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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): JANUARY 31, 1997
PLATINUM ENTERTAINMENT, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-27852 36-3802328
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(State or Other Jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2001 Butterfield Road, Downers Grove, Illinois 60515
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (630) 769-0033
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 31, 1997, a subsidiary of the Registrant purchased
substantially all of the assets of Intersound, Inc. ("Intersound") for
consideration of $24,000,000 in cash, $5,000,000 in convertible promissory notes
and the assumption of certain liabilities. The convertible notes mature on
January 31, 2004, bear interest at the seven-year Treasury rate plus one percent
per annum (currently 6 7/8%) and are convertible at any time prior to maturity
into the Registrant's Common Stock, par value $.001 per share (the "Common
Stock"), at a conversion price of $9.80 per share, subject to adjustment as
provided in the notes. The holders of the notes were granted certain
registration rights with respect to the shares of Common Stock issuable upon
conversion. The cash consideration for the transaction was funded with a 90-day
term loan from certain banks (the "Lenders") for whom Bank of Montreal ("BMO")
is acting as agent.
On January 31, 1997, the Registrant and its subsidiaries entered into a
Credit Agreement with BMO, individually and as agent for the Lenders, pursuant
to which the Lenders agreed to provide a 90-day term loan in the amount of
$25,000,000 and a 90-day revolving credit facility in the amount of $10,000,000.
Proceeds of the term loan, together with approximately $2,900,000 borrowed under
the revolver, were used to finance the cash portion of the Intersound
consideration, to refinance certain bank debt incurred by Intersound and to pay
fees and expenses associated with the transaction. Borrowings under the Credit
Agreement bear interest at LIBOR plus 6% per annum and are secured by
substantially all of the assets of the Registrant and its subsidiaries. The
Credit Agreement contains financial and other covenants applicable to the
Registrant and its subsidiaries. Reference is made to the Credit Agreement,
which is included herein as an exhibit, for a description of such covenants.
Upon the signing of the Credit Agreement, the Registrant issued to BMO a
warrant to purchase 258,571.95 shares of Common Stock at an exercise price of
$.01 per share. The warrant expires on January 31, 2002 and is subject to
antidilution adjustment if, during the term of the Credit Agreement, the
Registrant issues shares of Common Stock and does not use the proceeds of such
issuance to pay borrowings under the Credit Agreement. The holder of the
warrant has been granted certain registration rights with respect to the shares
of Common Stock issuable upon exercise.
The Registrant is in the process of seeking long-term financing.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
a) Financial Statements.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the financial
statements required by this Item 7(a). In accordance with Item
7(a)(4) of Form 8-K, such financial statements shall be filed by
amendment as soon as practicable and in no event later than 60 days
after the filing date of this Report on Form 8-K.
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b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the pro forma financial
statements required by this Item 7(b). In accordance with Item
7(b) of Form 8-K, such pro forma financial statements shall be
filed by amendment as soon as practicable and in no event later
than 60 days after the filing date of this Report on Form 8-K.
c) Exhibits.
4.1 Registration Rights Agreement, dated as of January 31, 1997,
between Registrant and Intersound, Inc.
4.2 Convertible Promissory Note, dated January 31, 1997, issued
by the Registrant in the principal amount of $3,125,000.
4.3 Convertible Promissory Note, dated January 31, 1997, issued
by the Registrant in the principal amount of $1,875,000.
4.4 Warrant to Purchase Shares of Common Stock of the
Registrant, dated January 31, 1997.
10.1 Asset Purchase Agreement between River North Studios, Inc.
and Intersound, Inc., dated November 13, 1996. Incorporated
by reference to the Registrant's Report on Form 10-Q
filed with the Commission on January 14, 1997. Registrant
agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule.
10.2 First Amendment to Asset Purchase Agreement, dated January
31, 1997, between River North Studios, Inc. and Intersound,
Inc.
10.3 Employment Agreement of Don Johnson, dated February 1, 1997.
10.4 Credit Agreement, dated as of January 31, 1997, among the
Registrant, Bank of Montreal and the Banks who are or may
become parties thereto. Registrant agrees to furnish
supplementally to the Commission, upon request, a copy of
any omitted schedule.
10.5 Security Agreement, dated as of January 31, 1997, among the
Registrant, its subsidiaries and Bank of Montreal.
Registrant agrees to furnish supplementally to the
Commission, upon request, a copy of any omitted schedule.
10.6 Security Agreement re: Intellectual Property, dated as of
January 31, 1997, among the Registrant, its subsidiaries and
Bank of Montreal. Registrant agrees to furnish
supplementally to the Commission, upon request, a copy of
any omitted schedule.
10.7 Pledge Agreement, dated as of January 31, 1997, between the
Registrant and Bank of Montreal.
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10.8 Guaranty, dated as of January 31, 1997, made by Steven
Devick.
10.9 Term Credit Note, dated January 31, 1997, issued by the
Registrant in the principal amount of $25,000,000.
10.10 Revolving Credit Note, dated January 31, 1997, issued by the
Registrant in the principal amount of $10,000,000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PLATINUM ENTERTAINMENT, INC.
Dated: February 18, 1997 By: /s/ DOUGLAS C. LAUX
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Douglas C. Laux
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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4.1 Registration Rights Agreement, dated as of January 31, 1997, between
Registrant and Intersound, Inc.
4.2 Convertible Promissory Note, dated January 31, 1997, issued by the
Registrant in the principal amount of $3,125,000.
4.3 Convertible Promissory Note, dated January 31, 1997, issued by the
Registrant in the principal amount of $1,875,000.
4.4 Warrant to Purchase Shares of Common Stock of the Registrant, dated
January 31, 1997.
10.1 Asset Purchase Agreement between River North Studios, Inc. and Intersound,
Inc., dated November 13, 1996. Incorporated by reference to the
Registrant's Report on Form 10-Q filed with the Commission on
January 14, 1997. Registrant agrees to furnish supplementally to the
Commission, upon request, a copy of any omitted schedule.
10.2 First Amendment to Asset Purchase Agreement, dated January 31, 1997,
between River North Studios, Inc. and Intersound, Inc.
10.3 Employment Agreement of Don Johnson, dated February 1, 1997.
10.4 Credit Agreement, dated as of January 31, 1997, among the Registrant, Bank
of Montreal and the Banks who are parties thereto. Registrant agrees to
furnish supplementally to the Commission, upon request, a copy of any
omitted schedule.
10.5 Security Agreement, dated as of January 31, 1997, among the Registrant,
its subsidiaries and Bank of Montreal. Registrant agrees to furnish
supplementally to the Commission, upon request, a copy of any omitted
schedule.
10.6 Security Agreement re: Intellectual Property and dated as of January 31,
1997, among the Registrant, its subsidiaries and Bank of Montreal.
Registrant agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule.
10.7 Pledge Agreement, dated as of January 31, 1997, among the Registrant and
Bank of Montreal.
10.8 Guaranty, dated as of January 31, 1997, made by Steven Devick.
10.9 Term Credit Note, dated January 31, 1997, issued by the Registrant in
the principal amount of $25,000,000.
10.10 Revolving Credit Note, dated January 31, 1997, issued by the
Registrant in the principal amount of $10,000,000.
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Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January 31,
1997, by and between Intersound, Inc., a Minnesota corporation ("Intersound")
and PLATINUM ENTERTAINMENT, INC., a Delaware corporation (the "Company").
WHEREAS, concurrent with the execution hereof, River North Studios, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company ("RNS"), is
acquiring substantially all of the assets and business of Intersound pursuant to
that certain Asset Purchase Agreement, dated November 13, 1996, by and between
RNS and Intersound, as amended on January 31, 1997 (the "Purchase Agreement");
WHEREAS, in connection with the transactions contemplated by the Purchase
Agreement, Intersound is receiving $5,000,000 in the form of a convertible
promissory note issued by the Company (the "Convertible Note") which are
convertible into shares of common stock, $.001 par value per share, of the
Company (the "Common Stock"); and
WHEREAS, in order to induce Intersound to consummate the transactions
contemplated by the Purchase Agreement, the Company has agreed to grant it with
certain registration rights of the Common Stock, upon conversion of the
Convertible Note, on the terms and conditions set forth herein.
NOW, THEREFORE, upon the premises and the mutual promises herein contained,
and for good and valuable consideration, the receipt and adequacy of which is
acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement the following
initially capitalized terms shall have the following meanings:
PERSON: An individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, business, governmental agency or
governmental or political subdivision thereof.
REGISTRABLE SECURITIES: The Common Stock and any stock or other securities
into which such Common Stock shall have hereafter been changed, converted or
exchanged by Intersound in connection with the conversion of the Convertible
Note; PROVIDED, HOWEVER, that any such securities shall cease to be Registrable
Securities with respect to a proposed offer or sale thereof (i) when a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with the plan of distribution set forth in such
registration statement (ii) to the extent that such securities, in the opinion
of counsel to Intersound are permitted to be distributed pursuant to Rule 144 or
(iii) they shall have ceased to be outstanding.
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REGISTRATION EXPENSES: As defined in Section 2.8 of this Agreement.
RULE 144: Rule 144 promulgated under the Securities Act, or any successor
rule to similar effect.
SEC: The United States Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, or any successor
statute.
TERMINATION DATE: The date which is the earlier of (i) the fifth
anniversary of the date hereof and (ii) the date Intersound no longer hold any
Registrable Securities.
2. REGISTRATION UNDER SECURITIES ACT.
2.1 DEMAND REGISTRATION.
a. REQUEST. Subject to the terms of this Agreement, Intersound may
request, in writing, registration of all or part of its Registrable Securities
by the Company under the Securities Act, specifying the number of Registrable
Securities to be registered and the intended method of disposition thereof.
Upon receipt of such written request, the Company will use all commercially
reasonable efforts to effect the registration under the Securities Act of the
Registrable Securities which the Company has been requested to register by
Intersound; provided, however, Intersound shall not be entitled to have its
Registrable Securities registered pursuant to this Section 2.1(a) if it has
previously had the opportunity to exercise its right to incidental registration
under Section 2.2, in which case all rights under this Section 2.1(a) shall be
deemed terminated and of no further force and effect.
b. REGISTRATION OF OTHER SECURITIES. Whenever the Company shall
effect a registration pursuant to this Section 2.1, securities other than
Registrable Securities may be included among the securities covered by such
registration without restriction, subject to the terms of Section 2.1(f) below.
c. REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form of the SEC (i) as shall be
selected by the Company and (ii) as shall permit the disposition of such
Registrable Securities in accordance with the intended method or methods of
disposition specified in the request for registration.
d. EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected and will
not be considered one of the two demand registrations which may be requested by
Intersound hereunder (i) unless a registration statement with respect thereto
has become effective, or (ii) if, after it has become effective, it does not
remain effective and available to Intersound for resale for a period of at least
45 days (unless the Registrable Securities registered thereunder have been sold
or disposed of prior to the expiration of such 45 day period) or such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court for any reason and
has not thereafter become effective.
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e. NUMBER OF DEMAND REGISTRATIONS; OTHER LIMITATIONS. Intersound's
rights under Section 2.1 shall have the following limitations:
(i) Notwithstanding anything in this Agreement to the contrary,
the Company shall not be required to effect more than one demand
registrations pursuant to Section 2.1 of this Agreement, without regard to
any subsequent transfer of any Registrable Securities by Intersound;
(ii) The Company shall not be required to effect any demand
registration under this Section 2.1 prior to the first anniversary of the
date hereof;
(iii) The Company shall not be required to effect any demand
registration under this Section 2.1 after the Termination Date; and
(iv) The provisions set forth in Section 2.6.
f. INCIDENTAL COMPANY REGISTRATION. If Intersound makes a request
for a registration pursuant to Section 2.1(a), the Company may determine to
include securities of the same class sought to be registered by Intersound for
sale for the Company's own account or the account of other shareholders of the
Company by giving written notice thereof to Intersound. If the registration
referred to in Section 2.1(a) is to be an underwritten registration and the
managing underwriter(s) advise the Company (or the other shareholders
participating therein) in writing that in their good faith opinion such offering
would be adversely affected by the inclusion therein of the total number of
Registrable Securities requested to be included therein by Intersound, the
Company shall include in such registration: (1) first, all securities the
Company proposes to sell for its own account ("Company Securities"), (2) second,
up to the full number of securities proposed to be registered for the account of
the shareholders (other than Intersound) on behalf of whom registration may have
initially been requested and who are entitled to a priority in such case, and
(3) the securities requested to be registered by Intersound and any other
shareholders entitled to participate in the registration, drawn from them pro
rata based on the number each has requested to be included in such registration;
provided, however, (A) if less than all of the Registrable Securities desired by
Intersound to be registered are included in the undewritten registration, such
registration shall not be considered the one demand right provided to Intersound
pursuant to this Section 2.1 and (B) if greater than 50% of the Registrable
Securities desired by Intersound to be registered are included in the
undewritten registration, such registration shall be considered one of the five
incidental registration rights provided to Intersound pursuant to Section 2.2
below.
2.2 INCIDENTAL REGISTRATION RIGHTS.
a. RIGHT TO INCLUDE THE REGISTRABLE SECURITIES. If the Company, at
any time before the Termination Date, proposes to register securities under the
Securities Act by registration on Forms S-1, S-2 or S-3 or any successor or
similar form(s) (except registrations on such Forms S-4 or S-8 and any successor
or similar forms) whether for sale for its own account or pursuant to another
demand for registration granted any other party, it will give prompt written
notice each such time to Intersound of its intention to do so and of
Intersound's rights under this Section 2.2. Upon the written request of
Intersound (specifying the Registrable Securities intended to be disposed of and
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the intended method of disposition thereof), made within 15 business days after
the receipt of any such notice (10 business days if the Company gives telephonic
notice to Intersound with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such shorter
period of time is required because of a planned filing date) (which request
shall specify the Registrable Securities to be disposed of by Intersound), the
Company will include in its proposed registration the Registrable Securities
specified in any such request, subject to the priorities set forth in Section
2.2(b) below. If the Company thereafter determines for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to Intersound and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of the obligation to register such Registrable Securities in connection with
such registration (but not from any obligation of the Company to pay the
Registration Expenses in connection therewith), without prejudice, however, to
the rights (if any) of Intersound to request that such registration be effected
as a registration under Section 2.1, and (ii) in the case of a determination to
delay registration, shall be permitted to delay registering any Registrable
Securities, for the same period as the delay in registration of such other
securities.
b. PRIORITY IN INCIDENTAL REGISTRATION RIGHTS IN CONNECTION WITH
REGISTRATIONS FOR COMPANY ACCOUNT. If the registration referred to in Section
2.2(a) is to be an underwritten registration and the managing underwriter(s)
advise the Company (or the other shareholders participating therein) in writing
that in their good faith opinion such offering would be adversely affected by
the inclusion therein of the total number of Registrable Securities requested to
be included therein by Intersound, the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its own
account ("Company Securities"), (2) second, up to the full number of securities
proposed to be registered for the account of the shareholders (other than
Intersound) on behalf of whom registration may have initially been requested and
who are entitled to a priority in such case, and (3) the securities requested to
be registered by Intersound and any other shareholders entitled to participate
in the registration, drawn from them pro rata based on the number each has
requested to be included in such registration.
c. LIMITATIONS; EXCEPTIONS. The Company shall not be required to
effect any registration of Registrable Securities under this Section 2.2
incidental to the registration of any of its securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit plans.
d. NUMBER OF INCIDENTAL REGISTRATIONS; EFFECTIVE REGISTRATION
STATEMENT. Intersound may exercise its right to incidental registration under
this Section 2.2 five times during the term of this Agreement; provided,
however, each time Intersound has exercised its rights under Section 2.1(a),
such demand shall also count towards an incidental registration pursuant to this
Section 2.2(d). A registration requested pursuant to this Section 2.2 shall not
be deemed to have been effected and will not be considered one of the incidental
registrations which may be requested by Intersound (i) unless a registration
statement with respect thereto has become effective, or (ii) if, after it has
become effective, it does not remain effective and available to Intersound for
resale for a period of at least 45 days (unless the Registrable Securities
registered thereunder have been sold or disposed of prior to the expiration of
such 45-day period) or such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court for any reason and has not thereafter become effective.
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2.3 REGISTRATION PROCEDURES. Whenever Intersound has requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use all commercially reasonable efforts to effect the registration of such
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company will:
a. prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all commercially reasonable
efforts to cause such registration statement to become effective.
b. prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus(es) used in connection therewith,
which prospectus(es) are to be filed pursuant to Rule 424 under the Securities
Act, as may be necessary to keep such registration statement effective for a
period of 45 days and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement or
supplement to such prospectus;
c. furnish to Intersound, without charge, such number of copies of
such registration statement, each amendment and supplement thereto, the
prospectus(es) included in such registration statement (including each
preliminary prospectus), and such other documents (including customary legal
opinions, comfort letters and officers' certificates) as Intersound or an
underwriter may reasonably request in order to facilitate the disposition of the
Registrable Securities (the Company consents to the use of such prospectus or
any amendment or supplement thereto by Intersound and the underwriters, if any,
in connection with the offering and sale of the Registrable Securities covered
by such prospectus or any amendment or supplement thereto); and furnish to
Intersound and each managing underwriter, without charge, at least one conformed
copy of the registration statement or statements and any post-effective
amendment thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference);
d. use all commercially reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions as Intersound reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to (i) keep such
registration or qualification effective during the forty-five (45) day period
such registration statement is required to be kept effective hereunder and (ii)
enable Intersound to consummate the disposition in such jurisdictions of the
Registrable Securities owned by Intersound (provided that the Company will not
be required to (1) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (2)
subject itself to taxation in any such jurisdiction or (3) consent to general
service of process in any such jurisdiction);
e. notify Intersound and the managing underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice in writing
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and, with respect to a registration statement or any post-
effective amendment, when the same has become effective, (ii) of any request by
the SEC for amendments or supplements to a registration statement or related
prospectus or for
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additional information, (iii) of the happening of any event as a result of which
a registration statement or the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the request of
Intersound, the Company will prepare a supplement or amendment to such
registration statement or prospectus so that such registration statement or
prospectus will not contain any untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading, (iv) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (v) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
f. cause all such Registrable Securities to be listed on each
securities exchange and inter-dealer quotation system on which similar
securities issued by the Company are then listed and pay all fees and expenses
in connection therewith;
g. provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
h. take all such other actions as Intersound or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities, including, without limitation, (i) preparing and
arranging for the timely delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends unless required by
applicable law and (ii) enabling such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
i. advise Intersound promptly after it shall receive notice or
obtain knowledge thereof, of (i) the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for such purposes and will promptly use all
commercially reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued, or (ii) the
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purposes and will promptly use all commercially reasonable efforts to prevent
such suspension or have such suspension lifted if it should be effected;
j. if requested by the managing underwriters or Intersound,
immediately incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriters and Intersound agree should be
included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; make all required filings of
such prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any registration statement if
requested by a shareholder or any underwriter of such Registrable Securities;
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k. use all commercially reasonable efforts to cause the Registrable
Securities covered by the applicable registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities; and
l. otherwise use all commercially reasonable efforts to comply with
all applicable rules and regulations of the SEC and make generally available to
its security holders earnings statements satisfying the provisions of Section
11(a) of the Securities Act, no later than 90 days after the end of any 12-month
period (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwriting
offering and (ii) beginning with the first day of the Company's first fiscal
quarter next succeeding each sale of Registrable Securities after the effective
date of a registration statement, which statements shall cover said 12-month
periods.
Intersound shall furnish to the Company in writing such information
relating to such Person as the Company may reasonably request in writing in
connection with the preparation of such registration statement and each such
Person agrees to notify the Company as promptly as practicable of any inaccuracy
or change in information it has previously furnished to the Company or of the
happening of any event, in either case as a result of which any prospectus
relating to such registration contains an untrue statement of a material fact
regarding such Person or the distribution of such Registrable Securities or
omits to state any material fact regarding such Person or the distribution of
such Registrable Securities required to be stated therein or necessary to make
the statement therein not misleading in light of the circumstances then
existing, and to promptly furnish to the Company any additional information
required to correct and update any previously furnished information or required
such that such prospectus shall not contain, with respect to such Person or the
distribution of such Registrable Securities, an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing. Intersound agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 2.3(e) (ii),
(iii), (iv) or (v) or Section 2.3(i) hereof, such holder will forthwith
discontinue disposition of such Registrable Securities covered by such
registration statement or prospectus until such holder's receipt of the copies
of the supplemented or amended prospectus relating to such registration
statement or prospectus, or until it is advised in writing by the Company that
the use of the applicable prospectus may be resumed, and has received copies of
any additional or supplemental filings which are incorporated by reference in
such prospectus, and, if so directed by the Company, such holder will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies then in such person's possession, of the prospectus covering the
Registrable Securities current at the time of receipt of such notice. In
addition, Intersound shall enter into and perform its obligations pursuant to
any underwriting agreement to be entered into with respect to a registration
that includes Registrable Securities.
2.4 UNDERWRITTEN OFFERINGS.
a. GENERAL. If any registration hereunder is underwritten, the
Company shall have the right to select the underwriter.
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b. UNDERWRITTEN OFFERINGS. If the Company at any time proposes to
register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or more
underwriters, the Company will, if requested by Intersound as provided in
Section 2.2 and subject to the provisions of Section 2.2(b), use all
commercially reasonable efforts to arrange for such underwriters to include all
the Registrable Securities to be offered and sold by Intersound among the
securities to be distributed by underwriters. Intersound shall be party to the
underwriting agreement between the Company and such underwriters and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of Intersound. Intersound further agrees that in the event the
Company proposes to register its securities under the Securities Act, whether
pursuant to Section 2.1 or 2.2 above or otherwise, and such securities are to be
distributed through one or more underwriters, Intersound agrees to be a party to
any lock-up or similar agreement (prohibiting the sale of such securities for a
period of time before and/or after the offering) which is entered into by the
other selling shareholders in connection with such offering, regardless of
whether or not Intersound is registering or selling its Registrable Securities
in connection with such underwritten offering; provided, however, any such lock-
up period shall not extend longer than 90 days from the date such offering is
consummated.
2.5 REASONABLE INVESTIGATION. In connection with the preparation and
filing of each registration statement under the Securities Act pursuant to this
Agreement, the Company will give Intersound and its counsel and accountants such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary to conduct a reasonable
investigation within the meaning of the Securities Act.
2.6 LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS UNDER
REGISTRATION COVENANTS. The obligations of the Company hereunder to cause the
Registrable Securities to be registered under the Securities Act are subject to
each of the following limitations, conditions and qualifications:
a. The Company shall not be obligated to file or keep effective any
registration statement pursuant to Section 2.1 hereof at any time if the Company
would be required to include financial statements audited as of any date other
than the end of its fiscal year.
b. The Company, by act of its Board of Directors, shall be entitled
to postpone for a reasonable period of time (but not exceeding 180 days) the
filing or effectiveness of any registration statement otherwise required to be
prepared and filed by it pursuant to Section 2.1 if the Board of Directors of
the Company determines, in the good faith exercise of its reasonable judgment,
that (i) the Company is in possession of material information that has not been
disclosed to the public and the Board of Directors of the Company reasonably
deems it to be advisable not to disclose such information at such time in a
registration statement or (ii) such registration and offering would interfere
with any financing, acquisition, corporate reorganization or other material
transaction involving the Company and/or its subsidiaries or affiliates, taken
as a whole, and, in any such case, the Company promptly gives Intersound written
notice of such determination, containing a general statement of the reasons for
such postponement and an approximation of the anticipated delay. If the Company
shall so postpone the filing of a registration statement, Intersound shall have
the right
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to withdraw the request for registration by giving written notice to the Company
within 30 days after receipt of the notice of postponement and, in the event of
such withdrawal, such request shall not be counted for purposes of the requests
for registration to which Intersound is entitled pursuant to Section 2.1 hereof.
2.7 INDEMNIFICATION.
a. INDEMNIFICATION BY THE COMPANY. In the event of any registration
of any Registrable Securities under the Securities Act, the Company will, and
hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, Intersound and each other Person, if any, who controls Intersound within
the meaning of the Securities Act, against any and all judgments, fines,
penalties, charges, costs, amounts paid in settlement, losses, claims, damages,
liabilities, expenses, or attorney fees, joint or several, incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or SEC,
whether pending or threatened, whether or not an indemnified party is or may be
a party thereto ("Indemnified Damages"), to which they or any of them may become
subject under the Securities Act or any other statute or common law, insofar as
any such Indemnified Damages arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement relating to the sale of such securities or any post-
effective amendment thereto or in any filing made in connection with the
qualification of the offering under blue sky or other securities laws of
jurisdictions in which the Registrable Securities are offered ("Blue Sky
Filing"), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, if used prior to the
effective date of such registration statement (unless such statement is
corrected in the final prospectus and the Company has previously furnished
copies thereof to Intersound and the underwriters), or contained in the final
prospectus (as amended or supplemented if the Company shall have filed with the
SEC any amendment thereof or supplement thereto) if used within the period
during which the Company is required to keep the registration statement to which
such prospectus relates current, or the omission or alleged omission to state
therein (if so used) a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the indemnification agreement contained
herein shall not apply to such Indemnified Damages to a particular Person to be
indemnified hereunder arising out of, or based upon, any such untrue statement
or alleged untrue statement, or any such omission or alleged omission, if such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by such Person stating that it is for use
in connection with preparation of the registration statement, any preliminary
prospectus or final prospectus contained in the registration statement, any such
amendment or supplement thereto or any Blue Sky Filing.
b. INDEMNIFICATION BY INTERSOUND. The Company may require, as a
condition to including the Registrable Securities of Intersound in any
registration statement filed pursuant to Section 2.1 or 2.2, that the Company
shall have received an undertaking satisfactory to it from Intersound to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 2.7) the Company, its officers and
directors and each officer of the
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Company and each other Person, if any, who controls the Company within the
meaning of the Securities Act with respect to any untrue statement or alleged
untrue statement in, or omission or alleged omission from, such registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, if such statement or omission was made in
reliance upon and in conformity with written information Intersound furnished to
the Company through an instrument duly executed by him specifically stating that
it is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by Intersound.
c. NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, PROVIDED that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice.
In case any such action is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. If the indemnifying party does not
assume such defense, the indemnified party shall keep the indemnifying party
apprised at all times as to the status of the defense; provided, however, that
the failure to keep the indemnifying party so informed shall not affect the
obligations of the indemnifying party hereunder. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its written consent, PROVIDED, HOWEVER, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement or other compromise which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the indemnified party
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made.
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d. INDEMNIFICATION PAYMENTS. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.
e. CONTRIBUTION. If the indemnification provided for in this
Section 2.7 shall for any reason be held by a court to be unavailable to an
indemnified party under subparagraph (a) or (b) hereof in respect of any
Indemnified Damages, then, in lieu of the amount paid or payable under
subparagraph (a) or (b) hereof, the indemnified party and the indemnifying party
under subparagraph (a) or (b) hereof shall contribute to the aggregate
Indemnified Damages, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party (taking into
account, among other things, whether any untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material fact
related to information supplied by the indemnifying party or the indemnified
party) with respect to the statements or omissions which resulted in such
Indemnified Damages, as well as any other relevant equitable considerations. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. The obligations of
Intersound to contribute as provided in this subparagraph (e) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
f. OTHER RIGHTS; LIABILITIES. The indemnity agreements contained
herein shall be in addition to (i) any cause of action or similar right of the
indemnified party against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
2.8 REGISTRATION EXPENSES. The Company will pay all Registration Expenses
(as defined below) in connection with the demand for registration of Registrable
Securities requested under Section 2.1. In a registration of Registrable
Securities under Section 2.2, the Company will pay all Registration Expenses,
other than (i) counsel's fees and expenses for Intersound and (ii) the fees and
expenses of any other Person retained by Intersound. "Registration Expenses"
include all expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation all registration and filing fees,
including fees with respect to filings required to be made with the National
Association of Securities Dealers, Inc., fees and expenses of compliance with
securities or blue sky laws, including, without limitation, reasonable fees and
disbursements of counsel for the underwriters, all word processing, duplicating
and printing expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel of the Company and of all independent certified public
accountants of the Company (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance),
underwriters fees and disbursements (excluding discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities), fees
and expenses of other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"). Except as otherwise provided above, the
Company will also pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and
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expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, rating agency fees and the fees and
expenses of any Person, including special experts, retained by the Company.
2.9 CERTAIN RIGHTS OF STOCKHOLDERS IF NAMED IN A REGISTRATION STATEMENT.
If any statement contained in a registration statement under the Securities Act
refers to Intersound by name or otherwise as the holder of any securities of the
Company, then Intersound shall have the right to require the insertion therein
of language, in form and substance reasonably satisfactory to it and the
Company, to the effect that its holdings do not necessarily make it a
"controlling person" of the Company within the meaning of the Securities Act and
is not to be construed as a recommendation of the investment quality of the
Company's securities covered thereby.
3. RULE 144. The Company shall take all reasonable actions and file all
such information, documents and reports as shall be required to enable
Intersound to sell its Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
under the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
4. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns. The Company may not assign its
obligations hereunder. Except as set forth in Section 5(j) hereof, Intersound
may not assign its rights hereunder or otherwise provide to any third party the
benefits granted to Intersound hereunder without the prior written consent of
the Company, which consent may be granted or withheld at the Company's sole
discretion.
5. MISCELLANEOUS.
a. SEVERABILITY. If any term or provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
b. FURTHER ASSURANCES. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
c. WAIVERS, ETC. No failure or delay on the part of either party
hereto (or the intended third party beneficiaries referred to herein) in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure therefrom shall in any event be
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effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
d. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof. The
section headings contained in this Agreement are solely for the purpose of
reference, and shall not in any way affect the meaning or interpretation of this
Agreement.
e. COUNTERPARTS. For the convenience of the parties, this Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original but all of which together shall be one and the same instrument.
f. NOTICES. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be validly given,
made or served, if in writing and delivered personally, by facsimile or sent by
registered mail, postage prepaid as follows:
if to the Company, to:
Platinum Entertainment, Inc.
2001 Butterfield Road, Suite 1400
Downers Grove, IL 60515
Attention: Steven Devick
Telecopy No.: (630) 769-0049
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
Attention: Matthew S. Brown
Telecopy No. (312) 902-1061
if to Intersound, to:
Intersound, Inc.
Hembre Crest Center
11810 Wills Road
P.O. Box 1724
Roswell, Georgia 30077-1724
Attention: Don Johnson
Telecopy No.: (770) 664-7316
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<PAGE>
Kaplan, Strangis and Kaplan, P.A.
5500 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Robert T. York
Telecopy No.: (612) 375-1143
Notice given by facsimile shall be deemed delivered on the business day after it
is received by the recipient. Notice given by mail as set out above shall be
deemed delivered five (5) calendar days after the date the same is mailed.
g. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
h. AMENDMENTS. This Agreement may be amended only by a written
agreement signed by the Company and Intersound.
i. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party hereto.
j. TRANSFER. The parties hereto agree that, prior to any
registration of Registrable Securities, the Registrable Securities may be
assigned, at no cost, (provided such assignment complies in all respects with
all applicable laws, including, without limitation, the Securities Act of 1933,
as amended), by Intersound on the same assignment terms as those set forth in
the Convertible Note. It is the intention of the parties that upon conversion
of the Convertible Note, each holder thereof of the underlying Registrable
Securities issued upon such conversion of the Convertible Note will have all of
the rights, and be subject to all of the obligations, hereunder; PROVIDED,
HOWEVER, in no event will more than 15 Persons hold Registrable Securities
hereunder at any time. Notwithstanding the preceding sentence or anything to the
contrary contained herein, in order for any rights under Section 2.1 above to be
exercised, all holders of Registrable Securities must act as a group and,
therefore, one holder of Registrable Securities may not exercise any such rights
herein, individually, without the consent of, and joining of, ALL of the other
holders of Registrable Securities.
k. ATTORNEY'S FEES. In the event a court of competent jurisdiction
determines that one party has breached the terms of this Agreement (the
"Breaching Party"), and the other party has not breached any terms of this
Agreement (the "Non-Breaching Party"), the Breaching Party shall be liable for
paying the reasonable attorney's fees incurred by the Non-Breaching Party in
enforcing the terms of this Agreement which is the subject matter of such
breach.
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IN WITNESS WHEREOF, the Company and Intersound have caused this Agreement
to be duly executed as of the date first above written.
Platinum Entertainment, Inc.
By: /s/ Steven Devick
--------------------------------------------
Its: President
--------------------------------------------
Intersound, Inc.
By: /s/ D. Johnson
--------------------------------------------
Its: President
--------------------------------------------
<PAGE>
Exhibit 4.2
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, QUALIFIES AS AN
EXEMPT TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THAT
CERTAIN SUBORDINATION AGREEMENT DATED AS OF JANUARY 31, 1997, BY AND BETWEEN THE
COMPANY, THE HOLDER AND BANK OF MONTREAL, A COPY OF WHICH SHALL BE PROVIDED UPON
REQUEST.
CONVERTIBLE PROMISSORY NOTE
January 31, 1997 $3,125,000
PLATINUM ENTERTAINMENT, INC., a Delaware corporation (the "COMPANY"),
hereby promises to pay to the order of INTERSOUND, INC., a Minnesota
corporation, or its successor or assigns (the "HOLDER") the principal amount of
THREE MILLION ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($3,125,000) together
with interest thereon calculated from the date hereof in accordance with the
provisions of this Note.
This Note was issued pursuant to an Asset Purchase Agreement, dated as of
November 13, 1996 and amended as of January 31, 1997 (the "PURCHASE AGREEMENT"),
between River North Studios, Inc. (a wholly-owned subsidiary of the Company) and
the Holder, and is the "CONVERTIBLE NOTE" referenced therein. Capitalized terms
used herein and not otherwise defined herein will have the meanings given to
such terms in the Purchase Agreement.
1. PAYMENT OF INTEREST. Interest (computed on the basis of a 360-day
year of twelve 30-day months) shall accrue on a daily basis on the unpaid
principal amount of this Note at a per annum rate equal to the seven-year
Treasury Rate, as announced in THE WALL STREET JOURNAL as of each Interest
Payment Date PLUS one percent (1.00%). The Company shall pay to the Holder all
accrued interest hereunder on the last day of each quarter with payments on July
31st, October 31st, January 31st, and April 30th (each, an "INTEREST PAYMENT
DATE"), beginning July 31, 1997. Unless prohibited under applicable law, any
payment due hereunder including any accrued interest which is payable hereunder
and which is not paid on the date on which it is payable shall bear interest at
a rate which is 3% per annum above the rate which interest is then accruing on
the principal amount of this Note. Any accrued interest which for any reason
has not theretofore been paid, shall be paid in full in immediately available
funds on the date on which the final principal payment on this Note is paid.
Interest shall accrue on any principal payment due under this Note and, to the
extent permitted by applicable law, on any interest which has not been paid on
the date on which it is payable, until such time as payment therefor is actually
delivered to the holder of this Note.
<PAGE>
2. PAYMENT OF PRINCIPAL ON NOTE AND EXCHANGEABILITY.
2.1 SCHEDULED PAYMENT. The Company shall pay the outstanding
principal amount of this Note to the Holder on January 31, 2004 (the "Maturity
Date").
2.2 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Upon notice as set forth in
subparagraph (b) below, the Company may, at any time and from time to time,
without premium or penalty, prepay all or a portion (in whole number multiples
of $100,000) of the outstanding principal amount of the Note; provided that the
Company has paid all interest on the Note accrued through the date of prepayment
specified in the Company's notice referred to in subparagraph (b) below. A
prepayment of less than all of the outstanding principal amount of the Note
shall not relieve the Company of its obligation to pay the remaining outstanding
principal amount of this Note on the date specified in SECTION 2.1 above.
(b) NOTICE. The Company shall send written notice of its
election to make a prepayment on the Note to the Holder by registered or
certified mail, return receipt requested, at least 30 days prior to the date of
prepayment, and during such 30-day period the Holder shall have the right to
convert the portion of the Note to be prepaid to Conversion Shares pursuant to
the terms set forth in SECTION 4 below.
2.3 PAYMENT ON NON-BUSINESS DAYS. If any payment on this Note shall
become due on a Saturday, Sunday or a bank or legal holiday under the laws of
the State of Illinois, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing any interest due in connection with such payment.
2.4 COVENANTS.
(a) The Company shall not declare or pay any dividends on, or
purchase, redeem or acquire its capital stock, return any capital to holders of
capital stock as such, or any distribution of assets to capital stockholders as
such; provided, however, the Company shall in no event be prohibited from
declaring and issuing stock dividends to its capital stockholders.
(b) Neither the Company nor any material subsidiary may
consolidate with, merge with or transfer all, or substantially all, of its
properties or assets to another entity unless such successor entity assumes the
obligations of the Company hereunder and unless, after giving effect thereto,
(i) no event shall have occurred and be continuing which , after notice or lapse
of time, would become an Event of Default hereunder, (ii) immediately after such
transaction, the successor entity shall have a consolidated net worth not less
than the Company's consolidated net worth after consummation of such transaction
and (iii) if the successor entity
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is a holding company, such entity's subsidiaries shall provide unconditional
guarantees of the Company's obligations under this Note.
3. EVENTS OF DEFAULT.
3.1 DEFINITION. For purposes of this Note, an Event of Default shall
be deemed to have occurred:
(a) if the Company fails to pay on any Interest Payment Date the
full amount of interest then accrued and payable with respect to the Note (and
such failure continues for a period of fifteen days);
(b) if the Company fails to pay when due the full amount of any
principal payment on the Note;
(c) any voluntary or involuntary insolvency, bankruptcy,
receivership, custodianship, liquidation, dissolution, reorganization,
assignment for the benefit of creditors, appointment of a custodian, receiver,
trustee or other officer with similar powers or any other proceeding for the
liquidation, dissolution or the winding up of the Company (a "Proceeding"), and
either (A) the Company by any act indicates its approval thereof, consent
thereto or acquiescence therein or (B) any such proceeding is not dismissed
within 60 days after its initiation;
(d) if the Company fails to perform or comply with any covenant
contained herein or in the performance of the Registration Rights Agreement (as
defined below); or
(e) if an event of default has occurred under the agreements
evidencing the Senior Debt and the holder of such Senior Debt exercises its
right to accelerate (and make due and payable immediately) all amounts
outstanding under the Senior Debt.
3.2 CONSEQUENCES OF EVENTS OF DEFAULT. Subject to the terms of
SECTION 7 below, if any Event of Default under SECTION 3.1(c) above has
occurred, then all amounts outstanding under this Note shall immediately become
due and payable, or (subject to the terms of SECTION 7 below) if any other Event
of Default has occurred the Holder may declare (by written notice delivered to
the Company) all or any portion of the outstanding principal amount of this Note
due and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note. If the Holder demands immediate
payment of all or any portion of this Note pursuant to the terms of this SECTION
3.2, the Company shall pay the Holder the principal amount of this Note
requested to be paid plus accrued interest thereon immediately upon the initial
declaration of acceleration; provided that if within 45 days after this Note
shall have become due and payable pursuant to this SECTION 3.2, the Company
shall pay all arrears of interest on this Note and payments on account of the
principal (if any) on this Note which shall have become due otherwise than by
acceleration (with interest on such overdue
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principal (if any) and overdue interest at the rate specified in this Note), and
all Events of Default (other than nonpayment of principal, and interest on, this
Note due and payable solely by virtue of acceleration) shall be remedied within
such 45-day period, than any such acceleration shall automatically be rescinded
and annulled. The rights of the Company to remedy a default as set forth in the
foregoing sentence shall immediately terminate upon the issuance of Private
Placement Convertible Debentures (as hereinafter defined) if such Private
Placement Convertible Debentures do not also contain a similar right.
4. CONVERSION.
(a) At the option of Holder, the outstanding principal balance of and all
accrued and unpaid interest on this Note, is convertible, in whole or in part,
at any time after the first anniversary of the date of execution of this Note
through the date on which the entire principal balance of and all accrued and
unpaid interest on this Note is paid and/or converted as herein provided, into
that number of shares (the "CONVERSION SHARES") of the Common Stock of the
Company, calculated by dividing the Conversion Price (as defined below) in
effect at the time of each conversion into the then outstanding principal
balance and accrued and unpaid interest that is being converted. This Note will
be deemed to have been converted by the Holder, who will be deemed for all
purposes to have become the registered holder of the Conversion Shares issuable
upon such conversion, by and on the date of surrender of this Note to the
Company at the Company's principal office. As soon as practicable after such
surrender of this Note, and in any event within twenty (20) days thereafter, the
Company, at its expense, will cause to be issued in the name of and delivered to
Holder a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock of the Company to which Holder shall be
entitled upon such conversion.
(b) Notwithstanding the reference to "the first anniversary" in the first
sentence of SECTION 4(a) above, in the event the Company desires to consummate a
registration of its Common Stock prior to the first anniversary hereof, the
Holder shall have the right to immediately convert this Note pursuant to the
terms of SECTIONS 4 AND 5 herein and shall have the opportunity to include in
such registration the Conversion Shares pursuant to SECTION 2.2 of the
Registration Rights Agreement (as defined below). The Company shall provide the
Holder with prior written notice of its intention to consummate a registration
of its Common Stock and the Holder shall have five business days (after delivery
of such written notice) to exercise such right by providing written notice to
the Company within such five business day period.
5. CONVERSION PRICE AND ADJUSTMENT. The price at which this Note shall
be convertible into Conversion Shares (the "CONVERSION PRICE") initially shall
be $9.80 per share, subject to adjustment pursuant to this SECTION 5.
(a) If the Company at any time (i) subdivides (by any stock split,
stock dividend or otherwise) one or more classes of its outstanding shares
of Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision will be proportionately
reduced and the number of Conversion Shares shall
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be proportionately increased, and (ii) if the Company at any time combines
(by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased and the number of Conversion Shares shall be
proportionately decreased.
(b) In the event that:
(1) subject to the provisions of this Note, the Company shall
declare any cash dividend upon its Common Stock, or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any
subdivision or combination of its outstanding shares of Common Stock, or
consolidation or merger of the Company with, or sale or lease of all or
substantially all of its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holders
of this Note:
(i) at least 10 days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, lease, dissolution, liquidation or winding up,
at least 10 days' prior written notice of the date when the same shall take
place.
Such notice in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the foregoing clause (ii) shall
also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
Each such written notice
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shall be given by first class mail, postage prepaid, addressed to the
Holder at the address of the Holder as shown on the books of the Company
and shall be effective three (3) days after mailing.
6. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it shall reserve for
issuance and delivery upon conversion of this Note such number of shares of its
Common Stock as shall be required for issuance and delivery upon conversion of
this Note.
(b) No fractional shares shall be issued upon conversion of this
Note. With respect to any fraction of a share called for upon conversion of
this Note, the Company shall pay to Holder an amount in cash equal to such
fraction multiplied by the then current market value of a share of Common Stock,
determined as follows:
(i) if the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
the current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of
conversion of this Note or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange; or
(ii) if the Common Stock is not listed or admitted to unlisted
trading privileges the current value shall be the mean of the last
reported bid and ask prices reported by the National Quotation Bureau,
Inc., on the last business day prior to the date of the conversion of
this Note; or
(iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not so
reported, the current value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of
the Company.
7. SUBORDINATION.
(a) SUBORDINATION OF NOTE TO SENIOR INDEBTEDNESS. The Company and
Holder covenant and agree that all amounts (including all principal,
interest, premiums and other payments) payable by the Company with respect
to this Note (the "SUBORDINATED DEBT") are not secured in any manner and
shall be subordinate and subject in right of payment to the prior payment
in full in cash of any Senior Debt, and that each holder of Senior Debt (a
"Senior Holder"), whether now outstanding or hereafter created, incurred,
assumed or guaranteed, shall be deemed to have acquired Senior Debt in
reliance upon the provisions contained in this SECTION 7. The holder of
this Note also agrees to execute any other documents or instruments which
may be required by any financial institution holding Senior Debt in order
to further memorialize the subordinated nature of this Note,
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including, without limitation, but subject to the provision hereinafter set
forth, a subordination agreement which may have more restrictive terms than
the terms set forth in this Note (in which case the terms of any such
subordination agreement shall govern in the event of a conflict); provided,
however, (a) no subordination provision shall contain terms restricting
payment of this Note in accordance with its terms as long as notice of
default with respect to the Senior Debt has not been given by the holder
thereof to either the Company or the Holder, and (b) in the event the
Company issues any convertible debentures in connection with a private
placement ("Private Placement Convertible Debentures"), this Note will be
PARI PASSU in right of payment with such Private Placement Convertible
Debentures and in no event will the subordination provisions set forth
herein be more restrictive than the terms of the subordination provisions
of any such Private Placement Convertible Debentures.
(b) DEFINITIONS.
(i) "SENIOR DEBT" means any Indebtedness of the Company, whether
outstanding on the date of this Note or hereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company, unless the
instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior or superior, in right of payment, to this Note
or other Indebtedness which is PARI PASSU with, or subordinated to, this
Note; PROVIDED, that in no event shall Senior Debt include (a) Indebtedness
of the Company owed or owing to any subsidiary of the Company or any
officer, director or employee of the Company or any subsidiary of the
Company, (b) Indebtedness to trade creditors, or (c) any liability for
taxes owed or owing by the Company.
(ii) "CAPITALIZED LEASE OBLIGATIONS" means rental obligations
under a lease that are required to be capitalized for financial reporting
purposes in accordance with generally accepted accounting principles
("GAAP"), and the amount of Indebtedness represented by such obligations
shall be the capitalized amount of such obligations, as determined in
accordance with GAAP.
(iii) "INDEBTEDNESS" of any person or entity means, without
duplication, (a) all liabilities and obligations, contingent or otherwise,
of any such person or entity, (i) in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such person
or entity or only to a portion thereof), (ii) evidenced by bonds, notes,
debentures or similar instruments, (iii) representing the balance deferred
and unpaid of the purchase price of any property or services, except such
as would constitute trade payables to trade creditors in the ordinary
course of business that are not more than ninety (90) days past their
original due date, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money
relating to a Capitalized Lease Obligation, or (vi) evidenced by a letter
of credit or a reimbursement obligation of such person or entity with
respect to any letter of credit; (b) all net obligations of such person or
entity under Interest Swap and Hedging
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Obligations; (c) all liabilities of others of the kind described in the
preceding clause (a) or (b) that such person or entity has guaranteed or
that is otherwise its legal liability and all obligations to purchase,
redeem or acquire any Common Stock; and (d) any and all deferrals,
renewals, extensions, refinancings and refundings (whether direct or
indirect) of any liability of the kind described in any of the preceding
clauses (a), (b) or (c), or this clause (d), whether or not between or
among the same parties.
(iv) "INTEREST SWAP AND HEDGING OBLIGATIONS" means any obligation
of any person or entity pursuant to any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
exchange agreement, currency exchange agreement or any other agreement or
arrangement designed to protect against fluctuations in interest rates or
currency values, including, without limitation, any arrangement whereby,
directly or indirectly, such person or entity is entitled to receive from
time to time periodic payments calculated by applying either a fixed or
floating rate of interest on a stated notional amount in exchange for
periodic payment made by such person or entity calculated by applying a
fixed or floating rate of interest on the same notional amount.
(c) PAYMENT SUSPENSION.
(i) If and so long as a Senior Default (as defined below) has
occurred and is continuing, then, upon notice to the Holder of such Senior
Default, except as otherwise set forth below in this SECTION 7(c), the
Company shall not make, and the holders of the Subordinated Debt shall not
accept or receive from the Company, directly or indirectly, in cash or
other property in any other manner (including, without limitation, from or
by way of any collateral or redemption or sale) payment of all or any part
of the Subordinated Debt prior to the Maturity Date thereof unless and
until THE EARLIER OF (A) the Senior Debt has been paid in full or (B) the
Senior Default has been cured by the Company or waived by the holders of
the Senior Debt, in each case in accordance with the terms of the relevant
agreements governing such Senior Debt.
(ii) If there is a Senior Default which results in the Company
not making a payment of principal or interest of Subordinated Debt pursuant
to the terms hereof, the Company shall promptly provide to the holder of
this Note written notice of such Senior Default.
(iii) "SENIOR DEFAULT" means the occurrence and continuance
(after any applicable grace period) of a default in payment of all or any
part of the Senior Debt, a default in the financial covenants under the
Senior Debt (including any current or coverage ratios or any net worth or
debt-to-equity tests) or any other event of default under any agreement
governing any Senior Debt
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(d) LIQUIDATION, WINDING UP, ETC. Upon any distribution of assets of
the Company or upon any dissolution, winding up, liquidation or
reorganization of the Company, whether pursuant to a Proceeding or
otherwise:
(i) the holders of all Senior Debt shall be entitled to receive
payment in full of the principal thereof, the interest due thereon and any
premium or other payment obligation with respect thereto before the holders
of the Subordinated Debt are entitled to receive any payment upon the
Subordinated Debt; and
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, by set-off or
otherwise, to which the holders of the Subordinated Debt would be entitled
but for the provisions of this SECTION 7 shall be paid by the liquidating
trustee or agent or other person or entity making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Senior Debt or their
agents or representatives or to the trustee or trustees under any indenture
under which any instruments evidencing any of such Senior Debt may have
been issued, ratably according to the aggregate amounts remaining unpaid on
account of the principal of, interest on and any premium or other amounts
payable with respect to the Senior Debt held or represented by each such
holder, to the extent necessary to make payment in full of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of the Senior Debt.
The consolidation of the Company with, or the merger of the Company into,
another entity shall not be deemed a dissolution, winding up, liquidation or
reorganization of the Company for the purposes of this SECTION 7(d) if such
other entity is organized in the United States and such entity, as a part of
such consolidation or merger, succeeds to the Company's property and business
and assumes the Company's obligations (including the Senior Debt and the
Subordinated Debt).
(e) PAYMENT HELD IN TRUST. All payments or distributions by the Company
upon or with respect to the Subordinated Debt which are received by the holders
hereof in violation of or contrary to the provisions of SECTIONS 7(c) OR 7(d)
above shall be received in trust for the benefit of the holders of the Senior
Debt and shall be paid over upon demand to such holders in the same form as so
received (with all necessary endorsements) to be applied to the payment of the
Senior Debt.
(f) ACCELERATION AND REMEDIAL ACTIONS. Notwithstanding anything herein to
the contrary, so long as any Senior Debt is outstanding, for a period of 180
days after notice is provided to the Holder of a Senior Default, no notice of
acceleration shall be given or, if given, shall be effective with respect to
this Note, and the holder of this Note will not ask for, demand, sue for, take
or receive from the Company, by setoff or in any other manner, the whole or any
part of any monies which may now or hereafter be owing by the Company to the
holder of this Note with respect to the Subordinated Debt prior to the Maturity
Date or participate as one of
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the initial petitioning creditors in an involuntary petition under the U.S.
Bankruptcy Code or similar insolvency statute against the Company with respect
to the Subordinated Debt prior to the Maturity Date; provided, however, the
restrictions of this SECTION 7(f) shall no longer apply upon the first to occur
of the following: (i) the institution of bankruptcy proceeding by or against the
Company, (ii) commencement of foreclosure proceedings by the holders of Senior
Debt on the collateral securing the Senior Debt or (iii) the payment or other
satisfaction of all of the Senior Debt and the termination of the obligations
(if any) of the holders of Senior Debt to extend any Senior Debt.
(g) SUBROGATION. Upon receipt by the holders of the Senior Debt of
amounts sufficient to pay all Senior Debt in full, to the extent any amounts
which are otherwise payable with respect to the Subordinated Debt, but for the
provisions of this SECTION 7, have been paid over to the holders of the Senior
Debt, the holders of the Subordinated Debt shall be subrogated to the rights of
the holders of Senior Debt to receive payments or distributions of cash,
property or securities of the Company applicable to Senior Debt until the
Subordinated Debt is paid in full, and no such payments or distributions to the
holders of the Senior Debt of cash, property or securities otherwise
distributable to the holders of Subordinated Debt shall, as between the Company,
its creditors (other than the holders of Senior Debt) and the holders of the
Subordinated Debt, be deemed to be payment by the Company to the holders of the
Senior Debt. The provisions of this SECTION 7 shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of any of the
Senior Debt is rescinded or must otherwise be returned by the holders of the
Senior Debt for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Company) all as though such
payment had not been made.
8. REGISTRATION. Upon any conversion of this Note, the Common Stock
issued to the Holder will not be registered under the Securities Act of 1933
(the "Act"), and may not be transferred except pursuant to an effective
registration under the Act or in a transaction which, in the opinion of counsel
reasonably satisfactory to the Company, qualifies as an exempt transaction under
the Act and the rules and regulations promulgated thereunder; PROVIDED, HOWEVER,
the Holder shall have the right to require the Company to register the Common
Stock received in connection with such conversion pursuant to the terms of that
certain Registration Rights Agreement, dated of even date herewith, by and
between the Company and the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise expressly provided herein,
the provisions of this Note may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder.
10. CANCELLATION. After all principal and accrued interest at any time
owed on this Note has been paid in full, this Note shall be surrendered to the
Company for cancellation and shall not be reissued.
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11. MANNER OF PAYMENT. If any payment of principal or interest on this
Note shall become due on a Saturday, Sunday or a bank or legal holiday under the
laws of the State of Illinois, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing interest in connection with such payment. Payments of principal and
interest are to be delivered to the Holder at the address indicated on the
Company's records, to such other address or to the attention of such other
person as specified by prior written notice to the Company or by wire transfer
of immediately available federal funds to an account designated, in writing, by
the Holder.
12. NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new note containing the same terms and conditions and
representing in the aggregate the principal amount of this Note, and any such
new Note will represent such portion of such principal amount as is designated
by the Holder at the time of such surrender. The date the Company initially
issues this Note will be deemed to be the "DATE OF ISSUANCE" hereof regardless
of the number of times any new note or notes shall be issued.
13. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Delaware, without giving effect to provisions thereof regarding
conflict of laws.
15. ASSIGNMENT.
(a) This Note may not be assigned by Holder without the prior written
consent of the Company; PROVIDED, HOWEVER, the initial Holder (Intersound, Inc.)
only may assign, all or any portion of the amounts outstanding under this Note
(at no cost and subject to all applicable laws, including, without limitation,
the rules and regulations of the Securities Act of 1933, as amended) upon prior
written notice to the Company, to up to fifteen (15) individuals or entities.
Such 15 assignees may not in any manner assign this Note without the prior
written consent of the Company. Upon any such assignment, the Company shall
issue replacement notes to such assignees, and such assignees shall have all of
the rights and be subject to all of the obligations, terms and conditions set
forth in this Note. In the event of an assignment pursuant to the terms of this
SECTION 15, the Holder hereof and all subsequent assignees agree that if an
Event of Default has occurred hereunder, all holders of this Note (i.e. the
Holder and all assignees) must agree as a group to accelerate the amounts due
under this Note with the intention being that one such holder can not
individually accelerate without all of the other holders joining in such
acceleration.
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(b) This Note may not be assigned by the Company without the prior
written consent of Holder; PROVIDED, HOWEVER, that the Company may assign the
obligations of this Note without Holder's consent in the event of the sale or
transfer of substantially all of the assets of the Company (whether by merger or
otherwise) if the covenants set forth herein have been complied with in all
material respects and the purchaser or transferee of the assets of the Company
assumes the obligations hereunder.
16. EXPENSES. If an Event of Default has occurred, the Company shall pay
the Holder all costs and expenses, including reasonable attorney's fees,
incurred by the holder in enforcing its rights hereunder.
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IN WITNESS WHEREOF, the Company has executed and delivered this Note as of
the date first written above.
PLATINUM ENTERTAINMENT, INC.
By: /s/ Steven Devick
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Its: Chief Executive Officer and President
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Exhibit 4.3
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, QUALIFIES AS AN
EXEMPT TRANSACTION UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THAT
CERTAIN SUBORDINATION AGREEMENT DATED AS OF JANUARY 31, 1997, BY AND BETWEEN THE
COMPANY, THE HOLDER AND BANK OF MONTREAL, A COPY OF WHICH SHALL BE PROVIDED UPON
REQUEST.
CONVERTIBLE PROMISSORY NOTE
January 31, 1997 $1,875,000
PLATINUM ENTERTAINMENT, INC., a Delaware corporation (the "COMPANY"),
hereby promises to pay to the order of INTERSOUND, INC., a Minnesota
corporation, or its successor or assigns (the "HOLDER") the principal amount of
ONE MILLION EIGHT HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($1,875,000) together
with interest thereon calculated from the date hereof in accordance with the
provisions of this Note.
This Note was issued pursuant to an Asset Purchase Agreement, dated as of
November 13, 1996 and amended as of January 31, 1997 (the "PURCHASE AGREEMENT"),
between River North Studios, Inc. (a wholly-owned subsidiary of the Company) and
the Holder, and is the "CONVERTIBLE NOTE" referenced therein. Capitalized terms
used herein and not otherwise defined herein will have the meanings given to
such terms in the Purchase Agreement.
1. PAYMENT OF INTEREST. Interest (computed on the basis of a 360-day
year of twelve 30-day months) shall accrue on a daily basis on the unpaid
principal amount of this Note at a per annum rate equal to the seven-year
Treasury Rate, as announced in THE WALL STREET JOURNAL as of each Interest
Payment Date PLUS one percent (1.00%). The Company shall pay to the Holder all
accrued interest hereunder on the last day of each quarter with payments on July
31st, October 31st, January 31st, and April 30th (each, an "INTEREST PAYMENT
DATE"), beginning July 31, 1997. Unless prohibited under applicable law, any
payment due hereunder including any accrued interest which is payable hereunder
and which is not paid on the date on which it is payable shall bear interest at
a rate which is 3% per annum above the rate which interest is then accruing on
the principal amount of this Note. Any accrued interest which for any reason
has not theretofore been paid, shall be paid in full in immediately available
funds on the date on which the final principal payment on this Note is paid.
Interest shall accrue on any principal payment due under this Note and, to the
extent permitted by applicable law, on any interest which has not been paid on
the date on which it is payable, until such time as payment therefor is actually
delivered to the holder of this Note.
<PAGE>
2. PAYMENT OF PRINCIPAL ON NOTE AND EXCHANGEABILITY.
2.1 SCHEDULED PAYMENT. The Company shall pay the outstanding
principal amount of this Note to the Holder on January 31, 2004 (the "Maturity
Date").
2.2 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Upon notice as set forth in
subparagraph (b) below, the Company may, at any time and from time to time,
without premium or penalty, prepay all or a portion (in whole number multiples
of $100,000) of the outstanding principal amount of the Note; provided that the
Company has paid all interest on the Note accrued through the date of prepayment
specified in the Company's notice referred to in subparagraph (b) below. A
prepayment of less than all of the outstanding principal amount of the Note
shall not relieve the Company of its obligation to pay the remaining outstanding
principal amount of this Note on the date specified in SECTION 2.1 above.
(b) NOTICE. The Company shall send written notice of its
election to make a prepayment on the Note to the Holder by registered or
certified mail, return receipt requested, at least 30 days prior to the date of
prepayment, and during such 30-day period the Holder shall have the right to
convert the portion of the Note to be prepaid to Conversion Shares pursuant to
the terms set forth in SECTION 4 below.
2.3 PAYMENT ON NON-BUSINESS DAYS. If any payment on this Note shall
become due on a Saturday, Sunday or a bank or legal holiday under the laws of
the State of Illinois, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing any interest due in connection with such payment.
2.4 COVENANTS.
(a) The Company shall not declare or pay any dividends on, or
purchase, redeem or acquire its capital stock, return any capital to holders of
capital stock as such, or any distribution of assets to capital stockholders as
such; provided, however, the Company shall in no event be prohibited from
declaring and issuing stock dividends to its capital stockholders.
(b) Neither the Company nor any material subsidiary may
consolidate with, merge with or transfer all, or substantially all, of its
properties or assets to another entity unless such successor entity assumes the
obligations of the Company hereunder and unless, after giving effect thereto,
(i) no event shall have occurred and be continuing which , after notice or lapse
of time, would become an Event of Default hereunder, (ii) immediately after such
transaction, the successor entity shall have a consolidated net worth not less
than the Company's consolidated net worth after consummation of such transaction
and (iii) if the successor entity
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is a holding company, such entity's subsidiaries shall provide unconditional
guarantees of the Company's obligations under this Note.
3. EVENTS OF DEFAULT.
3.1 DEFINITION. For purposes of this Note, an Event of Default shall
be deemed to have occurred:
(a) if the Company fails to pay on any Interest Payment Date the
full amount of interest then accrued and payable with respect to the Note (and
such failure continues for a period of fifteen days);
(b) if the Company fails to pay when due the full amount of any
principal payment on the Note;
(c) any voluntary or involuntary insolvency, bankruptcy,
receivership, custodianship, liquidation, dissolution, reorganization,
assignment for the benefit of creditors, appointment of a custodian, receiver,
trustee or other officer with similar powers or any other proceeding for the
liquidation, dissolution or the winding up of the Company (a "Proceeding"), and
either (A) the Company by any act indicates its approval thereof, consent
thereto or acquiescence therein or (B) any such proceeding is not dismissed
within 60 days after its initiation;
(d) if the Company fails to perform or comply with any covenant
contained herein or in the performance of the Registration Rights Agreement (as
defined below); or
(e) if an event of default has occurred under the agreements
evidencing the Senior Debt and the holder of such Senior Debt exercises its
right to accelerate (and make due and payable immediately) all amounts
outstanding under the Senior Debt.
3.2 CONSEQUENCES OF EVENTS OF DEFAULT. Subject to the terms of
SECTION 7 below, if any Event of Default under SECTION 3.1(c) above has
occurred, then all amounts outstanding under this Note shall immediately become
due and payable, or (subject to the terms of SECTION 7 below) if any other Event
of Default has occurred the Holder may declare (by written notice delivered to
the Company) all or any portion of the outstanding principal amount of this Note
due and payable and demand immediate payment of all or any portion of the
outstanding principal amount of the Note. If the Holder demands immediate
payment of all or any portion of this Note pursuant to the terms of this SECTION
3.2, the Company shall pay the Holder the principal amount of this Note
requested to be paid plus accrued interest thereon immediately upon the initial
declaration of acceleration; provided that if within 45 days after this Note
shall have become due and payable pursuant to this SECTION 3.2, the Company
shall pay all arrears of interest on this Note and payments on account of the
principal (if any) on this Note which shall have become due otherwise than by
acceleration (with interest on such overdue
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principal (if any) and overdue interest at the rate specified in this Note), and
all Events of Default (other than nonpayment of principal, and interest on, this
Note due and payable solely by virtue of acceleration) shall be remedied within
such 45-day period, than any such acceleration shall automatically be rescinded
and annulled. The rights of the Company to remedy a default as set forth in the
foregoing sentence shall immediately terminate upon the issuance of Private
Placement Convertible Debentures (as hereinafter defined) if such Private
Placement Convertible Debentures do not also contain a similar right.
4. CONVERSION.
(a) At the option of Holder, the outstanding principal balance of and all
accrued and unpaid interest on this Note, is convertible, in whole or in part,
at any time after the first anniversary of the date of execution of this Note
through the date on which the entire principal balance of and all accrued and
unpaid interest on this Note is paid and/or converted as herein provided, into
that number of shares (the "CONVERSION SHARES") of the Common Stock of the
Company, calculated by dividing the Conversion Price (as defined below) in
effect at the time of each conversion into the then outstanding principal
balance and accrued and unpaid interest that is being converted. This Note will
be deemed to have been converted by the Holder, who will be deemed for all
purposes to have become the registered holder of the Conversion Shares issuable
upon such conversion, by and on the date of surrender of this Note to the
Company at the Company's principal office. As soon as practicable after such
surrender of this Note, and in any event within twenty (20) days thereafter, the
Company, at its expense, will cause to be issued in the name of and delivered to
Holder a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock of the Company to which Holder shall be
entitled upon such conversion.
(b) Notwithstanding the reference to "the first anniversary" in the first
sentence of SECTION 4(a) above, in the event the Company desires to consummate a
registration of its Common Stock prior to the first anniversary hereof, the
Holder shall have the right to immediately convert this Note pursuant to the
terms of SECTIONS 4 AND 5 herein and shall have the opportunity to include in
such registration the Conversion Shares pursuant to SECTION 2.2 of the
Registration Rights Agreement (as defined below). The Company shall provide the
Holder with prior written notice of its intention to consummate a registration
of its Common Stock and the Holder shall have five business days (after delivery
of such written notice) to exercise such right by providing written notice to
the Company within such five business day period.
5. CONVERSION PRICE AND ADJUSTMENT. The price at which this Note shall
be convertible into Conversion Shares (the "CONVERSION PRICE") initially shall
be $9.80 per share, subject to adjustment pursuant to this SECTION 5.
(a) If the Company at any time (i) subdivides (by any stock split,
stock dividend or otherwise) one or more classes of its outstanding shares
of Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision will be proportionately
reduced and the number of Conversion Shares shall
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be proportionately increased, and (ii) if the Company at any time combines
(by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased and the number of Conversion Shares shall be
proportionately decreased.
(b) In the event that:
(1) subject to the provisions of this Note, the Company shall
declare any cash dividend upon its Common Stock, or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any
subdivision or combination of its outstanding shares of Common Stock, or
consolidation or merger of the Company with, or sale or lease of all or
substantially all of its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holders
of this Note:
(i) at least 10 days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, lease, dissolution, liquidation or winding up,
at least 10 days' prior written notice of the date when the same shall take
place.
Such notice in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the foregoing clause (ii) shall
also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
Each such written notice
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shall be given by first class mail, postage prepaid, addressed to the
Holder at the address of the Holder as shown on the books of the Company
and shall be effective three (3) days after mailing.
6. RESERVATION OF SHARES, FRACTIONAL SHARES.
(a) The Company hereby agrees that at all times it shall reserve for
issuance and delivery upon conversion of this Note such number of shares of its
Common Stock as shall be required for issuance and delivery upon conversion of
this Note.
(b) No fractional shares shall be issued upon conversion of this
Note. With respect to any fraction of a share called for upon conversion of
this Note, the Company shall pay to Holder an amount in cash equal to such
fraction multiplied by the then current market value of a share of Common Stock,
determined as follows:
(i) if the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
the current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of
conversion of this Note or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange; or
(ii) if the Common Stock is not listed or admitted to unlisted
trading privileges the current value shall be the mean of the last
reported bid and ask prices reported by the National Quotation Bureau,
Inc., on the last business day prior to the date of the conversion of
this Note; or
(iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not so
reported, the current value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of
the Company.
7. SUBORDINATION.
(a) SUBORDINATION OF NOTE TO SENIOR INDEBTEDNESS. The Company and
Holder covenant and agree that all amounts (including all principal,
interest, premiums and other payments) payable by the Company with respect
to this Note (the "SUBORDINATED DEBT") are not secured in any manner and
shall be subordinate and subject in right of payment to the prior payment
in full in cash of any Senior Debt, and that each holder of Senior Debt (a
"Senior Holder"), whether now outstanding or hereafter created, incurred,
assumed or guaranteed, shall be deemed to have acquired Senior Debt in
reliance upon the provisions contained in this SECTION 7. The holder of
this Note also agrees to execute any other documents or instruments which
may be required by any financial institution holding Senior Debt in order
to further memorialize the subordinated nature of this Note,
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including, without limitation, but subject to the provision hereinafter set
forth, a subordination agreement which may have more restrictive terms than
the terms set forth in this Note (in which case the terms of any such
subordination agreement shall govern in the event of a conflict); provided,
however, (a) no subordination provision shall contain terms restricting
payment of this Note in accordance with its terms as long as notice of
default with respect to the Senior Debt has not been given by the holder
thereof to either the Company or the Holder, and (b) in the event the
Company issues any convertible debentures in connection with a private
placement ("Private Placement Convertible Debentures"), this Note will be
PARI PASSU in right of payment with such Private Placement Convertible
Debentures and in no event will the subordination provisions set forth
herein be more restrictive than the terms of the subordination provisions
of any such Private Placement Convertible Debentures.
(b) DEFINITIONS.
(i) "SENIOR DEBT" means any Indebtedness of the Company, whether
outstanding on the date of this Note or hereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company, unless the
instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior or superior, in right of payment, to this Note
or other Indebtedness which is PARI PASSU with, or subordinated to, this
Note; PROVIDED, that in no event shall Senior Debt include (a) Indebtedness
of the Company owed or owing to any subsidiary of the Company or any
officer, director or employee of the Company or any subsidiary of the
Company, (b) Indebtedness to trade creditors, or (c) any liability for
taxes owed or owing by the Company.
(ii) "CAPITALIZED LEASE OBLIGATIONS" means rental obligations
under a lease that are required to be capitalized for financial reporting
purposes in accordance with generally accepted accounting principles
("GAAP"), and the amount of Indebtedness represented by such obligations
shall be the capitalized amount of such obligations, as determined in
accordance with GAAP.
(iii) "INDEBTEDNESS" of any person or entity means, without
duplication, (a) all liabilities and obligations, contingent or otherwise,
of any such person or entity, (i) in respect of borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such person
or entity or only to a portion thereof), (ii) evidenced by bonds, notes,
debentures or similar instruments, (iii) representing the balance deferred
and unpaid of the purchase price of any property or services, except such
as would constitute trade payables to trade creditors in the ordinary
course of business that are not more than ninety (90) days past their
original due date, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money
relating to a Capitalized Lease Obligation, or (vi) evidenced by a letter
of credit or a reimbursement obligation of such person or entity with
respect to any letter of credit; (b) all net obligations of such person or
entity under Interest Swap and Hedging
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<PAGE>
Obligations; (c) all liabilities of others of the kind described in the
preceding clause (a) or (b) that such person or entity has guaranteed or
that is otherwise its legal liability and all obligations to purchase,
redeem or acquire any Common Stock; and (d) any and all deferrals,
renewals, extensions, refinancings and refundings (whether direct or
indirect) of any liability of the kind described in any of the preceding
clauses (a), (b) or (c), or this clause (d), whether or not between or
among the same parties.
(iv) "INTEREST SWAP AND HEDGING OBLIGATIONS" means any obligation
of any person or entity pursuant to any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
exchange agreement, currency exchange agreement or any other agreement or
arrangement designed to protect against fluctuations in interest rates or
currency values, including, without limitation, any arrangement whereby,
directly or indirectly, such person or entity is entitled to receive from
time to time periodic payments calculated by applying either a fixed or
floating rate of interest on a stated notional amount in exchange for
periodic payment made by such person or entity calculated by applying a
fixed or floating rate of interest on the same notional amount.
(c) PAYMENT SUSPENSION.
(i) If and so long as a Senior Default (as defined below) has
occurred and is continuing, then, upon notice to the Holder of such Senior
Default, except as otherwise set forth below in this SECTION 7(c), the
Company shall not make, and the holders of the Subordinated Debt shall not
accept or receive from the Company, directly or indirectly, in cash or
other property in any other manner (including, without limitation, from or
by way of any collateral or redemption or sale) payment of all or any part
of the Subordinated Debt prior to the Maturity Date thereof unless and
until THE EARLIER OF (A) the Senior Debt has been paid in full or (B) the
Senior Default has been cured by the Company or waived by the holders of
the Senior Debt, in each case in accordance with the terms of the relevant
agreements governing such Senior Debt.
(ii) If there is a Senior Default which results in the Company
not making a payment of principal or interest of Subordinated Debt pursuant
to the terms hereof, the Company shall promptly provide to the holder of
this Note written notice of such Senior Default.
(iii) "SENIOR DEFAULT" means the occurrence and continuance
(after any applicable grace period) of a default in payment of all or any
part of the Senior Debt, a default in the financial covenants under the
Senior Debt (including any current or coverage ratios or any net worth or
debt-to-equity tests) or any other event of default under any agreement
governing any Senior Debt
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<PAGE>
(d) LIQUIDATION, WINDING UP, ETC. Upon any distribution of assets of
the Company or upon any dissolution, winding up, liquidation or
reorganization of the Company, whether pursuant to a Proceeding or
otherwise:
(i) the holders of all Senior Debt shall be entitled to receive
payment in full of the principal thereof, the interest due thereon and any
premium or other payment obligation with respect thereto before the holders
of the Subordinated Debt are entitled to receive any payment upon the
Subordinated Debt; and
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, by set-off or
otherwise, to which the holders of the Subordinated Debt would be entitled
but for the provisions of this SECTION 7 shall be paid by the liquidating
trustee or agent or other person or entity making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Senior Debt or their
agents or representatives or to the trustee or trustees under any indenture
under which any instruments evidencing any of such Senior Debt may have
been issued, ratably according to the aggregate amounts remaining unpaid on
account of the principal of, interest on and any premium or other amounts
payable with respect to the Senior Debt held or represented by each such
holder, to the extent necessary to make payment in full of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of the Senior Debt.
The consolidation of the Company with, or the merger of the Company into,
another entity shall not be deemed a dissolution, winding up, liquidation or
reorganization of the Company for the purposes of this SECTION 7(d) if such
other entity is organized in the United States and such entity, as a part of
such consolidation or merger, succeeds to the Company's property and business
and assumes the Company's obligations (including the Senior Debt and the
Subordinated Debt).
(e) PAYMENT HELD IN TRUST. All payments or distributions by the Company
upon or with respect to the Subordinated Debt which are received by the holders
hereof in violation of or contrary to the provisions of SECTIONS 7(c) OR 7(d)
above shall be received in trust for the benefit of the holders of the Senior
Debt and shall be paid over upon demand to such holders in the same form as so
received (with all necessary endorsements) to be applied to the payment of the
Senior Debt.
(f) ACCELERATION AND REMEDIAL ACTIONS. Notwithstanding anything herein to
the contrary, so long as any Senior Debt is outstanding, for a period of 180
days after notice is provided to the Holder of a Senior Default, no notice of
acceleration shall be given or, if given, shall be effective with respect to
this Note, and the holder of this Note will not ask for, demand, sue for, take
or receive from the Company, by setoff or in any other manner, the whole or any
part of any monies which may now or hereafter be owing by the Company to the
holder of this Note with respect to the Subordinated Debt prior to the Maturity
Date or participate as one of
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<PAGE>
the initial petitioning creditors in an involuntary petition under the U.S.
Bankruptcy Code or similar insolvency statute against the Company with respect
to the Subordinated Debt prior to the Maturity Date; provided, however, the
restrictions of this SECTION 7(f) shall no longer apply upon the first to occur
of the following: (i) the institution of bankruptcy proceeding by or against the
Company, (ii) commencement of foreclosure proceedings by the holders of Senior
Debt on the collateral securing the Senior Debt or (iii) the payment or other
satisfaction of all of the Senior Debt and the termination of the obligations
(if any) of the holders of Senior Debt to extend any Senior Debt.
(g) SUBROGATION. Upon receipt by the holders of the Senior Debt of
amounts sufficient to pay all Senior Debt in full, to the extent any amounts
which are otherwise payable with respect to the Subordinated Debt, but for the
provisions of this SECTION 7, have been paid over to the holders of the Senior
Debt, the holders of the Subordinated Debt shall be subrogated to the rights of
the holders of Senior Debt to receive payments or distributions of cash,
property or securities of the Company applicable to Senior Debt until the
Subordinated Debt is paid in full, and no such payments or distributions to the
holders of the Senior Debt of cash, property or securities otherwise
distributable to the holders of Subordinated Debt shall, as between the Company,
its creditors (other than the holders of Senior Debt) and the holders of the
Subordinated Debt, be deemed to be payment by the Company to the holders of the
Senior Debt. The provisions of this SECTION 7 shall continue to be effective or
be reinstated, as the case may be, if at any time any payment of any of the
Senior Debt is rescinded or must otherwise be returned by the holders of the
Senior Debt for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Company) all as though such
payment had not been made.
8. REGISTRATION. Upon any conversion of this Note, the Common Stock
issued to the Holder will not be registered under the Securities Act of 1933
(the "Act"), and may not be transferred except pursuant to an effective
registration under the Act or in a transaction which, in the opinion of counsel
reasonably satisfactory to the Company, qualifies as an exempt transaction under
the Act and the rules and regulations promulgated thereunder; PROVIDED, HOWEVER,
the Holder shall have the right to require the Company to register the Common
Stock received in connection with such conversion pursuant to the terms of that
certain Registration Rights Agreement, dated of even date herewith, by and
between the Company and the Holder.
9. ESCROW. Pursuant to the Purchase Agreement, this Note is to be held
in escrow in accordance with the terms of that certain Indemnity Escrow
Agreement, dated of even date herewith, by and among the Holder, the Company and
River North Studios, Inc.
10. AMENDMENT AND WAIVER. Except as otherwise expressly provided herein,
the provisions of this Note may be amended, and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Holder.
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<PAGE>
11. CANCELLATION. After all principal and accrued interest at any time
owed on this Note has been paid in full, this Note shall be surrendered to the
Company for cancellation and shall not be reissued.
12. MANNER OF PAYMENT. If any payment of principal or interest on this
Note shall become due on a Saturday, Sunday or a bank or legal holiday under the
laws of the State of Illinois, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing interest in connection with such payment. Payments of principal and
interest are to be delivered to the Holder at the address indicated on the
Company's records, to such other address or to the attention of such other
person as specified by prior written notice to the Company or by wire transfer
of immediately available federal funds to an account designated, in writing, by
the Holder.
13. NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new note containing the same terms and conditions and
representing in the aggregate the principal amount of this Note, and any such
new Note will represent such portion of such principal amount as is designated
by the Holder at the time of such surrender. The date the Company initially
issues this Note will be deemed to be the "DATE OF ISSUANCE" hereof regardless
of the number of times any new note or notes shall be issued.
14. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note.
15. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Delaware, without giving effect to provisions thereof regarding
conflict of laws.
16. ASSIGNMENT.
(a) Except upon distribution from the escrow described in SECTION 9
hereof, this Note may not be assigned by Holder without the prior written
consent of the Company; PROVIDED, HOWEVER, upon distribution from escrow, the
Note may be assigned to the holders, at that time, of the Company's $3,125,000
Convertible Promissory Note, all on a pro rata basis. Upon any such transfer,
the Company shall issue replacement notes to such assignees, and such assignees
shall have all of the rights and be subject to all of the obligations, terms and
conditions set forth in this Note. In the event of an assignment pursuant to the
terms of this SECTION 16, the Holder hereof and all subsequent assignees agree
that if an Event of Default has occurred hereunder, all holders of this Note
(i.e. the Holder and all assignees) must agree as a group to accelerate the
amounts due under this Note with the intention being that one such holder can
not individually accelerate without all of the other holders joining in such
acceleration.
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<PAGE>
(b) This Note may not be assigned by the Company without the prior
written consent of Holder; PROVIDED, HOWEVER, that the Company may assign the
obligations of this Note without Holder's consent in the event of the sale or
transfer of substantially all of the assets of the Company (whether by merger or
otherwise) if the covenants set forth herein have been complied with in all
material respects and the purchaser or transferee of the assets of the Company
assumes the obligations hereunder.
17. EXPENSES. If an Event of Default has occurred, the Company shall pay
the Holder all costs and expenses, including reasonable attorney's fees,
incurred by the holder in enforcing its rights hereunder.
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<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered this Note as of
the date first written above.
PLATINUM ENTERTAINMENT, INC.
By: /s/ Steven Devick
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Its: Chief Executive Officer and President
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<PAGE>
Exhibit 4.4
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- --------------------------------------------------------------------------------
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR ANY SUCH STATE
SECURITIES LAWS WHICH MAY BE APPLICABLE.
No. 1
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
PLATINUM ENTERTAINMENT, INC.
Void after January 31, 2002
Dated: January 31, 1997
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<PAGE>
TABLE OF CONTENTS
SECTION HEADING PAGE
SECTION 1. EXERCISE OF WARRANT........................................2
SECTION 2. ADJUSTMENT OF APPLICABLE PERCENTAGE........................2
Section 2.1. Adjustment of Applicable Percentage...................2
Section 2.2. Adjustment of Applicable Percentage...................3
Section 2.3. Notice of Adjustments.................................3
SECTION 3. MERGERS, CONSOLIDATIONS, SALES.............................3
SECTION 4. DISSOLUTION OR LIQUIDATION.................................4
SECTION 5. NOTICE OF EXTRAORDINARY DIVIDENDS..........................4
SECTION 6. FRACTIONAL SHARES..........................................4
SECTION 7. FULLY PAID STOCK, TAXES....................................4
SECTION 8. CLOSING OF TRANSFER BOOKS..................................5
SECTION 9. RESTRICTIONS ON TRANSFERABILITY OF WARRANTS AND SHARES,
COMPLIANCE WITH LAWS.......................................5
Section 9.1. In General............................................5
Section 9.2. Restrictive Legends...................................5
Section 9.3. Notice of Proposed Transfer, Registration Not
Required..............................................6
Section 9.4. Demand Registration...................................6
Section 9.5. Participation in Registered Offerings ("Piggyback
Rights")..............................................8
Section 9.6. Obligations of Investors..............................8
Section 9.7. Registration Proceedings..............................9
Section 9.8. Expenses.............................................11
Section 9.9. Indemnification of Investors.........................12
Section 9.10. Indemnification of Company...........................13
Section 9.11. Contribution.........................................14
Section 9.12. Reporting Requirements under Securities Exchange Act
of 1934..............................................14
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT...................14
<PAGE>
Section 10.1. Partial Exercise.....................................14
Section 10.2. Assignment...........................................15
SECTION 11. DEFINITIONS...............................................15
SECTION 12. LOST, STOLEN WARRANTS, ETC................................17
SECTION 13. WARRANT HOLDER NOT SHAREHOLDER............................17
SECTION 14. SEVERABILITY..............................................17
SECTION 15. INDEX AND CAPTIONS........................................18
Signature Page................................................................19
Annex A Securities Act Representations
-ii-
<PAGE>
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR ANY SUCH STATE
SECURITIES LAWS WHICH MAY BE APPLICABLE.
No. 1
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
PLATINUM ENTERTAINMENT, INC.
THIS IS TO CERTIFY that, for value received and subject to the provisions
hereinafter set forth,
BANK OF MONTREAL
or permitted assigns,
is entitled to purchase from Platinum Entertainment, Inc., a Delaware
corporation (the "Company"), at any time to and including 5:00 p.m. (Chicago
time) on January 31, 2002 (the "Expiration Date"), that number of shares of
Common Stock of the Company of the par value of $.001 per share which, after
giving effect to such purchase, and prior to giving effect to any adjustments
provided for under Section 2 hereof, represents 5% (the "Applicable Percentage")
of the number of shares of Common Stock of the Company outstanding at the time
of such purchase (but without giving effect to such purchase) for an aggregate
price of $2,585.72 (the "Aggregate Warrant Price"), all on and subject to the
terms, provisions and conditions hereinafter set forth. The initial number of
shares of Common Stock of the Company purchasable hereunder is 258,571.95.
The terms which are capitalized herein shall have the meanings specified in
Section 11 unless the context shall otherwise require.
SECTION 1. EXERCISE OF WARRANT; RESERVATION.
Subject to the conditions hereinafter set forth, this Warrant may be
exercised in whole at any time or in part from time to time prior to the
Expiration Date by the surrender of this Warrant (accompanied by (i) the
subscription form at the end hereof duly executed and (ii) if this Warrant is
not registered in the name of the purchaser, an assignment(s) in the form
attached hereto evidencing the assignment of this Warrant to such purchaser, in
which case the registered holder shall have complied with the provisions set
forth in Section 9.3) at the principal office of the Company in Downers Grove,
Illinois, and upon payment to the Company of the
<PAGE>
Aggregate Warrant Price (or, if exercised in part, upon payment to the
Company of the applicable Proportionate Part of the Aggregate Warrant Price)
for the shares so purchased in funds current in Chicago, Illinois.
This Warrant and all rights and options hereunder shall expire on the
Expiration Date, and shall be wholly null and void to the extent this Warrant is
not exercised before it expires.
Upon exercise of this Warrant, the holder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
Underlying Shares so purchased are being acquired solely for the holder's own
account and not as a nominee for any other party, for investment, and not with a
view toward distribution or resale and that such holder is an Accredited
Investor (as defined in Annex A hereto). If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.
The Company shall pay all reasonable expenses, taxes and other charges
payable in connection with the preparation, execution and delivery of stock
certificates pursuant to this Section, regardless of the name or names in which
such stock certificates shall be registered.
The Company will at all times prior to the Expiration Date reserve and keep
available such number of authorized shares of its Common Stock, solely for the
purpose of issue upon the exercise of the rights represented by this Warrant as
herein provided for, as may at any time be issuable (based upon the number of
shares of Common Stock outstanding at any such time) upon the exercise of this
Warrant and such shares issuable upon the exercise of this Warrant shall at no
time have an aggregate par value which is in excess of the Aggregate Warrant
Price then in effect.
SECTION 2. ADJUSTMENT OF APPLICABLE PERCENTAGE.
Section 2.1. Adjustment of Applicable Percentage. In the event
that, on or prior to the Credit Agreement Termination Date, the Company shall at
any time issue any Qualifying Additional Shares of Common Stock, the Applicable
Percentage shall be adjusted as of the date of making by the Company of the
related Qualifying Credit Agreement Payment to that percentage determined by
multiplying the Applicable Percentage as in effect immediately prior to the
making of such Qualifying Credit Agreement Payment by a fraction:
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Qualifying Additional Shares of Common Stock, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately subsequent to the issuance of such
Qualifying Additional Shares of Common Stock and giving effect to such
issuance (but not to the issuance of any Common Stock not constituting
Qualifying Additional Shares of Common Stock).
Section 2.2. Adjustment of Applicable Percentage. In the event
that, subsequent to the Credit Agreement Termination Date, the Company shall at
any time issue any shares of Common Stock, the Applicable Percentage shall be
adjusted as of the date of such issuance to that percentage expressing a
fraction, the numerator of which shall be the number of shares of Common Stock
(adjusted for intervening stock splits, stock dividends, reverse stock splits or
other reclassifications) purchaseable by the holder hereof on the Credit
Agreement Termination Date and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately subsequent to the
issuance of said shares of Common Stock and giving effect to such issuance.
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Section 2.3. Notice of Adjustments. Whenever the Applicable
Percentage shall be adjusted pursuant to this Section 2, the Company shall
promptly prepare a certificate signed by the President or a Vice President and
by the Treasurer or an Assistant Treasurer of the Company setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment and the method by which such adjustment was calculated, and shall
promptly cause copies of such certificate to be mailed (by first class mail,
postage prepaid) to the holder of this Warrant.
SECTION 3. MERGERS, CONSOLIDATIONS, SALES.
In the case of any consolidation or merger of the Company with another
entity, or the sale of all or substantially all of its assets to another entity,
or any reorganization, recapitalization or reclassification of the Common Stock
or other equity securities of the Company, then, as a condition of such
consolidation, merger, sale, reorganization, recapitalization or
reclassification, lawful and adequate provision shall be made whereby the holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore purchasable hereunder, such shares of
stock, securities or assets as may (by virtue of such consolidation, merger,
sale, reorganization or reclassification) be issued or payable with respect to
or in exchange for a number of outstanding shares of Common Stock equal to the
number of shares of Common Stock immediately theretofore so purchasable
hereunder had such consolidation, merger, sale, reorganization, recapitalization
or reclassification not taken place, and in any such case, appropriate
provisions shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon exercise of this Warrant. The Company
shall not effect any such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof, the successor entity (if other
than the Company) resulting from such consolidation or merger or the entity
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the holder of this Warrant, the obligation to deliver to such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to receive.
SECTION 4. DISSOLUTION OR LIQUIDATION.
In the event of any proposed distribution of the assets of the Company in
dissolution or liquidation except under circumstances when the foregoing Section
3 shall be applicable, the Company shall mail notice thereof to the holder of
this Warrant and shall make no distribution to shareholders until the expiration
of 30 days from the date of mailing of the aforesaid notice and, in any such
case, the holder of this Warrant may exercise the purchase rights with respect
to this Warrant within 30 days from the date of mailing such notice and all
rights herein granted not so exercised within such 30-day period shall
thereafter become null and void.
SECTION 5. NOTICE OF EXTRAORDINARY DIVIDENDS.
If the Board of Directors of the Company shall declare any dividend or
other distribution on its Common Stock except out of earned surplus or by way of
a stock dividend payable on its Common Stock, the Company shall mail notice
thereof to the holder of this Warrant not less than 30 days prior to the record
date fixed for determining shareholders entitled to participate in such dividend
or other distribution and the holder of this Warrant shall not participate in
such dividend or other distribution or be entitled to any rights on account or
as a result thereof unless and to the extent that this Warrant is exercised
prior to such record date. The provisions of this paragraph shall not apply to
distributions made in connection with transactions covered by Section 3.
SECTION 6. FRACTIONAL SHARES.
Fractional shares may be issued upon the exercise of this Warrant in any
case where the holder hereof would be entitled to receive a fractional share
upon the exercise of this Warrant in order to receive the appropriate percentage
of shares of Common Stock.
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SECTION 7. FULLY PAID STOCK, TAXES.
The Company covenants and agrees that the shares of stock represented by
each and every certificate for its Common Stock to be delivered on the exercise
of the purchase rights herein provided for shall, at the time of such delivery,
be validly issued and outstanding and be fully paid and nonassessable. The
Company further covenants and agrees that it will pay when due and payable any
and all Federal and State taxes (but not including income taxes) which may be
payable in respect of this Warrant or any Common Stock or certificates therefor
upon the exercise of the conversion rights provided for herein. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the transfer and delivery of stock certificates in
the name other than that of the holder exercising this Warrant, and any such tax
shall be paid by such holder at the time of presentation.
SECTION 8. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any period
that the stock transfer books of the Company for its Common Stock may be closed.
The Company shall not be required, however, to deliver certificates of its
Common Stock upon such exercise while such books are duly closed for any
purpose, but the Company may postpone the delivery of the certificates for such
Common Stock until the opening of such books, and they shall, in such case, be
delivered forthwith upon the opening thereof, or as soon as practicable
thereafter.
SECTION 9. RESTRICTIONS ON TRANSFERABILITY OF WARRANTS AND SHARES,
COMPLIANCE WITH LAWS.
Section 9.1. In General. This Warrant and the Common Stock issued
upon the exercise hereof shall not be transferable except upon the conditions
hereinafter specified, which conditions are intended to insure compliance with
the provisions of the Securities Act and any applicable State securities laws in
respect of the transfer of this Warrant or any such Common Stock.
Section 9.2. Restrictive Legends. Each Warrant shall bear on the
face thereof a legend substantially in the form of the notice endorsed on the
first page of this Warrant.
Each certificate for shares of Common Stock initially issued upon the
exercise of any Warrant and each certificate for shares of Common Stock issued
to a subsequent transferee of such certificate shall, unless otherwise permitted
by the provisions of this Section 9.2, bear on the face thereof a legend reading
substantially as follows:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, or any State securities laws and may not be sold,
transferred, hypothecated or assigned in the absence of such
registration or an exemption therefrom under said Act and
any such State securities laws which may be applicable."
In the event that a registration statement covering the Underlying Shares
or the Restricted Stock shall become effective under the Securities Act and
under any applicable State securities laws or in the event that the Company
shall receive an opinion of its counsel that, in the opinion of such counsel,
such legend is not, or is no longer, necessary or required (including, without
limitation, because of the availability of the exemption afforded by Rule 144 of
the General Rules and Regulations of the Securities and Exchange Commission),
the Company shall, or shall instruct its transfer agents and registrars to,
remove such legend from the certificates evidencing the Restricted Stock or
issue new certificates without such legend in lieu thereof. Upon the written
request of the holder or holders of any Warrant or of any Restricted Stock the
Company covenants and agrees forthwith to request its counsel to render an
opinion with respect to the matters covered by this Section 9.2 and to bear all
expenses in connection with the same.
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Section 9.3. Notice of Proposed Transfer, Registration Not Required.
The holder of each Warrant or any Restricted Stock, by acceptance thereof,
agrees to give prior written notice to the Company of such holder's intention to
transfer such Warrant or the Underlying Shares relating thereto or such
Restricted Stock (or any portion thereof), describing briefly the manner and
circumstances of the proposed transfer; provided, however, that no such notice
shall be required for a transfer under a registration, qualification or filing
for exemption requested in accordance with the provisions of Section 9.4 or for
the transfer of this Warrant or any Underlying Shares in their entirety to any
direct or indirect parent, subsidiary or corporate affiliate of the initial
holder of this Warrant. In addition, in the event that such transfer is
proposed to be made in compliance with an exemption from the registration
requirements of the Securities Act, the availability of which exemption is
dependent upon the accuracy of the representations set forth in Annex A hereto,
the holder (or the proposed transferee) shall, as a precondition to such
transfer, provide to the Company a certificate of the proposed transferee
containing said representations. In the event that such transferee cannot make
such representations because they would be factually incorrect, it shall be a
condition to the transfer of this Warrant to such transferee that the Company
receive such other representations as the Company considers reasonably necessary
to assure the Company that the transfer of this Warrant shall not violate any
United States or state securities laws. Such notice shall describe briefly the
nature of such transfer, and no such transfer shall be made unless and until (i)
the holder has supplied to the Company an opinion of counsel for the holder
(which counsel shall be satisfactory to the Company) to the effect that no
registration (or perfection of an exemption) under the Securities Act is
required with respect to such transfer (which opinion may be conditioned upon
the transferee's assuming the obligations of a holder of this Warrant under this
Section 9.3) or (ii) an appropriate registration statement with respect to such
sale or other disposition of the Warrant or Restricted Stock shall have been
filed by the Company with the Commission and declared effective by the
Commission. All fees and expenses of counsel (including counsel designated by
any holder of Warrants or Restricted Stock) in connection with the rendition of
the opinions provided for in this subparagraph shall be paid by the Company. As
used in this Section 9.3, the term "transfer" includes an assignment pursuant to
Section 10.2 hereof.
Section 9.4. Demand Registration. At any time after the first to
occur of (i) January 31, 1998 or (ii) in the event that an Event of Default
shall have occurred and then be continuing, July 31, 1997, the Investors (or
their permitted transferees) may demand registration under the Securities Act of
any Underlying Shares issuable upon conversion of any Warrant or Restricted
Stock of the Company obtained pursuant to the conversion of the Warrants
(collectively, on a Common Stock equivalent basis, the "Registrable
Securities"), or otherwise, on Form S-1 or any similar long-form registration
("Long-Form Registration") or Form S-2 or S-3 or any similar short-form
registration ("Short-Form Registration"). The registration requested pursuant
to this Section 9.4 is referred to herein as "Demand Registration."
(A) Number of Registrations. The Investors shall be entitled to demand
one Long-Form or Short-Form Registration. A registration will count as the
Demand Registration when it has become effective, unless (i) the Investors are
unable to register and sell at least 80% of any Registrable Securities demanded
to be included in such registration or (ii) the registration is withdrawn prior
to effectiveness at the request of the Investors (or by the underwriter selected
by the Investors) as a consequence of the good faith determination by the
underwriter selected by the Investors that a sale under then current market
conditions of at least 80% of any Registrable Securities demanded to be included
in such registration could not be effected under commercially reasonably terms;
provided that in any event, the Company will pay all registration expenses in
connection with any registration initiated as a Demand Registration as provided
in Section 9.8 hereof.
(B) Priority on Demand Registrations. If the Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be included exceeds the number of Registrable Securities which, under then
current market conditions, can be sold in such offering at the price expected to
be obtained for such shares by the Investors in a commercially reasonable sale,
the Company will include in such registration prior to the inclusion of any
securities which are not Registrable Securities owned by the Investors the
number of shares of Investors' Underlying Shares or Restricted Stock requested
to be included which in the opinion of such underwriters can be sold, pro rated
among the Investors based upon the number of Registrable Securities owned by
them. In the event that the Demand Registration is an underwritten offering,
and all Registrable Securities which the Investors requested to be included in
such offering are to be so included, then, to the extent that the managing
underwriter shall advise the Company and the Investors that the inclusion of
additional shares of Common Stock in such offering will not materially and
adversely affect the price or salability of the Registrable Securities being
included in such offering, the Company may include such additional shares in the
related registration (whether such shares are proposed to be sold by the Company
or by other shareholders).
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(C) Restrictions on Demand Registration. Unless an Event of Default shall
have occurred and be continuing, the Company may postpone for a reasonable
period, not to exceed 90 days, the filing or the effectiveness of a registration
statement for a Demand Registration, if the Company has been advised by legal
counsel that such filing would require disclosure of a material fact that the
Company reasonably and in good faith determines would have a material adverse
effect on any proposal or plan by the Company or any of its subsidiaries to
engage in any significant transaction. In addition, the Company will not be
obligated to effect a Demand Registration unless it receives a written request
to do so from the holders of at least 50% of the outstanding Registrable
Securities, which request proposes to register not less than 50% of the then
outstanding Registrable Securities. The Company will not be obligated to effect
a Demand Registration within 180 days after the effective date of a registration
in which the Investors were given "Piggyback Rights" pursuant to Section 9.5.
(D) Selection of Underwriters. Selection of Underwriters. The Investors
will have the right to select the investment banker(s) and manager(s) to
administer the offering, subject to the Company's approval (which approval will
not be unreasonably withheld); provided, that the fees and expenses payable by
the Company to such persons are in accordance with industry standards.
Section 9.5. Participation in Registered Offerings ("Piggyback
Rights"). If the Company at any time or times proposes or is required to
register any of its Common Stock or other equity securities (whether such Common
Stock or other equity securities are owned by the Company or another holder
entitled to demand registration) for public sale for cash under the Securities
Act (other than on Forms S-4 or S-8 or similar registration forms), it will at
each such time or times give written notice to the Investors of its intention to
do so. Upon the written request of the Investors given within 20 days after
receipt of any such notice, the Company shall use its best efforts to cause to
be included in such registration any Registrable Securities held by the
Investors (or their permitted transferees) or Underlying Shares or shares of
Restricted Stock obtainable upon conversion of the Warrant and requested to be
registered under the Securities Act and any applicable state securities laws;
provided, that if such registration is a underwritten public offering and the
managing underwriter advises that less than all of the shares and Registrable
Securities to be registered should be offered for sale so as not materially and
adversely to affect the price or salability of the offering, the Investors and
any Qualifying Other Holders (but not the Company if such registration is a
primary registration and not the holder originally demanding the registration if
such registration is a secondary demand registration) shall reduce on a pro rata
basis the number of their shares of Common Stock (as if exercised or converted,
as the case may be) to be included in the registration statement as required by
the managing underwriter to the extent requisite to permit the sale or other
disposition (in accordance with the intended method of disposition thereof as
aforesaid) by the prospective seller or sellers of the securities so registered.
Section 9.6. Obligations of Investors. It shall be a condition
precedent to the obligation of the Company to register any Registrable
Securities pursuant to Section 9.4 and 9.5 hereof that the Investors shall
(i) furnish to the Company such information regarding the Registrable Securities
held and the intended method of disposition thereof and other information
concerning the Investors as the Company shall reasonably request and as shall be
required in connection with the registration statement to be filed by the
Company; (ii) agree to abide by such additional or customary terms affecting the
proposed offering as are applicable to shareholders (including holders of
Warrants, Underlying Shares or shares of Restricted Stock) in any such
registration as reasonably may be requested by the managing underwriter of such
offering, including a requirement, if applicable, to withhold from the public
market for a period of time requested by the managing underwriting not to exceed
180 days after any such offering, Warrants and any shares excluded from the
offering at the request of the underwriter as permitted under Section 9.4 and
9.5 hereof; and (iii) agree in writing in form satisfactory to the Company to
pay all underwriting discounts and commissions applicable to the securities
being sold by the Investors.
Section 9.7. Registration Proceedings. If and whenever the Company
is required by the provisions of Section 9.4 or Section 9.5 hereof to effect the
registration of the Registrable Securities under the Securities Act, until all
of the securities covered by such registration statement have been sold or for
nine months after effectiveness, whichever is the shorter period of time, the
Company shall:
(A) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective;
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(B) Prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective;
(C) Furnish to the Investors participating in such registration (the
"Participating Investors") and to the underwriters of the securities being
registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public
offering of such securities;
(D) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or "Blue
Sky" laws of such jurisdictions as such Participating Investors may
reasonably request within 20 days following the original filing of such
registration statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(E) Notify the Participating Investors, promptly after it shall
receive notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(F) Notify such Participating Investors promptly of any request by
the Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(G) Prepare and file with the Commission, promptly upon the request
of any such Participating Investors, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for
such Participating Investors, are required under the Securities Act or the
rules and regulations thereunder in connection with the distribution of the
Registrable Securities by such Participating Investors;
(H) Prepare and promptly file with the Commission and promptly notify
such Participating Investors of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct
any statements or omissions if, at the time when a prospectus relating to
such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading;
(I) In case any of such Participating Investors or any underwriter
for any such Participating Investors is required to deliver a prospectus at
a time when the prospectus then in circulation is not in compliance with
the Securities Act, the Company will prepare and file such supplements or
amendments to such registration statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of the Securities Act;
(J) Advise such Participating Investors, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order
should be issued;
(K) Not file any amendment or supplement to such registration
statement or prospectus to which counsel selected by a majority in interest
of such Participating Investors shall reasonably have objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at
least five business days prior to the filing thereof unless, in the case of
an amendment or supplement, in the opinion of counsel for the Company, the
filing of such amendment or supplement is reasonably necessary to protect
the Company from any liabilities under any applicable Federal or state law
and such filing will not violate applicable laws; and
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(L) At the request of any such Participating Investor, (i) use its
best efforts to obtain and furnish on the effective date of the
registration statement or, if such registration includes an underwritten
public offering, at the closing provided for in the underwriting agreement,
a customary opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, addressed to the
underwriters, if any, and to the Participating Investors making such
request, or, if the offering is not underwritten, shall state that such
registration statement has become effective under the Securities Act and
that: (a) to the best of such counsel's knowledge, no stop order
suspending the effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated under the
Securities Act; (b) the registration statement, related prospectus and each
amendment or supplement thereto comply as to form in all material respects
with the requirements of the Securities Act and applicable rules and
regulations of the Commission thereunder (except that such counsel need
express no opinion as to financial statements, financial data or schedules
contained therein); (c) such counsel has no reason to believe that either
the registration statement or the prospectus or any amendment or supplement
thereto contains any untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; (d) the description in the registration
statement or prospectus or any amendment or supplement thereto of all legal
and governmental matters and all contracts and other legal documents or
instruments described therein are accurate and fairly present the
information required to be shown; and (e) such counsel does not know of any
legal or governmental proceedings, pending or threatened, required to be
described in the registration statement or prospectus or any amendment or
supplement thereto which are not described as required, nor of any
contracts or documents or instruments of the character required to be
described in the registration statement or prospectus or amendment or
supplement thereto or to be filed as exhibits to the registration
statement, which are not described and filed as required; and (ii) in the
case of an underwritten offering, use its best efforts to obtain customary
letters dated such effective date, and such closing date, if any, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the Participating Investor or Investors,
stating that they are independent certified public accountants within the
meaning of the Securities Act and dealing with such matters as the
underwriters may request, or, if the offering is not underwritten, stating
that in the opinion of such accountants, the financial statements and other
financial data pertaining to the Company included in the registration
statement or the prospectus or any amendment or supplement thereto comply
in all material respects with the applicable accounting requirements of the
Securities Act.
Section 9.8. Expenses. With respect to each inclusion of
Registrable Securities in a registration statement pursuant to Section 9.4 or
9.5 hereof, all registration expenses, fees, costs and expenses of and
incidental to such registration, inclusion and public offering in connection
therewith shall be borne by the Company (including the reasonable fees and
disbursements of one counsel acting on behalf of the Participating Investors);
provided, however, that the Participating Investors shall bear their pro rata
share of the underwriting discount and commissions. The fees, costs and
expenses of registration to be borne by the Company shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of one counsel on behalf of the Participating Investors, fees and
disbursements of counsel and accountants for the Company (including the cost of
any special audit deemed necessary by counsel to the Company in order to effect
such registration), fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company and/or Participating Investors
are required to bear such fees and disbursements), all legal fees and
disbursements and other expenses of complying with state securities or "BLUE
SKY" laws of any jurisdiction in which the securities to be offered are to be
registered or qualified, and the premiums and other costs of policies of
insurance against liability arising out of such public offering which the
Company determines to obtain.
Section 9.9. Indemnification of Investors. Subject to the
conditions set forth below, in connection with any registration of Securities
pursuant to Section 9.4 or Section 9.5 hereof, the Company agrees to indemnify
and hold harmless (i) each Participating Investor and each director and officer
of each Participating Investor, (ii) any underwriter for the Company or acting
on behalf of any Participating Investor and (iii) each person, if any, who
controls any such Participating Investor within the meaning of Section 15 of the
Securities Act (hereinafter collectively referred to as "Company Indemnified
Parties" and individually referred to as a "Company Indemnified Party") as
follows:
(A) Against any and all loss, claim, damage and expense whatsoever
(including, but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing or defending any litigation, commenced
or threatened), arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any preliminary prospectus (if
used prior to the effective date of the registration statement), the
registration statement or the prospectus (as from time to time amended and
supplemented), or in any application or other document executed by the
Company or based
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upon written information furnished by the Company filed in any jurisdiction
in order to qualify the Company's securities under the securities laws
thereof; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein
not misleading; or any other violation of applicable federal or state
statutory or regulatory requirements or limitations relating to action or
inaction by the Company in the course of preparing, filing, or implementing
such registered offering; provided, however, that the indemnity agreement
contained in this Section 9.9(A) shall not apply to any loss, claim,
damage, liability or action arising out of or based upon any untrue or
alleged untrue statement or omission made in reliance upon and in
conformity with any information furnished in writing to the Company by or
on behalf of any Company Indemnified Party expressly for use in connection
therewith or arising out of any action or inaction of any such Company
Indemnified Party;
(B) Subject to the proviso contained in Section 9.9(A) above, against
any and all loss, liability, claim, damage and expense whatsoever to the
extent of the aggregate amount paid in settlement of any litigation,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission or any such alleged untrue statement or
omission (including, but not limited to, any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against any
such litigation or claim, but subject to the provisions of Section 9.9(C))
if such settlement is effected with the written consent of the Company;
(C) In no case shall the Company be liable under this Section 9.9
with respect to any claim made against any Company Indemnified Party unless
the Company shall be notified in writing sent by overnight courier or by
confirmed facsimile transmission followed by delivery of such notice by
overnight air courier sent on the date of such facsimile communication, of
any action commenced against such Company Indemnified Party, promptly after
such Company Indemnified Party shall have been served with the summons or
other legal process giving information as to the nature and basis of the
claim. The failure to so notify the Company, if prejudicial in any
material respect to the Company's ability to defend such claim, shall
relieve the Company from its liability to the Company Indemnified Party
under this Section 9.9, but only to the extent that the Company was so
prejudiced, but the failure to so notify the Company shall not relieve the
Company from any liability which it may have otherwise than on account of
this Section 9.9. The Company shall be entitled to participate at its own
expense in the defense of any suit brought to enforce any such claim, but
if the Company elects to assume the defense, such defense shall be
conducted by counsel chosen by it, provided that such counsel is reasonably
satisfactory to the Company Indemnified Parties, defendants in any suit so
brought. In the event the Company elects to assume the defense of any such
suit and retain such counsel, the Company Indemnified Parties, defendants
in the suit, shall, after the date they are notified of such election, bear
the fees and expenses of any counsel thereafter retained by them as well as
any other expenses thereafter incurred in connection with the defense
thereof; provided, however, that if the Company Indemnified Parties
reasonably believe that there may be available to them any defense or
counterclaim different than those available to the Company or that
representation of such Company Indemnified Parties by counsel for the
Company presents a conflict of interest for such counsel, then such Company
Indemnified Parties shall be entitled to defend such suit with counsel of
their own choosing and the Company shall bear the fees, expenses and other
costs of one counsel for all Company Indemnified Parties.
Section 9.10. Indemnification of Company. Each Participating
Investor severally and individually agrees to indemnify and hold harmless the
Company, each underwriter for the offering, and each of their officers and
directors and agents and each other person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act (hereinafter collectively
referred to as "Investor Indemnified Parties" and individually referred to as an
"Investor Indemnified Party") against any and all such losses, liabilities,
claims, damages and expenses as are indemnified against by the Company under
Section 9.9; Provided, However, that such indemnification by such Participating
Investors hereunder shall be limited to statements or omissions, if any, made
(or in settlement of any litigation effected with the written consent of such
Participating Investors, alleged to have been made) in any preliminary
prospectus, registration statement or prospectus or any amendment or supplement
thereof or any application or other document in reliance upon, and in conformity
with, written information furnished in respect of such Participating Investors
by or on behalf of such Participating Investors expressly for use in such
preliminary prospectus, registration statement or prospectus or amendment or
supplement thereof or in such application or other document or arising out of
any action or inaction of such Participating Investors in implementing such
registered offering. In case any action shall be brought against any Investor
Indemnified Party, in respect of which indemnity may be sought against any
Participating Investors, such Participating Investors shall have the rights and
duties given to the Company, and the Company and each other Investor Indemnified
Party shall have the rights and duties given to the Participating Investors, by
the provisions of Section 9.9(c) hereof. The Investor Indemnified Party
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agrees to notify the Participating Investors promptly after the assertion of any
claim against the Investor Indemnified Party in connection with the sale of the
Registrable Securities.
Section 9.11. Contribution. If the indemnification provided for in
Section 9.9 and 9.10 are unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the indemnified party, on one hand, and such indemnifying party, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, or liabilities (or actions in respect thereof). The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fault relates to information supplied by
the indemnified party, on one hand, or such indemnifying party, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Notwithstanding
the provisions of this Section 9.11, the Participating Investors shall not be
required to contribute any amount in excess of the amount of the total proceeds
received by such Participating Investors from the sale pursuant to the
registration with respect to which the registration statement, preliminary or
final prospectus, or amendments or supplements thereto, containing such
statement, omission or alleged omission (notwithstanding that the amount of
damages which such Participating Investors would otherwise have been required to
pay by reason of such statement, omission or alleged omission exceeds the amount
of total proceeds). No person guilty of fraudulent misrepresentation (within
the meaning of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
Section 9.11 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
and such action or claim.
Section 9.12. Reporting Requirements under Securities Exchange Act of
1934. At all times during which the Company shall be subject to the reporting
requirements of either Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 ("Exchange Act"), the Company shall, whenever requested by any
Investor, notify such Investor in writing whether the Company has, as of any
date specified in such request, complied with the Exchange Act reporting
requirements as to which it is subject to a period prior to such date as may be
specified in such request. In addition, in such event, the Company shall take
such other measures and file such other information, documents and reports as
shall hereafter be required by the Commission as a condition to the availability
of Rule 144 under the Securities Act (or any corresponding rule hereafter in
effect).
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT
Section 10.1. Partial Exercise. If this Warrant is exercised in part
only, the holder hereof shall surrender this Warrant upon such exercise and
shall receive a new Warrant, registered in the name of the holder or its nominee
and setting forth a new Applicable Percentage and a new Aggregate Warrant Price
in the first paragraph of page one hereof, which shall be proportionately
adjusted to reflect such partial exercise.
Section 10.2. Assignment. Subject to compliance with Section 9.3,
this Warrant may be assigned either in whole or in part by surrender of this
Warrant at the principal office of the Company in Downers Grove, Illinois (with
the assignment or, as the case may be, partial assignment form at the end hereof
duly executed). If this Warrant is being assigned in whole and the holder
hereof previously has not partially exercised this Warrant, the assignee shall
receive a new Warrant (registered in the name of such assignee or its nominee)
which new Warrant shall have the same Aggregate Warrant Price and Applicable
Percentage as this Warrant. If this Warrant is being assigned in part and the
holder hereof previously has not partially exercised this Warrant, the assignor
and assignee shall each receive a new Warrant (which, in the case of the
assignee, shall be registered in the name of the assignee or its nominee), each
of which new Warrants shall have a new Applicable Percentage and Aggregate
Warrant Price proportionately adjusted to reflect such partial assignment. If
this Warrant is being assigned in whole and the holder hereof previously has
partially exercised this Warrant, the assignee shall receive a new Warrant
(registered in the name of such assignee or its nominee), which new Warrant
shall have the same Aggregate Warrant Price and Applicable Percentage as in
effect immediately preceding such assignment. If this Warrant is being assigned
in part and the holder hereof previously has partially exercised this Warrant,
the assignor and assignee shall each receive a new Warrant (which, in the
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<PAGE>
case of the assignee, shall be registered in the name of the assignee or its
nominee), each of which new Warrants shall have a new Applicable Percentage and
Aggregate Warrant Price proportionately adjusted to reflect such partial
assignment
SECTION 11. DEFINITIONS.
In addition to the terms defined elsewhere in this Warrant, the following
terms have the following respective meanings:
"Aggregate Warrant Price" is as set forth in the first paragraph, subject
to adjustment as provided in Section 2 hereof.
"Applicable Percentage" shall mean, as of the date of any determination,
the amount then so designated in the first paragraph of this Warrant, subject to
adjustment as provided in Section 2 hereof. All determinations of the
Applicable Percentage shall be expressed as a percentage carried out to four
decimal places.
"Business Day" shall mean a day, except Saturday, Sunday and legal
holidays, on which banks are generally open for business in Chicago, Illinois.
"Commission" shall mean the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Common Stock" as used herein shall include any class of capital stock of
the Company now or hereafter authorized, the right of which to share in
distributions either of earnings or assets of the Company is without limit as to
any amount or percentage; provided, however, that the shares of Common Stock
deliverable upon the exercise of the rights granted under this Warrant shall
include only Common Stock of the Company having a par value of $.001 per share
authorized at the date hereof and any class of Common Stock issued in
substitution therefor.
"Company Indemnified Party" shall have the meaning set forth in
Section 9.6(C).
"Credit Agreement" shall mean that certain Credit Agreement dated as of
January 31, 1997 between the Company, Bank of Montreal (individually and agent)
and any other banks which may at any time be parties thereto.
"Credit Agreement Termination Date" shall mean the date on which all Term
Credit Loans, Revolving Credit Loans and other obligations of the Company under
the Credit Agreement shall have been paid in full, the Revolving Credit
Commitments shall have been reduced to zero and the credit facility existing
under the Credit Agreement shall have been terminated in its entirety.
"Demand Registration" shall have the meaning set forth in Section 9.4.
"Event of Default" shall have the meaning set forth in the Credit
Agreement.
"Investor" for purposes of Section 9 hereof shall mean any holder of any
Warrant or any Underlying Shares or Restricted Stock issued pursuant thereto and
"Investors" shall mean all of the holders of the Warrants or Underlying Shares
or Restricted Stock issued pursuant thereto.
"Investor Indemnified Party" shall have the meaning set forth in
Section 9.7.
"Proportionate Part of the Aggregate Warrant Price" shall mean that part of
the Aggregate Warrant Price which bears the same ratio to the Aggregate Warrant
Price:
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<PAGE>
- in the case of any partial exercise of this Warrant--as the
shares then being purchased bear to total number of shares then purchasable
if this Warrant were exercised in whole; and
- in the case of any partial assignment of this Warrant--as
the percentage of shares of Common Stock assigned bears to the percentage
of shares of Common Stock purchasable under this Warrant immediately prior
to such assignment.
"Qualifying Additional Shares of Common Stock" shall mean any shares of
Common Stock issued by the Company in an arms-length transaction, the proceeds
of which transaction are used by the Company to make a Qualifying Credit
Agreement Payment.
"Qualifying Credit Agreement Payment" shall mean a payment under the Credit
Agreement applied in reduction of the Term Credit Loans until repayment in full
thereof, and thereafter, in reduction of the Revolving Credit Loans, which
reduction of the Revolving Credit Loans is accompanied by a concurrent and like
reduction of the Revolving Credit Commitments (as such terms are defined in the
Credit Agreement).
"Qualifying Other Holders" shall mean the holders of any shares of Common
Stock or other equity securities of the Company which shall have requested that
such shares or other equity securities be included in a registration which is
the subject of Section 9.5 hereof; provided, however, that the Company shall
have provided to each of the Investors not less than 10 Business Day's notice of
such request, together with such other related information as the Investors
shall reasonably request.
"Registrable Securities" shall have the meaning set forth in Section 9.4.
"Restricted Stock" shall mean the shares of Common Stock of the Company
issued upon the exercise of any of the Warrants and evidenced by a certificate
required to bear the legend specified in Section 9.2.
"Securities Act" shall mean the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Underlying Shares" shall mean the shares of Common Stock of the Company
issuable upon exercise of any of the Warrants.
"Warrants" as used herein shall mean this Warrant and all warrants
hereafter issued in exchange or substitution for this Warrant.
SECTION 12. LOST, STOLEN WARRANTS, ETC.
In case this Warrant shall be mutilated, lost, stolen or destroyed, the
Company may issue a new Warrant of like date, tenor and denomination and deliver
the same in exchange and substitution for and upon surrender and cancellation of
the mutilated Warrant, or in lieu of the Warrant lost, stolen or destroyed, upon
receipt of evidence satisfactory to the Company of the loss, theft or
destruction of such Warrant, and upon receipt of indemnity satisfactory to the
Company.
SECTION 13. WARRANT HOLDER NOT SHAREHOLDER.
This Warrant does not confer upon the holder hereof any right to vote or to
consent or to receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof as hereinbefore provided.
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<PAGE>
SECTION 14. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid, such
decision shall not affect the validity of any remaining portion, which remaining
portion shall remain in force and effect as if this Warrant had been executed
with the invalid portion thereof eliminated, and it is hereby declared the
intention of the parties hereto that they would have executed and accepted the
remaining portion of this Warrant without including therein any such part, parts
or portion which may, for any reason, be hereafter declared invalid.
SECTION 15. INDEX AND CAPTIONS.
The index and the descriptive headings of the various sections of this
Warrant are for convenience only and shall not affect the meaning or
construction of the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, Platinum Entertainment, Inc. has caused this Warrant to
be signed by its President or one of its Vice Presidents and attested by its
Secretary or one of its Assistant Secretaries and this Warrant to be dated
January 31, 1997.
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
------------------------------
Its President
ATTEST:
By /s/ Douglas C. Laux
--------------------------------
Secretary
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<PAGE>
SUBSCRIPTION
Re: PLATINUM ENTERTAINMENT, INC.
The undersigned, _______________________________, pursuant to the
provisions of the within Warrant, hereby elects to purchase _________________
shares of Common Stock of ______________________ covered by the within Warrant.
Signature
________________________________
Address
________________________________
Dated: ______________
<PAGE>
ASSIGNMENT
Re: PLATINUM ENTERTAINMENT, INC.
FOR VALUE RECEIVED ________________ hereby sells, assigns and transfers
unto _______________ the within Warrant and all rights evidenced thereby and
does irrevocably constitute and appoint _______________________, attorney, to
transfer the said Warrant on the books of the within named Company.
_________________________________
________________________
Dated: _______________
<PAGE>
PARTIAL ASSIGNMENT
Re: PLATINUM ENTERTAINMENT, INC.
FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers
unto ____________________ that portion of the within Warrant and the rights
evidenced thereby which will on the date hereof entitle the holder to purchase
_______ shares of Common Stock of _______________________________, irrevocably
constitute and appoint ____________________________, attorney, to transfer that
part of the said Warrant on the books of the within named Company.
_________________________________
__________________________
Dated: ________________
<PAGE>
ANNEX A
The undersigned hereby represents that it is acquiring the subject Warrant
or Warrant Shares for its own account for investment and not with a view to, or
for sale in connection with, any distribution thereof or of any of the shares of
Common Stock or other securities issuable upon the exercise thereof, and not
with any present intention of distributing any of the same. The holder of this
Warrant further represents that, as of this date, such holder is an "accredited
investor" as such term is defined in Rule 501(a)(1) of Regulation D promulgated
by the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
Dated: ____________________
____________________________
By _________________________
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Agreement") is made
as of January 31, 1997 by and between River North Studios, Inc., a Delaware
corporation ("Buyer") and Intersound, Inc., a Minnesota corporation ("Seller").
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Purchase Agreement.
WHEREAS, Buyer and Seller have entered into that certain Asset Purchase
Agreement dated November 13,1996 (the "Purchase Agreement") relating to the sale
and purchase agreement of Seller's property and assets;
WHEREAS, Buyer is a wholly-owned subsidiary of Platinum Entertainment,
Inc., a Delaware corporation (the "Parent");
WHEREAS, the Closing was conditioned upon the Parent having consummated and
obtained net proceeds of at least $30 million from a private placement (the
"Private Placement") of convertible debentures to one or more investors, on
terms satisfactory to Parent in its sole discretion;
WHEREAS, a portion of the Purchase Price was to be paid by delivery to
Seller of Five Million Dollars ($5,000,000) in aggregate principal amount of
Parent's convertible debentures ("Convertible Debentures"), having economic
terms equivalent to, and all other terms substantially equivalent to, the terms
of convertible debentures issued in the Private Placement;
WHEREAS, in lieu of paying such portion of the Purchase Price by
Convertible Debentures, Buyer shall pay such portion of the Purchase Price by
causing Parent to issue and deliver to Seller a $5 million Convertible Note (as
defined below); and
WHEREAS, by execution of this First Amendment to Asset Purchase Agreement
(this "Amendment") Buyer and Seller wish to amend the Purchase Agreement
effective as of January 1, 1997.
NOW THEREFORE, the parties hereto agree as follows:
1. The "Effective Date" defined in the opening paragraph of the Purchase
Agreement and as used in the Purchase Agreement is amended to be January 1,
1997.
2. In Section 1.1(e) of the Purchase Agreement, the reference to "Section
1.2" is hereby deleted and is replaced with "Section 2.1."
3. Section 3.1(c) of the Purchase Agreement is hereby deleted in its
entirety and is replaced with the following:
<PAGE>
(c) "Five Million Dollar ($5,000,000) convertible promissory note
(the "Convertible Note") of Parent in the form attached hereto as Exhibit
3.1(c)(i) and execution and delivery by Parent of a Registration Rights
Agreement, in a form attached hereto as Exhibit 3.1(c)(ii) (the
"Registration Rights Agreement").
4. In Section 3.1(d) of the Purchase Agreement, the reference to
"Convertible Debenture" is hereby deleted and is replaced with "Convertible
Note."
5. In Section 4.3(b) of the Purchase Agreement, the words "certificates
representing the" are hereby deleted and the reference to "Convertible
Debentures" is hereby deleted and is replaced with "Convertible Note."
6. Section 5.29(a) of the Purchase Agreement is hereby deleted in its
entirety and is replaced with the following:
(a) Seller represents that it (i) was provided the opportunity
to ask questions of and receive answers from Parent, or its
representative, concerning the operations, business and financial
condition of Parent, and all such questions have been answered to its
full satisfaction and any information necessary to verify such
responses has been made available to it; (ii) has received such
documents, materials and information as it deems necessary or
appropriate for evaluation of the Convertible Note and the Common
Stock of Parent into which it be converted (the "Common Stock"), and
further confirms that it has carefully read and understands these
materials and has made such further investigation as was deemed
appropriate to obtain additional information to verify the accuracy of
such materials; (iii) confirms that the Convertible Note was not
offered to Seller by any means of general solicitation or general
advertising; (iv) believes that Seller has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in the Convertible
Note (v) is acquiring the Convertible Note for its own account, for
investment purposes only, and not with a view towards the sale or
other distribution thereof, other than pursuant to an effective resale
registration statement in whole or in part or exemption therefrom;
(vi) understands that the Convertible Note and the Common Stock have
not been registered under the securities laws of any state or under
the Securities Act and are offered in reliance on exemptions therefrom
and that the Convertible Note and the Common Stock have not been
approved or disapproved by the SEC or by any other federal or state
agency; and (vii) understands that (a) owners of the Convertible Note
and the Common Stock will have only such rights, if any, to require
the Convertible Note and the Common Stock to be registered under the
Securities Act as are provided pursuant to the Registration Rights
Agreement (as defined above); and (b) it may not be possible for it to
sell the Convertible Note and the Common Stock and accordingly, it may
have to hold the Convertible Note and the Common Stock, and bear the
economic risk of this investment for an extended period of time: The
foregoing, however,
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<PAGE>
does not limit or modify the representations and warranties of Buyer in
Section 6 of this Agreement or the right of the Seller to rely thereon.
7. In Section 6.2(b) of the Purchase Agreement, the words "and the
Private Placement" are hereby deleted.
8. In Section 8.3 of the Purchase Agreement, the words "and the Private
Placement" are hereby deleted.
9. Section 10.1(b) of the Purchase Agreement is hereby deleted in its
entirety.
10. Section 10.1(c) of the Purchase Agreement is hereby deleted in its
entirety.
11. In Section 11.4(d) of the Purchase Agreement, the word "and" is hereby
deleted.
12. In Section 11.4 of the Purchase Agreement, a new paragraph (e) is
hereby added which states "A copy of the Registration Rights Agreement, duly
executed by the Seller; and."
13. In Section 11.4 of the Purchase Agreement, the reference to paragraph
(e) is hereby changed to (f).
14. In Section 12.3(c) of the Purchase Agreement, the word "and" is hereby
deleted.
15. In Section 12.3 of the Purchase Agreement, a new paragraph (d) is
hereby added which states "A copy of the Registration Rights Agreement, duly
executed by the Buyer; and."
16. In Section 12.3 of the Purchase Agreement, the reference to paragraph
(d) is hereby changed to (e).
17. In Section 14.1(c) of the Purchase Agreement, the reference to
"Convertible Debenture" is hereby deleted and is replaced with "Convertible
Note."
18. Except as specifically modified by the terms of this Agreement, all of
the terms, provisions, covenants, warranties and agreements contained in the
Purchase Agreement shall remain in full force and effect.
19. This Amendment may be executed in several counterparts, and all so
executed shall constitute one and the same Amendment.
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<PAGE>
IN WITNESS WHEREOF, Buyer and Seller have executed this Amendment as of the
date first written above.
BUYER: SELLER:
RIVER NORTH STUDIOS, INC. INTERSOUND, INC.
By: /s/ Steven Devick By: /s/ D. Johnson
------------------------- ----------------------------------
Its: President Its: President
------------------------- ----------------------------------
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<PAGE>
February 1, 1997
Don Johnson
______________________
______________________
Dear Don:
The following are the terms of your employment by River North Studios, Inc.
("Intersound"), a Delaware corporation and wholly-owned subsidiary of Platinum
Entertainment, Inc. ("Platinum") as President of Intersound and as a consultant
to Intersound.
1. (a) Your employment as President of Intersound shall be for a term of
two (2) years, commencing February 1, 1997 (the "Employment Term"). You shall
exercise all of the executive and administrative responsibilities of President,
subject to the by-laws of Intersound and the supervision of the Chief Executive
Officer and the Board of Directors of Platinum Entertainment, Inc. You also
agree to perform such other duties and services as may be entrusted to you by
the Chief Executive Officer and the Board of Directors that are consistent with
your position and title and shall report to the Chief Executive Officer of
Platinum. You agree to discharge your responsibilities diligently, in good
faith, and to the best of your abilities and to at all times give Intersound
and Platinum full information and truthful explanation of all matters relative
to your employment responsibilities. You shall devote all of your time during
ordinary business hours to the interests and business of Intersound and shall
not, except as otherwise agreed to by the Board of Directors, work with or
receive any compensation or consideration from any other party for services
performed or to be performed by you.
(b) Your annual base salary during the Employment Term shall be
$250,000.00, less withholding, which will be paid in accordance with
Intersound's regular payroll policies. In addition, during the Employment Term,
you and your family will be entitled to participate in Intersound's regular
health and dental insurance plan under Intersound's policies with respect to
such plans. During each annual period of the Employment Term you shall be
entitled to five (5) weeks of vacation, and five (5) personal leave days. You
shall also be eligible to participate in the 401(K), life insurance, and all
other benefit plans of Intersound under Intersound's policies with respect to
such plans for its employees. You shall also be reimbursed for reasonable
expenses incurred by you for promoting the business of Intersound and in
performance of your duties hereunder in accordance with Intersound's expense
policies. You will be issued a company credit card and long distance telephone
charge card.
(c) In further consideration of your services hereunder, Platinum
agrees to grant to you an option (the
<PAGE>
"Purchase Option") to purchase an aggregate of Twenty Thousand (20,000) shares
of Platinum's common stock at a purchase price established pursuant to the 1995
Employee Incentive Compensation Plan, as amended in 1996, at the next grant date
as approved by the Board of Directors of shareholders of Platinum (the "Grant
Date"). The Purchase Option shall be exercisable with respect to a portion of
the shares subject to the Purchase Option over the course of the option period
as follows: up to and including one-third (1/3) of the shares subject to the
Purchase Option shall be exercisable on and after the first anniversary of the
Grant Date; up to and including two thirds (2/3) of the shares subject to the
Purchase Option shall be exercisable on and after the second anniversary of the
Grant Date; and up to and including one hundred percent (100%) of the shares
subject to the Purchase Option shall be exercisable on and after the third
anniversary of the Grant Date. The Purchase Option shall be subject to the
provisions of a separate stock option agreement, in the form of other Platinum
employee stock options, to be entered between Platinum and you, as well as the
terms of Platinum's Stock Option Plan existing as of the Grant Date. As
provided in the Stock Option Plan, your Purchase Option shall fully vest upon
your retirement as President in 1999.
(d) In further consideration of your services hereunder, Platinum
agrees to pay to you a bonus at the time of the exercise, if any, of the
Purchase Option (the "Option Bonus"). The amount of the Option Bonus shall be
equal to the product of multiplying fifty percent (50%) of the number of shares
purchased by exercise of the Purchase Option by the difference between the
closing share price of Platinum's common stock as of the date of the public
announcement of the acquisition by a subsidiary of Platinum of substantially all
of the assets of Intersound, Inc., a Minnesota corporation, and the share price
of such stock as of the date of exercise of the Purchase Option, provided that
in no event shall the top price for purposes of computing the Option Bonus
exceed the share price as of the Grant Date.
(e) In the event Platinum makes an additional acquisition of a
company that is of substantially the same size and type as Intersound, Inc., a
Minnesota corporation, and consolidates such acquisition with Intersound such
that the responsibilities described hereunder are expanded to include
responsibility for the combined companies, the parties agree to negotiate in
good faith an increase in the salary provided herein that is fair and reasonable
under all the circumstances.
2. (a) Commencing February 1, 1999, you shall be engaged by Intersound to
serve as a consultant concerning the operation of the business of Intersound and
Platinum for a period of three (3) years (the "Consulting Term"). In
consideration for the services to be rendered by you during the Consulting Term
and your covenants contained herein, Intersound shall pay to you the sum of One
Hundred Thousand Dollars ($100,000.00) per year in equal monthly installments on
the last day of each month. You shall
<PAGE>
perform such advisory and consultative duties as shall be specifically and
reasonably requested of you from time to time by Intersound, and you shall make
yourself available to perform up to fifteen (15) hours of consulting services
per month, pursuant to a schedule mutually agreed upon from time to time. You
shall use your best efforts in performing your consulting services, and shall
perform in a competent, workmanlike manner, adhering in all respects to the
standards in the industry and your profession. You shall perform your services
from such location as you may determine during regular business hours, provided,
however, that you shall be required to make trips at Intersound's expense to
Intersound's and Platinum's facilities as reasonably requested from time to
time.
(b) Your services during the Consulting Term shall be rendered as an
independent contractor. To the extent only that payments due for your
consulting services are not pre-paid, you shall be responsible for, and shall
hold Intersound and Platinum harmless from and against, any and all obligations
and liabilities relating to so-called employer deduction and withholding
obligations relating to payments to employees such as income tax withholdings,
FICA and FUTA payments and other similar obligations. Notwithstanding the
foregoing, if Intersound reasonably concludes that it is required by law to make
any payments, deductions or withholdings of the kind described in the preceding
sentence, Intersound may do so.
(c) You agree that all the results of your consulting services during
the Consulting Term shall be the property of Intersound free from all claims
whatsoever by you or any person deriving any rights or interests from you. To
the extent that any such results constitute copyrightable or similar subject
matter, you shall be deemed an employee for hire and the results shall be deemed
a "work made for hire", with Intersound being the owner and author thereof. At
Intersound's request, you will promptly and without additional compensation
execute any instruments that Intersound deems necessary or desirable in order to
effectuate the foregoing or to protect or register Intersound's interests in
such results, and you hereby irrevocably designate and appoint Intersound and
its duly authorized officers and agents as your agents and attorneys-in-fact to,
if Intersound is unable for any reason to secure your signature to any lawful
and necessary document required or appropriate to protect or register
Intersound's interests, execute and file any such document and do all other
lawfully permitted acts. This designation and appointment constitutes an
irrevocable power of attorney coupled with an interest. You warrant and
represent that no material, idea, title, or other property furnished or selected
by you during the Consulting Term for adoption by Intersound or Platinum will
violate or infringe upon any common law or statutory right of any third party,
and you hereby indemnify and agree to hold Intersound and Platinum harmless from
any and all loss, damage, or expense arising out of or connected with any claim
by a third party that is inconsistent with said warranty and representation.
<PAGE>
3. Unless otherwise mutually extended, this agreement shall terminate on
February 1, 2002, or the first to occur of the following:
(a) Your death.
(b) Your absence or inability to render the services required
hereunder by reason of a state of physical or mental incapacity for more than a
period of two (2) consecutive months and upon thirty (30) days prior written
notice by Intersound to you of an intent to terminate because of such absence or
inability.
(c) Your malfeasance or misperformance of your obligations under this
agreement, or your dishonest, fraudulent or criminal act.
4. (a) You agree that, during the term of this agreement (including both
the Employment Term and the Consulting Term), and at all times after the term of
this agreement, you will maintain the confidentiality of all Confidential
Information regarding Intersound and Platinum, and their respective
subsidiaries, affiliates, successors, and assigns (hereinafter collectively the
"Protected Entities") that you have, or will have received or have access to as
an employee, officer, director, or consultant, and that you will not make any
disclosure thereof to anyone else except as to matters that have been the
subject of public announcement or disclosure, is generally available to the
public from sources not subject to confidentiality agreements with Intersound or
Platinum, or except as required by law. "Confidential Information" shall mean
any information relating to the business or affairs of the Protected Entities,
including but not limited to information relating to plans, developments,
financial statements, customer identities, potential customers, employees,
suppliers, servicing methods, equipment, programs, strategies and information,
analyses, profit margins, inventions, improvements, copyrightable work, or other
proprietary information used by the Protected Entities in connection with their
respective businesses. You also acknowledge that you will occupy a position of
trust and confidence with the Protected Entities during the Consulting Term and
will become familiar with the Protected Entities's business and their trade
secrets and other Confidential Information. You agree and acknowledge that in
order to assure that Intersound will retain its value and that of its business
as a going concern, it is necessary that you undertake not to utilize any such
Confidential Information to compete with Intersound. You further agree that:
(i) the agreements and covenants contained in Paragraph 4 (a),
(b) and (c) are essential to protect the Protected Entities and the goodwill of
the Protected Entities's business and are a condition precedent to Platinum's
willingness to consummate the purchase of Intersound, Inc., a Minnesota
<PAGE>
corporation;
(ii) the Protected Entities would be irreparably damaged if you
were to provide services to any person or entity in violation of the provisions
of this agreement; and
(iii) adherence to the covenants contained in this Paragraph
4(a), (b), and (c) will not hinder your ability to support yourself and your
dependents.
(b) You agree that, in order to assure that the Protected Entities's
Confidential Information is kept secret and confidential, you agree that for so
long as you are engaged hereunder (whether as employee or consultant) (the
"Restriction Period") you will not, directly or indirectly, as employee, agent,
consultant, stockholder, director, co-partner or in any other individual or
representative capacity, own, operate, manage, control, engage in, invest in, or
participate in any manner in, as a consultant or advisor to, render services for
(alone or in association with any person, firm, corporation or entity), or
otherwise assist any person or entity (other than a Protected Entity) that
engages in or owns, invests in, operates, manages or controls, any venture or
enterprise that engages in the production, manufacture, distribution, or sale of
phonorecords or audiovisual devices in the Territory. For purposes hereof, the
term "Territory" shall mean the United States, Canada, Mexico, Puerto Rico, the
Caribbean Islands, the Bahamian Islands, and Bermuda, including any territories
and possessions of any of the foregoing. Notwithstanding the foregoing, nothing
contained herein shall be construed to prevent you from investing in the stock
of any competing corporation listed on a national securities exchange or traded
in the over-the-counter market, but only if you are not involved in the business
of said corporation and if you and your affiliates, collectively, do not own
more than an aggregate of five percent (5%) of the stock of such corporation.
You specifically acknowledge that Platinum and Intersound have conducted their
business throughout those areas comprising the Territory and Platinum intends to
expand its business throughout the Territory, and that to limit the foregoing
restrictions to a smaller geographical territory would not fully protect
Intersound's and Platinum's legitimate business interests. Notwithstanding the
foregoing, should your engagement hereunder be terminated pursuant to the
provisions of Paragraph 3(b) or 3(c) or of this Paragraph 4, the Restriction
Period will be extended for an additional two (2) years (i.e., terminating two
(2) years after this agreement terminates).
(c) You hereby agree that during the Restriction Period, you will not
(except on behalf of Intersound or Platinum), directly or indirectly, solicit
any person, firm, corporation, or other entity which was or is a customer of or
supplier to a Protected Entity during the three-year period preceding the date
of such solicitation ("Customer Period"), or from any successor in interest to
such person, firm, corporation or other entity, for
<PAGE>
the purpose of the sale or purchase of any products offered for sale by a
Protected Entity during the Customer Period.
(d) If any court of competent jurisdiction shall at any time deem the
scope of the above restrictions too extensive, the Restriction Period too
lengthy or the Territory too extensive, the other provisions of this Paragraph 4
shall nevertheless stand, the scope of the restrictions shall be the broadest
permissible by law under the circumstances, the restrictive time period herein
shall be deemed to be the longest period permissible by law under the
circumstances, and the Territory herein shall be deemed to comprise the largest
territory permissible by law under the circumstances. The court in each case
shall reduce the scope, time period and/or Territory to permissible scope,
duration or size.
(e) Each of the covenants of this Paragraph 4 will be construed as
independent of any other covenant or provision in Paragraph 4 or in any other
part of this agreement.
(f) You acknowledge and agree that the covenants set forth in this
Paragraph 4 (collectively the "Restrictive Covenants") are reasonable and
necessary for the protection of the Protected Entities's business interests,
that irreparable injury will result to the Protected Entities if you breach any
of the terms of said Restrictive Covenants, and that in the event of your actual
or threatened breach of any such Restrictive Covenants, the Protected Entities
will have no adequate remedy at law. You accordingly agree that in the event of
any actual or threatened breach by you of any of the Restrictive Covenants,
Intersound shall be entitled to seek immediate temporary injunctive and other
equitable relief, without bond and without the necessity of showing actual
monetary damages, subject to hearing as soon thereafter as possible. Nothing
herein shall be construed as prohibiting any Protected Entity from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of any damages which it is able to prove.
5. This agreement (a) represents the entire agreement between you and
Intersound; (b) is not to be amended, supplemented, varied or discharged except
by an instrument in writing; (c) may be executed in counterparts, each of which
shall be deemed an original; and (d) shall be interpreted in accordance with and
in all respects governed by the laws of the State of Illinois. If any provision
of this agreement is declared void, or otherwise unenforceable, such provision
shall be deemed to have been severed from this agreement, which shall otherwise
remain in full force and effect.
<PAGE>
If the foregoing correctly states our agreement, please so confirm by
signing below where indicated.
River North Studios, Inc.
By:/s/ Steve Devick
--------------------------------
Accepted and Agreed:
/s/ Don Johnson
- -------------------------
Don Johnson
<PAGE>
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- --------------------------------------------------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
by and among
PLATINUM ENTERTAINMENT, INC.
and
BANK OF MONTREAL,
individually and as Agent
and
the Banks
which are or may become parties hereto
Dated as of January 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION DESCRIPTION PAGE
SECTION 1. DEFINITIONS; INTERPRETATION OF AGREEMENT........................1
Section 1.1. Definitions...........................................1
Section 1.2. Accounting Terms.....................................11
SECTION 2. THE CREDIT FACILITIES..........................................12
Section 2.1. The Revolving Credit.................................12
Section 2.2. The Term Credit......................................12
Section 2.3. Manner of Borrowing..................................13
SECTION 3. INTEREST.......................................................14
Section 3.1. Options..............................................14
Section 3.2. Base Rate Portion....................................14
Section 3.3. LIBOR Portions.......................................14
Section 3.4. Late Charge..........................................15
Section 3.5. Computation..........................................15
Section 3.6. Minimum Amounts......................................15
Section 3.7. Manner of Rate Selection.............................15
Section 3.8. Funding Indemnity....................................15
Section 3.9. Change of Law........................................16
Section 3.10. Unavailability of Deposits or Inability to
Ascertain, or Inadequacy of, LIBOR Rate..............17
Section 3.11. Increased Cost and Reduced Return....................17
Section 3.12. Lending Offices......................................18
Section 3.13. Discretion of Banks as to Manner of Funding..........18
SECTION 4. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS.........18
Section 4.1. Commitment Fee.......................................18
Section 4.2. Closing Fees.........................................18
Section 4.3. Voluntary Prepayments................................18
Section 4.4. Mandatory Prepayments................................19
Section 4.5. Terminations.........................................20
Section 4.6. Place and Application................................20
Section 4.7. Notations and Requests...............................21
Section 4.8. Capital Adequacy.....................................21
Section 4.9. Withholding Taxes....................................22
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SECTION 5. THE COLLATERAL AND GUARANTIES..................................23
Section 5.1. The Collateral.......................................23
Section 5.2. Further Assurances...................................24
Section 5.3. Subsidiary Guaranties................................25
Section 5.4. Devick Guaranty......................................25
Section 5.5. Collateral Assignment of Life Insurance..............25
Section 5.6. Polygram Collections.................................25
SECTION 6. REPRESENTATIONS AND WARRANTIES.................................25
Section 6.1. Organization and Power...............................25
Section 6.2. Capitalization of Company............................26
Section 6.3. Subsidiaries.........................................27
Section 6.4. Use of Proceeds; Regulation U........................27
Section 6.5. Financial Statements.................................27
Section 6.6. Litigation and Taxes.................................28
Section 6.7. Burdensome Contracts with Affiliates.................29
Section 6.8. ERISA................................................29
Section 6.9. Full Disclosure......................................29
Section 6.10. Compliance with Law..................................29
Section 6.11. Intersound Acquisition...............................30
Section 6.12. Necessary Assets and Contracts.......................30
Section 6.13. Solvency, etc........................................30
SECTION 7. CONDITIONS PRECEDENT...........................................31
Section 7.1. All Advances.........................................31
Section 7.2. Initial Advance......................................31
Section 7.3. Legal Matters........................................34
Section 7.4. Initial Borrowing....................................35
Section 7.5. Post Closing Requirements............................35
SECTION 8. COVENANTS......................................................36
Section 8.1. Maintenance of Business..............................36
Section 8.2. Maintenance..........................................36
Section 8.3. Taxes................................................36
Section 8.4. Insurance............................................36
Section 8.5. Financial Reports....................................36
Section 8.6. Compliance with Laws.................................37
Section 8.7. Nature of Business...................................38
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Section 8.8. Liens................................................38
Section 8.9. Indebtedness.........................................39
Section 8.10. Consolidated Net Tangible Worth......................40
Section 8.11. EBITDA...............................................40
Section 8.12. Expenditures.........................................40
Section 8.13. Acquisitions, Investments, Loans, Advances and
Subsidiary Guaranties................................40
Section 8.14. Dividends and Certain Other Restricted Payments......42
Section 8.15. Mergers..............................................42
Section 8.16. Sale of Assets.......................................42
Section 8.17. Sales and Leasebacks.................................42
Section 8.18. Operating Leases.....................................42
Section 8.19. Burdensome Contracts with Affiliates.................43
Section 8.20. No Change in Fiscal Year.............................43
Section 8.21. Formation of Subsidiaries............................43
Section 8.22. Maintenance of Subsidiaries..........................43
Section 8.23. Subordinated Debt....................................43
Section 8.24. No Restriction on Subsidiary Dividends...............44
Section 8.25. Double Negative Pledge...............................44
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.................................44
SECTION 10. THE AGENT......................................................47
Section 10.1. Appointment and Authorization........................47
Section 10.2. Rights as a Bank.....................................47
Section 10.3. Standard of Care.....................................47
Section 10.4. Costs and Expenses...................................48
Section 10.5. Indemnity............................................49
SECTION 11. THE SUBSIDIARY GUARANTEE.......................................49
Section 11.1. The Subsidiary Guarantee.............................49
Section 11.2. Subsidiary Guarantee Unconditional...................49
Section 11.3. Discharge Only Upon Payment in Full; Reinstatement
in Certain Circumstances.............................50
Section 11.4. Waivers..............................................50
Section 11.5. Limit on Recovery....................................51
Section 11.6. Stay of Acceleration.................................51
Section 11.7. Benefit to Subsidiary Guarantors.....................51
SECTION 12. MISCELLANEOUS..................................................51
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Section 12.1. Waiver of Rights.....................................51
Section 12.2. Non-Business Day.....................................51
Section 12.3. Documentary Taxes....................................52
Section 12.4. Survival of Representations..........................52
Section 12.5. Set-off Sharing......................................52
Section 12.6. Notices..............................................52
Section 12.7. Counterparts.........................................52
Section 12.8. Successors and Assigns...............................53
Section 12.9. Participants.........................................53
Section 12.10. Costs and Expenses...................................53
Section 12.11. Construction.........................................54
Section 12.12. Assignment Agreements................................54
Section 12.13. Waivers, Modifications and Amendments................55
Section 12.14. Entire Agreement.....................................55
Section 12.15. Headings.............................................56
Section 12.16. Confidentiality......................................56
Section 12.17. Exclusive Jurisdiction...............................56
Section 12.18. Waiver of Jury Trial.................................57
Section 12.19. Governing Law........................................57
Exhibit A -- Commitments
Exhibit B -- Revolving Credit Note
Exhibit C -- Term Credit Note
Exhibit D -- Approved Projections
Exhibit E -- Subsidiary Guarantee Agreement
Schedule 6.3 - Subsidiaries
Schedule 6.5 - Existing Bank Debt
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
To each of
the Banks which are or
may become parties to
this Agreement
Gentlemen:
The undersigned, Platinum Entertainment, Inc., a Delaware corporation (the
"Company"), applies to you for your several commitments, subject to all of the
terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth, to extend credit to the Company, all as more
fully hereinafter set forth.
Section 1.1. Definitions. The following terms when used herein
shall have the following meanings, such terms to be equally applicable to both
the singular and the plural of the terms defined:
"Adjusted LIBOR Rate" shall mean a rate per annum determined in accordance
with the following formula:
Adjusted LIBOR Rate = LIBOR
------------------------------------
100% - Eurodollar Reserve Percentage
"LIBOR" shall mean, with respect to an Interest Period, the rate of
interest per annum determined by the Agent (rounded upwards, if necessary,
to the nearest 1/100 of 1%) at which deposits of United States Dollars in
immediately available and freely transferable funds are offered to the
Agent at 10:00 a.m. (Chicago time) two Business Days prior to the
commencement of such Interest Period by major banks in the London interbank
market upon request by the Agent for a period equal to such Interest Period
and in an amount equal to the Agent's share of the LIBOR Portion scheduled
to be outstanding during such Interest Period.
"Eurodollar Reserve Percentage" shall mean, for any day during an
Interest Period, the rate at which reserves (including, without limitation,
any supplemental, marginal and emergency reserves) are imposed on such day
by the Board of Governors of the Federal Reserve System (or any successor)
on "Eurocurrency liabilities", as defined in such Board's Regulation D (or
in respect of any other category of liabilities that includes deposits by
reference to which the interest rate on LIBOR Portions is determined on any
category of extension of credit or other assets that includes loans by
non-United States offices of any bank to United States residents), subject
to any amendments of such reserve requirement by such Board or its
successor, taking into account any transitional adjustments thereto. For
purposes of this definition, the LIBOR Portions shall be deemed to be
eurocurrency liabilities as defined in Regulation D without benefit or
credit for any prorations, exemptions or offsets under Regulation D. The
Adjusted LIBOR Rate shall automatically be adjusted as of the date of any
change in the Eurodollar Reserve Percentage.
<PAGE>
"Affiliate" shall mean any Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with, another Person, (ii) which beneficially owns or holds 10% or more
of any class of the Voting Stock of another Person, or (iii) more than 10% of
the Voting Stock (or in the case of a Person which is not a corporation, 10% or
more of the equity interest) of which is beneficially owned or held by another
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract or otherwise.
"Agent" shall mean Bank of Montreal and its successors as Agent hereunder.
"Agreement" shall mean this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"Approved Projections" means the financial projections for the Company
attached hereto as Exhibit D.
"Assignment Agreement" shall have the meaning set forth in Section 12.12
hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Company pursuant to Section 7.2(a)(ii) hereof or on any
update of any such list provided by the Company to the Agent, or any further or
different officer of the Company so named by any Authorized Representative of
the Company in a written notice to the Agent.
"Banks" shall mean the parties signing this Agreement as Banks and all
other lenders becoming parties hereto pursuant to Section 12.12 hereof.
"Base Rate" shall mean for any day the greater of:
(i) the rate of interest publicly announced by Bank of Montreal
from time to time as its prime commercial rate for United States dollar
loans made in the United States (it being understood that such rate may not
be Bank of Montreal's best or lowest rate), with any change in the Base
Rate resulting from a change in said prime commercial rate to be effective
as of the date of the relevant change in said prime commercial rate; and
(ii) the sum of (x) the rates quoted to the Agent as the
prevailing rates per annum (rounded upward, if necessary, to the next
higher 1/100 of 1%) bid at approximately 10:00 a.m. (Chicago time) (or as
soon thereafter as is practicable) on such day by two or more New York
Federal funds dealers of recognized standing selected by the Agent for the
purchase at face value of Federal funds in the secondary market in an
amount comparable to the principal amount owed to the Agent for which such
rate is being determined, or, if such rates are not quoted to the Agent,
the rate for that day set forth opposite the caption "Federal Fund
(Effective)" in the daily statistical release designated as "Composite
3:30 p.m. Quotations for U.S. Government Securities", or any successor
publication, published by the Federal Reserve Bank of New York plus (y) 3/8
of 1%, provided that this clause (ii) shall be inapplicable to any Loan
which is outstanding for 15 days or more (for the foregoing purpose
repayments of Loans shall be deemed applied to outstanding Loans in the
same order in which they were made).
"Base Rate Portion" is defined in Section 3.1 hereof.
"Borrowing" shall mean the total of Loans of a single type made by all the
Banks on a single date and, if such Loans are to be part of a LIBOR Portion, for
a single Interest Period.
"Business Day" shall mean any day other than a Saturday or Sunday on which
banks are open for business in Chicago, Illinois and, when used with reference
to LIBOR Portions, a day on which banks are also open for business and dealing
in United States Dollar deposits in London, England.
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<PAGE>
"Capital Expenditures" means for any period capital expenditures (as
defined and classified in accordance with GAAP) during such period by the
Company and its Subsidiaries on a consolidated basis.
"Capitalized Lease" shall mean any lease or other agreement in the use or
possession of real or personal property the obligation for Rentals with respect
to which is required to be capitalized on a balance sheet of the lessee in
accordance with GAAP.
"Capitalized Rentals" shall mean as of the date of any determination the
amount at which the aggregate Rentals due and to become due under Capitalized
Leases under which the Company or any Subsidiary is a lessee will be reflected
as a liability on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with GAAP.
"Change of Control/Management Event" means the occurrence of any of the
following circumstances:
(a) any Person or two or more Persons acting in concert acquire
beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the
Securities Exchange Act of 1934), directly or indirectly, of Securities of
the Company (or other Securities convertible into such Securities)
representing 25% or more of the combined voting power of all Securities of
the Company entitled to vote in the election of directors; or
(b) during any period of up to 12 consecutive months, whether
commencing before or after the date hereof, the membership of the Board of
Directors of the Company changes for any reason (other than by reason of
death, disability, or scheduled retirement) so that the majority of the
Board of Directors is made up of Persons who were not directors at the
beginning of such 12 month period; or
(c) at any time Devick or Donald Johnson ("Johnson") or Douglas C.
Laux ("Laux") shall no longer, by reason of death, resignation, removal,
failure to be elected, incapacity or for any other reason, be actively
connected with the Company (but River North instead of the Company in the
case of Johnson) as officers having substantially the same powers and
duties as those exercised by said Devick, Johnson and Laux, respectively,
as of the date of this Agreement (or some other capacity or position
approved by the Agent and Required Banks).
"Class of Notes" shall mean the Revolving Credit Notes (taken as a group)
and the Term Credit Notes (taken as a group).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean all properties, rights, interests and privileges
from time to time subject to the liens and security interests granted to the
Agent for the benefit of the Banks by the Collateral Documents.
"Collateral Documents" shall mean all security agreements, pledge
agreements, financing statements and other documents as shall from time to time
secure the Notes and the other Obligations.
"Commitments" shall mean the Revolving Credit Commitments and the Term
Credit Commitments.
"Company" is defined in the introductory paragraph of this Agreement.
"Consolidated Net Income" for any period shall mean the gross revenues from
any source of the Company and its Subsidiaries for such period less all expenses
and other proper charges (including taxes on income), determined for the Company
and its Subsidiaries on a consolidated basis in accordance with GAAP; provided,
however, that
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<PAGE>
Consolidated Tangible Net Worth shall be determined without regard to any impact
on retained earnings under GAAP as a direct result of (i) the Company's issuance
of the Warrants and (ii) debt issuance costs incurred by the Company in
connection with the Loan Documents and the Warrants.
"Consolidated Tangible Net Worth" shall mean, as of any date,
(x) consolidated net worth as computed in accordance with GAAP for the Company
and its Subsidiaries on a consolidated basis less (y) all assets of the Company
and its Subsidiaries on a consolidated basis which would be classified as
intangible assets under GAAP.
"Default" shall mean any event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, constitute an Event of
Default.
"Devick" means Steven Devick, an individual who is as of the date hereof
the chairman of the Board of Directors and Chief Executive Officer of the
Company.
"Devick Guaranty" the Guaranty dated as of even date herewith being
executed and delivered by Devick substantially concurrent with the execution
hereof.
"EBITDA" shall mean, with reference to any period, Consolidated Net Income
for such period plus all amounts deducted in arriving at such Consolidated Net
Income in respect of (i) Interest Expense, (ii) taxes imposed on or measured by
income or excess profits, (iii) all charges for depreciation of fixed assets and
amortization of intangibles and (iv) debt issuance costs in connection with the
Loan Documents and Warrants, all determined in accordance with GAAP.
"Event of Default" shall mean any of the events specified in Section 9.1
hereof.
"Existing Bank Debt" means the indebtedness described on Exhibit D hereto.
"Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (ii) of the definition of Base Rate.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination and consistently applied.
"Governmental Body" shall mean the United States of America or any state or
political subdivision thereof, and any other nation or political subdivision
thereof or any agency, department, commission, board, bureau or instrumentality
of any of the foregoing which exercises jurisdiction over the Company or any of
its Subsidiaries or any of their assets or the conduct of the business of the
Company or any of its Subsidiaries or any of their assets in any such
jurisdiction.
"Governmental Requirements" shall mean any law, ordinance, order, rule or
regulation of a Governmental Body.
"Guarantor" means (i) the Subsidiary Guarantors and (ii) until release of
the Devick Guaranty in accordance with its terms, Devick.
"Guaranty" means the Subsidiary Guarantees and the Devick Guaranty.
"Hedging Liability" shall mean liabilities of the Company to the Banks or
any of them or to any of their Affiliates arising in connection with any
interest rate swaps, caps or other interest rate hedging arrangements entered
into by the Company or any Subsidiary with any Bank or any Affiliate of any
Bank.
"House of Blues Venture" means that certain joint venture of the Company
with subsidiaries of HOB Entertainment, Inc. under two joint venture agreement,
dated April 28, 1994 and August 26, 1996, respectively.
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<PAGE>
"Indebtedness" shall mean and include (but without duplication) all
obligations of the Person in question of the following types, determined in
accordance with GAAP: (i) obligations (whether recourse or nonrecourse) for
borrowed money or for the deferred purchase price of, or which have been
incurred in connection with the acquisition of, property or assets other than
current accounts payable, (ii) obligations secured by any lien or other charge
upon property or assets owned by the Person in question, even though such Person
has not assumed or become liable for the payment of such obligations,
(iii) obligations payable over a period in excess of one year to purchase any
property or to obtain the services of another Person if the contract requires
that payment for such property or services be made regardless of whether such
property is delivered or such services are performed, (iv) Long-term Rentals of
such Person, (v) Capitalized Rentals of such Person, (vi) obligations in respect
of letters of credit, (vii) all liabilities referred to in clauses (i), (ii),
(iii), (iv), (v), (vi) and (vii) above which are directly or indirectly
guaranteed by of such Person, or as to which it has agreed (contingently or
otherwise) to purchase or otherwise acquire or in respect of which it has
otherwise assured a creditor against loss.
"Initial Collateral Documents" means the Security Agreement, the Stock
Pledge Agreement and the Security Agreement Re: Intellectual Property.
"Interest Expense" shall mean, with reference to any period, all interest
charges (including amortization of debt discount and expense and imputed
interest on Capitalized Leases) accrued for such period, whether or not paid,
all as computed on a consolidated basis for the Company and its Subsidiaries in
accordance with GAAP.
"Interest Period" shall mean with respect to any LIBOR Portion:
(a) initially, the period commencing on, as the case may be, the
creation or conversion date with respect to such LIBOR Portion and ending
one, two or three months thereafter as selected by the Company in its
notice as provided for herein; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBOR Portion and ending one,
two or three months thereafter as selected by the Company in its notice as
provided for herein;
provided, however, that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the final maturity date
of the applicable Notes;
(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect
thereto the Company will be unable to make a principal payment scheduled to
be made during such Interest Period without paying part of a LIBOR Portion
on a date other than the last day of the Interest Period applicable
thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month; PROVIDED, HOWEVER, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"Intersound" means Intersound, Inc., a Minnesota corporation.
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<PAGE>
"Intersound Acquisition" shall mean the acquisition by River North of
substantially all of the assets of Intersound and the consummation of all other
transactions contemplated by the Intersound Purchase Agreement (whether or not
such transactions are to be engaged in with Intersound or others).
"Intersound Purchase Agreement" shall mean the Asset Purchase Agreement
dated as of November 13, 1996 by and between River North and Intersound, as
amended by the First Amendment to Asset Purchase Agreement dated January 31,
1997, in the form heretofore delivered to the Agent and as the same may from
time to time be amended or modified as and to the extent permitted hereby. All
references herein to the Intersound Purchase Agreement shall be deemed to
include references to all exhibits and schedules thereto including all forms of
agreements attached thereto.
"Intersound Sub Debt" means the $5,000,000 in aggregate original principal
amount of Subordinated Debt of the Company to Intersound to be evidenced by a
convertible note in the form heretofore delivered to the Agent and representing
the deferred portion of the purchase price owing by the Company to Intersound
for the Intersound Acquisition.
"LIBOR Portion" is defined in Section 3.1 hereof.
"Life Insurance Assignment" is defined in Sections 5.5 hereof.
"Loan Documents" shall mean this Agreement, the Notes, the Guaranties, the
Collateral Documents, the Warrants and each of the other instruments and
documents to be delivered hereunder or thereunder or otherwise in connection
therewith.
"Loans" shall mean the Revolving Credit Loans and the Term Credit Loans.
"Long-Term Rentals" shall mean and include Rentals under a lease of real or
personal property having an initial term (exclusive of renewal terms which are
at the option of the lessee) in excess of twelve months.
"Material Adverse Effect" shall mean a material adverse effect on (i) the
business, property, condition (financial or otherwise), or results of
operations, or prospects, of the Company or the Company and its Subsidiaries
taken as a whole, (ii) the ability of the Company or any Subsidiary to perform
its obligations under the Loan Documents, or (iii) the validity or
enforceability of any of the Loan Documents or the rights or remedies of the
Agent or of the Banks thereunder.
"Notes" shall mean the Revolving Credit Notes and Term Credit Notes.
"Obligations" means all obligations of the Company to pay principal or
interest on Loans, all fees payable hereunder, and all other payment obligations
of the Company arising under or in relation to any Loan Document.
"Permitted Liens" is defined in Section 8.8 hereof.
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"Person" shall mean any individual, trust, partnership, firm, corporation,
limited liability company, association, unincorporated organization or any other
entity or organization, including a government or agency or political
subdivision thereof.
"Polygram" means Polygram Group Distribution, Inc., a corporation.
"Polygram Distribution Agreement" means that certain Distribution Agreement
dated as of May 14, 1993 by and between Polygram and the Company.
"Polygram Lien" is defined in Section 5.1 hereof.
"Portion" is defined in Section 3.1 hereof.
"Proforma EBITDA" shall mean, with reference to any period, EBITDA for such
period determined on a proforma basis for the Company and its Subsidiaries as if
the Intersound Acquisition had occurred at the commencement of such period.
"Purchase Money Liens" is defined in Section 8.8(c) hereof.
"Rentals" shall mean and include all fixed rents (including as such all
payments which the lessee is obligated to make to the lessor on termination of
the lease or surrender of the property) payable by the Company or any
Subsidiary, as lessee or sublessee under a lease of real or personal property,
but shall be exclusive of any amounts required to be paid by the Company or any
Subsidiary (whether or not designated as rents or additional rents) on account
of maintenance, repairs, insurance, taxes and similar charges, all computed for
the Company and its Subsidiaries on a consolidated basis. For purposes of any
prospective calculations, fixed rents under any so-called "percentage leases"
shall be computed solely on the basis of the minimum rents, if any, required to
be paid by the lessee regardless of sales volume or gross revenues.
"Required Banks" shall mean Banks holding 66-2/3% or more of the
outstanding principal amount of the Loans, or, if no Loans are outstanding,
Banks holding 66-2/3% or more of the Revolving Credit Commitments.
"Revolving Credit Commitments" is defined in Section 2.1(a).
"Revolving Credit Loans" is defined in Section 2.1(b).
"Revolving Credit Notes" is defined in Section 2.1(b).
"Revolving Credit Termination Date" shall mean May 1, 1997, or such earlier
date on which the Commitments are terminated in whole pursuant to Section 4.5 or
Section 9 hereof.
"River North" means River North Studios, Inc., a Delaware corporation and a
Wholly-Owned Subsidiary of the Company.
"Security Agreement" means the Security Agreement dated as of even date
herewith being executed and delivered by the Company and its current
Subsidiaries substantially concurrent with the execution hereof.
"Security Agreement Re: Intellectual Property" means the Security Agreement
Re: Intellectual Property dated as of even date herewith being executed by the
Company and its Subsidiaries substantially concurrent with the execution hereof.
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"SG&A Expenditures" means for any period, salary, general and
administrative expense during such period of the Company and its Subsidiaries on
a consolidated basis in accordance with GAAP.
"Stock Pledge Agreement" means the Pledge Agreement dated as of even date
herewith to be executed by the Company and its current Subsidiaries
substantially concurrent with the execution hereof.
"Subordinated Debt" means any Indebtedness which is subordinated in right
of payment to the prior payment of the Obligations pursuant to subordination
provisions approved in writing by the Agent and Required Banks, pursuant to
documentation, containing definitions, interest rates, payment terms,
maturities, amortization schedules, covenants, defaults, remedies, subordination
provisions and other material terms in each case in form and substance
satisfactory to the Agent and Required Banks in their discretion.
The term "subsidiary" shall mean, as to any particular parent corporation,
any other corporation at least 51% of the outstanding Voting Stock of which is
at the time directly or indirectly owned by such parent corporation or by any
one or more other corporations or other entities which are themselves
subsidiaries of such parent corporation. The term "Subsidiary" shall mean, when
used with reference to the Company, a subsidiary of, respectively, the Company.
"Subsidiary Guarantor" means each Subsidiary of the Company that is a
signatory hereto or that executes and delivers to the Agent a Subsidiary
Guaranty in the form of Exhibit E hereto along with the accompanying closing
documents required by Section 8.21 hereof.
"Subsidiary Guaranty" means a letter to the Agent in the form of Exhibit E
hereto executed by a Subsidiary whereby it acknowledges it is party hereto as a
Subsidiary Guarantor under Section 11.1 hereof and also in the case of any
Subsidiary not organized under the laws of the United States or any State
thereof, such other form of guaranty as shall be reasonably acceptable to the
Required Banks.
"Take-Out Securities" means the convertible debt securities that the
Company currently contemplates will be issued via a private placement, to
finance, among other things, the repayment of the Term Loans.
"Term Credit Commitments" is defined in Section 2.2.
"Term Credit Loans" is defined in Section 2.2.
"Term Credit Maturity Date" means the earlier of (i) May 1, 1997, (ii)
ninety days from and including the date on which the Term Credit Loans are made
or (iii) such earlier date on which the Commitments are terminated in whole
pursuant to Section 4.5 or Section 9 hereof.
"Term Credit Notes" as defined in Section 2.2.
"Voting Stock" shall mean securities of any class or classes membership
interests or other ownership rights of or in a Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to elect a majority of the
board of directors or managers of such Person (or Persons performing similar
functions).
"Warrants" means warrants to purchase the Voting Stock of the Company
issued to Bank of Montreal for its own account on or prior to the date of the
initial Borrowing hereunder.
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"Wholly-Owned Subsidiary" shall mean a Subsidiary of which all of the
issued and outstanding Voting Stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more Wholly-Owned Subsidiaries within the meaning of this definition.
Capitalized terms defined in the provisions of this Agreement shall have
the meanings so ascribed to them in all provisions of this Agreement.
Section 1.2. Accounting Terms. For purposes of this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to such terms in conformity with GAAP. Financial statements and other
information furnished to the Agent pursuant to Section 8.5 shall be prepared in
accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis. In the event any "Accounting Changes" (as defined below)
shall occur and such changes affect financial covenants, standards or terms in
this Agreement, then the Company, the Agent and the Banks agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the financial condition of the Company and its
Subsidiaries shall be the same after such Accounting Changes as if such
Accounting Changes had not been made, and until such time as such an amendment
shall have been executed and delivered by the Company, the Agent and the
Required Banks, (A) all financial covenants, standards and terms in this
Agreement shall be calculated and/or construed as if such Accounting Changes had
not been made, and (B) the Company shall prepare footnotes to each compliance
certificate and the financial statements required to be delivered hereunder that
show the differences between the financial statements delivered (which reflect
such Accounting Changes) and the basis for calculating financial covenant
compliance (without reflecting such Accounting Changes). "Accounting Changes"
means: (a) changes in accounting principles required by GAAP and implemented by
the Company and any of its Subsidiaries; (b) changes in accounting principles
recommended by certified public accountants of the Company or any of its
Subsidiaries; or (c) changes in carrying value of the Company's (or any of its
Subsidiaries') assets, liabilities or equity accounts resulting from the
application of purchase accounting principles; provided, however, that the use
of purchase accounting principles to account for the Intersound Acquisition
shall not constitute an Accounting Change.
SECTION 2. THE CREDIT FACILITIES.
Section 2.1. The Revolving Credit.
(a) General Terms. Subject to all of the terms and conditions hereof, the
Banks agree to extend a Revolving Credit to the Company which may be availed of
by the Company in the form of Revolving Credit Loans from time to time, be
repaid and used again, during the period from the date hereof to and including
the Revolving Credit Termination Date, all as more fully hereinafter set forth,
provided that the aggregate amount of Revolving Credit Loans outstanding at any
one time shall not exceed the Revolving Credit Commitments. The maximum amount
of the Revolving Credit which each Bank agrees to extend hereunder shall be as
set forth under the heading "Revolving Credit Commitment" opposite its name on
Exhibit A attached hereto and made a part hereof (as the same shall be deemed
amended after giving effect to the Assignment Agreements referred to in
Section 12.12 hereof and as the same is reduced from time to time pursuant
hereto (its "Revolving Credit Commitment"). The obligations of the Banks
hereunder are several and not joint and no Bank shall under any circumstance be
obligated to extend credit under the Revolving Credit in excess of its Revolving
Credit Commitment or its pro rata share of the credit outstanding thereunder.
(b) Revolving Credit Loans. Subject to all of the terms and conditions
hereof, the Revolving Credit may be availed of by the Company in the form of
loans (individually a "Revolving Credit Loan" and collectively the "Revolving
Credit Loans"). Each Borrowing of Revolving Credit Loans shall be in a minimum
amount of $100,000 and thereafter in integral multiples of $100,000 (with LIBOR
Portions being in a minimum amount of $1,000,000 and thereafter in integral
multiples of $100,000) and shall be made pro rata from the Banks in accordance
with the amounts of their Revolving Credit Commitments. All Revolving Credit
Loans made by each Bank shall be made against and evidenced by a Revolving
Credit Note (individually a "Revolving Credit Note" and collectively the
"Revolving Credit Notes") in the form (with appropriate insertions) annexed
hereto as Exhibit B. Each Revolving Credit Note shall be in the amount of the
Revolving Credit Commitment of the Bank to which it is payable and shall mature
on the Revolving Credit Termination Date.
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Section 2.2. The Term Credit. Subject to all of the terms and
conditions hereof each Bank agrees to make a loan to the Company (individually a
"Term Credit Loan" and collectively the "Term Credit Loans") in the amount set
forth opposite its name under the heading "Term Credit Commitment" on Exhibit A
attached hereto and made a part hereof (as the same shall be deemed amended
after giving effect to the assignment agreements referred to in Section 12.12
hereof) (its "Term Credit Commitment"). There shall be a single Borrowing of
the Term Credit Loans and the obligations of the Bank to make the Term Credit
Loans shall expire on February 15, 1997 unless sooner terminated as herein
provided. The obligations of the Banks hereunder are several and not joint and
no Bank shall under any circumstance be obligated to extend credit under the
Term Credit in excess of its Term Credit Commitment or its pro rata share of the
Borrowing under the Term Credit. The Term Credit Loan made by each Bank to the
Company shall be evidenced by a Term Credit Note (individually "Term Credit
Note" and collectively the "Term Credit Notes") in the form (with appropriate
insertions) annexed hereto as Exhibit C. Unless required to be sooner paid, the
Company promises to pay the Term Credit Loans in a single installment due on the
Term Credit Maturity Date. Each Bank shall be entitled to receive its pro rata
share (based on the relationship which its Term Credit Commitment bears to the
Term Credit Commitments of all Banks) of such installment payment.
Section 2.3. Manner of Borrowing. The Company shall give written or
telephonic notice to the Agent (which notice shall be irrevocable once given
and, if given by telephone, shall be promptly confirmed in writing) by no later
than 11:00 a.m. (Chicago time) on the date the Company requests that any
Borrowing of Loans be made to it under the Commitments, and the Agent shall
promptly notify each Bank of the Agent's receipt of each such notice. Each such
notice shall specify the date of the Borrowing of Loans requested (which must be
a Business Day, and which date shall be at least three (3) Business Days
subsequent to the date of such notice in the case of any Borrowing of Loans
constituting a LIBOR Portion) and the amount of such Borrowing. Each Borrowing
of Loans shall initially constitute part of the applicable Base Rate Portion
except to the extent the Company has otherwise timely elected that such
Borrowing constitute part of a LIBOR Portion as provided in Section 3 hereof.
The Company agrees that the Agent may rely upon any written or telephonic notice
given by any person the Agent in good faith believes is an Authorized
Representative without the necessity of independent investigation and, in the
event any telephonic notice conflicts with the written confirmation, such
telephonic notice shall govern if the Agent and the Banks have acted in reliance
thereon. Not later than 1:00 p.m. (Chicago time) on the date specified for any
Borrowing of Loans to be made hereunder, each Bank shall make the proceeds of
its Loan comprising part of such Borrowing available to the Agent in Chicago,
Illinois in immediately available funds. Subject to the provisions of Section 7
hereof, the proceeds of each Loan shall be made available to the Company at the
principal office of the Agent in Chicago, Illinois, in immediately available
funds, upon receipt by the Agent from each Bank of its pro rata share of such
Borrowing. Unless the Agent shall have been notified by a Bank prior to
1:00 (Chicago time) on the date a Borrowing is to be made hereunder that such
Bank does not intend to make its pro rata share of such Borrowing available to
the Agent, the Agent may assume that such Bank has made such share available to
the Agent on such date and the Agent may (but shall not be obligated to) in
reliance upon such assumption make available to the Company a corresponding
amount. If such corresponding amount is not in fact made available to the Agent
by such Bank and the Agent has made such amount available to the Company, the
Agent shall be entitled to receive such amount from such Bank forthwith upon its
demand, together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to the Company and ending
on but excluding the date the Agent recovers such amount at a rate per annum
equal to (x) from the date the related payment was due to the Agent to the date
two (2) Business Days after the date such payment was due, the Federal Funds
Rate for such day (or in the case of a day which is not a Business Day, then for
the preceding day) and (y) thereafter until payment of such amount is received
by the Agent from such Bank, the Base Rate as from time to time in effect.
SECTION 3. INTEREST.
Section 3.1. Options. Subject to all of the terms and conditions of
this Section 3, portions of the principal indebtedness evidenced by each Class
of Notes (all of the indebtedness evidenced by each Class of Notes bearing
interest at the same rate for the same period of time being hereinafter referred
to as a "Portion") shall, at the option of the Company, bear interest with
reference to the Base Rate (the "Base Rate Portion") or with reference to the
Adjusted LIBOR Rate ("LIBOR Portions"), and Portions shall be convertible from
time to time from one basis to the other. All of the indebtedness evidenced by
each Class of Notes which is not part of a LIBOR Portion shall constitute a
single Base Rate Portion. All of the indebtedness evidenced by each Class of
Notes which bears interest with reference to a particular Adjusted LIBOR Rate
for a particular Interest Period shall constitute a single LIBOR Portion.
Anything contained herein to the contrary notwithstanding, there shall not be
more than five
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(5) LIBOR Portions outstanding at any one time and each Bank shall have a
ratable interest in each Portion based on its applicable Commitment. The
Company promises to pay interest on each Portion at the rates and times
specified in this Section 3.
Section 3.2. Base Rate Portion. Each Base Rate Portion shall bear
interest (which the Company promises to pay at the times herein provided) at the
rate per annum determined by adding 6% to the Base Rate as in effect from time
to time, provided that if a Base Rate Portion or any part thereof is not paid
when due (whether by lapse of time, acceleration or otherwise) such Portion
shall bear interest, whether before or after judgment, until payment in full
thereof at the rate per annum determined by adding 3% to the interest rate which
would otherwise be applicable thereto from time to time. Interest on the Base
Rate Portions shall be payable monthly in arrears on the first day of each month
(commencing on March 1, 1997) and at maturity of the applicable Notes, and
interest after maturity shall be due and payable upon demand.
Section 3.3. LIBOR Portions. Each LIBOR Portion shall bear interest
(which the Company promises to pay at the times herein provided) for each
Interest Period selected therefor at a rate per annum equal to the sum of 6%
plus the Adjusted LIBOR Rate for such Interest Period, provided that if a LIBOR
Portion or any part thereof is not paid when due (whether by lapse of time,
acceleration or otherwise) such Portion shall bear interest, whether before or
after judgment, until payment in full thereof at the rate per annum determined
by adding 3% to the greater of the (i) the sum of 6% plus the Base Rate as from
time to time in effect or (ii) the interest rate which would otherwise be
applicable to such LIBOR Portion. Interest on each LIBOR Portion shall be due
and payable on the last day of each Interest Period applicable thereto and, if
an Interest Period is longer than one (1) month, then at the same day of each
month following the commencement of such Interest Period and at the end of such
Interest Period, and interest after maturity shall be due and payable upon
demand. The Company shall give written or telephonic notice to the Agent (which
notice shall be irrevocable once given and, if given by telephone, shall be
promptly confirmed in writing) on or before 11:00 a.m. (Chicago time) on the
third Business Day preceding the end of an Interest Period applicable to a LIBOR
Portion whether such LIBOR Portion is to continue as a LIBOR Portion, in which
event the Company shall notify the Agent of the new Interest Period selected
therefor, and in the event the Company shall fail to so notify the Agent, such
LIBOR Portion shall automatically be converted into and added to the Base Rate
Portion as of and on the last day of such Interest Period. The Agent shall
promptly notify each Bank of each notice received from the Company pursuant to
the foregoing provisions. Anything contained herein to the contrary
notwithstanding, the obligation of the Banks to create or continue any LIBOR
Portion or to convert any part of the Base Rate Portion into a LIBOR Portion
shall be conditioned upon the fact that at the time no Default or Event of
Default shall have occurred and be continuing.
Section 3.4. Late Charge. Any principal not paid when due (without
giving effect to any grace period applicable thereto) shall bear late charges.
Such late charges shall be due and payable on demand. The initial late charge
shall be equal to 1% of such overdue principal as of the date such principal
became due. Such overdue principal shall bear an additional late charge each
month until paid equal to 1% of the overdue principal outstanding on the same
day of the first and second calendar months after the date of such default (if
any such principal is overdue on such date) and 2% of such overdue principal
outstanding (if any) on the same day of each and every month thereafter.
Section 3.5. Computation. Any interest on the Notes and all fees,
charges and commissions due hereunder shall be computed on the basis of a year
of 360 days for the actual number of days elapsed, except that interest on the
Base Rate Portions shall be computed on the basis of a year of 365 or 366 days
(as the case may be) for the actual number of days elapsed.
Section 3.6. Minimum Amounts. Each LIBOR Portion shall be in a
minimum amount of $1,000,000 and thereafter in integral multiples of $100,000.
Section 3.7. Manner of Rate Selection. The Company shall notify the
Agent by 11:00 a.m. (Chicago time) at least three (3) Business Days prior to the
date upon which it requests that any LIBOR Portion be created or that any part
of the Base Rate Portion be converted into a LIBOR Portion (such notice to
specify in each instance the amount thereof and the Interest Period selected
therefor) and the Agent shall promptly advise each Bank of each such notice. If
any request is made to convert a LIBOR Portion into the applicable Base Rate
Portion, such conversion shall only be made so as to become effective as of the
last day of the Interest Period applicable thereto. All requests for the
creation, continuance or conversion of Portions under this Agreement shall be
irrevocable. Such requests may be written or telephonic (provided that if such
notice is given by telephone, the Company shall promptly confirm such notice to
the Agent in writing), and the Agent is hereby authorized to honor telephonic
requests
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for creations, continuances and conversions received by it from any person the
Agent reasonably believes to be an Authorized Representative, the Company hereby
indemnifying the Agent and the Banks from any liability or loss ensuing from so
acting.
Section 3.8. Funding Indemnity. In the event any Bank shall incur
any loss, cost or expense (including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or re-employment of deposits or
other funds acquired by such Bank to fund or maintain any LIBOR Portion or the
relending or reinvesting of such deposits or amounts paid or prepaid to such
Lender, and any loss of profit) as a result of:
(a) any payment or prepayment of a LIBOR Portion on a date other than
the last day of its Interest Period for any reason, whether before or after
default, and whether or not such payment is required by any of the
provisions of this Agreement;
(b) any failure (because of a failure to meet the conditions of
Section 7 hereof or otherwise) by the Company to create, borrow, continue
or affect by conversion a LIBOR Portion on the date specified in a notice
given pursuant to this Agreement hereof; or
(c) any failure by the Company to make any payment of principal on
any LIBOR Portion when due (whether by acceleration, mandatory prepayment
or otherwise),
then, upon the demand of such Bank, the Company shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense. If any Bank
makes such a claim for compensation, it shall provide to the Company a
certificate executed by an officer of such Bank setting forth the amount of such
loss, cost or expense in reasonable detail (including an explanation of the
basis for and the computation of such loss, cost or expense) and such
certificate shall be deemed prima facie correct.
Section 3.9. Change of Law. Notwithstanding any other provisions of
this Agreement or any Note, if at any time any change in applicable law or
regulation or in the official interpretation thereof makes it unlawful for any
Bank to make or continue to maintain LIBOR Portions or to give effect to its
obligations to make LIBOR Portions available as contemplated hereby, such Bank
shall promptly give notice thereof to the Company and the Agent and such Bank's
obligations to make or maintain LIBOR Portions under this Agreement shall
terminate until it is no longer unlawful for such Bank to make or maintain LIBOR
Portions. To the extent required to comply with any such law as changed, the
Company shall prepay on demand the outstanding principal amount of any such
affected LIBOR Portions, together with all interest accrued thereon and all
other amounts then due and payable to such Bank under this Agreement; provided,
however, subject to all of the terms and conditions of this Agreement, the
Company may then elect to convert the principal amount of the affected LIBOR
Portion from such Bank into the Base Rate Portion from such Bank which shall not
be made ratably by the Banks but only from such affected Bank. During the
period when it is unlawful for any Bank to make LIBOR Portions, Loans shall
continue to be made in such a manner so that the percentage of each Bank's
Commitments in use is identical, but the Banks affected by such illegality shall
make their share of each Borrowing which has been requested in the form of a
LIBOR Portion available in the form of a Base Rate Portion. Each Bank agrees
(to the extent consistent with internal policies) to designate a different
lending office if such designation would avoid the illegality described in this
Section 3.9; provided, however, that such designation need not be made if it
would result in any additional costs, expenses or risks to such Bank that are
not reimbursed by the Company pursuant hereto or would, in the reasonable
judgment of such Bank, be otherwise disadvantageous to such Bank.
Section 3.10. Unavailability of Deposits or Inability to Ascertain,
or Inadequacy Of, LIBOR Rate. If on or prior to the first day of any Interest
Period for any LIBOR Portion the Agent determines that deposits in United States
Dollars (in the applicable amounts) are not being offered to it or to banks
generally in the offshore eurodollar market for such Interest Period, then the
Agent shall forthwith give notice thereof to the Company and the Banks,
whereupon until the Agent notifies the Company that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make
any further LIBOR Portions available shall be suspended.
Section 3.11. Increased Cost and Reduced Return. If, on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the official interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation
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or administration thereof, or compliance by any Bank (or its lending office)
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency:
(a) shall subject any Bank (or its lending office) to any charges of
any kind (other than Withholding Taxes covered by Section 4.9 hereof) with
respect to its interest in the LIBOR Portions, its Note or its obligation
to make LIBOR Portions available, or shall change the basis of taxation of
payments to any Bank (or its lending office) of the principal of or
interest on LIBOR Portions or any other amounts due under this Agreement in
respect of its LIBOR Portions or its obligation to make LIBOR Portions; or
(b) shall impose, modify or deem applicable any reserve, special
deposit or similar requirements (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement included in an applicable
Eurodollar Reserve Percentage) against assets of, deposits with or for the
account of, or credit extended by, any Bank (or its lending office) or
shall impose on any Bank (or its lending office) or the offshore interbank
market any other condition affecting LIBOR Portions, its Note or its
obligation to make LIBOR Portions available;
and the result of any of the foregoing is to increase the cost to such Bank (or
its lending office) of making or maintaining any LIBOR Portion, or to reduce the
amount of any sum received or receivable by such Bank (or its lending office)
under this Agreement or under its Note with respect thereto, by an amount deemed
by such Bank to be material, then, within fifteen (15) days after demand by such
Bank (with a copy to the Agent), the Company shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction. A certificate of any Bank claiming compensation under this
Section 3.11 and setting forth the additional amount or amounts in reasonable
detail (including an explanation of the basis therefor and the computation of
such amount) to be paid to it hereunder shall be deemed prima facie correct. In
determining such amount, such Bank may use reasonable averaging and attribution
methods. A Bank shall not be entitled to compensation under this Section 3.11
with respect to any adoption or change for any period prior to the earlier of
(i) the date it notifies the Company of the adoption or change giving rise to
the request for compensation or (ii) the date which is thirty (30) days prior to
the date it becomes aware of the adoption or change giving rise to the request
for compensation if the Company is notified of the adoption or change prior to
the lapse of such 30-day period.
Section 3.12. Lending Offices. Each Bank may, at its option, elect
to make its Loans hereunder at the branch, office or affiliate specified on
the appropriate signature page hereof (each a "Lending Office") or at such other
of its branches, offices or affiliates as it may from time to time elect and
designate in a notice to the Company and the Agent (but such funds shall in any
event be made available to the Company at the office of the Agent as herein
provided for).
Section 3.13. Discretion of Banks as to Manner of Funding.
Notwithstanding any other provision of this Agreement, each Bank shall be
entitled to fund and maintain its funding of all or any part of its Loans in any
manner it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations under this Agreement (including, without
limitation, calculations under Sections 3.8 and 3.11 hereof) shall be made as if
each Bank had actually funded and maintained its interest in each LIBOR Portion
through the purchase of deposits in the offshore interbank market having a
maturity corresponding to such LIBOR Portion's Interest Period and bearing an
interest rate equal to LIBOR for such Interest Period.
SECTION 4. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS.
Section 4.1. Commitment Fee. For the period from the date hereof to
and including the Revolving Credit Termination Date, the Company shall pay to
the Agent for the ratable account of the Banks a commitment fee at the rate of
1/2 of 1% per annum on the average daily unused amount of the Commitments
hereunder (except that no fee shall accrue on the Term Credit Commitments after
the Borrowing on the Term Credit), such fee to be payable monthly in arrears on
the first day of each calendar month (commencing on the first of such dates
after the date hereof) to and including, and on, the Revolving Credit
Termination Date.
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Section 4.2. Closing Fees. The Company shall pay to Bank of
Montreal for its own account the upfront fees, and issue to such Bank for its
own account the Warrants, in each case to in a letter or letters exchanged
between them.
Section 4.3. Voluntary Prepayments. The Company shall have the
privilege of prepaying without premium or penalty and in whole or in part (but,
if in part, then in an amount not less than $1,000,000 and thereafter in
integral multiples of $100,000) (or such lesser amount as will prepay the
relevant Class of Notes in full) a Class of Notes at any time upon one (in the
case of the Revolving Credit Notes) or three (in the case of the Term Credit
Notes) days' prior written notice to the Agent, each such prepayment to be made
by the payment of the principal amount to be prepaid, any amount due the Banks
under Section 3.8 hereof (any failure of the Agent or the Banks to require
payment of any amount due under Section 3.8 not to preclude a later demand that
the amount so due be paid) and, in the case of a prepayment which prepays a
Class of Notes in full (after which the Revolving Credit Commitments are no
longer outstanding in the case of a prepayment of the Revolving Credit Notes),
accrued interest thereon to the date fixed for prepayment.
Section 4.4. Mandatory Prepayments. (a) Fixed Asset Proceeds. An
amount equal to any and all net proceeds (i.e., gross proceeds net of
out-of-pocket expenses and property and transfer taxes incurred in effecting the
sale or other disposition) received by the Company and its Subsidiaries from the
sale or disposition (whether voluntary or involuntary) of real estate,
inventory, fixtures, equipment or other fixed assets shall be promptly paid over
to the Agent as and for a mandatory prepayment on the Term Credit Notes until
payment in full thereof; provided, however, that (i) the foregoing provisions
shall be inapplicable to sales of inventory in the ordinary course, (ii) the
foregoing provisions shall be inapplicable to funds received by the Agent under
the Collateral Documents if and so long as, pursuant to the terms of the
Collateral Documents, the same are to be held by the Agent and disbursed for the
restoration, repair or replacement of the property in respect of which such
proceeds were received and (iii) no prepayment shall be required with respect to
net proceeds received from the ordinary course of business sale or other
disposition of equipment which is worn out, obsolete or, in the good faith
judgment of the Company and its Subsidiaries no longer necessary to the
efficient conduct of their business as then conducted.
(b) Change of Control/Management Event. If, within sixty (60)
days after receiving notice under Section 8.5(c) of a Change of
Control/Management Event, the Required Banks notify the Company that they
require prepayment of the Notes, on the date set forth in such notice (which
date shall be no earlier than three (3) days after such notice is given),
Company shall pay in full all Obligations then outstanding, and the Commitments
shall terminate in full.
(c) Take-Out Securities. Any and all net proceeds received by
the Company or its Subsidiaries from their issuance or sale of the Take-Out
Securities, or any other debt or equity securities or membership or other equity
interests of any series or class or of options, warrants or rights therefor,
shall be promptly paid over to the Agent as and for a mandatory prepayment on
the Term Credit Notes until payment in full thereof, with any balance remaining
after such application to be applied in reduction of the Revolving Credit Notes
until payment in full thereof; provided, however, that no such prepayment need
be made out of the net proceeds of any such sale if and to the extent applied by
the Company to the funding of the Intersound Acquisition.
(d) Payment of Term Credit Loans. If, no later than sixty (60)
days after payment of the Term Credit Loans, any Bank holding any Revolving
Credit Loans notifies the Company that such Bank requires prepayment of the
Revolving Credit Notes, on the date set forth in such notice (which date shall
be no earlier than (x) two (2) days after such notice is given or (y) the day on
which the Company repays any other Indebtedness aggregating $100,000 or more
before its original scheduled due date, whichever day is earlier), the Company
shall pay in full all Obligations then outstanding, and the Commitments shall
terminate in full.
(e) Reduction of Revolving Credit. If, no later than sixty (60)
days after a date on which the outstanding principal amount of Revolving Credit
Loans is less than $2,500,000, any Bank holding any Term Credit Loans notifies
the Company that such Bank requires prepayment of the Term Credit Notes, on the
date set forth in such notice (which date shall be no earlier than (x) two (2)
days after such notice is given or (y) the day on which the Company repays any
other Indebtedness aggregating $100,000 or more before its original scheduled
due date, whichever day is earlier), the Company shall pay in full all
Obligations then outstanding, and the Commitments shall terminate in full.
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Section 4.5. Terminations
(a) Voluntary. The Company shall have the privilege at any time
and from time to time upon five Business Days' prior notice to the Agent
(which shall promptly notify the Banks) to ratably terminate the
Commitments in whole or in part (but, if in part, then in a minimum amount
of $1,000,000 and thereafter in integral multiples of $100,000), provided
that the Revolving Credit Commitments may not be reduced to an amount less
than the aggregate principal amount of Revolving Credit Loans then
outstanding. No termination of the Commitments may be reinstated unless
otherwise agreed to in writing by the Banks.
(b) Required. The Commitments shall terminate in whole as
provided in Sections 4.4(b), 4.4(d) and 4.4(e) hereof.
Section 4.6. Place and Application. All payments of principal,
interest and fees shall be made to the Agent at its office at 115 South LaSalle
Street, Chicago, Illinois (or at such other place as the Agent may specify) in
immediately available and freely transferable funds at the place of payment.
All payments due from the Company hereunder shall be made without set-off or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions or conditions of any nature imposed by any government or political
subdivision or taxing authority thereof. Payments received by the Agent after
1:00 p.m. (Chicago time) shall be deemed received as of the opening of business
on the next Business Day. Except as otherwise provided in this Agreement, all
payments shall be received by the Agent for the ratable account of the Banks,
and shall be promptly distributed by the Agent ratably to the Banks except that
payments which pursuant to the terms hereof are for the use and benefit of the
Agent shall be retained by the Agent for its own account and payments received
to reimburse a Bank for a fee or cost peculiar to that Bank, as the case may be,
shall be remitted to it. Unless the Company otherwise directs, principal
payments on the Notes shall be first applied to the applicable Base Rate Portion
and then to the applicable LIBOR Portions in the order in which their Interest
Periods expire. Prepayments on the Term Credit Notes shall be applied to the
scheduled installment maturities thereof in the inverse order of maturity. No
amount paid or prepaid on the Term Credit Notes may be reborrowed.
Anything contained herein to the contrary notwithstanding, all payments and
collections received in respect of the indebtedness evidenced by the Notes and
all proceeds of the Collateral received, in each instance, by the Agent or any
of the Banks after the occurrence of an Event of Default shall be distributed as
follows:
(a) first, to the payment of any outstanding costs and expenses
incurred by the Agent in monitoring, verifying, protecting, preserving or
enforcing the liens on the Collateral or in protecting, preserving or
enforcing rights under the Loan Documents and in any event including all
costs and expenses of a character which the Company has agreed to pay under
Section 12.10 hereof (such funds to be retained by the Agent for its own
account unless it has previously been reimbursed for such costs and
expenses by the Banks, in which event such amounts shall be remitted to the
Banks to reimburse them for payments theretofore made to the Agent);
(b) second, to the payment of any outstanding interest or other fees
or amounts due under the Loan Documents and all other Obligations other
than for principal of the Notes or in respect of the Hedging Liability,
ratably as among the Banks in accord with the amount of such interest and
other fees or amounts owing each;
(c) third, to the payment of the principal of the Notes, to be
applied ratably as among all of such;
(d) fourth, to the Hedging Liability, to be applied ratably as among
all of such; and
(e) fifth, to whoever may be lawfully entitled thereto.
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Section 4.7. Notations and Requests. All advances made against the
Notes shall be recorded by the Banks on their books or, at their option in any
instance, endorsed on the reverse side of the Notes and the unpaid principal
balances so recorded or endorsed by the Banks shall be prima facie evidence in
any court or other proceeding brought to enforce the Notes of the principal
amount remaining unpaid thereon. Prior to any negotiation of any Note, the Bank
holding such Note shall endorse thereon the principal amount remaining unpaid
thereon.
Section 4.8. Capital Adequacy. If any Bank shall determine that any
applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by such Bank (or its
lending office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's capital as a consequence of its obligations hereunder or credit
extended by it hereunder to a level below that which such Bank could have
achieved but for such law, rule, regulation, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time as specified
by such Bank the Company shall pay such additional amount or amounts as will
compensate such Bank for such reduction in rate of return. A certificate of any
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder in reasonable detail shall be
deemed prima facie correct. In determining such amount, such Bank may use any
reasonable averaging and attribution methods. A Bank shall not be entitled to
compensation under this Section with respect to any change, adoption or
interpretation (a "Change") for any period prior to the earlier of (i) the date
it notifies the Company of the Change or (ii) the date which thirty (30) days
prior to the date such Bank obtains actual knowledge of the Change giving rise
to the request for compensation if the Company is notified of the Change prior
to the lapse of such 30-day period. Each Bank and the Agent shall use
reasonable efforts to minimize the cost imposed on the Company in respect of any
such increased capital requirement and shall compute the assessment of any such
cost related to such increased capital on a nondiscriminatory basis among the
Company, on the one hand, and other borrowers to which it applies, on the other
hand, and neither such Bank nor any corporation controlling such Bank nor the
Agent shall be entitled to demand compensation or be compensated for any
increased capital requirement from the Company hereunder in excess of the amount
so computed.
Section 4.9. Withholding Taxes. (a) Payments Free of Withholding.
Except as otherwise required by law and subject to Section 4.9(b) and (c)
hereof, each payment by the Company under this Agreement or the other Loan
Documents shall be made without withholding for or on account of any present or
future taxes (other than overall net income taxes on the recipient) imposed by
or within the jurisdiction in which the Company is domiciled, any jurisdiction
from which the Company makes any payment, or (in each case) any political
subdivision or taxing authority thereof or therein (herein, "Withholding
Taxes"). If any such Withholding Tax is so required, the Company shall make the
withholding, pay the amount withheld to the appropriate governmental authority
before penalties attach thereto or interest accrues thereon, and forthwith pay
such additional amount as may be necessary to ensure that the net amount
actually received by each Bank and the Agent free and clear of such Withholding
Taxes (including such taxes on such additional amount) is equal to the amount
which that Bank or the Agent (as the case may be) would have received had such
withholding not been made. If the Agent or any Bank pays any amount in respect
of any such Withholding Taxes, penalties or interest, the Company shall
reimburse the Agent or such Bank for that payment on demand in the currency in
which such payment was made. If the Company pays any such taxes, penalties or
interest, it shall deliver official tax receipts evidencing that payment or
certified copies thereof to the Bank or Agent on whose account such withholding
was made (with a copy to the Agent if not the recipient of the original) on or
before the thirtieth day after payment.
(b) U.S. Withholding Tax Exemptions. Each Bank that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Company and the Agent on or before the earlier of the date the
initial Borrowing is made hereunder and thirty (30) days after the date hereof,
two duly completed and signed copies of either Form 1001 (relating to such Bank
and entitling it to a complete exemption from withholding under the Code on all
amounts to be received by such Bank, including fees, pursuant to the Loan
Documents and the Loans) or Form 4224 (relating to all amounts to be received by
such Bank, including fees, pursuant to the Loan Documents and the Loans) of the
United States Internal Revenue Service. Thereafter and from time to time, each
Bank shall submit to the Company and the Agent such additional duly completed
and signed copies of one or the other of such forms (or such successor forms as
shall be adopted from time to time by the relevant United States taxing
authorities) as may be (i) requested by the Company in a written notice,
directly or through the Agent, to such Bank and (ii) required under then-current
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United States law or regulations to avoid or reduce United States withholding
taxes on payments in respect of all amounts to be received by such Bank,
including fees, pursuant to the Loan Documents or the Loans.
(c) Inability of Bank to Submit Forms. If any Bank determines, as a
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Company or the Agent any form or certificate that such Bank is obligated to
submit pursuant to subsection (b) of this Section 4.9 or that such Bank is
required to withdraw or cancel any such form or certificate previously submitted
or any such form or certificate otherwise becomes ineffective or inaccurate,
such Bank shall promptly notify the Company and Agent of such fact and the Bank
shall to that extent not be obligated to provide any such form or certificate
and will be entitled to withdraw or cancel any affected form or certificate, as
applicable.
(d) Bank Replacement. If the Company is required to make any reduction or
withholding with respect to any payment due any Bank under this Section 4.9 (in
any such case a "Replaceable Bank"), the Company may, with the consent of the
Agent, propose that another bank (a "Replacement Bank"), which bank may be an
existing Bank, be substituted for and replace the Replaceable Bank for purposes
of this Agreement. If a Replacement Bank is so substituted for the Replaceable
Bank, the Replaceable Bank shall enter into an Assignment Agreement with the
Replacement Bank, the Company and the Agent to assign and transfer to the
Replacement Bank the Replaceable Bank's Commitment and Loans hereunder pursuant
to and in accordance with the provisions and requirements of Section 12.12
hereof and, as a condition to its execution thereof, the Replaceable Bank shall
concurrently receive the full amount of its Loans, interest thereon, and all
accrued fees and other amounts to which it is entitled under this Agreement.
SECTION 5. THE COLLATERAL AND GUARANTIES.
Section 5.1. The Collateral. The Notes and the other Obligations
shall be secured by (a) valid, perfected and enforceable liens in all right,
title and interest of the Company and of each Subsidiary in all capital stock or
other equity interest in each Subsidiary, in each instance whether now owned or
hereafter acquired, and all proceeds thereof and (b) valid, perfected (subject
to the proviso appearing at the end of this sentence) and enforceable liens in
all right, title and interest of the Company and of each Subsidiary in all
accounts, chattel paper, general intangibles, instruments, investment property,
documents, contract rights, inventory and equipment of every kind and
description, whether now owned or hereafter acquired, and all proceeds thereof,
provided, however, that until a Default or an Event of Default has occurred and
is continuing and thereafter until otherwise required by the Required Banks or
the Agent, (i) liens need not be perfected on foreign copyrights, trademarks,
patents and licenses thereof having a fair market value of less than $5,000 in
any instance and $75,000 in the aggregate, (ii) liens need not be perfected on
notes receivable having a fair market value of less than $10,000 in any instance
and $50,000 in the aggregate, (iii) fixture financing statements need not be
filed, and (iv) liens on vehicles which are subject to a certificate of title
law need not be noted on the certificate of title. The liens in the Collateral
shall be granted to the Agent for the ratable account of the Banks and shall be
valid and perfected first liens subject, however, to the proviso appearing at
the end of the immediately preceding sentence, and the rights of lessors under
permitted leases, Purchase Money Liens held by vendors providing purchase money
financing and the security interest (if any) granted under the Polygram
Distribution Agreement in favor of Polygram (the "Polygram Lien") on the
Company's inventory stored at Polygram's premises in Nashville, Tennessee to
secure amounts owed Polygram under the Polygram Distribution Agreement (the
Company representing that amounts owed to the Company from Polygram under the
Polygram Distribution Agreement generally exceed amounts owed to Polygram from
the Company under the Polygram Distribution Agreement). Notwithstanding
anything to the contrary contained herein, in no event will any of the
Collateral described above be deemed to include (aa) any interest in copyrights,
trademarks, patents or similar intangibles licensed to the Company or any
Subsidiary from any third party (other than the Company or any of its
Affiliates) to the extent that the granting of a security interest or lien
therein is prohibited by the license or other agreement(s) pursuant to which the
Company or such Subsidiary holds such interest and such prohibition has not been
or is not waived or the consent of the applicable party has not been or is not
obtained, (ab) any interests in equipment owned by the Company or any Subsidiary
which is subject to a permitted Purchase Money Lien in favor of any third party
(other than the Company or any of its Affiliates) to the extent the granting of
a security interest or lien therein is prohibited by the agreement(s) pursuant
to which such equipment is financed and such prohibition has not been or is not
waived or the consent of the applicable party has not been or is not obtained
and (ac) any interests in any leases or licenses to use property under which the
Company or any Subsidiary is lessee or licensee and a Person other than the
Company or an Affiliate of the Company is
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lessor or licensor to the extent the granting of a security interest or lien
therein is prohibited by the agreement(s) pursuant to which such property is
leased and such prohibition has not been or is not waived or the consent of the
applicable party has not been or is not obtained.
Section 5.2. Further Assurances. The Company covenants and agrees
that it shall, and shall cause each Subsidiary to, comply with all terms and
conditions of each of the Collateral Documents and that the Company shall, and
shall cause each Subsidiary to, at any time and from time to time at the request
of the Agent or the Required Banks execute and deliver such instruments and
documents and do such acts and things as the Agent or the Required Banks may
reasonably request in order to provide for or protect or perfect the lien of the
Agent in the Collateral, subject to the terms of Section 5.1 above.
Section 5.3. Subsidiary Guaranties. Payment of the Notes and the
other Obligations shall at all times be jointly and severally guaranteed by each
Subsidiary pursuant hereto or pursuant to a Subsidiary Guaranty issued by such
Subsidiary. In the event any Subsidiary is hereafter acquired or formed, and
the Company shall also cause such Subsidiary to execute such Collateral
Documents (having terms and conditions substantially similar to those executed
by the Company and its Subsidiaries in connection with the initial Borrowing
under this Agreement) as the Agent may then require granting the Agent for the
benefit of the Banks a security interest in and lien on the assets of such
Subsidiary as collateral security for the Notes and the other Obligations,
together with such other instruments, documents, certificates and opinions
required by the Agent in connection therewith.
Section 5.4. Devick Guaranty. Payment of the Term Credit Notes
shall at all times be guaranteed by Devick pursuant to the Devick Guaranty,
subject to limitations set forth in the Devick Guaranty on the right-of-recovery
against Devick thereunder.
Section 5.5. Collateral Assignment of Life Insurance. Within thirty
(30) days after the date hereof, payment of the Notes and the other Obligations
shall also be secured by a collateral assignment of a life insurance policy
owned and maintained by the Company on the life of Devick in an amount of at
least $10,000,000 pursuant to a written assignment in form and substance
satisfactory to the Agent (the "Life Insurance Assignment").
Section 5.6. Polygram Collections. Within fifteen (15) days after
the date hereof, the Company agrees to forthwith make such arrangements as shall
be necessary or appropriate to assure that all payments from time to time made
to the Company under the Polygram Distribution Agreement (or any like agreement
replacing the Polygram Distribution Agreement and under which a similarly
significant portion of collections on the Company's sales are handled) are
deposited (in the same form as received) in an account maintained with or under
the control of the Agent, each such account to constitute a special restricted
account, the Company acknowledging that the Agent has (and is hereby granted) a
lien for the benefit of the Banks on each such account and all funds contained
therein to secure the Obligations. The Banks agree, however, with the Company
that if and so long as no Default or Event of Default has occurred or is
continuing hereunder, amounts on deposit in each special account maintained with
the Agent will (subject to the rules and regulations of the Agent as from time
to time in effect applicable to demand deposit accounts) be made available to
the Company for use in the conduct of its business. Upon the occurrence of an
Event of Default, the Agent may apply the funds on deposit in each such account
to the Obligations, but the Agent shall notify the Company of any such
application (it being understood and agreed the Agent and Banks are not liable
for any failure to provide such notice).
SECTION 6. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Banks as follows:
Section 6.1. Organization and Power. The Company is duly organized
and existing under the laws of the state of its organization, and after giving
effect to the Intersound Acquisition will be duly licensed or qualified to do
business in each state where the nature of the assets owned or leased by it or
business conducted by it requires such licensing or qualification and in which
the failure to be so licensed or qualified would have a Material Adverse Effect
and has all necessary power to carry on
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its contemplated business. The Company has full right, power and authority to
enter into this Agreement, to make the borrowings herein provided for, to issue
the Notes in evidence thereof, to issue the Warrants and the other Loan
Documents executed and delivered or to be executed and delivered by it, and to
perform each and all of the matters and things herein and therein provided for.
Each Subsidiary has, or upon acquisition or formation will have full right,
power and authority to enter into the Loan Documents executed by it and to
perform each and all of the matters and things therein provided for. The Loan
Documents do not, nor will the performance or observance by the Company or any
Subsidiary of any of the matters and things herein or therein provided for,
contravene any provision of law or any charter, by-law, operating agreement or
similar agreement of the Company or any such Subsidiary or constitutes a breach
or default under any covenant, indenture or agreement of or affecting the
Company or any such Subsidiary where such breach or default would have a
Material Adverse Effect.
Section 6.2. Capitalization of Company. (a) Upon the consummation
of (i) the issuance and sale of the Warrants, and giving effect to such issuance
and sale and (ii) the consummation of the Intersound acquisition and giving
effect to the issuance and sale of the Take-Out Securities: the Company (i) has
authorized 40,000,000 shares of Common Stock, par value $.001 per share, of
which 5,171,439 shares are issued and outstanding, and 2,328,724.95 shares
(subject to increase from time to time upon operation of anti-dilution
provisions) are reserved for issuance upon exercise of outstanding warrants and
option and the conversion of outstanding convertible securities, and of which
3,681,651 shares are reserved for issuance under the Company's stock option plan
as to which options have not yet been granted and (ii) has authorized 10,000,000
shares of Preferred Stock, par value $.001 per share, of which no shares are
issued and outstanding; the stockholders of the Company are not entitled to any
preemptive rights with respect to the issuance of shares of capital stock of the
Company; and there are no outstanding commitments or other obligations of the
Company to issue, and no options, warrants or other rights of any Person to
acquire, any equity interest in the Company (subject to adjustment subsequent to
the date hereof for the exercise of any such rights), except for (i) warrants
(including the Warrants) for the purchase of 258,571.95 shares of Common Stock
issued or to be issued on the date hereof, (ii) options heretofore granted to
officers, directors, employees and consultants for an aggregate of 1,559,949
shares of Common Stock, and (iii) 510,204 shares of Common Stock reserved for
conversion of the Intersound Sub Debt.
(b) Neither the Company nor any agent on its behalf, directly or
indirectly, has offered any of the Notes or Warrants for sale to, or solicited
any offers to buy any thereof from, or otherwise negotiated with respect thereto
with, any person or persons so as to bring the offering, issue or sale thereof
under the provisions of Section 5 of the Securities Act of 1933, as amended, and
the Company agrees that neither it nor any agent on its behalf will sell, or
offer any of the Notes or Warrants to, or solicit any offers to buy any thereof
from, or otherwise negotiate with respect thereto with, any person or persons so
as to bring the offering, issue or sale of the Notes or Warrants under the
provisions of the said Section 5 of the said Securities Act of 1933, as amended.
Section 6.3. Subsidiaries. Each Subsidiary is, or upon acquisition
or formation will be, duly organized and existing under the laws of the
jurisdiction of its organization, and duly licensed or qualified to do business
in each state or other jurisdiction where the nature of the assets owned or
leased by it or business conducted by it requires such licensing or
qualification and in which the failure to be so licensed or qualified would have
a Material Adverse Effect and has all necessary corporate power to carry on its
present business. Schedule 6.3 hereto identifies each Subsidiary, the
jurisdiction of its organization, the percentage of issued and outstanding
shares of each class of its capital stock or other equity owned by the Company
and the Subsidiaries and, if such percentage is not 100% (excluding directors'
qualifying shares as required by law), a description of each class of its
authorized capital stock or other equity interest and the number of shares of
each class issued and outstanding. All of the outstanding shares of capital
stock of or other equity interest in each Subsidiary are validly issued and
outstanding and fully paid and nonassessable, and all shares or other equity
interests in each Subsidiary indicated on Schedule 6.3 as owned by the Company
or a Subsidiary are owned, beneficially and of record, by the Company or such
Subsidiary free and clear of all liens, security interests, charges and
encumbrances, other than the lien of the Agent on the shares and other equity
interests of each Subsidiary. There are no outstanding commitments or other
obligations of any Subsidiary to issue, and no options, warrants or other rights
of any Person to acquire, any shares of any class of capital stock of or other
equity interest in any Subsidiary.
. The Company shall use proceeds of the Loans and other extensions of credit
made available hereunder solely for the purpose of funding the Intersound
Acquisition and its working capital needs. Neither the Company nor any
Subsidiary is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stocks (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any loan or extension of credit hereunder will be used
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to purchase or carry any margin stock or extend credit to others for the purpose
of purchasing or carrying any margin stock if as a result thereof such loan or
other extension of credit would violate Regulation U or any interpretation
thereof.
Section 6.5. Financial Statements. (a) Company. The consolidated
balance sheet of the Company and its Subsidiaries as at May 31, 1996 and the
related consolidated statements of income and cash flows of the Company and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of Ernst & Young
LLP, independent public accountants, and the unaudited interim consolidated
balance sheet of the Company and its Subsidiaries as at November 30, 1996 and
the related consolidated statements of income and cash flows of the Company and
its Subsidiaries for the six (6) months then ended, heretofore furnished to the
Agent, fairly present the consolidated financial condition of the Company and
its Subsidiaries as at said dates and the consolidated results of their
operations and cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis (subject
in the case of such interim statements, to normal year-end audit adjustments).
Neither the Company nor any Subsidiary has contingent liabilities which are
material to it other than as indicated on such financial statements or, with
respect to future periods, on the financial statements furnished pursuant to
Section 8.5 hereof. Since May 31, 1996, there has been no change in the
condition (financial or otherwise) or business prospects of the Company or the
Company and its Subsidiaries taken as a whole except those occurring in the
ordinary course of business, none of which individually or in the aggregate have
been materially adverse.
(b) Intersound. To the Company's knowledge, (i) the financial
statements accompanying the annual audit report for Intersound for its fiscal
year ended April 30, 1996 have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent, except as
otherwise noted therein, with that of the previous fiscal year and (ii) such
annual financial statements, and the interim unaudited balance sheet of
Intersound as of November 30, 1996, and income statement of Intersound for the
seven (7) months then ended, in each case fairly present the financial condition
of Intersound as of the dates thereof and the results of operations for the
periods covered thereby.
(c) Proforma for Company and Intersound. The unaudited pro forma
consolidated balance sheet and consolidated statements of operations for the
Company and its Subsidiaries and Intersound heretofore delivered to the Agent
fairly present (subject to the qualifications and assumptions set forth in the
notes attached thereto) the combined financial condition of the Company and its
Subsidiaries as at the dates thereof and for the periods covered thereby after
giving effect to the Intersound Acquisition based upon the best information
currently available to the Company with respect to the Intersound Acquisition.
(d) Existing Bank Debt. Schedule 6.5 describes all but $100,000 of
the indebtedness for borrowed money of the Company and Intersound and their
respective subsidiaries on a consolidated basis outstanding as of the date
hereof.
Section 6.6. Litigation and Taxes. There is no litigation or
governmental proceeding pending, nor to the knowledge of the Company threatened,
against the Company or any Subsidiary or for which any of them are liable which
if adversely determined would result in a Material Adverse Effect. The United
States federal income tax returns of the Company and its Subsidiaries for the
taxable year ended May 31, 1995 and for all taxable years ended prior to said
date have been filed with the Internal Revenue Service, and any additional
assessments in connection with any such years have been paid or the applicable
statute of limitations therefor has expired. No objections to or controversies
in respect of the United States federal income tax returns of the Company or any
Subsidiary are pending or threatened which, if adversely determined, would have
a Material Adverse Effect. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, is or will be necessary to the valid execution,
delivery or performance by the Company or any Subsidiary of any Loan Document to
be executed and delivered by it or to the consummation of the Intersound
Acquisition, except for (a) filing of financing statements and other documents
evidencing the Agent's lien in the Collateral and (b) such consents, exemptions
and approvals with respect to the Intersound Acquisition which will have been
obtained and remain in full force and effect.
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Section 6.7. Burdensome Contracts with Affiliates. All material
contracts and agreements between the Company and/or its Subsidiaries and their
Affiliates are on terms and conditions which are no less favorable to the
Company or such Subsidiary than would be usual and customary in similar
contracts or agreements between Persons not affiliated with each other.
Section 6.8. ERISA. The Company and each Subsidiary are each in
compliance in all material respects with the Employee Retirement Income Security
Act of 1974 ("ERISA") to the extent applicable to it and has received no notice
to the contrary from the Pension Benefit Guaranty Corporation ("PBGC"), and, in
the event of the Company's or any Subsidiary's partial or total withdrawal from
any pension plans, multi-employer pension plans or non-payment by other employer
participants therein, the liability of the Company and its Subsidiaries for any
unfunded vested benefits thereunder would not result in a Material Adverse
Effect.
Section 6.9. Full Disclosure. The Approved Projections and the
other statements and information furnished to either Agent or the Banks in
connection with the negotiation of this Agreement and the commitments by the
Banks to provide all or part of the financing contemplated hereby do not, taken
as a whole, contain any untrue statement of a material fact or omit a material
fact necessary to make the material statements contained therein or herein not
misleading, except for such thereof as were corrected in subsequent written
statements furnished the Banks prior to the initial extension of credit
hereunder (the Banks acknowledging that as to any projections furnished to the
Banks, the Company only represents that the same were prepared on the basis of
information and estimates it believes to be reasonable). There is no fact
peculiar to the Company or any Subsidiary which the Company has not disclosed to
the Banks in writing which materially adversely affects nor, so far as the
Company now can reasonably foresee, is reasonably likely to have a Material
Adverse Effect.
Section 6.10. Compliance with Law. (a) Neither the Company nor any
Subsidiary is (i) in default with respect to any order, writ, injunction or
decree or (ii) in default in any material respect under any Governmental
Requirement (including ERISA, the Occupational Safety and Health Act of 1970 and
laws and regulations establishing quality criteria and standards for air, water,
land and toxic waste) of any Governmental Body default with respect to or under
which is reasonably likely to result in a Material Adverse Effect; and
(b) without limiting the generality of the foregoing, the Company and each
Subsidiary are each in compliance with all applicable state and federal
environmental, health and safety statutes and regulations, including, without
limitation, regulations promulgated under the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Sections 6901 et seq., except where failure to be in
compliance is reasonably likely not to have a Material Adverse Effect, and, to
the Company's knowledge, neither the Company nor any Subsidiary will have
acquired, incurred or assumed, directly or indirectly, any contingent liability
in connection with the release of any toxic or hazardous waste or substance into
the environment which is reasonably likely to have a Material Adverse Effect.
Insofar as known to the responsible officers of the Company, neither the Company
nor any Subsidiary is liable, in whole or in part, for, nor are any of the
assets or property of the Company or any Subsidiary subject to a lien in favor
of any Governmental Body for any material liability arising from or in any way
relating to, the costs of cleaning up, remediating or responding to a release of
hazardous substances (including, without limitation, petroleum, its by-products
or derivatives, or other hydrocarbons).
Section 6.11. Intersound Acquisition. The Company has heretofore
delivered to the Banks a true and correct copy of the Intersound Purchase
Agreement and all exhibits thereto and the same has not been amended or modified
in any material respect, except for such amendments and modifications for which
true and correct copies have been furnished to the Banks. The Company and River
North have all necessary corporate right, power and authority to consummate the
Intersound Acquisition and the other transactions contemplated by the Intersound
Purchase Agreement and to perform and observe all of their obligations (if any)
thereunder. Neither the Company nor River North nor to the best of the
Company's knowledge, Intersound is in default in any material respect in any of
their respective obligations under the Intersound Purchase Agreement and no
representation of the Company, River North or (to the best of the Company's
knowledge) Intersound contained in the Intersound Purchase Agreement is untrue
in any material respect. The Company's representation and warranties in this
Section 6 shall remain true and correct after giving effect to the Intersound
Acquisition.
Section 6.12. Necessary Assets and Contracts. Concurrently with
consummation of the Intersound Acquisition, the Company will have all assets and
contractual rights as are necessary to enable it to operate and generate the net
revenue contemplated by the Approved Projections on terms consistent with the
Approved Projections.
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Section 6.13. Solvency, etc. On the date of the initial Borrowing
hereunder, after giving effect to the Intersound Acquisition, (i) the assets of
the Company and of each Subsidiary, at a fair valuation, will exceed its
liabilities, including contingent liabilities, (ii) the remaining capital of the
Company and of each Subsidiary will not be unreasonably small to conduct or in
relation to its business or any transaction in which it intends to engage, and
(iii) the Company and each Subsidiary will not have incurred debts, and does not
intend to incur debts, beyond its ability to pay such debts as they mature. For
purposes of this Section, "debt" means any liability on a claim, and "claim"
means (i) right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured.
SECTION 7. CONDITIONS PRECEDENT.
Section 7.1. All Advances. The obligation of the Banks to make any
Borrowing available under the Revolving Credit or Term Credit (including the
first advance) shall be subject to the provisions of Sections 9.2 and 9.3 hereof
and shall also be subject to the satisfaction of the following conditions
precedent at the time of the making of each Borrowing under the Revolving
Credit:
(a) each of the representations and warranties set forth herein and
in the other Loan Documents shall be true and correct as of the date of
such advance or issuance (except in the case of the initial credit
extension, the representations and warranties made in Section 6.5 hereof
shall be deemed to refer to the most recent financial statements delivered
to the Banks pursuant to Section 8.5 hereof);
(b) no material adverse change shall have occurred in the condition
(financial or otherwise) or prospects of either the Company or the Company
and its Subsidiaries taken as a whole; and
(c) no Default or Event of Default shall have occurred and be
continuing.
Any request made by the Company to the Agent for a Borrowing hereunder shall be
deemed to constitute a representation and warranty that the foregoing statements
are true and correct. Upon the request of any Bank, the Company shall furnish a
certificate executed by its Chief Financial Officer to confirm the foregoing.
Section 7.2. Initial Advance. At or prior to the time of the
initial advance under the Revolving Credit or Term Credit, the following
conditions precedent shall also have been satisfied:
(a) The Agent shall have received the following for the account of
the Banks (each to be properly executed and completed) and the same shall
have been approved as to form and substance by the Agent and Required
Banks:
(i) this Agreement and the Notes;
(ii) copies (executed or certified as may be appropriate)
for each Bank of the articles of incorporation, by-laws, operating
agreements and management agreements of the Company and each of its
Subsidiaries and of all legal documents or proceedings taken in
connection with the execution and delivery of the Loan Documents to
the extent the Agent or its counsel may reasonably request, including,
without limitation, certificates as to the incumbency and authority
of, and setting forth a specimen signature of, each officer who is to
sign any Loan Document;
(iii) a Subsidiary Guaranty from each Subsidiary not a party
hereto;
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(iv) the Devick Guaranty;
(v) the Initial Collateral Documents and any documentation
necessary to perfect the liens thereby created (including, without
limitation, all certificates of capital stock of the Subsidiaries
which are corporations together with executed blank stock powers
therefor, and with all financing statements requested by the Agent in
connection with the Initial Collateral Documents) to the extent
required by Section 5.1 hereof;
(vi) evidence of the maintenance of insurance as required
hereby or by the Initial Collateral Documents;
(vii) a certificate from an authorized officer of the Company
stating whether the pro forma combined and consolidated balance sheet
of the Company and its Subsidiaries delivered to the Banks pursuant to
Section 6.5 hereof, the Approved Projections and Schedules 6.3 and 6.5
hereto are accurate in all material respects as of the date the other
conditions precedent to the initial Borrowing under this Section 7.2
are satisfied or, if not, setting forth the differences and that no
Default or Event of Default exists as of such date or will occur after
giving effect to the initial Borrowing hereunder;
(viii) a payoff letter from each holder of the Existing Bank
Debt (or a duly appointed trustee or agent for such holder) in which
each such party agrees to (i) cancel each loan or other agreement
governing such Existing Bank Debt (or stating that all such loan and
other agreements shall automatically be canceled), (ii) mark
"Canceled" or "Paid" and returned to the relevant borrower all
promissory notes and other evidences of such Existing Bank Debt and
(iii) release its liens securing such Existing Bank Debt, in each case
upon receipt of the payoff amount stated in such letter;
(ix) an employment and non-compete agreement between the
Company and Devick which (i) obligates Devick not to compete with the
Company for a period ending no earlier than repayment in full of the
Term Credit Loans or May 31, 1997, whichever is later and (ii)
provides for Devick's provision of management services to the Company
for a period ending no earlier than repayment in full of the Term
Credit Loans or May 31, 1997, whichever is later;
(x) copies of all instruments evidencing or setting forth
terms and conditions applicable to the Intersound Sub Debt, such terms
and conditions to provide, among other things, that no payment of
principal, interest or premium (if any) shall be required on the
Intersound Sub Debt prior to May 31, 1997;
(xi) a written commitment from the insurer on the life
insurance policy to be assigned by the Life Insurance Assignment to
issue such policy and acknowledge the Life Insurance Assignment, in
each case within thirty (30) days after the date hereof, such
commitment to be subject to no condition other than payment of the
initial premium for such policy; and
(xii) a written acknowledgment from Intersound of the
collateral assignment to the Agent as security for the Obligations of
River North's indemnification rights under the Intersound Purchase
Agreement;
(b) All conditions precedent to the Intersound Acquisition shall have
been satisfied (without deviation from the Intersound Purchase Agreement
and without waiver by the Company of any of the conditions precedent to
closing set forth in the Intersound Purchase Agreement (except for waivers
approved by the Agent)) except for the Banks' funding of not more than
$23,900,000 of the cash purchase price therefor and the Agent shall have
received evidence satisfactory to it of the foregoing;
(c) Nothing shall have come to the attention of the Company or the
Agent or any Bank which indicates that the capital structure and condition
(financial and otherwise) and prospects of the Company or Intersound
(including without limitation their respective current assets and its
current liabilities) will be
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detrimentally at variance, in any material respect, from those presumed in
the Approved Projections and the other pro forma balance sheets and other
financial materials on the Company and Intersound heretofore most recently
submitted by the Company to the Agent;
(d) The Agent shall have received assurances reasonably satisfactory
to it that the Proforma EBITDA for the Company and Intersound for the
Company's monthly accounting period ending December 31, 1996 was higher
than the Proforma EBITDA of the Company and Intersound for the
corresponding monthly accounting period in the Company's immediately
preceding fiscal year;
(e) The liens and security interests granted to the Agent under the
Collateral Documents shall have been perfected to the extent required by
Section 5.1 hereof in a manner satisfactory to the Agent;
(f) The Agent shall be satisfied with insurance and environmental
matters;
(g) The Company and the Seller shall have received such approvals,
exemptions, consents or withholdings of objection from Governmental Bodies
as are necessary in order to lawfully consummate the Intersound Acquisition
and for the Company to operate and use the properties and rights to be
acquired in the Intersound Acquisition substantially as contemplated by the
Intersound Purchase Agreement and the other information furnished to the
Banks by or on behalf of the Company and same shall be true and correct in
all material respects;
(h) The Agent shall have received for its own account the fees and
Warrants to be received by it at such time by agreement with the Company;
and
(i) The Agent shall have received for the account of the Banks such
other agreements, instruments, documents, certificates and opinions as the
Agent may reasonably request.
Section 7.3. Legal Matters. Legal matters incident to the execution
and delivery of the Loan Documents and the other instruments and documents
contemplated hereby and the Intersound Acquisition shall be satisfactory to the
Agent and its counsel, and the Banks shall have received the favorable written
opinions of acceptable counsel for the Company and each Subsidiary party to the
Loan Documents, in form and substance satisfactory to the Agent and its counsel,
with respect to:
(a) the due organization and existence of the Company and each
such Subsidiary and the due licensing or qualification of the Company and
each such Subsidiary in all jurisdictions where the nature of the assets
owned or leased by them or business conducted by them requires such
licensing or qualification and in which the failure to be so licensed or
qualified would materially and adversely affect the business, properties or
operations of the Company and its Subsidiaries taken as a whole;
(b) the power and authority of the Company and each such
Subsidiary to consummate the Intersound Acquisition, to enter into the Loan
Documents and to perform and observe all the matters and things herein and
therein provided for and the fact that the execution and delivery of the
Loan Documents will not, nor will the consummation of the Intersound
Acquisition or the observance or performance of any of the matters or
things therein or herein provided for, contravene any provision of law or
of the charter or by-laws, operating agreement or management agreement of
the Company or any such Subsidiary or constitute a material breach of or
default under any provision of any material covenant, indenture or
agreement binding upon the Company or any such Subsidiary or affecting any
of their properties or assets;
(c) the due authorization for and the validity and
enforceability of the Loan Documents;
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(d) the fact that no governmental authorization, consent,
exemption or withholding of objection is required with respect to the
consummation of the Intersound Acquisition or the lawful execution,
delivery and performance of the Loan Documents other than such thereof as
have been obtained and are in full force and effect;
(e) the lack, to the knowledge of such counsel, of any legal or
administrative proceedings pending or threatened against Intersound, the
Company or any Subsidiary which seeks to prevent the consummation of the
Intersound Acquisition or the operation of the assets to be acquired
pursuant thereto or which, if adversely determined, would result in a
Material Adverse Effect after giving effect to the Intersound Acquisition;
(f) the fact that the Intersound Acquisition has been
consummated (in expressing such opinion counsel may assume disbursement of
the initial Borrowing and rely as to factual matters on certificates of
appropriate officers of the Company);
(g) the offering, issuance and delivery of the Warrants under
the circumstances contemplated by this Agreement constitute exempted
transactions under the Securities Act of 1933, as amended, and do not
require registration of the Notes or Warrants under said Securities Act of
1933; nor is registration under the Securities Act of 1933, as amended,
currently required of the Common Stock issuable upon the exercise of the
Warrants (counsel being permitted to state that a sale of the Warrant or of
the Common Stock issuable upon exercise thereof might require registration
of the Warrant and of said common stock if a public issue were involved);
(h) the fact that the authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, par value $.001 per share,
and that based upon such counsel's review of the Company's stock record
book, there are 5,171,439 shares of Common Stock of the Company issued and
outstanding, and that assuming compliance by the Company with the terms and
provisions of the Warrants, if and when issued upon exercise of the
Warrants in accordance with the provisions thereof, the shares of Common
Stock issuable upon such exercise will be validly issued, fully paid and
nonassessable shares; and
(i) such other matters as the Agent or its counsel may
reasonably require.
Section 7.4. Initial Borrowing. The Company shall use the proceeds
of the initial Borrowing as follows: (a) to pay not more than $23,900,000 of the
cash purchase price due at closing for the Intersound Acquisition; and (b) to
repay in full the Existing Bank Debt. The Company hereby irrevocably authorizes
and directs the Banks to so disburse such proceeds.
Section 7.5. Post Closing Requirements. No later than the date set
forth below, the Agent shall have received the following for the account of the
Banks (each to be properly executed and completed) and the same shall have been
approved as to form and substance by the Agent and Required Banks:
(a) as soon as available, but in any event within thirty (30)
days after the date hereof, a consent from each venture partner of the
Company in the House of Blues Venture to the collateral assignment of the
Company's equity interest in the House of Blues Venture pursuant to the
Stock Pledge Agreement as security for the Obligations; and
(b) as soon as available, but in any event within thirty (30)
days after the date hereof, the Life Insurance Assignment.
The Company's failure to provide any of the above by such deadline shall
constitute an immediate Event of Default.
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SECTION 8. COVENANTS.
The Company agrees that, so long as any credit is available to or in use by
the Company hereunder, except to the extent compliance in any case or cases is
waived in writing by the Required Banks:
Section 8.1. Maintenance of Business. The Company will, and will
cause each Subsidiary to, preserve and keep in force and effect all licenses and
permits necessary to the proper conduct of their respective businesses except
where the failure to do so would not result in a Material Adverse Effect.
Section 8.2. Maintenance. The Company will, and will cause each
Subsidiary to, maintain, preserve and keep their plant, properties and equipment
(other than obsolete or worn out equipment held for sale or disposition) in good
repair, working order and condition (ordinary wear and tear excepted) and the
Company will, and will cause each Subsidiary to, from time to time make all
needful and proper repairs, renewals, replacements, additions and betterments
thereto so that at all times the efficiency thereof shall be substantially
preserved and maintained, in each case where the failure to do so is reasonably
likely to have a Material Adverse Effect.
Section 8.3. Taxes. The Company will, and will cause each
Subsidiary to, duly pay and discharge all taxes, rates, assessments, fees and
governmental charges upon or against any of them or against their respective
properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings, in each case where the failure to do
so is reasonably likely to have a Material Adverse Effect.
Section 8.4. Insurance. The Company will, and will cause each
Subsidiary to, insure and keep insured, in good and responsible insurance
companies, all insurable property owned by them which is of a character usually
insured by companies similarly situated and operating like properties; and the
Company will, and will cause each Subsidiary to, insure such other hazards and
risks (including employers' and public liability risks) in good and responsible
insurance companies as and to the extent usually insured by companies similarly
situated and conducting similar businesses. The Company will upon request of the
Agent furnish a certificate setting forth in summary form the nature and extent
of the insurance maintained pursuant to this Section.
Section 8.5. Financial Reports. The Company will, and will cause
each Subsidiary to, maintain a standard and modern system of accounting in
accordance with sound accounting practice, will not materially change its
accounting practices and will furnish to the Banks and their duly authorized
representatives such information respecting the business and financial condition
of the Company and its Subsidiaries as any Bank or the Agent may reasonably
request (including re-engagement of the Banks' consultant at the expense of the
Company if the Agent or the Required Banks so request); and without any request,
will furnish to the Banks:
(a) within 30 days after the close of each quarterly fiscal
period of the Company, a copy of the balance sheet, statement of earnings
and statement of cash flow of the Company and its Subsidiaries for such
period, prepared on a consolidated basis in accordance with GAAP, and the
notes thereto, all certified (subject to year end audit adjustments which
are not expected to be material) by the chief financial officer of the
Company;
(b) within the periods provided in paragraph (a) above, a
certificate of an authorized financial officer of the Company stating that
such officer has reviewed the provisions of this Agreement and setting
forth: (aa) the information and computations (in sufficient detail)
required in order to establish whether the Company was in compliance with
the requirements of Sections 8.10 and 8.11 hereof at the end of the period
covered by the financial statements then being furnished, and (ab) to the
best such officer's knowledge, whether there exists on the date of the
certificate or existed at any time during the period covered by such
financial statement any Default or Event of Default and, if any such
condition or event exists on the date of the certificate or existed during
such period, specifying the nature and period of existence thereof and the
action the Company is taking, has taken or proposes to take with respect
thereto; and
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(c) promptly after knowledge thereof shall have come to the
attention of any responsible officer of the Company, written notice of (i)
any threatened or pending litigation or governmental proceeding or
assessment against the Company or any Subsidiary which if adversely
determined would result in a Material Adverse Effect, (ii) any Default or
Event of Default and (iii) any pending or actual Change of
Control/Management Event.
The Company will, and will cause each Subsidiary to, permit
representatives of any Bank, upon reasonable notice and during normal business
hours, to examine and make extracts from the books and records of the Company
and its Subsidiaries and to examine their assets and access thereto shall be
permitted for such purpose. The Agent and each Bank agree to maintain in
confidence and not disclose to any Person any material non-public information
relating to the Company or its Subsidiaries made available to the Agent or
such Bank pursuant to this Section 8.5; provided that the Agent and each Bank
may make such disclosures as are permitted by Section 12.16 or as shall be
required by law or to the Agent's or such Bank's auditors or legal counsel who
the Agent or such Bank, as applicable, agrees will maintain the information so
disclosed in confidence.
Section 8.6. Compliance with Laws. The Company will, and will cause
each Subsidiary to, comply with all Governmental Requirements to which they are
subject, including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, ERISA, and all laws, ordinances, governmental rules and
regulations relating to environmental protection in all applicable
jurisdictions, the violation of which is reasonably likely to have a Material
Adverse Effect or would result in any lien or charge upon any property of the
Company or any Subsidiary which is not a Permitted Lien.
Section 8.7. Nature of Business. The Company will not, nor will it
permit any Subsidiary to, engage in any business or activity if, as a result,
the general nature of the business which would then be engaged in by the Company
and its Subsidiaries taken as a whole would be substantially changed from the
business in which they are engaged after giving effect to the Intersound
Acquisition.
Section 8.8. Liens. The Company will not, nor will it permit any
Subsidiary to, pledge, mortgage or otherwise encumber or subject to, or permit
to exist upon or be subjected to, any lien, security interest or charge upon,
any assets or any Subsidiary; provided, however, that nothing in this
Section contained shall operate to prevent any of the following (collectively,
"Permitted Liens"):
(a) liens, pledges or deposits in connection with workmen's
compensation, unemployment insurance, social security obligations, taxes,
assessments, statutory obligations or other similar charges, good faith
deposits in connection with tenders, contracts or leases to which the
Company or any of its Subsidiaries is a party or other deposits required to
be made in the ordinary course of business and not in connection with
borrowing money or obtaining advances or credit; provided in each case that
the obligation or liability arises in the ordinary course of business and
is not overdue, or if overdue, is being contested in good faith by
appropriate proceedings which prevent enforcement of the matter under
contest and adequate reserves have been established therefor to the extent
required by GAAP;
(b) inchoate statutory, construction, common carrier's,
materialmen's, landlord's, warehousemen's, mechanics, producers' or
operator's liens securing obligations not overdue, or if overdue, being
contested in good faith by appropriate proceedings which prevent
enforcement of the matter under contest and adequate reserves have been
established therefor to the extent required by GAAP;
(c) liens given to secure the payment of the purchase price or
the financing thereof incurred in connection with the acquisition of
equipment, including liens existing on such assets at the time of
acquisition thereof, provided that (i) the lien shall attach solely to the
property acquired or purchased (ii) the indebtedness secured by such lien
does not exceed 100% of the lesser of the cost or fair value of the
property financed and (iii) the indebtedness secured thereby is permitted
by Section 8.9(b) hereof (collectively, "PURCHASE MONEY LIENS");
(d) the liens created by the Collateral Documents;
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(e) attachment or judgment liens individually or in the
aggregate not in excess of $50,000 (exclusive of (i) any amounts that are
duly bonded to the reasonable satisfaction of the Agent or (ii) any amount
adequately covered by insurance as to which the insurance company has not
disclaimed or disputed in writing its obligations for coverage or has not
otherwise failed to pay when due);
(f) liens for taxes, assessments or other governmental charges
not yet due and payable or which are being diligently contested in good
faith by the Company or its applicable Subsidiary by appropriate
proceedings, provided that in any such case an adequate reserve is being
maintained by the Company or such Subsidiary for the payment of same;
(g) deposits or pledges to secure bids, tenders, contracts
(other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of business;
(h) easements, licenses, permits, rights-of-way, rights of entry
or passage, rights of lessees, restrictions and other similar encumbrances
incurred in the ordinary course of business of the type generally
applicable to leased property which do not secure debt for money borrowed
or its equivalent, and which do not materially detract from the value of
the property subject thereto or materially interfere with the ordinary
conduct of the business of the Company or any Subsidiary or use of the
assets in question for purposes producing and distributing recorded music;
(i) extensions and renewals of the foregoing Permitted Liens,
provided that the aggregate amount of such liabilities secured by such
extended or renewed lien is not increased and such extended or renewed
liabilities secured by such lien are on terms and conditions no more
restrictive than the terms and conditions of the same being extended or
renewed; and
(j) the Polygram Lien.
Section 8.9. Indebtedness. The Company will not, nor will it permit
any Subsidiary to, issue, incur, assume, create, or have outstanding any
Indebtedness; provided, however, that the foregoing provisions shall not
restrict nor operate to prevent:
(a) Indebtedness owing to the Agent and the Banks under this
Agreement or any of the other Loan Documents;
(b) Capitalized Leases and purchase money indebtedness where the
related lien is permitted by Section 8.8(c) hereof not exceeding $75,000 at
any one time outstanding;
(c) Obligations on leases which are not Capitalized Leases;
(d) Subsidiary Guaranties permitted by Section 8.13 hereof;
(e) Indebtedness of any Subsidiary outstanding as of the date
hereof owing to the Company or any other Subsidiary arising in the ordinary
course of business;
(f) the Existing Bank Debt, all of which is being repaid in full
out of the proceeds of the initial Borrowing hereunder;
(g) the Intersound Sub Debt if and so long as the same
constitutes Subordinated Debt; and
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(h) Indebtedness not otherwise permitted by this Section 8.9
aggregating not more than $50,000 at any one time outstanding.
Section 8.10. Consolidated Net Tangible Worth. The Company will at
all times maintain Consolidated Tangible Net Worth of not less than a negative
$13,000,000.
Section 8.11. EBITDA. The Company will have EBITDA of not less than
$1,363,500 for the fiscal quarter of the Company ending on or about February 28,
1997 and will have EBITDA of not less than $921,600 for each monthly accounting
period of the Company following such fiscal quarter.
Section 8.12. Expenditures. (a) Capital Expenditures. The Company
shall not and shall not permit its Subsidiaries to expend or become obligated
for Capital Expenditures during the fiscal quarter of the Company ending on or
about February 28, 1997 in excess of $150,000 for the Company and its
Subsidiaries taken together. The Company shall not and shall not permit its
Subsidiaries to expend or become obligated for Capital Expenditures aggregating
for the Company and its Subsidiaries taken together in excess of $50,000 during
any monthly accounting period of the Company following such fiscal quarter.
(b) SG&A Expenditures. The Company shall not and shall not permit
its Subsidiaries to expend or become obligated for SG&A Expenditures during the
fiscal quarter of the Company ending on or about February 28, 1997 in excess of
$3,000,000 for the Company and its Subsidiaries taken together. The Company
shall not and shall not permit its Subsidiaries to expend or become obligated
for SG&A Expenditures aggregating for the Company and its Subsidiaries taken
together in excess of $1,200,000 during any monthly accounting period of the
Company following such fiscal quarter.
Section 8.13. Acquisitions, Investments, Loans, Advances and
Subsidiary Guaranties. The Company will not, nor will it permit any Subsidiary
to, directly or indirectly, make, retain or have outstanding any interest or
investments (whether through purchase of stock or obligations or otherwise) in,
or loans or advances to, any other Person, or acquire all or any substantial
part of the assets or business of any other Person, or guarantee any
indebtedness, obligation or liability of any other Person or otherwise enter
into any arrangement designed to assure another Person against loss or
subordinate any claim or demand it may have to the claim or demand of any other
Person; provided, however, that the foregoing provisions shall not apply to nor
operate to prevent:
(a) investments by the Company or any Subsidiary in direct
obligations of the United States of America or of any agency or
instrumentality thereof whose obligations constitute full faith and credit
obligations of the United States of America, provided that any such
obligations shall mature within fifteen months from the date the same are
acquired by the Company or such Subsidiary;
(b) investments by the Company or any Subsidiary in certificates
of deposit or time deposits issued by any Bank, or by any United States
commercial bank having capital and surplus of not less than $100,000,000
and having a maturity of fifteen months or less;
(c) investments by the Company or any Subsidiary in commercial
paper maturing 270 days or less from the date of issuance which at the time
of acquisition is rated A-2 or better by Standard & Poor's Ratings Services
Group, a division of the McGraw-Hill Companies and P-2 or better by Moody's
Investors Service, Inc.;
(d) investments by the Company or any Subsidiary in debt
securities issued by U.S. corporations or states of the United States
maturing within fifteen months from the date of acquisition thereof if at
the time of acquisition the investment in question has a rating of not less
than BBB from Standard & Poor's Ratings Services Group, a division of The
McGraw-Hill Companies, Inc. and/or Baa2 from Moody's Investors Services,
Inc.;
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(e) investments by the Company or any Subsidiary in preferred
stock of any corporation organized under the laws of any state of the
United States which is subject to a remarketing undertaking at intervals
not exceeding fifteen months issued by any substantial broker and which is
rated BBB or better by Standard & Poor's Ratings Services Group, a division
of The McGraw-Hill Companies, Inc. and/or Baa2 or better by Moody's
Investors Services, Inc.;
(f) the Intersound Acquisition;
(g) loans and advances by the Company or any Subsidiary
outstanding as of the date hereof to other Wholly Owned Subsidiaries to
fund their ordinary working capital needs;
(h) loans and royalty advances to recording artists in the
ordinary course of business provided that (i) the aggregate amount of such
loans and advances made during the fiscal quarter of the Company ending on
or about February 28, 1997 does not exceed $1,800,000 on a cumulative basis
for such quarter and (ii) the aggregate amount of such loans and advances
made during any monthly accounting period of the Company ending thereafter
does not exceed $783,333 on a cumulative basis for such monthly period;
(i) the Company's equity investment in the House of Blues
Venture as of the date hereof;
(j) the Subsidiary Guaranties; and
(k) investments in, loans and advances to, and guaranties of the
obligations of Persons not otherwise permitted by this Section at no time
aggregating more than $50,000.
In determining the amount of investments, loans and advances permitted under
this Section, investments shall always be taken at the original cost thereof,
regardless of any subsequent appreciation (including retained earnings) or
depreciation therein, loans and advances shall be taken at the principal amount
thereof then remaining unpaid and guaranties shall be taken at the amount of the
obligation guaranteed.
Section 8.14. Dividends and Certain Other Restricted Payments. The
Company will not during any calendar year (a) declare or pay any dividends on or
make any other distributions in respect of any class of its capital stock or any
warrant to acquire any such capital stock (other than dividends payable solely
in its capital stock) or (b) directly or indirectly or through any Subsidiary
purchase, redeem or otherwise acquire or retire any of its capital stock or any
warrant to acquire any such capital stock (except out of the proceeds of, or in
exchange for, a substantially concurrent issue and sale of its capital stock).
Section 8.15. Mergers. The Company will not, nor will it permit any
Subsidiary to, consolidate or be a party to a merger with any other Person,
except that so long as no Default or Event of Default has occurred and is
continuing or would arise as a result thereof any Wholly-Owned Subsidiary of the
Company may merge with and into the Company if the Company is the surviving
corporation.
Section 8.16. Sale of Assets. The Company will not, nor will it
permit any Subsidiary to, sell, lease or otherwise dispose of all or any part of
its property or assets; provided, however, that nothing contained therein shall
prohibit (i) sales of inventory in the ordinary course of business and
(ii) sales or dispositions of obsolete or worn out property disposed of in the
ordinary course of business.
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Section 8.17. Sales and Leasebacks. The Company will not, nor will
it permit any Subsidiary to, enter into any arrangement with any bank, insurance
company or other lender or investor providing for the leasing by the Company or
any Subsidiary of any real or personal property theretofore owned by it and
which has been or is to be sold or transferred by such owner to such lender or
investor.
Section 8.18. Operating Leases. The Company shall not, nor shall it
permit any Subsidiary to, acquire the use or possession of any real or personal
property under a lease or similar arrangement, whether or not the Company or any
Subsidiary has the express or implied right to acquire title to or purchase such
property, at any time if, after giving effect thereto, the aggregate amount of
fixed rentals and other consideration payable by the Company and its
Subsidiaries under all such leases and similar arrangements would exceed
$850,000 during any fiscal year of the Company. Capital Leases shall not be
included in computing compliance with this Section to the extent the Company's
and its Subsidiaries' liability in respect of the same is permitted by
Section 8.9(b) hereof.
Section 8.19. Burdensome Contracts with Affiliates. The Company will
not, nor will it permit any Subsidiary to, enter into or be a party to any
contract or agreement with an Affiliate on terms and conditions materially less
favorable to the Company or such Subsidiary than would be usual and customary in
similar contracts or agreements between Persons not affiliated with each other.
Section 8.20. No Change in Fiscal Year. The Company will not, nor
will it permit any Subsidiary to, change its fiscal year from a year ended
May 31.
Section 8.21. Formation of Subsidiaries. In the event any Subsidiary
is formed or acquired after the date hereof, the Company shall within thirty
(30) Business Days thereof (x) furnish an update to Schedule 6.3 hereof to
reflect such new Subsidiary and (y) cause such newly-form or acquired Subsidiary
to execute a Subsidiary Guaranty and execute such Collateral Documents to the
extent required by Section 5 hereof (on terms substantially similar to those
executed in connection with this Agreement) as the Agent may then require
granting the Agent for the benefit of the Banks a security interest in and lien
on the personal property of such Subsidiary as collateral security for the Notes
and the other Obligations, together with documentation (including a legal
opinion) similar to that described in Section 7.2(a)(ii) and 7.3 hereof relating
to the authorization for, execution and delivery of, and validity of such
Subsidiary's obligations as a Subsidiary Guarantor hereunder and under its
Subsidiary Guaranty in form and substance satisfactory to the Agent and such
other instruments, documents, certificates and opinions as are required by the
Agent in connection therewith.
Section 8.22. Maintenance of Subsidiaries. The Company shall not
assign, sell or transfer, or permit any Subsidiary to issue, assign, sell or
transfer, any shares of capital stock of a Subsidiary; provided that the
foregoing shall not operate to prevent:
(a) the transfer of shares of capital stock of any Subsidiary as
consideration to the transferor in the Intersound Acquisition; and
(b) the issuance, sale and transfer to any Person of any shares
of capital stock of a Subsidiary solely for the purpose of qualifying, and
to the extent legally necessary to qualify, such Person as a director of
such Subsidiary.
The Company shall remain a joint venturer in the House of Blues Venture and
shall not reduce its equity interest in the House of Blues Venture below 50%.
Section 8.23. Subordinated Debt. The Company will not, and will not
permit any Subsidiary to, amend or modify the terms and conditions applicable to
any Subordinated Debt, except that the Company may agree to a decrease in the
interest rate or premium applicable thereto or to a deferral of repayment of any
of principal of or interest or premium on any Subordinated Debt beyond the due
date applicable thereto as of the date such indebtedness is initially approved
by the Agent and Required Banks. The Company will not, and will not permit any
Subsidiary to, make any payment of principal, interest or premium, if any, on or
in respect of any Subordinated Debt or otherwise acquire, prepay or retire any
such Subordinated Debt prior to the maturities thereof or prior to any other
times required for payment thereof as are in force and effect as of the date
such indebtedness is initially approved by the Agent and Required Banks.
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Section 8.24. No Restriction on Subsidiary Dividends. Neither the
Company nor any Subsidiary is a party to, nor will the Company or any Subsidiary
become a party to, any agreement prohibiting or otherwise restricting the
declaration or payment of any dividends or equity distributions by any such
Subsidiary.
Section 8.25. Double Negative Pledge. The Company will not, and will
not permit any Subsidiary to, agree (other than in the Loan Documents) with
another party not to pledge, mortgage or otherwise encumber or subject to, or
not to permit to exist upon or be subjected to, any lien, security interest or
charge upon, any assets or property of any kind or character at any time owned
by the Company (including its stock in the Subsidiaries) or any Subsidiary;
provided, however, that nothing contained in this section shall operate to
prevent such agreement with the holder of any lien, security interest or charge
permitted by this Section above not to take any such action with respect to the
assets or property subject to such lien, security interest or charge.
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.
Section 9.1. Any one or more of the following shall constitute an
"Event of Default" hereunder:
(a) default in the payment of any amount of the principal of or
interest on any Note when due, whether at the stated maturity thereof or at
any other time provided for in this Agreement and the continuance of such
default for two Business Days, or default in the payment when due of any
fee, charge or other amount payable by the Company hereunder or under any
other Loan Document and the continuance of such default for five Business
Days after notice thereof to the Company from the Agent or any Bank; or
(b) default in the observance or performance of any covenant set
forth in Sections 4.4(b), 4.4(d), 4.4(e), 8.8, 8.9, 8.10, 8.11, 8.12, 8.13,
8.14, 8.15, 8.16, 8.17, 8.18, 8.21, 8.22, 8.23, 8.24 or 8.25 hereof or of
any Collateral Document dealing with the use, disposition or remittance of
the proceeds of Collateral or the maintenance of insurance thereon or
default after notice to the Company in the observance or performance of any
covenant set forth in Section 8.5 hereof; or
(c) default in the observance or performance of any other
provision hereof or any of the other Loan Documents which is not remedied
within 30 days after written notice thereof to the Company by any Bank or
by the holder of any Note; or
(d) default shall occur in the payment when due (whether by
lapse of time, acceleration or otherwise) of any Indebtedness aggregating
in excess of $50,000 issued, assumed or guaranteed by the Company or any
Subsidiary or any other event of default shall occur with respect to any
such indebtedness beyond any period of grace provided therefor if the
effect thereof is to permit the maturity of such indebtedness to be
accelerated or to permit the holders thereof to elect a majority of the
Board of Directors of the Company; or
(e) any representation or warranty made herein or in any of the
other Loan Documents or in any statement or certificate furnished pursuant
hereto or thereto, or in connection with any advance or issuance made
hereunder or by any person in connection with the transactions contemplated
hereby, proves untrue in any material respect as of the date of the
issuance or making thereof, and shall not be made good within 30 days after
notice thereof to the Company by any Bank or by the holder of any Note; or
(f) any judgment or judgments, writ or writs or warrant or
warrants or attachment, or any similar process or processes in an aggregate
amount in excess of $50,000 more than the amount, if any, covered by
insurance (as to which the insurer has not disclaimed or disputed in
writing its obligations for coverage or otherwise failed to pay when due)
shall be entered or filed against the Company or any Subsidiary or against
any of the property or assets of any of them and remains undischarged,
unvacated, unbonded or unstayed for a period of 30 days; or
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(g) any event occurs or condition exists which is specified as
an event of default under any of the other Loan Documents after the
expiration of any applicable notice or grace periods; or
(h) any of the Loan Documents shall for any reason not be or
shall cease to be in full force and effect, or any of the Loan Documents is
declared to be null and void, or the Company, any Subsidiary or (until
release of the Devick Guaranty in accordance with its terms) Devick takes
any action for the purpose of repudiating or rescinding any Loan Document
executed by it; or
(i) any agreement purporting to subordinate payment of any
Subordinated Debt to the prior payment of any Loan or any other Obligations
shall purport to be terminated or shall cease to have any force or effect;
or
(j) the Company or any Subsidiary makes any payment or other
distribution on account of the principal of or interest on any Subordinated
Debt or any other indebtedness, which payment or distribution as prohibited
under the terms of any instrument subordinating such indebtedness to the
prior payment of the Loans or any of the other Obligations; or
(k) the currently issued and outstanding Common Stock of the
Company shall be diluted after the date hereof by more than 2% (without
giving effect to any dilution resulting solely from the Company's issuance
and sale of capital stock where the proceeds from such sale (net only of
reasonable underwriting discounts and commissions) are applied in reduction
of the Term Credit Loans until repayment in full thereof, with any balance
applied in reduction of the Revolving Credit Loans and such reduction of
the Revolving Credit Loans accompanied by a concurrent and like reduction,
ratably among the Banks, of the Revolving Credit Commitments); or
(l) liens, security interests or charges securing obligations
(excluding currently outstanding loans, whether or not constituting
consumer credit) aggregating in excess of $500,000 shall encumber assets of
Devick with a value aggregating in excess of $500,000; or
(m) the Company, any Subsidiary or (until release of the Devick
Guaranty in accordance with its terms) Devick becomes insolvent or bankrupt
or bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or
laws for the relief of debtors are instituted against the Company, any
Subsidiary or (until release of the Devick Guaranty in accordance with its
terms) Devick and are not dismissed within 60 days after such institution
or a decree or order of a court having jurisdiction in the premises for the
appointment of a trustee or receiver or custodian for the Company, any
Subsidiary or (until release of the Devick Guaranty in accordance with its
terms) Devick or for the major part of any of their property is entered and
the trustee or receiver or custodian appointed pursuant to such decree or
order is not discharged within 60 days after such appointment; or
(n) the Company, any Subsidiary or (until release of the Devick
Guaranty in accordance with its terms) Devick shall institute bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
proceedings for relief under any bankruptcy law or laws for the relief of
debtors or shall consent to the institution of such proceedings against it
by others or to the entry of any decree or order adjudging it bankrupt or
insolvent or approving as filed any petition seeking reorganization under
any bankruptcy or similar law or shall apply for or shall consent to the
appointment of a receiver or trustee or custodian for it or for the major
part of its property or shall make an assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts as they
mature or shall take any corporate action in contemplation or in
furtherance of any of the foregoing purposes.
Section 9.2. When any Event of Default described in
subsections 9.1(a) to 9.1(l), both inclusive, has occurred and is continuing,
the Agent may (and shall, upon request of the Required Banks), by notice to the
Company, take any or all of the following actions:
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(a) terminate the obligation of the Banks to extend any further
credit hereunder on the date (which may be the date thereof) stated in such
notice (such termination shall be effective upon verbal notification, the
Agent hereby agreeing to provide written notification thereof to the
Company as soon as practical thereafter);
(b) declare the principal of and the accrued interest on the
Notes to be forthwith due and payable and thereupon the Notes, including
both principal and interest, and all fees, charges and commissions payable
hereunder, shall be and become immediately due and payable without further
demand, presentment, protest or notice of any kind; and
(c) enforce any and all rights and remedies available under the
Loan Documents or applicable law.
Section 9.3. When any Event of Default described in
subsections 9.1(m) or (n) has occurred and is continuing, then (a) the then
unpaid balance of the Notes, including both principal and interest, and all
fees, charges and commissions and other Obligations payable hereunder, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, (b) the obligation of the Banks to extend further credit
pursuant to any of the terms hereof shall immediately and automatically
terminate, and (c) the Agent may exercise all remedies available to it under the
Loan Documents or applicable law.
SECTION 10. THE AGENT.
Section 10.1. Appointment and Authorization. Each Bank hereby
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers hereunder and under the Loan Documents as are designated
to the Agent by the terms hereof and thereof together with such powers as are
reasonably incidental thereto. The Agent may resign at any time by sending
twenty (20) days prior written notice to the Company and the Banks and may be
removed by the Required Banks upon twenty (20) days prior written notice to the
Company and the Banks. In the event of any such resignation or removal the
Required Banks may appoint a new agent, which shall succeed to all the rights,
powers and duties of the Agent hereunder and under the Loan Documents, such new
Agent to be subject to the reasonable consent of the Company unless a Default or
Event of Default has occurred and is continuing. Any resigning or removed Agent
shall be entitled to the benefit of all the protective provisions hereof with
respect to its acts as an agent hereunder, but no successor Agent shall in any
event be liable or responsible for any actions of its predecessor. If the Agent
resigns or is removed and no successor is appointed, the rights and obligations
of such Agent shall be automatically assumed by the Required Banks and (i) the
Company shall be directed to make all payments due each Bank hereunder directly
to such Bank and (ii) the Agent's rights in the Loan Documents shall be assigned
without representation, recourse or warranty to the Banks as their interests may
appear.
Section 10.2. Rights as a Bank. The Agent has and reserves all of
the rights, powers and duties hereunder and under the other Loan Documents as
any Bank may have and may exercise the same as though it were not the Agent and
the terms "Bank" or "Banks" as used herein and in all of such documents shall,
unless the context otherwise expressly indicates, include the Agent in its
individual capacity as a Bank. The Agent reserves the right to engage in other
business transactions with the Company, the Subsidiaries and their Affiliates.
Section 10.3. Standard of Care. The Banks acknowledge that they have
received and approved copies of the Loan Documents, and such other information
and documents concerning the transactions contemplated and financed hereby as
they have requested to receive and/or review. The Agent makes no
representations or warranties of any kind or character to the Banks with respect
to the validity, enforceability, genuineness, perfection, value, worth or
collectibility hereof or of the other Loan Documents or of the liens provided
for thereby or of any other documents called for hereby or thereby or of the
Collateral. The Agent need not verify the worth or existence of the Collateral.
The Banks agree that neither the Agent nor any director, officer employee, agent
or representative thereof (including any security trustee therefor) shall in any
event be liable for any clerical errors or errors in judgment, inadvertence or
oversight, or for action taken or omitted to be taken by it or them hereunder or
under the Loan Documents or in connection herewith or therewith except for its
or their own gross negligence or willful misconduct. The Agent shall incur no
liability
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under or in respect of this Agreement or the other Loan Documents by acting upon
any notice, certificate, warranty, instruction or statement (oral or written) of
anyone (including anyone in good faith believed by it to be authorized to act on
behalf of the Company), unless it has actual knowledge of the untruthfulness of
same. The Agent agrees to use the same care in protecting the interests of the
Banks in the Loans as it uses for similar loans held by it solely for its own
account. The Agent shall be entitled to assume that no Default or Event of
Default exists, absent actual knowledge thereof, unless notified to the contrary
by a Bank. The Agent shall in all events be fully protected in acting or
failing to act in accord with the instructions of the Required Banks. Upon the
occurrence of an Event of Default hereunder, the Agent shall take such action
with respect to the enforcement of its liens on the Collateral and the
preservation and protection thereof as it shall be directed to take by the
Required Banks (and shall consult with the Banks as to actions to be taken) but
unless and until the Required Banks have given such direction the Agent shall
take or refrain from taking such actions as it deems appropriate and in the best
of interest of all Banks. The Agent shall in all cases be fully justified in
failing or refusing to act hereunder unless it shall be indemnified to its
reasonable satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent may treat the owner of any Note as the holder thereof until
written notice of transfer shall have been filed with it as provided in
Section 12.12 hereof signed by such owner in form satisfactory to the Agent.
Each Bank acknowledges that it has independently and without reliance on the
Agent or any other Bank and based upon such information, investigations and
inquiries as it deems appropriate made its own credit analysis and decision to
extend credit to the Company. It shall be the responsibility of each Bank to
keep itself informed as to the creditworthiness of the Company and each
Subsidiary and the Agent shall have no liability to any Bank with respect
thereto.
Section 10.4. Costs and Expenses. Each Bank agrees to reimburse the
Agent for all out-of-pocket costs and expenses suffered or incurred by the Agent
or any security trustee in performing its duties hereunder and under the other
Loan Documents or in the exercise of any right or power imposed or conferred
upon the Agent hereby or thereby, to the extent that the Agent is not promptly
reimbursed for same by the Company or out of the Collateral, all such costs and
expenses to be borne by the Banks ratably in accordance with the amounts of
their respective Commitments. If any Bank fails to reimburse the Agent for its
share of any such costs and expenses, such costs and expenses shall be paid pro
rata by the remaining Banks, but without in any manner releasing the defaulting
Bank from its liability hereunder.
Section 10.5. Indemnity. The Banks shall ratably indemnify and hold
the Agent, and its directors, officers, employees, agents or representatives
(including as such any security trustee therefor) harmless from and against any
liabilities, losses, costs or expenses suffered or incurred by them under this
Agreement or any of the other Loan Documents or in connection with the
transactions contemplated hereby or thereby, regardless of when asserted or
arising, except to the extent they are promptly reimbursed for the same by the
Company or out of the Collateral and except to the extent that any event giving
rise to a claim was caused by the gross negligence or willful misconduct of the
party seeking to be indemnified. If any Bank defaults in its obligations
hereunder, its share of the obligations shall be paid pro rata by the remaining
Banks, but without in any manner releasing the defaulting Bank from its
liability hereunder.
SECTION 11. THE SUBSIDIARY GUARANTEE.
Section 11.1. The Subsidiary Guarantee. To induce the Banks to
provide the credits described herein and in consideration of benefits expected
to accrue to each Subsidiary Guarantor by reason of the Commitments and for
other good and valuable consideration, receipt of which is hereby acknowledged,
each Subsidiary Guarantor hereby unconditionally and irrevocably Subsidiary
Guarantees jointly and severally to the Agent, the Banks, and each other holder
of an Obligation, the due and punctual payment of all present and future
indebtedness of the Company evidenced by or arising out of the Loan Documents,
including, but not limited to, the due and punctual payment of principal of and
interest on the Notes and the due and punctual payment of all other Obligations
now or hereafter owed by the Company under the Loan Documents as and when the
same shall become due and payable, whether at stated maturity, by acceleration
or otherwise, according to the terms hereof and thereof. In case of failure by
the Company punctually to pay any indebtedness or other Obligations Subsidiary
Guaranteed hereby, each Subsidiary Guarantor hereby unconditionally agrees
jointly and severally to make such payment or to cause such payment to be made
punctually as and when the same shall become due and payable, whether at stated
maturity, by acceleration or otherwise, and as if such payment were made by the
Company.
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Section 11.2. Subsidiary Guarantee Unconditional. The obligations of
each Subsidiary Guarantor as a Subsidiary Guarantor under this Section 11 shall
be unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any obligation of the Company or of any other
Subsidiary Guarantor under this Agreement or any other Loan Document or by
operation of law or otherwise;
(b) any modification or amendment of or supplement to this
Agreement or any other Loan Document;
(c) any change in the corporate existence, structure or
ownership of, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting, the Company, any other Subsidiary Guarantor,
or any of their respective assets, or any resulting release or discharge of
any obligation of the Company or of any other Subsidiary Guarantor
contained in any Loan Document;
(d) the existence of any claim, set-off or other rights which
the Subsidiary Guarantor may have at any time against the Agent, any Bank
or any other Person, whether or not arising in connection herewith;
(e) any failure to assert, or any assertion of, any claim or
demand or any exercise of, or failure to exercise, any rights or remedies
against the Company, any other Subsidiary Guarantor or any other Person or
Property;
(f) any application of any sums by whomsoever paid or howsoever
realized to any obligation of the Company, regardless of what obligations
of the Company remain unpaid;
(g) any invalidity or unenforceability relating to or against
the Company or any other Subsidiary Guarantor for any reason of this
Agreement or of any other Loan Document or any provision of applicable law
or regulation purporting to prohibit the payment by the Company or any
other Subsidiary Guarantor of the principal of or interest on any Note or
any other amount payable by it under the Loan Documents; or
(h) any other act or omission to act or delay of any kind by the
Agent, any Bank or any other Person or any other circumstance whatsoever
that might, but for the provisions of this paragraph, constitute a legal or
equitable discharge of the obligations of the Subsidiary Guarantor under
this Section 11.
Section 11.3. Each Subsidiary Guarantor's obligations under this
Section 11 shall remain in full force and effect until the Commitments are
terminated and the principal of and interest on the Notes and all other
amounts payable by the Company under this Agreement and all other Loan
Documents shall have been paid in full. If at any time any payment of the
principal of or interest on any Note or any other amount payable by the
Company under the Loan Documents is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of the Company or
of a Subsidiary Guarantor, or otherwise, each Subsidiary Guarantor's
obligations under this Section 11 with respect to such payment shall be
reinstated at such time as though such payment had become due but had not been
made at such time.
Section 11.4. Waivers. (a) General. Each Subsidiary Guarantor
irrevocably waives acceptance hereof, presentment, demand, protest and any
notice not provided for herein, as well as any requirement that at any time any
action be taken by the Agent, any Bank or any other Person against the Company,
another Subsidiary Guarantor or any other Person.
(b) Subrogation and Contribution. Unless and until the Obligations have
been fully paid and satisfied and the Commitments have terminated, each
Subsidiary Guarantor hereby irrevocably waives any claim or other right it may
now or hereafter acquire against the Company or any other Subsidiary Guarantor
that arises from the existence, payment, performance or enforcement of such
Subsidiary Guarantor's obligations under this Section 11 or any other Loan
Document, including, without
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limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, or any right to participate in any claim or remedy of the
Agent, any Bank or any other holder of an Obligation against the Company or any
other Subsidiary Guarantor whether or not such claim, remedy or right arises in
equity or under contract, statute or common law, including, without limitation,
the right to take or receive from the Company or any other Subsidiary Guarantor
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim or other right.
Section 11.5. Limit on Recovery. Notwithstanding any other provision
hereof, the right to recovery of the holders of the Obligations against each
Subsidiary Guarantor under this Section 11 shall not exceed $1.00 less than the
amount which would render such Subsidiary Guarantor's obligations under this
Section 11 void or voidable under applicable law, including without limitation
fraudulent conveyance law.
Section 11.6. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Company under this Agreement or any other
Loan Document is stayed upon the insolvency, bankruptcy or reorganization of the
Company, all such amounts otherwise subject to acceleration under the terms of
this Agreement or the other Loan Documents shall nonetheless be payable jointly
and severally by the Subsidiary Guarantors hereunder forthwith on demand by the
Agent made at the request of the Required Banks.
Section 11.7. Benefit to Subsidiary Guarantors. The Company and all
of the Subsidiary Guarantors are engaged in related businesses and integrated to
such an extent that the financial strength and flexibility of the Company and
each Subsidiary Guarantor has a direct impact on the success of each other
Subsidiary Guarantor. Each Subsidiary Guarantor will derive substantial direct
and indirect benefit from the extension of credit hereunder.
SECTION 12. MISCELLANEOUS
Section 12.1. Waiver of Rights. No delay or failure on the part of
any Bank or the holder or holders of any Note in the exercise of any power or
right shall operate as a waiver thereof or as an acquiescence in any default,
nor shall any single or partial exercise thereof, or the exercise of any other
power or right, preclude any other right or the further exercise of any other
rights. The rights and remedies hereunder of the Company, the Agent, the Banks
and of the holder or holders of any Note are cumulative to, and not exclusive
of, any rights or remedies which any of them would otherwise have.
Section 12.2. Non-Business Day. If any payment of principal shall
fall due on a day which is not a Business Day, interest at the rate such
principal bears for the period prior to maturity shall continue to accrue on
such principal from the stated due date thereof to and including the next
succeeding Business Day on which the same is payable.
Section 12.3. Documentary Taxes. The Company agrees to pay any
documentary, stamp or similar taxes payable in respect to this Agreement or any
other Loan Document, including interest and penalties, in the event any such
taxes are assessed irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.
Section 12.4. Survival of Representations. All representations and
warranties made in the Loan Documents or pursuant thereto or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and of the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
Section 12.5. Set-off Sharing. Each Bank agrees with each other Bank
a party hereto that in the event such Bank shall receive and retain any payment,
whether by set-off or application of deposit balances or otherwise ("Set-off"),
on or in respect of any Note or other obligation outstanding under this
Agreement in excess of its ratable share of payments on all Notes and other
Obligations then outstanding to the Banks, then such Bank shall purchase for
cash at face value, but without recourse,
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<PAGE>
ratably from each of the other Banks such amount of the Notes or other
Obligations held by each such other Bank (or interest therein) as shall be
necessary to cause such Bank to share such excess payment ratably with all the
other Banks; provided, however, that if any such purchase is made by any Bank,
and if such excess payment or part thereof is thereafter recovered from such
purchasing Bank, the related purchases from the other Banks shall be rescinded
ratably and the purchase price restored as to the portion of such excess payment
so recovered, but without interest.
Section 12.6. Notices. All communications provided for herein shall
be in writing or by telex or by telegraph, except as otherwise specifically
provided for hereinabove, addressed, if to the Company at:
Platinum Entertainment, Inc.
2001 Butterfield Road, Suite 1400
Downers Grove, Illinois 60515
Attention: Chief Financial Officer
Telecopy: 630-769-0049
Telephone: 630-769-0033
or if to the Agent or Banks at their respective addresses set forth opposite
their respective signatures hereto, or at such other address as shall be
designated by any party hereto in a written notice to each other party pursuant
to this Section 12.6. Any notice in writing shall be deemed to have been given
or made when served personally or when received if sent by United States mail,
and any notice given by telex, or telegraphic or means shall be deemed given
when transmitted (answer back confirmed); provided that any notice to the Agent
or any Bank under Sections 2 and 3 hereof shall only be effective upon receipt.
Section 12.7. Counterparts. This Agreement may be executed in any
number of counterparts, and by the different parties on different counterparts,
each of which when executed shall be deemed an original, but all such
counterparts taken together shall constitute one and the same instrument.
Section 12.8. Successors and Assigns. This Agreement shall be
binding upon the Company and its successors and assigns, and shall be binding
upon and inure to the benefit of the Agent and the Banks and their respective
successors and assigns permitted pursuant to Section 12.12, including any
subsequent holder of any Note. The Company may not assign its rights or
obligations hereunder without the prior written consent of the Banks.
Section 12.9. Participants. Each Bank shall have the right at its
own cost to grant participations (to be evidenced by one or more agreements or
certificates of participation) in the Loans made by such Bank at any time and
from time to time to one or more other financial institutions, provided that no
such participant shall have any rights under this Agreement or any other Loan
Document (the participant's rights against the Bank granting its participation
to be those set forth in the participation agreement between the participant and
such Bank); provided, further, that no Bank shall transfer or grant any
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Loan Document except to
the extent such amendment or waiver would extend a scheduled maturity of any
Loan or Note, or reduce the rate or extend the time of payment of interest or
fees thereon (except in connection with a waiver of applicability of any
post-default increase in interest rates) or reduce the principal amount thereof,
or increase the amount of the participant's participation over the amount
thereof then in effect (it being understood that a waiver of any Default or
Event of Default or of a mandatory prepayment shall not constitute a change in
the terms of such participation, and that an increase in any Commitment or Loan
shall be permitted without the consent of any participant if the participant's
participation is not increased as a result thereof. Each such Bank selling a
participation shall be entitled to the benefits of Sections 2.1(c)(iv), 3 and
4.8 hereof to the extent such Bank would have been so entitled had no such
participation been sold.
Section 12.10. Costs and Expenses. The Company agrees to pay
within 10 days of demand therefor all reasonable out-of-pocket costs and
expenses of the Agent in connection with the negotiation, preparation,
execution, delivery, recording and/or filing and/or release of the Loan
Documents and the other instruments and
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<PAGE>
documents to be delivered hereunder or thereunder or in connection with the
transactions contemplated hereby or thereby or in connection with any consents
hereunder or thereunder or waivers or amendments hereto or thereto, including
the reasonable fees and out-of-pocket expenses of counsel for and consultants to
the Agent with respect to all of the foregoing, and all recording, filing or
other fees, costs and taxes incident to perfecting a lien upon the collateral
security for the Notes and other Obligations, and all reasonable costs and
expenses (including reasonable attorneys' fees), incurred by the Agent, any
security trustee for the Banks, the Banks or any other holders of a Note in
connection with a default or the enforcement of any of the Loan Documents and
the other instruments and documents to be delivered hereunder or thereunder.
Notwithstanding anything in the foregoing to the contrary, the Company shall not
be liable, without its consent, to reimburse the Agent for more than $150,000 of
the costs and expenses of the Agent (including, but not limited to, the fees of
its counsel, Messrs. Chapman and Cutler, but in any event excluding recording
charges, recording taxes and other disbursements of such counsel) in connection
with the negotiation, preparation, execution and delivery of this Agreement, the
other Loan Documents and the other instruments and documents to be delivered
hereunder or thereunder, in each case as a condition precedent to the initial
Borrowing hereunder. The Company agrees to indemnify and save the Banks, the
Agent and any security trustee for the Banks harmless from any and all
liabilities, losses, costs and expenses incurred by the Banks, either Agent in
connection with any action, suit or proceeding brought against either Agent, a
security trustee or any Bank by any person which arises out of the transactions
contemplated or financed hereby or by the other Loan Documents or out of any
action or inaction by an Agent, any security trustee or any Bank hereunder or
thereunder, except for such thereof as is caused by the gross negligence or
willful misconduct of the party indemnified. The provisions of this
Section 12.10 and the protective provisions of Section 3 hereof shall survive
payment of the Notes and the other Obligations owing to the Banks hereunder.
Section 12.11. Construction. The parties hereto acknowledge and
agree that this Agreement shall not be construed more favorably in favor of one
than the other based upon which party drafted the same, it being acknowledged
that all parties hereto contributed substantially to the negotiation of this
Agreement.
Section 12.12. Assignment Agreements. Each Bank may, from time to
time, with the consent of the Agent assign to other financial institutions part
of the indebtedness evidenced by the Notes then owned by it together with an
equivalent proportion of each of its Commitments to make Loans against such
Notes hereunder pursuant to written agreements executed by the assignor, the
assignees and the Agent, which agreements shall specify in each instance the
portion of the indebtedness evidenced by the Notes which is to be assigned to
each such assignee and the portion of the Commitments of the assignor to be
assumed by it (the "Assignment Agreements"); provided, however, that (i) each
such assignment of a Bank's Term Credit Notes shall be of a constant, and not a
varying, percentage of the assigning Bank's rights and obligations under the
Term Credit and the assignment shall cover the same percentage of each of such
Bank's Term Credit Commitment, Term Credit Loans and Term Credit Notes and each
such assignment of a Bank's Revolving Credit Notes shall be of a constant, and
not a varying, percentage of the assigning Bank's rights and obligations under
the Revolving Credit and the assignment shall cover the same percentage of such
Bank's Revolving Credit Commitment, Revolving Credit Loans and Revolving Credit
Notes; (ii) unless the Agent otherwise consents, the aggregate amount of the
Loans evidenced by a given Note (and including as Loan for such purposes,
unfunded Commitment to extend Loans against such Note) of the assigning Bank
being assigned pursuant to each such Assignment Agreement (determined as of the
effective date of the relevant Assignment Agreement) shall in no event be less
than $1,000,000 (unless such assignment is to another Bank party hereto), (iii)
unless the Agent otherwise consents or the assigning Bank shall have assigned
all of its Loans evidenced by a given Note (and all of any unfunded Commitment
to extend additional Loans against such Note), the aggregate amount of the Loans
evidenced by such Note (and including as Loan for such purposes, any unfunded
Commitment to extend Loans against such Note) retained by the assigning Lender
shall in no event be less than $1,000,000; (iv) unless the Company otherwise
consents, the Agent must after giving effect to any assignment by it retain a
Revolving Credit Commitment of at least 25% of the aggregate Revolving Credit
Commitments (or at least 25% of the aggregate Revolving Credit Loans if no
Revolving Credit Commitments are outstanding); and (v) the assigning Bank shall
pay to the Agent a processing and recordation fee of $3,500 and any
out-of-pocket attorney's fees and expenses incurred by the Agent in connection
with each such Assignment Agreement. Upon the execution of each Assignment
Agreement by the assignor, the assignee and the Company and satisfaction of the
foregoing conditions and any conditions set forth therein (i) such assignee
shall thereupon become a "Bank" for all purposes of this Agreement with
Commitments in the amounts set forth in such Assignment Agreement (and Exhibit A
hereto shall be deemed amended to reflect the aggregate Commitments of the Banks
after giving effect thereto) and with all the rights, powers and obligations
afforded a Bank hereunder, provided that the assigning Bank shall retain the
benefit of all indemnities of the Company with respect to matters arising prior
to the effective date of such Assignment Agreement, which shall survive and
inure to the benefit of the assigning Bank, (ii) such assigning Bank shall have
no further liability for funding the portion of its Commitments assumed by such
other Bank and (iii) the address for notices to such Bank shall be as specified
in the Assignment Agreement executed by it. Concurrently with the execution and
delivery of such Assignment
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<PAGE>
Agreement by the assignor, the assignee, the Company and the Agent, the Company
shall execute and deliver Notes to the assignee Bank in the amount of its
Commitments and new Notes to such assigning Bank in the amount of its
Commitments after giving effect to the reduction occasioned by such assignment,
all such notes to constitute "Notes" for all purposes of this Agreement.
Section 12.13. Waivers, Modifications and Amendments. Any provision
hereof or of any of the other Loan Documents may be amended, modified, waived or
released and any Default or Event of Default and its consequences may be
rescinded and annulled upon the written consent of the Required Banks; provided,
however, that (a) without the consent of a Bank, no such amendment, modification
or waiver shall increase the amount or extend the terms of that Bank's
Commitment or reduce the interest rate applicable to or extend the express
maturity of any Loan, fee or other Obligation owed to such Bank or reduce the
amount of the fees to which such Bank is entitled hereunder and (b) without the
consent of all Banks, no such amendment, modification or waiver shall release
any Subsidiary or Devick from its obligations as a Subsidiary Guarantor or
release any substantial (in value) part of the collateral security afforded by
the Collateral Documents or change the definition of "Required Banks" or change
the number of Banks required to take any action hereunder or under any of the
other Loan Documents; it being understood (i) that waivers or modifications of
covenants, Defaults or Events of Default (other than those set forth in
Section 9.1(m) and (n) hereof) or of a mandatory prepayment may be made at the
discretion of the Required Banks and shall not constitute an increase of a
Commitment of any Bank, and (ii) any waiver of applicability of any post-default
increase in interest rates may be made at the discretion of the Required Banks.
No amendment, modification or waiver of the Agent's protective provisions shall
be effective without the prior written consent of the Agent.
Section 12.14. Entire Agreement. This Agreement and the Loan
Documents and any separate agreement concerning fees constitutes the entire
understanding of the parties with respect to the subject matter hereof and any
prior agreements, whether written or oral, with respect thereto are superseded
hereby.
Section 12.15. Headings. Section headings used in this Agreement
are for reference only and shall not affect the construction of this Agreement.
Section 12.16. Confidentiality. Any information disclosed by the
Company or any of its Subsidiaries to the Agent or any of the Banks shall be
used solely for purposes of this Agreement and for the purpose of determining
whether or not to extend other credit or financial accommodations to the Company
or its Subsidiaries and, if such information is not otherwise in the public
domain, shall not be disclosed by the Agent or such Bank to any other Person
except (i) to its independent accountants and legal counsel (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such information and instructed to keep such information
confidential), (ii) pursuant to statutory and regulatory requirements,
(iii) pursuant to any mandatory court order, subpoena or other legal process,
(iv) to the Agent or any other Bank, (v) pursuant to any agreement heretofore or
hereafter made between such Bank and the Company which permits such disclosure,
(vi) in connection with the exercise of any right or remedy under the Loan
Documents, provided that such Bank or the Agent, as applicable, shall give the
Company prior written notice of any such disclosure if lawful or (vii) subject
to an agreement containing provisions substantially the same as those of this
Section, to any participant in or assignee of, or prospective participant in or
assignee of, any obligation or Commitment.
SECTION 12.17. EXCLUSIVE JURISDICTION. (A) EXCEPT AS PROVIDED IN
SUBSECTION (B), THE COMPANY, THE BANKS AND THE AGENT AGREE THAT ALL DISPUTES
BETWEEN OR AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN COOK
COUNTY, ILLINOIS, BUT EACH OF THE COMPANY, THE BANKS AND THE AGENT ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF COOK COUNTY, ILLINOIS. THE COMPANY WAIVES IN ALL DISPUTES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE COMPANY AGREES THAT THE AGENT AND THE
BANKS SHALL EACH HAVE THE RIGHT TO PROCEED AGAINST THE COMPANY OR ITS PROPERTY
IN A COURT IN ANY LOCATION TO ENABLE THE AGENT OR ANY BANK TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE
AGENT OR ANY BANK. THE COMPANY AGREES THAT IT SHALL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS IN ANY PROCEEDING BROUGHT IN
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ACCORDANCE WITH THIS PROVISION BY THE AGENT OR ANY BANK TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT OR
ANY BANK. THE COMPANY WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH THE AGENT OR ANY BANK HAS COMMENCED A PROCEEDING DESCRIBED IN
THIS SUBSECTION.
SECTION 12.18. WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT AND THE
BANKS EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN THE AGENTS OR EITHER OF
THEM OR ANY BANK AND THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. THE COMPANY, THE
AGENT AND THE BANKS EACH HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 12.19. Governing Law. This Agreement and the Notes, and the
rights and duties of the parties hereto, shall be construed and determined in
accordance with the laws of the State of Illinois.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set
forth.
Executed and delivered as of this 31st day of January, 1997.
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
RIVER NORTH STUDIOS, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
RIVER NORTH RECORDS, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
CGI RECORDS, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
LEXICON MUSIC, INC.
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By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
LIGHT RECORDS, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
THE RECORDING EXPERIENCE, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
JUSTMIKE MUSIC, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
PEG PUBLISHING, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
ROYCE PUBLISHING, INC.
By /s/ Steven Devick
--------------------------
Name: Steven Devick
Title: President
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<PAGE>
Accepted and agreed to in Chicago, Illinois as of the day and year last
above written.
BANK OF MONTREAL,
individually and as Agent
By /s/ Rene Encarnacion
--------------------------
Name: Rene Encarnacion
Title: Director
Mailing Address:
Bank of Montreal
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Roderick C. Sstephan
LENDING OFFICE:
Bank of Montreal
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Manager-Loan Operations
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<PAGE>
Exhibit 10.5
SECURITY AGREEMENT
This Security Agreement (the "AGREEMENT") is dated as of January 31, 1997,
by and among the parties executing this Agreement under the heading "Debtors"
(such parties being hereinafter referred to collectively as the "DEBTORS" and
individually as a "DEBTOR"), each with its mailing address at 2001 Butterfield
Road, Suite 1400, Downers Grove, Illinois 60515, and BANK OF MONTREAL, a
Canadian chartered bank acting through its Chicago Branch ("BOM"), with its
mailing address at 115 South LaSalle Street, Chicago, Illinois 60603, acting as
agent hereunder for the Banks hereinafter identified and defined (BOM acting as
such agent and any successor or successors to BOM acting in such capacity being
hereinafter referred to as the "AGENT");
PRELIMINARY STATEMENTS
A. Platinum Entertainment, Inc., a Delaware corporation (the "BORROWER"),
Lexicon Music, Inc., a Delaware corporation, River North Studios, Inc., a
Delaware corporation, CGI Records, Inc., a Delaware corporation, River North
Records, Inc., a Delaware corporation, Light Records, Inc., a Delaware
corporation, The Recording Experience, Inc., a Delaware corporation, Peg
Publishing, Inc. a Delaware corporation, JustMike Music, Inc., a Delaware
corporation, Royce Publishing, Inc., a Delaware corporation (collectively, the
"GUARANTORS" and individually, a "GUARANTOR"), BOM, individually and as agent,
and certain Banks have entered into a Credit Agreement dated as of even date
herewith (such Credit Agreement, as the same may be amended or modified from
time to time, including amendments and restatements thereof in its entirety,
being hereinafter referred to as the "CREDIT AGREEMENT"), pursuant to which BOM
and other Banks from time to time party to the Credit Agreement (BOM and the
other Banks which are now or from time to time hereafter become party to the
Credit Agreement, together with any affiliates of such Banks to which is owed
any Hedging Liability, being hereinafter referred to collectively as the "BANKS"
and individually as a "BANK") have agreed, subject to certain terms and
conditions, to extend credit and make certain other financial accommodations
available to the Borrower identified therein.
B. Pursuant to the Credit Agreement, the Guarantors guarantee all of the
indebtedness, obligations, and liabilities of the Borrower to the Agent and the
Banks under the Credit Agreement.
C. The Borrower may from time to time enter into one or more interest
rate exchange, cap, collar, floor or other agreements with one or more of the
Banks party to
<PAGE>
the Credit Agreement or their affiliates for the purpose of hedging or otherwise
protecting the Borrower against changes in interest rates on the Revolving
Credit Loans and the Term Credit Loans (the liability of the Borrower in respect
of such agreements with such Banks or their affiliates being hereinafter
referred to as the "HEDGING LIABILITY").
D. As a condition precedent to extending credit or otherwise making
financial accommodations available to the Borrower under the Credit Agreement,
the Banks have required, among other things, that each Debtor grant to the Agent
for the benefit of the Banks a lien on and security interest in certain personal
property of such Debtor pursuant to this Agreement.
E. The Borrower owns, directly or indirectly, all or substantially all of
the equity interests in each Guarantor and the Borrower provides each Guarantor
with financial, management, administrative, and technical support which enables
such Guarantor to conduct its business in an orderly and efficient manner in the
ordinary course.
F. Each Guarantor will benefit, directly or indirectly, from credit and
other financial accommodations extended by the Banks to the Borrower.
NOW, THEREFORE, for and in consideration of the execution and delivery by
the Banks of the Credit Agreement, and other good and valuable consideration,
receipt whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms
used herein without definition shall have the same meanings herein as such terms
have in the Credit Agreement. The term "Debtor" and "Debtors" as used herein
shall mean and include the Debtors collectively and also each individually, with
all grants, representations, warranties and covenants of and by the Debtors, or
any of them, herein contained to constitute joint and several grants,
representations, warranties and covenants of and by the Debtors; PROVIDED,
HOWEVER, that unless the context in which the same is used shall otherwise
require, any grant, representation, warranty or covenant contained herein
related to the Collateral shall be made by each Debtor only with respect to the
Collateral owned by it or represented by such Debtor as owned by it.
SECTION 2. GRANT OF SECURITY INTEREST IN THE COLLATERAL; OBLIGATIONS
SECURED. (a) Each Debtor hereby grants to the Agent for the benefit of the
Banks a lien on and security interest in, and right of set-off against, and
acknowledges and agrees that the Agent has and shall continue to have for the
benefit of the Banks a continuing lien on and security interest in, and right of
set-off against, any and all right, title and interest of each
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Debtor, whether now owned or existing or hereafter created, acquired or arising,
in and to the following:
(i) RECEIVABLES. Receivables, whether now owned or existing or
hereafter created, acquired or arising, and however evidenced or acquired,
or in which such Debtor now has or hereafter acquires any rights (the term
"RECEIVABLES" means and includes all accounts, accounts receivable,
contract rights, instruments, notes, drafts, acceptances, documents,
chattel paper, any right of such Debtor to payment for goods sold or leased
or for services rendered, whether arising out of the sale of Inventory (as
hereinafter defined) or otherwise and whether or not earned by performance,
and all other forms of obligations owing to such Debtor, and all of such
Debtor's rights to any merchandise and other goods (including without
limitation any returned or repossessed goods and the right of stoppage in
transit) which is represented by, arises from or is related to any of the
foregoing);
(ii) GENERAL INTANGIBLES. All general intangibles, whether now owned
or existing or hereafter created, acquired or arising, or in which such
Debtor now has or hereafter acquires any rights, including, without
limitation all patents, patent applications, patent licenses, trademarks,
trademark registrations, trademark licenses, trade styles, trade names,
copyrights, copyright registrations, copyright licenses and other licenses
and similar intangibles and all customer, client and supplier lists (in
whatever form maintained) and all rights in leases and other agreements
relating to real or personal property, all causes of action and tax refunds
of every kind and nature, all privileges, franchises, immunities, licenses,
permits and similar intangibles, all rights to receive payments in
connection with the termination of any pension plan or employee stock
ownership plan or trust established for the benefit of employees of such
Debtor and all other personal property (including things in action) not
otherwise covered by this Agreement;
(iii) INVENTORY. Inventory, whether now owned or existing or
hereafter created, acquired or arising, or in which such Debtor now has or
hereafter acquires any rights and all documents of title at any time
evidencing or representing any part thereof (the term "INVENTORY" means and
includes all goods which are held for sale or lease or are to be furnished
under contracts of service or consumed in such Debtor's business, and all
goods which are raw materials, work-in-process, finished goods, materials
and supplies of every kind and nature, in each case used or usable in
connection with the acquisition, manufacture, processing, supply,
servicing, storing, packing, shipping, advertising, selling, leasing or
furnishing of such goods, and any constituents or ingredients thereof, and
all goods which are returned or
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<PAGE>
repossessed goods) including, without limitation, Inventory consisting of
records, albums and music videos;
(iv) EQUIPMENT. Equipment, whether now owned or existing or hereafter
created, acquired or arising, or in which such Debtor now has or hereafter
acquires any rights (the term "EQUIPMENT" means and includes all equipment,
machinery, tools, trade fixtures, furniture, furnishings, office equipment
and vehicles (including vehicles subject to a certificate of title law) and
all other goods, in each case now or hereafter used or usable in connection
with such Debtor's business, together with all parts, accessories and
attachments relating to any of the foregoing), including, without
limitation, Equipment consisting of recording equipment;
(v) INVESTMENT PROPERTY. All Investment Property, whether now owned
or existing or hereafter created, acquired or arising, or in which such
Debtor now has or hereafter acquires any rights (the term "INVESTMENT
PROPERTY" means and includes all investment property and any other
securities (whether certificated or uncertificated), security entitlements,
securities accounts, commodity contracts and commodity accounts, including
all substitutions and additions thereto, all dividends, distributions and
sums distributable or payable from, upon, or in respect of such property,
and all rights and privileges incident to such property);
(vi) RECORDS AND CABINETS. Supporting evidence and documents relating
to any of the above-described property, including without limitation,
computer programs, disks, tapes and related electronic data processing
media, rights of such Debtor to retrieve the same from third parties,
written applications, credit information, account cards, payment records,
correspondence, delivery and installation certificates, invoice copies,
delivery receipts, notes and other evidences of indebtedness, insurance
certificates and the like, together with all books of account, ledgers and
cabinets in which the same are reflected or maintained, all whether now
existing or hereafter arising;
(vii) DEPOSITS AND PROPERTY IN POSSESSION. All deposit accounts
(whether general, special or otherwise) maintained with the Agent or any of
the Banks and all sums now or hereafter on deposit therein or payable
thereon, and any and all other property or interests in property which now
is or may from time to time hereafter come into the possession, custody or
control of the Agent or any of the Banks, or any agent or affiliate of the
Agent or any of the Banks, in any way and for any purpose (whether for
safekeeping, custody, pledge, transmission, collection or otherwise);
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(viii) ACCESSIONS AND ADDITIONS. All accessions and additions to
and substitutions and replacements of any of the foregoing, whether now
existing or hereafter arising; and
(ix) PROCEEDS AND PRODUCTS. All proceeds and products of the
foregoing and all insurance of the foregoing and proceeds thereof, whether
now existing or hereafter arising;
all of the foregoing being herein sometimes referred to as the "COLLATERAL."
(b) This Agreement is made and given to secure, and shall secure, the
payment and performance of (i) (x) any and all indebtedness, obligations and
liabilities of the Borrower to the Agent, the Banks, or any of them
individually, evidenced by or otherwise arising out of or relating to the Credit
Agreement or any promissory note of the Borrower issued at any time under the
Credit Agreement (including all notes issued in extension or renewal thereof or
in substitution or replacement therefor), (y) any and all Hedging Liability of
the Borrower to the Banks or any of them individually, and (z) any liability of
the Guarantors, or any of them individually, arising out of the Credit
Agreement, as well as for any and all other indebtedness, obligations and
liabilities of the Debtors, or any of them individually, to the Agent, the
Banks, or any of them individually, evidenced by or otherwise arising out of or
relating to this Agreement or any other Loan Document, in each case, whether now
existing or hereafter arising (and whether arising before or after the filing of
a petition in bankruptcy), due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired, and (ii) any and all
expenses and charges, legal or otherwise, suffered or incurred by the Agent, the
Banks, or any of them individually, in collecting or enforcing any of such
indebtedness, obligations or liabilities or in realizing on or protecting or
preserving any security therefor, including, without limitation, the lien and
security interest granted hereby (all of the foregoing being hereinafter
referred to as the "OBLIGATIONS"). Notwithstanding anything in this Agreement
to the contrary, the right of recovery against any Debtor (other than the
Borrower to which this limitation shall not apply) under this Agreement shall
not exceed $1 less than the amount which would render such Debtor's obligations
under this Agreement void or voidable under applicable law, including fraudulent
conveyance law.
SECTION 3. COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Each
Debtor hereby covenants and agrees with, and represents and warrants to the
Agent and the Banks that:
(a) Such Debtor is duly organized and existing under the laws of the
state of its organization, is the sole and lawful owner of its Collateral
and has full right,
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power and authority to enter into this Agreement and to perform each and
all of the matters and things herein provided for; and the execution and
delivery of this Agreement, and the observance and performance of any of
the matters and things herein set forth, will not violate or contravene any
provision of law or of the articles of incorporation, by-laws or operating
agreement of such Debtor, as applicable, or of any indenture, loan
agreement or other agreement of or affecting such Debtor or any of its
properties, or result in the creation or imposition of any liens or
encumbrance on any property of such Debtor.
(b) The Collateral is in each Debtor's possession at the locations
listed under Column 1 on Schedule A attached hereto. Each Debtor's
respective chief executive office and chief place of business is listed
opposite its name on Schedule A attached hereto and the Debtors have no
other places of business other than those listed under Column 4 on
Schedule A attached hereto. No Debtor will remove its Collateral from the
locations specified in the first sentence of this Section 3(b) without the
Agent's prior written consent (provided that if for any reason Collateral
is at any time kept or located at locations other than its present location
or locations hereafter consented to by the Agent shall nevertheless have
and retain a security interest therein). The aggregate value of all
Debtors' Collateral located in the State of Tennessee shall not at any time
exceed $5,000.
(c) The Collateral and every part thereof is and will be free and
clear of all security interests, liens (including, without limitation,
mechanic's, laborer's and statutory liens), attachments, levies and
encumbrances of every kind, nature and description and whether voluntary or
involuntary except for the security interest of the Agent therein and as
otherwise provided in the Credit Agreement, and each Debtor will warrant
and defend its Collateral against any claims and demands of all persons at
any time claiming the same or any interest therein adverse to the Agent or
any Bank.
(d) Each Debtor will pay promptly when due all taxes, assessments,
and governmental charges and levies upon or against its Collateral in each
case before the same become delinquent and before penalties accrue thereon,
unless and to the extent that the same are being contested in good faith by
appropriate proceedings.
(e) Each Debtor at its own cost and expense will maintain, keep and
preserve its Collateral in good repair and condition and will not waste or
destroy such Collateral or any part thereof and will not be negligent in
the care and use of any Collateral and will not use or permit to be used
any Collateral in violation of any statute, ordinance or other governmental
requirement. Each Debtor will
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perform its obligations under any contract or other agreement constituting
part of the Collateral, it being understood and agreed that the Agent and
the Banks have no responsibility to perform such obligations.
(f) Except for liens expressly permitted by the Credit Agreement, and
subject to Sections 5(a), 7(b) and 7(c) hereof, no Debtor will, without the
Agent's prior written consent, sell, assign, mortgage, lease or otherwise
dispose of its Collateral or any interest therein.
(g) Each Debtor will insure its Collateral which is insurable against
such risks and hazards as other companies similarly situated insure
against, and including in any event loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as the Agent
may specify, in amounts and under policies containing loss payable clauses
to the Agent as its interest may appear (and, if the Agent requests, naming
the Agent and the Banks as additional insureds therein) by insurers
acceptable to the Agent. In case of any material loss, damage to or
destruction of its Collateral or any part thereof, the appropriate Debtor
shall promptly give written notice thereof to the Agent generally
describing the nature and extent of such damage or destruction. In the
event any Debtor shall receive any proceeds of such insurance, such Debtor
will immediately pay over such proceeds to the Agent. Net insurance
proceeds received by the Agent under the provisions hereof or under any
policy or policies of insurance covering the Collateral or any part thereof
shall be applied to the reduction of the Obligations (whether or not then
due); PROVIDED, HOWEVER, that the Agent may in its sole discretion release
any or all such insurance proceeds to the appropriate Debtor. All
insurance proceeds shall be subject to the lien and security interest of
the Agent hereunder.
UNLESS THE DEBTORS PROVIDE THE AGENT WITH EVIDENCE OF THE INSURANCE
COVERAGE REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE INSURANCE AT
THE DEBTORS' EXPENSE TO PROTECT THE AGENT'S INTERESTS IN THE COLLATERAL.
THIS INSURANCE MAY, BUT NEED NOT, PROTECT ANY DEBTOR'S INTERESTS IN THE
COLLATERAL. THE COVERAGE PURCHASED BY THE AGENT MAY NOT PAY ANY CLAIMS
THAT ANY DEBTOR MAKES OR ANY CLAIM THAT IS MADE AGAINST SUCH DEBTOR IN
CONNECTION WITH THE COLLATERAL. THE DEBTORS MAY LATER CANCEL ANY SUCH
INSURANCE PURCHASED BY THE AGENT, BUT ONLY AFTER PROVIDING THE AGENT WITH
EVIDENCE THAT THE DEBTORS HAVE OBTAINED INSURANCE AS REQUIRED BY THIS
AGREEMENT. IF THE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE
DEBTORS WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING
INTEREST AND ANY OTHER CHARGES THAT THE AGENT MAY IMPOSE IN CONNECTION WITH
THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE
CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE
MAY BE
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ADDED TO THE OBLIGATIONS SECURED HEREBY. THE COSTS OF THE INSURANCE MAY BE
MORE THAN THE COST OF INSURANCE THE DEBTORS MAY BE ABLE TO OBTAIN ON THEIR
OWN.
(h) Each Debtor will at all times allow the Agent, any Bank or their
respective representatives free access to and right of inspection of the
Collateral. Each Debtor will, to the extent it is within its power so to
do, authorize and instruct all bailees and other parties at any time
holding, storing, shipping or transferring all or any part of such Debtor's
Collateral to permit the Agent, any Bank or their respective or its
designees to examine and inspect any of such Collateral then in such
party's possession and to verify from such party's own books and records
any information concerning such Collateral or any part thereof which the
Agent or such Bank may seek to verify. As to any premises not owned by any
of the Debtors wherein any of the Collateral is located, if any, the
appropriate Debtor shall, unless the Agent requests otherwise, cause each
Person having any right, title or interest in, or lien on, any of such
premises to enter into an agreement (any such agreement to contain a legal
description of such premises) whereby such party disclaims any right, title
and interest in, and lien on, the Collateral, allowing the removal of such
Collateral by the Agent or its designee and otherwise in form and substance
acceptable to the Agent.
(i) Each Debtor agrees from time to time to deliver to the Agent and
any Bank such evidence of the existence and identity of such Debtor's
Collateral and of its availability as collateral security pursuant hereto
(including, without limitation, schedules describing all Receivables
created or acquired by such Debtor, copies of customer invoices or the
equivalent and original shipping or delivery receipts for all merchandise
and other goods sold or leased or services rendered, together with such
Debtor's warranty of the genuineness thereof, and reports stating the book
value of Inventory and Equipment by major category and location), as the
Agent or such Bank may request. Each Debtor will promptly notify the Agent
and each Bank of any Collateral which such Debtor has determined to have
been rendered obsolete, stating the prior book value of such Collateral,
its type and location.
(j) Each Debtor will comply with the terms and conditions of any
leases, easements, right-of-way agreements or other agreements covering the
premises wherein its Collateral is located and any orders, ordinances, laws
or statutes of any city, state or other governmental entity, department or
agency having jurisdiction with respect to such premises or the conduct of
business thereon.
(k) On failure of any Debtor to perform any of the covenants and
agreements herein contained, the Agent may, at its option, perform the same
and in
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so doing may expend such sums as the Agent may deem advisable in the
performance thereof, including without limitation the payment of any
insurance premiums, the payment of any taxes, liens and encumbrances,
expenditures made in defending against any adverse claim and all other
expenditures which the Agent may be compelled to make by operation of law
or which the Agent may make by agreement or otherwise for the protection of
the security hereof. All such sums and amounts so expended shall be
repayable by the Debtors immediately without notice or demand, shall
constitute so much additional Obligations hereby secured and shall bear
interest from the date said amounts are expended at the rate per annum
(computed on the basis of a 360-day year for the actual number of days
elapsed) determined by adding 3% to the Base Rate (such rate per annum as
so determined being hereinafter referred to as the "DEFAULT RATE"). No
such performance of any covenant or agreement by the Agent on behalf of any
Debtor and no such advancement or expenditure therefor, shall relieve any
Debtor of any default under the terms of this Agreement or in any way
obligate the Agent or any Bank to take any further or future action with
respect thereto. The Agent, in making any payment hereby authorized, may
do so according to any bill, statement or estimate procured from the
appropriate public office or holder of the claim to be discharged without
inquiry into the accuracy of such bill, statement or estimate or into the
validity of any tax assessment, sale, forfeiture, tax lien or title or
claim. The Agent, in performing any act hereunder, shall be the sole judge
of whether the relevant Debtor is required to perform same under the terms
of this Agreement. The Agent is authorized to charge any depository
account of any Debtor maintained with the Agent for the amount of such sums
and amounts so expended.
(l) Each Debtor warrants that such Debtor has not transacted
business, and does not transact business, under any trade names except as
set forth on Schedule B. Each Debtor agrees that it will not change its
name or transact business under any trade names without first giving the
Agent 30 days' prior written notice of its intent to do so.
(m) Each Debtor agrees to execute and deliver to the Agent such
further agreements and assignments or other instruments and to do all such
other things as the Agent may deem necessary or appropriate to assure the
Agent its security interest hereunder, including such financing statement
or statements or amendments thereof or supplements thereto or other
instruments as the Agent or the Required Banks may from time to time
require in order to comply with the Uniform Commercial Code as enacted in
the State of Illinois and any successor statute(s) thereto (the "CODE").
Each Debtor hereby agrees that a carbon, photographic or other reproduction
of this Agreement or any such financing statement is sufficient
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for filing as a financing statement by the Agent without notice thereof to
any Debtor wherever the Agent in its sole discretion desires to file the
same. In the event for any reason the law of any other jurisdiction than
Illinois becomes or is applicable to the Collateral or any part thereof, or
to any of the Obligations, each Debtor agrees to execute and deliver all
such instruments and to do all such other things as the Agent in its sole
discretion deems necessary or appropriate to preserve, protect and enforce
the security interests of the Agent under the law of such other
jurisdiction to at least the same extent as such security interests would
be protected under the Code. If any Collateral is in the possession or
control of any Debtor's agents or processors and unless the Agent requests
otherwise, such Debtor agrees to notify such agents or processors in
writing of the Agent's security interests therein, and upon the Agent's
request instruct them to hold all such Collateral for the Agent's account
and subject to the Agent's instructions. The Debtors agree to mark their
books and records to reflect the security interests of the Agent in the
Collateral.
SECTION 4. SPECIAL PROVISIONS RE: RECEIVABLES. (a) As of the time any
Receivable becomes subject to the security interest provided for hereby and at
all times thereafter, each Debtor shall be deemed to have warranted as to each
and all of such Receivables that all warranties of such Debtor set forth in this
Agreement are true and correct with respect to such Receivables; that each
Receivable and all papers and documents relating thereto are genuine and in all
respects what they purport to be; that each Receivable is valid and subsisting
and, if such Receivable is an account, arises out of a bona fide sale of goods
sold and delivered by such Debtor to, or in the process of being delivered to,
or out of and for services theretofore actually rendered by such Debtor to, the
account debtor named therein; that no such Receivable is evidenced by any
instrument or chattel paper unless such instrument or chattel paper has
theretofore been endorsed by such Debtor and delivered to the Agent (except to
the extent the Agent specifically requests such Debtor not to do so with
respect to any such instrument or chattel paper); that no surety bond was
required or given in connection with said Receivable or the contracts or
purchase orders out of which the same arose; that the amount of the Receivable
represented as owing is the correct amount actually and unconditionally owing,
except for normal cash discounts on normal trade terms in the ordinary course of
business if such Receivable is an account and that the amount of such Receivable
represented as owing is not disputed and is not subject to any set-offs,
credits, deductions or countercharges other than those arising in the ordinary
course of such Debtor's business which are disclosed to the Agent in writing
promptly upon such Debtor becoming aware thereof. Without limiting the
foregoing, if any Receivable arises out of a contract with the United States of
America or any of its departments, agencies or instrumentalities, each Debtor
agrees to notify the Agent and execute whatever
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instruments and documents are required by the Agent in order that such
Receivable shall be assigned to the Agent and that proper notice of such
assignment shall be given under the federal Assignment of Claims Act (or any
successor statute).
(b) Each Debtor shall keep all of its books and records relating to the
Receivables only at its chief executive office described in Section 3(b) hereof.
(c) Unless and until an Event of Default occurs, any merchandise which is
returned by a customer or account debtor or otherwise recovered may be resold by
the Debtors in the ordinary course of their respective businesses in accordance
with Section 5(b) hereof; after an Event of Default occurs, such merchandise
shall be set aside and held by each of the Debtors as trustee for the Agent and
the Banks and shall remain part of the Agent's Collateral. Unless and until an
Event of Default occurs, each Debtor may settle and adjust disputes and claims
with its customers and account debtors, handle returns and recoveries and grant
discounts, credits and allowances in the ordinary course of its business and
otherwise for amounts and on terms which such Debtor considers advisable.
However, after an Event of Default has occurred and unless the Agent requests
otherwise, each Debtor shall notify the Agent promptly of all returns and
recoveries and on request deliver the merchandise to the Agent. After an Event
of Default has occurred and unless the Agent requests otherwise, each Debtor
shall also notify the Agent promptly of all disputes and claims and settle or
adjust them at no expense to the Agent or the Banks, but no discount, credit or
allowance other than on normal trade terms in the ordinary course of business
shall be granted to any customer or account debtor and no returns of merchandise
shall be accepted by such Debtor without the Agent's consent. The Agent may, at
all times after such an Event of Default has occurred, settle or adjust disputes
and claims directly with customers or account debtors for amounts and upon terms
which the Agent considers advisable.
(d) From time to time, as the Agent may request of any Debtor, such Debtor
shall provide the Agent with schedules describing all Receivables created or
acquired by such Debtor, provided, however, that the failure of such Debtor to
execute and deliver such schedules shall not affect or limit the Agent's
security interest or other rights in and to any such Receivables. Together with
each schedule, each Debtor shall if requested by the Agent, furnish copies of
customers' invoices or the equivalent, and original shipping or delivery
receipts, for all merchandise sold, and each Debtor warrants the genuineness
thereof.
SECTION 5. COLLECTION OF RECEIVABLES. (a) Except as otherwise
provided in this Agreement each Debtor shall make collection of all of its
Receivables and may use the
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same to carry on its business in accordance with sound business practice and
otherwise subject to the terms hereof.
(b) Whether or not the Agent has exercised any or all of its rights under
other provisions of this Section 5 and whether or not any Event of Default has
occurred, at the request of the Agent, such Debtor shall instruct all account
debtors to remit all payments in respect of its Receivables to a lockbox or
lockboxes from which deposits will be made into one or more accounts maintained
with the Agent or under the control by agreement of the Agent (whether or not
maintained with the Agent), the Debtors acknowledging that each such account and
all funds contained therein constitute Collateral hereunder.
(c) Whether or not any Event of Default has occurred and whether or not
the Agent has exercised any or all of its rights under other provisions of this
Section 5, in the event the Agent requests any Debtor to do so, all instruments
and chattel paper at any time constituting part of the Receivables (including
any postdated checks) shall, upon receipt by such Debtor, be immediately
endorsed to and deposited with the Agent.
(d) Upon the occurrence and during the continuation of any Event of
Default and whether or not the Agent has exercised any or all of its rights
under other provisions of this Section 5, the Agent or its designee may notify
any Debtor's customers or account debtors at any time that Receivables have been
assigned to the Agent or of the Agent's security interest therein and either in
its own name, or such Debtor's or both, demand, collect (including without
limitation through a lockbox analogous to that described in Section 5(b)(ii)
hereof), receive, receipt for, sue for, compound and give acquittance for any or
all amounts due or to become due on Receivables, and in the Agent's discretion
file any claim or take any other action or proceeding which the Agent may deem
necessary or appropriate to protect and realize upon the security interest of
the Agent in the Receivables.
(e) Any proceeds of Receivables or other Collateral transmitted to or
otherwise received by the Agent pursuant to any of the provisions of
Sections 5(b), 5(c) or 5(d) hereof shall be handled and administered by the
Agent in and through a remittance account maintained at the Agent and each
Debtor acknowledges that the maintenance of such remittance account by the Agent
is solely for the Agent's own convenience and that such Debtor does not have any
right, title or interest in such remittance account or any amounts at any time
standing to the credit thereof. The Agent may apply all or any part of any
proceeds of Receivables or other Collateral received by it from any source to
the payment of the Obligations (whether or not then due and payable), such
applications to be made in such amounts, in such manner and order and at such
intervals as the Agent may from time to time in its discretion determine, but
not less often than once each week. The
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Agent need not apply or give credit for any item included in proceeds of
Receivables or other Collateral until the Agent has received final payment
therefor at its office in cash or final solvent credits current in Chicago,
Illinois, acceptable to the Agent as such. However, if the Agent does give
credit for any item prior to receiving final payment therefor and the Agent
fails to receive such final payment or an item is charged back to the Agent for
any reason, the Agent may at its election in either instance charge the amount
of such item back against the remittance account, together with interest thereon
at the Default Rate. Each Debtor shall accompany each transmission of any
proceeds of Receivables or other Collateral to the Agent with a report in such
form as the Agent shall require identifying the particular Receivable or other
Collateral from which the same arises or relates. The Debtors hereby jointly
and severally indemnify the Agent and the Banks from and against all
liabilities, damages, losses, actions, claims, judgments, costs, expenses,
charges and attorney's fees suffered or incurred by the Agent or the Banks
because of the maintenance of the foregoing arrangements. The Agent and the
Banks shall have no liability or responsibility to any Debtor for accepting any
check, draft or other order for payment of money bearing the legend "PAYMENT IN
FULL" or words of similar import or any other restrictive legend or endorsement
whatsoever or be responsible for determining the correctness of any remittance.
SECTION 6. SPECIAL PROVISIONS RE: INVESTMENT PROPERTY. (a) Unless
and until an Event of Default has occurred and is continuing and thereafter
until notified to the contrary by the Agent pursuant to Section 9(e) hereof:
(i) Each Debtor shall be entitled to exercise all voting and/or
consensual powers pertaining to the Investment Property or any part thereof
owned or held by it, for all purposes not inconsistent with the terms of
this Agreement, the Credit Agreement or any other document evidencing or
otherwise relating to any Obligations; and
(ii) Each Debtor shall be entitled to receive and retain all cash
dividends paid upon or in respect of the Investment Property owned or held
by it.
(b) Certificates for all securities now or at any time constituting
Investment Property hereunder shall be promptly delivered by the relevant Debtor
to the Agent duly endorsed in blank for transfer or accompanied by an
appropriate assignment or assignments or an appropriate undated stock power or
powers, in every case sufficient to transfer title thereto, and, with respect to
any Investment Property held by a securities intermediary, commodity
intermediary, or other financial intermediary of any kind, the relevant Debtor
shall execute and deliver, and shall cause any such intermediary to execute and
deliver, an agreement among such Debtor, the Agent, and such intermediary
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in form and substance satisfactory to the Agent which provides, among other
things, for the intermediary's agreement that it will comply with entitlement
orders, and apply any value distributed on account of any Investment Property
maintained in an account with such intermediary, as directed by the Agent
without further consent by such Debtor at any time after the occurrence of any
Event of Default; PROVIDED, HOWEVER, that, prior to the existence of an Event of
Default and thereafter until otherwise required by the Agent or the Required
Banks, a Debtor shall not be required to deliver any such certificates or cause
any such agreement to be entered into with the relevant financial intermediary
if and so long as (i) the fair market value of any such Investment Property held
by such Debtor is less than $10,000 and (ii) the aggregate fair market value of
all such Investment Property held by the Debtors and not subject to the control
(as such term is defined in the Code) of the Agent under the Collateral
Documents is less than $100,000 at any one time outstanding. The Agent may at
any time after the occurrence of an Event of Default cause to be transferred
into its name or the name of its nominee or nominees any and all of the
Investment Property hereunder.
(c) Unless and until an Event of Default has occurred and is continuing,
each Debtor may sell or otherwise dispose of any Investment Property to the
extent permitted by the Credit Agreement, PROVIDED that no Debtor shall sell or
otherwise dispose of any capital stock or other equity interests in any other
Debtor or any direct or indirect Subsidiary of any Debtor without the Agent's
prior written consent. During the existence of any Event of Default, no Debtor
shall sell or otherwise dispose of all or any part of the Investment Property
without the prior written consent of the Agent.
(d) Each Debtor represents that on the date of this Agreement, none of the
Investment Property consists of margin stock (as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve System) except to
the extent such Debtor has delivered to the Agent a duly executed and completed
Form U-1 with respect to such stock. If at any time the Investment Property or
any part thereof consists of margin stock, the relevant Debtor shall promptly so
notify the Agent and deliver to the Agent a duly executed and completed Form U-1
and such other instruments and documents reasonably requested by the Agent in
form and substance satisfactory to the Agent.
(e) Notwithstanding anything to the contrary contained herein, in the
event any Investment Property is subject to the terms of a separate security
agreement (including, without limitation, the Pledge Agreement bearing even date
herewith relating to the equity interests issued by certain of the Debtors
hereunder) in favor of the Agent, the terms of such separate security agreement
shall govern and control unless otherwise agreed to in writing by the Agent and
the Banks.
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SECTION 7. SPECIAL PROVISIONS RE: INVENTORY AND EQUIPMENT. (a) Each
Debtor will at its own cost and expense maintain, keep and preserve its
Inventory in good and merchantable condition and keep and preserve its Equipment
in good repair, working order and condition, ordinary wear and tear excepted,
and without limiting the foregoing make all necessary and proper repairs,
replacements and additions to the Equipment so that the efficiency thereof shall
be fully preserved and maintained.
(b) Each Debtor may, until an Event of Default has occurred and is
continuing and thereafter until otherwise notified by the Agent, use, consume
and sell its Inventory in the ordinary course of its business as presently
conducted, but a sale in the ordinary course of business shall not under any
circumstance include any transfer or sale in satisfaction, partial or complete,
of a debt owing by any Debtor.
(c) Each Debtor may, until an Event of Default has occurred and is
continuing and thereafter until otherwise notified by the Agent, sell
(i) obsolete, worn out or unusable Equipment which is concurrently replaced with
similar Equipment at least equal in quality and condition to that sold and owned
by such Debtor free of any lien, charge or encumbrance other than the lien
hereof and (y) Equipment which is not necessary for, or of importance to, the
proper conduct of any Debtor's business in the ordinary course and failure to
repair or replace such Equipment would not be disadvantageous to the rights
hereunder of the Agent and the Banks.
(d) As of the time any Inventory or Equipment becomes subject to the
security interest provided for hereby and at all times thereafter, each Debtor
shall be deemed to have warranted as to any and all of its Inventory and
Equipment that all warranties of such Debtor set forth in this Agreement are
true and correct with respect to such Inventory and Equipment and that all of
such Inventory and Equipment is located at a location set forth pursuant to
Section 3(b) hereof. Each Debtor warrants and agrees that no Inventory is or
will be consigned to any other person without the Agent's prior written consent.
(e) Each Debtor shall at its own cost and expense cause the lien of the
Agent in and to any portion of its Collateral subject to a certificate of title
law to be duly noted on such certificate of title or to be otherwise filed in
such manner as is prescribed by law in order to perfect such lien and shall
cause all such certificates of title and evidences of lien to be deposited with
the Agent unless otherwise permitted by the Required Banks in their sole
discretion; PROVIDED THAT no Debtor shall be obligated to cause the Agent's lien
to be so noted or to deliver any such certificate of title to the Agent to the
extent such certificate is held by another Bank with a purchase money security
interest permitted by the Credit Agreement on the Collateral represented by such
certificate.
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(f) Each Debtor shall at its own cost and expense cause any certificate of
title evidencing any of the Collateral to be amended to reflect the current and
correct name of such Debtor as and when required by applicable law, but in any
event no later than such date on which such Debtor must renew its registration
of such Collateral under applicable law. Each Debtor shall cause the lien of
the Agent in such Collateral to continue to be duly noted on such amended or
reissued certificate of title.
(g) Except for Equipment from time to time located on the real estate
described on Schedule C attached hereto and as otherwise disclosed to the Agent
in writing, none of the Equipment is or will be attached to real estate in such
a manner that the same may become a fixture.
(h) If any of its Inventory is at any time evidenced by a document of
title, such document shall be promptly delivered by the appropriate Debtor to
the Agent.
SECTION 8. POWER OF ATTORNEY. In addition to any other powers of
attorney contained herein, each Debtor appoints the Agent, its nominee, or any
other person whom the Agent may designate as such Debtor's attorney in fact,
with full power to endorse such Debtor's names on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into the Agent's possession, to sign such Debtor's names on any invoice or
bill of lading relating to any Receivables, on drafts against customers, on
schedules and assignments of Receivables, on notices of assignment, on public
records, on verifications of accounts and on notices to customers, to send
requests for verification of Receivables to customers or account debtors, to
notify the post office authorities to change the address for delivery of such
Debtor's mail to an address designated by the Agent and to receive, open and
dispose of all mail addressed to such Debtor and to do all other things
necessary to carry out this Agreement. Each Debtor hereby ratifies and approves
all acts of any such attorney and agree that neither the Agent nor any such
attorney nor any Bank will be liable for any acts or omissions nor for any error
of judgment or mistake of fact or law other than their own gross negligence or
willful misconduct. The foregoing power of attorney, being coupled with an
interest, is irrevocable until the Obligations have been fully satisfied and any
commitment of the Banks to extend credit constituting Obligations has
terminated. The Agent may file one or more financing statements disclosing its
security interest in any or all of the Collateral without any Debtor's signature
appearing thereon. Each Debtor also hereby grants the Agent a power of attorney
to execute any such financing statement, or amendments and supplements to
financing statements, on behalf of such Debtor without notice thereof to any
Debtor, which power of attorney is coupled with an interest and is irrevocable
until the Obligations have been fully satisfied and any commitment of the Banks
to extend credit constituting Obligations to the Borrower has terminated.
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<PAGE>
SECTION 9. DEFAULTS AND REMEDIES. (a) The occurrence of any event or
the existence of any condition which is specified as an Event of Default under
the Credit Agreement shall constitute an "EVENT OF DEFAULT" hereunder.
(b) Upon the occurrence of any Event of Default, the Agent shall have, in
addition to all other rights provided herein or by law, the rights and remedies
of a secured party under the Code (regardless of whether the Code is the law of
the jurisdiction where the rights or remedies are asserted and regardless of
whether the Code applies to the affected Collateral), and further the Agent may,
without demand and without advertisement, notice, hearing or process of law, all
of which each Debtor hereby waives to the extent permitted by law, at any time
or times, sell and deliver any or all Collateral held by or for it at public or
private sale, for cash, upon credit or otherwise, at such prices and upon such
terms as the Agent deems advisable, in its sole discretion. In addition to all
other sums due the Agent and the Banks hereunder, the Debtors jointly and
severally agree to pay to the Agent and the Banks all costs and expenses
incurred by the Agent and the Banks, including reasonable attorneys' fees and
court costs, in obtaining, liquidating or enforcing payment of Collateral or
Obligations or in the prosecution or defense of any action or proceeding by or
against the Agent or such Bank or the Debtors or any of them concerning any
matter arising out of or connected with this Agreement or the Collateral or
Obligations, including without limitation any of the foregoing arising in,
arising under or related to a case under the Bankruptcy Code. Any requirement
of reasonable notice shall be met if such notice is personally served on or
mailed, postage prepaid, to the Debtors in accordance with Section 14(b) hereof
at least ten days before the time of sale or other event giving rise to the
requirement of such notice; however, no notification need be given to a Debtor
if that Debtor has signed, after an Event of Default has occurred, a statement
renouncing any right to notification of sale or other intended disposition. The
Agent shall not be obligated to make any sale or other disposition of the
Collateral regardless of notice having been given. The Agent or any Bank may be
the purchaser at any such sale. Each Debtor hereby waives all of its rights of
redemption from any such sale. Subject to the provisions of applicable law, the
Agent may postpone or cause the postponement of the sale of all or any portion
of the Collateral by announcement at the time and place of such sale, and such
sale may, without further notice, be made at the time and place to which the
sale was postponed or the Agent may further postpone such sale by announcement
made at such time and place.
(c) Without in any way limiting the foregoing, during the existence of any
Event of Default, the Agent shall have the right, in addition to all other
rights provided herein or by law, to take physical possession of any and all of
the Collateral and anything found therein, the right for that purpose to enter
without legal process any premises where the Collateral may be found (provided
such entry be done lawfully), and the right to maintain
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such possession on each Debtor's premises (each Debtor hereby agreeing to lease
warehouses without cost or expense to the Agent or its designee if the Agent so
requests) or to remove its Collateral or any part thereof to such other places
as the Agent may desire. During the existence of any Event of Default, the
Agent shall have the right to exercise any and all rights with respect to
deposit accounts of any Debtor maintained with the Agent or any Bank, including,
without limitation, the right to collect, withdraw and receive all amounts due
or to become due or payable under each such deposit account. During the
existence of any Event of Default, each Debtor shall, upon the Agent's demand,
assemble its Collateral and make it available to the Agent at a place designated
by the Agent. If the Agent exercises its right to take possession of the
Collateral, each Debtor shall also at its expense perform any and all other
steps requested by the Agent to preserve and protect the security interest
hereby granted in the Collateral, such as placing and maintaining signs
indicating the security interest of the Agent, appointing overseers for the
Collateral and maintaining stock records.
(d) Without in any way limiting the foregoing, each Debtor hereby grants
to the Agent and the Banks a royalty-free irrevocable license and right to use
all of such Debtor's patents, patent applications, patent licenses, trademarks,
trademark registrations, trademark licenses, trade names, trade styles, and
similar intangibles in connection with any foreclosure or other realization by
the Agent or the Banks on all or any part of the Collateral, provided that the
license granted hereunder shall not include any rights in any license agreement
under which the relevant Debtor is licensee which, by its terms, prohibits the
license contemplated by this Section. The license and right granted the Agent
and the Banks hereby shall be without any royalty or fee or charge whatsoever.
(e) Without in any way limiting the foregoing, during the existence of any
Event of Default, all rights of a Debtor to exercise the voting and/or
consensual powers which it is entitled to exercise pursuant to Section 6(a)(i)
hereof and/or to receive and retain the distributions which it is entitled to
receive and retain pursuant to Section 6(a)(ii) hereof, shall, at the option of
the Agent, cease and thereupon become vested in the Agent, which, in addition to
all other rights provided herein or by law, shall then be entitled solely and
exclusively to exercise all voting and other consensual powers pertaining to the
Investment Property and/or to receive and retain the distributions which such
Debtor would otherwise have been authorized to retain pursuant to
Section 6(a)(ii) hereof and shall then be entitled solely and exclusively to
exercise any and all rights of conversion, exchange or subscription or any other
rights, privileges or options pertaining to any Investment Property as if the
Agent were the absolute owner thereof including, without limitation, the rights
to exchange, at its discretion, any and all of the Investment Property upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the respective issuer thereof or upon the exercise by or on behalf of any such
issuer or the
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Agent of any right, privilege or option pertaining to any Investment Property
and, in connection therewith, to deposit and deliver any and all of the
Investment Property with any committee, depositary, transfer Agent, registrar or
other designated agency upon such terms and conditions as the Agent may
determine. Without limiting the foregoing, during the existence of any Event of
Default, the Agent may, by written demand, direct any securities intermediary,
commodities intermediary, or other financial intermediary at any time holding
any Investment Property, or any issuer thereof, to deliver such Collateral, or
any part thereof, and/or liquidate such Collateral, or any party thereof, and
deliver the proceeds therefrom to the Agent. In the event the Agent in good
faith believes any of the Collateral constitutes restricted securities within
the meaning of any applicable securities laws, any disposition thereof in
compliance with such laws shall not render the disposition commercially
unreasonable.
(f) The powers conferred upon the Agent hereunder are solely to protect
its interest in the Collateral and shall not impose on it any duty to exercise
such powers. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of Investment Property in its possession if such
Collateral is accorded treatment substantially equivalent to that which the
Agent accords its own property consisting of similar type assets, it being
understood, however, that the Agent shall have no responsibility for
ascertaining or taking any action with respect to calls, conversions, exchanges,
maturities, tenders, or other matters relating to any such Collateral, whether
or not the Agent has or is deemed to have knowledge of such matters. This
Agreement constitutes an assignment of rights only and not an assignment of any
duties or obligations of any Debtor in any way related to the Collateral, and
the Agent shall have no duty or obligation to discharge any such duty or
obligation. The Agent shall have no responsibility for taking any necessary
steps to preserve rights against any parties with respect to any Collateral or
initiating any action to protect the Collateral against the possibility of a
decline in market value. Neither the Agent or any Bank, nor any party acting as
attorney for the Agent or any Bank, shall be liable for any acts or omissions or
for any error of judgment or mistake of fact or law other than such person's
gross negligence or willful misconduct.
(g) Failure by the Agent or any Bank to exercise any right, remedy or
option under this Agreement or any other agreement between the Debtors or any of
them and the Agent or any Bank or Banks or provided by law, or delay by the
Agent or any Bank in exercising the same, shall not operate as a waiver; no
waiver shall be effective unless it is in writing, signed by the party against
whom enforcement of the waiver is sought and then only to the extent
specifically stated. Neither the Agent, any Bank nor any party acting as
attorney for the Agent or such Bank, shall be liable for any acts or omissions
or for any error of judgment or mistake of fact or law other than their gross
negligence or willful
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<PAGE>
misconduct. The rights and remedies of the Agent and the Banks under this
Agreement shall be cumulative and not exclusive of any other right or remedy
which the Agent or any Bank may have. For purposes of this Agreement, an Event
of Default shall be construed as continuing after its occurrence until the same
is waived in writing by the Banks or the Required Banks, as the case may be, in
accordance with the Credit Agreement.
SECTION 10. APPLICATION OF PROCEEDS. The proceeds and avails of the
Collateral at any time received by the Agent upon the occurrence and during the
continuation of any Event of Default shall, when received by the Agent in cash
or its equivalent, be applied by the Agent in reduction of the Obligations in
accordance with the terms of the Credit Agreement. The Debtors shall remain
liable to the Agent and the Banks for any deficiency. Any surplus remaining
after the full payment and satisfaction of the Obligations shall be returned to
the Debtors or to whomsoever the Agent reasonably determines is lawfully
entitled thereto.
SECTION 11. CONTINUING AGREEMENT. This Agreement shall be a continuing
agreement in every respect and shall remain in full force and effect until all
of the Obligations, both for principal and interest, have been fully paid and
satisfied and any commitment to extend any credit constituting Obligations to
the Borrower shall have terminated.
SECTION 12. PRIMARY SECURITY; OBLIGATIONS ABSOLUTE. The lien and
security herein created and provided for stand as direct and primary security
for the Obligations. No application of any sums received by the Agent in
respect of the Collateral or any disposition thereof to the reduction of the
Obligations or any portion thereof shall in any manner entitle any Debtor to any
right, title or interest in or to the Obligations or any collateral security
therefor, whether by subrogation or otherwise, unless and until all Obligations
have been fully paid and satisfied and any commitment to extend credit
constituting Obligations to the Borrower shall have terminated. Each Debtor
acknowledges and agrees that the lien and security hereby created and provided
for are absolute and unconditional and shall not in any manner be affected or
impaired by any acts or omissions whatsoever of the Agent, any Bank or any other
holder of any of the Obligations, and without limiting the generality of the
foregoing, the lien and security hereof shall not be impaired by any acceptance
by the Agent, any Bank or any holder of any of the Obligations of any other
security for or guarantors upon any of the Obligations or by any failure,
neglect or omission on the part of the Agent, any Bank or any other holder of
any of the Obligations to realize upon or protect any of the Obligations or any
collateral security therefor. The lien and security hereof shall not in any
manner be impaired or affected by (and the Agent and the Banks, without notice
to anyone, are hereby authorized to make from time to time) any sale, pledge,
surrender, compromise,
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settlement, release, renewal, extension, indulgence, alteration, substitution,
exchange, change in, modification or disposition of any of the Obligations, or
of any collateral security therefor, or of any guaranty thereof or of any
obligor thereon. The Banks may at their discretion at any time grant credit to
the Borrower without notice to any Debtor in such amounts and on such terms as
the Banks may elect (all of such to constitute additional Obligations) without
in any manner impairing the lien and security hereby created and provided for.
No release, compromise or discharge of any Debtor hereunder or with respect to
any of the Obligations or any Collateral provided by such Debtor shall release
or discharge, or impair the agreements of, any other Debtor hereunder or in any
manner impair the liens and security interests granted by any other Debtor
hereunder; and the Agent may proceed against the Collateral provided hereunder
by any one or more of the Debtors without proceeding against any or all of the
other Debtors, their respective properties or any other security or guaranty
whatsoever. Without limiting the generality of the foregoing, the Agent (acting
at the direction of the Banks) may at any time or from time to time release any
Debtor from its obligations hereunder or release any Collateral or effect any
compromise with any Debtor, and no such release or compromise shall in any
manner impair or otherwise effect the liens granted by, or the obligations of,
the other Debtors hereunder. In order to foreclose or otherwise realize hereon
and to exercise the rights granted the Agent hereunder and under applicable law
as against any Debtor or any Collateral in which such Debtor has rights, there
shall be no obligation on the part of the Agent, any Bank or any other holder of
any of the Obligations at any time to first resort for payment to the Borrower
or any other Debtor or any other Person, its property or estate or to any
guaranty of the Obligations or any portion thereof or to resort to any other
collateral security, property, liens or any other rights or remedies whatsoever,
and the Agent shall have the right to enforce this instrument as against any
Debtor or any Collateral in which such Debtor has rights, irrespective of
whether or not other proceedings or steps are pending seeking resort to or
realization upon or from any of the foregoing.
SECTION 13. THE AGENT. In acting under or by virtue of this Agreement,
the Agent shall be entitled to all the rights, authority, privileges and
immunities provided in Section 10 of the Credit Agreement, all of which
provisions of said Section 10 are incorporated by reference herein with the same
force and effect as if set forth herein in their entirety. The Agent hereby
disclaims any representation or warranty to the Banks concerning the perfection
of the security interest granted hereunder or in the value of any of the
Collateral.
SECTION 14. MISCELLANEOUS. (a) This Agreement cannot be changed or
terminated orally. All of the rights, privileges, remedies and options given to
the Agent and the Banks hereunder shall inure to the benefit of their respective
successors and assigns, and
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<PAGE>
all the terms, conditions, promises, covenants, representations and warranties
of and in this Agreement shall bind each Debtor and its legal representatives,
successors and assigns, provided that no Debtor may assign its rights or
delegate its duties hereunder without the Agent's prior written consent.
Without limiting the generality of the foregoing, and subject to the provisions
of Sections 12.9 and 12.12 of the Credit Agreement, any Bank may assign or
otherwise transfer any indebtedness held by it secured by this Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to such Bank herein or
otherwise, subject, however, to the provisions of the Credit Agreement. Each
Debtor hereby releases the Agent and each Bank from any liability for any act or
omission relating to its Collateral or this Agreement, except the Agent's or
such Bank's gross negligence or willful misconduct.
(b) All communications provided for herein shall be in writing, except as
otherwise specifically provided for hereinabove, and shall be deemed to have
been given or made, if to any Debtor when given to the Borrower in accordance
with Section 12.6 of the Credit Agreement, or if to the Agent or any Bank, when
given to such party in accordance with Section 12.6 of the Credit Agreement.
(c) No Bank shall have the right to institute any suit, action or
proceeding in equity or at law for the foreclosure against any Collateral
subject to this Agreement or for the execution of any trust or power hereof or
for the appointment of a receiver, or for the enforcement of any other remedy
under or upon this Agreement; it being understood and intended that no one or
more of the Banks shall have any right in any manner whatsoever to affect,
disturb or prejudice the lien and security interest of this Agreement by its or
their action or to enforce any right hereunder, and that all proceedings at law
or in equity shall be instituted, had and maintained by the Agent in the manner
herein provided for the ratable benefit of the Banks.
(d) In the event that any provision hereof shall be deemed to be invalid
by reason of the operation of any law or by reason of the interpretation placed
thereon by any court, this Agreement shall be construed as not containing such
provision, but only as to such locations where such law or interpretation is
operative, and the invalidity of such provision shall not affect the validity of
any remaining provision hereof, and any and all other provisions hereof which
are otherwise lawful and valid shall remain in full force and effect. Without
limiting the generality of the foregoing, in the event that this Agreement shall
be deemed to be invalid or otherwise unenforceable with respect to any Debtor,
such invalidity or unenforceability shall not affect the validity of this
Agreement with respect to the other Debtors.
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<PAGE>
(e) This Agreement shall be deemed to have been made in the State of
Illinois and shall be governed by the internal laws of the State of Illinois
(without regard to the principles of conflicts of law). All terms which are
used in this Agreement which are defined in the Code shall have the same
meanings herein as said terms do in the Code unless this Agreement shall
otherwise specifically provide. The headings in this instrument are for
convenience of reference only and shall not limit or otherwise affect the
meaning of any provision hereof.
(f) This Agreement may be executed in any number of counterparts, each
constituting an original, but all together one and the same instrument. Each
Debtor acknowledges that this Agreement is and shall be effective upon its
execution and delivery by such Debtor to the Agent, and it shall not be
necessary for the Agent to execute this Agreement or any other acceptance hereof
or otherwise to signify or express its acceptance hereof.
(g) THE AGENT AND THE DEBTORS AGREE THAT ALL DISPUTES AMONG THEM ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL
COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT EACH OF THE AGENT AND THE DEBTORS
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. EACH OF THE DEBTORS WAIVES IN ALL
DISPUTES ANY OBJECTION THAT SUCH DEBTOR MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE OR ANY OBJECTION THAT SUCH DEBTOR MAY HAVE THAT ANY
OTHER PARTY HAS NOT BEEN JOINED IN SUCH PROCEEDING. EACH OF THE DEBTORS AGREES
THAT THE AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST EACH AND ANY OF THE
DEBTORS OR THEIR COLLATERAL IN A COURT IN ANY LOCATION TO ENABLE THE AGENT TO
REALIZE ON THE COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED
IN FAVOR OF THE AGENT, WHETHER OR NOT PROCEEDING SEPARATELY AGAINST ANY DEBTOR
AND ITS PROPERTY OR JOINTLY AGAINST THE BORROWER AND ANY ONE OR MORE OF THE
DEBTORS AND THEIR PROPERTY. EACH OF THE DEBTORS AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT IN ACCORDANCE WITH THIS
PROVISION BY THE AGENT TO REALIZE ON COLLATERAL, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF THE AGENT. EACH OF THE DEBTORS WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE>
In WITNESS WHEREOF, the Debtors have caused this Agreement to be duly
executed as of the date first above written.
DEBTORS:
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
-------------------------------------
Its President
LEXICON MUSIC, INC.
By /s/ Steven Devick
-------------------------------------
Its President
RIVER NORTH STUDIOS, INC.
By /s/ Steven Devick
-------------------------------------
Its President
CGI RECORDS, INC.
By /s/ Steven Devick
-------------------------------------
Its President
RIVER NORTH RECORDS, INC.
By /s/ Steven Devick
-------------------------------------
Its President
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<PAGE>
LIGHT RECORDS, INC.
By /s/ Steven Devick
-------------------------------------
Its President
THE RECORDING EXPERIENCE, INC.
By /s/ Steven Devick
-------------------------------------
Its President
PEG PUBLISHING, INC.
By /s/ Steven Devick
-------------------------------------
Its President
JUSTMIKE MUSIC, INC.
By /s/ Steven Devick
-------------------------------------
Its President
ROYCE PUBLISHING, INC.
By /s/ Steven Devick
-------------------------------------
Its President
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<PAGE>
Accepted and agreed to as of the date first above written.
BANK OF MONTREAL, as Agent as aforesaid
for the Banks
By /s/ Rene Encarnacion
------------------------------------
Its Director
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<PAGE>
SECURITY AGREEMENT RE: INTELLECTUAL PROPERTY
This Security Agreement Re: Intellectual Property (the "AGREEMENT") is
dated as of January 31, 1997, by and among the parties executing this Agreement
under the heading "Debtors" (such parties being hereinafter referred to
collectively as the "DEBTORS" and individually as a "DEBTOR"), each with its
mailing address at 2001 Butterfield Road, Suite 1400, Downers Grove, Illinois
60515, and BANK OF MONTREAL, a Canadian chartered bank acting through its
Chicago Branch ("BOM"), with its mailing address at 115 South LaSalle Street,
Chicago, Illinois 60603, acting as agent hereunder for the Banks hereinafter
identified and defined (BOM acting as such agent and any successor or successors
to BOM acting in such capacity being hereinafter referred to as the "AGENT");
PRELIMINARY STATEMENTS:
A. Platinum Entertainment, Inc., a Delaware corporation (the "BORROWER"),
Lexicon Music, Inc., a Delaware corporation, River North Studios, Inc., a
Delaware corporation, CGI Records, Inc., a Delaware corporation, River North
Records, Inc., a Delaware corporation, Light Records, Inc., a Delaware
corporation, The Recording Experience, Inc., a Delaware corporation, Peg
Publishing, Inc. a Delaware corporation, JustMike Music, Inc., a Delaware
corporation, Royce Publishing, Inc., a Delaware corporation (collectively, the
"GUARANTORS" and individually, a "GUARANTOR"), BOM, individually and as agent,
and certain lenders have entered into a Credit Agreement dated as of even date
herewith (such Credit Agreement, as the same may be amended or modified from
time to time, including amendments and restatements thereof in its entirety,
being hereinafter referred to as the "CREDIT AGREEMENT"), pursuant to which BOM
and other lenders from time to time party to the Credit Agreement (BOM and the
other lenders which are now or from time to time hereafter become party to the
Credit Agreement, together with any affiliates of such lenders to which is owed
any Hedging Liability, being hereinafter referred to collectively as the "BANKS"
and individually as a "BANK") have agreed, subject to certain terms and
conditions, to extend credit and make certain other financial accommodations
available to the Borrower.
B. Pursuant to the Credit Agreement, the Guarantors guarantee all of the
indebtedness, obligations, and liabilities of the Borrower to the Agent and the
Banks under the Credit Agreement.
<PAGE>
C. The Borrower may from time to time enter into one or more interest
rate exchange, cap, collar, floor or other agreements with one or more of the
Banks party to the Credit Agreement or their affiliates for the purpose of
hedging or otherwise protecting the Borrower against changes in interest rates
on the Revolving Credit Loans and the Term Credit Loans (the liability of the
Borrower in respect of such agreements with such Banks or their affiliates being
hereinafter referred to as the "HEDGING LIABILITY").
D. As a condition precedent to extending credit or otherwise making
financial accommodations available to the Borrower under the Credit Agreement,
the Banks have required, among other things, that each Debtor grant to the Agent
for the benefit of the Banks a lien on and security interest in certain personal
property of such Debtor pursuant to this Agreement.
E. The Borrower owns, directly or indirectly, all or substantially all of
the equity interests in each Guarantor and the Borrower provides each Guarantor
with financial, management, administrative, and technical support which enables
such Guarantor to conduct its business in an orderly and efficient manner in the
ordinary course.
F. Each Guarantor will benefit, directly or indirectly, from credit and
other financial accommodations extended by the Banks to the Borrower.
NOW, THEREFORE, for and in consideration of the execution and delivery by
the Banks of the Credit Agreement, and other good and valuable consideration,
receipt whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. TERMS DEFINED IN CREDIT AGREEMENT.
All capitalized terms used herein without definition shall have the same
meanings herein as such terms have in the Credit Agreement. The term "Debtor"
and "Debtors" as used herein shall mean and include the Debtors collectively and
also each individually, with all grants, representations, warranties and
covenants of and by the Debtors, or any of them, herein contained to constitute
joint and several grants, representations, warranties and covenants of and by
the Debtors; PROVIDED, HOWEVER, that unless the context in which the same is
used shall otherwise require, any grant, representation, warranty or covenant
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<PAGE>
contained herein related to the Collateral shall be made by each Debtor only
with respect to the Collateral owned by it or represented by such Debtor as
owned by it.
SECTION 2. GRANT OF SECURITY INTEREST IN THE COLLATERAL; OBLIGATIONS
SECURED.
(a) Subject to Section 2(c) hereof, each Debtor hereby grants, bargains,
sells, transfers, conveys, assigns, mortgages and pledges to the Agent for the
ratable benefit of the Banks, and grants to the Agent for the ratable benefit of
the Banks a security interest in, and acknowledges and agrees that the Agent has
and shall continue to have for the ratable benefit of the Banks a continuing
security interest in, any and all right, title and interest of each Debtor,
whether now existing or hereafter acquired or arising, in and to the following:
(i) PATENTS. Patents, whether now owned or hereafter acquired, or in
which such Debtor now has or hereafter acquires any rights (the term
"PATENTS" means and includes (i) all letters patent of the United States of
America or any other country or any political subdivision thereof, all
registrations and recordings thereof, and all applications for letters
patent of the United States of America or any other country or any
political subdivision thereof, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States of
America, any state thereof or any other country or any political
subdivision thereof and (ii) all reissues, continuations, continuations-in-
part or extensions thereof), including, without limitation, each Patent
listed on Schedule A-1 hereto, and all of the inventions now or hereafter
described and claimed in such Debtor's Patents;
(ii) PATENT LICENSES. Patent Licenses, whether now owned or hereafter
acquired, or in which such Debtor now has or hereafter acquires any rights
(the term "PATENT LICENSES" means and includes any written agreement
granting to any person any right to exploit, use or practice any invention
on which a Patent is owned by another person), including, without
limitation, each Patent License listed on Schedule A-2 hereto, and all
royalties and other sums due or to become due under or in respect of such
Debtor's Patent Licenses, together with the right to sue for and collect
all such royalties and other sums;
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<PAGE>
(iii) TRADEMARKS. Trademarks and Trademark registrations, whether
now owned or hereafter adopted or acquired, or in which such Debtor now has
or hereafter acquires any rights (the term "TRADEMARKS" means and includes
(i) all trademarks, trade names, trade styles, service marks and logos, all
prints and labels on which said trademarks, trade names, trade styles,
service marks and logos have appeared or appear and all designs and general
intangibles of like nature, all registrations and recordings thereof, and
all applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States of
America, any state thereof or any other country or any political
subdivision thereof and (ii) all reissues, extensions or renewals thereof),
including, without limitation, each Trademark registration listed on
Schedule B-1 hereto, and all of the goodwill of the business connected with
the use of, and symbolized by, each Trademark and Trademark registration
and all customer lists and other records of such Debtor relating to the
distribution of products bearing, or rendition of services otherwise
relating to, a Trademark;
(iv) TRADEMARK LICENSES. Trademark Licenses, whether now owned or
hereafter acquired, or in which such Debtor now has or hereafter acquires
any rights (the term "TRADEMARK LICENSES" means and includes any written
agreement granting to any person any right to use or exploit any Trademark
or Trademark registration of another person), including, without
limitation, the agreements described in Schedule B-2 hereto, and all of the
goodwill of the business connected with the use of, and symbolized by, each
Trademark licensed and all royalties and other sums due or to become due
under or in respect of such Debtor's Trademark Licenses, together with the
right to sue for and collect all such royalties and other sums;
(v) COPYRIGHTS. Copyrights and Copyright registrations, whether now
owned or hereafter adopted or acquired, or in which such Debtor now has or
hereafter acquires any rights (the term "COPYRIGHTS" means and includes
(i) all copyrights, whether or not published or registered, and all works
of authorship and other intellectual property and the rights therein,
including, without limitation, copyrights for computer programs and data
bases, copyrightable materials, and all tangible property embodying such
copyrights or copyrightable materials, all registrations and recordings
thereof, and all applications in connection therewith,
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including, without limitation, registrations, recordings and applications
in the United States Copyright Office or in any similar office or agency of
the United States of America, any state thereof or any other country or any
political subdivision thereof, and (ii) all renewals, derivative works,
enhancements, modifications, new releases and other revisions thereof, and
(iii) all accounts receivable, income, royalties, damages and payments now
or hereafter due and/or payable with respect thereto, including, without
limitation, payments under all licenses entered into in connection
therewith, and (iv) all rights corresponding thereto throughout the world),
including, without limitation, each Copyright registration listed on
Schedule C-1 hereto;
(vi) COPYRIGHT LICENSES. Copyright Licenses, whether now owned or
hereafter acquired, or in which such Debtor now has or hereafter acquires
any rights (the term "COPYRIGHT LICENSES" means and includes any written
agreement granting to any person the right to use or exploit any Copyright
or Copyright registration of another person, including, without limitation,
the right to use the foregoing to prepare for sale or distribution and sell
or distribute any and all inventory now or hereafter owned by such Debtor
and now or hereafter covered by such licenses), including, without
limitation, the license and subscription agreements listed on Schedule C-2
hereto, and all royalties and other sums due or to become due under or in
respect of such Debtor's Copyright Licenses, together with the right to sue
for and collect all such royalties and other sums;
(vii) KNOW-HOW AND TRADE SECRET COLLATERAL. All know-how,
inventions, processes, methods, information, data, plans, blueprints,
specifications, designs, drawings, engineering reports, test reports,
material standards, processing standards and performance standards, to the
extent that the foregoing pertain to manufacturing, production or
processing operations of such Debtor and constitute trade secrets of such
Debtor, and all licenses or other similar agreements granted to or by such
Debtor with respect to any of the foregoing;
(viii) GENERAL INTANGIBLES AND RECORDS AND CABINETS. General
intangibles relating to any of the above-described property and supporting
evidence and documents relating to any of the above-described property,
including, without limitation, written applications, correspondence,
delivery receipts and notes,
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together with all books of account, ledgers and cabinets in which the same
are reflected or maintained, all whether now existing or hereafter arising;
(ix) ACCESSIONS AND ADDITIONS. All accessions and additions to, and
substitutions and replacements of, any and all of the foregoing, whether
now existing or hereafter arising; and
(x) PROCEEDS AND PRODUCTS. All proceeds and products of the
foregoing and all insurance of the foregoing and proceeds thereof, whether
now existing or hereafter arising, including, without limitation, (i) any
claim of such Debtor against third parties for damages by reason of past,
present or future infringement of any Patent or any Patent licensed under
any Patent License, (ii) any claim by such Debtor against third parties for
damages by reason of past, present or future infringement or dilution of
any Trademark or Trademark registration or of any Trademark licensed under
any Trademark License, or for injury to the goodwill of the business
connected with the use of, or symbolized by, any Trademark or Trademark
registration or of any Trademark licensed under any Trademark License,
(iii) any claim of such Debtor against third parties for damages by reason
of past, present or future infringements of any Copyright or Copyright
registration or of any Copyright licensed under any Copyright License, and
(iv) any claim by such Debtor against third parties for damages by reason
of past, present or future misappropriation or wrongful use or disclosure
of any trade secret or other property or right described above or of any
such trade secret or other property or right licensed under any license
agreement described above, and together with the right to sue for and
collect the damages described in the immediately preceding clauses (i),
(ii), (iii) and (iv);
all of the foregoing being herein sometimes referred to as the "COLLATERAL";
provided that the Collateral shall not include any license agreement under which
any Debtor is licensee which, by its terms, prohibits the security interest
contemplated by this Agreement.
(b) This Agreement is made and given to secure, and shall secure, the
payment and performance of (i) (x) any and all indebtedness, obligations and
liabilities of the Borrower to the Agent, the Banks, or any of them
individually, evidenced by or otherwise arising out of or relating to the Credit
Agreement or any promissory note of the Borrower issued at any time under the
Credit Agreement (including all notes issued in extension or
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renewal thereof or in substitution or replacement therefor), (y) any and all
Hedging Liability of the Borrower to the Banks or any of them individually, and
(z) any liability of the Guarantors, or any of them individually, arising out of
the Credit Agreement, as well as for any and all other indebtedness, obligations
and liabilities of the Debtors, or any of them individually, to the Agent, the
Banks, or any of them individually, evidenced by or otherwise arising out of or
relating to this Agreement or any other Loan Document, in each case, whether now
existing or hereafter arising (and whether arising before or after the filing of
a petition in bankruptcy), due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired, and (ii) any and all
expenses and charges, legal or otherwise, suffered or incurred by the Agent, the
Banks, or any of them individually, in collecting or enforcing any of such
indebtedness, obligations or liabilities or in realizing on or protecting or
preserving any security therefor, including, without limitation, the lien and
security interest granted hereby (all of the foregoing being hereinafter
referred to as the "SECURED OBLIGATIONS"). Notwithstanding anything in this
Agreement to the contrary, the right of recovery against any Debtor (other than
the Borrower to which this limitation shall not apply) under this Agreement
shall not exceed $1 less than the amount which would render such Debtor's
obligations under this Agreement void or voidable under applicable law,
including fraudulent conveyance law.
(c) Notwithstanding anything herein to the contrary, this Agreement shall
not operate as a sale, transfer, conveyance or other assignment to the Agent of
any applications by a Debtor for a Trademark based on an intent to use the same
if and so long as such application is pending and not matured into a registered
Trademark (such pending applications which are based on intent to use being
hereinafter referred to collectively as "INTENT-TO-USE APPLICATIONS"), but
rather, if and so long as Debtor's Intent-To-Use Application is pending this
Agreement shall operate only to create a security interest for collateral
purposes in favor of the Agent for the ratable benefit of the Banks, on such
Intent-To-Use Application as collateral security for the Secured Obligations.
SECTION 3. NO RELEASE.
Nothing set forth in this Agreement shall relieve any Debtor from the
performance of any term, covenant, condition or agreement on the part of such
Debtor to be performed or observed under or in respect of any of the Collateral
or from any liability to any party under or in respect of any of the Collateral
or impose any obligation on the Agent or any
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Bank to perform or observe any such term, covenant, condition or agreement on
the part of such Debtor to be so performed or observed or impose any liability
on the Agent or any Bank for any act or omission on the part of such Debtor
relative thereto or for any breach of any representation or warranty on the part
of such Debtor contained in this Agreement or under or in respect of the
Collateral or made in connection herewith or therewith.
SECTION 4. USE OF COLLATERAL.
Notwithstanding anything to the contrary contained in this Agreement, until
an Event of Default hereunder has occurred and is continuing and thereafter
until otherwise notified by the Agent, each Debtor may continue to exploit,
license, use, enjoy and protect the Collateral throughout the world in the
ordinary course of its business as presently conducted and the Agent shall from
time to time execute and deliver, upon written request of the relevant Debtor,
any and all instruments, certificates or other documents, in the form so
requested, necessary or appropriate in the reasonable judgment of such Debtor to
enable such Debtor to continue to exploit, license, use, enjoy and protect the
Collateral throughout the world in the ordinary course of its business as
presently conducted.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE DEBTORS.
Each Debtor hereby represents and warrants to the Agent and the Banks as
follows:
(a) Such Debtor is, and, as to the Collateral acquired by it from
time to time after the date hereof, such Debtor will be, the owner or, as
applicable, licensee of its Collateral. Each Debtor's rights in its
Collateral are and shall remain free and clear of any lien, pledge,
security interest, encumbrance, license, assignment, collateral assignment
or charge of any kind, including, without limitation, any filing of or
agreement to file a financing statement as debtor under the Uniform
Commercial Code or any similar statute, except for (i) the lien and
security interest created by this Agreement, (ii) the Permitted Licenses
(as hereinafter defined) and (iii) the Liens expressly permitted by the
Credit Agreement (collectively, the "PERMITTED ENCUMBRANCES"). No Debtor
has made any previous assignment, conveyance, transfer or agreement in
conflict herewith. Each Debtor further represents and warrants to the
Agent and each Bank that Schedules A-1, A-2, B-1, B-2, C-1 and C-2 hereto,
respectively, are true and correct lists of all Patents, Patent
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Licenses, Trademarks, Trademark Licenses, Copyrights and Copyright Licenses
owned or used by the Debtors as of the date hereof and that Schedules A-1,
A-2, B-1, B-2, C-1 and C-2 are true and correct with respect to the matters
set forth therein as of the date hereof.
(b) Each Debtor has full corporate power to pledge and grant a
security interest in all the Collateral pursuant to this Agreement.
(c) No authorization, consent, approval, license, qualification or
exemption from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority, or with any securities
exchange or any other party, is required in connection with (i) each
Debtor's execution, delivery or performance of this Agreement, (ii) each
Debtor's grant of a security interest (including the priority thereof when
the appropriate filings have been made and accepted) in the Collateral in
the manner and for the purpose contemplated by this Agreement or (iii) the
rights of the Agent and Banks created hereby, except those that have
already been obtained or made and those referred to in paragraph (f) of
this Section 5.
(d) Each Debtor has made all necessary filings and recordations to
protect its interests in the Collateral.
(e) Each Debtor owns directly or has rights to use all the Collateral
and all rights with respect to any of the foregoing used in, necessary for
or of importance to the business of such Debtor in the ordinary course as
presently conducted. The use of the Collateral and all rights with respect
to the foregoing by such Debtor does not, to the best of such Debtor's
knowledge after due inquiry, infringe on the rights of any party, nor has
any claim of such infringement been made.
(f) Upon filings and the acceptance thereof in the appropriate
offices under the Uniform Commercial Code and in the United States Patent
and Trademark Office and the United States Copyright Office, this Agreement
will create a valid and duly perfected first priority lien and security
interest in the Collateral located in the United States of America subject
to no prior liens or encumbrances.
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(g) To the best of each Debtor's knowledge after due inquiry, no
claim has been made and remains outstanding that such Debtor's use of any
of the Collateral does or may violate the rights of any third person.
SECTION 6. COVENANTS AND AGREEMENTS OF THE DEBTORS.
Each Debtor hereby covenants and agrees with the Agent and the Banks as
follows:
(a) On a continuing basis, each Debtor will, at its own expense,
subject to any prior licenses, encumbrances and restrictions and
prospective licenses, encumbrances and restrictions permitted hereunder,
make, execute, acknowledge and deliver, and file and record in the proper
filing and recording places within the United States of America, all such
instruments, including, without limitation, appropriate financing and
continuation statements and collateral agreements, and take all such
action, as may be deemed necessary or advisable by the Agent (i) to carry
out the intent and purposes of this Agreement, (ii) to assure and confirm
to the Agent the grant and perfection of a first priority security interest
in the Collateral for the benefit of the Banks or (iii) to enable the Agent
to exercise and enforce its rights and remedies hereunder with respect to
any Collateral.
(b) Without limiting the generality of the foregoing paragraph (a) of
this Section 6, each Debtor (i) will not enter into any agreement that
would impair or conflict with such Debtor's obligations hereunder;
(ii) will, promptly following its becoming aware thereof, notify the Agent
and the Banks of (x) any final adverse determination in any proceeding in
the United States Patent and Trademark Office or United States Copyright
Office with respect to any of the Collateral or (y) the institution of any
proceeding or any adverse determination in any federal, state, local or
foreign court or administrative bodies regarding such Debtor's claim of
ownership in or right to use any of the Collateral, its right to register
any such Collateral or its right to keep and maintain such registration;
(iii) will properly maintain and care for the Collateral to the extent
necessary for the conduct of the business of such Debtor in the ordinary
course as presently conducted and consistent with such Debtor's current
practice; (iv) will not grant or permit to exist any lien or encumbrance
upon or with respect to the Collateral or any portion thereof except the
Permitted Encumbrances and will not execute any security
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agreement or financing statement covering any of the Collateral except in
the name of the Agent; (v) will not permit to lapse or become abandoned,
settle or compromise any pending or future material litigation or material
administrative proceeding with respect to any Collateral without the prior
written consent of the Agent or contract for sale or otherwise sell,
convey, assign or dispose of, or grant any option with respect to, the
Collateral or any portion thereof; (vi) upon any responsible officer of the
such Debtor obtaining knowledge thereof, will promptly notify the Agent and
the Banks in writing of any event which may reasonably be expected to
materially and adversely affect the value of any of the Collateral, the
ability of such Debtor or the Agent to dispose of any such Collateral or
the rights and remedies of the Agent in relation thereto, including,
without limitation, a levy or threat of levy or any legal process against
any such Collateral; (vii) will diligently keep reasonable records
respecting the Collateral; (viii) hereby authorizes the Agent, in its sole
discretion, to file one or more financing or continuation statements
relative to all or any part of the Collateral without the signature of such
Debtor where permitted by law; (ix) will furnish to the Agent and any Bank
from time to time statements and schedules further identifying and
describing the Collateral and such other materials evidencing or reports
pertaining to the Collateral as the Agent or such Bank may request, all in
reasonable detail; PROVIDED, HOWEVER, that no such information need be
furnished relating to any items of Collateral aggregating less than $10,000
in value for all Debtors; (x) will pay when due any and all taxes, levies,
maintenance fees, charges, assessments, licenses fees and similar taxes or
impositions payable in respect of the Collateral except to the extent being
contested in good faith by appropriate proceedings which prevent the
enforcement of the matter being contested (and such Debtor has established
adequate reserves therefor) and preclude interference with the operation of
the business of such Debtor in the ordinary course; and (xi) comply in all
material respects with all laws, rules and regulations applicable to the
Collateral. Notwithstanding anything in the immediately preceding
sentence, the foregoing provisions of this paragraph (b) shall not operate
to prohibit any Permitted Licenses entered into prior to the occurrence of
an Event of Default hereunder. For purposes of this Section 6, the term
"PERMITTED LICENSES" shall mean (i) licenses granted by any Debtor at arm's
length to unaffiliated third parties in the ordinary course of such
Debtor's business for consideration which such Debtor in good faith deems
adequate and (ii) such other licenses as to which the Required Banks in
their discretion may consent in writing.
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(c) If any Debtor shall (i) obtain any rights to any new invention
(whether or not patentable), know-how, trade secret, design, process,
procedure, formula, diagnostic test, service mark, trademark, trademark
registration, trade name, copyright, copyright registration, or license or
(ii) become entitled to the benefit of any patent, patent application,
service mark, trademark, trademark application, trademark registration,
copyright, copyright application, copyright registration, license renewal
or copyright renewal or extension, or patent for any reissue, division,
continuation, renewal, extension, or continuation-in-part of any Patent or
any improvement on any Patent, the provisions of this Agreement shall
automatically apply thereto and the same shall automatically constitute
Collateral and be and become subject to the assignment, lien and security
interest created hereby without further action by any party, all to the
same extent and with the same force and effect as if the same had
originally been Collateral hereunder. If any Debtor so obtains or becomes
entitled to any of the foregoing rights described in clauses (i) and (ii)
above, such Debtor shall promptly (x) give written notice thereof to the
Agent and (y) amend Schedules A-1, A-2, B-1, B-2, C-1 and C-2 hereto, as
applicable, to include such rights; PROVIDED, HOWEVER, the Debtors shall
not be required to give such notice and amend such schedules for any items
of Collateral aggregating less than $10,000 in value for all Debtors. Each
Debtor agrees, promptly following written request therefor by the Agent, to
confirm the attachment of the lien and security interest created hereby to
any such rights described in clauses (i) and (ii) above by execution of an
instrument in form and substance acceptable to the Agent.
(d) Each Debtor will if the Agent so requests and in any event hereby
authorizes the Agent to modify this Agreement by amending Schedules A-1,
A-2, B-1, B-2, C-1 and C-2 hereto to include any future Collateral.
(e) The Debtors shall promptly furnish to the Agent a list of
Permitted Licenses entered into by the Debtors after the date hereof;
PROVIDED HOWEVER, the Debtors need not provide such list for any license
agreements aggregating less than $10,000 in value for all Debtors and in
any event, such list need not be provided not more than once per calendar
month.
(f) Each Debtor shall prosecute diligently applications for the
Patents, Trademarks and Copyrights now or hereafter pending that in such
Debtor's
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reasonable judgment would be materially beneficial to the business of such
Debtor in the ordinary course, make application on unpatented but
patentable inventions and registrable but unregistered Trademarks and
Copyrights that in such Debtor's reasonable judgment would be materially
beneficial to the business of such Debtor in the ordinary course, file and
prosecute opposition and cancellation proceedings and do all acts necessary
to preserve and maintain all its rights in the Collateral, unless as to any
Patent, Trademark or Copyright, in the reasonable judgment of such Debtor,
such Patent, Trademark or Copyright has become obsolete to the business of
such Debtor. Any expenses incurred in connection with such actions shall
be borne by the Debtors.
SECTION 7. GRANT OF LICENSE TO PATENTS, TRADEMARKS, COPYRIGHTS, ETC.
Without in any way limiting the scope of the lien and security interest
created hereby, each Debtor hereby grants to the Agent for the ratable benefit
of the Banks an irrevocable, nonexclusive license and right to use all of such
Debtor's Patents, Patent applications, Patent Licenses, Trademarks, Trademark
registrations, Trademark Licenses, trade names, trade styles, Copyrights,
Copyright registrations, Copyright Licenses and similar intangibles in the
processing, production, marketing, distribution or sale by the Agent of all or
any part of its collateral for the Secured Obligations in connection with and
solely in connection with any foreclosure or other realization on such
collateral. The license and rights granted the Agent hereby shall be
exercisable without the payment of any royalty, fee, charge or any other
compensation to any Debtor or any other party. Such license and rights shall
include reasonable access to all records in which any of the licensed items may
be recorded or stored. Such license and rights shall be absolute and
unconditional to the extent used for the purpose stated above.
SECTION 8. SUPPLEMENTS; FURTHER ASSURANCES.
Each Debtor (i) agrees that it will join with the Agent in executing and,
at such Debtor's own expense, file and refile, or permit the Agent to file and
refile, such financing statements, continuation statements and other instruments
and documents (including without limitation this Agreement) in such offices
(including, without limitation, the United States Patent and Trademark Office
and the United States Copyright Office) as the Agent may deem necessary or
appropriate in order to perfect and preserve the rights and
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interests granted to the Agent hereunder and (ii) hereby authorizes the Agent to
file and refile such instruments and documents and any other instruments or
documents related thereto without the signature of such Debtor where permitted
by law and (iii) agrees to do such further acts and things, and to execute and
deliver to the Agent such additional instruments and documents, as the Agent may
require to carry into effect the purposes of this Agreement or to better assure
and confirm unto the Agent its respective rights, powers and remedies hereunder.
All of the foregoing are to be at the sole cost of the Debtors. Any costs of
the foregoing incurred by the Agent shall be payable by the Debtors upon demand,
together with interest thereon from the date of incurrence at the Default Rate
(as hereinafter defined) until so paid, and shall constitute additional Secured
Obligations hereunder.
SECTION 9. THE AGENT MAY PERFORM.
If any Debtor fails to perform any agreement contained herein after receipt
of a written request to do so from the Agent, the Agent may itself perform, or
cause performance of, such agreement, and the expenses of the Agent, including
the fees and expenses of its counsel, so incurred in connection therewith shall
be payable by the Debtors under Section 14 hereof.
SECTION 10. REMEDIES UPON DEFAULT.
(a) The occurrence of any event or the existence of any condition which is
specified as an Event of Default under the Credit Agreement shall constitute an
"EVENT OF DEFAULT" hereunder.
(b) Upon the occurrence of any Event of Default hereunder, the Agent shall
have, in addition to all other rights provided herein or by law, the rights and
remedies of a secured party under the Uniform Commercial Code as enacted in the
State of Illinois and any successor statute(s) thereto (regardless of whether
such Uniform Commercial Code is the law of the jurisdiction where the rights or
remedies are asserted and regardless of whether such Uniform Commercial Code
applies to the affected Collateral), and further the Agent may, without demand
and without advertisement, notice, hearing or process of law, all of which each
Debtor hereby waives to the extent permitted by law, at any time or times, sell
and deliver any or all of the Collateral at public or private sale, for cash,
upon
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credit or otherwise, at such prices and upon such terms as the Agent deems
advisable, in its sole discretion. In addition to all other sums due the Agent
or any Bank hereunder, the Debtors jointly and severally shall pay the Agent and
any Bank all costs and expenses incurred by the Agent or such Bank, including
attorneys' fees and court costs, in obtaining, liquidating or enforcing payment
of the Collateral or the Secured Obligations or in the prosecution or defense of
any action or proceeding by or against the Agent, such Bank or Debtors or any of
them concerning any matter arising out of or connected with this Agreement or
the Collateral or the Secured Obligations, including, without limitation, any of
the foregoing arising in, arising under or related to a case under the United
States Bankruptcy Code, as amended (or any successor statute). Any requirement
of reasonable notice shall be met if such notice is personally served on or
mailed, postage prepaid, to the Debtors in accordance with Section 18(b) hereof
at least ten days before the time of sale or other event giving rise to the
requirement of such notice; HOWEVER, no notification need be given to a Debtor
if that Debtor has signed, after an Event of Default hereunder has occurred, a
statement renouncing any right to notification of sale or other intended
disposition. The Agent shall not be obligated to make any sale or other
disposition of the Collateral regardless of notice having been given. The Agent
or any Bank may be the purchaser at any such sale. Each Debtor hereby waives
all of its rights of redemption from any such sale. Subject to the provisions
of applicable law, the Agent may postpone or cause the postponement of the sale
of all or any portion of the Collateral by announcement at the time and place of
such sale, and such sale may, without further notice, be made at the time and
place to which the sale was postponed or the Agent may further postpone such
sale by announcement made at such time and place.
(c) Without in any way limiting the foregoing, upon the occurrence and
during the continuation of any Event of Default hereunder, the Agent may,
without demand, and without advertisement, notice, hearing or process of law,
all of which each Debtor hereby waives to the extent permitted by law,
(i) exercise any and all rights as beneficial and legal owner of the Collateral,
including, without limitation, any and all consensual rights and powers with
respect to the Collateral and (ii) sell or assign or grant a license to use, or
cause to be sold or assigned or granted a license to use, any or all of the
Collateral or any part hereof, in each case free of all rights and claims of any
Debtor therein and thereto. In that connection, the Agent shall have the right
to cause any or all of the Collateral to be transferred of record into the name
of the Agent or its nominee as well as the right to impose (i) such limitations
and restrictions on the sale or assignment of the Collateral as the Agent may
deem to be necessary or appropriate to comply with any law, rule or
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regulation, whether federal, state or local, having applicability to the sale or
assignment and (ii) requirements for any necessary governmental approvals.
(d) In the event the Agent shall have instituted any proceeding to enforce
any right, power or remedy under this Agreement by foreclosure, sale, entry or
otherwise, and such proceeding shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Agent, then and in every
such case the Debtors, the Agent and each Bank shall be restored to their
respective former positions and rights hereunder with respect to the Collateral,
and all rights, remedies and powers of the Agent and the Banks shall continue as
if no such proceeding had been instituted.
(e) Failure by the Agent to exercise any right, remedy or option under
this Agreement or any other agreement between the Debtors or any of them and the
Agent or provided by law, or delay by the Agent in exercising the same, shall
not operate as a waiver; no waiver shall be effective unless it is in writing,
signed by the party against whom such waiver is sought to be enforced and then
only to the extent specifically stated. For purposes of this Agreement, an
Event of Default shall be construed as continuing after its occurrence until the
same is waived in writing by the Banks or the Required Banks, as the case may
be, in accordance with the terms of the Credit Agreement. Neither the Agent,
nor any Bank, nor any party acting as attorney for the Agent or any Bank, shall
be liable hereunder for any acts or omissions or for any error of judgment or
mistake of fact or law other than their gross negligence or willful misconduct.
The rights and remedies of the Agent under this Agreement shall be cumulative
and not exclusive of any other right or remedy which the Agent or the Banks may
have.
SECTION 11. THE AGENT APPOINTED ATTORNEY-IN-FACT.
Each Debtor hereby irrevocably appoints the Agent, its nominee, or any
other person whom the Agent may designate as such Debtor's attorney-in-fact,
with full authority in the place and stead of such Debtor and in the name of
such Debtor, the Agent or otherwise, upon the occurrence and during the
continuation of any Event of Default hereunder, or if such Debtor fails to
perform any agreement contained herein, then to the extent necessary to enable
the Agent to perform such agreement itself, from time to time in the Agent's
discretion, to take any action and to execute any instrument which the Agent may
deem necessary or advisable to accomplish the purposes of this Agreement,
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including, without limitation, to prosecute diligently any patent, trademark or
copyright or any application for Patents, Trademarks or Copyrights pending as of
the date of this Agreement or thereafter until the Secured Obligations have been
fully paid and satisfied and any commitment to extend any credit constituting
Secured Obligations to the Borrower shall have terminated, to make application
on unpatented but patentable inventions and registrable but unregistered
Trademarks and Copyrights, to file and prosecute opposition and cancellation
proceedings, to do all other acts necessary or desirable to preserve all rights
in Collateral and otherwise to file any claims or take any action or institute
any proceedings which the Agent may deem necessary or desirable to enforce the
rights of the Agent and the Banks with respect to any of the Collateral. Each
Debtor hereby ratifies and approves all acts of any such attorney and agrees
that neither the Agent nor any such attorney will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law other than
their gross negligence or willful misconduct. The foregoing power of attorney,
being coupled with an interest, is irrevocable until the Secured Obligations
have been fully paid and satisfied and any commitment to extend any credit
constituting Secured Obligations to the Borrower shall have terminated.
SECTION 12. APPLICATION OF PROCEEDS.
The proceeds and avails of the Collateral at any time received by the Agent
upon the occurrence and during the continuation of any Event of Default shall,
when received by the Agent in cash or its equivalent, be applied by the Agent in
reduction of the Secured Obligations in accordance with the terms of the Credit
Agreement. The Debtors shall remain liable to the Agent and the Banks for any
deficiency. Any surplus remaining after the full payment and satisfaction of
the Secured Obligations shall be returned to the Debtors or to whomsoever the
Agent reasonably determines is lawfully entitled thereto.
SECTION 13. INDEMNIFICATION; LITIGATION.
(a) Each Debtor hereby indemnifies the Agent and the Banks for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (including attorneys' fees) of any kind and
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent, the Banks or any of them in any way relating to or arising out of,
directly or indirectly, the manufacture, use or
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sale of products or processes utilizing or embodying any Collateral or any
transactions contemplated hereby or any enforcement of the terms hereof;
PROVIDED, HOWEVER, that the Debtors shall not be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified hereunder.
(b) Each Debtor shall have the right to commence and prosecute in its own
name, as real party in interest, for its own benefit and at its own expense,
such applications for protection of the Collateral, suits, proceedings or other
actions for infringement, unfair competition, dilution or other damage as are in
its reasonable business judgment necessary to protect the Collateral. To the
extent required by Section 6(b)(ii), each Debtor shall promptly notify the Agent
and the Banks in writing as to the commencement and prosecution of any such
actions, or threat thereof, relating to the Collateral and shall provide to the
Agent and the Banks such information with respect thereto as may be reasonably
requested. The Agent and the Banks shall provide all reasonable and necessary
cooperation in connection with any such suit, proceeding or action, including,
without limitation, joining as a necessary party. Each Debtor shall indemnify
and hold harmless the Agent and the Banks for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, expenses or
disbursements (including attorneys' fees) of any kind and nature whatsoever
which may be imposed on, incurred by or asserted against the Agent or any Bank
in connection with or in any way arising out of such suits, proceedings or other
actions; PROVIDED, HOWEVER, that the Debtors shall not be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified hereunder.
(c) Upon the occurrence and during the continuation of any Event of
Default hereunder, the Agent shall have the right, but shall in no way be
obligated, to file applications for protection of the Collateral or bring suit
in the name of any Debtor, the Agent or the Banks to enforce the Collateral. In
the event of such suit, the relevant Debtor shall, at the request of the Agent,
do any and all lawful acts and execute any and all documents required by the
Agent in aid of such enforcement and the Debtors shall promptly, upon demand,
reimburse and indemnify the Agent, as the case may be, for all costs and
expenses incurred by the Agent in the exercise of its rights under this Section.
In the event that the Agent shall elect not to bring suit to enforce the
Collateral, each Debtor agrees, to the extent required by Section 6, to use all
reasonable measures, whether by action, suit, proceeding or otherwise, to
prevent the infringement of any of the
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<PAGE>
Collateral by others and for that purpose agrees to diligently maintain any
action, suit or proceeding against any person so infringing necessary to prevent
such infringement.
SECTION 14. EXPENSES.
The Debtors jointly and severally shall, upon demand, pay to the Agent the
amount of any and all costs and expenses, including the fees and expenses of its
counsel and the fees and expenses of any experts and agents, which the Agent or
any Bank may incur in connection with (i) the enforcement and administration of
this Agreement (including, without limitation, the filing or recording of any
documents), (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Agent or any Bank hereunder or (iv) the
failure by any Debtor to perform or observe any of the provisions hereof. All
amounts payable by the Debtors under this Section shall be due from the Debtors
upon demand and shall bear interest from the date incurred by the Agent or Bank,
as appropriate, at the rate per annum (computed on the basis of a 360-day year
for the actual number of days elapsed) determined by adding 3% to the Base Rate
(such rate per annum as so determined being hereinafter referred to as the
"DEFAULT RATE"). All amounts so payable, together with such interest thereon,
shall be part of the Secured Obligations. The Debtors' obligations under this
Section shall survive the termination of this Agreement and the discharge of the
Debtors' other obligations hereunder.
SECTION 15. TERMINATION AND RELEASE.
This Agreement is made for collateral purposes only. This Agreement shall
be a continuing agreement in every respect and shall remain in full force and
effect until all of the Secured Obligations, both for principal and interest,
have been fully paid and satisfied and any commitment to extend any credit
constituting Secured Obligations to the Borrower shall have terminated. Upon
such termination of this Agreement, the Agent shall, upon the request and at the
expense of the Debtors, forthwith assign, transfer and deliver, against receipt
and without recourse to the Agent, such of the Collateral as may then be in the
possession of the Agent and as shall not have been sold or otherwise applied
pursuant to the terms hereof to or on the order of the relevant Debtor. Said
assignment, transfer and delivery shall include an instrument in form recordable
in the United States Patent and Trademark Office or the United States Copyright
Office, as the
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case may be, by which the Agent shall terminate, release and, without
representation, recourse or warranty, reassign to the relevant Debtor all rights
in each Patent, Patent License, Trademark, Trademark License, Copyright and
Copyright License, including each registration thereof and application therefor,
conveyed and transferred to the Agent pursuant to this Agreement.
SECTION 16. THE AGENT.
In acting under or by virtue of this Agreement, the Agent shall be entitled
to all the rights, authority, privileges and immunities provided in Section 10
of the Credit Agreement, all of which provisions of said Section 10 are
incorporated by reference herein with the same force and effect as if set forth
herein in their entirety. The Agent hereby disclaims any representation or
warranty to the Banks concerning the perfection of the security interest granted
hereunder or in the value of any of the Collateral.
SECTION 17. PRIMARY SECURITY; OBLIGATIONS ABSOLUTE.
The lien and security herein created and provided for stand as direct and
primary security for the Secured Obligations. No application of any sums
received by the Agent in respect of the Collateral or any disposition thereof to
the reduction of the Secured Obligations or any portion thereof shall in any
manner entitle any Debtor to any right, title or interest in or to the Secured
Obligations or any collateral security therefor, whether by subrogation or
otherwise, unless and until all Secured Obligations have been fully paid and
satisfied and any commitment to extend credit constituting Secured Obligations
to the Borrower shall have terminated. Each Debtor acknowledges and agrees that
the lien and security hereby created and provided for are absolute and
unconditional and shall not in any manner be affected or impaired by any acts or
omissions whatsoever of the Agent, any Bank or any other holder of any of the
Secured Obligations, and without limiting the generality of the foregoing, the
lien and security hereof shall not be impaired by any acceptance by the Agent,
any Bank or any holder of any of the Secured Obligations of any other security
for or guarantors upon any of the Secured Obligations or by any failure, neglect
or omission on the part of the Agent, any Bank or any other holder of any of the
Secured Obligations to realize upon or protect any of the Secured Obligations or
any collateral security therefor. The lien and security hereof shall not in any
manner be impaired or affected by (and the Agent and the Banks, without notice
to anyone, are
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<PAGE>
hereby authorized to make from time to time) any sale, pledge, surrender,
compromise, settlement, release, renewal, extension, indulgence, alteration,
substitution, exchange, change in, modification or disposition of any of the
Secured Obligations, or of any collateral security therefor, or of any guaranty
thereof or of any obligor thereon. The Banks may at their discretion at any
time grant credit to the Borrower without notice to any Debtor in such amounts
and on such terms as the Banks may elect (all of such to constitute additional
Secured Obligations) without in any manner impairing the lien and security
hereby created and provided for. No release, compromise or discharge of any
Debtor hereunder or with respect to any of the Secured Obligations or any
Collateral provided by such Debtor shall release or discharge, or impair the
agreements of, any other Debtor hereunder or in any manner impair the liens and
security interests granted by any other Debtor hereunder; and the Agent may
proceed against the Collateral provided hereunder by any one or more of the
Debtors without proceeding against any or all of the other Debtors, their
respective properties or any other security or guaranty whatsoever. Without
limiting the generality of the foregoing, the Agent (acting at the direction of
the Banks) may at any time or from time to time release any Debtor from its
obligations hereunder or release any Collateral or effect any compromise with
any Debtor, and no such release or compromise shall in any manner impair or
otherwise effect the liens granted by, or the obligations of, the other Debtors
hereunder. In order to foreclose or otherwise realize hereon and to exercise
the rights granted the Agent hereunder and under applicable law as against any
Debtor or any Collateral in which such Debtor has rights, there shall be no
obligation on the part of the Agent, any Bank or any other holder of any of the
Secured Obligations at any time to first resort for payment to the Borrower or
any other Debtor or any other Person, its property or estate or to any guaranty
of the Secured Obligations or any portion thereof or to resort to any other
collateral security, property, liens or any other rights or remedies whatsoever,
and the Agent shall have the right to enforce this instrument as against any
Debtor or any Collateral in which such Debtor has rights, irrespective of
whether or not other proceedings or steps are pending seeking resort to or
realization upon or from any of the foregoing.
SECTION 18. MISCELLANEOUS.
(a) This Agreement cannot be changed or terminated orally. This Agreement
shall create a continuing security interest in the Collateral and shall be
binding upon the Debtors, their successors and assigns and shall inure, together
with the rights and
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remedies of the Agent and the Banks hereunder, to the benefit of the Agent, the
Banks and their successors and assigns; PROVIDED, HOWEVER, that no Debtor may
assign its rights or delegate its duties hereunder without the Agent's prior
written consent. Without limiting the generality of the foregoing, and subject
to the provisions of Sections 12.9 and 12.12 of the Credit Agreement, any Bank
may assign or otherwise transfer any indebtedness held by it secured by this
Agreement to any other person or entity, and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to such
Bank herein or otherwise, subject, however, to the provisions of the Credit
Agreement. Each Debtor hereby releases the Agent from any liability for any
act or omission relating to the Collateral or this Agreement, except the Agent's
gross negligence or willful misconduct.
(b) All communications provided for herein shall be in writing, except as
otherwise specifically provided for hereinabove, and shall be deemed to have
been given or made, if to any Debtor when given to the Borrower in accordance
with Section 12.6 of the Credit Agreement, or if to the Agent or any Bank, when
given to such party in accordance with Section 12.6 of the Credit Agreement.
(c) No Bank shall have the right to institute any suit, action or
proceeding in equity or at law for the foreclosure against any Collateral
subject to this Agreement or for the execution of any trust or power hereof or
for the appointment of a receiver, or for the enforcement of any other remedy
under or upon this Agreement; it being understood and intended that no one or
more of the Banks shall have any right in any manner whatsoever to affect,
disturb or prejudice the lien of this Agreement by its or their action or to
enforce any right hereunder, and that all proceedings at law or in equity shall
be instituted, had and maintained by the Agent in the manner herein provided and
for the ratable benefit of the Banks.
(d) In the event that any provision hereof shall be deemed to be invalid
by reason of the operation of any law or by reason of the interpretation placed
thereon by any court, this Agreement shall be construed as not containing such
provision, but only as to such jurisdictions where such law or interpretation is
operative, and the invalidity of such provision shall not affect the validity of
any remaining provision hereof, and any and all other provisions hereof which
are otherwise lawful and valid shall remain in full force and effect. Without
limiting the generality of the foregoing, in the event that this Agreement shall
be deemed to be invalid or otherwise unenforceable with respect to any Debtor,
such
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<PAGE>
invalidity or unenforceability shall not affect the validity of this Agreement
with respect to the other Debtors.
(e) This Agreement shall be deemed to have been made in the State of
Illinois and shall be governed by and construed in accordance with the laws of
the State of Illinois, without regard to principles of conflicts of law, except
as required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of Illinois. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning of any provision hereof.
(f) This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each
constituting an original, but all together one and the same instrument. Each
Debtor acknowledges that this Agreement is and shall be effective upon its
execution and delivery by such Debtor to the Agent, and it shall not be
necessary for the Agent to execute this Agreement or any other acceptance hereof
or otherwise to signify or express its acceptance hereof.
(g) THE AGENT AND THE DEBTORS AGREE THAT ALL DISPUTES AMONG THEM ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL
COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT EACH OF THE AGENT AND THE DEBTORS
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. EACH OF THE DEBTORS WAIVES IN ALL
DISPUTES ANY OBJECTION THAT SUCH DEBTOR MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE OR ANY OBJECTION THAT SUCH DEBTOR MAY HAVE THAT ANY
OTHER PARTY HAS NOT BEEN JOINED IN SUCH PROCEEDING. EACH OF THE DEBTORS AGREES
THAT THE AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST EACH AND ANY OF THE
DEBTORS OR THEIR COLLATERAL IN A COURT IN ANY LOCATION TO ENABLE THE AGENT TO
REALIZE ON THE COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED
IN FAVOR OF THE AGENT, WHETHER OR NOT PROCEEDING SEPARATELY AGAINST ANY DEBTOR
AND ITS PROPERTY OR JOINTLY AGAINST THE BORROWER AND ANY ONE OR MORE OF THE
DEBTORS AND THEIR PROPERTY. EACH OF THE DEBTORS AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT IN
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ACCORDANCE WITH THIS PROVISION BY THE AGENT TO REALIZE ON COLLATERAL, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT. EACH OF THE
DEBTORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE>
In WITNESS WHEREOF, the Debtors have caused this Agreement to be duly
executed as of the date first above written.
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<PAGE>
DEBTORS:
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
--------------------------
Its President
LEXICON MUSIC, INC.
By /s/ Steven Devick
--------------------------
Its President
RIVER NORTH STUDIOS, INC.
By /s/ Steven Devick
--------------------------
Its President
CGI RECORDS, INC.
By /s/ Steven Devick
--------------------------
Its President
RIVER NORTH RECORDS, INC.
By /s/ Steven Devick
-------------------------
Its President
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<PAGE>
LIGHT RECORDS, INC.
By /s/ Steven Devick
-------------------------
Its President
THE RECORDING EXPERIENCE, INC.
By /s/ Steven Devick
--------------------------
Its President
PEG PUBLISHING, INC.
By /s/ Steven Devick
--------------------------
Its President
JUSTMIKE MUSIC, INC.
By /s/ Steven Devick
--------------------------
Its President
ROYCE PUBLISHING, INC.
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<PAGE>
By /s/ Steven Devick
--------------------------
Its President
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<PAGE>
Accepted and agreed to in Chicago, Illinois as of the date first above written.
BANK OF MONTREAL, as Agent
as aforesaid for the Banks
By /s/ Rene Encarnacion
------------------------------
Its Director
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<PAGE>
PLEDGE AGREEMENT
This Pledge Agreement (the "AGREEMENT") is dated as of January 31, 1997, by
and among the parties executing this Agreement under the heading "Pledgors"
(such parties, along with any parties who execute and deliver to the Agent an
agreement in the form attached hereto as Schedule E, being hereinafter referred
to collectively as the "PLEDGORS" and individually as a "PLEDGOR"), each with
its mailing address as set forth on the signature page hereto and BANK OF
MONTREAL, a Canadian chartered bank acting through its Chicago Branch ("BOM"),
with its mailing address at 115 South LaSalle Street, Chicago, Illinois 60603,
acting as agent hereunder for the Secured Creditors hereinafter identified and
defined (BOM acting as such agent and any successor or successors to BOM acting
in such capacity being hereinafter referred to as the "AGENT");
PRELIMINARY STATEMENTS
A. Platinum Entertainment, Inc., a Delaware corporation (the "BORROWER"),
Lexicon Music, Inc., a Delaware corporation, River North Studios, Inc., a
Delaware corporation, CGI Records, Inc., a Delaware corporation, River North
Records, Inc., a Delaware corporation, Light Records, Inc., a Delaware
corporation, The Recording Experience, Inc., a Delaware corporation, Peg
Publishing, Inc. a Delaware corporation, JustMike Music, Inc., a Delaware
corporation, Royce Publishing, Inc., a Delaware corporation (collectively, the
"GUARANTORS" and individually, a "GUARANTOR"), BOM, individually and as agent,
and certain lenders have entered into a Credit Agreement dated as of even date
herewith (such Credit Agreement, as the same may be amended or modified from
time to time, including amendments and restatements thereof in its entirety,
being hereinafter referred to as the "CREDIT AGREEMENT"), pursuant to which BOM
and other lenders from time to time party to the Credit Agreement (BOM and the
other lenders which are now or from time to time hereafter become party to the
Credit Agreement, together with any affiliates of such lenders to which is owed
any Hedging Liability, being hereinafter referred to collectively as the "BANKS"
and individually as a "BANK") have agreed, subject to certain terms and
conditions, to extend credit and make certain other financial accommodations
available to the Borrower identified therein.
B. Pursuant to the Credit Agreement, the Guarantors guarantee all of the
indebtedness, obligations, and liabilities of the Borrower to the Agent and the
Banks under the Credit Agreement.
<PAGE>
C. The Borrower may from time to time enter into one or more interest
rate exchange, cap, collar, floor or other agreements with one or more of the
Banks party to the Credit Agreement or their affiliates for the purpose of
hedging or otherwise protecting the Borrower against changes in interest rates
on the Revolving Credit Loans and the Term Credit Loans (the liability of the
Borrower in respect of such agreements with such Banks or their affiliates being
hereinafter referred to as the "HEDGING LIABILITY").
D. As a condition precedent to extending credit or otherwise making
financial accommodations available to the Borrower under the Credit Agreement,
the Banks have required, among other things, that each Pledgor grant to the
Agent for the benefit of the Banks a lien on and security interest in certain
personal property of such Pledgor pursuant to this Agreement.
E. The Borrower owns, directly or indirectly, all or substantially all of
the equity interests in each Guarantor and the Borrower provides each Guarantor
with financial, management, administrative, and technical support which enables
such Guarantor to conduct its business in an orderly and efficient manner in the
ordinary course.
F. Each Guarantor will benefit, directly or indirectly, from credit and
other financial accommodations extended by the Banks to the Borrower.
NOW, THEREFORE, for and in consideration of the execution and delivery by
the Banks of the Credit Agreement, and other good and valuable consideration,
receipt whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used
herein without definition shall have the same meanings herein as such terms have
in the Credit Agreement. The term "Pledgor" and "Pledgors" as used herein shall
mean and include the Pledgors collectively and also each individually, with all
grants, representations, warranties and covenants of and by the Pledgors, or any
of them, herein contained to constitute joint and several grants,
representations, warranties and covenants of and by the Pledgors; PROVIDED,
HOWEVER, that unless the context in which the same is used shall otherwise
require, any grant, representation, warranty or covenant contained herein
related to the Collateral shall be made by each Pledgor only with respect to the
Collateral owned by it or represented by such Pledgor as owned by it.
SECTION 2. GRANT OF SECURITY INTEREST IN THE COLLATERAL. Each Pledgor
hereby grants to the Agent a security interest in, in each case for the ratable
benefit of the Banks and the Hedging Creditors, and acknowledges and agrees that
the Agent has and shall
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<PAGE>
continue to have for the ratable benefit of the Banks a continuing security
interest in, any and all right, title and interest of each Pledgor, whether now
owned or existing or hereafter created, acquired or arising, in and to the
following (collectively, the "COLLATERAL"):
(a) STOCK COLLATERAL. (i) All shares of the capital stock of each of
the issuers listed and described on Schedule A attached hereto owned or
held by such Pledgor, whether now owned or hereafter acquired (those shares
delivered to and deposited with the Agent on the date hereof being listed
and described on Schedule A attached hereto), and all substitutions and
additions to such shares (herein, the "PLEDGED SECURITIES"), (ii) all
dividends, distributions and sums distributable or payable from, upon or in
respect of the Pledged Securities and (iii) all other rights and privileges
incident to the Pledged Securities (all of the foregoing being hereinafter
referred to collectively as the "STOCK COLLATERAL");
(b) PARTNERSHIP INTEREST COLLATERAL. (i) Each partnership identified
on Schedule B attached hereto and made a part hereof (such partnerships
being hereinafter referred to collectively as the "PARTNERSHIPS" and
individually as a "PARTNERSHIP") and (ii) any and all payments and
distributions of whatever kind or character, whether in cash or other
property, at any time made, owing or payable to such Pledgor in respect of
or on account of its present or hereafter acquired interests in the
Partnerships, whether due or to become due and whether representing
profits, distributions pursuant to complete or partial liquidation or
dissolution of any such Partnership, distributions representing the
complete or partial redemption of such Pledgor's interest in any such
Partnership or the complete or partial withdrawal of such Pledgor from any
such Partnership, repayment of capital contributions, payment of management
fees or commissions, or otherwise, and the right to receive, receipt for,
use and enjoy all such payments and distributions (all of the foregoing
being hereinafter collectively called the "PARTNERSHIP INTEREST
COLLATERAL"); and
(c) PROCEEDS. All proceeds of the foregoing.
All terms which are used in this Agreement which are defined in the Uniform
Commercial Code of the State of Illinois ("UCC") shall have the same meanings
herein as such terms are defined in the UCC, unless this Agreement shall
otherwise specifically provide.
SECTION 3. OBLIGATIONS HEREBY SECURED. This Agreement is made and
given to secure, and shall secure, the payment and performance of (i) (x) any
and all indebtedness, obligations and liabilities of the Borrower to the Agent,
the Banks, or any of them
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<PAGE>
individually, evidenced by or otherwise arising out of or relating to the Credit
Agreement or any promissory note of the Borrower issued at any time under the
Credit Agreement (including all notes issued in extension or renewal thereof or
in substitution or replacement therefor), (y) any and all Hedging Liability of
the Borrower to the Banks or any of them individually, and (z) any liability of
the Guarantors, or any of them individually, arising out of the Credit
Agreement, as well as for any and all other indebtedness, obligations and
liabilities of the Debtors, or any of them individually, to the Agent, the
Banks, or any of them individually, evidenced by or otherwise arising out of or
relating to this Agreement or any other Loan Document, in each case, whether now
existing or hereafter arising (and whether arising before or after the filing of
a petition in bankruptcy), due or to become due, direct or indirect, absolute or
contingent, and howsoever evidenced, held or acquired, and (ii) any and all
expenses and charges, legal or otherwise, suffered or incurred by the Agent, the
Banks, or any of them individually, in collecting or enforcing any of such
indebtedness, obligations or liabilities or in realizing on or protecting or
preserving any security therefor, including, without limitation, the lien and
security interest granted hereby (all of the foregoing being hereinafter
referred to as the "OBLIGATIONS"). Notwithstanding anything in this Agreement
to the contrary, the right of recovery against any Pledgor (other than the
Borrower to which this limitation shall not apply) under this Agreement shall
not exceed $1 less than the amount which would render such Pledgor's obligations
under this Agreement void or voidable under applicable law, including fraudulent
conveyance law.
SECTION 4. COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Each
Pledgor hereby covenants and agrees with, and represents and warrants to, the
Agent and the Banks that:
(a) Each Pledgor is and shall be the sole and lawful legal, record
and beneficial owner of its Collateral. Each Pledgor's chief executive
office or place of business at the address listed under such Pledgor's name
on Schedule A and Schedule B hereto, as applicable. Each Pledgor agrees
that it will not change any location set forth on the applicable Schedule
hereto without the Agent's prior written consent. No Pledgor shall,
without the Agent's prior written consent, sell, assign, or otherwise
dispose of the Collateral or any interest therein. The Collateral, and
every part thereof, is and shall be free and clear of all security
interests, liens, rights, claims, attachments, levies and encumbrances of
every kind, nature and description and whether voluntary or involuntary,
except for the security interest of the Agent hereunder and for other Liens
which are expressly permitted by the Credit Agreement. Each Pledgor shall
warrant and defend the Collateral against any claims and demands of all
persons at any time claiming the same or any interest in the Collateral
adverse to the Agent and the Banks.
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<PAGE>
(b) Each Pledgor agrees to execute and deliver to the Agent such
further agreements, assignments, instruments and documents and to do all
such other things as the Agent may deem necessary or appropriate to assure
the Agent its lien and security interest hereunder, including such
assignments, acknowledgments (including acknowledgments of assignment in
the form attached hereto as Schedule C) stock powers, financing statements,
instruments and documents as the Agent may from time to time require in
order to comply with the Uniform Commercial Code as enacted in the State of
Illinois and any successor statute(s) thereto (the "UCC"). Each Pledgor
hereby agrees that a carbon, photographic or other reproduction of this
Agreement or any such financing statement is sufficient for filing as a
financing statement by the Agent without notice thereof to such Pledgor
wherever the Agent in its discretion desires to file the same. In the
event for any reason the law of any jurisdiction other than Illinois
becomes or is applicable to the Collateral or any part thereof, or to any
of the Obligations, each Pledgor agrees to execute and deliver all such
agreements, assignments, instruments and documents and to do all such other
things as the Agent in its sole discretion deems necessary or appropriate
to preserve, protect and enforce the lien and security interest of the
Agent under the law of such other jurisdiction to at least the same extent
as such security interests would be protected under the UCC.
(c) If, as and when any Pledgor (x) delivers any securities for
pledge hereunder in addition to those listed on Schedule A hereto or
(y) pledges interests in any Partnership in addition to those listed on
Schedule B hereto, the Pledgors shall furnish to the Agent a duly completed
and executed amendment to such Schedule in substantially the form (with
appropriate insertions) of Schedule D hereto reflecting the securities
pledged hereunder after giving effect to such addition.
(d) None of the Collateral constitutes margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System).
(e) On failure of any Pledgor to perform any of the agreements and
covenants herein contained, the Agent may, at its option, perform the same
and in so doing may expend such sums as the Agent may deem advisable in the
performance thereof, including, without limitation, the payment of any
taxes, liens and encumbrances, expenditures made in defending against any
adverse claim, and all other expenditures which the Agent may be compelled
to make by operation of law or which Agent may make by agreement or
otherwise for the protection of the security hereof. All such sums and
amounts so expended shall be repayable by the Pledgors immediately without
notice or demand, shall constitute additional Obligations secured
hereunder and shall bear interest from the date said amounts
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<PAGE>
are expended at the rate per annum (computed on the basis of a 360-day year
for the actual number of days elapsed) determined by adding 3% to the Base
Rate (such rate per annum as so determined being hereinafter referred to as
the "DEFAULT RATE"). No such performance of any covenant or agreement by
the Agent on behalf of such Pledgor, and no such advancement or expenditure
therefor, shall relieve such Pledgor of any default under the terms of this
Agreement or in any way obligate the Agent or any Bank to take any further
or future action with respect thereto. The Agent, in making any payment
hereby authorized, may do so according to any bill, statement or estimate
procured from the appropriate public office or holder of the claim to be
discharged without inquiry into the accuracy of such bill, statement or
estimate, or into the validity of any tax assessment, sale, forfeiture, tax
lien or title or claim. The Agent, in performing any act hereunder, shall
be the sole judge of whether the relevant Pledgor is required to perform
the same under the terms of this Agreement. The Agent is hereby authorized
to charge any depository or other account of any Pledgor maintained with
the Agent for the amount of such sums and amounts so expended.
SECTION 5. SPECIAL PROVISIONS RE: STOCK COLLATERAL.
(a) Each Pledgor has the right to vote the Pledged Securities and
there are no restrictions upon the voting rights associated with, or the
transfer of, any of the Pledged Securities, except as provided by federal
and state laws applicable to the sale of securities generally.
(b) The certificates for all shares of the Pledged Securities shall
be delivered by the relevant Pledgor to the Agent duly endorsed in blank
for transfer or accompanied by an appropriate assignment or assignments or
an appropriate undated stock power or powers, in every case sufficient to
transfer title thereto. The Agent may at any time after the occurrence of
an Event of Default cause to be transferred into its name or into the name
of its nominee or nominees any and all of the Pledged Securities. The
Agent shall at all times have the right to exchange the certificates
representing the Pledged Securities for certificates of smaller or larger
denominations.
(c) The Pledged Securities have been validly issued and are fully
paid and non-assessable. There are no outstanding commitments or other
obligations of the issuers of any of the Pledged Securities to issue, and
no options, warrants or other rights of any individual or entity to
acquire, any share of any class or series of capital stock of such issuers.
The Pledged Securities listed and described on Schedule A attached hereto
constitute the percentage of the issued and outstanding
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capital stock of each series and class of the issuers thereof as set forth
thereon owned by the relevant Pledgor. Each Pledgor further agrees that in
the event any such issuer shall issue any additional capital stock of any
series or class (whether or not entitled to vote) to such Pledgor or
otherwise on account of its ownership interest therein, each Pledgor will
forthwith pledge and deposit hereunder, or cause to be pledged and
deposited hereunder, all such additional shares of such capital stock.
SECTION 6. SPECIAL PROVISIONS RE: PARTNERSHIP INTEREST COLLATERAL.
(a) Each Pledgor further warrants to and agrees with the Agent and
the Banks as follows:
(i) that said Partnerships are valid and existing entities of
the type listed on Schedule B and are duly organized and existing
under applicable law;
(ii) that the Partnership Interest Collateral listed and
described on Schedule B attached hereto constitutes the percentage of
the equity interest in each Partnership set forth thereon owned by the
relevant Pledgor;
(iii) that the copies of the partnership agreements (each such
agreement being hereinafter referred to as "ORGANIZATIONAL AGREEMENT")
for the Partnerships heretofore delivered to the Agent are true and
correct copies thereof and have not been amended or modified in any
respect, except for such amendments or modifications as are attached
to the copies thereof delivered to the Agent; and
(iv) that the Partnerships have no loans outstanding to the
Pledgors, and no Pledgor will borrow money from the Partnerships.
(b) The Pledgors shall not, without the prior written consent of the
Agent, consent to any amendment or modification to any of the
Organizational Agreements which would in any manner adversely affect or
impair the Partnership Interest Collateral or reduce or dilute the rights
of the Pledgor with respect to any of the Partnerships, any of such done
without such prior written consent to be null and void. The Pledgors shall
promptly send to the Agent copies of all notices and communications with
respect to each Partnership alleging the existence of a default by an
Pledgor in the performance of any of its obligations under any
Organizational Agreement. Each Pledgor agrees that it will promptly notify
the Agent of any
-7-
<PAGE>
litigation which might adversely affect such Pledgor or a Partnership or
any of their respective properties and of any material adverse change in
the operations, business properties, assets or conditions, financial or
otherwise, of any Pledgor or any Partnership. Each Pledgor shall promptly
perform all of its obligations under each Organizational Agreement. In the
event any Pledgor fails to pay or perform any obligation arising under any
Organizational Agreement or otherwise related to any Partnership, the Agent
may, but need not, pay or perform such obligation at the expense and for
the account of the Pledgors and all funds expended for such purposes shall
constitute Obligations secured hereby which the Pledgors promise to pay to
the Agent together with interest thereon at the Default Rate.
SECTION 7. VOTING RIGHTS AND DIVIDENDS. Unless and until an Event of
Default hereunder has occurred and thereafter until notified by the Agent
pursuant to Section 9(b) hereof:
(a) Each Pledgor shall be entitled to exercise all voting and/or
consensual powers pertaining to the Collateral of such Pledgor, or any part
thereof, for all purposes not inconsistent with the terms of this Agreement
or any other document evidencing or otherwise relating to any of the
Obligations.
(b) Each Pledgor shall be entitled to receive and retain all
dividends and distributions in respect of the Collateral which are paid in
cash of whatsoever nature; PROVIDED, HOWEVER, that such dividends and
distributions representing:
(i) stock or liquidating dividends or a distribution or return
of capital upon or in respect of the Pledged Securities or any part
thereof or resulting from a split-up, revision or reclassification of
the Pledged Securities or any part thereof or received in addition to,
in substitution of or in exchange for the Pledged Securities or any
part thereof as a result of a merger, consolidation or otherwise, or
(ii) distributions in complete or partial liquidation of any
Partnership or the interest of such Pledgor therein,
in each case, shall be paid, delivered or transferred, as appropriate,
directly to the Agent immediately upon the receipt thereof by such Pledgor
and shall, in the case of cash, be applied by the Agent to the satisfaction
of Obligations in accordance with the provisions of Section 10 hereof,
whether or not the same may then be due or otherwise adequately secured and
shall, in the case of all other property, together with any cash received
by the Agent and not applied as aforesaid, be held by the
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<PAGE>
Agent pursuant hereto as part of the Pledged Securities as additional
Pledged Securities pledged under and subject to the terms of this
Agreement; or
(c) In order to permit each Pledgor to exercise such voting and/or
consensual powers which it is entitled to exercise under subsection (a)
above and to receive such distributions which such Pledgor is entitled to
receive and retain under subsection (b) above, the Agent will, if
necessary, upon the written request of such Pledgor, from time to time
execute and deliver to such Pledgor appropriate proxies and dividend
orders.
SECTION 8. POWER OF ATTORNEY. Each Pledgor hereby appoints the Agent,
and each of its nominees, officers, agents, attorneys, and any other person whom
the Agent may designate, as such Pledgor's attorney-in-fact, with full power and
authority to ask, demand, collect, receive, receipt for, sue for, compound and
give acquittance for any and all sums or properties which may be or become due,
payable or distributable in respect of the Collateral or any part thereof, with
full power to settle, adjust or compromise any claim thereunder or therefor as
fully as such Pledgor could itself do, to endorse or sign the Pledgor's name on
any assignments, stock powers, or other instruments of transfer and on any
checks, notes, acceptances, money orders, drafts, and any other forms of payment
or security that may come into the Agent's possession and on all documents of
satisfaction, discharge or receipt required or requested in connection
therewith, and, in its discretion, to file any claim or take any other action or
proceeding, either in its own name or in the name of such Pledgor, or otherwise,
which the Agent may deem necessary or appropriate to collect or otherwise
realize upon all or any part of the Collateral, or effect a transfer thereof, or
which may be necessary or appropriate to protect and preserve the right, title
and interest of the Agent in and to such Collateral and the security intended to
be afforded hereby. Each Pledgor hereby ratifies and approves all acts of any
such attorney and agrees that neither the Agent nor any such attorney will be
liable for any such acts or omissions nor for any error of judgment or mistake
of fact or law other than such person's gross negligence or willful misconduct.
The Agent may file one or more financing statements disclosing its security
interest in all or any part of the Collateral without any Pledgor's signature
appearing thereon, and each Pledgor also hereby grants the Agent a power of
attorney to execute any such financing statements, and any amendments or
supplements thereto, on behalf of such Pledgor without notice thereof to such
Pledgor. The foregoing powers of attorney, being coupled with an interest, are
irrevocable until the Obligations have been fully satisfied and any commitment
of the Banks to extend credit constituting Obligations to the Borrower has
terminated; PROVIDED, HOWEVER, that the Agent agrees, as a personal covenant to
the relevant Pledgor, not to exercise the powers of attorney set forth in this
Section unless an Event of Default exists.
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<PAGE>
SECTION 9. DEFAULTS AND REMEDIES. (a) The occurrence of any event or
the existence of any condition which is specified as an "Event of Default" under
the Credit Agreement shall constitute an "EVENT OF DEFAULT" hereunder.
(b) Upon the occurrence of any Event of Default, all rights of the
Pledgors to receive and retain the distributions which they are entitled to
receive and retain pursuant to Section 7(b) hereof shall, at the option of the
Agent cease and thereupon become vested in the Agent which, in addition to all
other rights provided herein or by law, shall then be entitled solely and
exclusively to receive and retain the distributions which the Pledgors would
otherwise have been authorized to retain pursuant to Section 7(b) hereof and all
rights of the Pledgors to exercise the voting and/or consensual powers which
they are entitled to exercise pursuant to Section 7(a) hereof shall, at the
option of the Agent, cease and thereupon become vested in the Agent which, in
addition to all other rights provided herein or by law, shall then be entitled
solely and exclusively to exercise all voting and other consensual powers
pertaining to the Collateral and to exercise any and all rights of conversion,
exchange or subscription and any other rights, privileges or options pertaining
thereto as if the Agent were the absolute owner thereof including, without
limitation, the right to exchange, at its discretion, the Collateral or any part
thereof upon the merger, consolidation, reorganization, recapitalization or
other readjustment of the respective issuer thereof or upon the exercise by or
on behalf of any such issuer or the Agent of any right, privilege or option
pertaining to the Collateral or any part thereof and, in connection therewith,
to deposit and deliver the Collateral or any part thereof with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as the Agent may determine. In the event the Agent in good faith
believes any of the Collateral constitutes restricted securities within the
meaning of any applicable securities law, any disposition thereof in compliance
with such laws shall not render the disposition commercially unreasonable.
(c) Upon the occurrence of any Event of Default, the Agent shall have, in
addition to all other rights provided herein or by law, the rights and remedies
of a secured party under the UCC (regardless of whether the UCC is the law of
the jurisdiction where the rights or remedies are asserted and regardless of
whether the UCC applies to the affected Collateral), and further the Agent may,
without demand and without advertisement, notice, hearing or process of law, all
of which each Pledgor hereby waives to the extent permitted by law, at any time
or times, sell and deliver any or all of the Collateral held by or for it at
public or private sale, at any securities exchange or broker's board or at any
of the Agent's offices or elsewhere, for cash, upon credit or otherwise, at such
prices and upon such terms as the Agent deems advisable, in its sole discretion.
In the exercise of any such remedies, the Agent may sell the Collateral as a
unit even though the sales price thereof may be in excess of the amount
remaining unpaid on the
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<PAGE>
Obligations. Also, if less than all the Collateral is sold, the Agent shall
have no duty to marshal or apportion the part of the Collateral so sold as
between the Pledgors, or any of them, but may sell and deliver any or all of the
Collateral without regard to which of the Pledgors are the owners thereof. In
addition to all other sums due the Agent or any Bank hereunder, each Pledgor
shall pay the Agent and the Banks all costs and expenses incurred by the Agent
and such Banks, including reasonable attorneys' fees and court costs, in
obtaining, liquidating or enforcing payment of Collateral or the Obligations or
in the prosecution or defense of any action or proceeding by or against the
Agent, such Banks or any Pledgor concerning any matter arising out of or
connected with this Agreement or the Collateral or the Obligations including,
without limitation, any of the foregoing arising in, arising under or related to
a case under the United States Bankruptcy Code (or any successor statute). Any
requirement of reasonable notice shall be met if such notice is personally
served on or mailed, postage prepaid, to the Pledgors in accordance with
Section 14(b) hereof at least ten days before the time of sale or other event
giving rise to the requirement of such notice; PROVIDED, HOWEVER, no
notification need be given to a Pledgor if such Pledgor has signed, after an
Event of Default has occurred, a statement renouncing any right to notification
of sale or other intended disposition. The Agent shall not be obligated to make
any sale or other disposition of the Collateral regardless of notice having been
given. The Agent or any Bank may be the purchaser at any sale or other
disposition of the Collateral or any part thereof. Each Pledgor hereby waives
all of its rights of redemption from any sale or other disposition of the
Collateral or any part thereof. The Agent may postpone or cause the
postponement of the sale of all or any portion of the Collateral by announcement
at the time and place of such sale, and such sale may, without further notice,
be made at the time and place to which the sale was postponed or the Agent may
further postpone such sale by announcement made at such time and place.
EACH PLEDGOR AGREES THAT IF ANY PART OF THE COLLATERAL IS SOLD AT ANY
PUBLIC OR PRIVATE SALE, THE AGENT MAY ELECT TO SELL ONLY TO A BUYER WHO WILL
GIVE FURTHER ASSURANCES, SATISFACTORY IN FORM AND SUBSTANCE TO THE AGENT,
RESPECTING COMPLIANCE WITH THE REQUIREMENTS OF THE FEDERAL SECURITIES ACT OF
1933, AS AMENDED, AND A SALE SUBJECT TO SUCH CONDITION SHALL BE DEEMED
COMMERCIALLY REASONABLE.
EACH PLEDGOR FURTHER AGREES THAT IN ANY SALE OF ANY PART OF THE COLLATERAL,
THE AGENT IS HEREBY AUTHORIZED TO COMPLY WITH ANY LIMITATION OR RESTRICTION IN
CONNECTION WITH SUCH SALE AS IT MAY BE ADVISED BY COUNSEL IS NECESSARY IN ORDER
TO AVOID ANY VIOLATION OF APPLICABLE LAW (INCLUDING, WITHOUT LIMITATION,
COMPLIANCE WITH SUCH PROCEDURES AS MAY RESTRICT THE NUMBER OF PROSPECTIVE
BIDDERS AND PURCHASERS AND/OR FURTHER RESTRICT SUCH PROSPECTIVE
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<PAGE>
BIDDERS OR PURCHASERS TO PERSONS WHO WILL REPRESENT AND AGREE THAT THEY ARE
PURCHASING FOR THEIR OWN ACCOUNT FOR INVESTMENT AND NOT WITH A VIEW TO THE
DISTRIBUTION OR RESALE OF SUCH COLLATERAL ), OR IN ORDER TO OBTAIN ANY REQUIRED
APPROVAL OF THE SALE OR OF THE PURCHASER BY ANY GOVERNMENTAL REGULATORY
AUTHORITY OR OFFICIAL, AND EACH PLEDGOR FURTHER AGREES THAT SUCH COMPLIANCE
SHALL NOT RESULT IN SUCH SALE BEING CONSIDERED OR DEEMED NOT TO HAVE BEEN MADE
IN A COMMERCIALLY REASONABLE MANNER, NOR SHALL THE AGENT BE LIABLE OR
ACCOUNTABLE TO ANY PLEDGOR FOR ANY DISCOUNT ALLOWED BY REASON OF THE FACT THAT
SUCH COLLATERAL IS SOLD IN COMPLIANCE WITH ANY SUCH LIMITATION OR RESTRICTION.
(d) In the event the Agent shall sell any part of the Partnership Interest
Collateral at a foreclosure sale, each Pledgor hereby grants the purchaser of
such portion of the Partnership Interest Collateral to the fullest extent of its
capacity, the ability (but not the obligation) to become a partner in the
relevant Partnership (subject to the approval of the general partner of the
relevant Partnership, in the exercise of its sole discretion), in the place and
stead of such Pledgor. To exercise such right, the purchaser shall give written
notice to the relevant Partnership of its election to become a partner in such
Partnership. Following such election and giving of consent by all necessary
partners of the relevant Partnership as to the purchaser becoming a partner, the
purchaser shall have the right and powers and be subject to the liabilities of a
partner under the relevant Organizational Agreement and the partnership act
governing the Partnership.
(e) Upon the occurrence and during the continuation of any Event of
Default, in addition to all other rights provided herein or by law, the Agent
shall have the right to cause all or any part of the Partnership Interest
Collateral of any of the Pledgors in any one or more of the Partnerships to be
redeemed and to cause a withdrawal, in whole or in part, of any Pledgor from any
Partnership or any of its Partnership Interest Collateral therein.
(f) The powers conferred upon the Agent hereunder are solely to protect
its interest in the Collateral and shall not impose on it any duties to exercise
such powers. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equivalent to that which the Agent accords
its own property, consisting of similar types securities, it being understood,
however, that the Agent shall have no responsibility for (i) ascertaining or
taking any action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relating to any Collateral, whether or not the Agent
has or is deemed to have knowledge of such matters, (ii) taking any necessary
steps to preserve rights against any parties with respect to any Collateral, or
(iii) initiating
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<PAGE>
any action to protect the Collateral or any part thereof against the possibility
of a decline in market value. This Agreement constitutes an assignment of
rights only and not an assignment of any duties or obligations of the Pledgors
in any way related to the Collateral, and the Agent shall have no duty or
obligation to discharge any such duty or obligation. By its acceptance hereof,
the Agent does not undertake to perform or discharge and shall not be
responsible or liable for the performance or discharge of any such duties or
responsibilities and shall not in any event become a "SUBSTITUTED LIMITED
PARTNER" or words of like import (as defined in the relevant Organizational
Agreement) in the relevant Partnership. Neither the Agent or any Bank, nor any
party acting as attorney for the Agent or any Bank, shall be liable hereunder
for any acts or omissions or for any error of judgment or mistake of fact or law
other than such person's gross negligence or willful misconduct.
(g) Failure by the Agent to exercise any right, remedy or option under
this Agreement or any other agreement between any Pledgor and the Agent or
provided by law, or delay by the Agent in exercising the same, shall not operate
as a waiver; and no waiver shall be effective unless it is in writing, signed by
the party against whom such waiver is sought to be enforced and then only to the
extent specifically stated. The rights and remedies of the Agent and the Banks
under this Agreement shall be cumulative and not exclusive of any other right or
remedy which the Agent or the Banks may have. For purposes of this Agreement,
an Event of Default shall be construed as continuing after its occurrence until
the same is waived in writing by the Banks or the Required Banks, as the case
may be, in accordance with the Credit Agreement.
SECTION 10. APPLICATION OF PROCEEDS. The proceeds and avails of the
Collateral at any time received by the Agent during the existence of any Event
of Default shall, when received by the Agent in cash or its equivalent, be
applied by the Agent in reduction of, or as collateral security for, the
Obligations in accordance with the terms of the Credit Agreement. The Pledgors
shall remain liable to the Agent and the Banks for any deficiency. Any surplus
remaining after the full payment and satisfaction of the Obligations shall be
returned to the Pledgors, or to whomsoever the Agent reasonably determines is
lawfully entitled thereto.
SECTION 11. CONTINUING AGREEMENT. This Agreement shall be a continuing
agreement in every respect and shall remain in full force and effect until all
of the Obligations, both for principal and interest, have been fully paid and
satisfied and any commitment to extend constituting Obligations to the Borrower
shall have terminated. Upon such termination of this Agreement, the Agent
shall, upon the request and at the expense of the Pledgors, forthwith release
all its liens and security interests hereunder.
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SECTION 12. PRIMARY SECURITY; OBLIGATIONS ABSOLUTE. The lien and
security herein created and provided for stand as direct and primary security
for the Obligations. No application of any sums received by the Agent in
respect of the Collateral or any disposition thereof to the reduction of the
Obligations or any portion thereof shall in any manner entitle any Pledgor to
any right, title or interest in or to the Obligations or any collateral security
therefor, whether by subrogation or otherwise, unless and until all Obligations
have been fully paid and satisfied and any commitments to extend credit
constituting Obligations to the Borrower shall have terminated. Each Pledgor
acknowledges and agrees that the lien and security hereby created and provided
for are absolute and unconditional and shall not in any manner be affected or
impaired by any acts or omissions whatsoever of the Agent, any Bank or any other
holder of any of the Obligations, and without limiting the generality of the
foregoing, the lien and security hereof shall not be impaired by any acceptance
by the Agent, any Bank or any other holder of any of the Obligations of any
other security for or guarantors upon any Obligations or by any failure, neglect
or omission on the part of the Agent, any Bank or any other holder of any of the
Obligations to realize upon or protect any of the Obligations or any collateral
security therefor. The lien and security hereof shall not in any manner be
impaired or affected by (and the Agent and the Banks, without notice to anyone,
are hereby authorized to make from time to time) any sale, pledge, surrender,
compromise, settlement, release, renewal, extension, indulgence, alteration,
substitution, exchange, change in, modification or disposition of any of the
Obligations, or of any collateral security therefor, or of any guaranty thereof,
or of any instrument or agreement setting forth the terms and conditions
pertaining to any of the foregoing. The Banks may at their discretion at any
time grant credit to the Borrower without notice to any Pledgor in such amounts
and on such terms as the Banks may elect without in any manner impairing the
lien and security hereby created and provided for. In order to realize hereon
and to exercise the rights granted the Agent hereunder and under applicable law
as against any Pledgor or any portion of the Collateral in which any such
Pledgor has rights, there shall be no obligation on the part of the Agent, any
Bank or any other holder of any of the Obligations at any time to first resort
for payment to the Borrower or any other Pledgor or any other Person, its
property or estate or to any guaranty of the Obligations or any portion thereof
or to resort to any other collateral security, property, liens or any other
rights or remedies whatsoever, and the Agent shall have the right to enforce
this Agreement as against any Pledgor or any portion of the Collateral in which
any such Pledgor has rights, irrespective of whether or not other proceedings or
steps are pending seeking resort to or realization upon or from any of the
foregoing.
SECTION 13. THE AGENT. In acting under or by virtue of this Agreement,
Agent shall be entitled to all the rights, authority, privileges and immunities
provided in Section 10 of the Credit Agreement, all of which provisions of said
Section 10 are
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incorporated by reference herein with the same force and effect as if set forth
herein in their entirety. The Agent hereby disclaims any representation or
warranty to the Banks or any other holders of the Obligations concerning the
perfection of the liens and security interests granted hereunder or in the value
of the Collateral.
SECTION 14. MISCELLANEOUS. (a) This Agreement cannot be changed or
terminated orally. This Agreement shall create a continuing lien on and
security interest in the Collateral and shall be binding upon each Pledgor, its
successors and assigns, and shall inure, together with the rights and remedies
of the Agent and the Banks hereunder, to the benefit of the Agent and the Banks,
and their successors and assigns; PROVIDED, HOWEVER, that no Pledgor may assign
its rights or delegate its duties hereunder without the Agent's prior written
consent. Without limiting the generality of the foregoing, and subject to the
provisions of the Credit Agreement, any Bank may assign or otherwise transfer
any indebtedness held by it secured by this Agreement to any other person, and
such other person shall thereupon become vested with all the benefits in respect
thereof granted to such Bank herein or otherwise.
(b) All communications provided for herein shall be in writing, except as
otherwise specifically provided for hereinabove, and shall be deemed to have
been given or made, if to any Pledgor when given to the Borrower in accordance
with Section 12.6 of the Credit Agreement, or if to the Agent or any Bank, when
given to such party in accordance with Section 12.6 of the Credit Agreement.
(c) No Bank shall have the right to institute any suit, action or
proceeding in equity or at law for the foreclosure or other realization upon any
Collateral subject to this Agreement or for the execution of any trust or power
hereof or for the appointment of a receiver, or for the enforcement of any other
remedy under or upon this Agreement; it being understood and intended that no
one or more of the Banks shall have any right in any manner whatsoever to
affect, disturb or prejudice the lien and security interest of this Agreement by
its or their action or to enforce any right hereunder, and that all proceedings
at law or in equity shall be instituted, had and maintained by the Agent in the
manner herein provided for the benefit of the Banks.
(d) In the event that any provision hereof shall be deemed to be invalid
by reason of the operation of any law or by reason of the interpretation placed
thereon by any court, this Agreement shall be construed as not containing such
provision, but only as to such locations where such law or interpretation is
operative, and the invalidity of such provision shall not affect the validity of
any remaining provision hereof, and any and all other provisions hereof which
are otherwise lawful and valid shall remain in full force and effect. Without
limiting the generality of the foregoing, in the event that this Agreement
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shall be deemed to be invalid or otherwise unenforceable with respect to any
Pledgor, such invalidity or unenforceability shall not affect the validity of
this Agreement with respect to the other Pledgors.
(e) This Agreement shall be deemed to have been made in the State of
Illinois and shall be governed by, and construed in accordance with, the laws of
the State of Illinois. All terms which are used in this Agreement which are
defined in the UCC shall have the same meanings herein as said terms do in the
UCC unless this Agreement shall otherwise specifically provide. The headings in
this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning of any provision hereof.
(f) This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each
constituting an original, but all together one and the same instrument. Each
Pledgor acknowledges that this Agreement is and shall be effective upon its
execution and delivery by such Pledgor to the Agent, and it shall not be
necessary for the Agent to execute this Agreement or any other acceptance hereof
or otherwise to signify or express its acceptance hereof.
(g) In the event the Agent and the Banks shall at any time in their
discretion permit a substitution of Pledgors hereunder or a party shall wish to
become a Pledgor hereunder, such substituted or additional Pledgor shall, upon
executing an agreement in the form attached hereto as Schedule E, become a party
hereto and be bound by all the terms and conditions hereof to the same extent as
though such Pledgor had originally executed this Agreement and, in the case of a
substitution, in lieu of the Pledgor being replaced. No such substitution shall
be effective absent the written consent of Agent and the Banks nor shall it in
any manner affect the obligations of the other Pledgors hereunder.
(h) THE AGENT AND THE PLEDGORS AGREE THAT ALL DISPUTES AMONG THEM ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL
COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT EACH OF THE AGENT AND THE PLEDGORS
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. EACH OF THE PLEDGORS WAIVES IN ALL
DISPUTES ANY OBJECTION THAT SUCH PLEDGOR MAY HAVE TO THE LOCATION OF THE COURT
CONSIDERING THE DISPUTE OR ANY OBJECTION THAT SUCH PLEDGOR MAY HAVE THAT ANY
OTHER PARTY HAS NOT BEEN JOINED IN SUCH PROCEEDING. EACH OF THE PLEDGORS AGREES
THAT THE AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST EACH AND ANY OF THE
PLEDGORS OR THEIR COLLATERAL IN A COURT IN ANY LOCATION TO ENABLE
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THE AGENT TO REALIZE ON THE COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER ENTERED IN FAVOR OF THE AGENT, WHETHER OR NOT PROCEEDING SEPARATELY
AGAINST ANY PLEDGOR AND ITS PROPERTY OR JOINTLY AGAINST THE BORROWER AND ANY ONE
OR MORE OF THE PLEDGORS AND THEIR PROPERTY. EACH OF THE PLEDGORS AGREES THAT IT
WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT IN
ACCORDANCE WITH THIS PROVISION BY THE AGENT TO REALIZE ON COLLATERAL, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT. EACH OF THE
PLEDGORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, each Pledgor has caused this Agreement to be duly
executed and delivered as of the date first above written.
PLEDGORS:
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
-------------------------
Its President
Acknowledged and agreed to as of the date first above written.
BANK OF MONTREAL, as Agent as aforesaid
for the Banks
By /s/ Rene Encarnacion
---------------------------
Its Director
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SCHEDULE A TO PLEDGE AGREEMENT
THE PLEDGED SECURITIES
<TABLE>
<CAPTION>
NAME AND LOCATION NAME OF ISSUER JURISDICTION OF NO. OF CERTIFICATE NO. PERCENTAGE OF
OF PLEDGOR INCORPORATION SHARES CLASS ISSUER'S STOCK
<S> <C> <C> <C> <C> <C> <C>
Platinum LEXICON MUSIC, INC. Delaware 3,000 Common 1 100%
Entertainment, Inc.
2001 Butterfield Rd. RIVER NORTH STUDIOS, INC. Delaware 450 Common 5 100%
Suite 1400, Downers
Grove, IL 60515
CGI RECORDS, INC. Delaware 3,000 Common 1 100%
RIVER NORTH RECORDS, INC. Delaware 3,000 Common 4 100%
LIGHT RECORDS, INC. Delaware 3,000 Common 1 100%
THE RECORDING EXPERIENCE, INC. Delaware 3,000 Common 1 100%
PEG PUBLISHING, INC. Delaware 3,000 Common 1 100%
JUSTMIKE MUSIC, INC. Delaware 3,000 Common 1 100%
ROYCE PUBLISHING, INC. Delaware 3,000 Common 1 100%
</TABLE>
-2-
<PAGE>
SCHEDULE B TO PLEDGE AGREEMENT
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
RELEVANT PLEDGOR AND LOCATION NAME OF TYPE OF JURISDICTION PERCENT OF
PARTNERSHIP ORGANIZATION OF ORGANIZATION OWNERSHIP
<S> <C> <C> <C> <C>
Platinum Entertainment, Inc. House of Blues Music Company Joint Venture California 50%
2001 Butterfield Rd.
Suite 1400
Downers Grove, IL 60515
</TABLE>
<PAGE>
SCHEDULE C TO PLEDGE AGREEMENT
Acknowledgment Of Collateral Assignment
____________, 1996
_________________________________
_________________________________
_________________________________
_________________________________
Attention:_______________________
Ladies and Gentlemen:
Platinum Entertainment, Inc. and ___________________ (each a "PLEDGOR" and
collectively the "PLEDGORS") executed a Pledge Agreement dated as of January 31,
1997 (the "SECURITY AGREEMENT") in favor of Bank of Montreal (the "AGENT"), a
copy of which you have received. Pursuant to the Security Agreement, each
Pledgor whose signature appears below (each a "RELEVANT PLEDGOR" and
collectively the "RELEVANT PLEDGORS") assigned its partnership interests in
___________________ (the "PARTNERSHIP") as collateral security for, among other
things, indebtedness and obligations of Platinum Entertainment, Inc. (the
"BORROWER") now or from time to time owing pursuant to that certain Credit
Agreement dated as of January 31, 1997 (such Credit Agreement as the same may be
amended, modified or restated from time to time being hereinafter referred to as
the "CREDIT AGREEMENT") among the Borrower, certain affiliates of the Borrower,
the Agent and various other lenders party thereto.
We ask you, by accepting this letter below on behalf of the Partnership and
as its general partner, to confirm the following:
1. Each Relevant Pledgor is a partner in the Partnership.
' 2. You consent to the collateral assignment of each Relevant
Pledgor's interest in the Partnership to the Agent, notwithstanding
anything to the contrary contained in the Partnership Agreement. This
letter will serve to evidence the consent to this collateral assignment
from the Partnership and its general partner.
3. All parties required by the terms of the Partnership Agreement to
approve the collateral assignment made by the Security Agreement have done
so, and the interest of the Agent by virtue of that assignment has been
reflected on the books and records of the Partnership.
4. The Partnership has been formed under the ______________
Partnership Agreement dated as of ________________, 19___ (the "PARTNERSHIP
AGREEMENT"), and the Partnership Agreement has not subsequently been
modified or amended and continues in full force and effect. The
Partnership Agreement shall not be amended without the consent of the
Agent. The Agent agrees with the Partnership that the Agent will not
unreasonably withhold its consent to modifications or amendments to the
Partnership's Partnership Agreement which do not adversely affect the
interests of the Agent or any of the Banks identified and defined in the
Pledge Agreement.
5. All payments and distributions due and to become due to any
Relevant Pledgor pursuant to the Partnership Agreement shall continue to be
paid directly to such Relevant Pledgor, unless and until the Agent notifies
the Partnership in writing to do otherwise. If the Agent
<PAGE>
so notifies the Partnership, the Partnership will immediately cease making
such payments and distributions to the Relevant Pledgors and will as soon
as possible, but in any event within five days after receiving such notice,
remit all such payments and distributions directly to the Agent at 115
South LaSalle Street, Chicago, Illinois 60603.
6. By virtue of the Security Agreement, the Agent has the right at
its option to exercise each Relevant Pledgor's right (if any) to withdraw
all or any part of such Relevant Pledgor's interest in the Partnership by
so notifying the Partnership in writing no less than ten days prior to the
proposed withdrawal date. All payments or distributions due or to become
due under the Partnership Agreement to the Relevant Pledgors as a result of
such withdrawal shall be remitted directly to the Agent as stated above.
If given at all, the notice provided pursuant to this paragraph may (but
need not) be given concurrently with any notice provided pursuant to the
immediately preceding paragraph.
7. Each Relevant Pledgor agrees that any such payment to the Agent
shall be a good receipt and acquittance as against it -- that is to say,
the Partnership should make the payment directly to the Agent and in so
doing, the Partnership discharges any liability to such Relevant Pledgor
for that payment.
8. The Relevant Pledgors have no currently outstanding loans from
the Partnership and the Partnership shall not extend any loans to any
Relevant Pledgor.
9. The terms of the Security Agreement prohibit any Relevant Pledgor
from making any transfer of its interest in the Partnership without the
Agent's prior written consent. You agree not to honor any transfer of any
Relevant Pledgor's interest without such consent.
-2-
<PAGE>
The agreements in this letter shall be modified only in a writing signed by
the Agent, each Pledgor and the Partnership. We acknowledge that the
Partnership shall be entitled to assume that the Security Agreement continues in
full force and effect unless and until the Partnership receives actual written
notice of a termination of same from the Agent.
Very truly yours,
BANK OF MONTREAL, as Agent
By
Its____________________________________
-3-
<PAGE>
Accepted and Agreed.
[PLATINUM ENTERTAINMENT, INC.]
By__________________________________________
Its_______________________________________
The undersigned, both as the general partner of the Partnership and on
behalf of the Partnership, join in this letter to evidence their acknowledgment
and agreement to the same.
[PARTNERSHIP]
By
Its_______________________________________
[GENERAL PARTNER OF PARTNERSHIP]
By
Its____________________________________
-4-
<PAGE>
SCHEDULE D TO PLEDGE AGREEMENT
AMENDMENT TO PLEDGE AGREEMENT
Reference is hereby made to that certain Pledge Agreement dated as of
January 31, 1997 (as the same may be amended, the "PLEDGE AGREEMENT"), from the
Pledgors which are signatories thereto to Bank of Montreal, as Agent.
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the Pledge Agreement.
Subsequent to the Pledgors' delivery of the Pledge Agreement, certain
shares of stock or partnership interests have been added as Collateral under the
Pledge Agreement. As a result of such addition, Schedule A of the Pledge
Agreement does not accurately describe the shares of capital stock and/or
Schedule B does not accurately describe the partnership interests, currently
held by the Agent as collateral under the Pledge Agreement.
The Pledgors now desire to amend Schedule A and/or Schedule B to the Pledge
Agreement to reflect such addition, and this instrument shall constitute an
agreement between the Pledgors and the Agent amending the Pledge Agreement in
the respects, but only in the respects, hereinafter set forth:
1. If an Annex A is attached hereto, Schedule A of the Pledge
Agreement shall be and hereby is amended and as so amended shall be
restated in its entirety to read as Annex A attached hereto.
2. If an Annex B is attached hereto, Schedule B of the Pledge
Agreement shall be and hereby is amended and as so amended shall be
restated in its entirety to read as Annex B attached hereto.
3. As collateral security for the Obligations, each Pledgor hereby
grants to the Agent a continuing security interest in, and acknowledges and
agrees that the Agent has and shall continue to have a continuing security
interest in, all the shares of capital stock of each issuer listed and
described on Annex A attached hereto (if attached) and all of the
partnership interests listed and described on Annex B attached hereto (if
attached) and all the other properties, rights, interests and privileges
comprising the Collateral (as such term is defined in the Pledge Agreement
after giving effect to this Amendment), to the same extent and with the
same force and effect as if (i) the shares of stock described on Annex A
had originally been included on Schedule A to the Pledge Agreement and
(ii) the partnership interests described on Annex B had been originally
included on Schedule B to the Pledge Agreement. The foregoing granting
clause is in addition to and supplemental of and not in substitution for
the granting clause contained in the Pledge Agreement. Neither the
Pledgors nor the Agent intend by this Amendment to in any way impair or
otherwise affect the lien of the Pledge Agreement on such of the Collateral
which was subject to the Pledge Agreement prior to giving effect to this
Amendment.
4. Each Pledgor hereby repeats and reaffirms all of its covenants,
agreements, representations and warranties contained in the Pledge
Agreement, each and all of which shall be applicable to all of the
properties, rights, interests and privileges subject to the lien of the
Pledge Agreement after giving effect to this Amendment. Each Pledgor
hereby certifies that no Event of Default or event which, with notice or
lapse of time or both, would constitute an Event of Default exists under
the Pledge Agreement after giving effect to this Amendment.
5. No reference to this Amendment need be made in any note,
instrument or other document at any time referring to the Pledge Agreement,
any reference in any of such to the Pledge Agreement to be deemed to
reference to the Pledge Agreement as modified hereby. All references in
the Pledge Agreement to the term "Pledged Securities" shall be deemed a
reference to such term as defined in the Pledge Agreement after giving
effect to this Amendment.
6. Except as specifically modified hereby, all the terms and
conditions of the Pledge Agreement shall stand and remain unchanged and in
full force and effect. This Amendment shall be effective upon the
Pledgors' execution and delivery thereof to the Agent, no acceptance by the
Agent being required.
<PAGE>
PLEDGOR(S):
[NAME OF RELEVANT PLEDGOR}
By__________________________________________
Its_______________________________________
[NAME OF RELEVANT PLEDGOR}
By__________________________________________
Its_______________________________________
Acknowledged and agreed to as of the date first above written.
BANK OF MONTREAL, as Agent
By
Its_______________________________________
<PAGE>
ANNEX A
TO AMENDMENT TO PLEDGE AGREEMENT
THE PLEDGED SECURITIES
<TABLE>
<CAPTION>
NAME AND NAME OF ISSUER JURISDICTION OF NO. OF CERTIFICATE NO. PERCENTAGE OF PERCENT OF
LOCATION OF INCORPORATION SHARES CLASS ISSUER'S STOCK OWNERSHIP
PLEDGOR
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
ANNEX B
TO AMENDMENT TO PLEDGE AGREEMENT
PARTNERSHIP INTERESTS
NAME OF TYPE OF JURISDICTION
PARTNERSHIP ORGANIZATION OF ORGANIZATION RELEVANT PLEDGOR
<PAGE>
SCHEDULE E TO PLEDGE AGREEMENT
ASSUMPTION AND SUPPLEMENTAL PLEDGE AGREEMENT
This Agreement dated as of this _____ day of ______________, 199___ from
[NEW PLEDGOR], a __________ corporation (the "NEW PLEDGOR"), to Bank of Montreal
("BOM"), as agent for the Banks (defined in the Pledge Agreement hereinafter
identified and defined) (BOM acting as such agent and any successor or
successors to Harris in such capacity being hereinafter referred to as the
"AGENT");
WITNESSETH THAT:
Whereas, certain Pledgors have executed and delivered to the Agent that
certain Pledge Agreement dated as of January 31, 1997 (such Pledge Agreement, as
the same may from time to time be modified or amended, including supplements
thereto which add additional parties as Pledgors thereunder, being hereinafter
referred to as the "PLEDGE AGREEMENT") pursuant to which such parties (the
"EXISTING PLEDGORS") have granted to the Agent for the benefit of the Banks a
lien on and security interest in such Existing Pledgors' Collateral (as such
term is defined in the Pledge Agreement) to secure the Obligations (as such term
is defined in the Pledge Agreement);
WHEREAS, each Pledgor will benefit, directly and indirectly, from credit
and other financial accommodations extended by the Banks to the Borrower.
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances made
or to be made, or credit accommodations given or to be given, to the Borrower by
the Banks from time to time, the New Pledgor hereby agrees as follows:
1. The New Pledgor acknowledges and agrees that it shall become a
"Pledgor" party to the Pledge Agreement effective upon the date the New
Pledgor's execution of this Agreement and the delivery of this Agreement to the
Agent, and that upon such execution and delivery, all references in the Pledge
Agreement to the terms "Pledgor" or "Pledgors" shall be deemed to include the
New Pledgor. Without limiting the generality of the foregoing, the New Pledgor
hereby repeats and reaffirms all grants (including the grant of a lien and
security interest), covenants, agreements, representations and warranties
contained in the Pledge Agreement as amended hereby, each and all of which are
and shall remain applicable to the Collateral from time to time owned by the New
Pledgor or in which the New Pledgor from time to time has any rights. Without
limiting the foregoing, in order to secure payment of the Obligations, whether
now existing or hereafter arising, the New Pledgor does hereby grant to the
Agent for the benefit of the Banks, and hereby agrees that the Agent has and
shall continue to have for the benefit of the Banks a continuing security
interest in, among other things, all of the New Pledgor's Collateral (as such
term is defined in the Pledge Agreement) described in Section 2 of the Pledge
Agreement, each and all of such granting clauses being incorporated herein by
reference with the same force and effect as if set forth in their entirety
except that all references in such clauses to the Existing Pledgor or any of
<PAGE>
them shall be deemed to include references to the New Pledgor. Nothing
contained herein shall in any manner impair the priority of the liens and
security interests heretofore granted in favor of the Agent under the Pledge
Agreement.
2. The following information shall be added to Schedules A and/or B to
the Pledge Agreement, as applicable:
SCHEDULE A
THE PLEDGED SECURITIES
<TABLE>
<CAPTION>
NAME AND NAME OF ISSUER JURISDICTION OF NO. OF CERTIFICATE NO. PERCENTAGE OF PERCENT OF
LOCATION OF INCORPORATION SHARES CLASS ISSUER'S STOCK OWNERSHIP
PLEDGOR
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
OR
SCHEDULE B
PARTNERSHIP INTERESTS
NAME OF TYPE OF JURISDICTION
PARTNERSHIP ORGANIZATION OF ORGANIZATION RELEVANT PLEDGOR
3. The New Pledgor hereby acknowledges and agrees that the Obligations
are secured by all of the Collateral according to, and otherwise on and subject
to, the terms and conditions of the Pledge Agreement to the same extent and with
the same force and effect as if the New Pledgor had originally been one of the
Existing Pledgors under the Pledge Agreement and had originally executed the
same as such an Existing Pledgor.
4. All capitalized terms used in this Agreement without definition shall
have the same meaning herein as such terms have in the Pledge Agreement, except
that any reference to the term "Pledgor" or "Pledgors" and any provision of the
Pledge Agreement providing meaning to such term shall be deemed a reference to
the Existing Pledgors and the New Pledgor. Except as specifically modified
hereby, all of the terms and conditions of the Pledge Agreement shall stand and
remain unchanged and in full force and effect.
-2-
<PAGE>
5. The New Pledgor agrees to execute and deliver such further instruments
and documents and do such further acts and things as the Agent may reasonably
deem necessary or proper to carry out more effectively the purposes of this
Agreement.
6. No reference to this Agreement need be made in the Pledge Agreement or
in any other document or instrument making reference to the Pledge Agreement,
any reference to the Pledge Agreement in any of such to be deemed a reference to
the Pledge Agreement as modified hereby.
7. This Agreement shall be governed by and construed in accordance with
the State of Illinois (without regard to principles of conflicts of law).
[NEW PLEDGOR]
By
_____________________,____________________
(Print or Type Name) (Title)
-3-
<PAGE>
Exhibit 10.8
GUARANTY
This Guaranty, dated as of January 31, 1997, made by Steven Devick, an
individual (the "GUARANTOR");
WITNESSETH:
WHEREAS, Platinum Entertainment, Inc., a Delaware corporation (the
"BORROWER"), Bank of Montreal, individually and as Agent (said Bank of Montreal
acting as such agent and any successor or successors to said Bank in such
capacity being hereinafter referred to as the "AGENT") and certain lenders (such
lenders which are now or which from time to time hereafter become party to the
Credit Agreement being hereinafter referred to collectively as the "BANKS" and
individually as a "BANK") have entered into a Credit Agreement dated as of even
date herewith (such Credit Agreement as the same may from time to time be
modified or amended being hereinafter referred to as the "CREDIT AGREEMENT")
pursuant to which the Banks have extended credit and other financial
accommodations to the Borrower (the Agent, the Banks and any security trustee or
agent under the Collateral Documents being hereinafter referred to collectively
as the "GUARANTEED CREDITORS" and individually as a "GUARANTEED CREDITOR"); and
WHEREAS, Guarantor is a shareholder, chairman of the board of directors and
chief executive officer of the Borrower; and
WHEREAS, it is a condition precedent to the extension of credit by the
Banks under the Credit Agreement that the Guarantor shall have executed and
delivered this Guaranty and the Guarantor desires to enter into this Guaranty in
order to satisfy said condition; and
NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to the Guarantor, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby makes the following representations and
warranties to the Guaranteed Creditors and hereby covenants and agrees with the
Guaranteed Creditors as follows:
NOW, THEREFORE, for and in consideration of the execution and delivery by
the Banks of the Credit Agreement, and other good and valuable consideration,
receipt whereof is hereby acknowledged, the parties hereto hereby agree as
follows:
1. The Guarantor hereby irrevocably, absolutely and unconditionally
guarantees as primary obligor and not merely as surety to the Guaranteed
Creditors the full and prompt payment to the Banks at maturity (whether by lapse
of time, acceleration or otherwise) and at all times thereafter of the principal
of and interest and premium on the Term Credit Notes issued by the Borrower
under the Credit Agreement and any and all notes issued in extension
<PAGE>
or renewal thereof or in substitution or replacement therefor (the "GUARANTEED
OBLIGATIONS"). Notwithstanding anything herein to the contrary, no demand may
be made on the Guarantor to honor his obligations under this Guaranty unless and
until a Payment Default (as hereinafter defined) has occurred and is continuing
on July 31, 1997. The payment by the Guarantor of any amount or amounts due the
Guaranteed Creditors hereunder shall be made in the same currency and funds in
which the underlying Guaranteed Obligations are payable. The Guarantor further
agrees to pay all reasonable expenses, legal or otherwise (including court costs
and legal counsel's fees), paid or incurred by any of the Guaranteed Creditors
in endeavoring to collect the Guaranteed Obligations or in preserving,
protecting or realizing on the collateral security therefor or in endeavoring to
enforce or protect their rights under this Guaranty. NOTWITHSTANDING ANYTHING
IN THIS GUARANTY TO THE CONTRARY, THE LIABILITY OF THE GUARANTOR HEREUNDER IS
LIMITED TO THE RECOVERY AMOUNT (AS HEREINAFTER DEFINED) PLUS ALL EXPENSES
HEREINBEFORE MENTIONED. THE TERM "RECOVERY AMOUNT" SHALL MEAN $12,500,000;
PROVIDED, HOWEVER, THAT NOTWITHSTANDING THE FOREGOING, (i) UNLESS AND UNTIL ANY
DEFAULT IN THE PAYMENT WHEN DUE (WHETHER BY LAPSE OF TIME, ACCELERATION OF
OTHERWISE) OF ANY OF THE GUARANTEED OBLIGATIONS HAS OCCURRED AND IS CONTINUING
IN WHOLE OR IN PART (A "PAYMENT DEFAULT") ON JULY 31, 1997, THE RECOVERY AMOUNT
SHALL BE PERMANENTLY REDUCED, DOLLAR FOR DOLLAR, BY THE SUM OF (X) THE AGGREGATE
PRINCIPAL AMOUNT OF ACCEPTABLE TAKE-OUT SECURITIES THERETOFORE ACTUALLY
PURCHASED AND (Y) THE AGGREGATE PRINCIPAL AMOUNT OF ACCEPTABLE TAKE-OUT
SECURITIES TO BE PURCHASED PURSUANT TO ACCEPTABLE COMMITMENTS THERETOFORE
PROVIDED (IT BEING UNDERSTOOD NO FURTHER SUCH REDUCTION SHALL OCCUR 150 DAYS
AFTER THE DATE OF ANY SUCH DEFAULT IN PAYMENT) AND (ii) IF THE RECOVERY AMOUNT
IS REDUCED TO $0 AS A RESULT OF THE FOREGOING, THIS GUARANTY SHALL AUTOMATICALLY
BE RELEASED AND OF NO FURTHER FORCE OR EFFECT. The term "ACCEPTABLE TAKE-OUT
SECURITIES" shall mean any debt or equity securities to be issued by the Company
via a public offering or private placement, in each case to the extent the
Company provides the Agent and Required Banks assurances reasonably satisfactory
to them that the proceeds of such issuance will be applied in reduction of the
Guaranteed Obligations. The term "ACCEPTABLE COMMITMENT" shall mean a written
firm commitment from a person, firm or corporation (which may be an affiliate of
the Borrower) to purchase some or all of the Acceptable Take-Out Securities,
provided (i) such purchaser is reasonably acceptable to the Agent and the
Required Banks (which acceptance shall not be unreasonably withheld or delayed)
and (ii) such commitment (A) constitutes a binding contract enforceable against
such purchaser, (B) is subject to no contingencies other than a material
disruption of the financial markets which impacts pricing or availability of
securities in a material way and (C) is otherwise reasonably acceptable to the
Agent and Required Banks as to form and substance (which acceptance shall not be
unreasonably withheld or delayed).
2. The Guarantor understands, agrees and confirms that this is a guaranty
of payment when due and not of collection and that this Guaranty may be enforced
up to the full amount of the Guaranteed Obligations (subject to Section 1
hereof) without proceeding against the
-2-
<PAGE>
Borrower, against any security for the Guaranteed Obligations, against any other
guarantor or any other party or under any other guaranty covering the Guaranteed
Obligations.
3. The Guarantor hereby waives notice of acceptance of this Guaranty and
notice of any liability to which it may apply, and waives presentment, demand of
payment, protest, notice of dishonor or nonpayment of any such liability, suit
or taking of other action by the Agent or the Guaranteed Creditors against, and
any other notice to, any party liable thereon (including the Guarantor or any
other guarantor).
4. The Guaranteed Creditors, or any of them as appropriate, may at any
time and from time to time without the consent of, or notice to, the Guarantor,
without incurring responsibility to the Guarantor, and without impairing or
releasing the obligations of the Guarantor hereunder, upon or without any terms
or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, change or extend
the time of payment of or renew or alter, any of the Guaranteed
Obligations, any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the guaranty herein made shall apply to
the Guaranteed Obligations as so changed, extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon, fail to perfect
with respect to or otherwise deal with in any manner and in any order any
property by whomsoever at any time pledged or mortgaged to secure, or
howsoever securing, the Guaranteed Obligations or any liabilities
(including any of those hereunder) incurred directly or indirectly in
respect thereof or hereof, or any offset against such property;
(c) release or fail to assert any claim or demand or exercise or
refrain from exercising any rights against the Borrower, any other
guarantor or others or otherwise act or refrain from acting;
(d) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof (including any
liability of any other guarantor of any such), and may subordinate the
payment of all or any part of the Guaranteed Obligations to the payment of
any liability (whether due or not) of the Borrower;
(e) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Guaranteed Creditors
regardless of what liability or liabilities of the Borrower remain unpaid;
or
(f) consent to or waive any breach of, or any act, omission or
default under, the Credit Agreement, the Collateral Documents or any other
instrument or document
-3-
<PAGE>
related thereto (collectively, the "LOAN DOCUMENTS") or otherwise amend,
modify or supplement any of the Loan Documents.
The Guarantor acknowledges that except to the extent (if any) that the Credit
Agreement expressly requires otherwise, the Guaranteed Creditors shall have the
exclusive right to determine how, when and what application of payments and
credits, if any, shall be made on the Guaranteed Obligations (or any part
thereof) and the Guarantor's liability hereunder as aforesaid, whether or not
any one or more other guarantors of all or any portion of the Guaranteed
Obligations shall then or thereafter pay any amount whatsoever by reason of
their obligations on any other such guarantees. Without limiting the generality
of the foregoing, except to the extent (if any) that the Credit Agreement
expressly requires otherwise, the Guaranteed Creditors shall in no event have
any obligation whatsoever to apply any payments and credits or marshal any
collateral first to the Guaranteed Obligations and then to the indebtedness,
obligations and liabilities of the Borrower under the Credit Agreement.
5. No invalidity, irregularity or unenforceability of all or part of the
Guaranteed Obligations or of any security therefor or any guaranty thereof shall
affect, impair or be a defense to this Guaranty, and this Guaranty shall be
primary, absolute and unconditional notwithstanding the occurrence of any event
or the existence of any other circumstances which might constitute a legal or
equitable discharge of a surety or guarantor except payment in full of the
Guaranteed Obligations.
6. The Guarantor will not exercise or enforce any right of exoneration,
contribution, reimbursement, recourse or subrogation available to the Guarantor
against any person liable for payment of the Guaranteed Obligations, or as to
any security therefor, unless and until the full amount owing to the Guaranteed
Creditors on the Guaranteed Obligations has been paid and the Guarantor
acknowledges that any payment by it of any amount pursuant to this Guaranty
shall not in any wise entitle the Guarantor to any right, title or interest
(whether by way of subrogation or otherwise) in and to any of the Guaranteed
Obligations or any proceeds thereof or any security therefor unless and until
the full amount owing to the Guaranteed Creditors on the Guaranteed Obligations
has been paid and any commitment of the Banks to extend credit to the Borrower
under the Credit Agreement shall have terminated.
7. This Guaranty may be enforced by the Agent on behalf of the Guaranteed
Creditors, or it may be enforced by the Guaranteed Creditors acting jointly.
This Guaranty shall be binding upon the Guarantor and its successors and assigns
and shall inure to the benefit of the Guaranteed Creditors and their successors
and assigns. Any Guaranteed Creditor may, to the extent permitted by the Credit
Agreement, sell, transfer or assign its rights in the Guaranteed Obligations
held by it, or any part thereof, or grant participations therein; and in that
event, each and every immediate and successive assignee or transferee of, or
holder or participant in, all or any part of the Guaranteed Obligations, shall
have the right to enforce this Guaranty, by suit or otherwise, for the benefit
of such assignee, transferee, holder or participant as fully as if such assignee
or transferee, holder or participant were herein by name specifically
-4-
<PAGE>
given such rights, powers and benefits; but each Guaranteed Creditor shall have
an unimpaired right to enforce this Guaranty for its own benefit or for the
benefit of any such participant as to so much of the Guaranteed Obligations that
it has not sold, assigned or transferred.
8. Neither this Guaranty nor any provision hereof may be changed, waived,
discharged or terminated, except with the written consent of the Required Banks;
provided, however, that no such agreement which releases the Guarantor from its
liability hereunder for any of the Guaranteed Obligations shall be effective
unless the same is embodied in a written instrument signed by all the Guaranteed
Creditors.
9. The Guarantor acknowledges that executed (or conformed) copies of the
Credit Agreement have been made available to its principal executive officers
and such officers are familiar with the contents thereof.
10. In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence of an
Event of Default, each Guaranteed Creditor is hereby authorized at any time or
from time to time, without notice to the Guarantor or to any other party, any
such notice being expressly waived, to set off and to appropriate and apply any
and all deposits (general or special) and any other indebtedness at any time
held or owing by such Guaranteed Creditor to or for the credit or the account of
the Guarantor, against and on account of the obligations and liabilities of the
Guarantor under this Guaranty, irrespective of whether or not such Guaranteed
Creditor shall have made any demand hereunder and although said obligations,
liabilities, deposits or claims, or any of them, shall be contingent or
unmatured.
11. All notices, requests, demands or other communications pursuant hereto
shall be deemed to have been duly given or made when delivered to the party to
which such notice, request, demand or other communication is required or
permitted to be given or made under this Guaranty, addressed, if to the
Guarantor at 2001 Butterfield Road, Suite 1400, Downers Grove, Illinois 60515
and if to the Agent or any Bank, as provided in the Credit Agreement.
12. If claim is ever made upon any Guaranteed Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any
Guaranteed Obligations and such Guaranteed Creditor repays all or part of said
amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such Guaranteed Creditor or any of
its property or (b) any settlement or compromise of any such claim effected by
such Guaranteed Creditor with any such claimant (including the Borrower) but not
by reason of the gross negligence or willful misconduct of such Guaranteed
Creditor, then and in such event the Guarantor agrees that any such judgment,
decree, order, settlement or compromise shall be binding upon it provided the
Guarantor has notice thereof, notwithstanding any revocation, return or
destruction of this Guaranty or the Credit Agreement or any instrument
evidencing any liability of the Borrower, and the Guarantor shall be and remain
liable to such Guaranteed Creditor hereunder for the amount so repaid or
recovered to
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<PAGE>
the same extent as if such amount had never originally been received by the
Guaranteed Creditor.
13. Any acknowledgment or new promise, whether by payment of principal or
interest or otherwise and whether by the Borrower, or others (including the
Guarantor), with respect to any of the Guaranteed Obligations shall, if the
statute of limitations in favor of the Guarantor against the Guaranteed
Creditors shall have commenced to run, toll the running of such statute of
limitations, and if the period of such statute of limitations shall have
expired, prevent the operation of such statute of limitations.
14. The Guarantor hereby postpones, in the event of any enforcement
hereof, all debts and liabilities of the Borrower to the Guarantor, both present
and future, to the prior payment of the Guaranteed Obligations, and all moneys
received by the Guarantor thereon shall be received in trust for the Agent and
the Banks and shall be paid over to the Agent.
15. The records of the Agent and each Bank as to the unpaid balance of the
Guaranteed Obligations at any time and from time to time shall be prima facie
evidence thereof without further or other proof for all purposes, including the
enforcement of this Guaranty and any collateral therefor.
16. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
ILLINOIS, IN WHICH STATE IT SHALL BE PERFORMED BY THE GUARANTOR.
17. The Guarantor shall at all times and from time to time do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all and singular every such further act, deed, transfer, assignment,
assurance, document and instrument as the Agent or any Bank may reasonably
require for the better accomplishing and effectuating of this Guaranty and the
provisions contained herein, and every officer of the Agent and the Banks and
each of them are irrevocably appointed attorneys or attorney to execute in the
name and on behalf of the Guarantor any document or instrument for the said
purpose.
18. In acting under or by virtue of this Guaranty, the Agent shall be
entitled to all rights, authority, privileges and immunities provided in
Section 10 of the Credit Agreement, all of which provisions of said Section 10
are incorporated by reference herein with the same force and effect as if set
forth herein.
19. Except as otherwise defined herein, terms used herein and defined in
the Credit Agreement shall be used herein as so defined.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
and delivered as of the date first above written.
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<PAGE>
/s/ Steven Devick
--------------------------
Steven Devick
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<PAGE>
PLATINUM ENTERTAINMENT, INC.
TERM CREDIT NOTE
$25,000,000 January 31, 1997
For value received, the undersigned, Platinum Entertainment, Inc., a
Delaware corporation (the "COMPANY"), hereby promises to pay to the order of
Bank of Montreal (the "BANK"), at the principal office of Bank of Montreal in
Chicago, Illinois the principal sum of Twenty-Five Million Dollars
($25,000,000), in a single installment due on the Term Credit Maturity Date.
This Note evidences indebtedness constituting the "BASE RATE PORTION" and
"LIBOR PORTIONS" as such terms are defined in that certain Credit Agreement
dated as of January 31, 1997, by and among the Company, Bank of Montreal
individually and as Agent and certain lenders which are or may from time to time
become parties thereto (the "CREDIT AGREEMENT") made and to be made to the
Company by the Bank under the Term Credit provided for under the Credit
Agreement and the Company hereby promises to pay interest at the office
specified above on the loan evidenced hereby at the rates and times specified
therefor in the Credit Agreement. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Credit Agreement, and
this Note is subject to the terms of the Credit Agreement.
Any repayment of principal hereon, the status of the indebtedness evidenced
hereby from time to time as part of the Base Rate Portion or a LIBOR Portion and
the interest rates and interest periods applicable thereto shall be endorsed by
the holder hereof on the reverse side of this Note or recorded on the books and
records of the holder hereof (provided that such entries shall be endorsed on
the reverse side hereof prior to any negotiation hereof) and the Company agrees
that in any action or proceeding instituted to collect or enforce collection of
this Note, the entries so endorsed on the reverse side hereof or recorded on the
books and records of the Bank shall be PRIMA FACIE evidence of the unpaid
balance of this Note and the status of the indebtedness evidenced hereby loan
from time to time as part of a Base Rate Portion or a LIBOR Portion and the
interest rates and interest periods applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and is secured, inter alia, by certain security agreements and
other instruments and documents from the Company and certain of its
Subsidiaries, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, equally and
ratably with all other indebtedness thereby secured, to which reference is
hereby made for a statement thereof. This Note may be declared to be, or be and
become, due prior to its expressed maturity upon the occurrence of an Event of
Default specified in the Credit Agreement, voluntary prepayments may be made
hereon, and certain prepayments are required to be made hereon, all in the
events, on the terms and with the effects provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
<PAGE>
The Company hereby waives presentment for payment.
PLATINUM ENTERTAINMENT, Inc.
By /s/ Steven Devick
-----------------------
Its CEO
-----------------
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<PAGE>
Exhibit 10.10
PLATINUM ENTERTAINMENT, INC.
REVOLVING CREDIT NOTE
$10,000,000 January 31, 1997
For value received, on the Revolving Credit Termination Date, the
undersigned, Platinum Entertainment, Inc., a Delaware corporation (the
"COMPANY"), hereby promises to pay to the order of Bank of Montreal (the
"BANK"), at the principal office of Bank of Montreal in Chicago, Illinois
(i) the principal sum of Ten Million Dollars ($10,000,000), or (ii) such lesser
amount as may at the time of the maturity hereof, whether by acceleration or
otherwise, be the aggregate unpaid principal amount of all Revolving Credit
Loans owing from the Company to the Bank under the Revolving Credit provided for
in the Credit Agreement hereinafter mentioned.
This Note evidences indebtedness constituting the "BASE RATE PORTION" and
"LIBOR PORTIONS" as such terms are defined in that certain Credit Agreement
dated as of January 31, 1997, by and among the Company, Bank of Montreal
individually and as Agent and certain lenders which are or may from time to time
become parties thereto (the "CREDIT AGREEMENT") made and to be made to the
Company by the Bank under the Revolving Credit provided for under the Credit
Agreement and the Company hereby promises to pay interest at the office
specified above on each loan evidenced hereby at the rates and times specified
therefor in the Credit Agreement. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Credit Agreement, and
this Note is subject to the terms of the Credit Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Bank to the Company against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part of the
Base Rate Portion or a LIBOR Portion and the interest rates and interest periods
applicable thereto shall be endorsed by the holder hereof on the reverse side of
this Note or recorded on the books and records of the holder hereof (provided
that such entries shall be endorsed on the reverse side hereof prior to any
negotiation hereof) and the Company agrees that in any action or pro
ceeding instituted to collect or enforce collection of this Note, the
entries so endorsed on the reverse side hereof or recorded on the books and
records of the Bank shall be PRIMA FACIE evidence of the unpaid balance of this
Note and the status of each
<PAGE>
loan from time to time as part of a Base Rate Portion or a LIBOR Portion and the
interest rates and interest periods applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and is secured, inter alia, by certain security agreements and
other instruments and documents from the Company and certain of its
Subsidiaries, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, equally and
ratably with all other indebtedness thereby secured, to which reference is
hereby made for a statement thereof. This Note may be declared to be, or be and
become, due prior to its expressed maturity upon the occurrence of an Event of
Default specified in the Credit Agreement, voluntary prepayments may be made
hereon, and certain prepayments are required to be made hereon, all in the
events, on the terms and with the effects provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
The Company hereby waives presentment for payment.
PLATINUM ENTERTAINMENT, INC.
By /s/ Steven Devick
-----------------------------
Its CEO
--------------
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