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EXHIBIT 10.28
ASSET PURCHASE AGREEMENT
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This Asset Purchase Agreement (this "Agreement"), dated as of December 5,
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2000, is made and entered into by and between (i) Matthews Studio Equipment
Group, a California corporation ("Matthews"), (ii) Hollywood Rental Company,
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LLC, a Delaware limited liability company ("HRC"), (iii) HDI Holdings, Inc., a
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Kentucky corporation ("HDI"), (iv) Matthews Studio Sales, Inc., a California
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corporation ("MSS" and, together with Matthews, HRC and HDI, collectively, the
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"Sellers" and individually, a "Seller") and (iv) Hollywood Rentals Production
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Services, LLC, a California limited liability company ("Buyer").
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RECITALS
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A. HRC, HDI and MSS (the "Subsidiaries") desire to sell, assign, transfer
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and convey to Buyer the assets and liabilities (other than the Excluded Assets
and the Excluded Liabilities (as hereinafter defined)) of their respective
businesses, upon the terms and subject to the conditions of this Agreement.
B. Matthews desires to sell, assign, transfer and convey to Buyer certain
real estate lease and certain intellectual property used in the conduct of the
Subsidiaries' businesses, as well as certain furniture, fixtures and equipment.
C. Buyer desires to purchase and assume from Sellers such assets and
liabilities upon the terms and subject to the conditions of this Agreement.
D. This is the definitive Asset Purchase Agreement referred to in the
letter of intent dated October 12, 2000 between Matthews and Raleigh
Enterprises, LLC, Buyer's predecessor-in-interest (the "Letter of Intent").
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E. Each of Sellers is a debtor under title 11 of the United States Code
(the "Bankruptcy Code") in a chapter 11 case (the Sellers' chapter 11 cases
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hereinafter referred to collectively as the "Cases," and individually as a
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"Case") now pending before the United States Bankruptcy Court for the Central
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District of California, San Fernando Valley Division (the "Court").
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NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements, terms and conditions
contained herein, and in order to set forth the terms and conditions of the
sale, the parties hereto do hereby agree as follows:
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ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Purchase and Sale. On the terms and subject to the conditions of this
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Agreement, at the Closing, the Subsidiaries shall assume pursuant to the
Bankruptcy Code their respective Assigned Contracts and the Additional Truck
Leases (both as hereinafter defined) and shall sell, convey, assign, transfer
and deliver to Buyer, all of their respective right, title and interest in, to
and under, the Subsidiary Purchased Assets (as hereinafter defined). On the
terms and subject to the conditions of this Agreement, at the Closing, Matthews
shall assume pursuant to the Bankruptcy Code its respective Assigned Contracts
and shall sell, convey, assign, transfer and deliver to Buyer all of Matthews's
right, title and interest in, to and under the Matthews Purchased Assets (as
hereinafter defined). On the terms and subject to the conditions of this
Agreement, at the Closing, Buyer shall purchase and accept from the Subsidiaries
all of their respective right, title and interest in, to and under the
Subsidiary Purchased Assets, and from Matthews all of Matthews's right, title
and interest in, to and under the Matthews Purchased Assets. (The Subsidiary
Purchased Assets and the Matthews Purchased Assets from time to time shall be
referred to collectively as the "Purchased Assets.") The consideration which
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Buyer shall pay and deliver for the Purchased Assets shall be (i) $17,000,000,
(the "Purchase Price") and (ii) the assumption of the Assumed Liabilities (as
hereinafter defined).
1.2 Purchased Assets and Excluded Assets.
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(a) Subsidiary Purchased Assets. The term "Subsidiary Purchased Assets"
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means all of the respective assets, goodwill and rights of the Subsidiaries as
of the Closing (as hereinafter defined), including, without limitation, the
following items, but excluding therefrom the Excluded Assets:
(i) all inventories of equipment held for rent by the respective
Subsidiaries (including, but not limited to, film cameras and lighting and
grip equipment) ;
(ii) all expendable supplies, spare parts and other supplies that
are saleable or usable in the ordinary course of business of the respective
Subsidiaries;
(iii) all furniture, fixtures, equipment, machinery, furnishings,
motor vehicles, computers, computer systems and software, office equipment,
tools and other articles of personal property that are used in the
respective Subsidiaries' business;
(iv) subject to the provisions of Section 1.3(b), all contracts,
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leases, subleases, indentures, licenses, agreements, commitments, bids,
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quotes, proposals, purchase orders and sales orders ("Contracts") that are
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listed in Schedule 1.2(a)(iv), including, but not limited to, that certain
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real estate lease of HRC for premises located at 9100-C Perimeter Woods
Drive, Charlotte, North Carolina (the "NC Lease");
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(v) all of the right, title and interest of the respective
Subsidiaries under Contracts pursuant to which the respective Subsidiaries
rent equipment to their customers (the "Rental Contracts" and, together
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with the Contracts listed in Schedule 1.2(a)(iv), the "Subsidiaries'
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Assigned Contracts");
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(vi) trade accounts receivable of the respective Subsidiaries that
remain outstanding as of the Closing Date;
(vii) all trademarks, including all trade names, business names and
trade dresses incorporating "Hollywood Rental," "HRC," "HDI," "Expendable Supply
Store" or "Olesen" logos (collectively, the "Names"), including, without
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limitation, those trademark registrations or applications for trademark
registrations listed on Schedule 1.2(a)(vii) attached hereto, and all rights to
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use the ESS Trademark;
(viii) all rights, claims, credits, suits, actions, demands, hearings,
proceedings, judgments, orders, injunctions, writs, awards, decrees and
rulings of any federal, state, local or foreign government or court of
competent jurisdiction, administrative agency, commission, or other
governmental or regulatory authority or instrumentality ("Governmental
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Entity") to the extent relating to any Subsidiary Purchased Asset or any
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Subsidiary's Assumed Liability, including any such items arising under
guarantees, warranties, indemnities and similar rights in favor of a
Subsidiary in respect of any Subsidiary Purchased Asset or such
Subsidiary's Assumed Liability;
(ix) subject to Section 1.2(c)(ix), all books of account, ledgers,
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financial, accounting and Tax (as hereinafter defined) records and all
general and personnel records, files, invoices, customers' and suppliers'
lists, other distribution and mailing lists, price lists, reports, plans,
advertising materials, catalogues, billing records, sales and promotional
literature, manuals, and customer and supplier correspondence (the
"Records") that are used in the respective Subsidiaries' business, in all
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cases in any form or medium. The term "Tax" as used herein shall mean any
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and all federal, state, local or foreign income, sales, use, transfer,
payroll, unemployment, Social Security, personal property, occupancy or
other tax, levy, impost, fee, imposition, assessment or similar charge,
together with any related addition to tax, interest or penalty thereon;
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(x) all sundry items, including telephone numbers, key and lock
combinations and passwords which are necessary to Buyer's use of the
Subsidiary Purchased Assets in the ordinary course of business;
(xi) all goodwill generated by, associated with or attributable to
the respective businesses of the Subsidiaries; and
(xii) to the extent assignable by the Subsidiaries to Buyer, property
damage, but NOT liability, insurance coverage under the Subsidiaries'
insurance policies and insurance contracts covering any loss or damage to
any of the Subsidiary Purchased Assets that occurred at any time between
August 1, 2000 and the Closing Date together with any claim, action or
other right the respective Subsidiaries may have for insurance coverage
under such policies and contracts that relates to any loss or damage to any
Subsidiary Purchased Assets that occurred at any time between August 1,
2000 and the Closing Date, and, regardless of whether or not such claims or
coverage are assignable, any proceeds received from any such policy or
contract after the Closing (it being understood that insurance coverage
for, and claims relating to, any Excluded Assets are being retained by
Sellers).
(b) Matthews Purchased Assets. The term "Matthews Purchased Assets" means
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the following assets and rights of Matthews as of the Closing:
(i) subject to the provisions of Section 1.3(b), the real estate
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lease described in Schedule 1.2(b)(i) attached hereto (the "Kenwood
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Lease");
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(ii) the trademark described in Schedule 1.2(b)(ii) attached
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hereto, including all trade names, business names and trade dresses
incorporating such trademark (the "ESS Trademark");
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(iii) the computers, computer systems and software of Matthews
located at the premises covered by the Kenwood Lease and at the facilities
described in Schedule 1.2(b)(iii) attached hereto, except as set forth in
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Schedule 1.2(b)(iii);
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(iv) the furniture and office equipment, to the extent not already
described in Section 1.2(b)(iii), of Matthews located at the premises
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covered by the Kenwood Lease;
(v) all rights and claims arising under guarantees, warranties,
indemnities and similar rights in favor of Matthews in respect to any of
the items identified in Sections 1.2(b)(iii) and 1.2(b)(iv);
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(vi) to the extent assignable by Matthews to Buyer, property damage,
but NOT liability, insurance coverage under Matthews's
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insurance policies and insurance contracts covering any loss or damage to
any Matthews Purchased Assets identified in Section 1.2(b)(iii) or
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1.2(b)(iv) that occurred at any time between August 1, 2000 and the Closing
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Date, together with any claim, action or other right Matthews may have for
insurance coverage under such policies and contracts that relates to any
loss or damage to any Matthews Purchased Assets identified in Section
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1.2(b)(iii) or 1.2(b)(iv), and, regardless of whether or not such claims or
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coverage are assignable, any proceeds received from any such policy or
contract after the Closing (it being understood that insurance coverage
for, and claims relating to, any Excluded Assets are being retained by
Sellers); and
(vii) subject to the provisions of Section 1.3(b), all of the right,
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title and interest of Matthews under the Contracts listed in Schedule
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1.2(b)(vii) (together with the Kenwood Lease, the "Matthews's Assigned
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Contracts").
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(c) Excluded Assets. The Purchased Assets shall not in any event include
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the Excluded Assets, and the term "Excluded Assets" means:
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(i) all cash, bank accounts, certificates of deposit and other
similar items of the respective Subsidiaries (it being understood that all
cash flow prior to the Closing shall accrue to the Subsidiaries);
(ii) the vehicles listed in Schedule 1.2(c)(ii) attached hereto;
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(iii) all right, title and interest in and to the Office and
Warehouse Lease dated October 31, 1997, by and between Matthews Studio
Equipment, Inc., a California corporation and Cahuenga-Ivar Associates,
Ltd., and the Lease of Storage Compound and Vehicle Parking Spaces Lease
dated October 31, 1997, by and between Matthews Studio Equipment, Inc., a
California corporation and Selma Avenue Management Co., any security
deposits under any such leases, any mortgagee's subordination and
attornment agreements obtained in connection with any such leases, and any
and all proceeds of any such leases;
(iv) all of the respective Subsidiaries' rights, claims, credits,
suits, actions or demands against any affiliate of the respective
Subsidiaries (including intercompany claims between two Subsidiaries or
between a Subsidiary and Matthews);
(v) all of the respective Subsidiaries' (and their respective
bankruptcy estates') causes of action, including, but not limited to,
avoidance and other causes of action arising under Bankruptcy Code Sections
510, 541 (except to the extent any such cause of action
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constitutes a Purchased Asset as set forth in Section 1.2(a)(viii) or (xii)
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or Section 1.2(b)(v) or (vi)), 548, 549, 550 and 553;
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(vi) in addition to the provisions of Sections 1.2(c)(iv) and
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1.2(c)(v), all of the respective Subsidiaries' (and their respective
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bankruptcy estates') rights, claims, credits, suits, actions, demands,
hearings, proceedings, judgments, orders, injunctions, writs, awards,
decrees and rulings of any Governmental Entity to the extent relating to
any Excluded Asset or any Excluded Liability, including, but not limited
to, (A) any such items arising under insurance policies and all guarantees,
warranties, indemnities and similar rights in favor of any Subsidiary in
respect of any Excluded Asset or any Excluded Liability, and (B) any
counterclaims, offset rights, rights to recoupment and other defenses
available to any Subsidiary in respect of such Subsidiary's obligations and
liabilities to its lenders and creditors, such as (1) ING Equity Partners,
L.P. I, and (2) the lenders under the Amended and Restated Credit Agreement
dated as of April 1, 1998, by and among the Sellers, the other borrowers
named therein, the guarantors named therein, the lenders named therein and
The Chase Manhattan Bank, as agent for the lenders named therein, as such
agreement is modified or supplemented from time to time (the "Chase Loan
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Agreement");
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(vii) except as set forth in Section 1.2(a)(xii) and 1.2(b)(vi), all
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insurance policies and insurance contracts insuring the business of
Matthews or the Subsidiaries, or any Matthews Purchased Asset or Subsidiary
Purchased Asset, together with any claim, action or other right Matthews,
the Subsidiaries or any of their affiliates may have for insurance coverage
under any past and present policies and insurance contracts insuring the
business of Matthews or the Subsidiaries, or any Matthews Purchased Asset
or Subsidiary Purchased Asset, including any proceeds received from any
such policy or contract after the Closing;
(viii) all refunds of (i) Taxes, including deferred Taxes, and (ii)
insurance premiums with respect to the business of the respective
Subsidiaries for any period ending on or prior to the Closing Date, and all
prepayments of such Taxes or premiums made by the respective Subsidiaries
for any period beginning on or subsequent to October 1, 2000;
(ix) (A) all Records of the respective Subsidiaries which the
respective Subsidiaries are required by any federal, state, local, foreign
or other applicable statute, law, ordinance, rule or regulation ("Law") to
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retain, (B) all Records prepared in connection with the sale of the
respective Subsidiaries' business to Buyer, (C) all financial and Tax
Records relating to the respective Subsidiaries' business that either (1)
form part of the respective Subsidiaries' general ledger or (2) relate to
Tax
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periods which commenced prior to the Closing Date, and (D) all stock
Records, minute books and other corporate Records of the respective
Subsidiaries;
(x) except for the Matthews Purchased Assets, any and all rights or
interests in or to any tangible or intangible assets or property
(including, without limitation, rental equipment, accounts receivable,
furniture, fixtures, equipment (including computer hardware used to
generate and/or maintain Records), cash, trademarks (such as "Four Star,"
"Matthews" or any name or logo incorporating any such trademark), computer
software (including software used to generate and/or maintain Records),
non-compete covenants, stock ownership in subsidiaries, claims, causes of
action, offset rights, rights to recoupment, defenses, Records and rights
to refund) of (A) Matthews Studio Electronics, Inc., a California
corporation, (B) ShowbizMart.com Inc., a Delaware corporation, (C) Duke
City Video, Inc., a New Mexico corporation, (D) Four Star Lighting, Inc., a
New York corporation, (E) Matthews Acceptance Corporation, a California
corporation, or (F) Matthews, or (G) their respective bankruptcy estates;
(xi) without limiting the generality of the provisions of Section
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1.2(c)(x), any assets sold to E.F. Nettmann & Associates, Inc., a
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California corporation ("Nettmann Inc."), whether tangible or intangible,
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pursuant to that certain Asset Purchase Agreement dated as of October 11,
2000, among Matthews, Matthews Studio Electronics, Inc. and Nettmann Inc.;
(xii) permits and licenses issued by any Governmental Entity and held
by any Subsidiary, to the extent such permits and licenses are not
transferable or assignable; and
(xiii) the instruments and documents described on Schedule
1.2(c)(xiii).
Notwithstanding the fact that claims and causes of action described in
Section 1.2(c) are Excluded Assets, neither the Sellers nor their bankruptcy
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estates shall assert any claim or cause of action that is an Excluded Asset if
and to the extent the assertion of such claim or cause of action would result in
the imposition of liability against Buyer due to Buyer's ownership or use of the
Purchased Assets; provided, however, that nothing in the preceding clause shall
be deemed to restrict or prevent the Sellers from asserting their rights under
this Agreement against Buyer in the event of a breach by Buyer of its
obligations under this Agreement.
1.3 Assumption of Certain Liabilities. At, and effective as of, the
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Closing Date, Buyer shall: accept, assume and pay, when such payment is
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required to be made under applicable Law, the obligations and liabilities to the
Transferred Employees, the Post-Closing Hires and the De-Selected Employees (all
as hereinafter defined) for accrued vacation as described in Section 1.3(a); and
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accept, assume and comply with the liabilities and obligations of the Sellers
arising under the Subsidiaries' Assigned Contracts and the Matthews's Assigned
Contracts (collectively, the "Assigned Contracts"), unless any such contract
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shall have been excluded from the Purchased Assets in accordance with Section
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1.3(b) and, subject to the provisions of Section 5.13, HRC's liabilities and
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obligations under the Additional Truck Leases (the liabilities and obligations
being assumed by Buyer being collectively referred to herein as the "Assumed
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Liabilities"). Without limiting the generality of the foregoing, the Assumed
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Liabilities shall include the obligations and liabilities of the respective
Sellers under the Assigned Contracts and the Additional Truck Leases, whether
existing prior to or after the Closing Date, including, but not limited to,
obligations to make payments or to take any other actions to cure any defaults
on the part of the respective Sellers under the Assigned Contracts under
Bankruptcy Code Section 365. Following the Closing, Buyer shall perform and
satisfy, and shall be solely responsible for, the Assumed Liabilities, and
waives any right to seek reimbursement from the Sellers or their affiliates for
or on account of the Assumed Liabilities. Other than the Assumed Liabilities,
Buyer does not assume and shall in no event be liable for any liabilities, debts
or obligations of any Seller, whether accrued, absolute, matured, contingent or
otherwise (and those liabilities which are not Assumed Liabilities shall be
"Excluded Liabilities").
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(a) Employee Liabilities.
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(i) Set forth on Schedule 1.3(a)(i) attached hereto is a list of
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the employees of the Sellers ("Employees") as of the date hereof, and set
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forth on Schedule 1.3(a)(i) attached hereto is a list of the amount accrued
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and unpaid vacation for each such Employee as of a recent date. Set forth
on Schedule 1.3(a)(ii) attached hereto is a list of those Employees whom
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Buyer intends to employ on Closing (the "Selected Employees").
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(ii) By no later than 10 days prior to the Closing Date, Buyer shall
offer to the Selected Employees employment from and as of the effective
time of the consummation of the transactions contemplated under this
Agreement, which employment offer shall be contingent upon no other event
than the consummation of the Closing. Each Selected Employee shall be
offered employment with Buyer at a position similar to such person's
current position with the respective Sellers, and with compensation and
benefits reasonably comparable to such person's current compensation and
benefits from the respective Sellers (it being understood that Buyer shall
not be required to offer any stock-based or 401(k) benefits). Each Selected
Employee shall be given the right to accept such offer at any time prior to
the Closing Date.
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(iii) On the Closing Date, Buyer shall give Sellers a list in writing
of those Selected Employees, and any other Employees of any Seller, who
shall have accepted Buyer's offer of employment (collectively, the
"Transferred Employees"). Buyer shall be responsible for Vacation Benefits
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(as hereinafter defined) on the Closing Date in respect of the Transferred
Employees. Further, Buyer shall be responsible for Vacation Benefits on the
Closing Date in respect of any Selected Employee to whom Buyer did not
extend prior to the Closing Date an offer of employment in compliance with
the requirements of Section 1.3(a)(ii) above (the "De-Selected Employees").
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Notwithstanding the preceding sentence, with respect to Selected Employees
who are located at the Kenwood Lease facility, Buyer shall make offers
(prior to the Closing) in accordance with Section 1.3(a)(ii) to no less
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than 50 of those Selected Employees. "Vacation Benefits" means accrued and
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unpaid vacation earned by any Employee up to and including the Closing Date
while employed by Sellers.
(iv) If at any time within 90 days following the Closing Date, any
Employee who (A) was not a Selected Employee, and (B) was not a Transferred
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Employee, becomes an employee of Buyer or an affiliate of Buyer (a "Post-
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Closing Hire"), Buyer shall immediately give written notice thereof to
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Sellers, and shall reimburse to Sellers, by no later than 2 Business Days
(as hereinafter defined) following Sellers' demand therefor, any Vacation
Benefits satisfied by Sellers on or after the Closing Date with respect to
such Post-Closing Hire. The term "Business Day" as used herein means any
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day other than a Saturday, a Sunday or any other day on which banks in the
State of California are authorized or required to be closed.
(v) If a Selected Employee who did not accept Buyer's offer of
employment (which offer was made in compliance with the requirements of
Section 1.3(a)(ii) above) as of the Closing (i.e., the Employee was not a
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Transferred Employee) but subsequent to the Closing becomes employed by
Buyer, Buyer shall not be responsible for Vacation Benefits for such
person.
(vi) For a period of 60 days following the Closing Date, Buyer shall
not cause any of the Transferred Employees or Post-Closing Hires to suffer
"employment loss" for purposes of the Worker Adjustment and Retraining and
Notification Act, 29 U.S.C. (S) 2101 et seq. (the "WARN Act") and
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regulations promulgated thereunder, if such employment loss could create
any WARN Act related liabilities for any Seller.
(vii) Other than as specifically described in Section 1.3 and this
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Section 1.3(a), Buyer shall not be responsible for any other liabilities or
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obligations of the Sellers to any Employees.
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(b) Cure of Defaults. Set forth on Schedule 1.3(b) attached hereto
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is a list of the amounts and other consideration which, to the actual
knowledge of Miles Stover, Matthews's Chief Operating Officer, are required
as of the date hereof to cure any default on the part of Sellers under the
Assigned Contracts. The term "Cure Finding" as used herein shall mean a
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finding by the Court that the only amounts and consideration required to
cure any Seller defaults under the Assigned Contracts are as set forth on
Schedule 1.3(b). In the event the Sale Order (as hereinafter defined) does
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not include the Cure Finding, Buyer shall have the right to exclude from
the Purchased Assets and the Assumed Liabilities any and all of the
Assigned Contracts. Buyer shall exercise its right of excluding Assigned
Contracts by giving written notice to Sellers, on or before the 3rd
Business Day preceding the Closing Date, specifying the particular Assigned
Contract to be excluded from the transactions contemplated hereby. Failure
of Buyer to timely deliver such written notice shall be construed as
Buyer's election to have all Assigned Contracts included in the Purchased
Assets and the Assumed Liabilities. On the Closing Date, Buyer shall be
responsible for tendering, to parties under the Assigned Contracts which
have not been excluded pursuant to the preceding provisions of this Section
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1.3(b), the consideration necessary to cure any such defaults, even if such
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consideration exceeds the amounts and consideration set forth on Schedule
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1.3(b). Buyer agrees that Buyer's sole recourse in the event the Sale Order
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does not include the Cure Finding is to exclude (some or all of) the
Assigned Contracts and, following the Closing, whether or not the Sale
Order shall have included the Cure Finding, Buyer shall have sole
responsibility for the Assigned Contracts (if not so excluded), the
Additional Truck Leases (subject to the provisions of Section 5.13), and
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all the Assumed Liabilities associated therewith (even if such Assumed
Liabilities exceed the amount set forth on Schedule 1.3(b)), as set forth
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above in Section 1.3 and this Section 1.3(b). There shall be no reduction
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of the Purchase Price due to the exclusion of one or more Assigned
Contracts.
1.4 Nonassignability of Assets. This Agreement shall not constitute
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an agreement to sell, assign, transfer or convey any asset if such sale,
assignment, transfer or conveyance is prohibited by any applicable Law or
would require the consent, approval, license, permit, order, or
authorization ("Consent") of any Governmental Entity or other person. If
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such Consent is not obtained prior to Closing, the Closing shall proceed
without the sale, assignment, transfer or conveyance of such asset;
provided, however, if such failure causes a failure of any of the
conditions to Buyer's obligations as set forth in Article VI hereof, the
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Closing shall proceed only if Buyer shall waive such condition, in its sole
discretion. In the event that the Closing proceeds without the sale,
assignment, transfer or conveyance of any such asset, then following the
Closing, the parties shall use their reasonable best efforts, and cooperate
with each other, to obtain promptly such Consents; provided, however, that
neither the Sellers, on the one hand, nor Buyer, on the other hand, shall
be required to pay any consideration for such Consent other than filing,
recordation or similar
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fees which shall be paid by the party who is required by applicable Law or
course of dealing to do so. Pending receipt of such Consent, the parties
shall cooperate with each other in any mutually agreeable, reasonable and
lawful arrangements designed to provide to Buyer the benefits of use of
such asset and to the applicable Sellers the benefits, including any
indemnities, that they would have obtained had the asset been conveyed to
Buyer at the Closing. Once Consent for the sale, assignment, transfer or
conveyance of any such asset not sold, assigned, transferred or conveyed at
the Closing is obtained, the applicable Sellers shall sell, assign,
transfer and convey such asset to Buyer at no additional cost to Buyer. To
the extent that any such asset cannot be provided to Buyer, following the
Closing pursuant to this Section 1.4, Buyer and the applicable Sellers
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shall enter into such arrangements (including subleasing, sublicensing or
subcontracting) to provide to the parties the economic and operational
equivalent, to the extent permitted, of obtaining such Consent and the
performance by Buyer of the obligations thereunder. The applicable Sellers
shall hold in trust for and pay to Buyer, promptly upon receipt thereof,
all income, proceeds and other monies received by such Sellers in
connection with their use of any asset (net of the net Tax and any other
costs imposed upon such Sellers) in connection with the arrangements under
this Section 1.4 and Buyer shall indemnify the Sellers for the net Tax and
any other costs imposed upon the Sellers in connection with Buyer's use of
any such asset. Notwithstanding the foregoing, to the extent the Bankruptcy
Code supercedes any requirement for a Consent then such Consent shall not
be required hereunder and this Section 1.4 shall not apply in respect of
such Consent.
1.5 [Reserved]
1.6 Deposit. Concurrent with the execution of this Agreement, Buyer
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is depositing the amount of $1,250,000 into a segregated interest bearing
bank account of Matthews at City National Bank, with Miles Stover, the
Chief Operating Officer of Matthews being the sole signatory thereunder
(the "Deposit Account"). In the event the Bidding Procedures Order (as
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hereinafter defined) provides that potential bidders may make a deposit of
less than $1,000,000, then within 1 Business Day following the entry of the
Bidding Procedures Order, the Sellers shall release from the Deposit
Account to Buyer the difference between the amount then held in the Deposit
Account and the (lower) deposit amount allowed in the Bidding Procedures
Order to potential bidders. The amount held in the Deposit Account (the
"Deposit") shall be credited against the Purchase Price, returned to Buyer,
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or retained by the Sellers, in accordance with the terms of this Agreement.
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ARTICLE II
THE CLOSING
2.1 The Closing. The closing (the "Closing") of the transactions provided
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for in this Agreement shall be held at the offices of Holland & Knight LLP in
the City of Los Angeles (unless the parties hereto otherwise agree in writing)
on the Closing Date.
2.2 Closing Date. The Closing shall be held on the earlier of January 29,
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2001 or 5 Business Days after the conditions set forth in Article VI shall have
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been satisfied or waived, or on such other date as the parties hereto agree in
writing (the "Closing Date").
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2.3 Purchase Price Payment and Deliveries. As reflected in Section 2.4, on
------------------------------------- -----------
Closing, Buyer will deliver, or cause to be delivered, to the Sellers: (a) a
payment, by a wire transfer to Sellers' bank account designated in writing by
the Sellers (such designation to be made at least 2 Business Days prior to the
Closing Date) in immediately available funds, in the amount of $13,000,000 less
the amount of the Deposit (the "Cash Payment"); and (b) one or more promissory
------------
notes (the "Notes"), the aggregate principal amount of which shall equal
-----
$4,000,000. The Notes shall be issued in such number and in denominations (of
$500,000 or more) as requested by the Sellers (such request to be made at least
3 Business Days prior to the Closing Date) and shall be fully assignable by any
Seller, in whole, or in part (and if assigned in part then in no event in
increments of less than $500,000), at any time without the consent of Buyer to
(a) any lender, or agent for the lenders, under the Chase Loan Agreement, (b)
any one or more Sellers, (c) any financial institution, or any hedge fund,
venture fund or similar investment fund, or (d) an agent appointed pursuant to
Section 2.6 below (each a "Permitted Transferee"). Any assignment of all or a
----------- --------------------
portion of a Note to any person not qualifying as a Permitted Transferee shall
be subject to Buyer's prior written consent, which consent shall not be
unreasonably withheld or delayed (it being understood that Buyer's withholding
of consent to the proposed transfer to a competitor of Buyer is reasonable,
unless such competitor shall agree to forego all rights to receive non-public
information regarding Buyer). The Notes shall be in the form attached hereto as
Exhibit A. In connection with any such assignment, Buyer upon request shall
---------
promptly issue one or more replacement notes to evidence such assignment (so
long as the principal amounts of the replacement Notes do not exceed, in the
aggregate, the outstanding principal amount of the surrendered Note). In the
event that on or prior to the Closing Date, Buyer shall obtain, from a third-
party lender who is not affiliated with Buyer, financing that makes available to
Buyer loan funds in cash in excess of $10,000,000, then the Cash Payment due
from Buyer on Closing shall increase by an amount equal to such available loan
funds that are in excess of $10,000,000 (the "Additional Financing Amount") and
---------------------------
the aggregate principal
12
<PAGE>
amount of the Notes to be delivered by Buyer on Closing shall be reduced by the
Additional Financing Amount. In determining the amount of financing obtained by
Buyer for purposes of the preceding sentence, Buyer shall have the right to
exclude up to $4,000,000 of financing which will function as a factoring line
for Buyer's accounts receivable after the Closing.
2.4 Closing Deliveries.
------------------
(a) Deliveries by Buyer. At the Closing, Buyer will execute, if
-------------------
applicable, deliver, or cause to be delivered, to the Sellers:
(i) The Cash Payment, subject to increase pursuant to the terms of
Section 2.3;
-----------
(ii) [Reserved];
(iii) The Notes, subject to reduction pursuant to the terms of
Section 2.3;
-----------
(iv) all such executed agreements and other instruments as may be
reasonably required by the Sellers for the effective assumption by Buyer of
the Assumed Liabilities and the Assigned Contracts (including evidence
reasonably satisfactory to the Sellers that Buyer has tendered the amounts
necessary to cure defaults under the Assigned Contracts as required by
Section 1.3(b)), together with such instruments and certificates as may be
--------------
reasonably required by the Sellers to carry out the parties' intent under
this Agreement;
(v) The Guaranty in the form attached hereto as Exhibit B (the
---------
"Guaranty"), which shall be duly executed on behalf of RP Holdings, Inc.,
--------
Jules & Associates, Inc. and CDM Interactive, Inc. (each, a "Guarantor" and
---------
collectively, the "Guarantors");
----------
(vi) The Security Agreement in the form attached hereto as Exhibit C
---------
(the "Security Agreement"), to grant to the Sellers a security interest in
------------------
Buyer's existing and after-acquired assets;
(vii) The subordination agreement in substantially the form attached
hereto as Exhibit D (the "Subordination Agreement"), which shall be duly
--------- -----------------------
executed by Sanwa Bank California, provided that if the Note amount is
decreased and the Cash Payment is increased pursuant to Section 2.3, then
-----------
the Note amount stated in the Subordination Agreement shall be accordingly
reduced;
(viii) Such financing statements and other instruments (including such
assignments of trademarks in a form recordable with the U.S. Patent and
Trademark Office) as may be reasonably required by the
13
<PAGE>
Sellers to permit the Sellers to perfect the security interest granted
under the Security Agreement;
(ix) A list of the Transferred Employees and De-Selected Employees,
together with the amount of the Vacation Benefits for the Transferred
Employees and De-Selected Employees, in the form of Buyer's check payable
to Matthews;
(x) a certificate executed by Buyer's duly authorized officer,
certifying to the matters set forth in Sections 6.2(c) and 6.2(d) hereof;
--------------- ------
(xi) a certificate of a duly authorized officer of Buyer, certifying
to the due authorization of the transactions contemplated hereby by Buyer;
and
(xii) all other documents, instruments and writings to be delivered
by Buyer at or prior to the Closing pursuant to this Agreement.
(b) Sellers' Deliveries. At the Closing, the Sellers will execute, if
-------------------
applicable, deliver, or cause to be delivered, to Buyer:
(i) all appropriate bills of sale, assignments (including such
assignments of trademarks in a form recordable with the U.S. Patent and
Trademark Office) and other transfer documents as may be reasonably
required by Buyer to validly transfer title to the Purchased Assets to
Buyer, together with such instruments and certificates as may be reasonably
required by Buyer to carry out the parties' intent under this Agreement;
(ii) [Reserved];
(iii) the Security Agreement;
(iv) the Subordination Agreement, provided that if the Note amount
is decreased and the Cash Payment is increased pursuant to Section 2.3,
-----------
then the Note amount stated in the Subordination Agreement shall be
accordingly reduced;
(v) a statement of the Vacation Benefits amount due to the
Transferred Employees and the De-Selected Employees;
(vi) certificates executed by the respective Sellers' duly
authorized officer, certifying to the matters set forth in Sections 6.1(b)
--------------
and (c) hereof;
-
(vii) certificates of the respective Subsidiaries' duly authorized
officer, certifying to the due authorization of the transactions
14
<PAGE>
contemplated hereby by the respective Subsidiaries, and a certificate of
Matthews' duly authorized officer, certifying to the due authorization of
the transactions contemplated hereby by Matthews;
(viii) a certified copy of the Sale Order;
(ix) certificates of title (for Purchased Assets) that are in
Sellers' possession; and
(x) all other documents, instruments and writings to be delivered
by the Sellers at or prior to the Closing pursuant to this Agreement.
2.5 Benefit; Risk of Loss. Upon consummation of the Closing, Buyer will
---------------------
receive the benefits of the Purchased Assets and accrue the obligations of the
Assumed Liabilities (including the Assigned Contracts, from and after 12:01 a.m.
on the Closing Date and as of such time, the risk of loss of the Purchased
Assets shall be deemed transferred from the Sellers to Buyer.
2.6 Agent for Note Holders. During such time that there is more than one
----------------------
Note and the holders of the Notes include parties other than the Sellers, the
---
Note holders shall appoint an administrative and collateral agent to act for the
Note holders in connection with the enforcement of rights and the collection of
payment under the Notes, and in connection with the enforcement of rights and
the collection of information under the Guaranty and the Security Agreement,
with such agent to be selected by the Note holders pursuant to the approval of
holders of more than 50% of the aggregate then outstanding principal under the
Notes, or such higher percentage as may be agreed to by the Note holders. Such
agent shall take actions in respect of the Notes and the Security Agreement
pursuant to the direction of holders of more than 50% of the aggregate then
outstanding principal under the Notes, or such higher percentage as may be
agreed to by the Note holders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties by Buyer. Buyer represents and
---------------------------------------
warrants to, and agrees with, the Sellers as follows:
(a) Organization, etc. Buyer is a limited liability company, validly
-----------------
existing and in good standing under the laws of the State of California, with
full power and authority to own all of its property and assets and to carry on
its business as it is now being conducted. Buyer is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the character of its property makes such qualification
necessary.
15
<PAGE>
(b) Authority Relative to Agreement. Buyer has the limited liability
-------------------------------
company power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery by
Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby have been duly authorized by all necessary limited liability
company action or proceedings. This Agreement has been duly executed and
delivered by Buyer and constitute valid and binding agreements of Buyer,
enforceable against Buyer in accordance with their respective terms, except as
such enforceability is limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally. On the Closing Date,
the Notes, the Security Agreement, the Guaranty and the other documents and
instruments to be delivered by Buyer on Closing shall be duly executed and
delivered by Buyer or the Guarantors, as applicable, and shall constitute valid
and binding agreements of Buyer or the Guarantors, as applicable, enforceable in
accordance with their respective terms, except as such enforceability is limited
by bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
(c) Non-Contravention. The execution and delivery of this Agreement by
-----------------
Buyer do not, and the consummation by Buyer of the transactions contemplated
hereby will not, violate any provision of its charter documents, or violate, or
result with the giving of notice or the lapse of time or both in a violation of,
any provision of any mortgage, lien, lease, agreement, license, instrument, law,
ordinance, regulation, order, arbitration award, judgment or decree to which
Buyer or any of its properties or assets (real, personal or mixed, tangible or
intangible) are bound.
(d) Consents, etc. As of the Closing Date, Buyer shall have obtained all
-------------
Consents of any Governmental Entity or other person necessary for Buyer's
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Buyer's representation and warranty set forth
in the preceding sentence is based in part on the representation and warranty of
the Sellers made in Section 3.2(d) hereof. Buyer is the "ultimate parent entity"
--------------
of Buyer within the meaning of Section 801.1(a)(3) of the Rules of the Federal
-------------------
Trade Commission promulgated under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Rules"), and Buyer does not have "annual net
---------
sales" or "total assets," measured in accordance with Section 801.11 of the HSR
Rules, in excess of U.S.$100,000,000.
(e) AS IS Sale. Buyer acknowledges that as of the date hereof, Buyer has
----------
become intimately familiar with the assets, liabilities and operations of the
Sellers. Specifically, Buyer acknowledges that one of its principals, Carlos D.
DeMattos, is the Chief Executive Officer of Matthews, and another of its
principals, Anil Sharma, until recently was the President and Chief Financial
Officer of Matthews. Buyer understands that except as specifically set forth in
this Agreement, none of the Sellers is or will be making any representation or
16
<PAGE>
warranty, express or implied, and that the Purchased Assets, the Assumed
Liabilities and the businesses being transferred to Buyer are to be conveyed
hereunder "AS IS, WHERE IS" on the Closing Date, and in their then present
condition. In entering into this Agreement, Buyer is relying upon Buyer's own
due diligence investigation and examination of the Purchased Assets and the
Assumed Liabilities, which investigation and examination have been completed to
Buyer's satisfaction as of the date hereof. In any event, except as otherwise
-------------------
expressly set forth in this Agreement, the Sellers are not making any warranty
-------------------------------------
of merchantability, suitability or fitness for a particular purpose or quality,
with respect to any of the tangible Purchased Assets being transferred, or as to
the condition or workmanship thereof or the absence of any defects therein,
whether latent or patent. Without limiting the generality of the foregoing,
except as otherwise expressly set forth in this Agreement, Buyer understands the
Sellers are not warranting or guaranteeing:
(i) the collectability of the Subsidiaries' accounts receivable; or
(ii) that all, and not less than all, of the tangible Purchased Assets
described in Section 1.2(a)(i), (ii) or (iii), or Section 1.2(b)(iii) or
----------------- ---- ----- -------------------
(iv), are in the possession of or under the control of one or more Sellers
----
as of the date hereof or as of the Closing Date, or that some or all of
such items will not have become missing or damaged prior to the Closing
Date.
Further, Buyer acknowledges and agrees that, with respect to Section 3.2(e),
--------------
Sellers are not obligated to conduct any other interview of the Managers (as
hereinafter defined) in addition to the interview conducted on November 6, 2000,
provided the representations and warranties set forth in Section 3.2(e) reflect
--------------
the ACTUAL knowledge of Miles Stover as of the date of this Agreement.
(f) Financial Condition. Buyer has sufficient cash and/or committed
-------------------
credit facilities to pay the Cash Payment and to make all necessary payments of
fees and expenses in connection with the transactions contemplated under this
Agreement. As of the Closing, Buyer shall have notified the Sellers if Buyer has
obtained any financing that would require the Cash Payment to be increased by
the Additional Financing Amount pursuant to the terms of Section 2.3. In
-----------
addition, Buyer (i) is financially solvent, (ii) has the financial capability to
consummate and perform the transactions contemplated by this Agreement, and
(iii) has the financial capability to duly and timely perform and discharge all
Assumed Liabilities. Each Guarantor is financially solvent, and has the
financial capability to perform and discharge its obligations under the
Guaranty, including, specifically, its obligations to perform and discharge
(subject to the limitations set forth therein) the other Guarantors' obligations
under the Guaranty in view of the joint and several nature of the Guarantors'
obligations under the Guaranty.
17
<PAGE>
3.2 Representations and Warranties by Sellers. The Sellers jointly and
-----------------------------------------
severally represent and warrant to, and agree with, Buyer as follows:
(a) Organization. Each Seller is a limited liability company or
------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization or incorporation, as applicable, with full
limited liability company or corporate (as applicable) power and authority to
own all of its properties and assets and to carry on its business as it is now
being conducted.
(b) Authority Relative to Agreement. Subject to approval of the Court,
-------------------------------
each Seller has the limited liability company or corporate (as applicable) power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. As of the Closing, the execution and delivery
by each Seller of this Agreement and the consummation by such Seller of the
transactions contemplated hereby will have been duly authorized by all necessary
limited liability company or corporate (as applicable) action or proceeding.
This Agreement has been duly executed and delivered by each Seller and
constitute valid and binding agreements of such Seller, enforceable in
accordance with their respective terms, except as such enforceability is limited
by bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
(c) Non-Contravention. The consummation of the transactions contemplated
-----------------
hereby will not violate any provision of the respective charter documents of the
Sellers.
(d) Consents, etc. As of the Closing Date, each Seller shall have obtained
-------------
all Consents of any Governmental Entity necessary for such Seller's execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. The Sellers' representation and warranty set forth in the
preceding sentence is based in part on the representation and warranty of Buyer
made in Section 3.1(d) hereof. With respect to each Seller, Matthews is its
--------------
"ultimate parent entity" within the meaning of the HSR Rules. Matthews does not
have "annual net sales" or "total assets," measured in accordance with Section
801.11 of the HSR Rules, in excess of U.S.$100,000,000.
(e) Knowledge Representations. The representations made below are limited
-------------------------
to the Sellers' Knowledge (as hereinafter defined). The term "Knowledge" and
---------
words of similar import (such as "Known") means the ACTUAL knowledge of Miles
Stover following Stover's interview of Carly Barber, William Kanne, Jeff Pentek,
and Richard Williams (the "Managers") of the matters set forth in this Section
-------- -------
3.2(e).
------
(i) Conduct of Business --
18
<PAGE>
(A) Since September 1, 2000, the business of each Seller has been
conducted in the ordinary course of business, except due to restrictions
imposed on the Sellers by the Court, the Bankruptcy Code and the rules
promulgated or adopted under the Bankruptcy Code and except as set forth on
Schedule 3.2(e)(ii)(B) attached hereto.
----------------------
(B) Since September 1, 2000, there has not been any material adverse
change affecting the Purchased Assets, including, without limitation, any
change in the billing or collection practices of Sellers, except to the
extent caused by or related to Sellers being debtors in possession under
the Bankruptcy Code, such as the financial distress generally experienced
by debtors in possession and such changes in billing and collection
practices necessitated thereby.
(C) Since August 1, 2000, there has not been any damage, destruction
or loss, exceeding $130,000 in the aggregate, whether or not covered by
insurance, affecting any of the tangible Purchased Assets, other than
normal wear and tear.
(D) Since September 1, 2000, except for a one-time bonus plan
covering certain employees of Sellers, there has not been any increase in
the compensation payable or to become payable by the Sellers to any of
their respective employees, or any bonus payment or material arrangement
made to or with any of them, which is material in any one case, or in the
aggregate.
(E) Since September 1, 2000, there has not been any mortgage, pledge
or subjection to any lien, charge, or encumbrance of any kind of any of the
Purchased Assets, other than those Liens of which the Purchased Assets will
be sold free and clear pursuant to the Sale Order.
(F) Since September 1, 2000, there has not been any sale, assignment,
license or transfer by Sellers of any trademarks, trade names, copyrights,
licenses, computer software programs or other intangible assets used in
connection with the use of the Purchased Assets (other than the sale
described herein to E.F. Nettmann & Associates, Inc.).
(G) Since August 1, 2000, there has not been any write-down of the
value of any inventory, or write-off as uncollectible any notes or accounts
receivable or any portion thereof, except for write-downs and write-offs
made in the ordinary course of business, consistent with past practice.
19
<PAGE>
(H) Since September 1, 2000, there has not been any amendment or
termination of any Assigned Contract other than in the ordinary course of
business or as disclosed on Schedule 1.2(a)(iv) or Schedule 1.2(b)(vii),.
------------------- --------------------
(ii) Title --
(A) Sellers have good, marketable and exclusive title to and
undisputed possession (subject to the rental by Sellers of rental inventory
in the ordinary course of business) of all of their respective real and
tangible personal property and improvements included among the Purchased
Assets, and subject to the obtaining of the Sale Order, free and clear of
all claims (including claims of taxing authorities), liens and
encumbrances, including those of taxing authorities (collectively,
"Liens").
-----
(B) Except as set forth on Schedule 3.2(e)(ii)(B) attached hereto,
----------------------
all of the tangible personal property and improvements included among the
Purchased Assets are in good condition, ordinary wear and tear excepted (it
being understood that the term "ordinary" is to take into account the
manner in which the rental inventory is customarily used in the
Subsidiaries' industries), and are otherwise in such condition and repair
so that Sellers can use such Purchased Assets in accordance with all
applicable federal and state laws.
(C) The real and tangible personal property and improvements
included among the Purchased Assets that are of an insurable character are
and will be insured through the Closing Date in amounts adequate to replace
or repair any casualty or other physical loss to any of such Purchased
Assets.
(D) Since August 1, 2000, no equipment or other tangible assets
used in the operations of the Subsidiaries' business have been removed from
the Subsidiaries' business, except in the ordinary course of business, and
except in connection with the closure of HDI's Kentucky facility. Since
August 1, 2000, no tangible Matthews Purchased Assets have been removed
from Matthews's business, except in the ordinary course of business.
(iii) Sellers have given Buyer complete access to all copies of all
written contracts, leases, agreements and other commitments which are Known to
Sellers to constitute or evidence the Assigned Contracts. Except as set forth on
Schedule 3.2(e)(iii) attached hereto, the Assigned Contracts are not subject to
--------------------
any oral agreements, modifications, addenda or other understandings of any kind
or nature. There are no defaults on
20
<PAGE>
the part of the respective Sellers under the Assigned Contracts other than as
disclosed in Schedule 1.3(b), and no default exists on the part of any other
---------------
party to the Assigned Contracts, other than as disclosed in the schedules to
this Agreement.
(iv) Schedule 3.2(e)(iv) sets forth a description of all employee benefit
-------------------
programs and plans maintained with respect to the employees of the Sellers,
including, but not limited to, group health and accident coverage and vacation
and sick pay policies, and all contracts and understandings with employees,
whether written or oral. All such programs, plans, contracts and understandings
are in full force and effect without default. As of the Closing, Sellers will
have no severance pay or employee benefit obligations of any nature to its
employees other than pursuant to those policies, programs and plans described in
Schedule 3.2(e)(iv). Since April 7, 2000, Sellers are not subject to assessment
-------------------
or imposition of any liability or penalty arising under the Employment
Retirement Income Security Act of 1974 or the related provisions of the Internal
Revenue Code of 1986 and have not acted or failed to act in a manner that would
give rise to any such liability or penalty.
(v) Sellers have not received any notice that the conduct of any of the
Subsidiaries' businesses has resulted in an alleged infringement or unlawful or
improper use of any copyrights, trademarks, trade names, domain names, websites,
patents or other similar rights owned or alleged to be owned by others, except
as set forth on Schedule 3.2(e)(v). No partner, officer or employee of Sellers
-----------------
has any interest in any of the copyrights, trademarks, trade names, domain
names, websites, patents or other similar rights included in the Purchased
Assets. Sellers have not granted any outstanding licenses or other rights to any
of the copyrights, trademarks, trade names, domain names, websites, patents or
other similar rights included in the Purchased Assets, and Sellers have no
Knowledge of any infringement by any third party of any such asset or right.
(vi) Environmental --
Except as set forth on Schedule 3.2(e)(vi) attached hereto and
-------------------
except as disclosed to Chris Amantea, Esq., Buyer's attorney, during a
telephone conversation on November 6, 2000 (the "Interview Disclosure"),
--------------------
no Hazardous Substances (as defined below) have been:
(1) disposed of or otherwise released from any of the Sellers'
facilities located at 3111 North Kenwood Street, Burbank, California
and 9100-C Perimeter Woods Drive,
21
<PAGE>
Charlotte, North Carolina (collectively, the "Business Properties"
-------------------
and individually, a "Business Property") by Sellers or any other
-----------------
person; or
(2) are present on, over, beneath, in or upon a Business
Property or any portion thereof, or in any items of equipment or
other personal property located thereon or upon any adjacent parcels
of real estate. No prior use by any Seller or any prior occupant or
owner of any Business Property, or any other person, has occurred on
any Business Property which violates any "Applicable Environmental
Laws" as defined below. The terms "Hazardous Substance", "release",
"solid waste" and "disposal" (or "disposed") each shall have the
broadest meanings specified in the Comprehensive Environmental
Response Compensation and Liability Act, as amended, the Resource
Conservation and recovery Act, as amended, the Toxic Substances
Control Act, the Clean Air Act, the Clean Water Act and any other
federal, state or local law, ordinance, code, rule, regulation,
order or decree relating to or imposing liability or standards of
conduct concerning any hazardous, toxic or dangerous waste or
material, as now in effect (the "Applicable Environmental Laws").
-----------------------------
Except as set forth on Schedule 3.2(e)(vi) attached hereto and
-------------------
except for the Interview Disclosure, Sellers have not, and do not know of
any other person or entity which has stored, treated, recycled, disposed of
or otherwise located on or adjacent to a Business Property any Hazardous
Substance, including, without limitation, such substances as asbestos and
polychlorinated biphenyls.
Except as set forth on Schedule 3.2(e)(vi) attached hereto and
-------------------
except for the Interview Disclosure, there has been no litigation, claim or
action brought or threatened by or against any Seller, or against any other
person or entity, nor any settlement reached of any claim against Seller or
any other person or entity, which litigation or claims alleges the
presence, disposal, release or threatened release of any Hazardous
Substances from the use, operation or ownership of any Business Property.
Except as set forth on Schedule 3.2(e)(vi) attached hereto and
-------------------
except for the Interview Disclosure, none of the Business Properties are on
any federal or state "Superfund" list or Liability Information System
("CERCLIS") list or any state environmental
22
<PAGE>
agency list of sites under consideration for CERCLIS, nor subject to
any environmental related liens.
(vii) No representation or warranty of Sellers in this Section 3.2(e)
--------------
contains any untrue statement of a material fact, or fails to state a
material fact necessary to make the statements contained in this Section
-------
3.2(e), not misleading.
------
ARTICLE IV
OVERBID AND COURT APPROVAL COVENANTS
4.1 363 Motion. Sellers shall file an amended motion (the "363 Motion")
---------- ----------
to obtain from the Court (a) on an expedited basis, a bidding procedures order
(the "Bidding Procedures Order") in form and substance reasonably acceptable to
------------------------
Buyer, providing, among other things, for the break-up fee described in Section
-------
4.2 below, and sale/auction procedures, including minimum overbid requirements
---
and (b) approval of the transactions contemplated hereby.
4.2 Break-up Fee; Overbid Requirements.
----------------------------------
(a) Fee. The Bidding Procedures Order will provide, among other things,
---
that, provided that Buyer otherwise was ready, willing and able to timely close
the transactions contemplated hereunder (including, but not limited to, Buyer's
ability to deliver the Guaranty), in the event all or any of the Purchased
Assets are sold to a third party and Buyer did not default on its obligations
under this Agreement, Buyer will be entitled to a break-up fee of $400,000 (the
"Break-Up Fee"), which obligation shall constitute an allowed claim against
------------
Sellers under Sections 503 and 507(a) of the Bankruptcy Code. Such amount will
be paid to Buyer on the earlier of (a) the consummation of one or more
transactions involving the sale of all or any of the Purchased Assets (such
amount to be paid out of and from the proceeds of such sale) or (b) the
confirmation of a plan of reorganization for the Sellers. The Break-Up Fee when
paid will satisfy in full any obligations of the Sellers or their affiliates to
Buyer in connection with the transactions contemplated hereby.
(b) Overbid. In addition, the Bidding Procedures Order will provide
-------
minimum overbid requirements of (i) $400,000 over $17,000,000 for the initial
bid and (ii) $100,000 over the then-highest bid for any additional bids. The
Bidding Procedures Order also will provide that, for the purpose of determining
which bid is the highest and best offer, an amount equal to the Break-Up Fee
shall be added to Buyer's bid. Other auction requirements to be reasonably
approved by Buyer in advance of the filing of the 363 Motion shall include
requirements regarding the ability of any potential bidders to consummate an
alternative transaction, the nonexistence of financing and due diligence
23
<PAGE>
conditions and the requirement that all competing bids be on terms and
conditions substantially similar to the terms and conditions set forth in this
Agreement.
4.3 Court Approval. Buyer's and Sellers' obligations to consummate the
--------------
Closing will be conditioned upon (a) the entry by the Court of an order (the
"Sale Order") reasonably acceptable to Buyer approving the transactions
----------
contemplated hereby and the terms and conditions of this Agreement and the
exhibits attached hereto (including the assumption and assignment of the
Assigned Contracts and the Additional Truck Leases upon the payment by Buyer of
amounts determined by the Court to be necessary to cure any and all defaults
under the Assigned Contracts), finding that (i) notice of the hearing concerning
approval of the transactions contemplated hereunder was given in accordance with
the Bankruptcy Code and constitutes such notice as is appropriate under the
particular circumstances under the Bankruptcy Code and in accordance with any
other applicable Law, and (ii) that the Sellers have the legal right and
capacity to convey all the respective right, title and interest of the Sellers
in and to the Purchased Assets and that Buyer is a good faith Buyer entitled to
the protections afforded by Bankruptcy Code Section 363(m), providing for the
sale of the Purchased Assets free and clear of all Liens, other than the Assumed
Liabilities and any other liabilities assumed by Buyer under this Agreement,
with such Liens to attach to the consideration to be received by the Sellers in
the same priority and subject to the same defenses and avoidability, if any, as
before the Closing, and (b) the passage of 11 days without any stay of the Sale
Order or any injunction against the performance of the parties' obligations
hereunder; provided that Buyer and the Sellers may jointly elect to waive the
condition specified in this Section 4.3(b) and proceed to the Closing before the
--------------
passage of 11 days.
4.4 Cooperation. Buyer shall reasonably cooperate with the Sellers in
-----------
furnishing to the Court evidence of adequate assurance by Buyer of its future
performance under the Assigned Contracts and the Additional Truck Leases, and to
otherwise perform and discharge the Assumed Liabilities, and evidence that Buyer
and the Guarantors otherwise have the financial wherewithal to timely close the
transactions contemplated by this Agreement and to perform their obligations
under the Notes and the Guaranty, as applicable. In addition, Buyer shall
reasonably cooperate with the Sellers in the Sellers' efforts to obtain the
approval of the Bidding Procedures Order and the Sale Order, and Buyer shall
cause any of Buyer's principals or affiliates who comprise (or who at any time
within the last year comprised) senior management of one or more Sellers, to
reasonably cooperate in enabling any and all overbidders to receive information
regarding the Sellers' businesses. Upon Buyer's request, the Sellers will use
reasonable best efforts to keep financial information of Buyer and Guarantors
confidential and request from the Court that any hearings concerning same be
heard in camera.
24
<PAGE>
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Operation in the Ordinary Course of Business. Except as contemplated
--------------------------------------------
by this Agreement, during the period from the date hereof to the Closing Date,
each Subsidiary will conduct its business according to the ordinary and usual
course of business consistent with past practice, but in any event subject to
the supervision of Matthews, consistent with Matthews' policies and subject to
the restrictions imposed upon the Sellers by the Court, the Bankruptcy Code, the
rules promulgated or adopted under the Bankruptcy Code, and other applicable
Laws. Specifically, Buyer agrees that none of the Subsidiaries shall incur or
expend an amount of any consequence without the prior approval of the Chief
Operating Officer of Matthews. In addition, Sellers hereby covenant that during
the time frame beginning on the date of execution of this Agreement through the
Closing Date:
(a) Access. Buyer and its authorized representatives, upon reasonable
------
prior notice to Sellers, shall have reasonable access during normal business
hours to the Subsidiaries' businesses and to the Sellers' employees and may
examine all operations, equipment, properties and other assets, logs, books,
relevant records, contracts and documents of the Sellers pertinent to the
Purchased Assets; provided, that in each instance, mutually satisfactory
arrangements shall be made in advance in order to avoid interruption and
interference with Sellers' operation of their businesses.
(b) Operations in the Regular Course. Until the Closing, Sellers shall:
--------------------------------
(i) except as otherwise required, authorized or restricted pursuant
to an order of the Court (including without limitation orders pertaining to
the use of cash collateral (the "Cash Collateral Order") and Sellers'
---------------------
debtor-in-possession financing (the "DIP Financing Order")), pay all
-------------------
Sellers' post-petition obligations in a timely manner;
(ii) exercise reasonable best efforts to maintain the integrity and
reputation of the Purchased Assets;
(iii) except in the ordinary course of business and as required to
maintain the Purchased Assets, and except for the Additional Truck Leases,
refrain from making any additions, alterations or other changes to any
tangible Purchased Asset in excess of $10,000 per item unless Sellers shall
have received the consent thereto of Buyer;
(iv) keep their books and accounts, records and files in the ordinary
course of business consistent with past practices;
25
<PAGE>
(v) provide to Buyer, promptly upon receipt thereof by Sellers, a
copy of any notice from any governmental authority of the revocation,
suspension or limitation of the rights under, or of any proceeding for the
revocation, suspension or limitation of the rights under (or that such
authority intends in the future, to revoke, suspend or limit the rights
under) any material license; and
(vi) promptly notify Buyer in writing upon learning of the
institution of any material action against Sellers with respect to the
Purchased Assets in any court, or any action against Sellers with respect
to the Purchased Assets before any governmental agency, and upon receipt of
any administrative or court order relating to the Purchased Assets.
(c) Transfers, Termination and Renewals Pending Closing. Other than in
---------------------------------------------------
the ordinary course of business, Sellers shall not sell, transfer, assign,
convey, dispose of, mortgage, hypothecate or otherwise encumber any of the
Purchased Assets. Sellers shall not amend, terminate or renew any of the
Assigned Contracts (other than the Rental Contracts), including any renewal or
termination resulting from Sellers' failure to provide, after the date of this
Agreement, timely notice of non-renewal or termination as required by the terms
of any of the Assigned Contracts (other than the Rental Contracts) unless
Sellers shall have furnished prior written notice thereof to Buyer.
(d) Maintenance. To the extent permitted by the Cash Collateral Order,
-----------
the DIP Financing Order, and other court orders and Laws applicable to the
Sellers, Sellers shall, at their sole cost and expense, use their reasonable
best efforts to maintain and repair the tangible Purchased Assets so that they
remain in the condition they were in on August 1, 2000 (reasonable wear and tear
excepted), in a manner consistent with Sellers' past practices.
(e) No Default. Sellers shall not do any act or omit to do any act that
----------
would have a material adverse effect on the Purchased Assets.
(f) Compliance with Laws. Sellers shall use their reasonable best efforts
--------------------
comply in all material respects with all applicable Laws as may be required for
the valid and effective transfer of the Purchased Assets as contemplated by this
Agreement.
(g) Further Actions. Sellers will use their reasonable best efforts to:
---------------
(i) maintain insurance upon all of the tangible Purchased Assets
which are of an insurable character insured by financially sound and
reputable insurers against such hazards, risks and liabilities in amounts
and of such kinds customarily insured against by businesses involved in the
ownership and operation of the business; and
26
<PAGE>
(ii) without the prior written consent of Buyer, not increase the
rates of direct or bonus compensation payable or to become payable to any
of their employees, except in accordance with the existing terms of
contracts entered into or policies in effect prior to the date of this
Agreement and except in accordance with the terms of a one-time bonus plan
covering certain employees of Sellers.
5.2 Regulatory Consents, Authorizations, etc. In addition to the
----------------------------------------
provisions of Article IV, each party hereto will use its reasonable best efforts
----------
to obtain all Consents of, and make all filings and registrations with, any
Governmental Entity or any other person required for or in connection with the
consummation of the transactions contemplated hereby and will cooperate fully
with the other parties in assisting them to obtain such approvals and to make
such filings and registrations. No party hereto will take or omit to take any
action for the purpose of delaying, impairing or impeding the receipt of any
required consent, authorization, order or approval or the making of any required
filing or registration.
5.3 Expenses. Each party agrees to pay all of its own fees, costs and
--------
expenses (including, without limitation, those of advisors, financial advisors,
lawyers or accountants) incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
transactions contemplated hereby. Nothing in the preceding sentence shall affect
any party's rights to obtain collection and litigation costs (including
attorneys' fees) pursuant to Section 9.3. In the event a "pre-merger notice"
-----------
under the HSR Rules is required for the transactions contemplated hereby, Buyer
shall pay for the filing fee required under the HSR Rules. The Sellers represent
and warrant that, except for Imperial Capital, LLC, no broker or finder is
entitled to any financial advisory, brokerage or finder's fee from the Sellers
in connection with the transactions contemplated hereby. The Sellers shall be
solely responsible and shall hold Buyer harmless from any claim for any broker's
success or similar fee payable to Imperial Capital, LLC with respect to the
transaction contemplated by this Agreement. Buyer represents and warrants that
no broker or finder is entitled to any financial advisory, brokerage or finder's
fee from Buyer in connection with the transactions contemplated hereby. Buyer
shall be solely responsible and shall hold the Sellers harmless from any claim
for any broker's success or similar fee payable to or claimed by any person due
to Buyer's actions with respect to the transactions contemplated by this
Agreement.
5.4 Confidentiality.
---------------
(a) Prior Agreement. Prior to the Closing, the parties' confidentiality
---------------
and non-use obligations are pursuant to that certain Confidentiality Agreement
between Matthews and Raleigh Enterprises, as if the Sellers were Matthews and
Buyer were Raleigh Enterprises, and pursuant to Section 5.5. The
-----------
27
<PAGE>
provisions of the Confidentiality Agreement and Section 5.5 shall be read and
-----------
construed together.
(b) Sellers' Obligations. From and after the Closing, the Sellers will
--------------------
hold in strict confidence, and will not use to the detriment of Buyer any
confidential or proprietary information of the Subsidiaries' businesses.
Notwithstanding the foregoing, each Seller may disclose such information (i) if
such Seller is required to disclose the same pursuant to proceedings before the
Court or pursuant to the Bankruptcy Code, (ii) if such Seller is compelled to
disclose the same by other judicial or administrative process or by other
requirements of Law (but subject to the following provisions of this Section
-------
5.4(b)), (iii) if the same hereafter is in the public domain through no fault of
-------
any Seller, or (iv) if the same is later acquired by any Seller from another
source and the acquiring Seller is not aware, after due inquiry, that such
source is under an obligation to another person to keep such information
confidential. If a Seller is requested or required as described in Section
-------
5.4(b)(ii) above (by oral questions, interrogatories, requests for information
----------
or documents in legal proceedings, subpoena, civil investigative demand, rule of
civil procedure or other similar process) to disclose any such information, such
Seller shall provide Buyer with prompt written notice of any such request or
requirement so that Buyer may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Section. If, in the
absence of a protective order or other remedy or the receipt of a waiver by
Buyer, such Seller nonetheless, based on the written advice of counsel, is
required to disclose such information to any tribunal or else stand liable for
contempt or suffer other censure or penalty, such Seller, without liability
hereunder, may disclose that portion of such information which such counsel
advises such Seller it is legally required to disclose.
(c) Buyer's Obligations. From and after the Closing, Buyer will hold,
-------------------
and will cause its affiliates to hold, in strict confidence, and will not use to
the detriment of any Seller any confidential or proprietary information of the
Sellers that is not related to the businesses acquired hereunder.
Notwithstanding the foregoing, Buyer or any of Buyer's affiliates (a "Disclosing
----------
Party") may disclose such information (i) if the Disclosing Party is compelled
-----
to disclose the same by judicial or administrative process or by other
requirements of Law (but subject to the following provisions of this Section
-------
5.4(c)), (ii) if the same hereafter is in the public domain through no fault of
-------
the Disclosing Party, or (iii) if the same is later acquired by the Disclosing
Party from another source and the Disclosing Party is not aware, after due
inquiry, that such source is under an obligation to another person to keep such
information confidential. If the Disclosing Party is requested or required (by
oral questions, interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand, rule of civil procedure or
other similar process) to disclose any such information, the Disclosing Party
shall provide the Sellers with prompt written notice of any such request or
28
<PAGE>
requirement so that Sellers may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Section. If, in the
absence of a protective order or other remedy or the receipt of a waiver by the
Sellers, the Disclosing Party nonetheless, based on the written advice of
counsel, is required to disclose such information to any tribunal or else stand
liable for contempt or suffer other censure or penalty, the Disclosing Party,
without liability hereunder, may disclose that portion of such information which
such counsel advises the Disclosing Party it is legally required to disclose.
(d) Litigation. Nothing in this Section 5.4 shall limit the rights of the
---------- -----------
parties to disclose or use any confidential or proprietary information of the
other parties in connection with any legal action arising out of or in
connection with this Agreement.
5.5 Publicity. Until the Closing Date, each party hereto agrees not to
---------
issue any press release or any public statement with respect to the transactions
contemplated hereby, except as may be required by Law, in which event such press
release or public statement shall be made only after notice to the Sellers or
Buyer, as the case may be.
5.6 Utilities, Rent and Operating Expenses. Buyer shall bear the cost
--------------------------------------
of all utilities expenses and operating expenses incurred in the ordinary course
of business (including but not limited to rent, telephone, gas and electric
expenses) of the Sellers' businesses at the real properties listed on Schedule
--------
5.6 attached hereto incurred on and after the Closing Date. The Sellers shall
---
bear such costs up to but not including the Closing Date. For any such costs
which cannot be specifically identified as accruing on a particular date, such
costs shall be allocated between Buyer and the Sellers in proportion to the
number of days in the relevant billing period.
5.7 Purchase Price Allocation.
-------------------------
(a) Procedure. Buyer shall determine, and shall notify the Sellers of
---------
same within 15 days following the Closing Date, (i) the amount of the total
consideration transferred by Buyer in exchange for the Purchased Assets, which
amount will consist of the Purchase Price plus the amount of the Assumed
Liabilities, and (ii) the allocation of such total consideration among the
Purchased Assets and Assumed Liabilities in accordance with their relative fair
market values in the manner required by Section 1060 of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations thereunder and any
----
applicable provisions of any other Law. The Sellers shall notify Buyer of any
objection within 30 days following receipt of such allocation. In any event, the
allocation shall be agreed to between the parties by no later than 60 days after
the Closing Date.
29
<PAGE>
(b) Tax Filings. Buyer and the Sellers agree to act in accordance with
-----------
the allocations as finally determined pursuant to Section 5.7(a) (including any
--------------
modification required to reflect any adjustments to the Purchase Price pursuant
to Section 1.5) in any relevant Tax returns, including any such Tax returns
-----------
required to be filed pursuant to Section 1060 of the Code, the regulations
promulgated thereunder or any provisions of other Law (including IRS Form 8594),
and to cooperate in the preparation of any such Tax returns and to file timely
such Tax returns in the manner required by applicable Law.
5.8 Non-Solicitation. From the date hereof to the earlier of (a) the
----------------
approval of the Bidding Procedures Order or (b) termination of this Agreement
pursuant to Section 7.1, the Sellers shall not solicit nor have any discussions
-----------
or negotiations with any party other than Buyer with respect to the transfer of
all or substantially all of the Subsidiaries' businesses. Upon approval of the
Bidding Procedures Order, any such solicitation, discussion or negotiation shall
be in conformity with the terms of the Bidding Procedures Order. The foregoing
shall not be construed to prohibit the Sellers from complying with the
requirements of the Bankruptcy Code.
5.9 Taxes. Buyer on the one hand and Sellers on the other hand shall
-----
pay and be responsible for one-half of all state and local transfer, stamp and
sales Taxes due in connection with the transactions contemplated by this
Agreement.
5.10 Post-Closing Records. From and after the Closing Date, the Sellers
--------------------
on the one hand and Buyer on the other hand shall afford each other and their
respective counsel, accountants and other representatives such access to Records
in respect of the Subsidiaries' businesses which, after the Closing, are in the
custody or control of the other party and which such party reasonably requires
in order to comply with its obligations under Law, including, but not limited
to, audits by Tax authorities, or which Buyer reasonably requires to comply with
its material obligations under the Assumed Liabilities or the Assigned Contracts
and the Additional Truck Leases. Buyer will retain all Records that Buyer may
have, if any, relating and material to the operation of the Subsidiaries'
businesses and the Purchased Assets prior to the Closing for a period of 1 year
after the Closing Date.
5.11 Customer Payments. The Sellers on the one hand and Buyer on the other
-----------------
hand each agree that after the Closing it will hold and will promptly transfer
and deliver to the other, from time to time as and when received, any cash,
checks with appropriate endorsements (using reasonable best efforts not to
convert such checks into cash) or other property that they may receive after the
Closing that properly belongs to the other party, including without limitation
any insurance proceeds (including proceeds for insurance claims and coverage
described in Section 1.2(a)(xii) or Section 1.2(b)(vi)) and will account to the
------------------- ------------------
other for all such receipts. From and after the Closing, Buyer shall have the
30
<PAGE>
right and authority to endorse without recourse the name of the Subsidiaries on
any check or any other evidences of indebtedness received by Buyer on account of
the receivables of the Subsidiaries which are Purchased Assets.
5.12 Names. From and after the Closing Date, the Sellers and their
-----
affiliates shall discontinue the use of the Names and the ESS Trademark in any
commercial context. Any use for purposes of filings required by applicable Law,
including, but not limited to, filings with the Securities and Exchange
Commission, or with any court, shall not be a breach of the preceding sentence.
In the event the corporate entities comprising the Subsidiaries, or any of them,
are sold, the corporate name of each such sold entity shall be modified to
exclude all Names therefrom prior to such sale. Further, Sellers shall not
transfer any of the Names (other than to Buyer pursuant hereto).
5.13 Fueling Trucks. During the period between the date hereof and the
--------------
Closing Date, HRC (or, on prior notice to Buyer, another Seller) shall have the
right to enter into one or more leases with Enterprise Leasing or another
equipment lessor to lease up to two fueling trucks for use in the Subsidiaries'
businesses (the "Additional Truck Leases"). Provided that (a) the Additional
-----------------------
Truck Leases are on commercially reasonable terms, (b) the consent to assignment
of such leases to Buyer shall have been obtained, on or prior to the Closing
Date, from the lessors thereunder, and (c) Buyer shall have been provided with
evidence reasonably satisfactory to Buyer that the lessee under the Additional
Truck Leases is not in default under such leases, Buyer shall assume the
Additional Truck Leases in accordance with the provisions of Section 1.1 and
-----------
Section 1.3(b).
--------------
5.14 Transition Services. Buyer and Sellers shall provide to each other
-------------------
those transition services during those time periods following the Closing Date
described in Schedule 5.14 hereto.
-------------
5.15 Insurance Claim. For the period of 180 days following the Closing
---------------
Date, the Sellers shall use commercially reasonable efforts to submit and
prosecute claims under the Sellers' property damage (and NOT liability)
insurance policies or insurance contracts for any property damage or loss to any
Purchased Assets, on the condition that: (a) Buyer shall provide to the Sellers
evidence reasonably acceptable to the Sellers that the property which suffered
such damage or loss is a Purchased Asset and that such damage or loss occurred
at some time between August 1, 2000 and the Closing Date; (b) the assignment and
sale of insurance claims or coverage provided for under Sections 1.2(a)(xii) and
--------------------
1.2(b)(vi) are not effective to permit Buyer to submit and prosecute such claims
----------
on its own; and (c) Buyer shall provide all staffing and resources (including
any reasonable out-of-pocket costs (such as reasonable attorneys' fees) of any
Seller) necessary for the submission or prosecution of such
31
<PAGE>
claims. Any insurance proceeds received by the Sellers in respect of such claims
shall be turned over to Buyer (it being understood that any deductible required
under the insurance policy or insurance contract shall be absorbed by Buyer).
Further, Buyer acknowledges and agrees that the Sellers shall not have any
obligation to turn over any insurance proceeds, or submit any claims, that are
not related to property damage coverage.
5.16 Uninsured Loss. Following the Closing, the Sellers shall pay to
--------------
Buyer an amount equal to the actual out-of-pocket costs to Buyer to repair or
replace a tangible Purchased Asset that is described below in this Section 5.16.
------------
The Sellers' obligation to pay such amount is conditioned on Buyer providing
evidence reasonably acceptable to the Sellers that: (a) a loss or damage had
occurred to property that is a tangible Purchased Asset and such loss or damage
occurred at some time between August 1, 2000 and the Closing Date; (b) the
amount to be paid by the Sellers is an amount that, to the extent the loss or
damage is due to the theft or intentional destruction committed by one or more
employees of the Sellers, such amount is not covered by insurance policies or
insurance contracts carried by the applicable Sellers prior to the Closing Date
or by insurance policies or insurance contracts carried by Buyer; and (c) the
costs which Buyer asserts are required to repair, or replace (if applicable),
the lost or damaged item are at prevailing industry rates and such asserted
costs are for services or products which Buyer's employees cannot provide (i.e.
that such costs are truly out-of-pocket costs to Buyer). Any amounts so paid by
the Sellers shall be a reduction of the Purchase Price. Anything in this Section
-------
5.16 to the contrary notwithstanding, the Sellers' obligations under this
----
Section 5.16 shall not be construed in any manner as a modification to the
------------
provisions of Section 3.2(e)(ii). Notwithstanding anything to the contrary in
------------------
this Section 5.16, the Sellers' obligations in this Section do not apply to any
------------
items described in Section 1.2(b)(iv).
------------------
5.17 Claims Against Anil Sharma. Following the Closing, Sellers covenant
--------------------------
not to sue on any claims, rights, demands, damages, actions, suits, causes of
action, liabilities, costs, expenses, losses and attorneys' fees whatsoever,
known or unknown, which have been asserted, could have been asserted, or could
in the future be asserted against Anil Sharma, except that nothing herein shall
constitute a covenant by the Sellers (or their bankruptcy estates) not to sue
Sharma with respect to any liability arising out of, deriving from or relating
to his acting as an employee, officer or director of the Sellers ("Excluded
--------
Liability"). Notwithstanding the foregoing, the Sellers and their bankruptcy
---------
estates agree that they shall seek satisfaction of any claim, judgment or
settlement arising out of, relating to or deriving from the Excluded Liability
(unless such liability arises from Sharma's fraud or willful misconduct) only to
the extent that such liability is covered by the Directors' and Officers'
Liability Policy Number 132022195, issued by Continental Casualty Company,
covering the period from April 1, 1999 to April 1, 2001, and all other
applicable insurance policies owned by Sellers (collectively, the "Insurance
---------
Policies"), and only as to claims as to which the insurers on such policies do
--------
not have any
32
<PAGE>
claim, including for indemnity or contribution against Sharma. As nothing herein
increases any insurer's liability under the Insurance Policies, nothing herein
is intended, nor shall it be deemed, to violate the obligations and duties of
cooperation of any such parties under the Insurance Policies, provided this
Agreement is approved by the Sale Order and the Closing shall occur. The
Sellers' agreement as set forth in this Section 5.17 is based on the fact that
------------
following the Closing, Sharma will be the President of Buyer and will be in
charge of the day-to-day operations of Buyer, and is intended to permit Buyer to
fully exploit the goodwill and reputation of the Subsidiaries' businesses which
Buyer is purchasing hereunder. Further, in the event Sellers are sued, for any
reason, and Sharma is named in the lawsuit, Sharma agrees to fully cooperate
with Sellers in the investigation and defense of the lawsuit.
5.18 No Personal Liability Against Stover and the Managers. Buyer agrees
-----------------------------------------------------
that nothing in this Agreement will impose or lead to personal liability on the
part of Stover, Crossroads LLC and/or the Managers, whether due to the Knowledge
Representations made in Section 3.2(e) or otherwise. Buyer acknowledges that
--------------
its agreement is solely with the Sellers and any recourse it has with respect to
any default by the Sellers under this Agreement is against the Sellers and not
Stover and/or the Managers.
5.19 Financial Information. In the event the Court orders the public
---------------------
dissemination of the financial information submitted by the Guarantors to the
Court in connection with the transactions contemplated hereby, Buyer shall cause
the Guarantors to submit an aggregate net worth amount for all Guarantors and,
if the Court approves that only such aggregate net worth amount needs to be
disseminated, then Buyer shall not have the right to terminate this Agreement
and obtain a refund of the Deposit as set forth in Sections 7.1(h) and 7.3(e).
--------------- ------
ARTICLE VI
CONDITIONS TO THE CLOSING
6.1 Conditions to the Closing Relating to Buyer. Consummation of the
-------------------------------------------
transactions contemplated hereby is subject to the fulfillment to the reasonable
satisfaction of Buyer, prior to or at the Closing Date, of each of the following
conditions:
(a) Mutually Required Consents.
--------------------------
(i) The conditions set forth in Section 4.3 shall have been
-----------
satisfied, provided, however, that a Cure Finding by the Court shall not be
required as a condition to the Closing; and
33
<PAGE>
(ii) On the Closing Date, no injunctions, waiting periods or
restraining order shall be in effect prohibiting the transactions
contemplated hereby.
(b) Sellers' Consents. All Consents of and filings and registrations
-----------------
with any Governmental Entity (other than those set forth in Section 4.3) or any
-----------
other person which any Seller must obtain shall have been obtained or made on or
prior to the Closing Date.
(c) Seller's Representations. The representations and warranties of
------------------------
the Sellers contained in this Agreement shall be true and correct in all
material respects at the date hereof and as of the Closing Date, except for
changes contemplated by this Agreement, with the same force and effect as if
made at and as of the Closing Date; and the Sellers shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by the Sellers at or prior to
the Closing Date.
(d) Material Adverse Change. No material adverse change shall have
-----------------------
occurred with respect to the Purchased Assets.
6.2 Conditions to the Closing Related to Sellers. Consummation of the
--------------------------------------------
transactions contemplated hereby is subject to the fulfillment to the reasonable
satisfaction of the Sellers, prior to or at the Closing Date, of each of the
following conditions:
(a) Mutually Required Consents.
--------------------------
(i) The conditions set forth in Section 4.3 shall have been
-----------
satisfied, provided, however, that a Cure Finding by the Court shall
not be required as a condition to the Closing; and
(ii) On the Closing Date, no injunctions, waiting periods or
restraining order shall be in effect prohibiting the transactions
contemplated hereby.
(b) Sellers' Consents. All Consents of and filings and registrations
-----------------
with any Governmental Entity (other than those set forth in Section 4.3) or any
-----------
other person which any Seller must obtain shall have been obtained or made on or
prior to the Closing Date.
(c) Buyer's Consents. All Consents of and filings and registrations
----------------
with any Governmental Entity (other than those set forth in Section 4.3) or any
-----------
other person which Buyer must obtain shall have been obtained or made on or
prior to the Closing Date.
34
<PAGE>
(d) Buyer's Representations. The representations and warranties of
-----------------------
Buyer contained in this Agreement shall be true and correct in all material
respects at the date hereof and as of the Closing Date, except for changes
contemplated by this Agreement, with the same force and effect as if made at and
as of the Closing Date; and Buyer shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it at or prior to the Closing Date.
ARTICLE VII.
TERMINATION
7.1 Termination. This Agreement shall be terminated upon the
------------
occurrence of any of the following (unless Seller and Buyer jointly agree in
writing to extend any deadline specified herein):
(a) [Reserved];
(b) if the Court shall not have approved the Bidding Procedures Order
on or before December 15, 2000;
(c) if the Court shall not have approved the Sale Order on or before
January 12, 2001;
(d) at Sellers' election, if any of the conditions set forth in
Sections 6.2(c) and 6.2(d) shall not have been complied with or performed and
--------------- ------
such noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) by Buyer on or before January 29,
2001;
(e) at Buyer's election, if any of the conditions set forth in
Sections 6.1(b), 6.1(c) and 6.1(d) shall not have been complied with or
--------------- ------ ------
performed and such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by the Sellers on or
before January 29, 2001;
(f) by either the Sellers on the one hand or Buyer on the other hand,
if there has been a material breach hereof on the part of the other party
hereto;
(g) by the mutual written agreement of Buyer and the Sellers; and
(h) subject to the provisions of Section 5.19, at Buyer's election,
------------
if the Court orders the public dissemination of the Guarantors' financial
information in connection with the transactions contemplated hereby.
35
<PAGE>
7.2 Effects of Termination. In the event of the termination of this
----------------------
Agreement, the parties' obligations hereunder shall terminate, and no party
hereto shall have any liability to the other party hereto or their respective
stockholders or directors or officers in respect thereof, except that nothing
herein will relieve any party from liability for any breach of this Agreement
prior to such termination, and except that the terms of the Confidentiality
Agreement and of Sections 5.3, 7.3 and 9.3 shall continue in full force and
------------ --- ---
effect.
7.3 Deposit Refund. In the event of the termination of this
--------------
Agreement, the Deposit shall be refunded to Buyer if: (a) this Agreement shall
have been terminated by Buyer pursuant to the Sellers' breach as set forth in
Section 7.1(f); (b) termination of this Agreement is due to the failure of some
--------------
or all of the conditions set forth in Section 4.3 (relating to the Sale Order
-----------
and the absence of a stay or injunction thereof) to occur (but excepting
therefrom the failure of the Court to make a Cure Finding), notwithstanding
Buyer's full cooperation in connection therewith; (c) termination of this
Agreement is pursuant to Section 7.1(b); (d) termination of this Agreement is
--------------
due to there having been a material adverse change with respect to the Purchased
Assets; (e) subject to the provisions of Section 5.19, termination of this
------------
Agreement is due to the order of the Court that the Guarantors' financial
information be publicly disseminated; or (f) in the event Buyer is not the
successful bidder at the bankruptcy sale of the Purchased Assets in accordance
with the Bidding Procedures Order. IN ANY OTHER CIRCUMSTANCE, THE DEPOSIT SHALL
NOT BE REFUNDABLE TO BUYER AND SHALL BE RETAINED BY THE SELLERS, AND SUCH
DEPOSIT AMOUNT SHALL BE IN ADDITION TO ANY OTHER DAMAGES OR CLAIMS WHICH THE
SELLERS MAY HAVE AGAINST BUYER PURSUANT TO THE PROVISIONS OF THIS AGREEMENT. If
the Deposit is to be refunded by the Sellers to Buyer, same shall be paid by a
wire transfer to a bank account designated in writing by Buyer, within two
Business Days following Buyer's designation of such bank account.
ARTICLE VIII
INDEMNITY
8.1 Survival of Representations and Warranties. The parties'
------------------------------------------
representations and warranties shall survive the Closing until the expiration of
the applicable statutes of limitations. Any claim for indemnification of which
notice has been given by Buyer or a Seller pursuant to Section 8.3 at or prior
-----------
to the expiration of the applicable period shall continue to be subject to
indemnification provided for in Section 8.2 notwithstanding the expiration of
-----------
such period.
8.2 Indemnity.
---------
36
<PAGE>
(a) Indemnification by Sellers.
--------------------------
(i) The Sellers' entire liability and responsibility to Buyer for
any and all claims, demands, losses, costs, charges, expenses, obligations,
liabilities, actions, suits, damages, judgments and deficiencies, including
interest and penalties, counsel's fees and all amounts paid in settlement
of any claim, action, or suit (collectively referred to as "Losses") which
------
may be sustained, suffered or incurred by a Buyer or any of its officers,
directors, employees and agents (Buyer and such other parties shall be
referred to as "Buyer Indemnified Parties") arising out of or by reason of
-------------------------
any breach of any representation, warranty, covenant or undertaking made by
the Sellers pursuant to this Agreement shall be limited to an aggregate
amount of $250,000. Further, the Sellers shall not have any liability or
responsibility to any Buyer Indemnified Party unless Buyer Indemnified
Parties' Losses shall exceed $20,000. Once such threshold level has been
reached, the Sellers shall be liable and responsible for those $20,000
Losses and any Losses in excess thereof, subject to the maximum. The
threshold and maximum levels stated above shall not apply to the Sellers'
obligations under Sections 5.9 (transfer/sale Taxes due to the transactions
------------
contemplated hereby), 5.15 (bringing of insurance claims), 5.16 (payment
---- ----
for employee theft or willful destruction) and 7.3 (the refund of the
---
Deposit).
(ii) Subject to the provisions of Section 8.2(a)(i), the Sellers
-----------------
agree to jointly and severally indemnify Buyer Indemnified Parties against
Losses which may be sustained, suffered or incurred by Buyer Indemnified
Parties arising out of or by reason of any breach of any representation,
warranty, covenant or undertaking made by the Sellers pursuant to this
Agreement (provided that with respect to counsel's fees such Losses must be
reasonable).
(iii) Buyer and the Sellers agree that the foregoing limitations on
the Sellers' liability are reasonable and appropriate, in view of the fact
that a principal of Buyer is and has been for many years the Chief
Executive Officer of Matthews, and another principal of Buyer until
recently was the Chief Financial Officer of Matthews. Further, Buyer shall
not be entitled to exercise any rights of offset, recoupment or reduction
against any amounts outstanding under the Notes for any reason.
(b) Indemnification by Buyer. Buyer agrees to indemnify and hold harmless
------------------------
the Sellers and their respective officers, directors, employees and agents
(individually, a "Seller Indemnified Party"), for any and all Losses which may
------------------------
be sustained, suffered or incurred by a Seller Indemnified Party and arising out
of or by reason of any breach of any representation, warranty,
37
<PAGE>
covenant or undertaking made by Buyer pursuant to this Agreement (provided that
with respect to counsel's fees such Losses must be reasonable).
8.3 Indemnification Procedures. In the case of any claim asserted by a
--------------------------
third party against a party entitled to indemnification under this Agreement
(the "Indemnified Party"), notice shall be given by the Indemnified Party to the
-----------------
party required to provide indemnification (the "Indemnifying Party") as soon as
------------------
practicable after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of such Indemnifying Party) to assume the
defense of any third party claim or any litigation with a third party resulting
therefrom; provided, however, that (a) the counsel for the Indemnifying Party
who shall conduct the defense of such claim or litigation shall be subject to
the approval of the Indemnified Party (which approval shall not be unreasonably
withheld or delayed), (b) the Indemnified Party may participate in such defense
at such Indemnified Party's expense (which shall not be subject to reimbursement
hereunder except as provided below), and (c) the omission by any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its indemnification obligation under this Agreement except and only to the
extent that such Indemnifying Party is actually and materially damaged as a
result of such failure to give notice. Except with the prior written consent of
the Indemnified Party, no Indemnifying Party, in the defense of any such claim
or litigation, shall consent to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a general
release from any and all liability with respect to such claim or litigation. If
the Indemnified Party shall in good faith determine that the conduct of the
defense of any claim subject to indemnification hereunder or any proposed
settlement of any such claim by the Indemnifying Party might be expected to
affect adversely the Indemnified Party's Tax liability or the ability of the
Indemnified Party to conduct its business, or that the Indemnified Party may
have available to it one or more defenses or counterclaims that are inconsistent
with one or more of those that may be available to the Indemnifying Party in
respect of such claim or any litigation relating thereto, the Indemnified Party
shall have the right at all times to take over and assume control over the
defense, settlement, negotiations or litigation relating to any such claim at
the sole cost of the Indemnifying Party; provided, however, that if the
Indemnified Party does so take over and assume control, the Indemnified Party
shall not settle such claim or litigation without the consent of the
Indemnifying Party, such consent not to be unreasonably withheld or delayed. If
the Indemnifying Party does not accept the defense of any matter as above
provided, the Indemnified Party shall have the full right to defend against any
such claim or demand at the sole cost of the Indemnifying Party and shall be
entitled to settle or agree to pay in full such claim or demand. In any event,
the Indemnifying Party and the Indemnified Party shall
38
<PAGE>
reasonably cooperate in the defense of any claim or litigation subject to this
Section 8.3 and the records of each shall be reasonably available to the other
-----------
with respect to such defense.
8.4 Exclusive Remedy. Absent fraud, or intentional misconduct or criminal
----------------
activity, the indemnifications provided for in this Article VIII shall be the
------------
sole and exclusive post-Closing remedies available to any party, subject to the
terms herein, against any other party for any claims under or based upon this
Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Severability. If any provision of this Agreement, including any
------------
phrase, sentence, clause, Section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
9.2 Notices. All notices, requests, demands, approvals, consents, waivers
-------
and other communications required or permitted to be given under this Agreement
(each, a "Notice") shall be in writing and shall be (a) delivered personally,
------
(b) mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, (c) sent by next-day or overnight mail or delivery,
or (d) sent by facsimile transmission, provided such transmission is confirmed
mechanically.
(i) if to Buyer, to:
Hollywood Rentals Production Services, LLC
3111 North Kenwood Street
Burbank, California 91505
Facsimile: (818) 525-5216
Attention: Carlos D. DeMattos and Anil Sharma
with a copy to:
McDermott, Will & Emery
2049 Century Park East
Los Angeles, California 90067
Facsimile: 310-277-4730
Attention: Eric R. Reimer, Esq.
39
<PAGE>
(ii) if to the Sellers or any of them, to:
c/o Matthews Studio Equipment Group
3111 North Kenwood Street
Burbank, California 91505
Facsimile: 818-525-5216
Attention: Miles Stover
with a copy to:
Holland & Knight LLP
633 West Fifth Street, Suite 2100
Los Angeles, California 90071
Facsimile: 213-896-2450
Attention: Tasha D. Nguyen, Esq.
or, in each case, at such other address or facsimile number as may be specified
in a Notice to the other party hereto. All Notices sent in accordance with this
Section shall be deemed effective and given (A) upon delivery if personally
delivered, (B) on the third day following deposit in the mail, if mailed, (C) on
the next Business Day if sent by next-day or overnight mail or delivery, and (D)
on the day of transmission, if sent by facsimile transmission.
9.3 Attorneys' Fees. If any party hereto initiates any legal action
---------------
arising out of or in connection with this Agreement, the prevailing party or
parties shall be entitled to recover from the non-prevailing party or parties
all reasonable attorneys' fees, expert witness fees and expenses incurred by the
prevailing party or parties in connection therewith, including, but not limited
to, attorneys' fees to enforce any judgment rendered on this Agreement. This
attorneys' fees provision shall survive any judgment rendered on this Agreement
and shall not be deemed merged into any such judgment.
9.4 Headings. The headings contained in this Agreement are for purposes of
--------
convenience only and shall not affect the meaning or interpretation of this
Agreement.
9.5 Entire Agreement. This Agreement (including the schedules and exhibits
----------------
hereto) constitutes the entire agreement and supersedes the Letter of Intent as
well as all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
9.6 Counterparts. This Agreement may be executed (including by facsimile
------------
transmission) with counterpart signature pages or in several counterparts, each
of which shall be deemed an original and all of which shall together constitute
one and the same instrument.
40
<PAGE>
9.7 Governing Law, etc. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
------------------
INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF.
EACH SELLER AND BUYER AGREE THAT ANY AND ALL ACTIONS TO INTERPRET OR ENFORCE THE
PROVISIONS OF THIS AGREEMENT AND ANY OTHER DOCUMENTS REFERRED TO IN THIS
AGREEMENT SHALL BE BROUGHT IN THE COURT, UNTIL THE SELLERS' CASES ARE CLOSED OR
DISMISSED, AND THEREAFTER IN THE COURTS OF THE STATE OF CALIFORNIA OR THE
FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN LOS ANGELES,
CALIFORNIA. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH
COURTS, AND IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT, AS A DEFENSE IN ANY
ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT OF THIS
AGREEMENT OR SUCH OTHER DOCUMENT THAT IT IS NOT SUBJECT THERETO OR THAT SUCH
ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID
COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT
OR ANY SUCH OTHER DOCUMENT MAY NOT BE ENFORCED IN OR BY SAID COURTS. EACH SELLER
AND BUYER HEREBY CONSENTS TO AND GRANTS ANY SUCH COURT JURISDICTION OVER THE
PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE AND
AGREES THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH
ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 9.2, OR IN SUCH OTHER
MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE
THEREOF.
9.8 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
9.9 Assignment. This Agreement shall not be assignable or otherwise
----------
transferable by Buyer on the one hand or Sellers on the other hand without the
prior written consent of the other.
9.10 No Third Party Beneficiaries. Except as provided in Article VIII with
---------------------------- ------------
respect to indemnification of indemnified parties hereunder, nothing in this
Agreement shall confer any rights upon any person other than the parties hereto
and their respective heirs, legal representatives, successors and permitted
assigns.
9.11 Amendment; Waivers, etc. No discharge of this Agreement, and no waiver
-----------------------
hereunder, shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the discharge or waiver is
sought. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights
41
<PAGE>
of the party granting such waiver in any other respect or at any other time.
Neither the waiver by any of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure by any of the
parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed as
a waiver of any other breach or default of a similar nature, or as a waiver of
any of such provisions, rights or privileges hereunder. No amendment or
modification of this Agreement shall be effective unless in a writing executed
by all the parties hereto.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MATTHEWS STUDIO EQUIPMENT GROUP
By: /s/ Miles R. Stover
---------------------------------
Name: Miles R. Stover
Title: Chief Operating Officer
HOLLYWOOD RENTAL COMPANY, LLC
By: /s/ Miles R. Stover
---------------------------------
Name: Miles R. Stover
Title: Authorized Agent
MATTHEWS STUDIO SALES, INC.
By: /s/ Miles R. Stover
---------------------------------
Name: Miles R. Stover
Title: Authorized Agent
HDI HOLDINGS, INC.
By: /s/ Miles R. Stover
---------------------------------
Name: Miles R. Stover
Title: Authorized Agent
HOLLYWOOD RENTALS PRODUCTION SERVICES, LLC
By: /s/ Anil Sharma
---------------------------------
Name: Anil Sharma
Title: President
43
<PAGE>
EXHIBITS
--------
Exhibit A Note
Exhibit B Guaranty
Exhibit C Security Agreement
Exhibit D Subordination Agreement
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Principal Sum: $4,000,000 __________, 2001 __________, 2001
1. Promise to Pay. For value received, Hollywood Rentals Production
--------------
Services, LLC, a California limited liability company ("Maker"), promises to pay
-----
to THE ORDER OF _______________, a ______________________ (together with its
transferees and assignees, the "Holder"), at the address of Holder at
------
_____________________________, the principal sum of Four Million Dollars
($4,000,000), together with interest at the rate specified herein.
2. Terms of Payment. The principal hereunder shall be due and payable in
----------------
equal monthly installments of Fifty-Eight Thousand Three Hundred Thirty-Three
and 33/100 Dollars ($58,333.33), payable on the first day of each calendar
month, commencing on the first calendar month following the third anniversary of
the date of this Note, with the remaining principal balance due and payable on
_______________, 2006, which is one day following the fifth anniversary of the
date of this Note (the "Maturity Date"). Interest shall accrue on the
-------------
outstanding principal hereunder at the rate of nine and one-half percent (9.5%),
compounded daily. Interest shall be calculated based upon a 360-day year,
consisting of twelve 30-day months. Accrued but unpaid interest shall be due and
payable on the first day of each calendar month, commencing on the first day of
the calendar month immediately following the date of this Note. On the Maturity
Date, all accrued but unpaid interest shall become due and payable. If any
payment date falls on a day that is not a Business Day (as defined below), the
payment date shall be the Business Day immediately following such day. A
Business Day shall be any day other than a Saturday, a Sunday or any other day
on which banks in the State of California are authorized or required to be
closed.
3. Prepayment. Maker may prepay this Note in whole or in part on any date
----------
without premium or penalty. Any partial prepayment shall be credited first to
accrued but unpaid interest and then to principal. No partial prepayment shall
extend or postpone the due date of any subsequent payment or change the amount
of payment.
4. Acceleration. In the event that an Event of Default (as defined below)
------------
shall occur under this Note, Holder may, at its sole option, and without notice
to Maker (which notice is hereby expressly waived) declare immediately due and
payable the entire unpaid principal balance of this Note, together with all
accrued but unpaid interest thereon.
5. Default. An "Event of Default" shall be deemed to occur upon the
------- ----------------
happening of any of the following events:
<PAGE>
(a) Maker fails to pay any amount of interest or principal within three
(3) days following the due date thereof;
(b) Maker fails to perform, within fifteen (15) days following the date
such performance is due or required, any of its other obligations under this
Note, or any of its obligations or agreements under that certain Asset Purchase
Agreement dated as of December 5, 2000, or that certain Security Agreement dated
as of ______________, 2001 (the "Security Agreement"), each between (i) Maker
------------------
and (ii) Matthews Studio Equipment Group, Hollywood Rental Company, LLC, HDI
Holdings, Inc., and Matthews Studio Sales, Inc. (collectively, the "Sellers"),
-------
as either of such agreements may be supplemented, amended or restated from time
to time;
(c) Maker or any guarantor of Maker's obligations under this Note (a
"Guarantor") (i) becomes insolvent; (ii) fails to pay its debts as they mature;
----------
(iii) applies for, consents to, or acquiesces in the appointment of a trustee,
custodian or receiver for such entity or any of its property; (iv) admits in
writing that it is unable to pay its debts; (v) files a petition in any
bankruptcy, reorganization, debt arrangement or other proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation proceeding; or
(vi) makes an assignment for the benefit of creditors;
(d) An order, decree or judgment approving a petition filed against Maker
or a Guarantor seeking any reorganization, arrangement, composition or similar
relief under the present or any future federal bankruptcy law or other
applicable law of the U.S., or any state thereof, shall have been entered, or a
receiver, trustee or liquidator of all or substantially all of the assets of
Maker or a Guarantor shall have been appointed without the consent of Maker or
such Guarantor, and following 60 days after such entry or appointment, such
order, decree, judgment or appointment shall not have been vacated, stayed on
appeal or otherwise, or ceased to continue in effect;
(e) A final, non-appealable judgment or decree for money damages or for a
fine or penalty is entered against Maker and is not paid and discharged or
stayed within thirty (30) days thereafter and, when aggregated with all other
such judgments or decrees that have remained unpaid and undischarged or unstayed
for such period, is in excess of One Hundred Thousand Dollars ($100,000);
(f) The dissolution or cessation of business of Maker or a Guarantor;
(g) Any Guarantor seeks to revoke its Guaranty; and
(h) An event of default, or an event which with notice and/or the passage
of time would become an event of default, shall have occurred under any material
indenture, mortgage, deed of trust or credit arrangement of Maker, or any credit
arrangement of Maker or any Guarantor to which
2
<PAGE>
payments on this Note, or any collateral securing this Note, or any guaranty of
this Note, shall be subordinated.
6. Successors and Assigns. No obligation of Maker hereunder may be
----------------------
assigned by Maker without the prior written consent of the Holder, which consent
Holder may withhold in its sole discretion. Subject to the foregoing, this Note
shall be binding upon and inure to the benefit of the parties, their respective
successors and permitted assigns. Upon notice to Maker, Holder may assign this
Note, in whole or in part (and if assigned in part, then in no event in
increments of less than five hundred thousand dollars ($500,000)), at any time
without the consent of Maker or any Guarantor to (a) any lender, or agent for
the lenders, under that certain Amended and Restated Credit Agreement dated as
of April 1, 1998, among (i) Sellers and other borrowers named therein, (ii) the
guarantors named therein, (iii) the lenders named therein, and (iv) The Chase
Manhattan Bank, as agent for the lenders named therein, (b) any one or more
Sellers, (c) any financial institution, or any hedge fund, venture fund or
similar investment fund, or (d) an agent appointed pursuant to Section 13 hereof
----------
(each, a "Permitted Transferee"). Any assignment of all or a portion of this
--------------------
Note to any person not qualifying as a Permitted Transferee shall be subject to
Maker's prior written consent, which consent shall not be unreasonably withheld
or delayed (it being understood that Maker's withholding of consent to the
proposed transfer to a competitor of Maker shall be reasonable, unless such
competitor shall agree to forego all rights to receive non-public information
regarding Maker). In connection with any such assignment, Maker upon request
shall promptly issue one or more replacement notes to evidence such assignment.
7. Governing Law. All questions with respect to this Note and the rights
-------------
and liabilities of the parties shall be governed by the laws of California
(without giving effect to provisions in California law related to conflict of
laws).
8. Extension Not a Waiver. No delay or omission in the exercise of any
----------------------
power, remedy or right herein provided or otherwise available to any party shall
impair or affect the right of such party thereafter to exercise the same. Any
extension of time or other indulgence granted to a party hereunder shall not
otherwise alter or affect any power, remedy or right of any other party, or the
obligations of the party to whom such extension or indulgence is granted except
as specifically waived.
9. Attorneys' Fees. In the event of any litigation or other action to
---------------
collect or enforce on this Note, Holder shall be entitled to, in addition to any
other damages assessed, its reasonable attorneys' fees, and all other reasonable
costs and expenses incurred in connection with such litigation or action. The
attorneys' fees which Holder is entitled to recover shall include fees for
prosecuting or defending any appeal and shall be awarded for any supplemental
proceedings until the final judgment is satisfied in full. In
3
<PAGE>
addition to the foregoing award of attorneys' fees to Holder, Holder shall be
entitled to its reasonable attorneys' fees incurred in any post judgment
proceedings to collect or enforce the judgment. This attorneys' fees provision
is separate and several and shall survive the merger of this Note into any
judgment.
10. Absolute Obligations. Maker specifically and knowingly waives any
--------------------
right to offset or any other similar defense to this Note, and Maker waives
presentment, notice of nonpayment or dishonor, protest, notice of protest, and
all other notices in connection with the delivery, acceptance, performance,
default, or enforcement of this Note.
11. Usury Law. Notwithstanding any other provision contained in this Note,
---------
the rate of interest payable under this Note shall not at any time exceed a rate
which, when combined with any and all other charges provided for in this Note or
any other document executed in connection with this Note (to the extent such
other charges would constitute interest for the purpose of any applicable law
limiting interest which may be charged hereunder), exceeds the maximum interest
rate permitted by law with respect to the transactions contemplated hereby.
12. Jurisdiction. Maker agrees that Holder may bring any and all actions
------------
on this Note in the United States Bankruptcy Court for the Central District of
California (the "Bankruptcy Court"), until the Sellers' cases before the
----------------
Bankruptcy Court are closed or dismissed, and thereafter in the courts of the
State of California or the federal courts of the United States of America
located in Los Angeles, California. Maker hereby irrevocably submits to the
jurisdiction of such courts, and irrevocably waives, and agrees not to assert,
as a defense in any action, suit or proceeding for the interpretation or
enforcement of this Note that it is not subject thereto or that such action,
suit or proceeding may not be brought or is not maintainable in said courts or
that the venue thereof may not be appropriate or that this Note may not be
enforced in or by said courts. Maker hereby consents to and grants any such
court jurisdiction over the person of Maker and over the subject matter of any
such actions.
13. Collateral Agent. In the event of one or more assignments of portions
----------------
of this Note to one or more persons other than a Seller, such assignments shall
be made only if the Holder hereunder and such assignees (collectively, the
"Aggregate Holders") appoint an administrative and collateral agent to act for
------------------
the Aggregate Holders in connection with the enforcement of rights and the
collection of payment under this Note and all replacement notes issued to
evidence the assignments (collectively, the "Outstanding Notes"), and in
-----------------
connection with the enforcement of rights and the collection of information
under (a) the Guaranty dated _______________, 2001, made by RP Holdings, Inc.,
Jules & Associates, Inc. and CDM Interactive, Inc. in favor of Holder, as same
may be amended, supplemented, modified or restated from time to time
4
<PAGE>
(the "Guaranty") and (b) the Security Agreement, with such agent to be selected
--------
by the Aggregate Holders pursuant to the approval of Aggregate Holders of more
than 50% of the aggregate then outstanding principal under the Outstanding
Notes, or such higher percentage as may be agreed to by the Aggregate Holders.
Such agent shall take actions in respect of the Outstanding Notes, the Guaranty
and the Security Agreement pursuant to the direction of Aggregate Holders of
more than 50% of the aggregate then outstanding principal under the Outstanding
Notes, or such higher percentage as may be agreed to by the Aggregate Holders.
The preceding provisions of this Section 13 shall not apply during such time
----------
that all Aggregate Holders are Sellers, or if there is only one Outstanding
Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the day and year set
forth above.
HOLLYWOOD RENTALS PRODUCTION
SERVICES, LLC
By:_____________________________________
Name:___________________________________
Title:__________________________________
5
<PAGE>
EXHIBIT B
GUARANTY
--------
This Guaranty ("Guaranty") is made on ____________, 2001, by RP Holdings,
--------
Inc., a California corporation ("RP"), Jules & Associates, Inc., a California
--
corporation ("Jules") and CDM Interactive, Inc., a California corporation
-----
("CDMI" and, together with RP and Jules, collectively the "Guarantors" and
----
individually a "Guarantor") in favor of (i) Matthews Studio Equipment Group,
---------
(ii) Hollywood Rental Company, LLC, (iii) HDI Holdings, Inc. and (iv) Matthews
Studio Sales, Inc., or such party or parties that shall become the holder or
holders of the Notes, as defined below (collectively, "Beneficiary"), with
-----------
respect to the following facts:
RECITALS
--------
A. Hollywood Rentals Production Services, LLC, a California limited
liability company ("Buyer") on the date hereof is acquiring certain assets of
Beneficiary pursuant to that certain Asset Purchase Agreement dated December 5,
2000, between Buyer and Beneficiary (as same may be amended, supplemented or
restated from time to time, the "Asset Purchase Agreement").
------------------------
B. The Asset Purchase Agreement provides that a portion of the Purchase
Price (as defined in the Asset Purchase Agreement) shall be paid by Buyer
pursuant to promissory notes in the aggregate principal amount of $4,000,000,
and Buyer as of the date hereof has executed and delivered such promissory notes
in accordance with the terms of the Asset Purchase Agreement (as such promissory
notes may be amended, supplemented, restated, subdivided or replaced from time
to time, the "Notes").
-----
C. The Asset Purchase Agreement also provides that a portion of the Notes
shall be guaranteed by Guarantors, on terms set forth herein.
D. Each of RP, Jules and CDMI is an affiliate of Buyer, and will benefit
from Buyer's acquisition and use of the Purchased Assets (as defined in the
Asset Purchase Agreement).
NOW, THEREFORE, for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, Guarantors hereby unconditionally covenant and
agree with Beneficiary as follows:
1. Guaranty.
--------
(a) Guarantors, on a joint and several basis, unconditionally
guarantee the full, prompt, complete and faithful payment by Buyer of all
amounts due under the Notes and/or the Security Agreement (as amended,
supplemented or restated from time to time, the "Security Agreement") dated
------------------
__________, 2001, between Buyer, as grantor, and Beneficiary, as secured party
(the "Obligations"), subject to the requirements of the following provisions of
-----------
this
<PAGE>
Section 1(a). If (i) Beneficiary exercises its rights and remedies under this
-----------
Guaranty, or (ii) the Buyer (A) applies for, consents to, or acquiesces in the
appointment of a trustee, custodian or receiver for the Buyer or all or
substantially all of its property, (B) files a petition in any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, or (C) makes an
assignment for the benefit of creditors, or (iii) an order, decree or judgment
approving a petition filed against Buyer seeking a reorganization, arrangement,
composition or similar relief under the present or any future federal bankruptcy
law or other applicable law of the U.S., or any state thereof, shall have been
entered, or a receiver, trustee or liquidator of all or substantially all of the
assets of Buyer shall have been appointed without the consent of Buyer, and
following 60 days after such entry or appointment, such order, decree, judgment
or appointment shall not have been vacated, stayed on appeal or otherwise, or
ceased to continue in effect, and any such event described in clause (i), (ii)
or (iii) occurs at any time prior to the first anniversary of the date hereof,
i.e., ___________, 2002 (the "Initial Period"), then only CDMI shall be
--------------
obligated to perform, and be liable for, Guarantors' obligations under the first
sentence of this Section 1(a) (the exclusion of RP and Jules from liability
------------
pursuant to this sentence shall be referred to herein as the "Exclusion
---------
Requirement"). If Beneficiary exercises its rights and remedies under this
-----------
Guaranty at any time after the Initial Period, all of RP, Jules and CDMI shall
be obligated to perform, and be liable for, Guarantors' obligations under the
first sentence of this Section 1(a). Further, (A) the maximum of Guarantors'
------------
(collective) liability under this Guaranty shall be One Million Dollars plus the
collection costs described in Section 1(b) below, and (B) the maximum of a
------------
Guarantor's (individual) liability under this Guaranty shall be Five Hundred
Thousand Dollars plus the collection costs described in Section 1(b) below,
------------
unless events shall occur that result in the Exclusion Requirement becoming
applicable, in which case the maximum liability of CDMI under this Guaranty
shall be One Million Dollars plus the collection costs described in Section 1(b)
------------
below.
(b) Subject to the Exclusion Requirement, Guarantors, on a joint and
several basis, further agree to pay to Beneficiary, on demand, all reasonable
costs and expenses, including reasonable attorneys' fees, incurred by
Beneficiary in exercising any right, power or remedy conferred by this Guaranty,
or in the enforcement of this Guaranty, whether or not any action is filed in
connection therewith. Further, Guarantors acknowledge and agree that the
attorneys' fees which Beneficiary is entitled to recover shall include fees for
prosecuting or defending any appeal and shall be awarded for any supplemental
proceedings until the final judgment is satisfied in full. In addition to the
foregoing award of attorneys' fees to Beneficiary, Beneficiary shall be entitled
to its reasonable attorneys' fees incurred in any post judgment proceedings to
collect or enforce the judgment. This attorneys' fees provision is separate and
several and shall survive the merger of this Guaranty into any judgment.
Notwithstanding any of the foregoing, a Guarantor's liability with respect to
expenses hereunder shall be capped at the amount of expenses outstanding at such
time as such Guarantor
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<PAGE>
shall have paid the Five Hundred Thousand Dollars or One Million Dollars amount,
as applicable, as set forth in Section 1(a).
(c) Guarantors covenant and agree unconditionally that, in case of an
Event of Default (as defined in the Notes) and after the expiration of the
notice periods set forth in Section 3(a) herein, each Guarantor (subject to the
------------
Exclusion Requirement) will immediately pay one-third of the entire Obligations,
and any other sums properly due and owing to Beneficiary under this Guaranty, in
lawful money of the United States to Beneficiary, or the designated agent
(whether appointed at Beneficiary's election, or pursuant to the requirement for
an administrative and collateral agent contained in the Notes) of Beneficiary
whose identity and address shall be advised in writing by Beneficiary to each
Guarantor from time to time during the term herein (the "Agent"). Subject to the
-----
Exclusion Requirement, if any Guarantor shall fail to pay some or all of its
one-third portion as set forth in the preceding sentence, then in accordance
with the joint and several nature of the guarantee and promises made by
Guarantors hereunder, the other Guarantors shall pay to Beneficiary, within 15
days following the effective date of written notice from Beneficiary, the entire
amount not paid by the other Guarantor, in lawful money of the United States to
Beneficiary, or if so designated, the Agent. The requirements of notice to
Guarantors set forth in Section 3(a) and in the preceding sentence shall be
------------
referred to herein as the "Notice Requirements." If Guarantors should fail to
-------------------
pay any sums properly due Beneficiary hereunder, then said sums shall bear
interest at the rate of 10% per annum. Further, if Guarantors shall fail to pay
the Obligations, Beneficiary may institute and pursue any action or proceeding
to judgment or final decree and may enforce any such judgment or final decree
against Guarantors and collect in the manner provided by law out of Guarantors'
property, wherever situated, the monies adjudged or decreed to be payable.
(d) This Guaranty shall not be limited to any particular period of
time, but, rather, shall continue absolutely, unconditionally and irrevocably
until all terms, covenants and conditions of the Documents (as defined below)
have been fully and completely performed by Buyer or otherwise discharged and/or
released by Beneficiary, and Guarantors shall not be released from any duty,
obligation or liability hereunder so long as there is any claim of Beneficiary
against Buyer arising out of the Documents which has not been performed, settled
or discharged in full; provided, however, that a Guarantor's payment liability
hereunder shall terminate upon payment of such Guarantor's maximum amount as set
forth in Section 1(a).
------------
2. Subordination.
-------------
(a) Each Guarantor subordinates all its liens, security interests,
claims and rights of any kind that such Guarantor may now have or hereafter
acquire against Buyer, and/or Buyer's property and assets, whether tangible or
intangible ("Buyer's Property"), resulting from Buyer's present or future
----------------
indebtedness to Guarantor ("Subordinated Indebtedness"), and agrees that all
-------------------------
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<PAGE>
liens, security interests, claims and rights of any kind that Guarantor may now
have or hereafter acquire against Buyer and Buyer's Property resulting from the
Subordinated Indebtedness shall be subordinate, inferior and subject to the
claims and rights of Beneficiary against Buyer and/or Buyer's Property under the
terms of this Guaranty and of the Documents, as applicable, whether direct or
contingent or whether now or hereafter created. Until all of the Obligations
have been satisfied or discharged in full, each Guarantor agrees not to: collect
or receive any cash or non-cash payment on the Subordinated Indebtedness; assert
rights or declare a default under or enforce payment of the Subordinated
Indebtedness by legal proceedings or otherwise; permit Buyer to pay to Guarantor
all or any part of the Subordinated Indebtedness, transfer any property to
Guarantor in payment of or as security for the payment of all or any part of the
Subordinated Indebtedness, execute or deliver any instrument as evidence of all
or any part of the Subordinated Indebtedness, or establish any sinking fund,
reserve, or like set aside of funds or other property for the redemption,
retirement or repayment of all or any part of the Subordinated Indebtedness;
provided, however, that prior to the occurrence of an Event of Default (as
defined in the Notes), the foregoing restrictions shall not apply to those
payments made when and as permitted under the terms of the Senior Loan Agreement
(as defined below). Notwithstanding anything herein to the contrary, if any
portion of the Subordinated Indebtedness becomes due and payable prior to its
stated maturity, Beneficiary shall be entitled to receive full performance of
the Obligations before the holder(s) thereof is/are entitled to receive any
payment of the Subordinated Indebtedness; provided, however, that prior to the
occurrence of an Event of Default, the foregoing restriction shall not apply to
payments made when and as permitted under the terms of the Senior Loan
Agreement.
(b) Each Guarantor agrees not to take any action which will either
(i) force the sale of Buyer's Property in order to satisfy the Subordinated
Indebtedness or (ii) adversely affect in any manner any of Beneficiary's liens,
security interests, claims or rights of any kind that Beneficiary may now have
or hereafter acquire against Buyer and/or Buyer's Property. Each Guarantor
agrees to refrain from taking any action which is in any way inconsistent with
or in derogation of this subordination or of the rights of Beneficiary hereunder
and covenants to perform such further acts as Beneficiary deems necessary or
appropriate to give effect to this subordination. Without limiting the
generality of the foregoing, each Guarantor agrees not to assign any portion of
the Subordinated Indebtedness, except expressly subject to the terms of this
Guaranty; and to cause all evidence of the Subordinated Indebtedness to set
forth the provisions hereof or to bear a legend that it is subject hereto.
3. Remedies and Rights of Beneficiary.
----------------------------------
(a) Following the occurrence of an Event of Default, Beneficiary
shall give Buyer and each Guarantor written notice of such Event of Default and,
if such Event of Default is not cured within 10 days following the effective
date of
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<PAGE>
such notice, subject to the Exclusion Requirement, Guarantors shall make payment
to Beneficiary within 30 days following such 10th day, with such payments to be
made in accordance with Section 1(c).
------------
(b) Except for the Notice Requirements, neither demand on, nor the
pursuit of any remedies against Buyer, or any other guarantor, surety or insurer
of the Obligations or part thereof (an "Obligor") shall be required as a
-------
condition precedent to, and neither the pendency nor the prior termination of
any action, suit or proceeding against the Buyer or any Obligor (whether for the
same or a different remedy) shall bar or prejudice the making of a demand on
Guarantors by Beneficiary and the commencement against Guarantors after such
demand of any action, suit or proceeding, at law or in equity, for the specific
performance of any covenant, or agreement contained in the Documents or for the
enforcement of any other appropriate legal or equitable remedy.
(c) Guarantors' liability hereunder is primary, direct and immediate,
and Guarantors' covenants and obligations hereunder are, subject to the
Exclusion Requirement and the maximum liability limitations contained in
Section 1(a), joint and several. Guarantors agree that, subject to the Notice
------------
Requirements, neither: (i) the exercise or the failure to exercise by
Beneficiary of any rights or remedies conferred on it under the Documents; (ii)
the recovery of a judgment against Buyer or any Obligor; (iii) the commencement
of an action at law or the recovery of a judgment at law against Buyer or any
Obligor and the enforcement thereof through levy, execution or otherwise; (iv)
the taking or institution of any other action or proceeding against Buyer or any
Obligor; nor (v) any delay in taking, pursuing or exercising any of the
foregoing actions, rights, powers or remedies (even though requested by
Guarantors) by Beneficiary or anyone acting for Beneficiary shall extinguish or
affect the obligations of Guarantors hereunder, but Guarantors shall be and
remain liable for and until all Obligations shall have been fully paid and/or
performed notwithstanding the previous discharge (total or partial) from further
liability of Buyer or any Obligor or the existence of any bar (total, partial or
temporary) to the pursuit by Guarantors of any right or claim to indemnity
against Buyer or any Obligor or any right or claim to be subrogated to the
rights or claims of Beneficiary in and to the Collateral (as defined in the
Security Agreement) or resulting from any action or failure or omission to act
or delay in acting by Beneficiary, or anyone entitled to act in its place.
(d) The benefits, remedies and rights provided or intended to be
provided hereby for Beneficiary may be exercised jointly or separately by
Beneficiary acting collectively, if there is more than one Beneficiary, or
through the Agent, and are in addition to and without prejudice to any rights,
benefits, remedies or security to which Beneficiary might otherwise be entitled.
Subject to the Notice Requirements, no delay or omission on the part of
Beneficiary in the exercise of any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by Beneficiary of any right or remedy
shall preclude other or further exercise thereof or the exercise of any other
right or remedy; nor shall
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<PAGE>
any modification or waiver of any of the provisions of this Guaranty be binding
on Beneficiary except as expressly set forth in writing, duly signed and
delivered on behalf of Beneficiary. Subject to the Notice Requirements and the
Exclusion Requirement, no action of Beneficiary permitted hereunder shall in any
way affect or impair the rights of Beneficiary and the obligations of Guarantors
under this Guaranty.
(e) Anything else contained herein to the contrary notwithstanding,
Beneficiary, from time to time, without notice to Guarantors (other than those
provided for by the Notice Requirements and subject to the Notice Requirements),
may take all or any of the following actions without in any manner affecting or
impairing the liability of Guarantors hereunder: (i) obtain a security interest
in any property to secure any of the Obligations or any obligation hereunder;
(ii) retain or obtain the primary or secondary liability of any party or
parties, in addition to Guarantors, with respect to any of the Obligations;
(iii) extend the time for payment under any Note or the time for performance of
any Obligation, in either case for any period (whether or not longer than the
original term therefor); (iv) release or compromise any liability of any
Guarantor hereunder (provided that a release of a Guarantor prior to the
expiration of the notice period required under Section 3(a) shall reduce the
------------
liability of the other Guarantors hereunder, pro rata, by the amount so
released) or any liability of any nature of any other party or parties with
respect to the Obligations; (v) resort to Guarantors for payment of any
Obligations, whether or not Beneficiary shall proceed against any other party
primarily or secondarily liable on any of the Obligations or against any
Collateral; (vi) substitute, exchange or release all or any part of the
Collateral and any other collateral received by Beneficiary pursuant to the
Documents; (vii) agree to any amendment, modification or alteration of any of
the Documents and exercise its rights to consent to any action or non-action of
Buyer which may violate the covenants and agreements contained in any of the
Documents, with or without consideration, on such terms and conditions as may be
acceptable to Beneficiary; or (viii) exercise any of Beneficiary's rights
confirmed by the Documents or by law.
(f) Guarantors agree that if at any time all or any part of any
payment theretofore applied by Beneficiary to any of the Obligations is or must
be rescinded or returned by Beneficiary for any reason whatsoever (including,
without limitation, the insolvency, bankruptcy or reorganization of Buyer) such
Obligations, for the purpose of this Guaranty, to the extent that such payment
is or must be rescinded or returned, shall be deemed to have continued in
existence, notwithstanding such application by Beneficiary, and this Guaranty
shall continue to be effective or be reinstated, as the case may be, as to such
Obligations, all as though such application by Beneficiary had not been made.
(g) Notwithstanding anything to the contrary which may be contained
herein, Guarantors hereby unconditionally and irrevocably agree that, until
Guarantors' obligations under this Guaranty are satisfied or paid in full,
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<PAGE>
Guarantors will not at any time assert against Buyer (or Buyer's estate if Buyer
becomes bankrupt or becomes the subject of any case or proceeding under the
Federal Bankruptcy Code) any right or claim, at law or in equity, to
indemnification, reimbursement, contribution, restitution or payment for or with
respect to any and all amounts Guarantors may pay or be obligated to pay to
Beneficiary, including, without limitation, the Obligations, and any and all
other obligations which Guarantors may perform, satisfy or discharge, under or
with respect to this Guaranty. Guarantors further unconditionally and
irrevocably agree that, until Guarantors' obligations under this Guaranty are
satisfied or paid in full, Guarantors shall have no right to subrogation, and
waive any right to enforce any remedy which Beneficiary now has or hereafter may
have against Buyer, and waive any defense based upon an election of remedies by
Beneficiary, which destroys or otherwise impairs any subrogation rights of
Guarantors and/or the right of Guarantors to proceed against Buyer for
reimbursement.
(h) Guarantors agree that it is not necessary for Beneficiary to
inquire into the powers of Buyer or its officers, directors, partners or agents
purporting to act on its behalf and the Obligations are hereby guaranteed
notwithstanding the lack of power or authority on the part of Buyer or anyone
acting on its behalf to incur the Obligations.
4. Guarantor's Waivers. To the fullest extent permitted by applicable
-------------------
law, each Guarantor hereby expressly waives: (a) notice of the acceptance by
Beneficiary of this Guaranty; (b) notice of the existence, creation or non-
payment of all or any of the Obligations, other than as contemplated by the
Notice Requirements; (c) notice of presentment, demand, dishonor, protest, and
all other notices whatsoever, other than as contemplated by the Notice
Requirements; (d) all diligence in collection or protection of or realization on
the Obligations or any thereof, any obligation hereunder, or any security for or
guaranty of any of the foregoing; (e) any and all suretyship defenses and
defenses in the nature thereof, including, without limitation, the benefits of
the provisions of Sections 2787 through 2855 of the California Civil Code and
any successor provisions to those Sections; (f) all statutes of limitations as a
defense to any action brought by Beneficiary against Guarantor; (g) any defense
based upon (i) any unenforceability or invalidity of all or any part of the
Obligations or any collateral therefor or any guaranty thereof, or (ii) any
disability or any other defense of Buyer or any Obligor with respect to the
Obligations, whether consensual or arising by operation of law or any
bankruptcy, insolvency or debtor-relief proceeding, or from any other cause; (h)
any defense based on or that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or the failure of Beneficiary
to file or enforce a claim against the estate (in administration, bankruptcy or
any other proceeding) of any other person; (i) any defense arising out of an
election of remedies by Beneficiary, even though that election of remedies, such
as a nonjudicial foreclosure with respect to security for the Obligations, has
destroyed Guarantor's rights of subrogation and reimbursement against Buyer or
any other Obligor by the operation of Section 580d of the California Code of
Civil Procedure; (j) any defense based upon any statute or rule
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<PAGE>
of law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal; (k) any
defense arising because of Beneficiary's election, in any proceeding instituted
under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of
the Federal Bankruptcy Code; (l) any defense based on any borrowing or grant of
a security interest under Section 364 of the Federal Bankruptcy Code; (m) any
benefits which might otherwise be available to Guarantor under California Code
of Civil Procedure Sections 580a, 580b and 726; and (n) other than as
contemplated by the Notice Requirements, all other rights and defenses the
assertion or exercise of which would in any way diminish the liability of
Guarantor hereunder.
5. Miscellaneous Provisions.
------------------------
(a) Subject to the Exclusion Requirement, all the covenants,
stipulations, promises and agreements contained in this Guaranty by or on behalf
of Guarantors are for the benefit of Beneficiary and its successors or assigns
and shall bind each Guarantor and its successors and assigns. Beneficiary,
without notice of any kind, may sell, assign or transfer the Documents, or any
portion thereof, and/or Beneficiary's interest in all or in part of the
Collateral or any other collateral received by Beneficiary pursuant to the
Documents, and in such event each and every immediate and successive assignee or
transferee thereof shall have the right to enforce this Guaranty, by suit or
otherwise, for the benefit of such assignee or transferee as fully as if such
assignee or transferee were herein by name specifically given such rights,
powers and benefits; provided, however, that Beneficiary's sale, assignment and
transfer of the Documents and this Guaranty shall be in accordance with the
terms of the Notes (including, but not limited to, the requirement contained in
the Notes regarding the appointment of an administrative and collateral agent to
act on behalf of the parties comprising the Beneficiary). Subject to the
Exclusion Requirement, Guarantors hereby agree for the benefit of any such
assignee or transferee that their respective obligations hereunder shall not be
subject to any reduction, abatement, defense, set-off, counterclaim or
recoupment for any reason whatsoever.
(b) Guarantors acknowledge receipt of a true and accurate copy of each
Document.
(c) If any provision of this Guaranty, including any phrase, sentence,
clause, Section or subsection is inoperative or unenforceable for any reason,
such circumstances shall not have the effect of rendering the provision in
question inoperative or unenforceable in any other case or circumstance, or of
rendering any other provision or provisions herein contained invalid,
inoperative, or unenforceable to any extent whatsoever.
(d) All notices, requests, demands, approvals, consents, waivers and
other communications required or permitted to be given under this
-8-
<PAGE>
Guaranty (each, a "Notice") shall be in writing and shall be (a) delivered
------
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, (c) sent by next-day or overnight mail or
delivery, or (d) sent by facsimile transmission, provided such transmission is
confirmed mechanically.
(i) if to Buyer, to:
Hollywood Rentals Production Services, LLC
3111 North Kenwood Street
Burbank, California 91505
Facsimile: (818) 525-5216
Attention: Anil Sharma
Carlos D. DeMattos
with a copy to the Agent at such address as shall have been
designated by the Agent to Guarantors in compliance with the
notice procedure set forth in this Section 5(d)
------------
(ii) if to Jules, to:
Jules & Associates, Inc.
515 South Figueroa Street, Suite 1575
Los Angeles, California 90071
Facsimile: (213) 688-7964
Attention: Jules Buenaventa
(iii) if to RP, To:
RP Holdings, Inc.
100 Wilshire Boulevard, 8th Floor
Santa Monica, California 90401
Facsimile: (310) 899-8910
Attention: Terry Hughes, Esq.
(iv) if to CDM, to:
CDM Interactive, Inc.
3111 North Kenwood Street
Burbank, California 91505
Facsimile: (818) 525-5216
Attention: Carlos D. DeMattos
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<PAGE>
(v) if to Beneficiary, to:
c/o Matthews Studio Equipment Group
3111 North Kenwood Street
Burbank, California 91505
Facsimile: (818) 525-5216
Attention: Miles Stover
or, in each case, at such other address or facsimile number as may be specified
in a Notice to the other party hereto. All Notices sent in accordance with this
Section shall be deemed effective and given (A) upon delivery if personally
delivered, (B) on the third day following deposit in the mail, if mailed, (C) on
the next Business Day if sent by next-day or overnight mail or delivery, and (D)
on the day of transmission, if sent by facsimile transmission. The term
"Business Day" means any day other than a Saturday, a Sunday or any other day on
which banks in the State of California are authorized or required to be closed.
(e) The headings contained in this Guaranty are for purposes of
convenience only and shall not affect the meaning or interpretation of this
Guaranty.
(f) This Guaranty may be executed (including by facsimile
transmission) with counterpart signature pages or in several counterparts, each
of which shall be deemed an original and all of which shall together constitute
one and the same instrument.
(g) THIS GUARANTY SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO
VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF.
GUARANTORS AGREE THAT ANY AND ALL ACTIONS TO INTERPRET OR ENFORCE THE PROVISIONS
OF THIS GUARANTY SHALL BE BROUGHT IN THE COURT (AS SUCH TERM IS DEFINED IN THE
ASSET PURCHASE AGREEMENT), UNTIL THE SELLERS' CASES (AS SUCH TERMS ARE DEFINED
IN THE ASSET PURCHASE AGREEMENT) ARE CLOSED OR DISMISSED, AND THEREAFTER IN THE
COURTS OF THE STATE OF CALIFORNIA OR THE FEDERAL COURTS OF THE UNITED STATES OF
AMERICA LOCATED IN LOS ANGELES, CALIFORNIA. EACH PARTY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND IRREVOCABLY WAIVES, AND AGREES
NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE
INTERPRETATION OR ENFORCEMENT OF THIS GUARANTY THAT IT IS NOT SUBJECT THERETO OR
THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE
IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS
GUARANTY MAY NOT BE ENFORCED IN OR BY SAID COURTS. GUARANTORS CONSENT TO AND
GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE
SUBJECT MATTER OF ANY SUCH DISPUTE AND
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<PAGE>
AGREES THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH
ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 5(d), OR IN SUCH OTHER
------------
MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE
THEREOF.
(h) No discharge of this Guaranty, and no waiver hereunder, shall be
valid or binding unless set forth in writing and duly executed by Beneficiary.
Any such waiver shall constitute a waiver only with respect to the specific
matter described in such writing and shall in no way impair the rights of
Beneficiary in any other respect or at any other time. Neither the waiver by
Beneficiary of a breach of or a default under any of the provisions of this
Guaranty, nor the failure by Beneficiary, on one or more occasions, to enforce
any of the provisions of this Guaranty or to exercise any right or privilege
hereunder, shall be construed as a waiver of any other breach or default of a
similar nature, or as a waiver of any of such provisions, rights or privileges
hereunder. No amendment or modification of this Guaranty shall be effective
unless in a writing executed by Beneficiary.
(i) For clarification purposes, even if events shall occur that
result in the Exclusion Requirement becoming applicable, each of RP and Jules
shall have all of the obligations and liabilities of a Guarantor under
Sections 2, 3(g), and 5 (other than Section 5(a) to the extent eliminated by the
----------- ---- ------------
occurrence of the Exclusion Requirement).
(j) The term "Senior Loan Agreement" as used in this Guaranty means
---------------------
Credit Agreement dated as of December 5, 2000, between Buyer and Sanwa Bank
California (the "Sanwa Agreement"), or a refinancing or replacement thereof,
---------------
provided the material terms of such refinancing or replacement agreement shall
be no more onerous to Buyer than those under the Sanwa Agreement. The term
"Documents" as used in this Guaranty shall mean the Notes and the Security
----------
Agreement, as any of such instruments may be amended, supplemented or restated
from time to time.
(k) In the event that any confidential or proprietary information
regarding a Guarantor is furnished to Beneficiary (or if applicable, the Agent)
pursuant to this Guaranty or the Security Agreement, Beneficiary and, if
applicable, the Agent (collectively, the "Recipients") shall be obligated to
----------
hold in strict confidence such information. Notwithstanding the foregoing, each
Recipient may disclose such information (i) if such Recipient is required to
disclose the same pursuant to proceedings before the Court (as defined in the
Asset Purchase Agreement) or pursuant to the Bankruptcy Code (as defined in the
Asset Purchase Agreement), (ii) if such Recipient is compelled to disclose the
same by other judicial or administrative process or by other requirements of Law
(but subject to the following provisions of this Section 5(k)), (iii) if the
------------
same hereafter is in the public domain through no fault of any Recipient, or
(iv) if the same is later acquired by any Recipient from another source and the
acquiring Recipient is not aware, after due inquiry, that such source is under
an obligation
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<PAGE>
to another person to keep such information confidential. If a Recipient is
requested or required as described in Section 5(k)(ii) above (by oral questions,
----------------
interrogatories, requests for information or documents in legal proceedings,
subpoena, civil investigative demand, rule of civil procedure or other similar
process) to disclose any such information, such Recipient shall provide such
Guarantor with prompt written notice of any such request or requirement so that
such Guarantor may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of this Section. If, in the absence of a
protective order or other remedy or the receipt of a waiver by such Guarantor,
such Recipient nonetheless, based on the written advice of counsel, is required
to disclose such information to any tribunal or else stand liable for contempt
or suffer other censure or penalty, such Recipient, without liability hereunder,
may disclose that portion of such information which such counsel advises such
Recipient it is legally required to disclose. Nothing in this Section 5(k) shall
------------
limit the right of the Recipients to use or disclose any such information in
connection with any legal action arising out of or in connection with this
Guaranty.
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<PAGE>
IN WITNESS WHEREOF, Guarantors have executed this Guaranty in favor of
Beneficiary as of the date first hereinabove written.
RP Holdings, Inc.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Jules & Associates, Inc.
By:________________________________________
Name:______________________________________
Title:_____________________________________
CDM Interactive, Inc.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Agreement by Buyer
------------------
Hollywood Rentals Production Services, LLC ("Buyer") acknowledges and agrees
that a notice to Buyer pursuant to Section 3(a) of this Guaranty shall be deemed
effective and given when transmitted in accordance with the provisions of
Section 5(d) of this Guaranty.
Hollywood Rentals Production Services, LLC
By:_________________________________
Name:_______________________________
Title:______________________________
-13
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
------------------
This Security Agreement ("Agreement"), dated as of ________, 2001, is made
---------
by Hollywood Rentals Production Services, LLC, a California limited liability
company ("Grantor"), in favor of (i) Matthews Studio Equipment Group, a
-------
California corporation, (ii) Hollywood Rental Company, LLC, a Delaware limited
liability company, (iii) HDI Holdings, Inc., a Kentucky corporation, (iv)
Matthews Studio Sales, Inc., a California corporation, or such party or parties
that shall become the holder or holders of the Notes, as defined below
(collectively, the "Secured Party"), with reference to the following facts:
-------------
RECITALS
--------
A. Pursuant to the Asset Purchase Agreement dated December 5, 2000, among
Grantor, as buyer and Secured Party, as the sellers (the "Asset Purchase
--------------
Agreement"), Secured Party as of today has sold certain assets to Grantor.
---------
B. The Asset Purchase Agreement provides that a portion of the Purchase
Price (as defined in the Asset Purchase Agreement) shall be paid by Grantor
pursuant to promissory notes in the aggregate principal amount of $4,000,000,
and Grantor as of the date hereof has executed and delivered such promissory
notes in accordance with the terms of the Asset Purchase Agreement (as such
promissory notes may be amended, supplemented, restated, subdivided or replaced
from time to time, the "Notes").
-----
C. As a condition of the closing of the transactions contemplated by the
Asset Purchase Agreement, Grantor is required to enter into this Agreement and
to grant to Secured Party a security interest in all of the assets purchased by
Grantor as herein provided.
AGREEMENT
---------
NOW, THEREFORE, for other good and valuable consideration, the receipt and
adequacy of which hereby is acknowledged, Grantor hereby represents, warrants,
covenants, agrees, assigns and grants as follows:
1. Definitions. Terms defined in the California Uniform Commercial Code
-----------
and not otherwise defined in this Agreement shall have the meaning defined for
those terms in the California Uniform Commercial Code. Capitalized terms used
but not defined in this Agreement shall have the meaning given to them in the
Asset Purchase Agreement. As used in this Agreement, the following terms shall
have the meanings respectively set forth after each:
<PAGE>
"Agent" shall mean the designated agent (whether appointed at Secured
-----
Party's election or pursuant to the requirement for an administrative and
collateral agent contained in the Notes) of Secured Party (or its
successors and assigns) whose identity and address shall be advised in
writing to Grantor by Secured Party (or its successors and assigns) from
time to time during the term herein.
"Collateral" means and includes: (a)(i) all of the Grantor's present and
----------
future accounts, general intangibles, chattel paper and instruments, as
such terms are defined in the Uniform Commercial Code as in effect in the
State of California (the "CAUCC"), (ii) all moneys, securities and other
-----
property and the proceeds thereof, now or hereafter held or received by, or
in transit to, the Secured Party from or for the Grantor, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and
all of the deposits (general or special) of the Grantor, balances, sums and
credits with, and all of the Grantor's claims against the Secured Party at
any time existing, (iii) all of the Grantor's right, title and interest,
and all of the Grantor's rights, remedies, security and liens, in, to and
in respect of any present and future accounts receivable of Grantor,
including, without limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to accounts receivable, deposits or other security
for the obligation of any account debtor, and credit and other insurance,
(iv) all of the Grantor's right, title and interest in, to and in respect
of all present and future goods relating to, or which by sale have resulted
in, present and future accounts receivable of Grantor, including, without
limitation, all goods described in invoices or other documents or
instruments with respect to, or otherwise representing or evidencing, any
present and future account receivable of Grantor, and all returned,
reclaimed or repossessed goods; (b) all instruments, files, records, ledger
sheets and documents covering or relating to any of the Collateral; (c) all
of the Grantor's machinery, equipment, vehicles, furniture and fixtures and
all attachments, accessories and equipment now or hereafter owned or
acquired in the Grantor's business or used in connection therewith, and all
substitutions and replacements thereof, wherever located, whether now owned
or hereafter acquired by Grantor; (d) all of the Grantor's present and
future general intangibles of every kind and description, including
(without limitation) assignments of store leases, other leases of property,
patents, patent applications, trade names and trademarks and the goodwill
of the business symbolized thereby, and Federal, State and local tax refund
claims of all kinds; (e) all of the Grantor's raw materials, work in
process, finished goods, rental property and all other inventory (as such
term is defined in the CAUCC), whether now owned or hereafter acquired, and
all wrapping, packaging, advertising and shipping materials, and any
documents relating thereto; (f) any and all
2
<PAGE>
consideration received from the sale, exchange, lease or other disposition
of any asset or property which constitutes Collateral, any other value
received as a consequence of the possession of any Collateral and any
payment received from any insurer or other person or entity as a result of
the destruction, loss, theft or other involuntary conversion of whatever
nature of any asset or property that constitutes Collateral, and including,
without limitation, all cash and negotiable instruments received or held by
the Secured Party pursuant to any lockbox or similar arrangement relating
to the payment of any Collateral described in clause (a) hereof; and (g)
all of Grantor's right, title and interest in and to all present and future
securities, security entitlements and securities accounts.
"Event of Default" shall have the same meaning given to it in the Notes.
----------------
"Intercreditor Agreement" means the Subordination Agreement dated
-----------------------
___________, 2001, between Secured Party and Sanwa Bank California, as same
may be amended, supplemented or restated from time to time.
"Permitted Liens" shall have the same meaning given to it in the Senior
---------------
Loan Agreement.
"Secured Obligations" means any and all present and future obligations of
-------------------
Grantor under the Notes.
"Senior Lien" means the security interest and lien granted under the Senior
-----------
Loan Agreement.
"Senior Loan Agreement" means the Credit Agreement dated December 5, 2000
---------------------
between Grantor and Sanwa Bank California (the "Sanwa Agreement"), or such
---------------
other loan agreement of Grantor to refinance or replace the Sanwa
Agreement, provided the material terms of such refinancing or replacement
agreement shall be no more onerous to Grantor than those under the Sanwa
Agreement.
2. Further Assurances. At any time and from time to time at the request
------------------
of Secured Party, Grantor shall execute and deliver to Secured Party all such
financing statements and other instruments and documents in form and substance
satisfactory to Secured Party as shall be necessary or desirable to fully
perfect, when filed and/or recorded, Secured Party's security interest granted
pursuant to Section 3 of this Agreement. At any time and from time to time,
---------
Secured Party shall be entitled to file and/or record any or all such financing
statements, instruments and documents held by it, and any or all such further
financing statements, documents and instruments, and to take all such other
actions, as Secured Party may deem appropriate to perfect and to maintain
perfected the security interest granted in Section 3 of this Agreement. Before
---------
and after the occurrence of any Event of Default, at Secured Party's
3
<PAGE>
request, Grantor shall execute all such further financing statements,
instruments and documents, and shall do all such further acts and things, as may
be deemed necessary or desirable by Secured Party to create and perfect, and to
continue and preserve, an indefeasible security interest in the Collateral in
favor of Secured Party, or the priority thereof. With respect to any Collateral
consisting of certificated securities, instruments, documents, certificates of
title or the like, as to which Secured Party's security interest need to be
perfected by, or the priority thereof need to be assured by, possession of such
Collateral, Grantor will upon demand of Secured Party deliver possession of same
in pledge to Secured Party. With respect to any Collateral consisting of
securities, instruments, partnership or joint venture interests or the like,
Grantor hereby consents and agrees that the issuers of, or obligors on, any such
Collateral, or any registrar or transfer agent or trustee for any such
Collateral, shall be entitled to accept the provisions of this Agreement as
conclusive evidence of the right of Secured Party to effect any transfer or
exercise any right hereunder or with respect to any such Collateral,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by Grantor or any other person to such issuers or such obligors
or to any such registrar or transfer agent or trustee.
3. Security Agreement. For valuable consideration, Grantor hereby
------------------
assigns and pledges to Secured Party, and grants to Secured Party a security
interest in, the Collateral, as security for the timely payment and performance
of the Secured Obligations, and each of them. This Agreement is a continuing and
irrevocable agreement and all the rights, powers, privileges and remedies
hereunder shall apply to any and all Secured Obligations, notwithstanding the
bankruptcy of Grantor or any other person or any other event or proceeding
affecting any person.
4. Grantor's Representations, Warranties and Agreements. Except as
----------------------------------------------------
otherwise consented to by Secured Party in writing concurrently herewith,
Grantor represents, warrants and agrees that: (a) Grantor will pay, prior to
delinquency, all taxes, charges, and assessments against the Collateral, except
such as are timely contested in good faith, and upon its failure to pay or so
contest such taxes, charges, and assessments, Secured Party at its option may
pay any of them, and Secured Party shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same; (b) the
Collateral will not be used for any unlawful purpose or in violation of any law,
regulation or ordinance, nor used in any way that will void or impair any
insurance required to be carried in connection therewith; (c) Grantor will, to
the extent consistent with good business practice, keep the Collateral in
reasonably good repair, working order and condition, and from time to time make
all needful and proper repairs, renewals, replacements, additions and
improvements thereto and, as appropriate and applicable, will otherwise deal
with the Collateral in all such ways as are considered good practice by owners
of like property; (d) Grantor will take all reasonable steps to preserve and
4
<PAGE>
protect the Collateral; (e) Grantor will maintain, with responsible insurance
companies, insurance covering the Collateral against such insurable losses as is
consistent with sound business practice, and will cause Secured Party to be
designated as an additional insured and loss payee with respect to such
insurance, will obtain the written agreement of the insurers that such insurance
shall not be canceled, terminated or materially modified to the detriment of
Secured Party without at least 30 days prior written notice to Secured Party,
and will furnish copies of such insurance policies or certificates to Secured
Party promptly upon request therefor; (f) Grantor shall not encumber, place or
allow to be placed any liens, security interests, or encumbrances on the
Collateral other than the security interest and lien in favor of Secured Party
hereunder, and other than the Senior Lien and Permitted Liens; (g) the security
interest and lien granted to Secured Party hereunder is a purchase money
security interest, subordinate to no lien or security interest other than the
Senior Lien and Permitted Liens; (h) Grantor will promptly notify Secured Party
in writing in the event of any substantial or material damage to the Collateral
from any source whatsoever, and, except for the disposition of collections and
other proceeds of the Collateral permitted by Section 6 hereof, Grantor will not
---------
remove or permit to be removed any part of the Collateral from their places of
business without the prior written consent of Secured Party, except for such
items of the Collateral as are removed in the ordinary course of business and
except for the rental in the ordinary course of Grantor's business of rental
inventory items and the sale in the ordinary course of Grantor's business of
expendable supplies items; and (i) Grantor shall furnish to Secured Party within
fifteen (15) days after the end of each calendar month, forty-five (45) days
after the end of each fiscal quarter, and one hundred twenty (120) days after
the end of each fiscal year, a copy of Grantor's current financial statements,
which (i) shall contain a balance sheet as at the end of such monthly, quarterly
or annual period and statements of income and cash flows of such periods
(together, in each case, with the comparable figures for the immediately
preceding corresponding period), all in reasonable detail, prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the period involved and with prior periods, and (ii) shall be
certified as correct by the chief financial officer of Grantor or be accompanied
by an unqualified certification from Grantor's independent certified public
accountants.
5. Secured Party's Rights Regarding Collateral. At any time (whether or
-------------------------------------------
not an Event of Default has occurred) and at the reasonable expense of Grantor,
Secured Party may, to the extent it may be necessary or desirable to protect the
security hereunder, but Secured Party shall not be obligated to: (a) enter upon
any premises on which any Collateral is situated and examine the same, provided
that reasonable prior notice shall have been given to Grantor; or (b) perform
any obligation of Grantor under this Agreement if same has become due and
Grantor has not so performed. Upon the occurrence and during the continuation of
an Event of Default, at the reasonable expense of
5
<PAGE>
Grantor, Secured Party may, to the extent it may be necessary or desirable to
protect the security hereunder, but Secured Party shall not be obligated to: (i)
notify obligors on the Collateral that the Collateral has been assigned to
Secured Party; (ii) at any time and from time to time request from obligors on
the Collateral, in the name of Grantor or in the name of Secured Party,
information concerning the Collateral and the amounts owing thereon; and (iii)
cause the Collateral to be registered in the name of Secured Party, as legal
owner. Grantor shall maintain books and records pertaining to the Collateral in
such detail, form and scope as Secured Party shall reasonably require consistent
with Secured Party's interests hereunder. Grantor shall at any time at Secured
Party's request mark the Collateral and/or Grantor's ledger cards, books of
account and other records relating to the Collateral with appropriate notations
satisfactory to Secured Party disclosing that they are subject to Secured
Party's security interests. Secured Party shall at all reasonable times on
reasonable notice have full access to and the right to audit any and all of
Grantor's books and records pertaining to the Collateral, and to confirm and
verify the value of the Collateral and to do whatever else Secured Party
reasonably may deem necessary or desirable to protect its interests. Secured
Party shall be under no duty or obligation whatsoever to take any action to
preserve any rights of or against any prior or other parties in connection with
the Collateral, to exercise any voting rights or managerial rights with respect
to any Collateral, whether or not an Event of Default shall have occurred, or to
make or give any presentments, demands for performance, notices of non-
performance, protests, notices of protests, notices of dishonor or notices of
any other nature whatsoever in connection with the Collateral or the Secured
Obligations. Secured Party shall be under no duty or obligation whatsoever to
take any action to protect or preserve the Collateral or any rights of any
Grantor therein, or to make collections or enforce payment thereon, or to
participate in any foreclosure or other proceeding in connection therewith.
6. Collections on the Collateral. Grantor shall have the right to use
-----------------------------
and to continue to make collections on and receive dividends and other proceeds
of all of the Collateral in the ordinary course of business so long as no Event
of Default shall have occurred and be continuing. Upon the occurrence and during
the continuance of an Event of Default, at the option of Secured Party,
Grantor's right to make collections on and receive dividends and other proceeds
of the Collateral and to use or dispose of such collections and proceeds shall
terminate, and any and all dividends, proceeds and collections, including all
partial or total prepayments, then held or thereafter received on or on account
of the Collateral will be held or received by Grantor in trust for Secured Party
and immediately delivered in kind to Secured Party. Any remittance received by
Grantor from any person shall be presumed to relate to the Collateral and to be
subject to Secured Party's security interest. Upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have the right at all
times to receive, receipt for, endorse, assign, deposit and deliver, in the name
of Secured Party or in the name of Grantor, any and
6
<PAGE>
all checks, notes, drafts and other instruments for the payment of money
constituting proceeds of or otherwise relating to the Collateral; and Grantor
hereby authorizes Secured Party to affix, by facsimile signature or otherwise,
the general or special endorsement of it, in such manner as Secured Party shall
deem advisable, to any such instrument in the event the same has been delivered
to or obtained by Secured Party without appropriate endorsement, and Secured
Party and any collecting bank are hereby authorized to consider such endorsement
to be a sufficient, valid and effective endorsement by Grantor, to the same
extent as though it were manually executed by the duly authorized officer of
Grantor, regardless of by whom or under what circumstances or by what authority
such facsimile signature or other endorsement actually is affixed, without duty
of inquiry or responsibility as to such matters, and Grantor hereby expressly
waives demand, presentment, protest and notice of protest or dishonor and all
other notices of every kind and nature with respect to any such instrument.
7. Possession of Collateral by Secured Party. All the Collateral now,
-----------------------------------------
heretofore or hereafter delivered to Secured Party shall be held by Secured
Party in its possession, custody and control. Any or all of the Collateral
delivered to Secured Party may be held in an interest bearing or non-interest
bearing account, in Secured Party's sole and absolute discretion, and Secured
Party may, in its discretion, apply any such interest to payment of the Secured
Obligations. Nothing herein shall obligate Secured Party to invest any
Collateral or obtain any particular return thereon. Upon the occurrence and
during the continuance of an Event of Default, whenever any of the Collateral is
in Secured Party's possession, custody or control, Secured Party may use,
operate and consume the Collateral, whether for the purpose of preserving and/or
protecting the Collateral, or for the purpose of performing any of Grantor's
obligations with respect thereto, or otherwise. Secured Party may at any time
deliver or redeliver the Collateral or any part thereof to Grantor, and the
receipt of any of the same by any Grantor shall be complete and full acquittance
for the Collateral so delivered, and Secured Party thereafter shall be
discharged from any liability or responsibility therefor. So long as Secured
Party exercises reasonable care with respect to any Collateral in its
possession, custody or control, Secured Party shall have no liability for any
loss of or damage to such Collateral, and in no event shall Secured Party have
liability for any diminution in value of Collateral occasioned by economic or
market conditions or events. Secured Party shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the Collateral
in the possession, custody or control of Secured Party is accorded treatment
substantially equal to that which Secured Party accords its own property, it
being understood that Secured Party shall not have any responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Collateral, whether or not
Secured Party has or is deemed to have knowledge of such matters, or (b)
7
<PAGE>
taking any necessary steps to preserve rights against any person with respect to
any Collateral.
8. Events of Default. There shall be an Event of Default hereunder upon
-----------------
the occurrence and during the continuance of an Event of Default under the
Notes.
9. Rights Upon Event of Default. Upon the occurrence and during the
----------------------------
continuance of an Event of Default, Secured Party shall have, in any
jurisdiction where enforcement hereof is sought, in addition to all other rights
and remedies that Secured Party may have under applicable law or in equity or
under this Agreement (including, without limitation, all rights set forth in
---------
Section 6 hereof) or under the Notes, all rights and remedies of a secured party
---------
under the Uniform Commercial Code as enacted in any jurisdiction, and, in
addition, the following rights and remedies, all of which may be exercised with
or without notice to Grantor and without affecting the obligations of Grantor
hereunder or under any Notes, or the enforceability of the liens and security
interests created hereby: (a) to foreclose the liens and security interests
created hereunder or under any other agreement relating to any Collateral by any
available judicial procedure or without judicial process; (b) to enter any
premises where any Collateral may be located for the purpose of securing,
protecting, inventorying, appraising, inspecting, repairing, preserving,
storing, preparing, processing, taking possession of or removing the same; (c)
to sell, assign, lease or otherwise dispose of any Collateral or any part
thereof, either at public or private sale or at any broker's board, in lot or in
bulk, for cash, on credit or otherwise, with or without representations or
warranties and upon such terms as shall be acceptable to Secured Party; (d) to
notify obligors on the Collateral that the Collateral has been assigned to
Secured Party and that all payments thereon are to be made directly and
exclusively to Secured Party; (e) to collect by legal proceedings or otherwise
all dividends, distributions, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral; (f) to enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral, and in connection therewith
Secured Party may deposit or surrender control of the Collateral and/or accept
other property in exchange for the Collateral; (g) to settle, compromise or
release, on terms acceptable to Secured Party, in whole or in part, any amounts
owing on the Collateral and/or any disputes with respect thereto; (h) to extend
the time of payment, make allowances and adjustments and issue credits in
connection with the Collateral in the name of Secured Party or in the name of
Grantor; (i) to enforce payment and prosecute any action or proceeding with
respect to any or all of the Collateral and take or bring, in the name of
Secured Party or in the name of Grantor, any and all steps, actions, suits or
proceedings deemed by Secured Party necessary or desirable to effect collection
of or to realize upon the Collateral, including any judicial or nonjudicial
---------
foreclosure thereof or thereon, and Grantor specifically consents to any
nonjudicial foreclosure of any or all of
8
<PAGE>
the Collateral or any other action taken by Secured Party which may release any
obligor from personal liability on any of the Collateral, and Grantor waives any
right not expressly provided for in this Agreement to receive notice of any
public or private judicial or nonjudicial sale or foreclosure of any security or
any of the Collateral; and any money or other property received by Secured Party
in exchange for or on account of the Collateral, whether representing
collections or proceeds of Collateral, and whether resulting from voluntary
payments or foreclosure proceedings or other legal action taken by Secured Party
or Grantor may be applied by Secured Party without notice to Grantor to the
Secured Obligations in such order and manner as Secured Party in its sole
discretion shall determine; (j) to insure, process and preserve the Collateral;
(k) to exercise all rights, remedies, powers or privileges provided under any of
the Notes; (l) to remove, from any premises where the same may be located, the
Collateral and any and all documents, instruments, files and records, and any
receptacles and cabinets containing the same, relating to the Collateral, and
Secured Party may, at the cost and expense of Grantor, use such of its supplies,
equipment, facilities and space at its places of business as may be necessary or
appropriate to properly administer, process, store, control, prepare for sale or
disposition and/or sell or dispose of the Collateral or to properly administer
and control the handling of collections and realizations thereon, and Secured
Party shall be deemed to have a rent-free tenancy of any premises of Grantor for
such purposes and for such periods of time as reasonably required by Secured
Party; (m) to receive, open and dispose of all mail addressed to Grantor and
notify postal authorities to change the address for delivery thereof to such
address as Secured Party may designate; provided that Secured Party agrees that
it will promptly deliver over to Grantor such opened mail as does not relate to
the Collateral; and (n) to exercise all other rights, powers, privileges and
remedies of an owner of the Collateral; all at Secured Party's sole option and
as Secured Party in its sole discretion may deem advisable. Grantor will, at
Secured Party's request, assemble the Collateral and make it available to
Secured Party at places which Secured Party may designate, whether at the
premises of Grantor or elsewhere, and will make available to Secured Party, free
of cost, all premises, equipment and facilities of Grantor for the purpose of
Secured Party's taking possession of the Collateral or storing same or removing
or putting the Collateral in salable form or selling or disposing of same.
Upon the occurrence and during the continuance of an Event of Default,
Secured Party also shall have the right, without notice or demand, either in
person, by agent or by a receiver to be appointed by a court (and Grantor hereby
expressly consents upon the occurrence and during the continuance of an Event of
Default to the appointment of such a receiver), and without regard to the
adequacy of any security for the Secured Obligations, to take possession of the
Collateral or any part thereof and to collect and receive the rents, issues,
profits, income and proceeds thereof. Taking possession of the Collateral shall
not cure or waive any Event of Default or notice thereof or invalidate any act
9
<PAGE>
done pursuant to such notice. The rights, remedies and powers of any receiver
appointed by a court shall be as ordered by said court.
Any public or private sale or other disposition of the Collateral may be
held at any office of Secured Party, or at Grantor's places of business, or at
any other place permitted by applicable law, and without the necessity of the
Collateral being within the view of prospective purchasers. Secured Party may
direct the order and manner of sale of the Collateral, or portions thereof, as
it in its sole and absolute discretion may determine, and Grantor expressly
waives any right to direct the order and manner of sale of any Collateral.
Secured Party or any person on Secured Party's behalf may bid and purchase at
any such sale or other disposition. The net cash proceeds resulting from the
collection, liquidation, sale, lease or other disposition of the Collateral
shall be applied, first, to the expenses (including reasonable attorneys' fees
and disbursements) of retaking, holding, storing, processing and preparing for
sale or lease, selling, leasing, collecting, liquidating and the like, and then
to the satisfaction of the Secured Obligations in such order as shall be
determined by Secured Party in its sole and absolute discretion. Grantor and
any other person then obligated therefor shall pay to Secured Party on demand
any deficiency with regard thereto which may remain after such sale,
disposition, collection or liquidation of the Collateral.
Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Secured Party
will send or otherwise make available to Grantor reasonable notice of the time
and place of any public sale thereof or of the time on or after which any
private sale thereof is to be made. The requirement of sending reasonable
notice conclusively shall be met if such notice is mailed, first class mail,
postage prepaid, to Grantor at its address set forth in Section 15, or delivered
----------
or otherwise sent to Grantor in accordance with the provisions of Section 15, at
----------
least five (5) days before the date of the sale. Grantor expressly waives any
right to receive notice of any public or private sale of any Collateral or other
security for the Secured Obligations except as expressly provided for in this
paragraph.
With respect to any Collateral consisting of securities, partnership
interests, joint venture interests, investments or the like, and whether or not
any of such Collateral has been effectively registered under the Securities Act
of 1933 or other applicable laws, Secured Party may, in its sole and absolute
discretion, sell all or any part of such Collateral at private sale in such
manner and under such circumstances as Secured Party may deem necessary or
advisable in order that the sale may be lawfully conducted. Without limiting
the foregoing, Secured Party may (i) approach and negotiate with a limited
number of potential purchasers, and (ii) restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing such
Collateral for their own account for investment and not with a view to the
10
<PAGE>
distribution or resale thereof. In the event that any such Collateral is sold
at private sale, Grantor agrees that if such Collateral is sold for a price
which Secured Party in good faith believes to be reasonable under the
circumstances then existing, then (a) the sale shall be deemed to be
commercially reasonable in all respects, (b) Grantor shall not be entitled to a
credit against the Secured Obligations in an amount in excess of the purchase
price, and (c) Secured Party shall not incur any liability or responsibility to
Grantor in connection therewith, notwithstanding the possibility that a
substantially higher price might have been realized at a public sale. Grantor
recognizes that a ready market may not exist for such Collateral if it is not
regularly traded on a recognized securities exchange, and that a sale by Secured
Party of any such Collateral for an amount substantially less than a pro rata
share of the fair market value of the issuer's assets minus liabilities may be
commercially reasonable in view of the difficulties that may be encountered in
attempting to sell a large amount of such Collateral or Collateral that is
privately traded.
Upon consummation of any sale of Collateral hereunder, Secured Party shall
have the right to assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each such purchaser at any such sale shall hold
the Collateral so sold absolutely free from any claim or right upon the part of
Grantor or any other person, and Grantor hereby waives (to the extent permitted
by applicable laws) all rights of redemption, stay and appraisal which it now
has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. If the sale of all or any part of the Collateral
is made on credit or for future delivery, Secured Party shall not be required to
apply any portion of the sale price to the Secured Obligations until such amount
actually is received by Secured Party, and any Collateral so sold may be
retained by Secured Party until the sale price is paid in full by the purchaser
or purchasers thereof. Secured Party shall not incur any liability in case any
such purchaser or purchasers shall fail to pay for the Collateral so sold, and,
in case of any such failure, the Collateral may be sold again.
10. Attorney-in-Fact. Grantor hereby irrevocably nominates and appoints
----------------
Secured Party as its attorney-in-fact for the following purposes: (a) to do all
acts and things which Secured Party may deem necessary or advisable to perfect
and continue perfected the security interest created by this Agreement and, upon
the occurrence and during the continuance of an Event of Default, to preserve,
process, develop, maintain and protect the Collateral; (b) upon the occurrence
and during the continuance of an Event of Default, to do any and every act which
Grantor is obligated to do under this Agreement, at the expense of Grantor and
without any obligation to do so; (c) to prepare, sign, file and/or record, for
Grantor, in the name of Grantor, any financing statement, application for
registration, or like paper, and to take any other action deemed by Secured
Party necessary or desirable in order to perfect or maintain perfected the
security interests granted hereby; and (d) upon the occurrence
11
<PAGE>
and during the continuance of an Event of Default, to execute any and all papers
and instruments and do all other things necessary or desirable to preserve and
protect the Collateral and to protect Secured Party's security interests
therein; provided, however, that Secured Party shall be under no obligation
whatsoever to take any of the foregoing actions, and, absent gross negligence or
willful misconduct, Secured Party shall have no liability or responsibility for
any act taken or omission with respect thereto.
11. Costs and Expenses. Grantor agrees to pay to Secured Party all
------------------
reasonable costs and expenses (including, without limitation, reasonable
---------
attorneys' fees and disbursements) incurred by Secured Party in the enforcement
or attempted enforcement of this Agreement, whether or not an action is filed in
connection therewith, and in connection with any waiver or amendment of any term
or provision hereof. All advances, charges, and reasonable costs and expenses,
including reasonable attorneys' fees and disbursements, incurred or paid by
---------
Secured Party in exercising any right, privilege, power or remedy conferred by
this Agreement (including, without limitation, the right to perform any Secured
---------
Obligation), or in the enforcement or attempted enforcement thereof, shall be
secured hereby and shall become a part of the Secured Obligations and shall be
paid to Secured Party by Grantor, immediately upon demand, together with
interest thereon at the rate(s) provided for in the Notes.
12. Subject to Intercreditor Provisions. Secured Party acknowledges and
-----------------------------------
agrees that its rights and remedies under Sections 5, 6, 7, 9 and 10 hereof are
---------- - - - --
subject to the terms of the Intercreditor Agreement.
13. Other Agreements. Nothing herein shall in any way modify or limit the
----------------
effect of terms or conditions set forth in any other security or other agreement
executed by Grantor or in connection with the Secured Obligations, but each and
every term and condition hereof shall be in addition thereto.
14. Severability. If any provision of this Agreement, including any
------------
phrase, sentence, clause, Section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
15. Notices. All notices, requests, demands, approvals, consents, waivers
-------
other communications required or permitted to be given under this Agreement
(each, a "Notice") shall be in writing and shall be (a) delivered personally,
------
(b) mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, (c) sent by next-day or overnight mail or delivery,
or (d) sent by facsimile transmission, provided such transmission is confirmed
mechanically.
12
<PAGE>
(i) if to Grantor, to:
Hollywood Rentals Production Services, LLC
3111 North Kenwood Street
Burbank, California 91505
Facsimile: (818) 525-5216
Attention: Anil Sharma
Carlos D. DeMattos
with a copy to:
McDermott, Will & Emery
2049 Century Park East
Los Angeles, California 90067-3208
Facsimile: (310) 277-4730
Attention: Eric Reimer, Esq.
(ii) if to Secured Party, to:
c/o Matthews Studio Equipment Group
3111 North Kenwood Street
Burbank, California 91505
Facsimile: (818) 525-5216
Attention: Miles Stover
with a copy to the Agent at such address as shall be
designated by the Agent to the parties hereto in compliance
with the requirements of this Section 15
----------
and with a copy to:
Holland & Knight LLP
633 West Fifth Street, Suite 2100
Los Angeles, California 90071
Facsimile: (213) 896-2450
Attention: Tasha D. Nguyen, Esq.
or, in each case, at such other address or facsimile number as may be specified
in a Notice to the other party hereto. All Notices sent in accordance with this
Section shall be deemed effective and given (A) upon delivery if personally
delivered, (B) on the third day following deposit in the mail, if mailed, (C) on
the next Business Day if sent by next-day or overnight mail or delivery, and (D)
on the day of transmission, if sent by facsimile transmission.
13
<PAGE>
16. Headings. The headings contained in this Agreement are for purposes
--------
of convenience only and shall not affect the meaning or interpretation of this
Agreement.
17. Entire Agreement. This Agreement (including the schedules and
----------------
exhibits hereto), together with the Notes and the Asset Purchase Agreement,
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
18. Counterparts. This Agreement may be executed (including by facsimile
------------
transmission) with counterpart signature pages or in several counterparts, each
of which shall be deemed an original and all of which shall together constitute
one and the same instrument.
19. Governing Law, etc. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
------------------
INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF.
SECURED PARTY AND GRANTOR AGREE THAT ANY AND ALL ACTIONS TO INTERPRET OR ENFORCE
THE PROVISIONS OF THIS AGREEMENT AND ANY OTHER DOCUMENTS REFERRED TO IN THIS
AGREEMENT SHALL BE BROUGHT IN THE COURT, UNTIL SECURED PARTY'S CASES (AS SUCH
TERM IS DEFINED IN THE ASSET PURCHASE AGREEMENT) ARE CLOSED OR DISMISSED, AND
THEREAFTER IN THE COURTS OF THE STATE OF CALIFORNIA OR THE FEDERAL COURTS OF THE
UNITED STATES OF AMERICA LOCATED IN LOS ANGELES, CALIFORNIA. EACH PARTY HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND IRREVOCABLY WAIVES,
AND AGREES NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE
INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT OR SUCH OTHER DOCUMENT THAT IT
IS NOT SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE
BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT
BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH OTHER DOCUMENT MAY NOT BE
ENFORCED IN OR BY SAID COURTS. SECURED PARTY AND GRANTOR HEREBY CONSENTS TO AND
GRANTS ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE
SUBJECT MATTER OF ANY SUCH DISPUTE AND AGREES THAT MAILING OF PROCESS OR OTHER
PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED
IN SECTION 15, OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE
----------
VALID AND SUFFICIENT SERVICE THEREOF.
20. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
14
<PAGE>
21. Assignment. This Agreement shall not be assignable or otherwise
----------
transferable by Grantor without the prior written consent of Secured Party,
which Secured Party may withhold in its sole discretion. Secured Party shall
have the right to assign this Agreement or any portion thereof to any person in
accordance with the terms of the Notes (including, but not limited to, the
requirement for an administrative and collateral agent contained in the Notes).
22. Amendment; Waivers, etc. No discharge of this Agreement, and no
-----------------------
waiver hereunder, shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the discharge or waiver is
sought. Any such waiver shall constitute a waiver only with respect to the
specific matter described in such writing and shall in no way impair the rights
of the party granting such waiver in any other respect or at any other time.
Neither the waiver by any of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure by any of the
parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed as
a waiver of any other breach or default of a similar nature, or as a waiver of
any of such provisions, rights or privileges hereunder. No amendment or
modification of this Agreement shall be effective unless in a writing executed
by all the parties hereto.
23. Joint and Several. The rights and obligations of the persons
-----------------
constituting the Secured Party hereunder are the joint and several rights and
obligations of such persons. The benefits, remedies and rights provided or
intended to be provided hereby for the Secured Party may be exercised jointly or
separately by the Secured Party acting collectively, if there is more than one
Secured Party, or through the Agent.
24. Confidentiality Treatment. Secured Party and the Agent, if applicable
-------------------------
(collectively, the "Recipients") shall hold in strict confidence any
----------
confidential or proprietary information regarding Grantor that is furnished to
the Recipients pursuant to this Agreement. Notwithstanding the foregoing, each
Recipient may disclose such information (a) if such Recipient is required to
disclose the same pursuant to proceedings before the Court (as defined in the
Asset Purchase Agreement) or pursuant to the Bankruptcy Code (as defined in the
Asset Purchase Agreement), (b) if such Recipient is compelled to disclose the
same by other judicial or administrative process or by other requirements of
Law, as such term is defined in the Asset Purchase Agreement (but subject to the
following provisions of this Section 24), (c) if the same hereafter is in the
----------
public domain through no fault of any Recipient, or (d) if the same is later
acquired by any Recipient from another source and the acquiring Recipient is not
aware, after due inquiry, that such source is under an obligation to another
person to keep such information confidential. If a Recipient is requested or
required as described in Section 24(b) above (by oral questions,
-------------
interrogatories, requests for information or documents in legal proceedings,
subpoena, civil
15
<PAGE>
investigative demand, rule of civil procedure or other similar process) to
disclose any such information, such Recipient shall provide Grantor with prompt
written notice of any such request or requirement so that Grantor may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Section. If, in the absence of a protective order or other
remedy or the receipt of a waiver by Grantor, such Recipient nonetheless, based
on the written advice of counsel, is required to disclose such information to
any tribunal or else stand liable for contempt or suffer other censure or
penalty, such Recipient, without liability hereunder, may disclose that portion
of such information which such counsel advises such Recipient it is legally
required to disclose. Nothing in this Section 24 shall limit the right of the
----------
Recipients to use or disclose any such information in connection with any legal
action arising out of or in connection with this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MATTHEWS STUDIO EQUIPMENT GROUP
By:_________________________________
Name:_______________________________
Title:______________________________
HOLLYWOOD RENTAL COMPANY, LLC
By:_________________________________
Name:_______________________________
Title:______________________________
MATTHEWS STUDIO SALES, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
HDI HOLDINGS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
HOLLYWOOD RENTALS PRODUCTION
SERVICES, LLC
By:_________________________________
Name:_______________________________
Title:______________________________
17
<PAGE>
EXHIBIT D
SUBORDINATION AGREEMENT
-----------------------
THIS SUBORDINATION AGREEMENT (the "Agreement") is made and dated as of the
__ day of January, 2001 by and between MATTHEWS STUDIO EQUIPMENT GROUP, a
California corporation ("Matthews"), HOLLYWOOD RENTAL COMPANY, LLC, a Delaware
limited liability company ("HRC"), HDI HOLDINGS, INC., a Kentucky corporation
("HDI"), MATTHEWS STUDIO SALES, INC, a California corporation ("MSS" and,
together with Matthews, HRC and HDI, collectively, the "Sellers" and,
individually, a "Seller") and SANWA BANK CALIFORNIA, a California banking
corporation (the "Lender").
A. The Sellers have agreed to sell, assign, transfer and convey to
HOLLYWOOD RENTALS PRODUCTION SERVICES, LLC, a California limited liability
company (the "Buyer") certain assets and liabilities pursuant to the terms of an
Asset Purchase Agreement dated as of December __, 2000 (the "APA") among the
Sellers and the Buyer.
B. Pursuant to Section 2.3 of the APA, the Buyer has agreed to make a
Cash Payment (as defined therein) to the Sellers and to deliver Notes (as
defined therein) in the aggregate principal amount of $4,000,000.
C. Pursuant to a Credit Agreement dated as of _____________ (as amended,
modified or waived from time to time, the "Credit Agreement") between the Lender
and the Buyer, the Lender has agreed to extend financial accommodations to the
Buyer in connection with the APA.
D. Among the terms and conditions contained in the Credit Agreement is
the requirement that the obligations in respect of the Notes be subordinated to
the obligations under the Credit Agreement on the terms and conditions contained
in this Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
---------
1. Definitions. For purposes of this Agreement, the terms set forth
-----------
below shall have the following meanings:
"GAAP" means generally accepted accounting principles in the United
----
States of America in effect from time to time.
"Guarantors" means RP, Jules & Associates, Inc., a California
----------
corporation, and CDM Interactive, Inc., a California corporation.
"Holder" means the person who owns Indebtedness. As of the date of
------
this Agreement, the Holders of Subordinated Indebtedness are the Sellers.
"Indebtedness" of any Person means all items of indebtedness which, in
------------
accordance with GAAP and industry practices, would be included in determining
liabilities as shown on the liability side of a balance sheet of such Person as
of the date as of which indebtedness is to be determined, including, without
limitation, all obligations for money borrowed and capitalized lease
obligations, and shall also include all indebtedness and liabilities
<PAGE>
of any other Person assumed or guaranteed by such Person or in respect of which
such Person is secondarily or contingently liable (other than by endorsement of
instruments in the course of collection) whether by reason of any agreement to
acquire such indebtedness or to supply or advance sums or otherwise.
"Lien" shall mean any security interest, mortgage, pledge, privilege,
----
lien, claim on property, charge or encumbrance (including any conditional sale
or other title retention agreement), any lease in the nature thereof, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction.
"Loan Party" shall mean any one of the Buyer or any Guarantor.
----------
"Paid in full" means, in respect of Senior Indebtedness, that the
------------
Lender shall have indefeasibly received payment in full, in cash, of all Senior
Indebtedness.
"Person" means any corporation, natural person, firm, joint venture,
------
partnership, trust, unincorporated organization, government or any department or
agency of any government.
"RP" means RP Holdings, Inc., a California corporation, and Raleigh
--
Operating, L.P., a __________limited partnership, jointly and severally.
"Senior Indebtedness" means the principal amount of Indebtedness of
-------------------
the Loan Parties under the Credit Agreement and the other Senior Loan Documents
together with related interest, fees, and expenses thereunder. Unless otherwise
agreed in writing by the Holders of the Subordinated Indebtedness, "Senior
Indebtedness" shall not include (i) the principal amount of any Indebtedness
payable by the Buyer under the Credit Agreement in excess of $14,000,000 or
interest thereon, (ii) the principal amount of any Indebtedness payable by any
Guarantor under his or its Guaranty (as defined in the Credit Agreement) in
excess of $2,500,000 (or $7,500,000 in the aggregate for three Guarantors), as
such amount may be reduced from time to time in accordance with the terms of
such Guaranty, or (iii) the principal amount of any Indebtedness that, in
accordance with the terms of the Credit Agreement, is payable by the Buyer
(without giving rise to a Potential Default or Event of Default) more than five
(5) years from the date of this Agreement.
"Senior Loan Documents" means the Credit Agreement and each other Loan
---------------------
Document (as defined in the Credit Agreement).
"Subordinated Indebtedness" means all Indebtedness of the Loan Parties
-------------------------
under the Notes and the other Subordinated Documents.
"Subordinated Documents" means the Notes, that certain Security
----------------------
Agreement dated as of January __, 2001 from the Buyer in favor of the Sellers
and any Holders of the Notes, a Guaranty dated as of January __, 2001 from
Guarantors in favor of the Sellers and any Holders of the Notes for a maximum
amount, in the aggregate for all Guarantors; of One Million Dollars plus
collection costs, and each other document, instrument or agreement executed in
connection therewith but not including the APA (except to the extent that the
APA gives to the Sellers or any Holders of the Notes rights or remedies on
account of the Subordinated Indebtedness evidenced by the Notes).
2. Subordination.
-------------
2
<PAGE>
2(a) Subordination of Indebtedness. Each Seller for itself and its
-----------------------------
successors and assigns and for each Holder of Subordinated Indebtedness, by
acceptance of Subordinated Indebtedness, agrees that the payment of the
Subordinated Indebtedness is subordinated to the extent and in the manner
provided in this Agreement to the prior payment in full of all Senior
Indebtedness.
2(b) Subordination of Liens. The Liens of the Subordinated
----------------------
Documents are and shall at all times remain subject and subordinate in all
respects to the Liens of the Senior Loan Documents irrespective of the time or
date of execution, delivery, recording, filing or perfection thereof.
2(c) Continuing Effect of Subordination. This Agreement shall
----------------------------------
constitute a continuing offer to all Persons who, in reliance upon the
provisions of this Agreement, become Holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the Holders of
Senior Indebtedness, and any one or more thereof may enforce the provisions
hereof.
2(d) Subordination Legend. In confirmation, and not as a
--------------------
condition, of the subordination of the Subordinated Indebtedness and the
Subordinated Documents, the Holders of Subordinated Indebtedness shall place on
or attach to, or cause to be placed or attached to, each Note (including any
replacement, substitute or new Note) the following notice:
"The rights of the holder of this Note to payment of any of the
indebtedness evidenced hereby or related hereto is and shall at all times be
subordinate to the right of the Holders of Senior Indebtedness in accordance
with, and as such terms are defined in, that certain Subordination Agreement
dated as of January __, 2001 among MATTHEWS STUDIO EQUIPMENT GROUP, a California
corporation, HOLLYWOOD RENTAL COMPANY, LLC, a Delaware limited liability
company, HDI HOLDINGS, INC., a Kentucky corporation, MATTHEWS STUDIO SALES,
INC., a California corporation, and SANWA BANK CALIFORNIA, a California banking
corporation."
3. Limitations on Payment of Subordinated Indebtedness.
---------------------------------------------------
3(a) Prior to Maturity or Default on Senior Indebtedness. So long
---------------------------------------------------
as (1) any Senior Indebtedness shall remain outstanding and (2) immediately
before and after any proposed payment such payment otherwise would be permitted
under this Agreement, the Holders of Subordinated Indebtedness shall be entitled
to receive and retain for their own account payments made in accordance with the
terms of the Notes (i) on account of interest (which, in the case of prepayment,
shall be due and payable not more than ten (10) days after the date of payment)
on the Subordinated Indebtedness and (ii) $58,333.33 per month beginning January
31, 2004. Except as otherwise provided herein, so long as any Senior
Indebtedness payable by any Loan Party shall remain outstanding, the Holders of
Subordinated Indebtedness shall not be entitled to receive or retain for their
own account payments made on account of principal on or for any other amounts
payable in respect of the Subordinated Indebtedness payable by such Loan Party.
3(b) Maturity of Senior Indebtedness. Upon the maturity of the
-------------------------------
Senior Indebtedness by lapse of time, acceleration or otherwise, all Senior
Indebtedness of each Loan Party shall first be paid in full before any payment
of any Subordinated Indebtedness payable by any such Loan Party may be made, and
no Holder of Subordinated Indebtedness payable by any Loan Party shall take or
receive, directly or indirectly, payment of all or any of the Subordinated
Indebtedness payable by such Loan Party.
3(c) Financial Defaults. Upon the occurrence and during the
------------------
continuance of a Potential Default or Event of Default under (and as each such
term is defined in) the Credit Agreement as a result of failure of the Holders
of Senior Indebtedness to receive a payment when
3
<PAGE>
due ("Payment Default") or a default under Paragraph 7(e) of the Credit
Agreement (a "Financial Covenant Default" and, collectively, with a Payment
Default, the "Financial Defaults"), then, unless and until such Financial
Default shall have been cured (which cure in the case of a default under
Paragraph 7(e) shall have been in effect for at least two consecutive fiscal
quarters) or waived in writing by the Lender, no payment shall be made for or on
account of the Subordinated Indebtedness and no Holder of Subordinated
Indebtedness shall take or receive, directly or indirectly, in cash or other
property or by set-off or in any other manner (including, without limitation,
from or by way of collateral) payment of all or any of the Subordinated
Indebtedness
3(d) Non-Financial Defaults. Upon the occurrence and during the
----------------------
continuance of any Potential Default or Event of Default under (and as each such
term is defined in) the Credit Agreement not arising as a result of a Financial
Default (a "Non-Financial Default"), then upon written notice ("Non-Financial
Default Notice") thereof given to the Buyer by the Lender, no payment shall be
made for or on account of any Subordinated Indebtedness, and no Holder of
Subordinated Indebtedness shall take or receive, directly or indirectly, in cash
or other property or by set-off or in any other manner (including, without
limitation, from or by way of collateral) payment of all or any of the
Subordinated Indebtedness, unless and until such Non-Financial Default shall
have been cured or waived by the Lender; provided, however, that this Paragraph
3(d) shall not prevent the making of any payment for more than 180 days after
the Non-Financial Default Notice shall have been given unless the Senior
Indebtedness has been declared due and payable in its entirety, in which case no
payment may be made or received on the Subordinated Indebtedness until such
acceleration has been rescinded or annulled. No more than one (1) Non-Financial
Default Notices may be given in any twelve month period; provided, however, that
no Potential Default or Event of Default which existed or was continuing on the
date of a Non-Financial Default Notice shall be made the basis for the giving of
a subsequent Non-Financial Default Notice unless all such initial Potential
Defaults or Events of Default first has been cured or waived.
3(e) Payments Made in Violation Hereof. If, notwithstanding the
---------------------------------
foregoing provisions of this Paragraph 3, any payment for or on account of the
Subordinated Indebtedness shall be made at any time when such payment was
prohibited by the provisions of this Agreement, then, unless and until such
payment is no longer prohibited by this Agreement, such payment shall be held in
trust by the Holder of Subordinated Indebtedness receiving such payment for the
benefit of and shall be immediately paid over to, the Lender.
3(f) Exercise of rights or remedies by Holders of Subordinated
---------------------------------------------------------
Indebtedness. In furtherance of the provisions of this Agreement, the Sellers
------------
and Holders of Subordinated Indebtedness agree, without the prior written
consent of the Lender, not to exercise any right or remedy against the Buyer or
any Guarantor or property of the Buyer or any Guarantor and not to set-off or in
any other manner (including, without limitation, from or by way of collateral)
seek payment of Subordinated Indebtedness or Senior Indebtedness except as
specifically permitted by this Agreement.
4. Insolvency, Etc. Upon any distribution of assets of a Loan Party or
---------------
upon any dissolution, winding up, liquidation, reorganization, or marshalling of
assets of a Loan Party (whether in bankruptcy, insolvency or receivership
proceedings or upon any assignment for the benefit of creditors or otherwise):
4(a) Lender to be Paid In Full. The Holders of the Senior
-------------------------
Indebtedness shall first be entitled to receive payment in full of Senior
Indebtedness payable by such Loan Party before the Holders of Subordinated
Indebtedness payable by such Loan Party are entitled to receive any payment on
account of the Subordinated Indebtedness.
4
<PAGE>
4(b) Payments Payable on Account of Subordinated Indebtedness.
--------------------------------------------------------
Any payment or distribution of assets of any kind or character, whether in cash,
property or securities, to which the Holders of Subordinated Indebtedness
payable by such Loan Party would be entitled except for the provisions of this
Paragraph 4, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of such Loan
Party being subordinated to the payment of the Subordinated Indebtedness, shall
be paid by the liquidating trustee or agent or other person making such a
payment or distribution, directly to the Lender, to the extent necessary to make
payment in full of all Senior Indebtedness payable by such Loan Party remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness.
4(c) Payments Received on Account of Subordinated Indebtedness.
---------------------------------------------------------
In the event that, notwithstanding the foregoing, any payment or distribution of
assets of any kind or character, whether in cash, property or securities, shall
be received by the Holders of Subordinated Indebtedness for or on account of any
Subordinated Indebtedness payable by such Loan Party before all Senior
Indebtedness payable by such Loan Party is paid in full, such payment or
distribution shall be received and held in trust for and shall be paid over to
the Lender for application to the payment of such Senior Indebtedness payable by
such Loan Party until all such Senior Indebtedness shall have been paid in full
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness.
4(d) Enforcement by the Lender, Etc.
------------------------------
(1) Each Holder of Subordinated Indebtedness, by acceptance
of Subordinated Indebtedness, authorizes and expressly directs the Lender
on his behalf to take such action as may be reasonably necessary or
appropriate to effectuate the subordination provided in this Paragraph 4
and appoints the Lender his attorney-in-fact for such purpose, including,
in the event of any dissolution, winding up, liquidation, reorganization,
or marshalling of assets, of any Loan Party (whether in bankruptcy,
insolvency or receivership proceedings or upon a general assignment for the
benefit of creditors or otherwise), the immediate filing of a claim for the
unpaid balance of Subordinated Indebtedness payable by the relevant Loan
Party in the form required in said proceedings and causing said claim to be
approved.
(2) Without limiting the provisions of subparagraph 4(d)(1)
above, the Lender is hereby irrevocably authorized and empowered (in its
own name or in the name of the Holder of Subordinated Indebtedness or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution on account of Subordinated
Indebtedness payable by the relevant Loan Party and give acquittance
therefor and to file claims and proofs of claim and take such other action
(including without limitation voting the Subordinated Indebtedness or
enforcing any security interest or other lien securing payment of the
Subordinated Indebtedness) as it may deem reasonably necessary or advisable
for the exercise or enforcement of any of the rights or interests of the
Holders of Subordinated Indebtedness or the Lender.
(3) The Holders of Subordinated Indebtedness shall duly and
promptly take such action as the Lender may reasonably request (i) to
collect the Subordinated Indebtedness payable by the relevant Loan Party
for the account of the Holders of the Senior Indebtedness and to file
appropriate claims or proof of claim in respect of such Subordinated
Indebtedness, (ii) to execute and deliver to the Lender such powers of
attorney, assignments or other instruments as it may reasonably request in
order to enable it to enforce any and all claims with respect to, and any
security interests and other liens securing payment of, such Subordinated
Indebtedness, and (iii) to collect
5
<PAGE>
and receive any and all payments or distributions that may be payable or
deliverable upon or with respect to such Subordinated Indebtedness.
(4) The Lender is hereby authorized to demand specific
performance of the provisions of this Paragraph 4, whether or not any Loan
Party shall have complied with any of the provisions hereof applicable to
it. The Holders of Subordinated Indebtedness hereby irrevocably waive any
defense based on the adequacy of a remedy at law that might be asserted as
a bar to any remedy of specific performance exercised by the Lender. The
Holders of Subordinated Indebtedness hereby irrevocably waive any defense
based on the adequacy of a remedy at law that might be asserted as a bar to
any remedy of specific performance exercised by the Lender. The Holders of
Subordinated Indebtedness hereby acknowledge that the provisions of this
Paragraph 4 are intended to be enforceable at all times, whether before or
after the commencement of a proceeding referred to in this Paragraph 4.
(5) Until the Senior Indebtedness payable by any Loan Party
has been finally paid in full, unless otherwise directed by the Lender, no
Holder of Subordinated Indebtedness of such Loan Party shall (i) by
declaration, accelerate the maturity of or demand payment on the
Subordinated Indebtedness of such Loan Party, or (ii) commence any judicial
action or proceeding to collect the payment of any Subordinated
Indebtedness of such Loan Party.
5. Additional Representations and Covenants of the Holders of
----------------------------------------------------------
Subordinated Indebtedness. Each Holder of Subordinated Indebtedness (a)
-------------------------
represents and warrants to the Holders of Senior Indebtedness as of the date of
this Agreement that the Subordinated Documents have not been amended, modified
or waived and, to the knowledge of the Holders of Subordinated Indebtedness, no
default on the part of any Loan Party has occurred thereunder; (b) without the
prior written consent of the Holders of the Senior Indebtedness, agrees not to
amend, modify or waive any term of any Subordinated Document or to increase the
Subordinated Indebtedness; and (c) agrees to deliver to the Holder of Senior
Indebtedness a copy of any notice to or from any Loan Party relating to a
default under the Subordinated Indebtedness.
6. Miscellaneous.
-------------
6(a) Further Assurances. The Holders of Subordinated Indebtedness
------------------
at any time and from time to time shall promptly execute and deliver all further
instruments and documents, and take all further action, that may be reasonably
necessary or desirable, or that the Lender may reasonably request, in order to
protect any right or interest granted or purported to be granted by the
provisions of this Agreement or to enable the Holders of Senior Indebtedness to
exercise and enforce its rights and remedies hereunder.
6(b) Subordination Unaffected by Actions. All rights and interests
-----------------------------------
under this Agreement of the Holders of Senior Indebtedness, and all agreements
and obligations of the Holder of Subordinated Indebtedness under this Agreement
shall remain in full force and effect irrespective of:
(1) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Senior Indebtedness, or any other
amendment or waiver of or any consent to departure from the Credit
Agreement, any Loan Document or the Senior Indebtedness;
(2) any exchange, release or any release or amendment or
waiver of or consent to departure from any guaranty, for all or any of the
Senior Indebtedness.
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<PAGE>
6(c) Continuance of Effectiveness Upon Rescission, etc. The
-------------------------------------------------
provisions of this Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by the Lender or any Holder of Senior
Indebtedness upon the insolvency, bankruptcy or reorganization of any Loan Party
or otherwise, all as though such payment had not been made.
6(d) Waivers by Holders of Subordinated Indebtedness. The
-----------------------------------------------
Holders of Subordinated Indebtedness and the Loan Parties each hereby waive
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Senior Indebtedness and this Agreement and any requirement that the
Holders of Senior Indebtedness protect, secure, or insure any security interest
or lien or any property subject thereto or exhaust any right or take any action
against any Loan Party or any other Person or any collateral. The Holders of
Subordinated Indebtedness each hereby waives and relinquishes any duty on the
part of the Holders of Senior Indebtedness to disclose any matter, fact or thing
relating to the business, operations or condition of any Loan Party now known or
hereafter known by the Lender. The Holders of Subordinated Indebtedness agree
that the Lender, in its discretion, without notice or demand and without
affecting the rights of the Holders of Senior Indebtedness or the duties of the
Holders of Subordinated Indebtedness under this Agreement may foreclose any deed
of trust or mortgage covering interests in real property, and the interests in
real property secured thereby, by nonjudicial sale; and the Holders of
Subordinated Indebtedness each hereby waives any defense to the rights of the
Holders of the Senior Indebtedness against the Holders of Subordinated
Indebtedness under this Agreement after a nonjudicial sale and the Holders of
Subordinated Indebtedness each expressly waives any defense or benefits that may
be derived from California Code of Civil Procedure Sections 580a, 580d or 726 or
any similar statute in effect in any other jurisdiction. Without limiting the
foregoing, the Holders of Subordinated Indebtedness each waives any defense
arising out of any such nonjudicial sale even though such sale operates to
impair or extinguish any right of reimbursement or subrogation or any other
right or remedy of the Holders of Subordinated Indebtedness against the Buyer,
any Guarantor or any collateral security. No failure on the part of the Holders
of Senior Indebtedness to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.
6(e) Amend; No Waiver. This Agreement may not be amended or
----------------
terms or provisions hereof waived unless such amendment or waiver is in writing
and signed by the Lender and the Holders of the Subordinated Indebtedness of
which the Lender has been notified.
6(f) Cumulative Rights. The rights, powers and remedies of the
-----------------
Lender hereunder are cumulative and in addition to all rights, power and
remedies provided under any and all agreements between the Holders of the Senior
Indebtedness and the Holders of Subordinated Indebtedness relating hereto, at
law, in equity or otherwise.
6(g) Entire Agreement. This Agreement and the documents and
----------------
agreements referred to herein embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and understandings
relating to the subject matter hereof and thereof.
6(h) Survival. All representations, warranties, covenants and
--------
agreements herein contained on the part of the Holders of Subordinated
Indebtedness shall survive the termination of this Agreement and shall be
effective until the Senior Indebtedness is paid and performed in full or longer
as expressly provided herein.
7
<PAGE>
6(i) Notices. All notices, consents, requests and demands to or
-------
upon the respective parties hereto shall be:
(1) in writing and delivered in person or transmitted by
overnight courier, telex, telecopy, facsimile, or certified or registered
U.S. mail, postage prepaid, return receipt requested;
(2) shall be deemed to have been given or made (i) if
delivered in person on a Business Day (a day other than a Saturday, a
Sunday or a day on which banks in Los Angeles, California are authorized or
obligated to close their regular banking business during normal business
hours of the recipient, then on the date of receipt and, otherwise, on the
next succeeding Business Day; (ii) if delivered by overnight courier
service, on the Business Day next succeeding the day of sending; (iii) if
delivered by telex, telecopy, or facsimile, during normal business hours of
the recipient, then on the date sent and, otherwise, on the next succeeding
Business Day; and (iv) if delivered by U.S. mail, on the third Business Day
after deposit in a regular depository of the United States mail; and
(3) addressed as follows or such other address as either party
may designate by notice to the other in accordance with the terms of this
Paragraph 6(i).
(a) if to the Lender:
Sanwa Bank California
Sherman Oaks Commercial Banking Center
15165 Ventura Boulevard, Suite 445
Sherman Oaks, CA 91403
Attention: Manager
Facsimile: (818) 905-1002
(b) if to the Sellers or any of them:
c/o Matthews Studio Equipment Group
3111 North Kenwood Street
Burbank, CA 91505
Attention: Miles Stover
Facsimile: 818-525-5216
with a copy to:
Holland & Knight LLP
633 West Fifth Street, Suite 2100
Loa Angeles, CA 90071
Attention: Tasha D. Nguyen, Esq.
Facsimile: 213-896-2450
6(j) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, without giving
effect to choice of law rules.
6(k) Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
8
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP
By:__________________________________
Name:________________________________
Title:_________________________________
HOLLYWOOD RENTAL COMPANY, LLC
By:__________________________________
Name:________________________________
Title:_________________________________
MATTHEWS STUDIO SALES, INC.
By:__________________________________
Name:________________________________
Title:_________________________________
HDI HOLDINGS, INC.
By:__________________________________
Name:________________________________
Title:_________________________________
SANWA BANK CALIFORNIA
By:__________________________________
Name:________________________________
Title:_________________________________
THE UNDERSIGNED LOAN PARTY CONSENTS
TO THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE FOREGOING
SUBORDINATION AGREEMENT THIS
__ DAY OF JANUARY, 2001
HOLLYWOOD RENTALS PRODUCTION SERVICES, LLC, Buyer
By:__________________________________
Name:________________________________
Title:_________________________________
9
<PAGE>
RP HOLDINGS, INC., Guarantor
By:___________________________________
Name:________________________________
Title:____________________________________
RALEIGH OPERATING, L.P.
By:___________________________________
Name:_________________________________
Title:__________________________________
JULES & ASSOCIATES, INC., Guarantor
By:______________________________________
Name:____________________________________
Title:_____________________________________
CDM INTERACTIVE, INC., Guarantor
By:_______________________________________
Name:_____________________________________
Title:______________________________________
10
