender may reasonably request.
(b) Each Letter of Credit shall, among other
things, (i) provide for the payment of sight drafts when
presented for honor thereunder in accordance with the terms
thereof and when accompanied by the documents described therein
and (ii) have an expiry date not later than six months after such
Letter of Credit's date of issuance. Should any Letter of Credit
be requested to expire later than the last day of the Term
hereof, the Lender in its sole discretion, exercised in a
reasonable manner and in good faith, may establish an expiration
date thereof not to exceed 90 days beyond the end of the Term of
this Agreement; provided however, that should any Letter(s) of
Credit , Lender Guarantee(s) and/or Acceptances remain
outstanding beyond the end of the Term of this Agreement, then
notwithstanding anything to the contrary contained herein or in
any of the Other Documents: (i) as to all of such items, an
indemnity in form and substance satisfactory to the Lender shall
be executed and delivered by the effective termination date of
this Agreement; and (ii) unless and until the indemnity
contemplated by subdivision (i) immediately above may have been
executed and delivered to the Lender and the payment in full of
all Obligations other than those for which such an indemnity has
been executed and delivered to Lender, the Lender shall retain a
Lien on all of the Collateral. Each Letter of Credit
Application and each Letter of Credit shall be subject to the
Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500,
and any amendments thereof or revisions thereto and, to the
extent not inconsistent therewith, the laws of the State of New
York.
2.9 Requirements For Issuance of Lender
Guarantees, Letters of Credit, and Acceptances.
(a) In connection with the issuance or
creation of any Lender Guarantee, Letter of Credit or Acceptance,
Borrowers shall each indemnify, save and hold Lender harmless
from any loss, cost, expense or liability, including, without
limitation, payments made by Lender, and expenses and reasonable
attorneys' fees incurred by Lender arising out of, or in
connection with, any Lender Guarantee, Letter of Credit and/or
Acceptance issued or created for any Borrower. Borrowers shall
be bound by Lender's or any issuing or accepting bank's
regulations and good faith interpretations of any Lender
Guarantee, Letter of Credit or Acceptance issued or created for
any Borrower's account, although this interpretation may be
different from such Borrower's own, and neither Lender, the bank
which opened the Letter of Credit for which Lender has issued a
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Lender Guarantee, nor any of Lender's correspondents shall be
liable for any error, negligence, or mistakes, whether by
omission or commission, in following any Borrower's instructions
or those contained in any Letter of Credit, Acceptance or Lender
Guarantee or of any modifications, amendments or supplements
thereto or in creating or paying any Lender Guarantee, Letter of
Credit or Acceptance, except for Lender's or such correspondents'
willful misconduct or gross negligence.
(b) Borrowers shall authorize and direct any
bank which issues a Letter of Credit to name the applicable
Borrower as the "Account Party" therein and to deliver to Lender
all instruments, documents, and other writings and property
received by the bank pursuant to the Letter of Credit or in
connection with any Acceptance and to accept and rely upon
Lender's instructions and agreements with respect to all matters
arising in connection with the Letter of Credit, the application
therefor or any acceptance therefor.
(c) In connection with all Lender
Guarantees, Letters of Credit and Acceptances issued or created
by Lender under this Agreement, each Borrower hereby appoints
Lender, or its designee, as its attorney, with full power and
authority (a) to sign and/or endorse such Borrower's name upon
any warehouse or other receipts, letter of credit applications
and acceptances; (b) to sign such Borrower's name on bills of
lading; (c) to clear Inventory through Customs in the name of
such Borrower or Lender or Lender's designee, and to sign and
deliver to Customs Officials powers of attorney in the name of
such Borrower for such purpose; and (d) to complete in such
Borrower's name or Lender's, or in the name of Lender's designee,
any order, sale or transaction, obtain the necessary documents in
connection therewith, and collect the proceeds thereof. Neither
Lender nor its attorneys will be liable for any acts or omissions
nor for any error of judgment or mistakes of fact or law, except
for Lender's or its attorneys' willful misconduct or gross
negligence. This power, being coupled with an interest, is
irrevocable as long as any Lender Guarantees, Letters of Credit
or Acceptances remain outstanding.
2.10 Maximum Advance Compliance Certificates.
By no later than 10:00 a.m. (New York time) on the same day by
which Borrowers are required to furnish annual and quarterly
financial statements to the Lender pursuant to Section 8.7 or
8.8 hereof, AEI, on behalf of the Borrowers, shall execute and
deliver to Lender a certificate of its Chief Financial Officer,
in the form of Exhibit C (a "Maximum Advance Compliance
Certificate"), pursuant to which the Borrowers shall certify to
the Lender that each of them is in compliance with the
provisions of Section 2.1 hereof relating to outstanding
Advances, the Maximum Loan Amount and the Formula Amount. The
Maximum Advance Compliance Certificate shall be prepared as of
the last day of the relevant fiscal year or fiscal quarter as the
case may be, of the Borrowers. Upon the occurrence and during
the continuance of an
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Event of Default, a Maximum Advance Compliance Certificate shall
be provided with such frequency as the Lender may request.
2.11 Joint and Several Obligations. Each of the
Borrowers shall be jointly and severally liable to the Lender for
any and all Obligations under or in connection with this
Agreement and/or the Other Documents.
III. INTEREST AND FEES.
3.1 Interest/Special Provisions Applicable to
LIBO Rate Advances. (a) Interest charges shall be computed on
the actual average of all daily Obligations (other than amounts
then unfunded by the Lender in relation to Lender Guarantees,
Letters of Credit and Acceptances) outstanding during the month
(the "Monthly Advances") at a rate per annum equal to the
Contract Rate applicable to such Obligations and shall be payable
in arrears on the last day of each month, except only that
interest with respect to LIBO Rate Advances shall be payable on
the last day of the Interest Period with respect thereto.
Whenever, subsequent to the date of this Agreement, the Alternate
Base Rate is increased or decreased, the Revolving Advance Rate
shall be similarly changed without notice or demand of any kind
by an amount equal to the amount of such change in the Alternate
Base Rate during the time such change or changes remain in
effect. In the event an Overformula Amount exists for ten (10)
or more days in any month during the Term, the Monthly Advances
in that month shall bear interest at the Overformula Rate. Upon
the occurrence and during the continuance of an Event of Default,
the Obligations (other than amounts unfunded by the Lender in
relation to Lender Guarantees, Letters of Credit and Acceptances)
shall bear interest at the Default Rate.
(b) Each Borrower may on any Business Day,
upon written notice given by such Borrower to the Lender,
substantially in the form of Exhibit D hereto, not later than 11
a.m. (New York City time) on the third Business Day (the
"Interest Determination Date") prior to the date of a proposed
LIBO Rate Advance to be made or extended, or prior to the date a
Revolving Rate Advance is sought by a Borrower to be converted
into a proposed LIBO Rate Advance hereunder, request of Lender
that Advances be made or extended hereunder as, or be converted
hereunder into, LIBO Rate Advances. Any such notice shall
specify any amounts desired to be so converted or extended, the
date of any conversion and the duration of the Interest Period
therefor. Additionally, if Lender does not receive timely
notice of the Interest Period elected by a Borrower as to LIBO
Rate Advances, or the notice referred to above in this paragraph
is otherwise unclear or deficient and accordingly cannot
reasonably be acted upon by the Lender, any Borrower making any
such request shall be deemed to have instead elected to request,
or to have elected to convert to, Revolving Rate Advances in lieu
of LIBO Rate Advances. No Interest Period, however, shall end on
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a date which is later than the last day of the Term of this
Agreement. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on
the next following Business Day (unless such next following
Business Day is the first Business Day of a calendar month, in
which case such Interest Period shall end on the Business Day
next preceding such numerically corresponding day).
As soon as practicable after 11 a.m. (New
York City time) on an Interest Determination Date, Lender shall
determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) the interest rate
which shall apply to the LIBO Rate Advances for which an interest
rate is then being determined for the applicable Interest Period
and in an amount equal to the LIBO Rate Advances involved and the
Lender shall give notice thereof (in writing or by telephone) to
AEI on behalf of the Borrower making such related request.
Unless the Lender shall otherwise agree, after the occurrence of
and during the continuance of an Event of Default, Borrowers may
not elect to have LIBO Rate Advances made or extended as, or to
convert any Revolving Rate Advances into LIBO Rate Advances.
Any Interest Period which begins on the last Business Day of a
calendar month, which has no numerically corresponding day in the
calendar month during which such Interest Period is to end,
shall, subject to the immediately preceding sentence, end on the
last Business Day of the appropriate subsequent calendar month.
While a Borrower may prepay LIBO Rate Advances in whole at
any time, with accrued interest on the principal being prepaid to
the date of such prepayment, in the event that any prepayment is
required or permitted on a date other than the last day of the
then current Interest Period with respect thereto, the Borrowers
shall indemnify the Lender therefor in accordance with Section
3.12 hereof.
3.2 Letter of Credit Fees.
A Borrower shall pay Lender (a) for issuing or
causing the issuance of a Letter of Credit, a fee as set forth in
Section L.2 of the Letter of Credit Financing Supplement ("Letter
of Credit Fees"), and (b) Lender's and/or Bank's other customary
charges payable in connection with Letters of Credit, as in
effect from time to time (which charges as in effect on the
Restatement Effective Date are attached hereto as Schedule 3.2
and upon any change(s) therein, a revised charges schedule shall
upon request therefor, be furnished to AEI on behalf of Borrowers
by Lender. All Letter of Credit Fees payable hereunder shall be
deemed earned in full on the date when the same are due and
payable hereunder and shall not be subject to rebate or proration
upon the termination of this Agreement for any reason.
3.3 Closing Fee. On February 28, 1995,
Borrower shall pay to Lender a cash closing fee in an amount
equal to
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$50,000.00 (the "Closing Fee"), which may be charged to
Borrower's account on Lender's books.
3.4 Unused Facility Fee. In the event the
average outstanding closing daily principal balance of all
Obligations of the Borrowers to Lender hereunder (which shall for
purposes of this Section 3.4 include the outstanding balance of
all Letters of Credit, Lender Guarantees and Acceptances) during
any fiscal quarter of the Borrowers or portion thereof occurring
upon termination of this Agreement is less than the Maximum Loan
Amount, determined in accordance with Section 2.1(a) for such
fiscal quarter or portion thereof, Borrowers shall pay to Lender
a fee (the "Unused Facility Fee") at a rate per annum equal to
one quarter of one percent (.25%) of the difference between: (i)
the Maximum Loan Amount and (ii) such average outstanding closing
daily principal balance. Such fee, if payable, shall be: (a)
calculated as of the last day of each fiscal quarter or upon the
effective termination date of this Agreement, as the case may be,
on the basis of a year of 360 days and actual days elapsed; and
(b) charged to the Loan Account of the Borrowers on the first day
of each fiscal quarter during the Term, or upon the effective
termination date of this Agreement.
3.5 Due Diligence/Audit Fees. Upon Lender's
performance of any due diligence (namely any field examination,
collateral analysis or other business analysis, whether in
connection with any Borrower and/or any Collateral, the need for
which is to be determined by Lender in its reasonable discretion
exercised in good faith, but for which examinations and/or
analyses the Borrowers shall be obligated to pay or reimburse the
Lender pursuant to this Section and which, in the absence of: (a)
any outstanding Overformula Amount; or (b) an Event of Default,
shall be limited to no more than four times annually), the
Borrowers shall pay to Lender a per diem amount equal to Lender's
then standard rate per person, for each person employed to
perform such due diligence, together with all reasonable costs,
disbursements and expenses incurred by the Lender, including
without limitation all reasonable fees and expenses of outside
examiners or auditors as billed, and the person performing such
due diligence shall be charged to the Loan Account of the
Borrowers. Should any such outstanding Overformula Amount and/or
Event of Default exist, however, the frequency and number of
examinations and/or analyses for which reimbursement shall be
made under this Section 3.5 shall not be limited.
3.6 Computation of Interest and Fees. Interest
and fees hereunder shall be computed on the basis of a year of
360 days and for the actual number of days elapsed. If any
payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and interest thereon shall be
payable at the Revolving Advance Rate, or the LIBO Advance Rate,
as the case may be, during such extension.
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3.7 Maximum Charges. In no event whatsoever
shall interest and other charges made hereunder exceed the
highest rate permissible under law which a court of competent
jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Lender has
received interest and other charges hereunder in excess of the
highest rate applicable hereto, such excess interest shall be
first applied to any unpaid principal balance owed by Borrowers,
and if the then remaining excess interest is greater than the
previously unpaid principal balance, the Lender shall promptly
refund such excess amount to Borrowers and the provisions hereof
shall be deemed amended to provide for such permissible rate.
3.8 Increased Costs. In the event that any
applicable law, treaty or governmental regulation (including
without limitation, Regulation D), or any change therein or in
the interpretation or application thereof, or compliance by
Lender (for purposes of this Section 3.8, the term "Lender" shall
include Lender and any corporation or bank controlling Lender)
with any request or directive (whether or not having the force of
law) from any central bank or other financial, monetary or other
authority, shall:
(a) subject the Lender to any tax of any
kind whatsoever with respect to this Agreement any of the Other
Documents (including without limitation in relation to any LIBO
Rate Advances) or change the basis of taxation of payments to the
Lender of principal, fees, interest or any other amount payable
hereunder or under any of the Other Documents (except for changes
in the rate of tax on the overall net income of the Lender by the
jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any
reserve, special deposit, assessment or similar requirement
against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by, any office of
Lender, including without limitation pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
(c) impose on the Lender any other condition
with respect to this Agreement or any of the Other Documents, or
any LIBO Rate Advances;
and the result of any of the foregoing is to
increase the cost to the Lender of making, renewing or
maintaining any Advances hereunder by an amount that Lender deems
to be material, or to reduce the amount of any payment (whether
of principal, interest or otherwise) in respect of any Advances
by $5,000.00 or more, then, in any such case, Borrowers shall be
jointly and severally liable for and shall promptly pay Lender,
at any time and from time to time, upon Lender's demand, such
additional amount as will compensate Lender for such additional
cost or such reduction, as the case may be. Lender shall certify
the amount of such additional cost or reduced amount to
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Borrowers, and such certification shall be conclusive absent
manifest error.
3.9 Capital Adequacy.
(i) Notwithstanding any other provision in this
Agreement, if after the date hereof there shall be adopted any
applicable law, rule, regulation order or guideline regarding
capital adequacy, or any change therein, or there shall occur any
change in the interpretation, effectiveness, or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof,
which, or compliance by Lender (for purposes of this Section 3.9,
the term "Lender" shall include Lender and any corporation or
bank controlling Lender) with any request or directive regarding
capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would
have in the Lender's reasonable determination the direct or
indirect effect of increasing the amount of capital required or
expected to be maintained by Lender or reducing the rate of
return on Lender's capital as a consequence of its obligations
hereunder, to a level below that which Lender could have achieved
but for such adoption, change or compliance (taking into
consideration Lender's policies with respect to capital adequacy
and capital maintenance) by $5,000.00 or more, then, in any such
case, upon notice from time to time, Borrowers shall pay upon
demand to Lender such additional amount or amounts as will
compensate Lender for such increased cost or reduction in
receipts. In determining such amount or amounts, Lender may use
any reasonable averaging or attribution methods. The protection
of this Section 3.9 shall be available to Lender regardless of
any possible contention of invalidity or inapplicability with
respect to the applicable law, regulation or condition. Any
amounts paid by Borrowers to Lender under this Section 3.9 which
are subsequently determined not to have been necessary as
compensation to the Lender for such specified purposes shall be
promptly reimbursed by the Lender to AEI on behalf of the
Borrower.
(ii) A certificate of Lender setting forth such amount
or amounts, including calculations thereof in reasonable detail,
as shall be necessary to compensate Lender with respect to this
Section 3.9 hereof shall be delivered to Borrowers along with
the related demand for payment thereof and shall be conclusive
absent manifest error.
3.10 Fixed Rate Lending Unlawful. If the Lender
(for purposes of this Section 3.10, the term "Lender" shall
include Lender and any corporation or bank controlling Lender)
shall reasonably determine (which determination shall, upon
notice thereof to Borrowers, be conclusive and binding on
Borrowers) that the introduction of or any change in or in the
interpretation of any law makes it unlawful, or any central bank
or other governmental authority asserts that it is unlawful, for
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the Lender to make, continue or maintain LIBO Rate Advances or
any portion thereof as LIBO Rate Advances, or convert any
Advances into LIBO Rate Advances, the obligations of the Lender
to make, continue, maintain or convert the Advances or any
portion thereof as or into LIBO Rate Advances shall, upon such
reasonable determination, forthwith be suspended until the Lender
shall notify Borrowers that the circumstances causing such
suspension no longer exist, and all outstanding LIBO Rate
Advances shall automatically convert into Revolving Rate Advances
at the end of the then current Interest Periods with respect
thereto or sooner, if required by such law or assertion.
3.11 Deposits Unavailable. If the Lender (for
the purposes of this Section 3.11, the term "Lender" shall
include Lender and any corporation or bank controlling Lender)
shall have determined that by reason of circumstances affecting
the London interbank market, adequate means do not exist for
ascertaining the interest rate applicable hereunder to LIBO Rate
Advances, then, upon notice from the Lender to Borrowers, the
obligations of the Lender under this Agreement to make, continue,
maintain or convert any Advances as or into LIBO Rate Advances
or any portion thereof as LIBO Rate Advances shall forthwith be
suspended until the Lender shall notify Borrowers that the
circumstances causing such suspension no longer exist.
3.12 Funding Losses. In the event the Lender
(for purposes of this Section 3.12, the term "Lender" shall
include Lender and any corporation or bank controlling Lender)
shall incur any loss or expense (including any loss or expense
incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by the Lender to make, continue, maintain
or convert any portion of the principal amount of any Advances
or any portion thereof as LIBO Rate Advances) as a result of
a. any conversion or repayment or prepayment of the
principal amount of any LIBO Rate Advances on a date
other than the scheduled last day of the Interest
Period applicable thereto; or
b. any Advances not being made as LIBO Rate Advances
in accordance with the written request therefor (other
than as a result of the breach of Lender's obligation
to make such LIBO Rate Advances in accordance with the
terms hereof) and including without limitation as a
consequence of any prepayment or default by an Borrower
in payment of principal or interest on any LIBO Rate
Advance or any conversion thereto,
then, upon the written notice of the Lender to Borrowers, the
Borrowers shall, within five Business Days of receipt thereof,
pay to the Lender such amount as will (in the reasonable
determination of the Lender) reimburse the Lender for such loss
or expense. Such written notice (which shall include
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calculations in reasonable detail) shall, in the absence of
manifest error, be conclusive and binding on Borrowers.
3.13 Survival. The obligations of the Borrowers
under this Article III shall survive termination of this
Agreement and the other Loan Documents until payment and
performance of all of the Obligations.
IV. COLLATERAL: GENERAL TERMS
4.1 Security Interest in the Collateral. To
secure the prompt payment and performance to Lender of all of the
Obligations, each of the Borrowers hereby assigns, pledges and
grants to Lender a continuing first priority security interest in
and to and Lien upon all of the Collateral, free and clear of
any other Liens thereon except only for and to the extent of: (a)
any Permitted Encumbrances; and (b) any Collateral constituting
copyright, patent, trademark or other similar Collateral to the
extent that filing(s) with the United States Patent and Trademark
Office are required for perfection thereof and the Lender has not
made such filing(s). Each Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect
and perfect Lender's security interest and shall cause its
financial statements to reflect such security interest.
4.2 Perfection of Security Interest. Until
termination of this Agreement and payment and performance of all
Obligations of the Borrowers to the Lender have been completed,
each Borrower shall take all action that may be necessary or
desirable, or that Lender may reasonably request, so as at all
times to maintain the validity, perfection, enforceability and
priority of Lender's security interest in the Collateral or to
enable Lender to protect, exercise or enforce its rights
hereunder and in the Collateral, including, but not limited to
(i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' Lien
waivers, (iii) delivering to Lender, endorsed or accompanied by
such instruments of assignment as Lender may reasonably specify,
and stamping or marking, in such manner as Lender may reasonably
specify, any and all chattel paper, instruments, letters of
credit and advices thereof and documents evidencing or forming a
part of the Collateral, (iv) entering into lockbox arrangements
satisfactory to Lender, and (v) executing and delivering
financing statements, security agreements, instruments of pledge,
mortgages, notices and assignments, in each case in form and
substance reasonably satisfactory to Lender, relating to the
creation, validity, perfection, maintenance or continuation of
Lender's Liens in the Collateral under the Uniform Commercial
Code or other applicable law. All charges, expenses and fees the
Lender may incur in doing any of the foregoing, and any local
taxes relating thereto, shall be charged to the applicable
Borrower's account and added to the Obligations, or at the
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Lender's option, shall be paid to the Lender immediately upon
demand.
4.3 Disposition of Collateral. Each Borrower
shall safeguard and protect all Collateral for the Lender's
general account and make no disposition thereof whether by sale,
lease or otherwise except that the Collateral may be disposed of
in the ordinary course of business of a Borrower, subject to the
Lender's rights and remedies upon the occurrence and during the
continuance of an Event of Default.
4.4 Inspection of Premises. At any time during
normal business hours and, in the absence of: (a) an outstanding
Overformula Amount or (b) the occurrence and continuance of an
Event of Default , following reasonable notice given to AEI on
behalf of each of the Borrowers, Lender: (i) shall have full
access to and the right to audit, check, inspect and make
abstracts and copies from any of the books, records, audits,
correspondence and all other papers relating to the Collateral
and the operation of the applicable Borrower's business; and (ii)
and its agents may enter upon any of the premises of any Borrower
for the purpose of inspecting the Collateral. Should any such
outstanding Overformula Amount and/or Event of Default exist and
be continuing, however, Lender shall have all of the foregoing
rights at any time during normal business hours, without the
necessity of notice.
4.5 Receivables.
(a) Nature of Receivables. Each of the
Receivables shall be a bona fide and valid account representing a
bona fide indebtedness incurred by the Customer therein named,
for a fixed sum as set forth in the invoice relating thereto
(provided immaterial or unintentional invoice errors shall not be
deemed to be a breach hereof) with respect to an absolute sale or
lease and delivery of goods upon stated terms of a Borrower or
work, labor or services theretofore rendered by a Borrower and
as of the date each Receivable is created, to the best of such
Borrower's knowledge and belief, the same shall be due and owing
in accordance with the applicable Borrower's standard terms of
sale, without dispute, setoff or counterclaim. Notwithstanding
the foregoing, provided that no Event of Default has then
occurred and is continuing, at the date that a Receivable is
created, it may be subject to certain return authorizations
and/or "Co-op credits" but which return authorizations and/or Co-
op credits shall in no event exceed fifteen percent (15%) of the
aggregate amount of all Eligible Receivables of all of the
Borrowers then outstanding and for which Lender is on the Credit
Risk; provided however that, subject to Lender's rights under
Section 2.1(a)(4), no such fifteen percent (15%) limitation shall
be applicable at any time during the Borrowers' fourth fiscal
quarter that there are no Advances outstanding ( other than
Letters of Credit and/or Lender Guarantees) hereunder unless and
to the extent that any such return authorization(s) and/or Co-op
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credit(s) has or may have a Material Adverse Effect on the
Borrowers as a whole. Upon the occurrence of an Event of
Default which is continuing, however, at the date that a
Receivable is created, it shall not be subject to any return
authorizations and/or "Co-Op Credits" without obtaining the
Lender's prior written consent thereto.
(b) Locations of Borrowers. The chief
executive office of the Borrowers is presently located at 71
Audrey Avenue, Oyster Bay, NY 11771 and on or about April, 1995
will be located at 70 Glen Street, Glen Cove, New York except
only that the chief executive office of AEC is located at 405 The
West Mall, Etobicoke, Ontario, M9L 5J1. Until written notice is
given to the Lender by any Borrower of any other office at which
it keeps its records pertaining to Receivables, all such records
shall be kept at such executive office or offices.
4.6 Inventory. All Inventory has been, and will
be produced by each Borrower in all material respects in
accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations and orders thereunder. No
Borrower will sell any Inventory, without Lender's prior written
consent, on a bill and hold, consignment, guaranteed sale, sale
and return, sale on approval or other repurchase or return basis.
4.7 Maintenance of Equipment. The Equipment
shall be maintained in good operating condition and repair
(reasonable wear and tear excepted) and all necessary
replacements of and repairs thereto shall be made so that the
value and operating efficiency of the Equipment shall be
maintained and preserved in all material respects.
4.8 Exculpation of Liability. Nothing herein
contained shall be construed to constitute the Lender as agent of
any Borrower for any purpose whatsoever, nor shall the Lender be
responsible or liable for any shortage, discrepancy, damage, loss
or destruction of any part of the Collateral wherever the same
may be located and regardless of the cause thereof. The Lender
does not, whether by anything herein or in any assignment or
otherwise, assume any obligations of any Borrower under any
contract or agreement assigned to the Lender, and the Lender
shall not be responsible in any way for the performance by any
Borrower of any of the terms and conditions thereof.
V. REPRESENTATIONS AND WARRANTIES.
The Borrowers each represent and warrant to Lender as
follows:
5.1 Authority. Each Borrower has full power
and authority to enter into this Agreement and the Other
Documents to which it is a party and perform all Obligations
hereunder and thereunder and when executed and delivered by each
Borrower party
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hereto and thereto, this Agreement and the Other Documents to
which a Borrower is party will be legal, valid and binding
obligations of such Borrower, enforceable in accordance with
their respective terms, except as may be limited by applicable
bankruptcy or similar laws affecting the enforcement of creditors
rights and the availability of equitable remedies generally. The
execution, delivery and performance hereof and of the Other
Documents are within the corporate powers of each Borrower,
have been duly authorized, are not in contravention of law
relating to the conduct of the business of any of the Borrowers,
or the terms of the by-laws, certificate of incorporation or
other applicable documents of any Borrower relating to the
formation of any Borrower, or of any material agreement or
undertaking to which any Borrower is a party or by which any of
them is bound, and will not result in a breach of any of the
provisions of or constitute a default under the provisions of any
material agreement, charter, instrument, by-law or other material
instrument to which any of the Borrowers is a party or by which
any of them may be bound, or result in the creation of any Lien
upon any material asset of any Borrower thereunder, except only
for Permitted Encumbrances.
5.2 Formation and Qualification. Each Borrower
is; (a) duly incorporated and in good standing under the laws of
its respective State of incorporation; and (b) qualified to do
business and is in good standing in the states listed on
Schedule 5.2 which constitute all states in which qualification
and good standing are necessary for it to conduct its business
and own its property , except where the failure so to qualify
could not reasonably be expected to have a Material Adverse
Effect . Each Borrower has delivered to Lender true and
complete copies of its certificate of incorporation and by-laws
and will promptly notify Lender of any amendment or changes
thereto.
5.3 Solvency. Each Borrower is able to pay
its respective debts as they mature, has capital sufficient to
carry on its business and all businesses in which it is engaged
or contemplates being engaged and the fair saleable value of its
assets (calculated on a going concern basis) is in excess of the
amount of its liabilities.
5.4 Litigation. Except as disclosed in reports,
registration statements, definitive proxy statements and other
documents filed by AEI with the Securities and Exchange
Commission, copies of which have been furnished to the Lender in
accordance with Section 8.10 hereof, or disclosed in Schedule 5.4
hereto, there are not as of the date hereof any pending or, to
the knowledge of any of the Borrowers, threatened litigations,
actions or proceedings to which any of the Borrowers is a party,
which have or to the Borrowers' knowledge, might have a Material
Adverse Effect.
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5.5 Financial Statements. All balance sheets
and income statements which have been delivered to Lender fairly,
accurately and properly state the financial condition of AEI and
its consolidated Subsidiaries, individually (if applicable) and
taken as a whole, on a basis consistent with that of previous
financial statements supplied to the Lender and there has been no
material adverse change in the financial condition of AEI and
its consolidated Subsidiaries as reflected in such statements
since the date thereof and such statements do not fail to
disclose any fact or facts which might materially and adversely
affect the financial condition of AEI and its consolidated
Subsidiaries, individually (if applicable) and taken as a whole.
5.6 ERISA. In accordance with the Employee
Retirement Income Security Act of 1974 as amended and the rules
and regulations promulgated and published interpretations
thereunder ("ERISA"), none of the Borrowers has engaged in any
Prohibited Transactions as defined in paragraph 406 of ERISA and
paragraph 4975 of the Internal Revenue Code of 1986, as amended;
all applicable minimum funding requirements have been met under
paragraph 302 of ERISA in respect of any Plans ; none of the
Borrowers has any knowledge of any event or occurrence which
would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any Plan(s);
none of them has any fiduciary responsibility for investments
with respect to any plan(s) existing for the benefit of persons
other than the employees of Borrowers ; and none of them has
withdrawn, completely or partially, from any multi-employer
pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980.
5.7 Patents, Trademarks, Copyrights and
Licenses. To the best of the Borrowers' knowledge after a
diligent inquiry, all patents, patent applications, trademarks,
trademark applications, copyrights, copyright applications,
tradenames and trade secrets owned by any Borrower in the
United States are set forth on Schedule 5.7, are valid and have
been duly registered or filed with all appropriate governmental
authorities; to the best of the Borrowers' knowledge, each
Borrower possesses all of the licenses, patents, copyrights,
trademarks, tradenames and permits necessary to conduct its
business; to the best of the Borrowers' knowledge, there is no
objection or pending challenge to the validity of any such
material patent, trademark, copyright, tradename, trade secret or
license and no Borrower is aware of any grounds for any
challenge, except as set forth in Schedule 5.7 hereto. Upon the
Lender's request therefor, each Borrower agrees to provide the
Lender with a complete and accurate list of all material license
agreements to which it is a party.
5.8 Licenses and Permits. Except as set forth
in Schedule 5.8, each Borrower is in compliance with and has
procured and is now in possession of, all material licenses or
permits required by any applicable federal, state , provincial or
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local law or regulation for the operation of its business in each
jurisdiction wherein it is now conducting or proposes to conduct
business, and where the failure to procure such licenses or
permits has or might have a Material Adverse Effect.
5.9 Default of Indebtedness. Borrowers are not
in default in any material respect in the payment when due
(subject to any applicable grace period and whether by
acceleration or otherwise), of the principal of or interest on
any Indebtedness in the original principal amount of $5,000,000
or more, when considered individually or in the aggregate, or
under any instrument or agreement involving Indebtedness of
$5,000,000 or more when considered individually or when
considered in the aggregate. To the knowledge of the Borrowers,
no event has occurred under the provisions of any such instrument
or agreement which constitutes or with the lapse of time or the
giving of notice, or both, would constitute an event of default
thereunder.
5.10 No Default. No Borrower is in default in
any material respect in the performance of, and no event of
default has occurred under any of its contractual obligations
which has or may have a Material Adverse Effect.
5.11 Margin Regulations. The Borrowers are not
engaged, nor will any of them engage, principally or as one of
its material activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock"
within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in
effect. No part of the proceeds of any Advances will be used for
"purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
5.12 Environmental Warranties. Except as set
forth in Schedule 5.12 ("Environmental Matters"):
(a) all facilities and property (including
underlying groundwater) owned or leased by any Borrower or any of
their Subsidiaries and their predecessors in interest have been,
and continue to be, owned and operated in compliance with all
Environmental Laws;
(b) the Borrowers, their Subsidiaries and their
predecessors in interest have timely applied for, have been
issued and are and continue to be in compliance with all permits,
certificates, approvals, licenses and other authorizations
required under all Environment Laws, and have timely filed all
required notices, reports and other submissions required under
all Environmental Laws; and
(c) none of the Borrowers or their Subsidiaries,
nor any of their predecessors in interset, nor to the best
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knowledge of the Borrowers any Person (including, without
limitation, any tenant or previous tenant or occupant of any
facility or any part thereof) has ever caused or suffered any
Hazardous Material to be disposed on, under or at any property
owned or leased by any Borrower or its Subsidiaries or other
property, including, but not limited to, spills and releases from
raw materials transfer areas, raw materials storage areas (e.g.,
above ground storage tanks and drum storage areas) and
manufacturing areas (including, but not limited to, floor drains,
waste storage areas, surface impoundments and subsurface
dispersal structure devices) except in compliance with
Environmental Laws;
(d) neither the Borrowers, their Subsidiaries,
nor any of their predecessors in interest has received (i) a
request for information, notice or other order (including draft
and proposed orders) or (ii) notice of any enforcement action
threatened or issued or pending, in each case by any governmental
entity or agency with respect to violations of any Environmental
Law or any environmental conditions that may warrant
investigation, removal or remediation, and neither the Borrowers,
their Subsidiaries, nor any of their predecessors in interset
have received a notice that they are a potentially responsible
party at any site; and
(e) neither the Borrowers, their Subsidiaries,
nor any of their predecessors in interest has received notice nor
has any knowledge of any action or proceeding, threatened or
pending, with respect to any Environmental Claim relating to the
existence in, on or under any property owned or leased by any of
them or any property adjoining or appurtenant thereto, or the
spilling, discharge or emission on or from such property or any
such adjoining property of, any Hazardous Material.
5.13 Validity, etc. This Agreement
constitutes, and the Other Documents executed by the Borrowers
will, on the due execution and delivery thereof, constitute the
legal, valid and binding obligations of each Borrower party
thereto, enforceable in accordance with their respective terms,
subject in each case as to enforceability to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' rights generally, and subject to
the effect of general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
5.14 Subsidiaries. A complete and accurate list
of the Subsidiaries of each of the Borrowers is set forth in
Schedule 5.14 hereto.
5.15 Disclosure and Notice to Lender. As of
February 28, 1995 , no representation or warranty made by any
Borrower in this Agreement or the Other Documents contains any
untrue statement of a material fact or omits to state any fact
necessary to make the statements herein or therein not materially
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misleading, except only as may later be disclosed by any of the
Borrowers to the Lender in writing prior to or concurrently with
any request for Advances. As of February 28, 1995, there is no
fact known to any Borrower or which reasonably should be known
to any Borrower, which such Borrower has not disclosed to Lender
in writing with respect to the transactions contemplated by this
Agreement, which has or may have a Material Adverse Effect.
5.16 Survival of Representations and Warranties.
All representations and warranties of each Borrower contained in
this Agreement and the Other Documents shall be true at the time
of their respective execution of this Agreement and the Other
Documents, and shall survive the execution, delivery and
acceptance thereof by Lender and the parties thereto and the
closing of the transactions described therein or related thereto.
VI. COVENANTS
Each Borrower covenants and agrees with Lender that it
shall, until payment in full of the Obligations and termination
of this Agreement:
6.1 Payment of Fees. Pay to Lender on demand
all fees and expenses which Lender incurs to any other Person in
connection with any Advances hereunder. Lender may, without
making demand, charge the account of the applicable Borrower for
all such fees and expenses.
6.2 Conduct of Business and Maintenance of
Existence and Assets. (a) Conduct its business according to
existing business practices and maintain all of its properties
useful or necessary in the conduct of its business in good
working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of
this Agreement), including, without limitation, all licenses,
patents, copyrights, tradenames, trade secrets and trademarks
where the failure to do so would have a Material Adverse Effect;
(b) Keep in full force and effect its existence and comply in
all material respects with the laws and regulations governing the
conduct of its business where the failure to do so has or might
have a Material Adverse Effect; and (c) Make all such reports and
pay all such franchise and other taxes and license fees (except
only as may be contested in good faith by appropriate
proceedings), and do all such other acts and things as may be
lawfully required to maintain its rights, licenses, leases,
powers and franchises under the laws of the United States or any
political subdivision thereof where the failure to do so would
have a Material Adverse Effect.
6.3 Violations. Promptly notify the Lender in
writing of any violation of any law, statute, regulation or
ordinance of any governmental entity, or of any agency thereof,
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applicable to any Borrower, and which has or may have a Material
Adverse Effect.
6.4 Tangible Net Worth of AEI and its consolidated
Subsidiaries; Not, as at the end of any fiscal quarter of the
Borrowers, permit the Tangible Net Worth on a consolidated basis
to be less than the minimum amounts indicated below in respect of
the corresponding periods noted below:
Minimum Tangible
Net Worth At Each of
(a)
$160,000,000.00 February 28, May 31 and August 31, 1995
$175,000,000.00 November 30, February 29, May 31 and August 31, 1996
$175,000,000.00 November 30, February 28, May 31 and August 31 of each
of Borrower's fiscal years after 1996;
plus
(b) an amount equal to fifty percent (50%) of the aggregate
amount of any capital contribution and/or equity infusion into,
or any other additional equity derived from any source by, any
Borrower and which arises on or after January 5, 1995.
6.5 Working Capital of AEI and its consolidated
Subsidiaries; Not, as at the end of any fiscal quarter of the
Borrowers, permit the Working Capital on a consolidated basis to
be less than the minimum amounts indicated below in respect of
the corresponding periods noted below:
Minimum Working
Capital At Each of
(a)
$100,000,000.00 February 28, May 31 and August 31, 1995
$115,000,000.00 November 30, February 29, May 31 and August 31, 1996
$115,000,000.00 November 30, February 28, May 31 and August 31 of each
of Borrower's fiscal years after 1996;
plus
(b) An amount equal to fifty percent (50%) of the aggregate
amount of any capital contribution and/or equity infusion into,
or any other additional equity derived from any source by, any
Borrower and which arises on or after January 5, 1995.
6.6 Capital Expenditures. Not, on a
consolidated basis, make Capital Expenditures or otherwise
contract for, purchase or make any commitments for fixed or
capital assets in any fiscal year in an amount in excess of
$10,000,000 in the aggregate, except for: (a) Capital
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Expenditures in connection with the premises known as 70 Glen
Street, Glen Cove, New York, up to a total amount not to exceed
$20,000,000 in the aggregate, on a comulative basis; and (b) in
respect of ACTC, L.P., to the extent set forth in Lender's letter
to AEI dated January 27, 1995.
6.7 Ratio of Total Indebtedness to Tangible Net
Worth. Cause to be maintained as at the end of each fiscal
quarter of the Borrowers on a consolidated basis, a ratio of
total Indebtedness (excluding, however, the amount of any Letters
of Credit then outstanding under this Agreement ) to Tangible Net
Worth of AEI and its consolidated Subsidiaries of not greater
than the ratio of one to one (1:1), but in determining such
Indebtedness for purposes of calculating any such ratio, the
outstanding amount of any Advances under this Agreement shall be
excluded.
6.8 Fixed Charge Ratio. AEI and its
consolidated Subsidiaries shall cause to be maintained during:
(a) the last four consecutive fiscal quarters of the Borrowers, a
Fixed Charge Ratio of not less than four to one (4:1); and (b)
each of the fiscal quarters of the Borrowers, a Fixed Charge
Ratio of not less than two to one (2:1), in each case tested on a
quarterly basis.
6.9 Maximum Losses. AEI and its consolidated
Subsidiaries shall not incur, or permit to be incurred, losses
taken as a whole, in respect of any fiscal quarter, at any time
to exceed $5,000,000.00 concerning any such fiscal quarter.
6.10 Pledge of Credit. Not now or hereafter
pledge the Lender's credit on any purchases or for any purpose
whatsoever or use any portion of any Advances in or for any
business other than: (a) such Borrower's business as conducted on
the date of this Agreement; and (b) any other business within the
entertainment industry, other than any business prohibited
under the laws of the State of Utah as in effect as of the
Restatement Effective Date.
6.11 Payment of Indebtedness. Pay, discharge
or otherwise satisfy at or before maturity, subject, however, to
any applicable subordination arrangement in favor of Lender and
where applicable, to specified grace periods and, in the case of
the trade payables, to normal payment practices, all its material
obligations and liabilities of whatsoever nature, except when the
amount or validity thereof is currently being contested in good
faith by appropriate proceedings and which are covered by
adequate reserves.
6.12 Additional Material Subsidiaries/Corporate
Guarantors. Each Person who is or may become: (a) a Material
Subsidiary incorporated in any state within the United States of
America shall execute and deliver to Lender such documentation
as Lender may reasonably request at any time and from time to
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time in order to implement, perfect and enforce all of the terms
and provisions hereof pertaining to the Collateral; or (b) a
Corporate Guarantor, other than any Excluded Corporate
Guarantors (as defined below), shall execute and deliver to
Lender a Corporate Guarantee. For purposes hereof, the term
"Excluded Corporate Guarantors" shall mean (i) any Corporate
Guarantor which AEI on behalf of the Borrowers, may elect by
written notice to Lender given at any time so long as no Event
of Default shall then have occurred and be continuing, to
exclude from becoming a Corporate Guarantor; provided however,
that the aggregate asset value outstanding at any time and from
time to time of all Excluded Corporate Guarantors other than
those listed in sub-section (ii) immediately below, taken as a
whole, shall not exceed an amount equal to ten percent (10%) of
the aggregate asset value outstanding of AEI and its
consolidated Subsidiaries, determined as of end of their last
fiscal quarter; or (ii) Acclaim Cable Holdings, Inc., Acclaim
Comics, Inc. and ACTC, L.P.; provided that no Material
Subsidiary other than a Subsidiary listed in subparagraph (ii)
immediately above and any future Subsidiary which Lender has
agreed in writing shall be an Excluded Corporate Guarantor may
be, or may be designated as, one of the "Excluded Corporate
Guarantors".
Notwithstanding the foregoing, upon the occurrence
of an Event of Default which is continuing, each Person who is or
may become a Subsidiary of any of the Borrowers, shall promptly
execute and deliver a Corporate Guarantee to Lender, as well as
documentation in order for Lender to perfect and enforce a Lien
in Collateral of each such Subsidiary, whether or not any such
Subsidiary is incorporated in the United States or is a Material
Subsidiary and in any such instance, except for Excluded
Corporate Guarantors covered by sub-section (ii) of the
immediately preceding paragraph and Subsidiaries theretofore
becoming an Excluded Corporate Guarantor with the Lender's
consent.
6.13 Fiscal Year. No Borrower shall during the
Term hereof change its fiscal year to end on a date other than
August 31 of each Calendar Year and shall cause all financial
statements issued during the Term hereof to be prepared on a
basis consistent therewith.
6.14 Corporate Changes. Each Borrower will
promptly inform Lender in writing of any of the following
corporate changes, but without Lender's prior written consent
which shall not be unreasonably withheld, no Borrower will: (a)
acquire or form any new or additional Affiliates with an
aggregate asset value in any instance of $5,000,000 or more; (b)
make a change in its corporate name or corporate structure; (c)
wind up, liquidate or dissolve itself; (d) sell, transfer, lease,
or otherwise convey or dispose of all or substantially all of its
assets or business; or (e) amalgamate, consolidate merge,
reorganize or otherwise implement any similar change in its
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corporate structure, subject in each instance, to the other terms
and provisions of this Agreement. Notwithstanding the foregoing,
nothing contained in this Section 6.14 shall prohibit or
restrict: (y) the merger of any Subsidiary of any of the
Borrowers into any Borrower; or (z) the transfer of assets of any
Subsidiary of any of the Borrowers to any Borrower. Without
limiting the foregoing: (i) Lender's consent shall not be deemed
to have been unreasonably withheld in any circumstance where (A)
any such acquisition, formation, merger, reorganization or other
change has or may have a Material Adverse Effect; or (B)
following any such acquisition, formation, merger, reorganization
or other change: (1) an Event of Default would then exist under
this Agreement or any of the Other Documents; or (2) any
additional Corporate Guarantee(s) and/or Collateral documentation
would be required in connection with the maintenance, perfection
or priority of Liens in favor of Lender in all Collateral as
described herein or in the Other Documents, or as otherwise would
be required to be executed and delivered to the Lender under the
Agreement or the Other Documents, in any case which has not been
received by the Lender, unless and until so furnished to Lender;
and (ii) Lender's consent shall be deemed given unless Lender
affirmatively withholds its consent, or objects to the
acquisition, formation, merger, reorganization or other change
contemplated by this Section 6.14 by no later than the tenth
day following Lender's receipt of written notice thereof and by
means of Lender advising AEI in writing, on behalf of all
Borrowers, of the withholding of such consent or of its objection
thereto.
6.15 Environmental Liabilities. Not (a) violate any
requirement of any Environmental Laws; (b) dispose of or, except
in accordance with applicable Environmental Laws, store any
Hazardous Material in, on or at any real property owned or
operated by any Borrower; (c) allow any Lien imposed pursuant to
Environmental Laws to be imposed or to remain on such real
property, except as contested in good faith by appropriate
proceedings for which adequate reserves have been established and
are being maintained on its books; or (d) fail at any time to
obtain or comply with any permit, certificate, license, approval
or other authorization required under Environmental Laws or to
file any notification or report required under Environmental
Laws.
6.16 Additional Assurances. Upon Lender's
reasonable request, from time to time take such additional steps
or actions, and/or to cause each of the Corporate Guarantors and
Material Subsidiaries to take such additional steps or actions,
and to execute and deliver to Lender, and to cause each of the
Corporate Guarantors and Material Subsidiaries to execute and
deliver to Lender, such additional agreements, statements,
reports, assignments, transfers and/or instructions relating to
the Collateral, all in reasonable detail and such other
documentation, including without limitation financing,
continuation or amendment Uniform Commercial Code financing
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statements, as may be necessary or desirable, or that Lender may
from time to time reasonably request, in order to grant,
preserve, protect and perfect Lender's Lien in the Collateral and
to otherwise carry out the purposes, terms or conditions of this
Agreement and the Other Documents.
VII. CONDITIONS PRECEDENT.
7.1 Conditions Precedent to Each Advance. The
agreement of Lender to make any Advance requested to be made on
any date (including, without limitation, its initial Advance), is
subject to the satisfaction of the following conditions precedent
as of the date the same is made:
(a) Representations and Warranties. Each of
the representations and warranties made by the applicable
Borrower in or pursuant to this Agreement and the Other Documents
to which it is a party, and each of the representations and
warranties contained in any certificate, document or financial or
other statement furnished at any time under or in connection with
this Agreement and the Other Documents shall be true and correct
in all material respects on and as of such date as if made and
shall be deemed made on and as of such date (except to the extent
that any such representation or warranty expressly is stated to
relate to another date);
(b) No Default. No Default or Event of
Default shall have occurred and be continuing on such date, or
would exist after giving effect to Advances requested to be made
on such date; provided, however that Lender in its sole
discretion, may continue to make Advances notwithstanding the
existence of any Default or Event of Default;
(c) Maximum Advances. In the case of any
Advances requested to be made, after giving effect thereto, the
aggregate Advances shall not exceed the maximum Advances
permitted under Section 2.1 hereof, subject to Section 2.1(b)
hereof; and
(d) Additional Corporate Guarantees. Each of
the Corporate Guarantors becoming such after February 28, 1995
shall have executed and delivered to the Lender Corporate
Guarantees of each and all of the Borrowers and their respective
Obligations, which remain in full force and effect for the
benefit of the Lender and which shall not have been terminated
or challenged in any respect.
Each request for Advances by a Borrower hereunder shall
constitute a representation and warranty by the Borrowers as of
the date of such Advances that the conditions contained in this
subsection shall have been satisfied.
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VIII. NOTICES, INFORMATION FINANCIAL STATEMENTS,
REPORTS, COMPLIANCE CERTIFICATES
Each Borrower covenants and agrees with Lender that it
shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
8.1 Disclosure and Notice of Certain Items.
Immediately upon learning thereof, report to the Lender all
matters materially affecting: (a) the value, enforceability or
collectibility of any portion of the Collateral including,
without limitation, any material compromise or adjustment of any
Receivable(s), (b) any material extension of the time for payment
thereof, (c) the reclamation or repossession by any Borrower of,
or the return to or the acceptance by any Borrower of a material
amount of goods or claims, (d) any other material disputes,
offsets or counterclaims asserted by any Customer or other
obligor, any material delay in performance by any Borrower of
any obligations in any material respect to any Customer or with
respect to any outstanding Receivables, and (e) subject to
Section 4.5(a) hereof, any allowances, credits, return
authorizations and/or other monies granted by any of them in any
material respect to any Customer; provided however, that in the
absence of an Event of Default that has occurred and is
continuing, no such report shall be made unless any matter
covered thereby shall have a Material Adverse Effect on the
Receivables for which Lender then has the Credit Risk under the
Factoring Agreements, as a whole, or on the Inventory or
Receivables of the Borrowers, taken as whole, or on the
Collateral taken as a whole. If an Event of Default has
occurred and is continuing, however, the Borrowers shall deliver
the reports required hereunder without giving effect to the
proviso in the immediately preceding sentence.
Each Borrower will promptly inform Lender in
writing of: (a) the commencement of proceeding by any
governmental, administrative, or self-regulatory body, the
receipt of notices from any such body relating to the
institution of any action or proceeding in any court or before
any arbitrator asserting any material violation or breach against
any of the Borrowers or their respective assets, or against or in
any way concerning any of their respective properties, assets or
businesses, which might singly or in the aggregate have a
Material Adverse Effect; (b) any change in its business, assets,
liabilities, condition (financial or otherwise), or results of
operations which has had or might have a Material Adverse Effect;
(c) any change in the location of any of its executive offices
from the location described in Section 4.5(b) of this Agreement;
and agrees in any event that no such change shall be effectuated
unless and until all documentation reasonably satisfactory to
Lender, including without limitation Uniform Commercial Code
Financing Statements, has first been executed and delivered to
Lender, which Lender determines are necessary in order to
continue the perfection and priority of Lender's Lien in all of
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the Collateral on the basis of such changed circumstances; (d)
any change in the location of Collateral from the locations as
set forth in Schedule 8.1 to this Agreement and agrees in any
event that no such change shall be effectuated unless and until
all documentation reasonably satisfactory to Lender, including
without limitation Uniform Commercial Code Financing Statements,
has first been executed and delivered to Lender, which Lender
determines are necessary in order to continue the perfection and
priority of Lender's Lien in all of the Collateral on the basis
of such changed circumstances; and (e) all material adverse
information known to any Borrower relating to the financial
condition of any Customer.
Each Borrower shall also promptly provide to the
Lender, and shall cause each of the Material Subsidiaries to
promptly provide to the Lender, such information as the Lender
shall reasonably request in order to enable Lender to determine
whether the terms, covenants, provisions and conditions of this
Agreement have been complied with including, without limitation:
(a) at least thirty (30) days prior thereto, of the opening of
any new office or place of business by any Borrower or Material
Subsidiary or the closing of any existing office or place of
business by any Borrower or any Material Subsidiary, which in any
instance is or was a location of any of their respective books or
records; (b) all consolidating figures and work papers prepared
internally and, for so long as an Event of Default shall have
occurred and be continuing or in any instance in which the
independent accountants of AEI have not issued an unqualified
report on its audited consolidated financial statements, on a
best efforts basis, all consolidating figures and work papers
prepared by such accountants, in each case in relation to the
preparation of any of the financial statements to be provided to
Lender hereunder, whether or not specifically referenced herein;
and (c) promptly upon any Borrower learning thereof, of any labor
disputes, strikes or walkouts relating to any of the Borrowers or
their respective plants or other facilities, and the expiration
of any labor contract to which any Borrower is a party or by
which any Borrower is bound.
8.2 Schedules. Deliver Inventory reports to the
Lender on or before the fifteenth (15th) day of each month as and
for the prior month, provided however, that at the Lender's
request therefor, Inventory reports shall be delivered to the
Lender on a weekly basis, by Wednesday of each week as and for
the prior week. In addition, each Borrower will deliver to
Lender at such intervals as the Lender may require: (i)
confirmatory assignment schedules, (ii) copies of Customer's
invoices, (iii) evidence of shipment or delivery, and (iv) such
further schedules, documents and/or information regarding the
Collateral as the Lender may require including, without
limitation, trial balances and test verifications. The Lender
shall have the right to confirm and verify all Receivables by any
manner and through any medium it considers advisable and do
whatever it may deem reasonably necessary to protect its
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interests hereunder. The items to be provided under this Section
are to be in form reasonably satisfactory to the Lender and
executed by each Borrower and delivered to the Lender from time
to time solely for the Lender's convenience in maintaining
records of the Collateral, and the failure of any Borrower to
deliver any of such items to the Lender shall not affect,
terminate, modify or otherwise limit the Lender's Lien in
Collateral.
8.3 Environmental Certificates. Furnish Lender,
concurrently with the delivery of the financial statements to be
provided to the Lender hereunder, an accompanying certificate of
each of the Borrowers , signed by an authorized officer thereof,
stating, that to the best of his (or her) knowledge, the Borrower
is in compliance in all material respects with all federal,
state and local laws relating to occupational safety and health
and with respect to the Glen Cove and Oyster Bay, New York
locations referred to in Section 4.5(b) hereof, as well as any
other material real property location hereafter leased or
acquired by any of the Borrowers or any Corporate Guarantor,
relating to Environmental Laws. To the extent any Borrower is
not in compliance with the foregoing laws, the certificate shall
set forth with specificity all areas of non-compliance and the
proposed action such Borrower will implement in order to achieve
full compliance.
8.4 Litigation. Promptly notify the Lender in
writing of any litigation to which any Borrower is a party,
whether or not the claim is covered by insurance, and of any suit
to which any Borrower is a party, which may have a Material
Adverse Effect.
8.5 Default Related Notices. Promptly notify
the Lender in writing upon the occurrence of (a) any Default or
Event of Default; (b) any event of default under any Indebtedness
for Borrowed Money or any other material agreement or instrument
to which any Borrower is a party or by which any of its assets
may be bound, which has or might have a Material Adverse Effect,
or any event thereunder which with the giving of notice or lapse
of time, or both, would constitute an event of default
thereunder, which has or might have a Material Adverse Effect;
(c) any event, development or circumstance whereby the financial
statements most recently furnished to the Lender fail in any
material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition and operating
results of AEI and its consolidated Subsidiaries, taken as a
whole as of the date of such financial statements; (d) any
accumulated retirement plan funding deficiency which has
continued for two plan years and was not corrected and (e) any
other development in the business or affairs of any Borrower
which could reasonably be expected to have a Material Adverse
Effect; in each case describing the nature thereof and the
actions(s) such Borrower proposes to take with respect thereto.
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8.6 Government Receivables. Notify the Lender
immediately if the percentage of the aggregate amount of all
outstanding Receivables which arise out of contracts between the
Borrowers on the one hand and the United States, any state, or
any department, agency or instrumentality of any of them on the
other hand, is five percent (5%) or more of the aggregate of all
outstanding Receivables of the Borrowers, and so long as this
situation may continue, to promptly notify the Lender of any
changes in such percentage, to keep the Lender fully informed of
the status of all of such Receivables and to supply such details
and documentation the Lender may reasonably request in relation
thereto.
8.7 Annual Financial Statements. Furnish the
Lender within ninety (90) days after the end of each fiscal year
of Borrowers financial statements of AEI and its consolidated
Subsidiaries, including, but not limited to, statements of income
and stockholders' equity and changes in financial position from
the beginning of such fiscal year to the end of such fiscal year
and the balance sheet as at the end of such fiscal year, all
prepared in accordance with GAAP applied on a basis consistent
with prior practices and reported upon without qualification by
AEI's independent certified public accounting firm, who shall be
satisfactory to Lender (the "Accountants"), it being acknowledged
that Grant Thornton is satisfactory to the Lender. The report
of such accounting firm shall be accompanied by: (a) a statement
of such accounting firm certifying that, in making the
examination upon which such report was based, either no
information came to their attention which to their knowledge
constituted an Event of Default under this Agreement or any of
the Other Documents, or, if such information came to their
attention, specifying any such Event of Default, and such report
shall contain or have appended thereto calculations which set
forth compliance by the Borrowers with the provisions of
Sections 6.4 through and including Section 6.9 hereof, and (b) a
compliance certificate signed by the Chief Financial Officer of
each of the Borrowers, as contemplated by Section 8.13 hereof,
which shall state whether an Event of Default has occurred. The
ninety (90) day period referred to in the initial sentence of
this Section 8.7 shall be extended for an additional fifteen
(15) day period, provided and to the extent that AEI has filed a
Form 12b-25 (or its then current equivalent) with the Securities
and Exchange Commission; provided however, that notwithstanding
any such extension and/or filing of a Form 12b-25, the Borrowers
shall provide management prepared financial statements to the
Lender within such ninety (90) day period.
8.8 Quarterly Financial Statements. Furnish the
Lender within forty five (45) days after the end of each of the
first three of their fiscal quarters, an unaudited balance sheet
of the Borrowers on a consolidated and consolidating basis and an
unaudited statement of income and stockholders' equity and
changes in financial position of Borrowers reflecting results of
operations from the beginning of the fiscal year to the end of
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such quarter and for such quarter, prepared on a basis consistent
with prior practices and complete and correct in all material
respects, subject to normal year end adjustments. The reports
shall be accompanied by a compliance certificate signed by the
Chief Financial Officer of each of the Borrowers, as
contemplated by Section 8.13, hereof, which shall state whether
an Event of Default has occurred. The forty-five (45) day
period referred to in the initial sentence of this Section 8.7
shall be extended for an additional fifteen (15) day period,
provided and to the extent that AEI has filed a Form 12b-25 (or
its then current equivalent) with the Securities and Exchange
Commission; provided however, that notwithstanding any such
extension and/or filing of a Form 12b-25, the Borrowers shall
provide management prepared financial statements to the Lender
within such forty-five (45) day period.
8.9 Monthly Financial Statements. At Lender's
request, furnish the Lender within forty five (45) days after
the end of each month, an unaudited balance sheet of the
Borrowers and an unaudited statement of income and stockholders'
equity and changes in financial position of Borrowers reflecting
results of operations from the beginning of the fiscal year to
the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all
material respects, subject to normal interim and year end
adjustments.
8.10 Other Information and Reports. At the
Lender's request therefor, furnish the Lender as soon as
available, but in any event within ten (10) days after the
issuance thereof, with copies of such financial statements,
reports and returns as Borrowers shall send to stockholders as
well as copies of all reports, registration statements, proxy
statements and other information and documentation filed with the
Securities and Exchange Commission at any time and from time to
time by or concerning any of the Borrowers. Without limiting the
foregoing, the Borrowers agree to execute and deliver
supplemental or additional Questionnaires to the Lender on a
yearly basis.
8.11 Projected Operating Budget. Furnish
Lender, no less than thirty (30) days prior to the beginning of
each of the fiscal years of Borrowers a month by month projected
operating budget and cash flow of the Borrowers for such fiscal
year and a projected income statement for each month and a
projected balance sheet as at the end of the last month in each
fiscal quarter, such projections to be accompanied by a
certificate signed by an executive officer of the Borrower and
each Corporate Guarantor, to the effect that such projections
have been prepared on the basis of sound financial planning
practice consistent with past budgets and financial statements
and that each such officer has no reason to question the
reasonableness of any material assumptions on which such
projections were prepared.
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8.12 Variances From Operating Budget. Upon
Lender's reasonable request, to furnish Lender, concurrently with
the delivery of any financial statements to be delivered
hereunder, a written report summarizing all material variances
from budgets submitted by the Borrowers and a discussion and
analysis by management with respect to such variances.
8.13 Compliance Certificates. The financial
statements called for to be furnished to Lender by any of the
Borrowers pursuant to Sections 8.7 and 8.8 hereof shall be
accompanied by a certificate executed by AEI's chief financial
officer on behalf of the Borrowers, in the form of Exhibit E
hereof: (a) setting forth as at the end of the fiscal year or
the first three fiscal quarters of the Borrowers, as the case may
be, the calculations required to establish whether or not the
Borrowers at the end of the period covered by such financial
statements were in compliance with the various financial
covenants set forth in Sections 6.4 through and including Section
6.9 of this Agreement, if applicable; and (b) stating that, based
on an examination sufficient to enable him to make an informed
statement, no event has occurred and no circumstance exists which
constitutes a Default or an Event of Default under this Agreement
or, if such an event has occurred or circumstance exists,
advising Lender as to whether it has been previously disclosed to
the Lender in accordance with Section 8.5 hereof and if such
disclosure has been so made, attaching another copy thereof and
if such disclosure has not been so made, disclosing to the
Lender each such event or circumstance and its nature, when it
occurred, whether it is continuing and in any event, stating the
steps being taken by the Borrower(s) involved with respect to
such event, circumstance, or failure.
IX. EVENTS OF DEFAULT.
The occurrence of any one or more of the following
events and the continuance thereof beyond any applicable period
of grace, if any, provided for below, shall constitute an "Event
of Default" :
(a) default in the payment in any of the
Obligations , when due and payable or declared due and payable
in accordance with this Agreement or any of the Other Documents
or in performance of any of the Obligations hereunder or under
any of the Other Documents in accordance herewith or therewith;
(b) any representation or warranty made by
any of the Borrowers in this Agreement or any of the Other
Documents shall be breached in any material respect;
(c) failure or neglect by any Borrower to
perform, keep or observe any other material term, provision,
condition or covenant contained in this Agreement or any of the
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Other Documents, which is required to be performed, kept or
observed by any of them including without limitation any
failure to (A) furnish financial information when due or when
requested or (B) permit the inspection of its books or records,
which shall remain unremedied for a period ending on the first to
occur of 30 days after notice shall have been given by Lender of
any such failure or neglect, or 30 days after any of the
Borrowers shall become aware thereof or (C) comply with any
covenant set forth in Sections 6.4 through and including 6.10
hereof (it being acknowledged that any term or provision
contained in this Agreement which is qualified as to Material
Adverse Effect shall, upon the existence of a Material Adverse
Effect in respect thereof, be deemed material for purposes of
this sub-section (c));
(d) any Lien, other than Permitted
Encumbrances or any Lien or Charge described in sub-section (f)
below, shall exist against AEI or a material portion of the
property of the Borrowers taken as a whole, which has or may have
a Material Adverse Effect and which shall remain unstayed or
undismissed for 45 consecutive days;
(e) a prohibited transaction within the
meaning of Section 4975 of the Internal Revenue Code or Section
406 of ERISA or a Reportable Event shall occur with respect to
any Plan and, in the reasonable determination of Lender, the same
could have a Material Adverse Effect , or the Pension Benefit
Guaranty Corporation (or any successor thereto under ERISA) shall
apply for the appointment of a trustee to administer any such
Plan or the Pension Benefit Guaranty Corporation (or any
successor thereto under ERISA) shall institute proceedings to
terminate any such Plan; or any of the Borrowers shall incur an
accumulated funding deficiency or request a funding waiver from
the Internal Revenue Service or otherwise shall fail to meet its
minimum funding requirements under ERISA with respect to any
applicable plan year of any Plan established by them; or any such
Plan shall be the subject of a notice of termination or any
termination proceedings, whether voluntary or involuntary, or, in
the reasonable determination of Lender, there is a reasonable
likelihood of termination of any such Plan by the Pension Benefit
Guaranty Corporation and there would result from such termination
proceedings or termination a liability which is material to the
financial condition of any of the Borrowers to the Pension
Benefit Guaranty Corporation (or any successor thereto under
ERISA); or any of the Borrowers shall be in default under any
obligation with respect to payments to a multi-employer plan
resulting from the complete or partial withdrawal of any of
Borrowers (as described in Section 4203 or 4205 of ERISA) from
such Plan or from termination of such Plan or otherwise incur any
withdrawal liability thereunder;
(f) any warrant of attachment or execution
or similar process shall be issued, or judgment or order for the
payment of money shall be entered or judgment Liens filed against
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any of the Borrowers or any of their respective assets which in
any such instance involves more than $5,000,000 in the aggregate,
or which Lender in its reasonable determination exercised in good
faith otherwise believes may have a Material Adverse Effect and
which is not either satisfied, stayed or discharged of record
within forty five (45) days of such issuance, entry or filing;
(g) (i) Any of the Borrowers shall (A) apply
for the appointment of, or the taking of possession by, a
receiver, custodian, sequestrator, trustee or liquidator of
itself, or of all or a substantial part of its property, (B) be
generally unable to pay its debts as they become due or cease
operations of its present business, (C) make a general assignment
for the benefit of creditors, (D) commence a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in
effect), (E) file a petition seeking relief under the Bankruptcy
Code or to take advantage of any other law providing for the
relief of debtors, or (F) take any corporate action authorizing
or otherwise consenting to the institution of any such
proceedings, filings or take any action for the purpose of
effecting any of the foregoing; or
(ii) A case or proceeding shall have been
commenced against any of the Borrowers: (A) under the Bankruptcy
Code or any other applicable federal, state or foreign bankruptcy
or other similar law, (B) appointing a receiver, custodian,
sequestrator, trustee or liquidator of any of the Borrowers or of
all or a substantial part of its property, or (C) of any type or
nature otherwise more fully described in subdivision (i)
immediately above, the same shall remain undismissed or
unstayed for thirty (30) consecutive days or any such court
having competent jurisdiction with respect thereto shall enter a
decree or order granting the relief sought in such case or
proceeding; provided that the Lender may require that any of such
Borrowers so affected to obtain an order of the court having
jurisdiction over the proceeding (in form and substance
satisfactory to Lender) prior to making any further Advances
within such 30 day period;
(h) (i) any event of default of any of the
Borrowers under any agreement now or hereafter in effect with
HKSB and/or Midland, or (ii) a default of the obligations of any
of the Borrowers with respect to any other Indebtedness and/or
any other contractual obligation, in each case subject to Section
5.9 and/or 5.10 of this Agreement, which has or may have a
Material Adverse Effect, except with respect to this sub-section
(ii) to the extent that any such obligations are being contested
in good faith, by appropriate proceedings and are covered by
adequate reserves;
(i) if any Lien created hereunder or under
any of the Other Documents or provided for hereby or thereby, or
under any related agreement for any reason ceases to be or is not
a valid and perfected Lien having a first priority interest in
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any of the Collateral (other than Permitted Encumbrances)
purported to be covered thereby or any provision of this
Agreement or the Other Documents shall for any reason cease to be
valid, binding and enforceable in accordance with its terms, or
shall be challenged (provided that any such challenge is not
stayed, cured or otherwise satisfied within a period not to
exceed forty-five (45) days from the time it arises), and as a
result, the remedies available to Lender are inadequate for the
practical realization of the Lender's rights and remedies
hereunder or thereunder;
(j) termination or breach of any of the
Corporate Guarantees , or if any Corporate Guarantor attempts to
terminate, challenges the validity of, or its liability under,
any Corporate Guarantee;
(k) any Change of Ownership; or
(l) should any of the Factoring Agreements,
other than AEC's, be terminated for any reason whatsoever, or
should any Event of Default exist thereunder.
X. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
10.1 Rights and Remedies. Upon the occurrence
of an Event of Default pursuant to Article IX(g)(i), all
Obligations shall be automatically and immediately due and
payable, without any delegation or action by Lender, and without
the need for any presentment, demand, protest, or other notice of
any kind, all of which are expressly waived, this Agreement shall
automatically terminate and the Lender shall have no further
responsibilities to make any Advances hereunder, to issue any
Letters of Credit or create any Lender Guarantees or any
Acceptances hereunder, or to otherwise remit any funds to or for
the account of any Borrower and Lender shall have no other
commitments, obligations or any other undertakings to any of the
Borrowers, whether under this Agreement or any of Other
Documents. Upon the occurrence and during the continuance of any
of the other Events of Default, at the option of Lender, the
Lender may, by written notice to the Borrowers: (a) declare all
Obligations to be immediately due and payable, (b) require prompt
and full cash collateralization by the Borrowers of all
outstanding Letters of Credit, Lender Guarantees and/or
Acceptances and/or (c) exercise any of the rights and remedies
described in the preceding sentence, including without limitation
the right to terminate this Agreement or to terminate any or all
other commitments, obligations and/or undertakings to each and
all of the Borrowers, including without limitation under this
Agreement and/or any of the Other Documents. In any such event,
the Lender shall additionally have the right to exercise any and
all other rights and remedies provided for herein, pursuant to
the Other Documents, under the Uniform Commercial Code and at law
or equity generally, including, without limitation, the right to
foreclose
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the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take
possession of and sell any or all of the Collateral with or
without judicial process. Upon and during the continuance of an
Event of Default, the Lender shall be authorized to and may enter
into such warehousing and other custodial arrangements as to the
Collateral which Lender may elect and enter any of the premises
of any Borrower and/or any Material Subsidiary or other premises
which any of them may occupy or use in their respective
businesses, without legal process and without incurring liability
to any of them therefor, and the Lender may thereupon, or at any
time thereafter, in Lender's discretion without notice or demand,
take the Collateral and remove the same to such place as the
Lender may deem advisable and the Lender may require any
Borrower and/or Material Subsidiary to peacefully surrender the
Collateral and otherwise make the Collateral available to the
Lender at convenient places. Upon and during the continuance of
an Event of Default, with or without having the Collateral at the
time or place of sale, the Lender may sell the Collateral, or any
part thereof, at public or private sale, at any time or place, in
one or more sales, at such price or prices, and upon such terms,
either for cash, credit or future delivery, as the Lender may
elect. Except as to that part of the Collateral which is
perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, the Lender shall
give such Borrower or Material Subsidiary, as the case may be,
reasonable notification of such sale or sales, it being agreed
that in all events written notice mailed to such Borrower and/or
Material Subsidiary as the case may be, at least five (5) days
prior to such sale or sales is reasonable notification. At any
public sale the Lender may bid for and become the purchaser, and
in lieu of actual payment of the relevant purchase price, may set
off the amount of such purchase price against the Obligations,
and Lender or any other purchaser at any such sale thereafter
shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and
such right and equity are hereby expressly waived and released by
each Borrower and Material Subsidiary. In connection with the
exercise of the foregoing remedies, the Lender is granted
permission to use, to the extent that any Borrower has the right
itself to use the same, all applicable Borrower's trademarks,
trade styles, trade names, patents, patent applications,
licenses, franchises and other proprietary rights which are used
in connection with (a) Inventory for the purpose of disposing of
such Inventory and (b) Equipment for the purpose of completing
the manufacture of unfinished goods. Upon and during the
continuance of an Event of Default, the Lender may also without
notice, demand or other process, and without charge, enter any
premises of or which are occupied or otherwise utilized by any
Borrower or Material Subsidiary and without breach of the peace,
until the Lender completes the enforcement of its rights in the
Collateral, take possession of such premises or place custodians
in exclusive control thereof, remain on such premises and use the
same and any of the Equipment of each Borrower and/or any
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Material Subsidiary for the purpose of completing any
work-in-process, preparing any Collateral for disposition and
disposing of or collecting any Collateral and for the purpose of
exercising its rights under this Agreement and the Other
Documents. The proceeds realized from the sale of any Collateral
shall be applied first to the reasonable costs, expenses and
attorneys' fees and expenses incurred by Lender for collection
and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral and/or to the Early
Termination Fee; secondly to interest due upon any of the
Obligations; and thirdly to the principal of the Obligations. If
any deficiency shall arise, Borrowers shall each remain liable to
Lender therefor. The remaining balance of such proceeds, if
any, following such application shall be returned to AEI on
behalf of all of the Borrowers.
10.2 Lender's Discretion. The Lender shall have
the right in its sole discretion to determine which rights,
Liens, or remedies the Lender may at any time pursue, relinquish,
subordinate, or modify or to take any other action with respect
thereto and such determination will not in any way modify or
affect any of the Lender's rights hereunder, under the Other
Documents, or otherwise.
10.3 Setoff. In addition to any other rights
which the Lender may have under applicable law, upon the
occurrence of any Event of Default hereunder, the Lender shall
have a right to apply any of the property of any Borrower,
Material Subsidiary and/or Corporate Guarantor held by the
Lender and/or held by the Bank to reduce the Obligations.
10.4 Rights and Remedies not Exclusive. The
enumeration of the foregoing rights and remedies is not intended
to be exhaustive and the exercise of any right or remedy shall
not preclude the exercise of any other right or remedies, all of
which shall be cumulative and not alternative.
XI. WAIVERS AND JUDICIAL PROCEEDINGS.
11.1 Waiver of Notice. Each Borrower hereby
waives notice of non-payment of any of the Receivables, demand,
presentment, protest and notice thereof with respect to any and
all instruments, notice of acceptance hereof, notice of loans or
advances made, credit extended, Collateral received or delivered,
or any other action taken in reliance hereon, and all other
demands and notices of any description, except such as are
expressly provided for herein.
11.2 Delay. No delay or omission on the
Lender's part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option
or of any default.
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11.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT, THE OTHER DOCUMENTS OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B)
IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE. EACH PARTY HEREBY FURTHER AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS
AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XII. EFFECTIVE DATE AND TERMINATION.
12.1 Term. This Agreement shall inure to the
benefit of and shall be binding upon the respective successors
and permitted assigns of the Borrowers, and the Lender and shall
become effective on the date hereof and continue in full force
and effect until January 31, 1996 unless: (a) sooner terminated
by: (i) the Borrowers, upon giving the Lender at least ninety
(90) days prior written termination notice in advance and
effective as of the end of the initial Term or any successive
Term hereunder; (ii) the Borrowers, at an earlier effective
termination date than is specified in subsection (i) above, as
more fully described in Section 12.2 below; (iii) the Lender,
pursuant to Section 10 hereof; or (iv) the Lender, upon giving
the Borrowers at least ninety (90) days prior written termination
notice in advance and effective as of the end of the initial term
or any successive Term hereunder; or (b) extended in accordance
with the final sentence of this Section. Any termination in
accordance with subsection 12.1 (a)(ii) shall be deemed to be
effective provided that all Obligations shall be paid in full to
Lender by no later than the effective termination date of this
Agreement, and provided that by such date, the indemnity
provided for in Section 2.8(b) hereof as to all outstanding
Letters of Credit, Lender Guarantees and Acceptances shall have
been executed and delivered to the Lender. Subject to the
foregoing, the Term shall be automatically extended for
successive periods of one (1) year each through and including
January 31 of each Calendar Year after 1996 such that this
Agreement will remain in full force and effect , unless
terminated by either party at the end of the initial Term or any
successive Term by giving the other party at least ninety (90)
days prior written notice.
12.2 Early Termination Fee. Should the
Borrowers terminate this Agreement in accordance with
subsection
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12.1(a)(ii) above, AEI on behalf of the Borrowers shall give the
Lender a written termination notice to this effect, and in
addition to Borrowers' compliance with the penultimate sentence
of Section 12.1 above, the Borrowers shall also pay to the Lender
the Early Termination Fee herein provided, which shall be paid on
or before any such effective termination date of this Agreement.
The Borrowers shall also be obligated to pay the Early
Termination Fee upon any termination by the Lender pursuant to
Section 10 hereof. The Borrowers shall be jointly and severally
responsible for payment of the Early Termination Fee to the
Lender.
12.3 End of Term. The effective termination
date of this Agreement shall be the last day of the Term hereof.
12.4 Termination. The termination of the
Agreement shall not affect any of Borrower's rights or the
Lender's rights, or any of the respective Obligations of any
Borrower, or the Lender, having their inception prior to the
effective date of such termination, and the provisions hereof
shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have
been fully disposed of, concluded or liquidated. The Liens on
all Collateral and rights granted to the Lender hereunder and/or
the Other Documents and the financing statements filed hereunder
shall continue in full force and effect, notwithstanding the
termination of this Agreement or any of the Other Documents or
the fact that any Borrower's account, individually or in
combination with the other Borrowers, may from time to time be
temporarily in a zero or credit position, until all of the
Obligations of the Borrowers have been paid or performed in full
concurrently with and/or after the termination of this Agreement
or the Borrowers shall have furnished the Lender with an
indemnification satisfactory to the Lender with respect thereto .
Accordingly, each Borrower hereby waives any rights which it may
have under Section 9-404(1) of the Uniform Commercial Code to
demand the filing of termination statements with respect to the
Collateral, and Lender shall not be required to send such
termination statements to any Borrower, or to file them with any
filing office, unless and until this Agreement shall have been
terminated in accordance with its terms and all Obligations of
each and all of the Borrowers to Lender are paid in full in
immediately available funds. All representations, warranties,
covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are repaid or performed
in full. Upon full and final payment of all Obligations of the
Borrowers to the Lender under this Agreement and the Other
Documents, and the termination of this Agreement in accordance
with its terms, the Lender shall execute and deliver such
Uniform Commercial Code termination statements as AEI, on behalf
of the Borrowers, may reasonably request.
XIII. COLLECTIVE BORROWING.
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13.1 Request for Collective Borrowing;
Notwithstanding anything to the contrary contained herein, each
Borrower hereby acknowledges that in order to utilize the
collective borrowing powers of all of the Borrowers in the most
efficient and economical manner, it has been requested by the
Borrowers that Lender determine availability and make loans
hereunder based on the Collateral of all of the Borrowers taken
as a whole.
13.2 Single Account;
(a) Lender shall maintain a single loan
account (the "Loan Account") under the name Acclaim
Entertainment, Inc. and on behalf of all of the Borrowers.
Confirmatory assignments of Receivables will continue to be made
and inventory reports shall be delivered to Lender by each
Borrower. Advances to any Borrower and payments pursuant to
Letters of Credit, Lender Guarantees and Acceptances will be
charged to the Loan Account, along with all fees, charges and
expenses and other amounts payable by the Borrowers to Lender.
The Loan Account will be credited with all amounts received by
Lender from any Borrower or from third parties for the account of
any Borrower, including all amounts received by Lender in payment
of Receivables.
(b) Each month Lender will render to AEI, on
behalf of all of the Borrowers, one extract of the combined Loan
Account, which shall be deemed to be an account stated as to each
of the Borrowers and which will be deemed correct and accepted by
all Borrowers unless Lender receives a written statement of
exceptions from any Borrower within ninety (90) days after such
extract has been rendered by Lender. It is expressly understood
and agreed by each Borrower that Lender shall have no obligation
to account separately to any Borrower.
13.3 Power of Attorney for AEI from Borrowers;
Each of the Borrowers other than AEI hereby grants to AEI, acting
through any of its officers, employees, agents or designees, a
power of attorney and unconditionally and irrevocably hereby
appoints AEI and such officers, employees, agents and/or
designees, as attorney-in-fact for such Borrower, acting
separately, to act in its place and stead in any way which such
Borrower itself could act and to the maximum extent to which such
Borrower is permitted by law to act through an agent to take any
and all actions which any Borrower has the right to take under
this Agreement and the Other Documents. Without limiting the
foregoing, requests for Advances may be made by AEI and
instructions and dealings concerning Letters of Credit, Lender
Guarantees and Acceptances, may be made from and with AEI , and
notices and communications under this Agreement and/or the Other
Documents may be sent to AEI, in each such case on behalf of
itself and/or any other Borrower. Lender is hereby authorized
and directed to accept, honor and rely on such instructions and
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requests, subject to the limitations set forth herein. It is
expressly understood and agreed by each Borrower that Lender
shall have no responsibility to inquire into the correctness of
the apportionment, allocation, or disposition of (a) any Advances
with respect to any Borrower, or (b) any fees, expenses and
charges therefor or under any other agreements with any Borrower.
All Advances are made for the collective account of the Borrowers
and are to be charged to the Loan Account.
13.4 Indemnification; It is understood that the
arrangements set forth in this Section 13 have been agreed to by
Lender solely as an accommodation to the Borrowers at their
request, and that Lender shall incur no liability to the
Borrowers as a result hereof. To induce Lender to do so, and in
consideration thereof, each Borrower hereby agrees to indemnify
Lender and hold Lender harmless against any and all liability,
expense, loss, or claim of damage or injury, made against Lender
by any Borrower or by any third party whosoever, arising from the
provisions of this Section 13.
XIV. MISCELLANEOUS.
14.1 Governing Law; This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York (without giving effect to its conflict of laws
rules).
14.2 Restated and Amended Agreement; This
Agreement, as amended and restated as of the Restatement
Effective Date, supercedes and replaces in its entirety this
Agreement as in effect prior to such date. Neither this
Agreement nor any portion or provisions hereof may be changed,
modified, amended, waived, supplemented, discharged, cancelled or
terminated orally or by any course of dealing, or in any manner
other than by an agreement in writing, signed by the party to be
charged.
14.3 Application of Payments; Lender shall have
the continuing and exclusive right to apply or reverse and
reapply any and all proceeds of Collateral to any portion of the
Obligations. To the extent that any Borrower makes a payment or
Lender receives any payment or proceeds of the Collateral for the
benefit of any Borrower , which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession, receiver,
custodian or any other party under any bankruptcy law, common law
or equitable cause, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as
if such payment or proceeds had not been received by Lender.
14.4 Indemnity; Each Borrower shall
unconditionally and jointly and severally indemnify Lender from
and against any and all liabilities, obligations, losses,
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damages, penalties, actions, judgments, suits, costs, expenses
and disbursements of any kind or nature whatsoever (including,
without limitation, all reasonable fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted
against Lender in any litigation, proceeding or investigation
instituted or conducted by any governmental agency or
instrumentality or any other Person with respect to any aspect
of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement and/or the Other Documents,
whether or not the Lender is a party thereto, except to the
extent that any of the foregoing arises out of the willful
misconduct or gross negligence of Lender. This indemnity shall
survive any termination of this Agreement and/or payment in full
of the Obligations.
14.5 Forum Selection and Consent to
Jurisdiction; Any litigation based hereon, or arising out of,
under or in connection with, this Agreement or any of the Other
Documents, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of: (a) the
Lender, may be brought under the non-exclusive jurisdiction of
any Federal or State court in the State of New York, New York
County, or (b) any of the Borrowers, shall be brought and
maintained exclusively in the courts of the State of New York,
New York County; provided, however, that any suit seeking
enforcement against any Collateral or other property may be
brought, at the Lender's option, in the courts of any
jurisdiction where such Collateral or other property may be
found. The Borrowers hereby expressly and irrevocably submit to
the jurisdiction of the courts of the State of New York for the
purpose of any such litigation as set forth above and irrevocably
consent to the service of process by registered mail, postage
prepaid, or by personal service with or without the State of New
York. Nothing contained herein shall affect the right to serve
process in any manner permitted by law, or shall limit the right
of the Lender to bring proceedings in the Courts of any other
jurisdiction. The Borrowers hereby expressly and irrevocably
waive, to the fullest extent permitted by law, any objection
which they may have or hereafter may have to the jurisdiction of
such Courts or to the laying of venue of any such litigation
brought in any such court referred to above and any claim that
any such litigation has been brought in an inconvenient forum.
To the extent that the Borrowers have or hereafter may acquire
any immunity from jurisdiction of any court, or from any legal
process (whether through service or notice, attachment prior to
judgment, attachment in aid of execution or otherwise) with
respect to themselves or their property, the Borrowers hereby
irrevocably waive such immunity in respect of their Obligations
under this Agreement and the Other Documents.
14.6 Notice; Any notice or request hereunder may
be given to AEI on behalf of all of the Borrowers and to the
Lender at their respective addresses set forth below or at such
other address as may hereafter be specified in a notice
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designated as a notice of change of address under this Section.
Any notice or request hereunder shall be given by (a) hand
delivery, (b) registered or certified mail, return receipt
requested, (c) telex or telegram, subsequently confirmed by
registered or certified mail, or (d) telefax to the number set
out below, subsequently confirmed by registered or certified
mail. Notices and requests shall, in the case of those by mail
or telegram, be deemed to have been given when deposited in the
mail, or delivered to the telegraph office addresses as provided
in this Section.
(A) If to Lender, at: BNY Financial Corporation
1290 Avenue of the Americas
New York, New York 10104
Attention: Robert Grbic, SVP
Telephone: (212) 408-7292
FAX: (212) 408-4384
(B) If to any of the Borrowers, to each of them at:
Before May 1, 1995 Acclaim Entertainment, Inc.
71 Audrey Avenue
Oyster Bay, NY 11771
Attn: Anthony Williams, EVP
Telephone: (516) 624-8888
FAX: (516) 624-5846
On and after May 1, 1995 Acclaim Entertainment, Inc.
70 Glen Street
Glen Cove, New York
Attn: Anthony Williams, EVP
Telephone: (516) 624-8888
FAX: (516) 624-5846
with a copy to: Rosenman & Colin
575 Madison Avenue
New York, NY 10022
Attn: Eric M Lerner Esq.
Telephone: (212) 940-7157
FAX: (212) 940-8776
14.7 Severability. If any or part of this
Agreement is contrary to, prohibited by, or deemed invalid under
applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be
invalidated thereby and shall be given effect so far as possible.
14.8 Expenses. Borrowers shall pay to the
Lender, on Lender's demand therefor (which shall be accompanied
by supporting documentation) and shall be jointly and severally
responsible to reimburse Lender for, all costs, fees and
expenses, including, without limitation, reasonable attorneys'
fees, paid or incurred (a) by the Lender in all efforts made to
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enforce payment of any Obligation or effect collection of any
Collateral, (b) in connection with entering into, modifying
amending and/or enforceing of this Agreement and/or the Other
Documents or in connection with any consent, waivers or advise in
connection with any of the foregoing, or (c) the instituting,
maintaining, preserving, enforcing and foreclosing of or on the
Lender's Lien in any of the Collateral, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any
actions or proceedings arising out of or relating to any
Obligations, Collateral and/or the Lender's transactions with any
Borrower, except however, in any such case, only for any such
costs, fees and expenses which a Court of competent jurisdiction
shall have determined to have resulted as a result of Lender's
gross negligence or wilful misconduct.
14.9 Injunctive Relief. Each Borrower recognizes
that, in the event such Borrower fails to perform, observe or
discharge any of its obligations or liabilities under this
Agreement or the Other Documents, any remedy at law may prove to
be inadequate relief to Lender; therefore, Lender if Lender so
requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual
damages.
14.10 Captions. The captions at various places
in this Agreement are intended for convenience only and do not
constitute and shall not be interpreted as part of this
Agreement.
14.11 Counterparts. This Agreement may be
executed in one or more counterparts, each of which taken
together shall constitute one and the same instrument. This
Agreement shall become effective on the date on which all of the
parties hereto shall have signed a copy hereof (whether the same
or different copies) and shall have delivered the same to the
Lender.
14.12 Construction. The parties hereto
acknowledge that each party and its counsel have reviewed and
revised this Agreement and that the normal rule of construction
to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of
this Agreement or any amendments, exhibits or schedules hereto.
Each Borrower further acknowledges that it has been advised by
counsel in connection the execution of this Agreement as of the
Restatement Effective Date and is not relying upon oral
representations or statements inconsistent with the terms and
provisions of this Agreement.
14.13 Confidentiality. The Lender agrees to
keep confidential and not to disclose or reveal any information
provided by the Borrowers or any of their respective Subsidiaries
under this Agreement; provided however, that the Lender may
disclose any information: (a) to any parent, subsidiary,
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<PAGE>
affiliate or related concern of the Lender, or any of their
respective directors, officers, employees or agents; (b) if
required by law, rule, regulation or judicial or administrative
order, including without limitation any legal process; (c) if
requested by counsel, auditors or other professional advisors of
the Lender or by any administrative agency; (d) if any such
information or any portion thereof could have been obtained by
the Lender prior to such disclosure from sources other than a
Borrower or any of their respective Subsidiaries, or at any time
by others from any of the Borrowers or their respective
Subsidiaries, on a non-confidential basis or becomes generally
known to the public or trade (unless such general knowledge is
the direct result of such a prohibited disclosure by the Lender)
or is furnished by any of the Borrowers or their respective
Subsidiaries to others on a non-confidential basis. In any
event, the Lender shall have no liability for any disclosure
prohibited hereunder unless it was made by an employee of the
Lender with intent to disclose and knowledge the the disclosure
was prohibited, or as a result of the gross negligence or willful
misconduct of the Lender.
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<PAGE>
14.14 Successors and Assigns. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto
and their espective successors and assigns. No Borrower's rights or
any interest therein under the Agreement, and no Borrower's duties
and Obligations hereunder, may however be assigned without the prior
written consent of the Lender.
Each of the parties has signed this Agreement as of the 28th
day of February, 1995.
ACCLAIM ENTERTAINMENT, INC.
(Borrower)
By: /s/________________________
[SEAL] Anthony Williams
Executive Vice President
ACCLAIM DISTRIBUTION INC.
(Borrower)
By: /s/________________________
[SEAL] Anthony Williams
Executive Vice President
LJN TOYS, LTD.
(Borrower)
By: /s/________________________
[SEAL] Anthony Williams
Executive Vice President
ACCLAIM ENTERTAINMENT CANADA, LTD.
(Borrower)
By: /s/________________________
[SEAL] Anthony Williams
Executive Vice President
ARENA ENTERTAINMENT INC.
(Borrower)
By: /s/________________________
[SEAL] Anthony Williams
Executive Vice President
BNY FINANCIAL CORPORATION
(Lender)
By: /s/________________________
Title: President
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<PAGE>
EXHIBIT "A"
BNY FINANCIAL CORPORATION
GUARANTY
In consideration of your entering into or your refraining from
terminating at this time financing arrangements (said financing
arrangements as heretofore or hereafter amended, supplemented and/or
restated are hereinafter called the "Agreement") with the (following
corporations) (corporations listed on the annexed Schedule A) (each such
corporation being hereinafter referred to as the "Client"), the
undersigned (who, if two or more in number, are hereby jointly and severally
bound) hereby guarantee(s) to BNY Financial Corporation (hereinafter
called the "Company"), its successors and assigns, the prompt payment
at maturity, or whenever they may become due in accordance with any of
their terms, of all now existing and hereafter arising liabilities,
indebtedness and obligations of the Client to the Company (including
"Obligations," as defined in the Agreement, if such term is defined
therein), whenever and however arising or acquired by the Company,
whether direct or indirect, absolute or contingent (collectively, the
"Obligations") and whether the same may now be or hereafter become due
from the Client or the executors, administrators, successors or assigns
of the Client, including the cost of protest and all legal expenses of
or for collection, or for realization upon any collateral for the
Obligations ("Collateral") or other guaranty. If this guaranty and/or
any Obligation is placed with an attorney for collection, the
undersigned further agree(s) to pay reasonable attorneys' fees which
shall be recoverable with the amount due under this guaranty.
Demand of payment, presentment, protest and notice of dishonor or
non-payment are hereby expressly waived, and if any of the Obligations
are payable on demand, the Company may, in its sole and absolute
discretion, determine the reasonableness of the period, if any, to
elapse prior to the making of demand.
The undersigned hereby consent(s) and agree(s) that, without notice to
or further assent from the undersigned, the time of payment of all or
any of the Obligations, or any other provisions of the Obligations, may
be extended, changed or modified, the parties thereto discharged, any or
all Collateral released without obtaining other Collateral in
substitution therefor, and any composition or settlement consummated and
accepted, and that the undersigned will remain bound upon this guaranty
notwithstanding one or more such extensions, changes, modifications,
discharges, releases, compositions or settlements. The undersigned
further consent(s) and agree(s) that this guaranty shall not be impaired
or otherwise affected by any failure to call for, take, hold, protect or
perfect, continue the perfection of or enforce any security interest in
or other lien upon, any Collateral or by any failure to exercise, delay
in the exercise, exercise or waiver of, or forbearance or other
indulgence with respect to, any right or remedy available to the
Company. Any statement of account which is binding on the Client under
the Agreement shall be binding on the undersigned for all purposes
under this guaranty.
The Company may also at any time in its discretion sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof,
or any substitutes therefor, or any additions thereto, at public sale,
at any time or place selected by the Company, at such prices as it
may deem best and either for cash or for credit or future delivery, at
the option of the Company without either demand, advertisement or notice
of any kind to the undersigned, which are hereby expressly waived.
The undersigned assigns, pledges and grants a security interest to the
Company in any money or property belonging to the undersigned at any
time in the possession of the Company or in the possession of any
parent, affiliate or subsidiary of the Company (hereinafer called a
"Related Company"), including any deposit balances and all property held
by the Company or a Related Company for any purpose including
safekeeping, custody, transmission, collection, or pledge, and all
proceeds of the foregoing, as security for the performance by the
undersigned of the obligations under this guaranty, whether due or not,
with full power and authority to apply any such money, property and
proceeds to the extinguishment of any such obligations and to sell,
enforce, collect or otherwise realize on said money, property or
proceeds in accordance with applicable law.
The undersigned agree(s) that the Company is not to be obligated in any
manner to inquire into the powers of the Client, or its successors, its
or their directors, officers, or agents, acting or purporting to act on
its or their behalf, and any liabilities purporting to be contracted for
the Client, or its successors, by its or their directors, officers, or
agents, in the professed exercise of such powers, shall be deemed to
form a part of the liabilities guaranteed hereunder even though the
incurrence of such liabilities be in excess of the powers of the Client,
its successors, or its or their directors, officers, or agents
aforesaid, or shall be in any way irregular, defective or informal.
The liability of the undersigned on this guaranty shall be direct,
immediate, absolute, continuing, unconditional and unlimited and not
conditional or contingent upon the pursuit by the Company of whatever
remedies it may have against the Client or the Client's successors,
executors, administrators or assigns, or the security or liens it may
possess, and this guaranty shall be and shall be construed as being and
intended to be, a continuing guaranty of the payment of any and all
Obligations either made, endorsed or contracted by the Client, or any
successor of the Client, prior to the receipt by the Company of written
notice of the revocation of this guaranty by the undersigned, and of all
extensions or renewals thereof in whole or in part; and notwithstanding
the death of, or the revocation of this guaranty by, any undersigned
guarantor, the liability of the guarantor so revoking and of the
estate of the guarantor who dies shall continue as to Obligations incurred
or contracted by the Client, or any successor of the Client, prior to such
revocation or death and as to all extensions and renewals thereof, in whole
or in part. If the undersigned are two or more, then, notwithstanding the
death of or the revocation of this guaranty by, any one or more of the
undersigned, this guaranty shall nevertheless so continue in full force and
effect as to all of the other undersigned guarantors not only as to all
such then existing Obligations, but also as to all Obligations which may
thereafter be incurred or arise.
<PAGE>
-2-
If any payment of the Obligations is made by or for the benefit of the
Client and is repaid by the Company to the Client or any other party
pursuant to any federal, state or other law, including those relating to
bankruptcy, insolvency, preference or fraudulent transfer, then to the
extent of such repayment, the liability of the undersigned
with respect to such Obligation shall continue in full force and effect.
The undersigned agree(s) that if the Company gives to the undersigned
written notice of the institution of any action or proceeding, legal or
otherwise between the Company and the Client, the undersigned shall be
conclusively bound by the adjudication in any such legal or other
proceeding, or by any judgment or award decree entered therein.
The undersigned waive(s) any claim or other right which the undersigned may
now have or hereafter acquire against the Client or any other person that
is primarily or contingently liable on any obligation that arises from the
existence or performance of the undersigned's obligations under this
guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, or indemnification.
The undersigned also waive(s) the right to assert in any action or proceeding
upon this guaranty any offsets or counterclaims which the undersigned may
have with respect thereto. This guaranty shall be governed by and
construed and interpreted in accordance with the laws of the State of New
York and all controversies arising out of or in connection therewith shall
be subject to the exclusive jurisdiction of the federal or state courts of such
State. This guaranty cannot be altered or discharged orally. Notice of the
acceptance of this guaranty is hereby waived.
THE UNDERSIGNED WAIVE(S) THE RIGHT TO TRIAL BY JURY IN ALL ACTIONS BROUGHT
BY OR AGAINST THE COMPANY.
IN WITNESS WHEREOF, the undersigned has duly executed these presents
this ____________ day of ______________________, 19____.
(GUARANTORS)
By:________________________________________
Title:______________________________
of each of the above entities.
Address:____________________________________
____________________________________
STATE OF
SS.
COUNTY OF
On this ______________ day of _____________________________________,
19______, before me personally appeared ____________________________________
to me known, who being by me duly sworn, did depose and say, that he is
the ______________________________ of each of the corporations described in
and which executed the foregoing instrument; that he knows the seals of
each of the corporations; that the seals affixed to such instrument are the
corporate seals; that they were so affixed by order of the boards of
directors of each of the corporations, and that he signed his name thereto
by like order.
________________________________
Notary Public
<PAGE>
EXHIBIT "B"
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
February 28, 1995
Acclaim Distribution Inc.
71 Audrey Avenue
Oyster Bay, NY 11771
Re: LETTER OF CREDIT FINANCING SUPPLEMENT TO FACTORING AGREEMENT
Gentlemen:
Reference is made to the Restated and Amended Factoring Agreement between
us, bearing the effective date of February 1, 1995, as supplemented and amended
(the "Agreement"). Capitalized terms hereinafter appearing but not otherwise
defined herein shall have the meanings given in the Agreement.
From time to time, in order to assist you in establishing or opening Letters
of Credit with a bank or trust company (herein the "Bank") to cover the
importation of goods or inventory, you may request us to join in the
applications for such Letters of Credit, and/or guarantee payment or performance
of such Letters and any drafts or acceptances thereunder, thereby lending our
credit to you. These arrangements shall be handled by us subject to the
following terms and conditions.
A. Our assistance in this matter shall at all times and in all respects be
in our sole discretion. The amount and extent of the Letters of Credit and the
terms and conditions thereof and of any drafts or acceptances thereunder, shall
in all respect be determined solely by us and shall be subject to change,
modification and revision by us, at any time and from time to time.
B. Any indebtedness, liability or obligation of any sort whatsoever,
arising or incurred in connection with any Letters of Credit, guarantees, drafts
or acceptances thereunder or otherwise, including without limitation all amounts
due or which may become due under said Letters of Credit, guarantees or any
drafts or acceptances thereunder; all amounts charged or chargeable to you or to
us by any Bank, other financial institutions or correspondent bank which opens,
issues or is involved with such Letters of Credit; any other bank charges; fees
and commissions; duties and taxes; costs of insurance; all such other charges
and expenses which may pertain either directly or indirectly to such Letters of
Credit, drafts, acceptances, guarantees or to the goods or documents relating
thereto, and our charges as herein provided, shall be incurred solely as an
accommodation to you and for your account, shall constitute Obligations as
defined in the Agreement, may be charged by us to your account thereunder at any
time without notice to you, shall be secured by all collateral in which you have
heretofore granted to us or hereafter grant to us a security interest (including
without limitation all inventory acquired under the Letters of Credit, all
documents evidencing such inventory, and the proceeds thereof), shall bear
interest at the rate provided in the Agreement, and
<PAGE>
2
shall be repayable to us on demand. All Obligations are to be repaid to us
solely in United States currency.
C. You warrant and represent that all Letters of Credit are being opened to
cover actual importation of goods and inventory solely for your account, and
said goods will not be sold or transferred, other than to customers in the
ordinary course of business, without our specific, prior written consent, which
consent shall not be unreasonably withheld provided such sale does not exceed
$250,000.00.
D. You unconditionally agree to indemnify us and hold us harmless from and
against any and all loss, claim or liability arising from any transactions,
occurrences, errors or omissions relating to Letters of Credit established or
opened for your account; the goods acquired thereunder (the "Goods"); the
documents evidencing the Goods (the "Documents"); any discrepant or
nonconforming provisions thereof; steamship or airway guaranties, releases,
indemnities or delivery orders or similar documents; any drafts or acceptances;
and all Obligations hereunder, including, but not limited to, any such loss,
claim or liability due to any action errors or omissions attributable to any
Bank, us, any other entity, or any other cause. Your unconditional obligation
to us hereunder shall not be modified or diminished for any reason or in any
manner whatsoever except due to our willful misconduct or gross negligence. You
agree that any charges made by us for your account by the Bank shall be
conclusive on us, absent manifest errors, and may be charged to your account.
E. We shall not be responsible for: the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any Documents; any difference or variation in the character,
quality, quantity, condition, packing, value or delivery of the goods from that
expressed in the Documents; the validity, sufficiency, or genuineness of any
Documents or of any endorsements thereon, even if such Documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
any discrepant or nonconforming provisions in any Documents; the time, place,
manner or order in which shipment is made; partial or incomplete shipment, or
failure or omission to ship any or all of the goods referred to in the Letters
of Credit or Documents; any deviation from instructions; delay, default, or
fraud by the shipper and/or anyone else in connection with the Goods or the
shipping thereof; or any breach of contract between the shipper or vendors and
yourselves. Furthermore, without being limited by the foregoing, we shall not be
responsible for any act or omission with respect to or in connection with any of
the Goods or the Documents.
F. You agree that any action taken by us or any action taken by any Bank, if
taken in good faith, under or in connection with the Letters of Credit, the
guarantees, the drafts or acceptances, or the Goods or the Documents, shall be
binding on you and shall not put us in any resulting liability to you. In
furtherance thereof, we shall have the full right and authority to take any of
the following actions in our name or yours (and you agree that you shall not
have the right to take any such action without our express endorsement in
writing): to clear and resolve any questions of non-compliance of documents; to
give any instructions as to acceptance or rejection of any documents or goods;
to execute any and all applications for steamship or airways guarantees,
releases, indemnities or delivery orders or similar documents; to grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents; and to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or acceptances,
all in our sole name; and the Bank shall be entitled to comply with and honor
any and all such documents or instructions executed by or received solely from
us, all without any notice to or any consent from you.
G. You agree that any necessary import, export or other licenses or
certificates for the import or handling of the Goods will have been promptly
procured; all foreign and domestic governmental laws and regulations in regard
to the shipment and importation of the Goods, or the financing thereof will have
been promptly and fully complied with; and any certificates in that regard
<PAGE>
3
that we may at any time request will be promptly furnished. In this connection,
you warrant and represent that all shipments made under any such Letters of
Credit are in accordance with the governmental laws and regulations of the
countries in which the shipments originate and terminate, and are not prohibited
by any such laws and regulations. You assume all risk, liability for, and agree
to pay and discharge, all present and future local, state, federal or foreign
taxes, duties or levies. Any embargo, restriction, laws, customs or regulations
of any country, state, city or other political subdivision, where the Goods are
or may be located, or wherein payments are to be made, or wherein drafts may be
drawn, negotiated, accepted, or paid, shall be solely your risk, liability and
responsibility.
H. Any rights, remedies, duties or obligations granted or undertaken by you
to any Bank in any application for Letters of Credit, or any standing agreement
relating to Letters of Credit or otherwise, shall be deemed to have been granted
to us and apply in all respects to us and shall be in addition to any rights,
remedies, duties or obligations contained herein.
I. You hereby agree that prior to your repayment of all Obligations to us, we
may be deemed to be the absolute owner of, with unqualified rights to possession
and disposition of, the Goods and the Documents, all of which may be held by us
as security as herein provided. Should possession of any Goods or Documents be
transferred to you, they shall continue to serve as security as herein provided,
and may be sold, transferred or disposed of only as hereinabove provided.
J. The terms and provisions of all agreements executed by you in our favor
granting collateral security for the Obligations shall apply with equal force to
the Goods and the Documents, including without limitation provisions relating to
the insurance, maintenance and surrender or other dispositions of any such
collateral, and the proceeds thereof.
K. On breach by you of any of the terms or provisions of this agreement, the
Agreement or any other agreement or arrangement now or hereafter entered into
between us, or on the non-payment when due of any Obligations, we shall have all
of the rights and remedies of a Secured Party under the Uniform Commercial Code
or granted to us under the Agreement or any of such other agreements.
L. In addition to any charges, fees or expenses charged to us for your
account by any Bank in connection with these transactions (all of which will be
charged to your account and when made by the Bank shall be conclusive on us), we
shall be entitled to charge your account for our services hereunder with the
following:
1. UCC filing and search fees.
2. A commission of 1/12 of 1% per month (1% per annum) on the face amount of
any Letter of Credit, either opened or amended (as to expiry date or
dollar amount) for the entire term of said letter (minimum fee $10).
However, where "time" drafts are involved, we shall be entitled to a
similar rate for the term of such drafts remaining unpaid beyond the
expiry date of the "Letter of Credit".
For the purpose of the preceding subdivision 2, Letters of Credit will be
deemed to include not only Letters of Credit established or opened for you with
our assistance as hereinabove provided, but also other letters of credit
established or opened for you by other institutions with respect to which we are
or hereafter become obligated to indemnify such institutions.
This agreement, which is subject to modification only in writing, is
supplementary to, and is to be considered as a part of, the Agreement and shall
take effect when date, accepted and signed in New York State by one of our
officers. If the foregoing is in accordance with your understanding,
<PAGE>
4
please so indicate by signing and returning the enclosed copies of this letter,
after which we will return a fully executed copy to you for your files.
Very truly yours,
BNY FINANCIAL CORPORATION
By:
------------------------
Title:
READ AND AGREE TO:
ACCLAIM DISTRIBUTION INC.
By:
-----------------------
Title:
Accepted as of ______________________, 19___, at New York, New York.
BNY FINANCIAL CORPORATION
By:_____________________________
Title:
<PAGE>
BNY FINANCIAL CORPORATION
RESTATED AND AMENDED FACTORING AGREEMENT
Acclaim Entertainment, Inc.
71 Audrey Avenue
Oyster Bay, NY 11771
Effective as of February 1, 1995, this agreement restates and amends in
its entirety, without a break in continuity, that certain Factoring
Agreement dated February 26, 1990 ("Effective Date"), as supplemented
and amended and all references to the "Factoring Agreement" contained
therein shall be deemed to be references to this Restated and Amended
Factoring Agreement. Nothing contained herein, however, is or shall be
deemed to change or limit any of the Other Documents (as defined in
that certain Revolving Credit and Security Agreement dated as of January
1, 1993, as Amended and Restated on February 28,1995 entered into
between ourselves, as Lender, and yourselves, Acclaim Distribution Inc.,
LJN Toys, Ltd., Acclaim Entertainment Canada, Ltd. and Arena
Entertainment, Inc. as Borrowers (each and all of such other Borrowers,
herein "Affiliated Concerns"); such Revolving Credit and Security
Agreement as amended and supplemented, herein the "Credit Agreement")
between or concerning us, which shall each remain in full force and
effect.
This agreement states the terms and conditions upon which we are to act
as your sole factor.
1. COVERED SALES; SECURITY INTEREST
(a) You hereby assign and sell to us, as absolute owner, and we hereby
purchase from you, all home interactive entertainment software
Receivables (as hereinafter defined) other than Receivables: (i) arising
from sales to your subsidiaries and affiliates, and (ii) arising from
sales made to customers outside the United States of America, Canada or
Mexico, which Receivables in each case are created on or after the
Effective Date, which arise from your rendition of services or your sale
of merchandise. Our purchase of and acquisition of title to each
Receivable will be effective as of the date of its creation and will be
entered on our books when you furnish us with a copy of the respective
invoice.
(b) You hereby grant to us a continuing security interest in all of
your present and future Receivables, as security for all "Obligations"
(as hereinafter defined).
2. CUSTOMER CREDIT APPROVAL
You shall submit to us the principal terms of each of your customers'
orders for our written credit approval. We may, in our discretion,
approve in writing all or a portion of your customers' orders, either by
establishing a credit line limited to a specific amount for a specific
customer, or by approving all or a portion of a proposed purchase order
submitted by you. No credit approval shall be effective unless in
writing and unless the goods are shipped or the services rendered within
the time specified in our written credit approval or within 45 days
after the approval is given, if no time is specified. After the customer
has accepted delivery of the goods or performance of the services, we
shall then have the "Credit Risk" as hereinafter defined (but not the
risk of non-payment for any other reason), to the extent of the dollar
amount specified in the credit approval, on all Receivables evidenced by
invoices which arise from orders approved by us in writing. We shall
have neither the Credit Risk nor the risk of non-payment for any other
reason on Receivables arising from orders not approved by us in writing.
We may withdraw our credit approval or withdraw or adjust a credit line
at any time before you deliver the goods or render the services.
3. PURCHASE PRICE OF RECEIVABLES
The purchase price of Receivables is the net face amount thereof less our
commission. The term "net face amount" means the gross face amount of
the invoice, less returns, discounts (which for purposes hereof shall be
determined by us where optional terms are given), anticipation
reductions or any other unilateral deductions taken by customers, and
credits, and allowances to customers of any nature. The purchase price
will be payable on the "Maturity Date" (hereinafter described). At the
close of each month, we will compute the average due date of all
Receivables purchased by us during the month. In computing the average
due date we will take into account all credits issued to customers. The
Maturity Date for all such Receivables will be six (6) business days
after the average due date. We may deduct, from the amount payable to
you on any Maturity Date, reserves for all Obligations then chargeable
to your account and Obligations which, in our sole judgment, may be
chargeable to your account thereafter ("Reserves").
4. ADVANCES; INTEREST; COMMISSIONS; LATE PAYMENT CHARGES; LOSSES
(a) For our services, we shall charge to your account
(i) effective as of February 1, 1995, monthly, as of the last day of
each month, interest on the average daily balance of all amounts charged
and chargeable to your account hereunder (said amounts being herein
called "Interest Bearing Obligations") which are outstanding during such
month at the average "Revolving Advance Rate" (as defined in the
Credit Agreement) in effect during such month; provided, that said
interest rate shall not be less than three percent (3%) per annum and
shall in no event be higher than the highest rate permitted by New York
law; provided however, that the interest rate applicable to the
relevant month shall be: (A) the Overformula Rate (as defined in the
Credit Agreement); or (B) the Default Rate (as defined in the
<PAGE>
-2-
Credit Agreement), in any instance where the same is stated to be the
applicable interest rate pertaining to Revolving Rate Advances (as
defined in the Credit Agreement and) under the Credit Agreement.
Interest shall be calculated on the basis of the actual number of days
elapsed over a year of 360 days.
(ii) effective as of February 1, 1995, monthly, as of the 15th day of
each month, a commission at the rate (the "Commission Rate") of twenty
five one hundredths of one percent (.25%) of the gross face amount of
each invoice evidencing a Receivable less promotional, advertising and
warehousing allowances which allowances, in the aggregate shall not
exceed 5% of the gross face amount of each invoice evidencing a
Receivable purchased hereunder during such month on terms not exceeding
60 days (including dating), plus an additional one hundred twenty five
one thousandths of one percent (.125%) for each additional thirty (30)
days or portion thereof of selling terms (such additional dating
commission shall not apply to Receivables due from Marisal, Best Buy and
Caldor, Inc.). However, the aggregate amount of commissions you shall
be obligated to pay to us for each Calendar Quarter (the three month
periods which start on each of January 1, April 1, July 1 and October 1
of each year) of a Calendar Year (the twelve month period starting
January 1 of each year) or part thereof ("Partial Calendar Quarter")
during which this agreement is in effect, shall not be less than
$125,000 (the "Minimum Commission"); provided however, that: (a) no
Minimum Commission shall be payable if we terminate this agreement prior
to the Yearly Cutoff Date as (defined and) described in Paragraph
9(a)(i) below in the absence of an Event of Default as defined in and
pursuant to Paragraph 9 (a)(ii) hereof; and (b) the Minimum Commission
applicable to any Partial Calendar Quarter shall be prorated, based upon
the number of calendar months included in such Partial Calendar Quarter.
If the commissions paid by you to us in any Calendar Quarter or
Partial Calendar Quarter (if any) is less than the Minimum Commission or
a prorated portion thereof, as the case may be, we shall charge to your
account the difference ("Minimum Volume Charge") between the
commissions so paid and the Minimum Commission or a prorated protion
thereof, as the case may be. We shall compute the Minimum Volume
Charge, if any, on a calendar quarterly basis and charge your account
therefor for each Calendar Quarter in the month following the end of
such Calendar Quarter, or in the month following the effective date of
termination of this agreement. If any Minimum Volume Charge is paid by
you to us for any particular Calendar Quarter(s) and in any subsequent
Calendar Quarter or Partial Calendar Quarter (if any) in the same
Calendar Year, you pay commissions to us hereunder which exceed the
Minimum Commissions for such subsequent Calendar Quarter, then at the
end of such subsequent Calendar Quarter, you shall be entitled to a
credit to your account, in an amount equal to the lesser of: (A) any
such excess from the subsequent Calendar Quarter(s) within the same
Calendar Year; or (B) the Minimum Volume Charge paid for any such
Calendar Quarter(s). Similarly, if for any Calendar Quarter(s) within a
particular Calendar Year, the commissions paid to us under this
Agreement exceed the Minimum Commissions applicable thereto, and we
otherwise are entitled to receive a Minimum Volume Charge for any
subsequent Calendar Quarter(s) in the same Calendar Year, in calculating
the amount of any such Minimum Volume Charge applicable to such
subsequent Calendar Quarter(s), you shall be entitled to a credit against
the same, in an amount equal to the lesser of: (y) any such excess
amount(s) from the prior Calendar Quarter(s) within the same Calendar
Year; or (z) the Minimum Volume Charge payable for any such Calendar
Quarter(s).
Our commission on any invoice evidencing a Receivable purchased hereunder
shall not be less than $4.50 ("Minimum Invoice Commission") except that
there shall be no Minimum Invoice Commission with respect to invoices
evidencing receivables arising from sales to Caldor, Inc., HQ Army & Air
Force, Shopko Stores, Inc., F.W. Woolworth Co. ("U.S.") and other
customers agreed to by us from time to time.
(iii) customer late payment charges (computed at the same rate as
charged on Interest Bearing Obligations, but only if the charge exceeds
Five Dollars ($5.00) and the payment is six (6) business days or more
past due.
(iv) all bank charges for wire transfers.
(b) Notwithstanding any of the terms hereof to the contrary, effective
as of February 1, 1995, at the close of the twelve month period from
February 1, 1995 to and including January 31, 1996 and each successive
twelve month period (a "Contract Year") and at the close of business on
the effective termination date of this Agreement (and the period of time
commencing on February 1, 1995 or any February 1 thereafter during which
this Agreement is in effect and ending on such effective termination
date, herein the "Partial Last Year"), you shall pay to us or, at our
option, we may debit to your account with us the first fifteen
hundredths of one percent (.15%) of the aggregate amount of Receivables
sold and assigned to us in each such Contract Year or Partial Last Year,
as the case may be, for Credit Losses in respect of Receivables for
which we have the Credit Risk but, except as provided above, we shall
continue to have the Credit Risk on all Receivables approved by us in
writing pursuant to, and to the extent provided in, this Agreement.
For purposes of this subsection (b), " Credit Loss" shall mean the
aggregate net face amount of all of your Receivables generated during a
Contract Year which we determine to have remained wholly or partially
unpaid at maturity solely because of the financial inability of the
customer to pay regardless of whether such determination is made in any
such Contract Year, or at any other time; provided, however, that for
the purposes of computing such aggregate net face amount under this
subparagraph (b), the net face amount of any such Receivable shall be
limited to the unpaid amount of such Receivable on the date the actual
write off is entered on our books for such Receivable.
5. MATURED FUNDS
On the last day of each month, we shall credit your account with interest
at the average Federal Funds Rate (as defined in the Credit Agreement)
in effect during such month on the average daily balance of any amounts
payable by us to you hereunder (as confirmed by us by appropriate credit
to your account with us) which are not drawn by you on the Maturity
Date, while held by us after the Maturity Date.
<PAGE>
-3-
6. CHARGES; BALANCES; RESERVES
We may charge to your account all Obligations. Unless otherwise
specified, all Obligations, including any debit balance in your account,
shall be payable on demand. Recourse to security will not be required
at any time. All credit balances or other sums at any time standing to
your credit and all Reserves on our books, and all of your property in
our possession at any time or in the possession of any parent, affiliate
or subsidiary of ours or on or in which we or any of them have a lien or
security interest, may be held and reserved by us as security for all
Obligations. We will account to you monthly and each monthly accounting
statement will be fully binding on you and will constitute an account
stated, unless, within ninety (90) days after such statement is mailed
to you or within ninety (90) days after the mailing of any adjustment
thereof we may make, you give us specific written notice of exceptions.
7. REPRESENTATIONS AND WARRANTIES; DISPUTES; RETURNS; CHARGEBACKS
(a) You warrant and represent that each Receivable purchased hereunder
is a bona fide, enforceable obligation created by the absolute sale and
delivery of goods or the rendition of services in the ordinary course of
business; you have good title to the Receivable free of any encumbrance
except in favor of us or in favor of the Hongkong and Shanghai Banking
Corporation Limited (the "Hongkong Bank") your customer is
unconditionally obligated to pay at maturity the full amount of each
Receivable purchased hereunder without defense, counterclaim or offset,
real or alleged; all documents in connection therewith are genuine; and
the customer will accept the goods or services without alleging any
defense, counterclaim, offset, dispute or other claim whether arising
from or relating to the sale of such goods or services or arising from
or relating to any other transaction or occurrence (a "Dispute").
(b) You further represent and warrant that (i) your address set forth
above is that of your chief place of business and chief executive office
and the location of all "Collateral" (as hereinafter defined) and of
your books and records relating to the Receivables, subject to the
understanding that on and after May 1, 1995, your chief place of
business and chief executive office, as well as the location of certain
of the "Collateral", and of your books and records relating to the
Receivables, shall be at 70 Glen Street, Glen Cove, New York; and (ii)
by a separate writing you have disclosed to us the locations of all of
your other places of business as well as all trade names or styles,
trademarks, divisions or other names under which you conduct business
(hereinafter collectively defined as the "Trade Names").
(c) You shall promptly provide us with duplicate originals of all
credits which you issue to your customers and immediately notify us of
any merchandise returns or Disputes. You will settle all Disputes at no
cost or expense to us; our practice is to allow you a reasonable time to
do so. Should we so elect, we may at any time in our discretion (i)
withdraw your authority, following the occurrence of the Event of
Default which is continuing, to issue credits to your customers without
our prior written consent; (ii) litigate Disputes or settle them
directly with the customers on terms acceptable to us; or (iii) direct
you to set aside, identify as our property and procure insurance
satisfactory to us on any returned or repossessed merchandise or other
goods which by sale resulted in Receivables theretofore assigned to us
("Retained Goods"). All Retained Goods (and the proceeds thereof) shall
be (A) held by you in trust for us as our property; and (B) subject to a
security interest in our favor as security for the Obligations; and (C)
disposed of only in accordance with our express written instructions.
(d) Our Credit Risk, if any, on a Receivable shall immediately
terminate without any action on our part in the event that (i) your
customer asserts a Dispute (regardless of merit) as a ground for
non-payment of the Receivable or returns or attempts to return the goods
represented thereby, other than as a result of the customer's inability
to pay such Receivable as to which we have the Credit Risk hereunder;
or (ii) any warranty as to the Receivable is breached. We may charge to
your account at any time the purchase price of any Receivable (or
portion thereof) paid by us, as such purchase price is computed in
accordance with paragraph 3 of this Agreement on which we do not then
have the Credit Risk, together with interest thereon from the due date
of such Receivable to the date of chargeback; such action on our part
shall not be deemed a reassignment of such Receivable and will not
impair our rights thereto or security interest therein, which will
continue to be effective until all Obligations are fully satisfied.
(e) All representations, warranties, covenants and agreements set forth
in the Credit Agreement relating in any manner to your Receivables in any
way applicable to this Agreement are hereby incorporated by reference and
made a part hereof.
8. INVOICING; PAYMENTS; RETURNS
Each of your invoices and all copies thereof shall bear a notice (in form
satisfactory to us) that it is owned by and payable directly and only to
us at locations designated by us, and you shall furnish us with
duplicate originals of your invoices accompanied by a confirmatory
assignment thereof. Your failure to furnish such specific assignments
shall not diminish our rights. You shall procure and hold in trust for
us and furnish to us at our request satisfactory evidence of each
shipment and delivery or rendition of services. Each invoice shall bear
the terms stated on the customer's order, as submitted to us, whether or
not the order has been approved by us, and no change from the original
terms of the order shall be made without our prior written consent. Any
such change not so approved by us shall automatically terminate our
Credit Risk, if any, on the Receivable arising from
<PAGE>
-4-
your performance of the order. You will hold in trust for us and deliver
to us any payments received from your customers in the form received,
and hereby irrevocably authorize us to endorse your name on all checks
and other forms of payment. Each payment made by a customer shall first
be applied to Receivables, if any, on which we have the Credit Risk, and
the balance, if any, of such payment shall be applied to other
Receivables due from such customer. You understand that we shall not be
liable for any selling expenses, orders, purchases, contracts or taxes
of any kind resulting from any of your transactions, and you agree to
indemnify us and hold us harmless with respect thereto, which indemnity
shall survive termination of this agreement.
9. TERMINATION
(a) This agreement shall remain in full force and effect until
terminated as follows:
(i) This agreement shall remain in full force and effect unless either
of us gives the other party hereto written notice of termination (by
certified mail, return receipt requested) no less than ninety (90) days
prior to and effective as of January 31, 1996 or any January 31st
thereafter; or
(ii) Should any Event of Default as (defined and) more fully set forth
in the Credit Agreement occur; or should the Credit Agreement be
terminated for any reason or the Term (as therein defined) thereof be at
an end, then in any of such events (each an "Event of Default"
hereunder), we may terminate this agreement at any time without notice.
(b) On the effective date of termination all Obligations shall become
immediately due and payable in full without further notice or demand.
Our rights with respect to Obligations owing to us, or chargeable to
your account, arising out of transactions having their inception prior
to the effective date of termination, will not be affected by
termination. Without limiting the foregoing, all of our security
interests and other rights in and to all Receivables, whether then
existing or arising thereafter (including assignments and remittance of
payments), Retained Goods, credit balances, and any other property in our
possession or in the possession of any parent, affiliate or subsidiary of
ours and any other security for the Obligations, whether coming into
existence or into our or their possession before, on or after the
effective date of termination and all proceeds thereof (collectively
"Collateral") shall continue to be operative until such Obligations have
been fully and finally satisfied or you have given us an indemnity
satisfactory to us.
10. DEFINITIONS: "RECEIVABLES;" "OBLIGATIONS;" "CREDIT RISK"
As used herein
(a) "Receivables" means all amounts and all forms of obligations now or
hereafter owing to you (including but not limited to accounts,
instruments, contract rights, documents and chattel paper) and general
intangibles; all security therefor and guaranties thereof; all of your
rights as an unpaid seller of goods and your rights to goods sold which
may be represented thereby (including but not limited to your rights of
replevin and stoppage in transit); all of your books of account,
records, files, and documents relating thereto and the equipment
containing said books, records, files and documents; all of your rights
under insurance policies relating to the foregoing; the right to use the
Trade Names in connection with our rights with respect to the goods; and
all proceeds of the foregoing.
(b) "Obligations" means all amounts of any nature whatsoever, direct or
indirect, absolute or contingent, due or to become due, arising or
incurred heretofore or hereafter, arising under this or any other
agreement, including without limitation the Credit Agreement or any of
the Other Documents therein described, or by operation of law, now or
hereafter owing by you or by any of your subsidiaries or affiliates to
us or to any parent, subsidiary or affiliate of ours. Said amounts
include, but are not limited to, loans, debts and liabilities heretofore
or hereafter acquired by purchase or assignment from other present or
future clients of ours. Without limiting the foregoing, Obligations
shall include the amounts of all interest, commission, customer late
payment charges and bank related charges, costs, fees, expenses, taxes
and all Receivables charged or chargeable to your account hereunder,
under said Credit Agreement, any of the Other Documents, or under any
other agreement now or hereafter in effect between us.
(c) "Credit Risk" means the risk of loss resulting solely and
exclusively from the financial inability of your customer to pay at
maturity a Receivable purchased hereunder.
(d) "Credit Agreement" shall have the meaning set forth in the
introductory paragraph of this Agreement.
Any terms which are initially capitalized in this Agreement and which are
not defined herein, but which are defined in the Credit Agreement, shall
have the respective meanings set forth in the Credit Agreement, which
definitions shall be incorporated herein by reference and made a part
hereof.
11. PLACE OF PAYMENT; NEW YORK LAW AND COURT
(a) All Obligations shall be paid at our office in New York, New York.
<PAGE>
-5-
(b) This agreement shall be governed by and construed according to the
laws of the State of New York. All terms used herein, unless otherwise
defined herein, shall have the meanings given in the New York Uniform
Commercial Code.
(c) Each of us expressly submits and consents to the exclusive
jurisdiction of the Supreme Court of the State of New York, and the
United States District Court for the Southern District of New York, with
respect to any controversy arising out of or relating to this agreement
or any supplement hereto or to any transactions in connection therewith
and hereby waives personal service of the summons, complaint or other
process or papers to be issued therein and hereby agrees that service of
such summons, complaint, process or papers may be made by registered or
certified mail addressed to the other party at the address appearing
herein.
12. REPORTS; RECORDS; ASSURANCES; WAIVERS; REMEDIES; ETC.
(a) Upon request you shall periodically furnish us with statements
showing your financial condition and the results of your operations. We
may during normal business hours have access to, and inspect, audit, and
make extracts from, all of your records, files and books of account, and
we may charge your account with the reasonable costs, fees or expenses
incurred in connection therewith.
(b) You shall perform all acts requested by us to perfect and maintain
our security interest and other rights in the Collateral.
(c) Failure by us to exercise any right, remedy or option under this
agreement or delay by us in exercising the same will not operate as a
waiver; no waiver by us will be effective unless we confirm it in writing
and then only to the extent specifically stated.
(d) We may charge to your account, when incurred by us, the amount of
reasonable legal fees (including fees, expenses and costs payable or
allocable to attorneys retained or employed by us) and other costs, fees
and expenses incurred by us in negotiating or preparing this agreement
and any legal documentation required by us or requested by you in
connection with this agreement or any amendments or supplements thereof,
of in enforcing our rights hereunder or in connection with the
litigation of any controversy arising out of this agreement, or in
protecting, preserving or perfecting our interest in, any Collateral,
including without limitation all taxes assessed or payable with respect
to any Collateral, and the costs of all public record filings,
appraisals and searches relating to any Collateral. We may also charge
to your account our then standard price for furnishing to you or your
designees copies of any statements, records, files or other data
(collectively "Reports") requested by you or them other than Reports of
the kind furnished to you and our other clients on a regular, periodic
basis in the ordinary course of our business. We may file Financing
Statements under the Uniform Commercial Code without your signature or,
if we so elect, sign and file them as your agent.
(e) Our rights and remedies under this agreement will be cumulative and
not exclusive of any other right or remedy we may have hereunder or under
the Uniform Commercial Code or otherwise. Without limiting the
foregoing, if we exercise our rights as a secured party we may, at any
time or times, without demand, advertisement or notice, all of which you
hereby waive, sell the Collateral, or any part of it, at public or
private sale, for cash, upon credit, or otherwise, at our sole option
and discretion, and we may bid or become purchaser at any such sale,
free of any right of redemption which you hereby waive. After
application of all Collateral to your Obligations (in such order and
manner as we in our sole discretion shall determine), you shall remain
liable to us for any deficiency.
(f) We shall have no liability hereunder (i) for any losses or damages
(including indirect, special or consequential damages) resulting from
our refusal to assume, or delay in assuming, the Credit Risk, or any
malfunction, failure or interruption of communication facilities, or
labor difficulties, or other causes beyond our control; or (ii) for
indirect, special or consequential damages arising from accounting
errors with respect to your account with us except due to our willful
misconduct or our gross negligence. Our liability for any default by us
hereunder shall be limited to a refund to you of any commission paid by
you during the period starting on the occurrence of the default and
ending when it is cured or waived, or when this agreement is terminated,
whichever is earlier.
(g) This agreement cannot be changed or terminated orally and is for
the benefit of and binding upon the parties and their respective
successors and assigns. This agreement supersedes and replaces the
Factoring Agreement previously in place between us.
(h) This agreement shall not be effective unless signed by you below,
and signed by us at the place for our acceptance.
<PAGE>
-6-
(i) TO THE EXTENT LEGALLY PERMISSIBLE, BOTH YOU AND WE WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY LITIGATION RELATING TO TRANSACTIONS UNDER THIS
AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
Very truly yours,
BNY FINANCIAL CORPORATION
AGREED TO on this 28th day of February, 1995.
ACCLAIM ENTERTAINMENT, INC.
By: /s/_______________________
Anthony R. Williams
Title:Executive Vice President
ACCEPTED at New York, New York, as of the above date.
BNY FINANCIAL CORPORATION
By: /s/_______________________
Title: President
[SEAL]
1290 Avenue of the Americas
New York, New York 10104
<PAGE>
Exhibit 11
Computation of Per Share Earnings
(in 000s, except per share data)
Six Months Ended
February 28,
1995 1994
---- ----
Weighted Average Shares Outstanding:
Average Common Stock Outstanding 41,350 37,620
Average Common Stock Equivalents 6,100 7,480
------- -------
Total Weighted Average Shares
Outstanding 47,450 45,100
Net Earnings $29,225 $22,974
------- -------
Net Earnings Per Common and
Common Equivalent Share $0.62 $0.51
----- -----
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 38,198
<SECURITIES> 66,962
<RECEIVABLES> 140,354
<ALLOWANCES> 0
<INVENTORY> 22,790
<CURRENT-ASSETS> 308,777
<PP&E> 31,549
<DEPRECIATION> 5,649
<TOTAL-ASSETS> 426,055
<CURRENT-LIABILITIES> 127,545
<BONDS> 0
<COMMON> 895
0
0
<OTHER-SE> 294,155
<TOTAL-LIABILITY-AND-EQUITY> 426,055
<SALES> 318,377
<TOTAL-REVENUES> 318,377
<CGS> 146,592
<TOTAL-COSTS> 146,592
<OTHER-EXPENSES> 289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,749
<INCOME-PRETAX> 49,925
<INCOME-TAX> 20,700
<INCOME-CONTINUING> 29,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,225
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
