SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
- ------------------------------------ TO --------------------------------------
Commission File Number 1-13054
ALLIANCE ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3645913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 935-6662
( Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by Court. Yes X No _____
As of July 31, 1997, the number of shares outstanding of the Company's
common stock was 44,990,205
"THIS DOCUMENT IS A COPY OF THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997 FILED ON AUGUST 15, 1997 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP
EXEMPTION."
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
PART I--FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Stockholder's Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 8,669 $ 5,537
Accounts receivable, less allowance for
doubtful
accounts 173,619 111,521
Inventory 164,380 122,926
Advances and other prepaid expenses 22,739 26,165
Refundable income taxes 11,260 789
Deferred income taxes 5,798 1,640
----------------- ---------------
Total current assets 386,465 268,578
----------------- ---------------
INVESTMENTS, at cost 1,100 1,510
PROPERTY AND EQUIPMENT 33,793 35,371
COPYRIGHTS, less accumulated amortization 62,917 59,605
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED,
less accumulated amortization 93,727 84,593
COVENANTS NOT TO COMPETE, less accumulated
amortization 8,366 7,256
DEFERRED INCOME TAXES 9,798 9,666
OTHER ASSETS, less accumulated amortization 16,916 21,096
--------------- ------------
TOTAL ASSETS $ 613,082 $ 487,675
================= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 72,671 $ 88,164
Current maturities of long-term debt 8,305 8,777
Current obligations under capital leases 582 482
Accounts payable and accrued expenses 267,187 206,049
Income taxes payable 826 105
----------------- ---------------
Total current liabilities 349,571 303,577
----------------- ---------------
LONG-TERM DEBT 236,215 234,189
OBLIGATIONS UNDER CAPITAL LEASES 1,133 1,099
DEFERRED INCOME TAXES 9,109 8,633
MINORITY INTEREST - 701
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Series A convertible preferred stock, $.01
par value,
886,240 shares authorized, shares issued
and
outstanding 422,500 ( $45,485 liquidation preference) 4 4
Series B convertible preferred stock, $.01
par value,
300,000 shares authorized, shares issued
and
outstanding 57,500 ( $5,933 liquidation 1 1
preference)
Common stock, $.0001 par value, 100,000,000
shares authorized, shares issued and
outstanding
1996 44,764,853; 1997 44,990,205 4 4
Additional paid-in capital 146,665 146,965
Employee notes for stock purchases (67) (67)
Accumulated deficit (131,286) (208,802)
Foreign currency translation adjustment 1,733 1,371
----------------- ---------------
Total stockholders' equity (deficit) 17,054 (60,524)
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 613,082 $ 487,675
================= ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Six Months
Ended Ended
June 30, June 30,
---------------------------- -----------------------------
1996 1997 1996 1997
------------ --------------- ------------- ---------------
Net sales $ 163,168 $ 108,973 $ 339,356 $ 235,295
Cost of sales 142,072 94,594 285,466 199,763
------------ --------------- ------------- ---------------
Gross profit 21,096 14,379 53,890 35,532
Selling, general and administrative expenses 35,388 33,780 66,129 65,316
Restructuring and asset impairment charges 922 18,336 1,350 18,336
Amortization of intangible assets 2,906 3,950 5,754 7,868
------------ --------------- ------------- ---------------
39,216 56,066 73,233 91,520
------------ --------------- ------------- ---------------
(18,120) (41,687) (19,343) (55,988)
------------ --------------- ------------- ---------------
Other income (expense)
Amortization of deferred financing costs (467) (659) (936) (1,174)
Other income (expense) - net (977) (815) (773) (1,966)
Interest expense (8,585) (7,180) (16,841) (15,193)
------------ --------------- ------------- ---------------
(10,029) (8,654) (18,550) (18,333)
------------ --------------- ------------- ---------------
Loss before income taxes (28,149) (50,341) (37,893) (74,321)
Provision (benefit) for income taxes (6,252) 4,085 (11,368) 3,195
------------ --------------- ------------- ---------------
Net loss $ (21,897) $ (54,426) $ (26,525) $ (77,516)
============ =============== ============= ===============
Loss per common share $ (.59) $ (1.21) $ (.72) $ (1.73)
============ =============== ============= ===============
Weighted average number of shares of
common stock outstanding 36,996,375 44,990,205 36,797,213 44,879,397
============ =============== ============= ===============
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(Amounts in Thousands, Except Share Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Stock Issued Employee Foreign
------------------------------------ Additional Notes for Currency
Series A Series B Common Paid-In Stock Accumulated Translation
Preferred Preferred Stock Capital Purchases Deficit Adjustment
Stock Stock
------------------------ ---------- ---------- ------------ ------------ ------------
Balance at December 31, 1996 $ 4 $ 1 $ 4 $ 146,665 $ (67) $ (131,286) $ 1,733
Issuance of 225,352 shares
of common stock for
adjustment to purchase - - - 366 - - -
price of subsidiary
Adjustment for costs
incurred in connection with
issuance of preferred - - - (66) - - -
stock
Net loss - - - - - (77,516) -
Translation adjustment - - - - - - (362)
------------ ----------- ---------- ---------- ------------ ------------ ------------
Balance at June 30, 1997 $ 4 $ 1 $ 4 $ 146,965 $ (67) $ (208,802) $ 1,371
============ =========== ========== ========== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts In Thousands)
<S> <C> <C>
Six Months Ended
June 30,
---------------------------------
1996 1997
----------------- ---------------
Cash Flows From Operating Activities
Net loss $ (26,525) $ (77,516)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 9,671 12,209
Restructuring and asset impairment charges 1,982 18,336
Other non cash charges 10,097 -
Change in assets and liabilities:
Decrease in accounts receivable 37,211 62,016
Decrease in inventory 17,376 41,453
Increase in prepaid expenses and other (4,050) (4,565)
Increase in deferred income taxes (3,927) 3,813
Decrease in accounts payable and
accrued expenses (40,223) (62,349)
(Increase) decrease in income taxes (8,477) 9,750
receivables
----------------- ---------------
Net cash provided by (used in) operating (6,865) 3,147
activities
----------------- ---------------
Cash Flows From Investing Activities
Purchase of property and equipment, net (3,097) (4,246)
(Increase) decrease in copyrights (4,052) 1,095
Increase in other assets (417) (5,533)
Purchase of businesses including costs,
net of cash acquired 225 (262)
----------------- ---------------
Net cash used in investing activities (7,341) (8,946)
----------------- ---------------
Cash Flows From Financing Activities
Decrease in excess of outstanding
checks over bank balance 824 (8,545)
Proceeds from issuance of stock 2,901 (66)
Proceeds from borrowings 145,740 123,520
Payments on borrowings (142,195) (110,662)
Payments for financing costs (29) (1,218)
----------------- ---------------
Net cash provided by financing activities 7,241 3,029
----------------- ---------------
Effect of foreign currency translation 52 (362)
Net decrease in cash and cash equivalents (6,913) (3,132)
Cash and cash equivalents
Beginning of period 12,852 8,669
----------------- ---------------
End of period $ 5,939 $ 5,537
================= ===============
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Interim Financial Information
The unaudited balance sheet as of June 30, 1997 and the unaudited
statements of operations, cash flows and stockholders' equity (deficit) for the
three month and six month periods ended June 30, 1996 and 1997 (interim
financial information), have generally been prepared on the same basis as the
audited financial statements. In the opinion of the Company, the interim
financial information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair statement of the results of the
interim periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. The
results of operations for the three months and six months' ended June 30, 1997,
may not be indicative of the operating results for the full year or any future
interim period.
Certain amounts have been reclassified to conform with the presentation in
the current period.
Restructuring and Other Charges
During the six months' ended June 30, 1997, approximately $8.0 million was
paid and charged against a liability established by the Company at December 31,
1996 for restructuring and other non-recurring charges. As of June 30, 1997,
approximately $12.0 million remains to be paid in future periods.
Reorganization under Chapter 11; Pre-Petition Credit Agreement
On June 30, 1997, Alliance Entertainment Corp. ("Alliance" or the
"Company") failed to make the full amortization payment of $1.5 million on its
senior secured credit facility (the "Pre-petition Credit Agreement") and
additionally failed to satisfy a financial covenant requiring the Company raise
$35 million of equity prior to July 1, 1997 and as a result was in default under
the provisions of its Pre-petition Credit Agreement. Under the terms of its
Pre-petition Credit Agreement, and as a result of the existing defaults, the
Company's banks had the right to accelerate the maturity of approximately $187
million of outstanding indebtedness.
Additionally, as a result of the defaults under the Pre-petition Credit
Agreement, the Company was blocked from making a July 15, 1997 interest payment
due and payable on the Company's $125 million of 11.25% Senior Subordinated
Notes due 2005.
On July 14, 1997, as a result of the defaults under the Pre-petition Credit
Agreement, the pending payment default on the Company's Senior Subordinated
Notes and an overall inability to operate the Company's business under the
existing liquidity restraints, the Company and fourteen of its wholly-owned
subsidiaries filed voluntarily under Chapter 11 of the Bankruptcy Code in order
to facilitate the reorganization of the Company's core businesses and the
restructuring of the Company's long-term debt, revolving credit and trade
obligations. The Company continues to operate with its existing directors and
officers as a debtor-in-possession subject to the Bankruptcy Court's supervision
and orders. Excluded from the filing were certain businesses in the Company's
Proprietary Products Group, including: Castle Communications plc (and its
related affiliates); The St. Clair Entertainment Group, Inc.; and Red Ant
Entertainment LLC ("Red Ant")(and its related affiliates). The filing was made
in the U.S. District Court for the Southern District of New York in Manhattan.
<PAGE>
The filing of the petition under Chapter 11 of the Bankruptcy Code resulted
in the occurrence of an Event of Default under the Company's: (i) Indenture
relating to its 11.25% Senior Subordinated Notes due 2005; (ii) Credit
Agreement; (iii) 6% Exchangeable Notes; and (iv) Mortgage Bond for its
distribution facility in Coral Springs, Florida.
Pursuant to the provisions of the Bankruptcy Code, all of the Company's
liabilities, as of July 14, 1997, were automatically stayed upon the Company's
filing of its petition for reorganization. In addition, absent approval from the
Bankruptcy Court, the Company is prohibited from paying any pre-petition
obligations. In hearings held on July 14 and 16, 1997, the Bankruptcy Court
approved the Company's request for payment of certain pre-petition wages and
benefits, use of the Company's cash management system and retention of legal and
financial professionals.
Alliance intends to present a plan of reorganization to the Bankruptcy
Court to reorganize the Company's core business and restructure the Company's
long-term debt, revolving credit and trade obligations. Under provisions of the
Bankruptcy Code, the Company has the exclusive right to file a plan at any time
during the 120 day period following July 14, 1997, which time period may be
extended by the Bankruptcy Court at the Company's request.
In the event that a plan of reorganization is approved by the Bankruptcy
Court, continuation of the business after reorganization will be dependent upon
the success of future operations and the Company's ability to meet its
obligations as they become due. In the event that such a plan of reorganization
is not approved by the Bankruptcy Court and a Restructuring Plan is not
consummated, the ability of the Company to continue as a going concern depends
on the success of future operations and the ability of the Company to generate
sufficient cash from operations and financing sources to meet its obligations as
they become due and to finance its operations. The accompanying financial
statements have been prepared on a going concern basis, which, except as
disclosed, contemplates continuity of operations, realization of assets and
discharge of liabilities in the ordinary course of business. As a result of the
Chapter 11 filing, the Company may have to sell or otherwise dispose of assets
and discharge or settle liabilities for amounts other than those reflected in
the financial statements. Further, a plan of reorganization could materially
change the amounts currently recorded in the financial statements. The financial
statements do not give effect to all adjustments to the carrying value of
assets, or amounts and classification of liabilities that might be necessary as
a consequence of the proceeding. The appropriateness of using the going concern
basis is dependent upon, among other things, confirmation of a plan of
reorganization, success of future operations and the ability to generate
sufficient cash from operations and financing sources to meet obligations.
In addition, valuation methods used in Chapter 11 reorganization cases vary
depending on the purpose for which they are prepared and used and are rarely
based on generally accepted accounting principles, the basis on which the
accompanying financial statements are prepared. Accordingly, the values set
forth in the accompanying financial statements are not likely to be indicative
of the values presented to or used by the Bankruptcy Court. As a result,
valuations of the Company based on the accompanying financial statements may be
significantly higher than valuations used by the Company in determining the
amounts to be received, if any, by each class of creditors under a plan of
reorganization.
<PAGE>
DIP Financing
In connection with the Company's Chapter 11 filing, on July 16, 1997, the
Company entered into a Revolving Credit and Guaranty Agreement (the "DIP
Financing Agreement") with Chase Manhattan Bank providing for a maximum of $50
million of debtor-in-possession ("DIP") financing subject to approval by the
Bankruptcy Court. The DIP Financing Agreement is intended to address the
Company's immediate working capital needs and to support the Company's
operations during its Chapter 11 proceedings. On July 16, 1997, the Honorable
Burton R. Lifland approved on an interim basis use of $20 million of the $50
million DIP financing. The Company's use of the remaining $30 million of the DIP
financing was approved by the Court at a hearing held on August 13, 1997.
The DIP Financing Agreement provides for borrowings under a revolving
credit and a letter of credit facility. Loans under the revolving credit
facility bear interest at either the Alternate Base Rate (as defined in the DIP
Financing Agreement) plus 1.5% or at the Adjusted LIBOR Rate (as defined in the
DIP Financing Agreement) plus 2.75%. Loans under the letter of credit facility
bear interest at the Alternate Base Rate plus 1.5%. The terms of the DIP
Financing Agreement contain certain restrictive covenants including: limitations
on the incurrence of additional guarantees, liens and indebtedness; limitations
on the sale of assets and the making of capital expenditures. The DIP Financing
Agreement also requires that the Company meet certain minimum earnings before
taxes and other expenses (as defined) through the end of 1998.
Under the DIP Financing Agreement, Chase Manhattan Bank has been given a
perfected first priority lien on all property and assets of the Company and its
subsidiaries. The banks who are parties to the Pre-Petition Credit Agreement, as
well as other secured creditors of the Company, have been granted replacement
liens on the Company's assets (junior to the lien granted under the DIP
Financing Agreement) to adequately protect such creditors' secured claims
against the Company prior to its Chapter 11 filing.
The DIP Financing Agreement expires on January 31, 1999, or earlier upon
the occurrence of certain events, including confirmation of a plan of
reorganization by the Bankruptcy Court, a sale of substantially all of the
assets of the Company, or failure by the Company to receive a final order
confirming a plan of reorganization.
Sale of Red Ant Subsidiary
On July 23, 1997, the Company and Chase Manhattan amended the DIP Financing
Agreement to provide up to $1.25 million of funding for Red Ant and its
affiliated entities on a non-bankruptcy basis to facilitate the solicitation of
bids from third parties to purchase Alliance's interests in Red Ant. On August
6, 1997, the Company filed a motion to be heard on August 13, 1997, seeking
court approval of the sale of 90% of the Company's interest in Red Ant and its
affiliates to Cypress Ventures, Inc. an affiliate of Wasserstein Perella & Co.
("CVI"), for aggregate cash consideration of $625,000 with an additional
commitment from CVI to provide new working capital for Red Ant (in the form of
mezzanine indebtedness senior in priority to the equity interest holders of Red
Ant) up to an amount of approximately $19 million with $3 million to be provided
upon consummation of the sale to CVI.
On August 13, 1997, following a hearing before the Bankruptcy Court, the
Company withdrew its motion seeking approval of the sale primarily due to the
continuing objection of the Company's Official Committee of Unsecured Creditors
that the consideration to be paid for Red Ant by CVI was inadequate. In light of
the withdrawal of the motion to approve the sale of Red Ant to CVI, the Company
believes that it is likely that it will be necessary for Red Ant and it
affiliates to file to seek protection under the Bankruptcy Code on an expedited
basis unless an acceptable offer for Red Ant is received by the Company prior to
such filing.
The Company has taken a non-cash charge of $18.3 million related to the
write-off of the goodwill and its underlying investment on its Red Ant
subsidiary.
<PAGE>
Income Taxes
Based upon current operations of the Company and other factors, an income
tax benefit was not recorded for the Company and its fourteen wholly owned
subsidiaries which filed under Chapter 11 for the three months and six months
ended June 30, 1997. The Company anticipates that pre-tax losses, if any, which
may be realized during the fiscal year ending December 31, 1997, will not result
in the recording of any additional tax benefit by the Company. Further, any net
operating loss carry forwards prior to, and subsequent to the filing date, may
be severely reduced by the bankruptcy case. Accordingly, the Company has
increased its valuation allowance against deferred tax assets by $5.0 million.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (FAS 128). FAS 128
specifies new standards designed to improve the EPS information provided in
financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of EPS
data on an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that common
stock equivalents are not considered in computing basic EPS, (b) eliminating the
modified treasury stock method and the three percent materiality provision, and
(c) revising the contingent share provisions and the supplemental EPS data
requirements. FAS 128 also makes a number of changes to existing disclosure
requirements. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The Company does not
believe the implementation of FAS 128 will have a significant impact on reported
results of operations.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Recent Events
Reorganization Under Chapter 11
On June 30, 1997, Alliance Entertainment Corp. ("Alliance" or the
"Company") failed to make the full amortization payment of $1.5 million on its
senior secured credit facility (the "Pre-petition Credit Agreement") and
additionally failed to satisfy a financial covenant requiring the Company raise
$35 million of equity prior to July 1, 1997 and as a result was in default under
the provisions of its Pre-petition Credit Agreement and as a result of the
existing defaults. Under the terms of its Pre-petition Credit Agreement, the
Company's banks had a right to accelerate the maturity of approximately $187
million of outstanding indebtedness.
Additionally, the default under the Pre-petition Credit Agreement also
resulted in the Company's inability to make a July 15, 1997 interest payment due
and payable on the Company's $125 million of 11.25% Senior Subordinated Notes
due 2005.
On July 14, 1997, as a result of the defaults under the Pre-petition Credit
Agreement, the pending payment default on the Company's Senior Subordinated
Notes and an overall inability to operate the Company's business under the
existing liquidity restraints, the Company and fourteen of its wholly-owned
subsidiaries filed voluntarily under Chapter 11 of the Bankruptcy Code in order
to facilitate the reorganization of the Company's core businesses and the
restructuring of the Company's long-term debt, revolving credit and trade
obligations. The Company continues to operate with its existing directors and
officers as a debtor-in-possession subject to the Bankruptcy Court's supervision
and orders. Excluded from the filing were certain businesses in the Company's
Proprietary Products Group, including: Castle Communications plc (and its
related affiliates); The St. Clair Entertainment Group, Inc.; and Red Ant
Entertainment LLC ("Red Ant") (and its related affiliates). The filing was made
in the U.S. District Court for the Southern District of New York in Manhattan.
Pursuant to the provisions of the Bankruptcy Code, all of the Company's
liabilities as of July 14, 1997, were automatically stayed upon the Company's
filing of its petition for reorganization. In addition, absent approval from the
Bankruptcy Court, the Company is prohibited from paying any pre-petition
obligations. In hearings held on July 14 and 16, 1997, the Bankruptcy Court
approved the Company's request for payment of certain pre-petition wages and
benefits, use of the Company's cash management system and retention of legal and
financial professionals.
Alliance intends to present a plan of reorganization to the Bankruptcy
Court to reorganize the Company's core business and restructure the Company's
long-term debt, revolving credit and trade obligations. Under provisions of the
Bankruptcy Code, the Company has the exclusive right to file a plan at any time
during the 120 day period following July 14, 1997, which time period may be
extended by the Bankruptcy Court at the Company's request.
Following the Company's July 14, 1997, announcement that it had filed
voluntarily to reorganize under Chapter 11, the New York Stock Exchange (the
"NYSE") permanently halted trading in the Company's Common Stock and indicated
its intention to apply to the Securities and Exchange Commission to delist the
Company's securities as a consequence of the Company's Chapter 11 filing and the
fact that the Company no longer met the criteria for continued listing on the
NYSE. On July 17, 1997, the Company received an official notice from the NYSE
concerning the proposed delisting. The Company's Common Stock is currently
trading in the over-the-counter market under the symbol AETTQ. Notwithstanding
the action by the NYSE, the Company intends to remain current with respect to
its reporting obligations under the Securities Exchange Act of 1934.
<PAGE>
DIP Financing
In connection with the Company's Chapter 11 filing, on July 16 1997, the
Company entered into a Revolving Credit and Guaranty Agreement (the "DIP
Financing Agreement") with Chase Manhattan Bank providing for a maximum of $50
million of debtor-in-possession ("DIP") financing subject to approval by the
Bankruptcy Court. The DIP Financing Agreement is intended to address the
Company's immediate working capital needs and to support the Company's
operations during its Chapter 11 proceedings. On July 16, 1997, the Honorable
Burton R. Lifland approved on an interim basis use of $20 million of the $50
million DIP financing. The Company's use of the remaining $30 million of the DIP
financing was approved by the Court at a hearing held on August 13, 1997.
Sale of Red Ant Subsidiary
On July 23, 1997, the Company and Chase Manhattan amended the DIP Financing
Agreement to provide up to $1.25 million of funding for Red Ant and its
affiliated entities on a non-bankruptcy basis to facilitate the solicitation of
bids from third parties to purchase Alliance's interests in Red Ant. On August
6, 1997, the Company filed a motion to be heard on August 13, 1997, seeking
Court approval of the sale of 90% of the Company's interest in Red Ant and its
affiliates to Cypress Ventures, Inc. an affiliate of Wasserstein Perella & Co.
("CVI"), for aggregate cash consideration of $625,000 with an additional
commitment from CVI to provide new working capital for Red Ant (in the form of
mezzanine indebtedness senior in priority to the equity interest holders of Red
Ant) up to an amount of approximately $19 million with $3 million to be provided
upon consummation of the sale to CVI.
On August 13, 1997, following a hearing before the Bankruptcy Court, the
Company withdrew its motion seeking approval of the sale primarily due to the
continuing objection of the Company's Official Committee of Unsecured Creditors
that the consideration to be paid for Red Ant by CVI was inadequate. In light of
the withdrawal of the motion to approve the sale of Red Ant to CVI, the Company
believes that it is likely that it will be necessary for Red Ant and it
affiliates to file to seek protection under the Bankruptcy Code on an expedited
basis unless an acceptable offer for Red Ant is received by the Company prior to
such filing.
The Company has taken a non-cash charge of $18.3 million related to the
write-off of the goodwill and its underlying investment on its Red Ant
subsidiary.
Overview of the Company's Operations Prior to Chapter 11 Filing
Alliance Entertainment Corp. is a fully integrated independent music
company which creates, markets and distributes its proprietary content rights
consisting of both new artist and catalog product in several genres. Prior to
the Company's Chapter 11 filing, the Company was also the largest domestic full
service distributor of pre-recorded music and music related products to
traditional as well as through emerging retail channels. As a result of the
circumstances leading to the Company's Chapter 11 filing and the effects of such
filing on the business of the Company, there can be no assurance that the
Company shall be able to operate its businesses on terms and conditions similar
to those prior to the Company's Chapter 11 filing.
Prior to the Company's Chapter 11 filing, the Company's proprietary
Products Group consisted of three primary labels: Red Ant, Concord Jazz and
Castle Communications. Each of these labels specializes in particular genres of
music and releases records under a number of label imprints. Red Ant commenced
operations in 1996 and released its first full length projects in the second
quarter of 1997. Red Ant specializes in new product primarily in the alternative
rock and urban genres, with particular focus on the identification and
development of new talent. Concord Jazz is a label specializing in traditional
and contemporary jazz by well-known jazz artists such as Mel Torme, Rosemary
Clooney, Chick Corea and Maynard Ferguson. Castle Communications is primarily a
catalog and re-issue label which specializes in exploiting proprietary content
rights to 1960's and 1970's British rock groups such as The Kinks, Iron Maiden,
Black Sabbath, and the Small Faces. Castle Communications together with The St.
Clair Entertainment Group (the Company's wholly-owned Canadian subsidiary) are
also engaged in the creation of budget product utilizing both the Company's
proprietary products and rights licensed from others.
<PAGE>
The Company's distribution operation is conducted through two groups: the
One Stop Group specializing in the wholesale distribution of substantially all
available pre-recorded music product (i.e., pre-recorded music manufactured by
the six major music companies: Sony Music, Time Warner, Polygram, MCA, EMI and
BMG (the "Major Labels")), as well as music manufactured by independent labels
("Independent Labels"), and the Independent Distribution Group (specializing in
the marketing, promotion and distribution of pre-recorded music manufactured by
certain Independent Labels, including the Proprietary Products Group, on an
exclusive and regional basis).
Results of Operations
The following discussion and analysis should be read in conjunction with
the unaudited financial statements of the Company and the notes thereto included
elsewhere in this report.
The following table sets forth, for the three months and six months ended
June 30, certain operating data as a percentage of net sales.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30 June 30
1996 1997 1996 1997
Net Sales 100% 100% 100% 100%
Gross Profit 12.9 13.2 15.9 15.1
Selling, General & Administrative Expenses 21.7 31.0 19.5 27.8
Restructuring and Asset Impairment Charges .5 16.8 .4 7.8
Amortization of Intangible Assets 1.8 3.6 1.7 3.3
Other income (expense) primarily (6.1) (7.9) (5.5) (7.8)
interest expense
Provision (benefit)for income tax (3.8) 3.8 (3.4) 1.4
Net Loss (13.4) (50.0) (7.8) (32.9)
</TABLE>
Cost of sales and selling, general & administrative expenses for the three
months ended June 30, 1996 include Restructuring Charges of $11.0 million and
$5.6 million, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations- Results of Operations - Three
Months Ended June 30, 1997 vs. Three Months Ended June 30, 1996. "
Cost of sales and selling, general & administrative expenses for the six
months ended June 30, 1996 include Restructuring Charges of $11.0 million and
$8.0 million ($2.9 million of which reflects non-recurring expenses related to
the termination of the proposed merger of the Company and Metromedia
International Group, Inc.), respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations - Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996."
<PAGE>
The following table sets forth, for the three months and six months ended
June 30, 1997, certain operating data by business segment, excluding corporate
related expenses and assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
(in thousands) (in thousands)
Proprietary Proprietary
Distribution Products Distribution Products
Net Sales $93,129 15,468 $207,552 $26,904
Depreciation & Amortization 563 1,910 1,235 3,883
Operating Loss (10,210) (6,536) (13,698) (11,756)
Capital Expenditures 287 294 1,224 378
Identifiable Assets --- --- 242,097 122,143
</TABLE>
Three Months Ended June 30, 1997 vs. Three Months Ended June 30, 1996
Net sales decreased from $163.2 million for the three months ended June 30,
1996 to $109.0 million for the three months ended June 30, 1997, or 33.2%. Net
sales attributable to the Company's distribution segment for the three months
ended June 30, 1997 were approximately $93.1 million compared to $147.1 million
for the three months ended June 30, 1996. During the three months ended June 30,
1997, sales in the Company's distribution segment were negatively impacted by:
(i) an increase in the number of unfilled orders due to inventory shortages
resulting from a reduction of vendor credit with certain suppliers as the
Company was unable to maintain current payments to its vendors; (ii) the loss of
certain customers due to the financial uncertainty surrounding the Company and
also resulting from the inability of the Company to fill customer orders; (iii)
the divestiture of the Company's Brazilian operations; and (iv) the continuation
of limited budgets allocated to the purchase of deep catalog product by certain
of the Company's customers. Net sales attributable to the Company's proprietary
product segment for the three months ended June 30, 1997 were approximately
$15.5 million, compared to approximately $15.9 million for the three months
ended June 30, 1996. Net sales in this segment were lower than the comparable
period in 1996 due in part to the elimination of sales from the Company's video
business that were discontinued in the fourth quarter of 1996 and a reduced
number of product releases during the three months ended June 30, 1997, due to
the timing of release schedules. These items were partially offset by the first
shipments of new release product from the Company's Red Ant subsidiary. The
Company's business is seasonal with the smallest percentage of sales typically
occurring in the first quarter and the largest percentage of annual sales
typically occurring in the fourth quarter.
The Company's gross margin increased to 13.2% for the three months ended
June 30, 1997, from 12.9% for the three months ended June 30, 1996. For the
three months ended June 30, 1997, the gross margin of the distribution segment
was 9.2%, compared to 9.4% for the three months ended June 30, 1996. The
reduction in gross margin for the distribution segment was primarily related to:
(i) the Company's inability to take advantage of discount buying and advertising
programs offered by vendors due to working capital constraints; (ii) the loss of
prompt payment discounts with certain of the Company's vendors as the Company
was unable to maintain current in its payments; (iii) the sale of certain
accessories and other non-music products at below cost to reduce overstock
positions and increase working capital. These items more than offset the
Restructuring Charges in cost of sales totaling $11.0 million or 7.5% of sales
for the three months ended June 30, 1996. For the three months ended June 30,
1997, the gross margin of the proprietary products segment was 35.5% compared to
44.5% for the three months ended June 30, 1996. The decrease in the Company's
gross margin for the proprietary product segment resulted from a lower level of
licensing revenue for the quarter, which typically carries a higher gross
margin, versus the sale of finished goods.
<PAGE>
Selling, general and administrative expenses decreased in dollar terms from
$36.3 million, or 22.2% of net sales, for the three months ended June 30, 1996,
(including Restructuring Charges during the period of $5.6 million) to $33.8
million, or 31.0% of net sales, for the three months ended June 30, 1997. The
Company's selling, general and administrative expenses increased on an overall
basis in the period (excluding the Restructure Charges) primarily due to the
inclusion of the operations of Red Ant for a full three months. This increase
was partially offset by cost reductions relating to the closure of the Company's
Bethel, Connecticut facility and the divestiture of the Company's Brazilian
operations.
Net loss for the three months ended June 30, 1996 was $21.9 million
compared to a net loss in the three months ended June 30, 1997 of $54.4 million
primarily due to the results of operations discussed above and asset impairment
charges totaling $18.3 million in connection with the write off of the goodwill
and its underlying investment in the Red Ant subsidiary .
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996.
Net sales decreased from $339.4 million for the six months ended June 30,
1996 to $235.3 million for the six months ended June 30, 1997, or 30.1%. Net
sales attributable to the Company's distribution segment for the six months
ended June 30, 1997 were approximately $207.6 million compared to $304.2 million
for the six months ended June 30, 1996. During the six months ended June 30,
1997, the Company's distribution segment, experienced lower than anticipated net
sales to its customers in part due to: (i) an increase in the number of unfilled
orders due to inventory shortages resulting from a reduction of vendor credit
with certain suppliers as the Company was unable to maintain current payments to
its vendors; (ii) the loss of certain customers due to the financial uncertainty
surrounding the Company and also resulting from the inability of the Company to
fill orders; (iii) the divestiture of the Company's Brazilian operations; and
(iv) the continuation of limited budgets allocated to the purchase of deep
catalog product by certain of the Company's customers. Net sales attributable to
the Company's proprietary product segment for the six months ended June 30, 1997
were approximately $26.9 million, compared to $34.9 million for the six months
ended June 30, 1996. Net sales for the period in the proprietary products
segment were impacted by the elimination of sales from the Company's video
business that were discontinued in the fourth quarter of 1996 and a reduced
number of product releases during the six months ended June 30, 1997, due to the
timing of release schedules. These items were partially offset by the first
shipments of new release product from the Company's Red Ant subsidiary. The
Company's business is seasonal with the smallest percentage of sales typically
occurring in the first quarter and the largest percentage of annual sales
typically occurring in the fourth quarter.
The Company's gross margin decreased from 15.9% for the six months ended
June 30, 1996, to 15.1% for the six months ended June 30, 1997. Excluding the
impact of the Restructuring Charges in cost of sales, the Company's gross margin
would have been 19.1% for the six months ended June 30, 1996. For the six months
ended June 30, 1997, the gross margin of the distribution segment was 11.4%,
compared to 12.8% for the six months ended June 30, 1996. Prior to the impact of
the Restructuring Charges, gross margins for this segment would have been 16.4%
for the six months ended June 30, 1996. The reduction in the gross margin for
the distribution segment was primarily related to: (i) the Company's inability
to take advantage of discount buying and advertising programs offered by vendors
due to working capital constraints; (ii) the loss of prompt payment discounts
with certain of the Company's vendors as the Company was unable to maintain
current in its payments; (iii) the sale of certain accessories and other
non-music products at below cost to reduce overstock positions and increase
working capital. For the six months ended June 30, 1997, the gross margin of the
proprietary products segment was 41.7% compared to 42.5% for the six months
ended June 30, 1996.
Selling, general and administrative expenses decreased in dollar terms from
$67.5 million, or 19.5% of net sales, for the six months ended June 30, 1996,
(including Restructuring Charges of $8.0 million) to $65.3 million, or 27.8% of
net sales, for the six months ended June 30, 1997. The Company's selling,
general and administrative expenses increased on an overall basis in the period
(excluding the impact of the Restructuring Charges) primarily due to the
inclusion of the operations of Red Ant for a full six months. This increase was
partially offset by cost reductions relating to the closure of the Company's
Bethel, Connecticut facility and the divestiture of the Company's Brazilian
operations.
<PAGE>
Net loss for the six months ended June 30, 1996 was $26.5 million compared
to a net loss in the six months ended June 30, 1997 of $77.5 million primarily
due to the results of operations discussed above and asset impairment charges
totaling $18.3 million in connection with the write off of the goodwill and its
underlying investment in the Red Ant subsidiary.
Liquidity and Capital Resources
Cash Provided From Operations
Cash provided by operations for the six months ended June 30, 1997 was $3.1
million compared to cash used in operations of $6.9 million for the six months
ended June 30, 1996. Accounts receivable for the period decreased by $62.0
million or 35.8%, primarily as a result of the Company's decrease in net sales
during the six months ended June 30, 1997, and the collection of receivables
with respect to seasonal dating programs offered by the Company during the
fourth quarter of 1996. Inventory for the period decreased by $41.5 million or
25.2% as a result of: (i) the Company's decrease in net sales during the six
months ended June 30, 1997; (ii) an on-going inventory reduction initiative
implemented as part of the Consolidation Plan and (iii) the Company's attempt to
improve liquidity by increasing product returns to vendors. Accounts payable and
accrued expenses decreased by $62.3 million or 23.3%, primarily as a result of:
(i) the Company's decrease in net sales during the six months ended June 30,
1997, (ii) payments with respect to seasonal dating programs offered by certain
vendors during the fourth quarter of 1996, and (iii) the payment of accrued
charges.
Cash Used in Investing Activities
During the six months ended June 30, 1997, the Company's capital
expenditures were $4.2 million primarily related to the modernization of the
Company's Coral Springs, Florida facility and the acquisition of computer
hardware to enable the execution of the Consolidation Plan. The Company's
investments in copyrights decreased at June 30, 1997 by $1.1 million primarily
due to a foreign currency translation adjustment by its UK subsidiary.
Cash Provided from Financing Activities
In connection with the Company's Chapter 11 filing, on July 16, 1997, the
Company entered into a Revolving Credit and Guaranty Agreement (the "DIP
Financing Agreement") with Chase Manhattan Bank providing for a maximum of $50
million of debtor-in-possession ("DIP") financing subject to approval by the
Bankruptcy Court. The DIP Financing Agreement is intended to address the
Company's immediate working capital needs and to support the Company's
operations during its Chapter 11 proceedings. On July 16, 1997, the Honorable
Burton R. Lifland approved on an interim basis use of $20 million of the $50
million DIP financing. The Company's use of the remaining $30 million of the DIP
financing was approved by the Court at a hearing held on August 13, 1997.
The DIP Financing Agreement provides for borrowings under a revolving
credit and a letter of credit facility. Loans under the revolving credit
facility bear interest at either the Alternate Base Rate (as defined in the DIP
Financing Agreement) plus 1.5% or at the Adjusted LIBOR Rate (as defined in the
DIP Financing Agreement) plus 2.75%. Loans under the letter of credit facility
bear interest at the Alternate Base Rate plus 1.5%. The terms of the DIP
Financing Agreement contain certain restrictive covenants including: limitations
on the incurrence of additional guarantees, liens and indebtedness; limitations
or the sale of assets and the making of capital expenditures. The DIP Financing
Agreement also requires that the Company meet certain minimum earnings before
taxes and other expenses through the end of 1998.
Under the DIP Financing Agreement, Chase Manhattan Bank has been given a
perfected first priority lien on all property and assets of the Company and its
subsidiaries. The banks who are parties to the Pre-Petition Credit Agreement, as
well as other secured creditors of the Company, have been granted replacement
liens on the Company's assets (junior to the lien granted under the DIP
Financing Agreement) to adequately protect such creditors' secured claims
against the Company prior to its Chapter 11 filing.
The DIP Financing Agreement expires on January 31, 1999 or earlier upon the
occurrence of certain events, including confirmation of a plan of reorganization
by the Bankruptcy Court, a sale of substantially all of the assets of the
Company, or failure by the Company to receive a final order confirming a plan of
reorganization.
<PAGE>
Forward-Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1996. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"expects," "anticipates," or words of similar import. Similarly, statements that
describe the Company's future plans, objectives, estimates or goals are
forward-looking statements. There are certain important factors that could cause
results to differ materially from those anticipated by forward-looking
statements made herein. Investors are cautioned that all forward-looking
statements involve risks and uncertainty. In addition to the factors discussed
above, among the factors that could cause actual results to differ materially
are the following: sufficient working capital to operate the Company's business,
availability of new release product, pricing strategies of competitors, public
demand for various styles of recorded music, product returns from customers and
overall economic conditions.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (FAS 128). FAS 128
specifies new standards designed to improve the EPS information provided in
financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of EPS
data on an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that common
stock equivalents are not considered in computing basic EPS, (b) eliminating the
modified treasury stock method and the three percent materiality provision, and
(c) revising the contingent share provisions and the supplemental EPS data
requirements. FAS 128 also makes a number of changes to existing disclosure
requirements. FAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The Company has not
yet determined the impact of the implementation of FAS 128. The Company does not
believe the implementation of FAS 128 will have a significant impact on reported
results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On July 14, 1997, the Company and fourteen of its wholly-owned subsidiaries
filed voluntarily under Chapter 11 of the Bankruptcy Code in order to facilitate
the reorganization of the Company's core businesses and the restructuring of the
Company's long-term debt, revolving credit and trade obligations. The Company
continues to operate with its existing directors and officers, as
debtor-in-possession subject to the Bankruptcy Court's supervision and orders.
Excluded from the filing were certain businesses in the Company's Proprietary
Products Group including (and its related affiliates): Castle Communications
plc; The St. Clair Entertainment Group, Inc.; and Red Ant Entertainment LLC. The
filing was made in the U.S. District Court for the Southern District of New York
in Manhattan.
Item 3. DEFAULTS UPON SENIOR SECURITIES
The filing of the petition under Chapter 11 of the Bankruptcy Code resulted
in the occurrence of an Event of Default under the Company's: (i) Indenture
relating to its 11.25% Senior Subordinated Notes due 2005; (ii) Credit
Agreement; (iii) 6% Exchangeable Notes; and (iv) Mortgage Bond for its
distribution facility in Coral Springs, Florida. The Company has entered into a
Revolving Credit and Guaranty Agreement with Chase Manhattan for approximately
$50 million in DIP financing of which has been approved by the Bankruptcy Court.
Under the terms of the Pre-petition Credit Agreement the Company's banks had
been permitted to accelerate the maturity of approximately $187 million of
outstanding indebtedness prior to commencement of the Company's Chapter 11
proceeding. See Notes to the Consolidated Financial Statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Merger Agreement dated December 20, 1995 by and among Metromedia
International Group, Inc., Alliance Merger Corp. and the
Registrant. (Incorporated by reference from Exhibit 1 filed in the
Registrant's Form 8-K dated December 21, 1995 (File No. 0-20182).)
2.2 Termination and Release Agreement dated April 29, 1996.(Incorporated
by reference from Exhibit 1 filed in the Registrant's Form 8-K dated
April 29, 1996 (File No. 1-13054).)
3.1 Certificate of Incorporation, as amended. (Incorporated by reference
from Exhibit 3.1 filed in the Registrant's Amendment No. 1 to
Registration Statement on Form S-4 filed September 22, 1995.
(Registration No. 33-95386.)
3.2 Revised and Restated By-Laws. (Incorporation by reference from Exhibit
3.2 filed in the Registrant's Form 10-Q for the period ended September
30, 1996. (File No. 1-13054).)
3.3 Certificate of Designations. (Incorporated by reference from Exhibit
4.11(A) filed in the Registrant's Form 8-K dated July 16, 1996.
(File No. 1-13054).)
3.4 Certificate of Designations. (Incorporated by reference from Exhibit
3.4 filed in the Registrant's Form 10-Q for the period ended March
31, 1997. (File No. 1-13054).)
4.1 Restated Stockholders' Agreement dated as of November 30, 1993.
(Incorporated by reference from Exhibit 4.1 filed in the
Registrant's Registration Statement on Form S-3 dated September
22,1995. (Registration No. 33-97280).)
<PAGE>
4.2 Amendment to Restated Stockholders'Agreement dated as of May 18, 1995.
(Incorporated by reference from Exhibit 4.2 filed in the Registrant's
Registration Statement on Form S-3 dated September 22, 1995
(Registration No. 33-97280).)
4.3 Indenture dated July 25,1995 among the Company, the Subsidiary
Guarantors and Bankers Trust Company, as trustee. (Incorporated by
reference from Exhibit 4.1 filed in the Registrant's Registration
Statement on Form S-4 filed August 3, 1995. (Registration No.
33-95386).)
4.4 First Supplemental Indenture dated July 26, 1995 among the Company,
the Subsidiary Guarantors and Bankers Trust Company, as trustee.
(Incorporated by reference from Exhibit 4.2 filed in the Registrant's
Amendment No. 1 to Registration Statement on Form S-4 filed September
22, 1996 (Registration No. 33-95386).)
4.5 Registration Rights Agreement dated July 25, 1995 among the Company,
the Subsidiary Guarantors and the Initial Purchasers. (Incorporated by
reference from Exhibit 4.3 filed in the Registrant's Registration
Statement on Form S-4 filed August 3, 1995(Registration No.33-95386).)
4.6 Purchase Agreement dated July 18, 1995 among the Company, the
Guarantors and the Initial Purchasers.(Incorporated by reference
from Exhibit 4.4 filed in the Registrant's Registration Statement
on Form S-4 filed August 3. 1995 (Registration No. 33-95386).)
4.7 Second Supplemental Indenture dated September 6, 1995 among the
Company, the Subsidiary Guarantors and Bankers Trust Company, as
trustee. (Incorporated by reference from Exhibit 4.5 filed in the
Registrant's Amendment No. 1 to Registration Statement on Form S-4
filed September 22, 1995 (Registration No. 33-95386).)
4.8 Purchase Agreement made as of May 18, 1995, between AEC Americas Inc.,
and Bain Capital Fund IV L.P., Bain Capital Fund IV-B L.P., BCIP
Associates and BCIP Trust Associates, L.P. (Incorporated by reference
from Exhibit 4.5 filed in the Registrant's Form 10-Q for the period
ended June 30, 1995 (File No.1-13054).)
4.9 Parent Covenant Agreement dated as of May 18, 1995, by and between
Alliance Entertainment Corp., AEC Americas, Inc., and Bain Capital
Fund IV L.P., Bain Capital Fund IV-B L.P., BCIP Associates and BCIP
Trust Associates, L.P. (Incorporated by reference from Exhibit 4.6
filed in the Registrant's Form 10-Q for the period ended June 30,
1995 (File No. 1-13054).)
4.10 Third Supplemental Indenture dated February 26, 1996, among the
Company, the Subsidiary Guarantors and Bankers Trust Company as
Trustee. (Incorporated by reference from Exhibit 4.10 filed in the
Registrant's Form 10-Q for the period ended March 31, 1996 (File No.
1-13054).)
4.11 Preferred Stock Purchase Agreement dated July 16, 1996, between the
Company, BT Capital Partners, Inc. and BCI Growth IV, L.P.
(Incorporated by reference from Exhibit 4.11 filed in the
Registrant's Form 8-K dated July 16, 1996. (File No. 1-13054).)
4.12 Voting Agreement dated as of August 15, 1996, among Joseph Bianco,
John Friedman, Peter Kaufmann, Elliot Newman, Robert Marx, Alvin
Teller, Bain Capital, Inc., BT Capital Partners Inc., U.S. Equity
Partners, L.P., U.S. Equity Partners (Offshore) L.P. and Wasserstein
& Co., Inc. (Incorporated by reference from Exhibit 1 (E) filed in
the Registrant's Form 8-K dated August 15, 1996 (File No. 1-13054).)
<PAGE>
10.1 Incentive Stock Option Plan for Executives of Jerry Bassin, Inc.
(Incorporated by reference from Exhibit 10.1 filed as part of the
Proxy and Prospectus in connection with the Special Meeting held
on November 30, 1993 (File No. 33-68816).)
10.2 1992 Non-Qualified Stock Option Plan. (Incorporated by reference from
Exhibit 10.2 filed as part of the Proxy and Prospectus in connection
with the Special Meeting held on November 30, 1993(File No.33-68816).)
10.3 1993 Stock Option Plan. (Incorporated by reference from Exhibit 10.3
filed as part of the Proxy and Prospectus in connection with the
Special Meeting held on November 30, 1993 (File No. 33-68816).)
10.4 1993 Stock Option Incentive Plan. (Incorporated by reference from
Exhibit 10.4 filed as part of the Proxy and Prospectus in connection
with the Special Meeting held on November 30, 1993
(File No. 33-68816).)
10.5 Amendment and Restated Employment Agreement dated as of August 15,
1996, between the Company and Joseph J. Bianco. (Incorporated by
reference from Exhibit 10.5 filed in the Registrant's Form 10-Q for
the period ended September 30, 1996 (File No. 1-13054).)
10.6 Amended and Restated Employment Agreement dated as of August 15, 1996,
between the Company and Anil K. Narang. (Incorporated by reference
from Exhibit 10.6 filed in the Registrant's Form 10-Q for the period
ended September 30, 1996 (File No. 1-13054).)
10.7 Employment Agreement dated as of November 1, 1995, between the Company
and Timothy J. Dahltorp. (Incorporated by reference from Exhibit 10.7
filed with the Registrant's Form 10-K for the year ended December
31, 1996 (File No. 1-13054).)
10.8 Amended and Restated Employment Agreement dated as of August 15, 1996
between the Company and Elliot B. Newman. (Incorporated by reference
from Exhibit 10.8 filed in the Registrant's Form 10-Q for the period
ended September 30, 1996 (File No. 1-13054).)
10.9 Employment Agreement dated as of September 5, 1995 between the Company
and David H. Schlang. (Incorporated by reference from Exhibit 10.9
filed with the Registrant's Form 10-K for the year ended December 31,
1996 (File No.1-13054).)
10.10 Revolving Credit and Guaranty Agreement dated as of July 17, 1997,
among the Company, the Guarantors, the Chase Manhattan Bank and each
of the other Financial Institutions from time to time party thereto.*
10.11 Letter Agreement dated as of July 23, 1997, among the Company, the
Guarantors, the Chase Manhattan Bank and each of the other Financial
Institutions from time to time party thereto.*
10.12 Second Amendment to Revolving Credit and Guaranty Agreement dated as
of July 25,1997, among the Company, the Guarantors, the Chase
Manhattan Bank and each of the other Financial Institutions from time
to time party thereto.*
10.16 Form of Employment Agreement dated as of March 14, 1994 between the
Registrant and Eric S. Weisman. (Incorporated by reference from
Exhibit 10.28 filed in the Registrant's Form 10-K for the year
ended December 31, 1993 (File No. 1-13054).)
<PAGE>
10.17 Form of 1994 Long-Term Incentive and Share Award Plan. (Incorporated
by reference from Exhibit 10.29 filed in the Registrant's Form 10-K
for the year ended December 31, 1993 (File No. 1-13054).)
10.18 Form of Amendment to the 1994 Long-Term Incentive and Share Award
Plan. (Incorporated by reference from Exhibit 10.18 filed in the
Registrant's Form 10-K for the year ended December 31, 1995 (File No.
1-13054).)
10.22 Merger Agreement dated as of February 4, 1994 between the Registrant
and Airlie, Inc. (Incorporated by reference from Exhibit 10.35 filed
in the Registrant's Form 8-K dated February 4, 1994 (File No.
1-13054).)
10.23 Extention Agreement to Employment Agreement dated July 31,1996,
between the Company and Eric Weisman. (Incorporated by reference from
Exhibit 10.23 filed with the Registrant's Form 10-K for the year
ended December 31, 1996 (File No. 1-13054).)
10.25 Offer Document dated July 28, 1994 from AEC Holdings (UK) Limited to
the Shareholders of Castle and press release issued in the United
Kingdom in connection therewith. (Incorporated by reference from
Exhibit 10.41 filed in the Registrant's Form 10-Q for the quarterly
period ended June 30, 1994 (File No. 1-13054).)
10.26 Lease between the Registrant and The Northwestern Mutual Life
Insurance Company dated January 12, 1996, relating to the premises
located at 15050 Shoemaker Avenue, Santa Fe Springs, California.
(Incorporated by reference from Exhibit 10.45 filed in the
Registrant's Form 10-K for the fiscal year ended December 3l, 1994
(File No. 1-13054).)
10.27 Third Amended and Restated Credit Agreement and Guaranty dated as of
July 25, 1995 among the Company, the Guarantors, the Banks and The
Chase Manhattan Bank, N.A., as Agent. (Incorporated by reference from
Exhibit 10.50 filed in the Registrant's Registration Statement on
Form S-4 filed August 3, 1995 (Registration No.
33-95386).)
10.28 Merger Agreement dated as of September 1, 1995 relating to One Way
Records, Inc. (Incorporated by reference from Exhibit 10.51 filed in
the Registrant's Amendment No. 1 to Registration Statement on Form
S-4 filed September 22, 1995 (Registration No.
33-95386).)
10.29 Merger Agreement dated as of September 1, 1995 relating to Deja Vu
Music, Inc. (Incorporated by reference from Exhibit 10.52 filed in
the Registrant's Amendment No. 1 to Registration Statement on Form
S-4 filed September 22, 1995 (Registration No.
33-95386).)
10.30 Management Consulting Agreement dated as of May 10, 1995, among
Alliance Entertainment and Bain Capital, Inc. (Incorporated by
reference from Exhibit 10.51 filed in the Registrant's Form 10-Q for
the period ended June 30, 1995 (File No. 1-13054).)
10.31 Merger Agreement by and between the Company, INDI Acquisition Corp.
and INDI Holdings Inc., dated July 17, 1995. (Incorporated by
reference from Exhibit 2.3 filed in the Registrant's Form 10-Q for
the period ended June 30, 1995 (File No. 1-13054).)
10.33 Quota Purchase Agreement dated October 11, 1995, relating to the
acquisition of Distribuidora de Discos E Fitas Canta Brasil Ltda.
(Incorporated by reference from Exhibit 10.33 filed in the
Registrant's Form 10-Q for the period ended March 31, 1996.
(File No. 1-13054).)
<PAGE>
10.34 Distribution Agreement dated June 21, 1996, between the Company and
EMI-Capitol Music Group. (Incorporated by reference from Exhibit 2
in the Registrant's Form 8-K dated June 21, 1996.
(File No. 1-13054).)
10.35 Letter of Intent dated July 1, 1996, between the Company and Matrix
Software, Inc. (Incorporated by reference from Exhibit 10.35 filed
with the Registrant's Form 10-Q for the period ended June 30, 1996
(File No. 1-13054).)
10.36 First Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of September 30, 1995, among the Company, AEC
Holdings (UK) Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent. (Incorporated by reference from
Exhibit 10.36 filed with the Registrant's Form 10-Q for the period
ended June 30, 1996 (File No. 1-13054).)
10.37 Second Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of December 31, 1995, among the company, AEC
Holdings (UK) Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent. (Incorporated by reference from
Exhibit 10.37 filed with the Registrant's Form 10-Q for the period
ended June 30, 1996 (File No. 1-13054).)
10.38 Third Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of June 30, 1996, among the Company, AEC Holdings
(UK) Limited, Castle Communication Limited, the Guarantors, the Banks
and The Chase Manhattan Bank, N.A., as Agent.(Incorporated by
reference from Exhibit 10.38 filed with the Registrant's Form 10-Q
for the period ended June 30, 1996 (File No. 1-13054).)
10.39 Stock Acquisition and Merger Agreement dated as of August 15, 1996,
by and among the Company, Alvin N. Teller, Wasserstein & Co. Inc.,
U.S. Equity Partners L.P. and others. (Incorporated by reference from
Exhibit 1 filed with the Registrant's Form 8-K dated August 15, 1996
(File No. 1-13054).)
10.40 The 1994 Long Term Incentive and Share Award Plan. (Incorporated by
reference from the Registrant's Registration Statement on Form S-8
filed on June 10, 1994. (File No. 33-80134).)
10.41 Amendment No. 1 to the 1994 Long Term Incentive and Share Award Plan.
(Incorporated by reference from the Registrant's Registration
Statement on Form S-8 filed on September 5, 1995.
(File No. 33-96592).)
10.42 Employment Agreement dated as of August 15, 1996, between Alliance
Entertainment Corp. and Alvin N. Teller. (Incorporated by reference
from Exhibit 10.42 filed with the Registrant's Form 10-Q for the
period ended September 30, 1996. (File No. 1-13054).)
<PAGE>
10.43 Stock Option Agreement between Alliance Entertainment Corp. and Alvin
N. Teller dated August 15, 1996. (Incorporated by reference from
Exhibit 10.43 filed with the Registrant's Form 10-Q for the period
ended September 30, 1996.(File No. 1-13054).)
10.44 Engagement Letter Agreement among the Company and Wasserstein Perella
& Co., Inc. dated as of August 15, 1996. (Incorporated by reference
from Exhibit 10.44 filed with the Registrant's Form 10-Q for the
period ended September 30, 1996. (File No. 1-13054).)
10.45 Right of First Refusal Agreement dated as of August 15, 1996, by and
among Alvin N. Teller, Joe Bianco and Anil Narang. (Incorporated
by reference from Exhibit 10.45 filed with the Registrant's Form
10-Q for the period ended September 30, 1996. (File No. 1-13054).)
10.46 Fourth Amendment to Third Amended and Restated Credit Agreement and
Guaranty among the Company, AEC Holdings (UK) Limited, Castle
Communications Limited, The Guarantors, the Banks, and The Chase
Manhattan Bank, N.A., as Agent. (Incorporated by reference from
Exhibit 10.46 filed with the Registrant's Form 10-Q for the period
ended September 30, 1996. (File No. 1-13054).)
10.47 Purchase Agreement among Wasserstein & Co. Inc., Cypress Ventures,
Inc., and BT Capital Partners, Inc.dated December 20, 1996, including
exhibits thereto. (Incorporated by reference from Exhibit 10.47 filed
with the Registrant's Form 8-K dated December 20, 1996.
(File No. 1-13054).)
10.48 Settlement Agreement dated as of March 10, 1997, among the Company,
David H. Schlang, Jack Rosenbloom and Peter Hyman. (Incorporated
by reference from Exhibit 10.48 filed in the Registrant's
Form 10-Q for the period ended March 31, 1997. (File No. 1-13054).)
11.1 Statement Re: Computation of Earnings (Loss) per Share. (Incorporated
by reference from Exhibit 11.1 filed with the Registrant's Form
10-K for the year ended December 31, 1996. (File No. 1-13054).)
27.1 Financial Data Schedule.*
*Filed herewith
<PAGE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated July 14, 1997, to
announce that on July 14, 1997, the Company filed a voluntary petition to
reorganize under Chapter 11 of the Bankruptcy Code. See "Management's Discussion
and Analysis - Reorganization Under Chapter 11."
The Company filed a Current Report on Form 8-K dated July 16, 1997, to
announce that on that date the Bankruptcy Court approved on an interim basis use
of $20 million of debtor-in-possession financing under a loan agreement with
Chase Manhattan Bank. See "Management's Discussion and Analysis - Liquidity and
Capital Resources - Cash Provided From Financing Activities."
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Timothy Dahltorp
------------------------------
Timothy Dahltorp
Executive Vice President,
Chief Financial Officer and Treasurer
Date: August 14, 1997
=================================================================
REVOLVING CREDIT AND GUARANTY AGREEMENT
=================================================================
Among
ALLIANCE ENTERTAINMENT CORP., a Debtor-in-Possession,
as Borrower
and
THE SUBSIDIARIES OF THE BORROWER NAMED HEREIN,
as Guarantors
and
THE BANKS PARTY HERETO,
and
THE CHASE MANHATTAN BANK,
as Agent
=================================================================
Dated as of July 17, 1997
=================================================================
<PAGE>
REVOLVING CREDIT AND GUARANTY AGREEMENT
TABLE OF CONTENTS
Page No.
INTRODUCTORY STATEMENT....................................................1
SECTION 1. DEFINITIONS..........................................3
SECTION 1.1. Defined Terms.............................3
SECTION 1.2. Terms Generally..........................20
SECTION 2. AMOUNT AND TERMS OF CREDIT..........................21
SECTION 2.1. Commitment of the Banks..................21
SECTION 2.2. Borrowing Base...........................22
SECTION 2.3. Letters of Credit........................23
SECTION 2.4. Issuance. ...............................25
SECTION 2.5. Nature of Letter of
Credit Obligations Absolute..............25
SECTION 2.6. Making of Loans..........................25
SECTION 2.7. Notes; Repayment of Loans................27
SECTION 2.8. Interest on Loans........................27
SECTION 2.9. Default Interest.........................27
SECTION 2.10. Optional Termination or Reduction of
Commitment; Mandatory Reduction of
Commitment...............................28
SECTION 2.11. Alternate Rate of Interest...............28
SECTION 2.12. Refinancing of Loans.....................28
SECTION 2.13. Mandatory Prepayment; Commitment
Termination; Cash Collateral.............30
SECTION 2.14. Optional Prepayment of Loans;
Reimbursement of Banks...................31
SECTION 2.15. Reserve Requirements; Change
in Circumstances.........................32
SECTION 2.16. Change in Legality.......................34
SECTION 2.17. Pro Rata Treatment, etc..................35
SECTION 2.18. Taxes....................................35
SECTION 2.19. Certain Fees.............................38
SECTION 2.20. Commitment Fee...........................38
SECTION 2.21. Letter of Credit Fees....................38
SECTION 2.22. Nature of Fees...........................38
SECTION 2.23. Priority and Liens.......................39
SECTION 2.24. Right of Set-Off.........................41
SECTION 2.25. Security Interest in Letter of Credit
Account..................................41
SECTION 2.26. Payment of Obligations...................42
SECTION 2.27. No Discharge; Survival of Claims.........42
SECTION 3. REPRESENTATIONS AND WARRANTIES......................42
SECTION 3.1. Organization and Authority...............42
SECTION 3.2. Due Execution............................42
SECTION 3.3. Statements Made..........................43
SECTION 3.4. Financial Statements.....................43
SECTION 3.5. Ownership................................44
SECTION 3.6. Liens....................................44
SECTION 3.7. Compliance with Law......................44
SECTION 3.8. Insurance................................45
SECTION 3.9. The Order................................45
SECTION 3.10. Use of Proceeds..........................45
SECTION 3.11. Store Locations..........................46
SECTION 3.12. Litigation...............................46
SECTION 4. CONDITIONS OF LENDING...............................46
SECTION 4.1. Conditions Precedent to Initial Loans
and Initial Letters of Credit............46
SECTION 4.2. Conditions Precedent to Each Loan and
Each Letter of Credit..................50
<PAGE>
SECTION 5. AFFIRMATIVE COVENANTS...............................51
SECTION 5.1. Financial Statements, Reports, etc.......51
SECTION 5.2. Corporate Existence......................53
SECTION 5.3. Insurance................................53
SECTION 5.4. Obligations and Taxes....................54
SECTION 5.5. Notice of Event of Default, etc..........54
SECTION 5.6. Borrowing Base Certificate...............54
SECTION 5.7. Access to Books and Records..............54
SECTION 5.8. Business Plan............................55
SECTION 5.9. Concentration and Disbursement Accounts..55
SECTION 5.10. Employee Benefits........................55
SECTION 5.11. Repayment of Pre-Petition Real
Estate Loans..........................56
SECTION 5.12. Post-Closing Date Obligations............56
SECTION 5.13. Pre-Petition Letters of Credit...........56
SECTION 6. NEGATIVE COVENANTS..................................57
SECTION 6.1. Liens and Reclamation Claims.............57
SECTION 6.2. Merger, etc..............................57
SECTION 6.3. Indebtedness.............................57
SECTION 6.4. Capital Expenditures.....................58
SECTION 6.5. EBITDA...................................58
SECTION 6.6. Inventory................................58
SECTION 6.7. Guarantees and Other Liabilities.........59
SECTION 6.8. Chapter 11 Claims........................59
SECTION 6.9. Dividends; Capital Stock.................59
SECTION 6.10. Transactions with Affiliates.............60
SECTION 6.11. Investments, Loans and Advances..........60
SECTION 6.12. Disposition of Assets....................60
SECTION 6.13. Nature of Business.......................61
SECTION 7. EVENTS OF DEFAULT...................................61
SECTION 7.1. Events of Default........................61
SECTION 8. THE AGENT...........................................66
SECTION 8.1. Administration by Agent..................66
SECTION 8.2. Advances and Payments....................66
SECTION 8.3. Sharing of Setoffs.......................66
SECTION 8.4. Agreement of Required Banks..............67
SECTION 8.5. Liability of Agent.......................68
SECTION 8.6. Reimbursement and Indemnification........68
SECTION 8.7. Rights of Agent..........................69
SECTION 8.8. Independent Banks........................69
SECTION 8.9. Notice of Transfer.......................69
SECTION 8.10. Successor Agent..........................69
SECTION 9. GUARANTY............................................70
SECTION 9.1. Guaranty.................................70
SECTION 9.2. No Impairment of Guaranty................71
SECTION 9.3. Subrogation..............................71
SECTION 10. MISCELLANEOUS......................................72
SECTION 10.1. Notices.................................72
SECTION 10.2. Survival of Agreement, Representations
and Warranties, etc...................73
SECTION 10.3. Successors and Assigns..................73
SECTION 10.4. Confidentiality.........................76
SECTION 10.5. Expenses; Documentary Taxes.............76
SECTION 10.6. Indemnity...............................77
SECTION 10.7. CHOICE OF LAW...........................78
SECTION 10.8. No Waiver...............................78
SECTION 10.9. Extension of Maturity...................78
SECTION 10.10. Amendments, etc.........................78
SECTION 10.11. Severability............................80
SECTION 10.12. Headings................................80
SECTION 10.13. Execution in Counterparts...............80
SECTION 10.14. Prior Agreements........................80
SECTION 10.15. Further Assurances......................80
SECTION 10.16. WAIVER OF JURY TRIAL....................80
<PAGE>
SIGNATURES..........................................................
ANNEX A - Commitment Amounts
EXHIBIT A-1 - Form of Interim Order
EXHIBIT A-2 - Form of Final Order
EXHIBIT B - Form of Security and Pledge Agreement
EXHIBIT C - Form of Opinion of Counsel to Borrower
EXHIBIT D - Form of Assignment and Acceptance
EXHIBIT E - Form of Borrowing Base Certificate
<PAGE>
SCHEDULE 1.1 - Existing Agreements
SCHEDULE 3.4 - Material Adverse Changes
SCHEDULE 3.5 - Subsidiaries
SCHEDULE 3.6 - Pre-Petition Liens
SCHEDULE 3.6(b) - Primed Lenders
SCHEDULE 3.11 - Litigation
SCHEDULE 3.12 - Ad Valorem Taxes
SCHEDULE 3.13- - Additional Vendors
SCHEDULE 6.12 - Assets to be Sold
<PAGE>
REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of July 17, 1997
REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of July 17, 1997
among Alliance Entertainment Corp., a Delaware corporation (the "Borrower"), a
debtor and debtor-in-possession in a case pending under Chapter 11 of the
Bankruptcy Code, each of the Subsidiaries of the Borrower designated as a
Guarantor on Schedule 3.5 hereto (each a "Guarantor" and collectively, the
"Guarantors"); each of which Guarantors referred to in this paragraph is a
debtor and a debtor-in-possession in a case pending under Chapter 11 of the
Bankruptcy Code (the cases of the Borrower and the Guarantors, each a "Case" and
collectively, the "Cases"), THE CHASE MANHATTAN BANK ("Chase") each of the other
financial institutions from time to time party hereto (together with Chase, the
"Banks"), and THE CHASE MANHATTAN BANK, as administrative and collateral agent
(in such capacity, the "Agent") for the Banks.
INTRODUCTORY STATEMENT
On July 14, 1997, the Borrower and the Guarantors filed voluntary
petitions with the Bankruptcy Court initiating the Cases and have continued in
the possession of their assets and in the management of their businesses
pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
The Borrower has applied to the Banks for a revolving credit and letter
of credit facility in an aggregate principal amount not to exceed $50,000,000
(subject to mandatory and optional reductions in accordance with Sections 2.10
and 2.13), all of the Borrower's obligations under which are guaranteed by the
Guarantors.
The proceeds of the Loans will be used to provide working capital for
other general corporate purposes of, the Borrower and the Guarantors (including
for the making of permitted intercompany loans and advances to the Guarantors
and for Capital Expenditures), the payment of expenses included in the Carve-Out
and the making of certain indemnification payments.
To provide guarantees and security for the repayment of the Loans, the
reimbursement of any draft drawn under a Letter of Credit and the payment of the
other Obligations of the Borrower and the Guarantors hereunder and under the
other Loan Documents, the Borrower and the Guarantors will provide to the Agent
and the Banks the following (each as more fully described herein):
(a) a guaranty from each of the Guarantors of the
due and punctual payment and performance of the Obligations of the
Borrower hereunder;
(b) with respect to the Obligations of the Borrower
and the Guarantors hereunder, an allowed administrative expense claim
in each of the Cases pursuant to Section 364(c)(1) of the Bankruptcy
Code having priority over all administrative expenses of the kind
specified in Sections 503(b) and 507(b) of the Bankruptcy Code;
(c) with respect to the Obligations of the Borrower
and the Guarantors, a perfected first priority Lien, pursuant to
Section 364(c)(2) of the Bankruptcy Code, upon (x) all unencumbered
property of the Borrower and the Guarantors and (y) all cash and cash
equivalents in the Letter of Credit Account;
<PAGE>
(d) with respect to the Obligations of the Borrower
and the Guarantors, a perfected Lien, pursuant to Section 364(c)(3) of
the Bankruptcy Code, upon all property of the Borrower and the
Guarantors (other than the property that is subject to the valid and
perfected Liens that currently secure the Borrower's and Guarantors'
pre-petition Indebtedness under the Existing Agreements and Liens in
favor of the Primed Vendors (as hereinafter defined)) that is subject
to valid and perfected Liens in existence on the Filing Date and
subject to other Permitted Liens, junior to such valid and perfected
Liens; and
(e) with respect to the Obligations of the Borrower
and the Guarantors, a perfected first priority priming Lien, pursuant
to Section 364(d)(1) of the Bankruptcy Code, upon all property of the
Borrower and the Guarantors (including, without limitation,
Receivables, Inventory, intellectual property, the capital stock of all
of the Subsidiaries of the Borrower and all proceeds thereof) that is
subject to the existing Liens of the Primed Vendors (as hereinafter
defined) in Inventory of the Borrower and certain of the Guarantors and
to the existing Liens that presently secure the Borrower's and
Guarantors' pre-petition Indebtedness under the Existing Agreements and
any Liens granted after the Filing Date to provide adequate protection
in respect thereof, which Lien in favor of the Agent and the Banks
shall be senior in all respects to all of such existing Liens and to
any Liens granted after the Filing Date to provide adequate protection
in respect thereof.
All of the claims and the Liens (a) granted hereunder or in
any other Loan Document (notwithstanding any provision to the contrary in any
Loan Document) in the Cases to the Agent and the Banks shall (insofar as claims
against and assets of the Borrower and the Guarantors are concerned) and (b) all
replacement Liens and claims provided for in the Orders, shall be subject to the
Carve-Out and the Permitted Liens and indemnification payments provided for in
Section 6.7(iii) and shall not attach to the Consignor Property to the extent
provided in Section 2.23 and the Orders.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
SECTION 1.1. Defined Terms.
As used in this Agreement, the following terms shall have the
meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Section 2.
"Accessory Inventory" shall mean Categories 22 through 99 as
historically indicated on One Stop's or One Way's (as applicable) Inventory
Total Report by Category.
"Account Receivable" shall mean any right to payment for goods
sold, regardless of how such right is evidenced and whether or not it has been
earned by performance.
"Accrued Returns Reserve" shall mean Percentage of Actual
Returns multiplied by the gross sales for the immediately preceding three
months.
<PAGE>
"Additional Credit" shall have the meaning set forth in
Section 4.2(d).
"Adjusted LIBOR Rate" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the quotient of
(a) the LIBOR Rate in effect for such Interest Period divided by (b) a
percentage (expressed as a decimal) equal to 100% minus Statutory Reserves. For
purposes hereof, the term "LIBOR Rate" shall mean the rate (rounded upwards, if
necessary, to the next 1/16 of 1%) at which dollar deposits approximately equal
in principal amount to such Eurodollar Borrowing and for a maturity comparable
to such Interest Period are offered to the principal London office of the Agent
in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Advertising Due Customer Reserve" shall be determined in
accordance with One Stop's or One Way's (as applicable) historical accounting
practices.
"Affiliate" shall mean, as to any Person, any other Person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person. For purposes of this definition, a Person (a
"Controlled Person") shall be deemed to be "controlled by" another Person (a
"Controlling Person") if the Controlling Person possesses, directly or
indirectly, power to direct or cause the direction of the management and
policies of the Controlled Person whether through the ownership of voting
securities, by contract or otherwise.
"Agent" shall have the meaning set forth in the Introduction.
"Agreement" shall mean this Revolving Credit and Guaranty
Agreement as the same may from time to time be amended, modified or
supplemented.
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate
of interest per annum publicly announced from time to time by the Agent as its
prime rate in effect at its principal office in New York City; each change in
the Prime Rate shall be effective on the date such change is publicly announced.
"Base CD Rate" shall mean the sum of (a) the quotient of (i) the Three-Month
Secondary CD Rate divided by (ii) a percentage expressed as a decimal equal to
100% minus Statutory Reserves and (b) the Assessment Rate. "Three-Month
Secondary CD Rate" shall mean, for any day, the secondary market rate for
three-month certificates of deposit reported as being in effect on such day (or,
if such day shall not be a Business Day, the next preceding Business Day) by the
Board through the public information telephone line of the Federal Reserve Bank
of New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such day or
such next preceding Business Day, the average of the secondary market quotations
for three-month certificates of deposit of major money center banks in New York
City received at approximately 10:00 a.m., New York City time, on such day (or,
if such day shall not be a Business Day, on the next preceding Business Day) by
<PAGE>
the Agent from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the day of such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate
or both for any reason, including the inability or failure of the Agent to
obtain sufficient quotations in accordance with the terms hereof, the Alternate
Base Rate shall be determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"Amounts" shall have the meaning given such term in Section
2.18(a).
"Assessment Rate" shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated
by the Agent as the then current net annual assessment rate that will be
employed in determining amounts payable by the Agent to the Federal Deposit
Insurance Corporation (or any successor) for insurance by such Corporation (or
any successor) of time deposits made in dollars at the Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Bank and an Eligible Assignee, and accepted by the
Agent, substantially in the form of Exhibit D.
"Bankruptcy Code" shall mean The Bankruptcy Reform Act of
1978, as heretofore and hereafter amended, and codified as 11 U.S.C. Section 101
et seq.
"Bankruptcy Court" shall mean the United States Bankruptcy
Court for the Southern District of New York, or any other court, having
jurisdiction over the Cases from time to time.
"Banks" shall have the meaning set forth in the Introduction.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrower" shall have the meaning set forth in the
Introduction.
"Borrowing" shall mean the incurrence of Loans of a single
Type made from all the Banks on a single date and having, in the case of
Eurodollar Loans, a single Interest Period (with any ABR Loan made pursuant to
Section 2.16 being considered a part of the related Borrowing of Eurodollar
Loans).
"Borrowing Base" shall mean, at any time, an amount equal to
the sum of (i) eighty-five percent (85%) of (a) the face amount of all Accounts
Receivable which are Eligible Accounts of One Stop minus the applicable (b)
Dilution Reserve at such time, (c) Accrued Returns Reserve, (d) Customer Volume
Discount Reserve and (e) Advertising Due Customer Reserve plus (ii) __% of (a)
the face amount of all Accounts Receivable which are Eligible Accounts of One
Way minus the applicable (b) Dilution Reserve at such time, (c) Accrued Returns
Reserve, (d) Customer Volume Discount Reserve and (e) Advertising Due Customer
Reserve plus (iii) 50% of Eligible Inventory owned by One Stop as of such date
plus (iv) 30% of the Eligible Inventory owned by One Way as of such date plus
(v) for One Stop only, 30% of Estimated Inventory to be Returned at Cost. The
Borrowing Base at any time shall be determined by reference to the Borrowing
Base Certificate most recently delivered according to Section 5.6.
"Borrowing Base Certificate" shall mean a certificate
substantially in the form of Exhibit E, executed and certified by a Financial
Officer of the Borrower, and accompanied by appropriate supporting documentation
that verifies the amounts shown thereon.
<PAGE>
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which banks in the State of New York are required or
permitted to close (and, for a Letter of Credit, other than a day on which the
Fronting Bank issuing such Letter of Credit is closed); provided, however, that
when used in connection with a Eurodollar Loan, the term "Business Day" shall
also exclude any day on which banks are not open for dealings in dollar deposits
on the London interbank market.
"Capital Expenditures" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
during such period and including that portion of Capitalized Leases which is
capitalized on the consolidated balance sheet of the Borrower and the
Guarantors) net of cash amounts received by the Borrower and the Guarantors from
other Persons during such period in reimbursement of Capital Expenditures made
by the Borrower and the Guarantors, excluding interest capitalized during
construction, by the Borrower and the Guarantors during such period that, in
conformity with GAAP, are required to be included in or reflected by the
property, plant, equipment or similar fixed asset accounts reflected in the
consolidated balance sheet of the Borrower and the Guarantors (including
equipment which is purchased simultaneously with the trade-in of existing
equipment owned by the Borrower or any of the Guarantors to the extent of the
gross amount of such purchase price less the book value of the equipment being
traded in at such time), but excluding expenditures made in connection with the
replacement or restoration of assets, to the extent reimbursed or financed from
insurance proceeds paid on account of the loss of or the damage to the assets
being replaced or restored, or from awards of compensation arising from the
taking by condemnation or eminent domain of such assets being replaced.
"Capitalized Lease" shall mean, as applied to any Person, any
lease of property by such Person as lessee which would be capitalized on a
balance sheet of such Person prepared in accordance with GAAP.
"Carve-Out" shall have the meaning set forth in Section 2.23.
"Cases" shall mean the Chapter 11 Cases of the Borrower and
each of the Guarantors pending in the Bankruptcy Court.
"Chase" shall have the meaning set forth in the Introduction.
"Closing Date" shall mean the date on which this Agreement has
been executed and the conditions precedent to the making of the initial Loans
set forth in Section 4.1 have been satisfied or waived, which date shall occur
promptly upon the entry of the Interim Order, but no later than July 24, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall mean, collectively, the Collateral under
the Security and Pledge Agreement, and the real estate collateral described in
Section 2.23.
"Commitment" shall mean, with respect to each Bank, the
commitment of each Bank hereunder in the amount set forth opposite its name on
Annex A hereto or as may subsequently be set forth in the Register from time to
time, as the same may be reduced from time to time pursuant to Sections 2.10 and
2.13.
"Commitment Fee" shall have the meaning set forth in Section
2.20.
"Commitment Letter" shall mean that certain Commitment
Letter dated July 13, 1997 among the Agent, Chase Securities Inc. and the
Borrower.
"Commitment Percentage" shall mean at any time, with respect
to each Bank, the percentage obtained by dividing its Commitment at such time by
the Total Commitment at such time.
<PAGE>
"Consummation Date" shall mean the date of the substantial
consummation (as defined in Section 1101 of the Bankruptcy Code including the
effective date of a Reorganization Plan) of a Reorganization Plan of the
Borrower or any of the Guarantors (other than the Red Ant Entities) which is
confirmed pursuant to an order of the Bankruptcy Court.
"Consignor Property" shall have the meaning set forth in
Section 2.23.
"Customer Volume Discount Reserve" shall be determined in
accordance with One Stop's or One Way's (as applicable) historical accounting
practices.
"Dilution Factor" shall mean the Dilution Percentage minus the
Percentage of Actual Returns. In no event shall the Dilution Factor be negative.
If the calculation results in a negative number, the minimum Dilution Factor of
3% is to be used.
"Dilution Percentage" shall mean with respect to any period,
(a) the aggregate amount of all non-cash deductions, negative contractual and
other adjustments, credit memos and write-off with respect to Accounts
Receivable during the immediately preceding 3 month period, divided by (b) total
gross sales of One Stop and One Way (as applicable) for the immediately
preceding 3 month period.
"Dilution Reserve" shall mean, as of any date, (a) the
Dilution Factor multiplied by (b) the Eligible Accounts before applying the
Accrued Returns Reserve, the Customer Volume Discount Reserve, and the
Advertising Due Customer Reserve on such date.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDA" shall mean, for any period, all as determined in
accordance with GAAP, the consolidated net income (or net loss) of the Borrower
and its Subsidiaries (other than Indi, Castle Communications (U.S.), Inc.,
Passport Music Distribution, Inc., Passport Music Worldwide, Inc. and the Red
Ant Entities) for such period, plus (a) the sum of (i) depreciation expense,
(ii) amortization expense, (iii) other non-cash charges, (iv) a provision for
non-cash foreign exchange adjustments to net income, (v) net total Federal,
state, local and foreign tax expense, (vi) gross interest expense for such
period less gross interest income for such period, (vii) extraordinary losses,
(viii) any non-recurring charge or restructuring charge which in accordance with
GAAP is excluded from operating income, (ix) the cumulative effect of any change
in accounting principles, (x) "Chapter 11 expenses" (or "administrative costs
reflecting Chapter 11 expenses") as shown on the Borrower's consolidated
statement of income for such period less (b) extraordinary gains plus or minus
(c) the amount of cash received or expended in such period in respect of any
amount which, under clause (viii) above, was taken into account in determining
EBITDA for such or any prior period.
<PAGE>
"Eligible Account" shall mean an Account Receivable owing to
One Stop or One Way now existing or hereafter arising, which Account Receivable
met the following specifications at the time it came into existence and
continues to meet the same until it is collected in full:
(1) The invoice on such Account Receivable is not more than ninety (90)
days (or, in the case of Accounts Receivable in which Barnes & Noble, Inc. or
Borders Bookstores, Inc. is the account debtor, 150 days) have elapsed since the
invoice on such Account Receivable was issued;
(2) The Account Receivable arose from the outright sale of goods and such
goods have been shipped to the account debtor; such Account Receivable is
evidenced by such invoices, shipping documents, or other instruments ordinarily
used in the trade; and no return, rejection or repossession has occurred; and
such goods or services have been finally accepted by the account debtor without
dispute, except for such account debtor's right to return inventory purchased
either (a) in the ordinary course of business, or (b) in any one month Inventory
with a purchase price of up to fifteen percent (15%) of the purchase price of
all Inventory purchased by such account debtor during the immediately preceding
month;
(3) The Account Receivable is not subject to any Lien, including but not
limited to, Liens of vendors on the proceeds of goods sold to One Stop and One
Way, except (a) Liens in favor of Primed Vendors that are junior and subordinate
to the Liens and claims in favor of the Agent, the Banks and the Existing
Lenders, (b) Liens in favor of the Existing Lenders, and (c) Liens in favor of
the Agent for the benefit of the Banks;
(4) The Account Receivable is a valid and legally enforceable obligation of
the account debtor and is not subject to credit, allowance, defense, offset,
counterclaim or adjustment by the account debtor, other than any discount
allowed for prompt payment and except for such account debtor's right to return
Inventory purchased either (a) in the ordinary course of business, or (b) in any
one month Inventory with a purchase price of up to fifteen percent (15%) of the
purchase price of all Inventory purchased by such account debtor during the
immediately preceding month;
(5) The Account Receivable arose in the ordinary course of business and no
notice or knowledge of the bankruptcy, insolvency, failure, or suspension or
termination of business of the account debtor has been received by the Borrower,
One Stop or One Way;
(6) The account debtor is not an Affiliate;
(7) The account debtor is not a supplier of goods or services, except to
the extent such Accounts Receivable are greater than all offsetting claims
against such Accounts Receivable;
(8) The Account Receivable otherwise conforms to all representations,
warranties and other provisions of this Agreement and the Security and Pledge
Agreement;
<PAGE>
(9) The account debtor is not a cash-on-delivery Account Receivable;
(10) The account debtor is not a Governmental Authority;
(11) The account debtor is a resident of the United States, or in the case
where the account debtor is not a resident of the United States, the obligations
of the account debtor on such Account Receivable is fully secured by either (a)
letters of credit denominated in Dollars issued for the benefit of One Stop or
One Way (i) by banks either (A) acceptable to the Agent, or (B) with a credit
rating of at least "A" by Moody's and (ii) in the form and substance acceptable
to the Agent, or (b) acceptable credit insurance policies in form and substance
acceptable to the Agent;
(12) The Account Receivable is not from an account debtor if more than
fifty percent (50%) of the aggregate dollar amount of invoices billed with
respect to such account debtor is more than 90 days (or, in the case of Account
Receivable for which Barnes & Noble, Inc. or Borders Bookstores, Inc. is the
account debtor, 150 days) past invoice date;
(13) If the account debtor owes greater than fifteen percent (15%) (other
than with respect to Barnes & Noble, Inc., for which such percentage shall be
25%) of the Dollar value of total Accounts Receivable owed to One Stop and One
Way, then all Account Receivable owed by such account debtor in excess of such
fifteen percent (15%) or 25% for Barnes & Noble, Inc. limitation shall be
ineligible, unless and to the extent such excess is fully secured by a letter of
credit denominated in Dollars, issued for the benefit of One Stop or One Way (as
applicable) by banks either (a) acceptable to the Agent, or (b) with a credit
rating of at least "A" by Moody's or Standard and Poor's on its outstanding
long-term debt, and in form and substance acceptable to the Agent;
(14) Accounts Receivable with respect to which the account debtor is
located in New Jersey, Minnesota, Indiana or Tennessee, unless One Stop or One
Way (as applicable) (a) has received a certificate of authority to do business
and is in good standing in such state, or (b) has filed a Notice of Business
Activities Report or similar report with the proper authorities of such state
for the then current year; and
(15) The Agent in its sole discretion has not deemed the Account Receivable
to be ineligible for any other reason generally accepted in the commercial
finance business as a reason for ineligibility.
"Eligible Assignee" shall mean (i) a commercial bank having
total assets in excess of $1,000,000,000; (ii) a finance company, insurance
company or other financial institution or fund acceptable to the Agent which in
the ordinary course of business extends credit of the type evidenced by the
Agreement and has total assets in excess of $200,000,000 and whose becoming an
assignee would not constitute a prohibited transaction under Section 4975 of
ERISA; and (iii) any other financial institution satisfactory to the Borrower
and the Agent.
"Eligible Inventory" means all Inventory of One Stop and One
Way valued in accordance with GAAP and located in the United States of America
which is owned by One Stop or One Way and held for sale or under contracts of
sale which meet all of the following specifications:
<PAGE>
(1) The Inventory is lawfully owned by One Stop or One Way (as applicable)
and is not (a) subject to any Lien, except (i) Liens in favor of Primed Vendors
that are junior and subordinate to the Liens and claims in favor of the Agent,
the Banks and the Existing Lenders, (ii) Liens in favor of the Existing Lenders
and (iii) Liens in favor of the Agent for the benefit of the Banks, and (b)
Consignor Property;
(2) One Stop or One Way (as applicable) has the right of assignment thereof
and the power to grant Liens thereon;
(3) The Inventory arose or was acquired in the ordinary course of business,
and no portion thereof represents rejected or damaged goods or goods which have
been returned and which are not in the scope of clause (8) below, it being
understood that for purposes of this provision it is in the ordinary course of
business to acquire Inventory in bulk from other Persons;
(4) No Account Receivable or document of title has been created or issued
with respect to such Inventory;
(5) The Inventory does not represent work-in-process;
(6) The Inventory does not represent Return to Vendor Inventory;
(7) The Inventory is not damaged or unmarketable;
(8) The Inventory does not represent Accessories Inventory;
(9) The Inventory is not in transit;
(10) All such Inventory is covered by insurance in accordance with Section
5.3 hereof; and
(11) It is anticipated that the Inventory will be used in the ordinary
course of business.
"Environmental Lien" shall mean a Lien in favor of any Governmental
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from or costs incurred by such Governmental
Authority in response to a release or threatened release of a hazardous or toxic
waste, substance or constituent, or other substance into the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is a member of a group of which the Borrower is a member and
which is under common control within the meaning of Section 414(b) or (c) of the
Code and the regulations promulgated and rulings issued thereunder.
"Estimated Inventory to be Returned at Cost" shall mean for One Stop only,
the Accrued Returns Reserve multiplied by the cost percentage as calculated for
the immediately preceding 12 months.
"Eurocurrency Liabilities" shall have the meaning assigned thereto in
Regulation D issued by the Board, as in effect from time to time.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate determined
by reference to the Adjusted LIBOR Rate in accordance with the provisions of
Section 2.
<PAGE>
"Event of Default" shall have the meaning set forth in Section 7.
"Excess, Obsolete and Slow-move Inventory Reserve" shall be calculated in
accordance with One Stop's or One Way's (as applicable) historical accounting
practices.
"Existing Agreements" shall mean the agreements listed on Schedule 1.1
hereto, any notes delivered pursuant thereto, and all of the agreements granting
security interests and liens in property and assets of the Borrower and the
Guarantors to or for the benefit of the Existing Lenders, including without
limitation, the security agreements, pledge agreements, and mortgages listed on
Schedule 1.1 hereto, each of which documents was executed and delivered by the
Borrower and (to the extent party thereto) the Guarantors prior to the Filing
Date, as each may have been amended or modified from time to time.
"Existing Lenders" shall mean the financial institutions party to the
Existing Agreements.
"Fees" shall collectively mean the Commitment Fee, Letter of Credit Fees
and other fees referred to in Section 2.19.
"Filing Date" shall mean July 14, 1997.
"Final Order" shall mean the Final Order of the Bankruptcy Court referred
to in Section 4.2(d).
"Financial Officer" shall mean the Chief Financial Officer, Controller or
the Treasurer of the Borrower.
"Foreign Subsidiaries" shall mean the direct or indirect Subsidiaries of
the Borrower set forth on Schedule 3.5 listed under the heading "Foreign
Subsidiaries".
"Fronting Bank" shall mean one or more Banks which Banks shall be
reasonably satisfactory to the Borrower) as may agree with the Agent to act in
such capacity.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"Governmental Authority" shall mean any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality or
any court, in each case whether of the United States or foreign.
"Guarantors" shall have the meaning set forth in the Introduction.
<PAGE>
"Indebtedness" shall mean, at any time and with respect to any Person, (i)
all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and trade payables, other
expense accruals and deferred compensation items arising, in the ordinary course
of business), (iii) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments (other than performance, surety and
appeal bonds arising in the ordinary course of business), (iv) all indebtedness
of such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (v)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, to the extent required to be
so recorded, (vi) all reimbursement, payment or similar obligations of such
Person, contingent or otherwise, under acceptance, letter of credit or similar
facilities, (vii) all Indebtedness of others referred to in clauses (i) through
(vi) above guaranteed directly or indirectly by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (A) to pay
or purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss in respect of such Indebtedness, (C) to supply
funds to or in any other manner invest in the debtor (including any agreement to
pay for property or services irrespective of whether such property is received
or such services are rendered) or (D) otherwise to assure a creditor against
loss in respect of such Indebtedness, and (viii) all Indebtedness referred to in
clauses (i) through (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.
"Indi" shall mean Independent National Distributors, Inc., a Delaware
corporation.
"Insufficiency" shall mean, with respect to any Plan, the amount, if any,
of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of
ERISA.
"Interest Expense" shall mean interest expense as determined in accordance
with GAAP.
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan having an
Interest Period of 1 or 3 months, the last day of such Interest Period and (ii)
as to all ABR Loans, the last calendar day of each March, June, September and
December and the date on which any ABR Loans are refinanced with Eurodollar
Loans pursuant to Section 2.12.
"Interest Period" shall mean, as to any Borrowing of Eurodollar Loans, the
period commencing on the date of such Borrowing (including as a result of a
refinancing of ABR Loans) or on the last day of the preceding Interest Period
applicable to such Borrowing and ending on the numerically corresponding day (or
if there is no corresponding day, the last day) in the calendar month that is 1
or 3 months thereafter, as the Borrower may elect in the related notice
delivered pursuant to Sections 2.6(b) or 2.12; provided, however, that (i) if
any Interest Period would end on a day which shall not be a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day,
and (ii) no Interest Period shall end later than the Termination Date.
"Interim Order" shall mean the Interim Order of the Bankruptcy Court
referred to in Section 4.1(b).
<PAGE>
"Inventory" shall mean all goods held for sale by the Borrower and the
Guarantors in the normal course of business; solely in calculating the amount of
Inventory for purposes of computing the value of Eligible Inventory but for no
other purposes hereunder, there shall be deducted, without duplication, the
Excess, Obsolete and Slow-move Inventory Reserve and Inventory Shrink Reserve
and such other reserves as may be required by the Agent, in each case as
reasonably determined in the discretion of the Agent after consultation with the
Borrower.
"Inventory Shrink Reserve" shall be calculated in accordance with One
Stop's or One Way's (as applicable) historical accounting practices.
"Letter of Credit" shall mean any letter of credit (including in the case
of any documentary letters of credit, any related letter of indemnity or other
similar credit accommodation) issued pursuant to Section 2.3, which letter of
credit shall be (i) a standby or commercial documentary letter of credit, (ii)
issued for the general corporate purposes of the Borrower and the Guarantors
(other than in connection with the purchase of Inventory, except as may be
agreed to by the Agent), (iii) denominated in Dollars and (iv) otherwise in such
form as may be reasonably approved from time to time by the Agent and the
applicable Fronting Bank.
"Letter of Credit Account" shall mean the account established by the
Borrower under the sole and exclusive control of the Agent maintained at the
office of the Agent at 270 Park Avenue, New York, New York 10017 designated as
the "Alliance Entertainment Corp. Debtor-in-Possession Letter of Credit Account"
or similar title that shall be used solely for the purposes set forth in
Sections 2.3(b) and 2.13(a).
"Letter of Credit Fees" shall mean the fees payable in respect of Letters
of Credit pursuant to Section 2.21.
"Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the
aggregate stated amount of all Letters of Credit then outstanding plus (ii) all
amounts theretofore drawn under Letters of Credit and not then reimbursed.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever (including any conditional sale or other
title retention agreement or any lease in the nature thereof).
"Loan" shall have the meaning given such term in Section 2.1.
"Loan Documents" shall mean this Agreement, the Security and Pledge
Agreement, the Borrowing Base Certificate and any other instrument or agreement
executed and delivered in connection herewith (including, without limitation,
any mortgage executed pursuant to Section 2.23(b)).
<PAGE>
"Maturity Date" shall mean January 31, 1999.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of the
preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" shall mean a Single Employer Plan, which (i) is
maintained for employees of the Borrower or an ERISA Affiliate and at least one
Person other than the Borrower and its ERISA Affiliates or (ii) was so
maintained and in respect of which the Borrower or an ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such Plan has been or
were to be terminated.
"Net Cash Proceeds" shall mean, with respect to the sale of any asset by
the Borrower or any Guarantor, the gross amount paid or received by such Person
less taxes and the reasonable, usual and customary fees and expenses paid (or to
be paid) by such Person in connection with such sales, which fees and expenses
(or estimates thereof) shall be set forth on an itemized schedule furnished to
the Agent simultaneously upon such sale; provided, that (x) the Borrower shall,
promptly upon the request of the Agent, furnish detailed documentation in
support of any claimed fee or expense and (y) the Agent shall have the right, at
any time, to challenge the appropriateness, reasonableness and amount of any
claimed fee or expense.
"Obligations" shall mean (a) the due and punctual payment of principal of
and interest on the Loans and the reimbursement of all amounts drawn under
Letters of Credit, and (b) the due and punctual payment of the Fees and all
other present and future, fixed or contingent, obligations (monetary or
otherwise) of the Borrower and the Guarantors to the Banks and the Agent under
the Loan Documents.
"One Stop" shall mean AEC One Stop Group, Inc.
"One Way" shall mean One Way Records, Inc.
"Orders" shall mean the Interim Order and the Final Order.
"Other Taxes" shall have the meaning given such term in Section 2.18.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor agency or entity performing substantially the same functions.
<PAGE>
"Pension Plan" shall mean a defined benefit pension or retirement plan
which meets and is subject to the requirements of Section 401(a) of the Code.
"Percentage of Actual Returns" shall mean the sum of actual returns divided
by gross sales for the immediately preceding 12 months.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (or by any
agency thereof to the extent such obligations are backed by the full faith and
credit of the United States of America), in each case maturing within twelve
months from the date of acquisition thereof;
(b) without limiting the provisions of paragraph (d) below, investments in
commercial paper maturing within six months from the date of acquisition thereof
and having, at such date of acquisition, a rating of at least "A-2" or the
equivalent thereof from Standard & Poor's Rating Services or of at least "P-2"
or the equivalent thereof from Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's acceptances and time
deposits maturing within six months from the date of acquisition thereof issued
or guaranteed by or placed with (i) any domestic office of the Agent or the bank
with whom the Borrower and the Guarantors maintain their cash management system,
provided, that if such bank is not a Bank hereunder, such bank shall have
entered into an agreement with the Agent pursuant to which such bank shall have
waived all rights of setoff and confirmed that such bank does not have, nor
shall it claim, a security interest therein or (ii) any domestic office of any
other commercial bank of recognized standing organized under the laws of the
United States of America or any State thereof that has a combined capital and
surplus and undivided profits of not less than $250,000,000 and is the principal
banking Subsidiary of a bank holding company having a long-term unsecured debt
rating of at least "A" or the equivalent thereof from Standard & Poor's Ratings
Services or of at least "A2" or the equivalent thereof from Moody's Investors
Service, Inc.;
(d) investments in commercial paper maturing within six months from the
date of acquisition thereof and issued by (i) the holding company of the Agent
or (ii) the holding company of any other commercial bank of recognized standing
organized under the laws of the United States of America or any State thereof
that has (A) a combined capital and surplus in excess of $250,000,000 and (B)
commercial paper rated at least "A-2" or the equivalent thereof from Standard &
Poor's Ratings Services or of at least "P-2" or the equivalent thereof from
Moody's Investors Service, Inc.;
(e) investments in repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (a) above
entered into with any office of a bank or trust company meeting the
qualifications specified in clause (c) above;
<PAGE>
(f) investments in money market funds substantially all the assets of which
are comprised of securities of the types described in clauses (a) through (e)
above; and
(g) to the extent owned on the Filing Date, investments in the capital
stock of any direct or indirect Subsidiary of the Borrower.
"Permitted Liens" shall mean (i) Liens imposed by law (other than
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, customs agents or authorities, mechanics, materialmen and other
Liens (other than Environmental Liens and any Lien imposed under ERISA) imposed
by law created in the ordinary course of business for amounts not yet due or
which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP; (iii) Liens securing surety and appeal bonds
in the ordinary course of business and Liens (other than any Lien imposed under
ERISA) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), utility and similar
obligations, statutory obligations and other similar obligations or arising as a
result of progress payments under government contracts; (iv) easements
(including, without limitation, reciprocal easement agreements and utility
agreements), rights-of-way, covenants, consents, reservations, encroachments,
variations and zoning and other restrictions, charges or encumbrances (whether
or not recorded), which do not interfere materially with the ordinary conduct of
the business of the Borrower or any Guarantor, as the case may be, and which do
not materially detract from the value of the property to which they attach or
materially impair the use thereof to the Borrower or any Guarantor, as the case
may be; (v) purchase money Liens upon or in any property (other than Inventory)
acquired or held in the ordinary course of business to secure the purchase price
of such property or to secure Indebtedness permitted by Section 6.3(iii) solely
for the purpose of financing the acquisition of such property and Capitalized
Leases permitted by Section 6.3(iv) and (vi) extensions, renewals or
replacements of any Lien referred to in paragraphs (i) through (v) above,
provided that the principal amount of the obligation secured thereby is not
increased and that any such extension, renewal or replacement is limited to the
property originally encumbered thereby.
"Person" shall mean any natural person, corporation, division of a
corporation, partnership, trust, joint venture, association, company, estate,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code that is maintained for current or former employees, or any
beneficiary thereof, of the Borrower or any ERISA Affiliate.
"Prepayment Date" shall mean thirty (30) days after the entry of the
Interim Order by the Bankruptcy Court if the Final Order has not been entered by
the Bankruptcy Court prior to the expiration of such thirty (30) day period.
"Pre-Petition Payment" shall mean a payment (by way of adequate protection
or otherwise) of principal or interest or otherwise on account of any
pre-petition Indebtedness or trade payables arising from the purchase of
Inventory not otherwise permitted to be paid under this Agreement.
<PAGE>
"Primed Vendors" shall mean the pre-petition vendors of the Borrower and
the Grantors set forth on Schedule 3.6(b).
"Red Ant Entities" shall mean Red Ant Box, Inc., Red Ant Holdings, Inc.,
Black Ant Music, Inc., Army Ant Music, Inc., Velvet Ant Music, Inc. and Red Ant
LLC.
"Register" shall have the meaning set forth in Section 10.3(d).
"Reorganization Plan" shall mean a plan of reorganization in any of the
Cases.
"Reportable Event" shall mean any reportable event as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan.
"Required Banks" shall mean, at any time, Banks holding Loans representing
at least 51% of the aggregate principal amount of such Loans outstanding or, if
no such Loans are outstanding, Banks having Commitments representing at least
51% of the Total Commitment.
"Responsible Officer" of any corporation shall mean any executive officer
or Financial Officer of such corporation and any other officer or similar
official thereof responsible for the administration of the obligations of such
corporation in respect of this Agreement.
"Return to Vendor Inventory" shall mean total amounts from the "Daily
Inventory Movement Control, Returns Department" report for Basin Distributors,
Abbey Road Distributors, and CD One Stop. Specifically, total amounts of the
"Autos Daily Balance" and "SIS Daily Balance". The Autos Daily Balance total is
comprised of (i) Open Bin Contents; (ii) Pending Return Stock; (iii) Pending
Return Vendor Unassigned; (iv) Status #1, Pending Return Vendor Requested; and
(v) Status #2, Pending Return Vendor Authorized. The Daily Balance total is
comprised of (i) Status #1, SIS Vendor Return Requested; and (ii) Status #2, SIS
Vendor Return Authorized.
"Security and Pledge Agreement" shall have the meaning set forth in Section
4.1(c).
"Statutory Reserves" shall mean on any date the percentage (expressed as a
decimal) established by the Board and any other banking authority which is (i)
for purposes of the definition of Base CD Rate, the then stated maximum rate of
all reserves (including, but not limited to, any emergency, supplemental or
other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City, for new three month negotiable nonpersonal time
deposits in dollars of $100,000 or more or (ii) for purposes of the definition
of Adjusted LIBOR Rate, the then stated maximum rate for all reserves (including
but not limited to any emergency, supplemental or other marginal reserve
requirements) applicable to any member bank of the Federal Reserve System in
respect of Eurocurrency Liabilities (or any successor category of liabilities
under Regulation D issued by the Board, as in effect from time to time). Such
reserve percentages shall include, without limitation, those imposed pursuant to
said Regulation. The Statutory Reserves shall be adjusted automatically on and
as of the effective date of any change in such percentage.
"Subsidiary" shall mean, with respect to any Person (herein referred to as
the "parent"), any corporation, association or other business entity (whether
now existing or hereafter organized) of which at least a majority of the
securities or other ownership interests having ordinary voting power for the
election of directors is, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Super-majority Banks" shall have the meaning given such term in Section
10.10(b).
"Superpriority Claim" shall mean a claim against the Borrower and any
Guarantor in any of the Cases which is an administrative expense claim having
priority over any or all administrative expenses of the kind specified in
Sections 503(b) or 507(b) of the Bankruptcy Code.
<PAGE>
"Taxes" shall have the meaning given such term in Section 2.18.
"Termination Date" shall mean the earliest to occur of (i) the Prepayment
Date, (ii) the Maturity Date, (iii) the Consummation Date and (iv) the
acceleration of the Loans and the termination of the Total Commitment in
accordance with the terms hereof.
"Total Commitment" shall mean, at any time, the sum of the Commitments at
such time.
"Transferee" shall have the meaning given such term in Section 2.18.
"Type" when used in respect of any Loan or Borrowing shall refer to the
rate of interest by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall mean
the Adjusted LIBOR Rate and the Alternate Base Rate.
"Unused Total Commitment" shall mean, at any time, (i) the Total Commitment
less (ii) the sum of (x) the aggregate outstanding principal amount of all Loans
and (y) the aggregate Letter of Credit Outstandings.
"Withdrawal Liability" shall have the meaning given such term under Part I
of Subtitle E of Title IV of ERISA.
SECTION 1.2. Terms Generally. The definitions in Section 1.1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references herein to Sections,
Exhibits and Schedules shall be deemed references to Sections of, and Exhibits
and Schedules to, this Agreement unless the context shall otherwise require.
Except as otherwise expressly provided herein, all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that for purposes of determining compliance
with any covenant set forth in Section 4, such terms shall be construed in
accordance with GAAP as in effect on the date of this Agreement applied on a
basis consistent with the application used in the Borrower's audited financial
statements referred to in Section 3.4.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
SECTION 2.1. Commitment of the Banks.
(a) Each Bank severally and not jointly with the other Banks agrees, upon
the terms and subject to the conditions herein set forth (including, without
limitation, the provisions of Section 2.28), to make revolving credit loans
(each a "Loan" and collectively, the "Loans") to the Borrower at any time and
from time to time during the period commencing on the date hereof and ending on
the Termination Date (or the earlier date of termination of the Total
Commitment) in an aggregate principal amount not to exceed, when added to such
Bank's Commitment Percentage of the then aggregate Letter of Credit Outstandings
(in excess of the amount of cash then held in the Letter of Credit Account
pursuant to Sections 2.3(b) and 2.13(a)), the Commitment of such Bank, which
Loans may be repaid and reborrowed in accordance with the provisions of this
Agreement. At no time shall the sum of the then outstanding aggregate principal
amount of the Loans plus the then aggregate Letter of Credit Outstandings exceed
the lesser of (i) the Total Commitment of $50,000,000 as the same may be reduced
from time to time pursuant to Sections 2.10 or 2.13, as the case may be, and
(ii) the sum of the Borrowing Base plus cash then held in the Letter of Credit
Account pursuant to Sections 2.3(b) and 2.13(a).
<PAGE>
(b) Each Borrowing shall be made by the Banks pro rata in accordance with
their respective Commitments; provided, however, that the failure of any Bank to
make any Loan shall not in itself relieve the other Banks of their obligations
to lend.
SECTION 2.2. Borrowing Base.
(a) Notwithstanding any other provision of this Agreement to the contrary,
the aggregate principal amount of all outstanding Loans plus the then aggregate
Letter of Credit Outstandings (less an amount equal to the face amount of
Letters of Credit which have been cash collateralized through the deposit of
cash in the Letter of Credit Account pursuant to Section 2.3(b) or 2.13(a))
shall not at any time exceed the Borrowing Base and no Loan shall be made or
Letter of Credit issued in violation of the foregoing.
(b) Cash held in the Letter of Credit Account shall not be available for
use by the Borrower or any Guarantor, whether pursuant to Section 363 of the
Bankruptcy Code or otherwise.
SECTION 2.3. Letters of Credit.
(a) Upon the terms and subject to the conditions herein set forth, the
Borrower may request a Fronting Bank, at any time and from time to time after
the date hereof and prior to the Termination Date, to issue, and subject to the
terms and conditions contained herein (including, without limitation, Section
4.2(e)), such Fronting Bank shall issue, for the account of the Borrower one or
more Letters of Credit, provided that no Letter of Credit shall be issued if
after giving effect to such issuance (i) the aggregate Letter of Credit
Outstandings shall exceed $5,000,000, (ii) the aggregate Letter of Credit
Outstandings, when added to the aggregate outstanding principal amount of the
Loans, would exceed the lesser of the Total Commitment and the amount calculated
in accordance with Section 2.2(a) or (iii) the provisions of Section 2.2 would
be violated thereby; provided further that no Letter of Credit shall be issued
if the Fronting Bank shall have received notice from the Agent or the Required
Banks that the conditions to such issuance have not been met.
(b) No Letter of Credit shall expire later than the earlier of (x) twelve
months from the date of issuance of such Letter of Credit or (y) 60 days after
the Maturity Date, provided that if any Letter of Credit shall be outstanding on
the Termination Date, the Borrower shall, at or prior to the Termination Date,
(i) cause all Letters of Credit which expire after the Termination Date to be
returned to the Fronting Bank undrawn and marked "cancelled" or (ii) if the
Borrower is unable to do so in whole or in part, either (x) provide a
"back-to-back" letter of credit to one or more Fronting Banks in a form
satisfactory to such Fronting Bank and the Agent (in its sole discretion),
issued by a bank satisfactory to such Fronting Bank and the Agent (in its sole
discretion), in an amount equal to 105% of the then undrawn stated amount of all
outstanding Letters of Credit issued by such Fronting Banks and/or (y) deposit
cash in the Letter of Credit Account in an amount equal to 105% of the then
undrawn stated amount of all outstanding Letters of Credit as collateral
security for the Borrower's reimbursement obligations in connection therewith,
such cash to be remitted to the Borrower upon the expiration, cancellation or
other termination or satisfaction of such reimbursement obligations.
(c) The Borrower shall pay to each Fronting Bank, in addition to such other
fees and charges as are specifically provided for in Section 2.21 hereof, such
fees and charges in connection with the issuance and processing of the Letters
of Credit issued by such Fronting Bank as are customarily imposed by such
Fronting Bank from time to time in connection with letter of credit
transactions.
<PAGE>
(d) Drafts drawn and paid under each Letter of Credit shall be reimbursed
by the Borrower in Dollars not later than the first Business Day following the
date of draw and shall bear interest from the date of draw until the first
Business Day following the date of draw at a rate per annum equal to the
Alternate Base Rate plus 1-1/2% and thereafter until reimbursed in full at a
rate per annum equal to the Alternate Base Rate plus 3-1/2% (computed on the
basis of the actual number of days elapsed over any year of 360 days). The
Borrower shall effect such reimbursement (x) if such draw occurs prior to the
Termination Date (or the earlier date of termination of the Total Commitment),
in cash or through a Borrowing without the satisfaction of the conditions
precedent set forth in Section 4.2 and which Borrowing shall be effected without
the need for a request therefor from the Borrower or (y) if such draw occurs on
or after the Termination Date (or the earlier date of termination of the Total
Commitment), in cash. Each Bank agrees to make the Loans described in clause (x)
of the preceding sentence notwithstanding a failure to satisfy the applicable
lending conditions thereto or the provisions of Sections 2.1 and 2.2 or the
occurrence of the Termination Date.
(e) Immediately upon the issuance of any Letter of Credit by any Fronting
Bank, such Fronting Bank shall be deemed to have sold to each Bank other than
such Fronting Bank and each such other Bank shall be deemed unconditionally and
irrevocably to have purchased from such Fronting Bank, without recourse or
warranty, an undivided interest and participation, to the extent of such Bank's
Commitment Percentage, in such Letter of Credit, each drawing thereunder and the
obligations of the Borrower and the Guarantors under this Agreement with respect
thereto. Upon any change in the Commitments pursuant to Section 10.3, it is
hereby agreed that with respect to all Letter of Credit Outstandings, there
shall be an automatic adjustment to the participations hereby created to reflect
the new Commitment Percentages of the assigning and assignee Banks. Any action
taken or omitted by a Fronting Bank under or in connection with a Letter of
Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Fronting Bank any resulting liability to
any other Bank.
(f) In the event that a Fronting Bank makes any payment under any Letter of
Credit and the Borrower shall not have reimbursed such amount in full to such
Fronting Bank pursuant to this Section, the Fronting Bank shall promptly notify
the Agent, which shall promptly notify each Bank of such failure, and each Bank
shall promptly and unconditionally pay to the Agent for the account of the
Fronting Bank the amount of such Bank's Commitment Percentage of such
unreimbursed payment in Dollars and in same day funds. If the Fronting Bank so
notifies the Agent, and the Agent so notifies the Banks prior to 11:00 a.m. (New
York City time) on any Business Day, such Banks shall make available to the
Fronting Bank such Bank's Commitment Percentage of the amount of such payment on
such Business Day in same day funds. If and to the extent such Bank shall not
have so made its Commitment Percentage of the amount of such payment available
to the Fronting Bank, such Bank agrees to pay to such Fronting Bank, forthwith
on demand such amount, together with interest thereon, for each day from such
date until the date such amount is paid to the Agent for the account of such
Fronting Bank at the Federal Funds Effective Rate. The failure of any Bank to
make available to the Fronting Bank its Commitment Percentage of any payment
under any Letter of Credit shall not relieve any other Bank of its obligation
hereunder to make available to the Fronting Bank its Commitment Percentage of
any payment under any Letter of Credit on the date required, as specified above,
but no Bank shall be responsible for the failure of any other Bank to make
available to such Fronting Bank such other Bank's Commitment Percentage of any
such payment. Whenever a Fronting Bank receives a payment of a reimbursement
obligation as to which it has received any payments from the Banks pursuant to
this paragraph, such Fronting Bank shall pay to each Bank which has paid its
Commitment Percentage thereof, in Dollars and in same day funds, an amount equal
to such Bank's Commitment Percentage thereof. The Borrower and each of the Banks
agree to hold harmless and indemnify such Fronting Bank (except for such
Fronting Bank's own gross negligence or willful misconduct) for all damages,
losses, costs and expenses, including legal fees and disbursements incurred by
such Fronting Bank in connection with any dishonor of payment under a Letter of
Credit issued by such Fronting Bank for which an air release has been issued by
such Fronting Bank.
<PAGE>
SECTION 2.4. Issuance. Whenever the Borrower desires a Fronting Bank to
issue a Letter of Credit, it shall give to such Fronting Bank and the Agent at
least two Business Days' prior written (including telegraphic, telex, facsimile
or cable communication) notice (or such shorter period as may be agreed upon by
the Agent, the Borrower and the Fronting Bank) specifying the date on which the
proposed Letter of Credit is to be issued (which shall be a Business Day), the
stated amount of the Letter of Credit so requested, the expiration date of such
Letter of Credit and the name and address of the beneficiary thereof.
SECTION 2.5. Nature of Letter of Credit Obligations Absolute. The
obligations of the Borrower to reimburse the Banks for drawings made under any
Letter of Credit shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including, without limitation (it being understood that any such payment by the
Borrower shall be without prejudice to, and shall not constitute a waiver of,
any rights the Borrower might have or might acquire as a result of the payment
by the Fronting Bank of any draft or the reimbursement by the Borrower thereof):
(i) any lack of validity or enforceability of any Letter of Credit; (ii) the
existence of any claim, setoff, defense or other right which the Borrower or any
Guarantor may have at any time against a beneficiary of any Letter of Credit or
against any of the Banks, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction; (iii) any draft,
demand, certificate or other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; (iv) payment by a
Fronting Bank of any Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit; (v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or (vi) the fact that any Event of Default
shall have occurred and be continuing.
SECTION 2.6. Making of Loans.
(a) Except as contemplated by Section 2.9, Loans shall be either ABR Loans
or Eurodollar Loans as the Borrower may request subject to and in accordance
with this Section, provided that all Loans made pursuant to the same Borrowing
shall, unless otherwise specifically provided herein, be Loans of the same Type.
Each Bank may fulfill its Commitment with respect to any Eurodollar Loan or ABR
Loan by causing any lending office of such Bank to make such Loan; provided that
any such use of a lending office shall not affect the obligation of the Borrower
to repay such Loan in accordance with the terms of this Agreement. Each Bank
shall, subject to its overall policy considerations, use reasonable efforts (but
shall not be obligated) to select a lending office which will not result in the
payment of increased costs by the Borrower pursuant to Section 2.15. Subject to
the other provisions of this Section and the provisions of Section 2.12,
Borrowings of Loans of more than one Type may be incurred at the same time,
provided that no more than five (5) Borrowings of Eurodollar Loans may be
outstanding at any time.
<PAGE>
(b) The Borrower shall give the Agent prior notice of each Borrowing
hereunder of at least three Business Days for Eurodollar Loans and one Business
Day for ABR Loans; such notice shall be irrevocable and shall specify the amount
of the proposed Borrowing (which shall not be less than $5,000,000 in the case
of Eurodollar Loans and $500,000 in the case of ABR Loans or, in any such case,
in such lesser amount as represents the available Unused Total Commitment) and
the date thereof (which shall be a Business Day) and shall contain disbursement
instructions. Such notice, to be effective, must be received by the Agent not
later than 12:00 noon, New York City time, on the third Business Day in the case
of Eurodollar Loans and the first Business Day in the case of ABR Loans,
preceding the date on which such Borrowing is to be made except as provided in
the last sentence of this Section 2.6(b). Such notice shall specify whether the
Borrowing then being requested is to be a Borrowing of ABR Loans or Eurodollar
Loans and, if Eurodollar Loans, the Interest Period with respect thereto. If no
election of Interest Period is specified in any such notice for a Borrowing of
Eurodollar Loans, such notice shall be deemed a request for an Interest Period
of one month. If no election is made as to the Type of Loan, such notice shall
be deemed a request for Borrowing of ABR Loans. The Agent shall promptly notify
each Bank of its proportionate share of such Borrowing, the date of such
Borrowing, the Type of Borrowing or Loans being requested and the Interest
Period or Interest Periods applicable thereto, as appropriate. On the borrowing
date specified in such notice, each Bank shall make its share of the Borrowing
available at the office of the Agent at 270 Park Avenue, New York, New York
10017, no later than 12:00 noon, New York City time, in immediately available
funds. Upon receipt of the funds made available by the Banks to fund any
borrowing hereunder, the Agent shall disburse such funds in the manner specified
in the notice of borrowing delivered by the Borrower and shall use reasonable
efforts to make the funds so received from the Banks available to the Borrower
no later than 2:00 p.m. New York City time (other than as provided in the
following sentence). With respect to ABR Loans of $5,000,000 or less (but not
less than $500,000), the Banks shall make such Loans available to the Borrower
by 4:00 p.m., New York City time, on the same Business Day that the Borrower
gives notice to the Agent of such Borrowing by 12:00 p.m., New York City time.
SECTION 2.7. Evidence of Loans; Repayment of Loans. (a) The Loans made by
each Bank shall be evidenced by this Agreement. The outstanding principal
balance of all of the Loans, as evidenced by this Agreement, shall be payable on
the Termination Date. Each Loan shall bear interest from the date thereof on the
outstanding principal balance thereof as set forth in Section 2.8.
(b) Each Bank shall, and is hereby authorized by the Borrower to maintain
in accordance with its usual practice an account or accounts evidencing the
Indebtedness to such Bank resulting from each Loan made by such Bank from time
to time including each payment of interest on any such Loan and the other
information provided for on such schedule.
(c) The Agent shall maintain accounts in which it will record (i) the
amount of each Loan made hereunder, the Type of each Loan made and the Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Bank hereunder
and (iii) the amount of any sum received by the Agent hereunder from the
Borrower and each Bank's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) of this Section 2.7 shall, to the extent permitted by applicable law and
in the absence of manifest error, be prima facie evidence of the existence and
amounts of the obligations thereto recorded; provided, however, that the failure
to any Bank or the Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loans in
accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in the event any
Bank shall request and receive a promissory note payable to such Bank and its
registered assigns in accordance with Section 10.3(e), the interests represented
by such promissory note shall at all times (including after any assignment of
all or part of such interests pursuant to Section 10.3(e)) be represented by one
or more promissory notes payable to the payee named therein or its registered
assigns.
<PAGE>
SECTION 2.8. Interest on Loans.
(a) Subject to the provisions of Section 2.9, each ABR Loan shall bear
interest (computed on the basis of the actual number of days elapsed over a year
of 360 days) at a rate per annum equal to the Alternate Base Rate plus 1-1/2%.
(b) Subject to the provisions of Section 2.9, each Eurodollar Loan shall
bear interest (computed on the basis of the actual number of days elapsed over a
year of 360 days) at a rate per annum equal, during each Interest Period
applicable thereto, to the Adjusted LIBOR Rate for such Interest Period in
effect for such Borrowing plus 2-3/4%.
(c) Accrued interest on all Loans shall be payable in arrears on each
Interest Payment Date applicable thereto, at maturity (whether by acceleration
or otherwise), after such maturity on demand and (with respect to Eurodollar
Loans) upon any repayment or prepayment thereof (on the amount prepaid).
SECTION 2.9. Default Interest. If the Borrower or any Guarantor, as the
case may be, shall default in the payment of the principal of or interest on any
Loan or in the payment of any other amount becoming due hereunder (including,
without limitation, the reimbursement pursuant to Section 2.3(d) of any draft
drawn under a Letter of Credit), whether at stated maturity, by acceleration or
otherwise, the Borrower or such Guarantor, as the case may be, shall on demand
from time to time pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to (i) in the case
of the principal of the Loans, the interest rate applicable thereto plus an
additional 2% per annum, and (ii) in the case of any other amounts due
hereunder, the Alternate Base Rate plus 3-1/2%.
SECTION 2.10 Optional Termination or Reduction of Commitment. Upon at least
two Business Days' prior written notice to the Agent, the Borrower may at any
time in whole permanently terminate, or from time to time in part permanently
reduce, the Unused Total Commitment. Each such partial reduction of the
Commitments shall be in the principal amount of $5,000,000 or any integral
multiple of $500,000. Simultaneously with each reduction or termination of the
Commitment, the Borrower shall pay to the Agent for the account of each Bank the
Commitment Fee accrued on the amount of the Commitment of such Bank so
terminated or reduced through the date thereof. Any reduction of the Total
Commitment pursuant to this Section 2.10 shall be applied pro rata to reduce the
Commitment of each Bank.
SECTION 2.11. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan, the Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower absent manifest
error) that reasonable means do not exist for ascertaining the applicable
Adjusted LIBOR Rate, the Agent shall, as soon as practicable thereafter, give
written or telegraphic notice of such determination to the Borrower and the
Banks, and any request by the Borrower for a Borrowing of Eurodollar Loans
(including pursuant to a refinancing with Eurodollar Loans) pursuant to Section
2.6 or 2.12 shall be deemed a request for a Borrowing of ABR Loans. After such
notice shall have been given and until the circumstances giving rise to such
notice no longer exist, each request for a Borrowing of Eurodollar Loans shall
be deemed to be a request for a Borrowing of ABR Loans.
<PAGE>
SECTION 2.12. Refinancing of Loans. The Borrower shall have the right, at
any time, on three Business Days' prior irrevocable notice to the Agent (which
notice, to be effective, must be received by the Agent not later than 12:00
noon, New York City time, on the third Business Day preceding the date of any
refinancing), (x) to refinance any outstanding Borrowing or Borrowings of Loans
of one Type (or a portion thereof) with a Borrowing of Loans of the other Type
or (y) to continue an outstanding Borrowing of Eurodollar Loans for an
additional Interest Period, subject to the following:
(a) no Event of Default shall have occurred and be continuing at the time
of such refinancing or continuation;
(b) if less than a full Borrowing of Loans shall be refinanced or
continued, such refinancing or continuation shall be made pro rata among the
Banks in accordance with the respective principal amounts of the Loans
comprising such Borrowing held by the Banks immediately prior to such
refinancing or continuation;
(c) the aggregate principal amount of Loans being refinanced or continued
shall be at least $5,000,000, provided that no partial refinancing or
continuation of a Borrowing of Eurodollar Loans shall result in the Eurodollar
Loans remaining outstanding pursuant to such Borrowing being less than
$5,000,000 in aggregate principal amount;
(d) each Bank shall effect each refinancing or continuation by applying the
proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to its Loan
being refinanced or continued;
(e) the Interest Period with respect to a Borrowing of Eurodollar Loans
effected by a refinancing or in respect to the Borrowing of Eurodollar Loans
being continued as Eurodollar Loans shall commence on the date of refinancing or
the expiration of the current Interest Period applicable to such continuing
Borrowing, as the case may be;
(f) a Borrowing of Eurodollar Loans may be refinanced or continued only on
the last day of an Interest Period applicable thereto; and
(g) each request for a refinancing with a Borrowing of Eurodollar Loans
which fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one month.
In the event that the Borrower shall not give notice to refinance any
Borrowing of Eurodollar Loans, or to continue such Borrowing as Eurodollar
Loans, in each case as provided above, such Borrowing shall automatically be
refinanced with a Borrowing of ABR Loans at the expiration of the then-current
Interest Period. The Agent shall, after it receives notice from the Borrower,
promptly give each Bank notice of any refinancing, in whole or part, of any Loan
made by such Bank.
SECTION 2.13. Mandatory Prepayment; Commitment Termination; Cash
Collateral. The outstanding Obligations shall be subject to mandatory prepayment
as follows:
(a) if at any time the aggregate principal amount of the outstanding Loans
plus the aggregate Letter of Credit Outstandings exceeds the lesser of (x) the
Total Commitment and (y) the sum of the Borrowing Base plus cash deposited in
the Letter of Credit Account pursuant to Sections 2.3(b) and 2.13(a), the
Borrower will within three Business Days (i) prepay the Loans in an amount
necessary to cause the aggregate principal amount of the outstanding Loans plus
the aggregate Letter of Credit Outstandings in excess of the amount of cash so
held in the Letter of Credit Account to be equal to or less than the Total
Commitment and/or the Borrowing Base, as the case may be, and (ii) if, after
<PAGE>
giving effect to the prepayment in full of the Loans, the aggregate Letter of
Credit Outstandings in excess of the amount of cash so held in the Letter of
Credit Account exceeds the Total Commitment and/or the Borrowing Base, as the
case may be, deposit into the Letter of Credit Account an amount equal to 105%
of the amount by which the aggregate Letter of Credit Outstandings in excess of
the amount of cash so held in the Letter of Credit Account so exceeds the Total
Commitment or Borrowing Base, as the case may be (with such cash to be released
to the Borrower to the extent that the Borrower is thereafter again in
compliance with the Borrowing Base) provided that, with respect to the
foregoing, so long as no Event of Default has occurred and is continuing, the
sale of assets permitted by Section 6.12(ii) will not give rise to any
prepayment of the Loans or reduction of the Total Commitment;
(b) Upon the Termination Date, the Total Commitment shall be terminated in
full and the Borrower shall pay the Loans in full and, if any Letter of Credit
remains outstanding, deposit into the Letter of Credit Account an amount which,
when added to funds then held in such account equals 105% of the amount by which
the sum of the aggregate Letter of Credit Outstandings exceeds the amount of
cash held in the Letter of Credit Account, such cash to be remitted to the
Borrower upon the expiration, cancellation, satisfaction or other termination of
such reimbursement obligations.
SECTION 2.14. Optional Prepayment of Loans; Reimbursement of Banks. (a) The
Borrower shall have the right at any time and from time to time to prepay any
Loans, in whole or in part, (x) with respect to Eurodollar Loans, upon at least
three Business Days' prior written, telex or facsimile notice to the Agent and
(y) with respect to ABR Loans on the same Business Day if written, telex or
facsimile notice is received by the Agent prior to 12:00 noon, New York City
time, and thereafter upon at least one Business Day's prior written, telex or
facsimile notice to the Agent; provided, however, that (i) each such partial
prepayment shall be in integral multiples of $500,000, (ii) no prepayment of
Eurodollar Loans shall be permitted pursuant to this Section 2.14(a) other than
on the last day of an Interest Period applicable thereto unless the Borrower
shall pay the breakage fees required under Section 2.14(b) in connection with
such prepayment, and (iii) no partial prepayment of a Borrowing of Eurodollar
Loans shall result in the aggregate principal amount of the Eurodollar Loans
remaining outstanding pursuant to such Borrowing being less than $5,000,000.
Each notice of prepayment shall specify the prepayment date, the principal
amount of the Loans to be prepaid and in the case of Eurodollar Loans, the
Borrowing or Borrowings pursuant to which made, shall be irrevocable and shall
commit the Borrower to prepay such Loans by the amount and on the date stated
therein. The Agent shall, promptly after receiving notice from the Borrower
hereunder, notify each Bank of the principal amount of the Loans held by such
Bank which are to be prepaid, the prepayment date and the manner of application
of the prepayment.
(b) The Borrower shall reimburse each Bank on demand for any loss incurred
or to be incurred by it in the reemployment of the funds released (i) resulting
from any prepayment (for any reason whatsoever, including, without limitation,
refinancing with ABR Loans) of any Eurodollar Loan required or permitted under
this Agreement, if such Loan is prepaid other than on the last day of the
Interest Period for such Loan (including, without limitation, any such
prepayment in connection with the syndication of the credit facility evidenced
by this Agreement) or (ii) in the event that after the Borrower delivers a
notice of borrowing under Section 2.6 in respect of Eurodollar Loans, such Loans
are not made on the first day of the Interest Period specified in such notice of
borrowing for any reason other than a breach by any Bank of its obligations
hereunder. Such loss shall be the amount as reasonably determined by such Bank
as the excess, if any, of (A) the amount of interest which would have accrued to
such Bank on the amount so paid or not borrowed at a rate of interest equal to
the Adjusted LIBOR Rate for such Loan, for the period from the date of such
payment or failure to borrow to the last day (x) in the case of a payment or
refinancing with ABR Loans other than on the last day of the Interest Period for
such Loan, of the then current Interest Period for such Loan, or (y) in the case
of such failure to borrow, of the Interest Period for such Loan which would have
commenced on the date of such failure to borrow, over (B) the amount of interest
which would have accrued to such Bank on such amount by placing such amount on
deposit for a comparable period with leading banks in the London interbank
market. Each Bank shall deliver to the Borrower from time to time one or more
certificates setting forth the amount of such loss as determined by such Bank.
<PAGE>
(c) In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.14(a), the
Borrower on demand by any Bank shall pay to the Agent for the account of such
Bank any amounts required to compensate such Bank for any loss incurred by such
Bank as a result of such failure to prepay, including, without limitation, any
loss, cost or expenses incurred by reason of the acquisition of deposits or
other funds by such Bank to fulfill deposit obligations incurred in anticipation
of such prepayment. Each Bank shall deliver to the Borrower from time to time
one or more certificates setting forth the amount of such loss as determined by
such Bank.
(d) Any partial prepayment of the Loans by the Borrower pursuant to Section
2.13 or 2.14 shall be applied as specified by the Borrower or, in the absence of
such specification, as determined by the Agent, provided that in each case no
Eurodollar Loan shall be prepaid pursuant to Section 2.13 to the extent that
such Loan has an Interest Period ending after the required date of prepayment
unless and until all outstanding ABR Loans and Eurodollar Loans with Interest
Periods ending on such date have been repaid in full.
SECTION 2.15. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Bank of the principal
of or interest on any Eurodollar Loan made by such Bank or any fees or other
amounts payable hereunder (other than changes in respect of Taxes, Other Taxes
and taxes imposed on, or measured by, the net income or overall gross receipts
or franchise taxes of such Bank by the jurisdiction in which such Bank has its
principal office or by any political subdivision or taxing authority therein, or
by any other jurisdiction or by any political subdivision or taxing authority
therein other than a jurisdiction in which such Bank would not be subject to tax
but for the execution and performance of this Agreement), or shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of or credit extended by
such Bank (except any such reserve requirement which is reflected in the
Adjusted LIBOR Rate) or shall impose on such Bank or the London interbank market
any other condition affecting this Agreement or the Eurodollar Loans made by
such Bank, and the result of any of the foregoing shall be to increase the cost
to such Bank of making or maintaining any Eurodollar Loan or to reduce the
amount of any sum received or receivable by such Bank hereunder (whether of
principal, interest or otherwise) by an amount deemed by such Bank to be
material, then the Borrower will pay to such Bank in accordance with paragraph
(c) below such additional amount or amounts as will compensate such Bank for
such additional costs incurred or reduction suffered.
(b) If any Bank shall have determined that the applicability of any change
in any law, rule, regulation or guideline adopted pursuant to or arising out of
the July 1988 report of the Basel Committee on Banking Regulations and
Supervisory Practices entitled "International Convergence of Capital Measurement
and Capital Standards," or the adoption or effectiveness after the date hereof
of any law, rule, regulation or guideline regarding capital adequacy, or any
change after the date hereof in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any lending office of such Bank) or any
Bank's holding company 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 or on the capital of such Bank's holding company, if any,
as a consequence of this Agreement, the Loans made by such Bank pursuant hereto,
such Bank's Commitment hereunder or the issuance of, or participation in, any
Letter of Credit by such Bank to a level below that which such Bank or such
Bank's holding company could have achieved but for such adoption, change or
compliance (taking into account Bank's policies and the policies of such Bank's
holding company with respect to capital adequacy) by an amount deemed by such
Bank to be material, then from time to time the Borrower shall pay to such Bank
such additional amount or amounts as will compensate such Bank or such Bank's
holding company for any such reduction suffered.
<PAGE>
(c) A certificate of each Bank setting forth such amount or amounts as
shall be necessary to compensate such Bank or its holding company as specified
in paragraph (a) or (b) above, as the case may be, shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
each Bank the amount shown as due on any such certificate delivered to it within
10 days after its receipt of the same. Any Bank receiving any such payment shall
promptly make a refund thereof to the Borrower if the law, regulation, guideline
or change in circumstances giving rise to such payment is subsequently deemed or
held to be invalid or inapplicable.
(d) Failure on the part of any Bank to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Bank's right to demand compensation with respect to such period or any
other period. The protection of this Section shall be available to each Bank
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, guideline or other change or condition which shall
have occurred or been imposed.
SECTION 2.16. Change in Legality.
(a) Notwithstanding anything to the contrary contained elsewhere in this
Agreement, if after the date hereof (x) any change in any law or regulation or
in the interpretation thereof by any Governmental Authority charged with the
administration thereof shall make it unlawful for a Bank to make or maintain a
Eurodollar Loan or to give effect to its obligations as contemplated hereby with
respect to a Eurodollar Loan or (y) at any time any Bank determines that the
making or continuance of any of its Eurodollar Loans has become impracticable as
a result of a contingency occurring after the date hereof which adversely
affects the London interbank market or the position of such Bank in such market,
then, by written notice to the Borrower, such Bank may (i) declare that
Eurodollar Loans will not thereafter be made by such Bank hereunder, whereupon
any request by the Borrower for a Eurodollar Borrowing shall, as to such Bank
only, be deemed a request for an ABR Loan unless such declaration shall be
subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date of such
notice as provided in paragraph (b) below. In the event any Bank shall exercise
its rights under clause (i) or (ii) of this paragraph (a), all payments and
prepayments of principal which would otherwise have been applied to repay the
Eurodollar Loans that would have been made by such Bank or the converted
Eurodollar Loans of such Bank shall instead be applied to repay the ABR Loans
made by such Bank in lieu of, or resulting from the conversion of, such
Eurodollar Loans.
(b) For purposes of this Section 2.16, a notice to the Borrower by any Bank
pursuant to paragraph (a) above shall be effective, if lawful, and if any
Eurodollar Loans shall then be outstanding, on the last day of the then-current
Interest Period, otherwise, such notice shall be effective on the date of
receipt by the Borrower.
SECTION 2.17. Pro Rata Treatment, etc. All payments and repayments of
principal and interest in respect of the Loans (except as provided in Sections
2.15 and 2.16) shall be made pro rata among the Banks in accordance with the
then outstanding principal amount of the Loans and/or participations in Letter
of Credit Outstandings and all outstanding undrawn Letters of Credit (and the
unreimbursed amount of drawn Letters of Credit) hereunder and all payments of
Commitment Fees and all Letter of Credit Fees (other than those payable to a
Fronting Bank) shall be made pro rata among the Banks in accordance with their
Commitments. All payments by the Borrower hereunder shall be (i) net of any tax
applicable to the Borrower or Guarantor and (ii) made in Dollars in immediately
available funds at the office of the Agent by 12:00 noon, New York City time, on
the date on which such payment shall be due. Interest in respect of any Loan
hereunder shall accrue from and including the date of such Loan to but excluding
the date on which such Loan is paid in full or converted to a Loan of a
different Type.
<PAGE>
SECTION 2.18. Taxes.
(a) Any and all payments by the Borrower or any Guarantor hereunder shall
be made free and clear of and without deduction for any and all current or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding (i) taxes imposed on or measured by
the net income or overall gross receipts of the Agent or any Bank (or any
transferee or assignee thereof, including a participation holder (any such
entity being called a "Transferee")) and franchise taxes imposed on the Agent or
any Bank (or Transferee) by the United States or any jurisdiction under the laws
of which either of the Agent or any such Bank (or Transferee) is organized or
any political subdivision thereof or by any other jurisdiction or by any
political subdivision or taxing authority therein other than a jurisdiction in
which the Agent or such Bank would not be subject to tax but for the execution
and performance of this Agreement and (ii) taxes, levies, imposts, deductions,
charges or withholdings ("Amounts") with respect to payments hereunder or under
the Notes or under any Loan Documents to a Bank (or Transferee) in accordance
with laws in effect on the later of the date of this Agreement and the date such
Bank (or Transferee) becomes a Bank (or Transferee, as the case may be), but not
excluding, with respect to such Bank (or Transferee), any increase in such
Amounts solely as a result of any change in such laws occurring after such later
date or any Amounts that would not have been imposed but for actions (other than
actions contemplated by this Agreement or the Notes) taken by the Borrower after
such later date (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower or any Guarantor shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder to the Banks (or any Transferee)
or the Agent, (i) the sum payable shall be increased by the amount necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section) such Bank (or Transferee) or the
Agent (as the case may be) shall receive an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower agrees to pay any current or future stamp or
documentary taxes or any other excise or property taxes, charges, assessments or
similar levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Bank (or Transferee) and the Agent for
the full amount of Taxes and Other Taxes paid by such Bank (or Transferee) or
the Agent, as the case may be, and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted by the relevant taxing
authority or other Governmental Authority. Such indemnification shall be made
within 30 days after the date any Bank (or Transferee) or the Agent, as the case
may be, makes written demand therefor. If a Bank (or Transferee) or the Agent
shall become aware that it is entitled to receive a refund in respect of Taxes
or Other Taxes as to which it has been indemnified by the Borrower pursuant to
this Section, it shall promptly notify the Borrower of the availability of such
refund and shall, within 30 days after receipt of a request by the Borrower,
apply for such refund at the Borrower's expense. If any Bank (or Transferee) or
the Agent receives a refund in respect of any Taxes or Other Taxes as to which
it has been indemnified by the Borrower pursuant to this Section, it shall
promptly notify the Borrower of such refund and shall, within 30 days after
receipt of a request by the Borrower (or promptly upon receipt, if the Borrower
has requested application for such refund pursuant hereto), repay such refund to
the Borrower (to the extent of amounts that have been paid by the Borrower under
this Section with respect to such refund plus interest that is received by the
Bank (or Transferee) as part of the refund), net of all out-of-pocket expenses
of such Bank and without additional interest thereon; provided that the
Borrower, upon the request of such Bank (or Transferee) or the Agent, agrees to
return such refund (plus penalties, interest or other charges) to such Bank (or
Transferee) or Agent in the event such Bank (or Transferee) or Agent is required
to repay such refund. Nothing contained in this subsection (c) shall require any
Bank (or Transferee) or the Agent to make available any of its tax returns (or
any other information relating to its taxes that it deems to be confidential).
<PAGE>
(d) Within 30 days after the date of any payment of Taxes or Other Taxes
withheld by the Borrower in respect of any payment to any Bank (or Transferee)
or the Agent, the Borrower will furnish to the Agent, at its address referred to
on the signature pages hereof, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section shall survive
the payment in full of the principal of and interest on all Loans made
hereunder.
(f) Each Bank (or Transferee) that is organized under the laws of a
jurisdiction outside the United States shall, if legally able to do so, prior to
the immediately following due date of any payment by the Borrower hereunder,
deliver to the Borrower such certificates, documents or other evidence, as
required by the Code or Treasury Regulations issued pursuant thereto, including
(A) Internal Revenue Service Form W-8 or W-9 and (B) Internal Revenue Service
Form 1001 or Form 4224 and any other certificate or statement of exemption
required by Treasury Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any
subsequent version thereof or successors thereto, properly completed and duly
executed by such Bank (or Transferee) establishing that such payment is (i) not
subject to United States Federal withholding tax under the Code because such
payment is effectively connected with the conduct by such Bank (or Transferee)
of a trade or business in the United States or (ii) totally exempt from United
States Federal withholding tax or subject to a reduced rate of such tax under a
provision of an applicable tax treaty. Unless the Borrower and the Agent have
received forms or other documents satisfactory to them indicating that such
payments hereunder or under the Notes are not subject to United States Federal
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Borrower or the Agent shall withhold taxes from such payments at
the applicable statutory rate.
(g) The Borrower shall not be required to pay any additional amounts to any
Bank (or Transferee) in respect of United States Federal withholding tax
pursuant to subsection (a) above if the obligation to pay such additional
amounts would not have arisen but for a failure by such Bank (or Transferee) to
comply with the provisions of subsection (f) above.
(h) Any Bank (or Transferee) claiming any additional amounts payable
pursuant to this Section 2.18 shall use reasonable efforts (consistent with
legal and regulatory restrictions) to file any certificate or document requested
by the Borrower or to change the jurisdiction of its applicable lending office
if the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts that may thereafter accrue and would not,
in the sole reasonable determination of such Bank, be otherwise materially
disadvantageous to such Bank (or Transferee).
SECTION 2.19. Certain Fees. The Borrower shall pay to the Agent, for the
respective accounts of the Agent and the Banks, the fees set forth in that
certain letter dated July 13, 1997 among the Agent, Chase Securities Inc. and
the Borrower.
SECTION 2.20. Commitment Fee. The Borrower shall pay to the Banks a
commitment fee (the "Commitment Fee") for the period commencing on the date the
Commitment Letter was executed to the Termination Date or the earlier date of
termination of the Commitment, computed (on the basis of the actual number of
days elapsed over a year of 360 days) at the rate of one-half of one percent
1/2% per annum on the average daily Unused Total Commitment. Such Commitment
Fee, to the extent then accrued, shall be payable (x) monthly in arrears, on the
last calendar day of each month, (y) on the Termination Date and (z) as provided
in Section 2.10 hereof, upon any reduction or termination in whole or in part of
the Total Commitment.
<PAGE>
SECTION 2.21. Letter of Credit Fees. The Borrower shall pay with respect to
each Letter of Credit (i) to the Agent on behalf of the Banks a fee calculated
(on the basis of the actual number of days elapsed over a year of 360 days) at
the rate of (x) one and one half percent (1-1/2%) per annum on the daily average
face amount of outstanding Letters of Credit and (ii) to the Fronting Bank such
Fronting Bank's customary fees for issuance and processing referred to in
Section 2.3. In addition, the Borrower agrees to pay each Fronting Bank for its
account a fronting fee in respect of each Letter of Credit issued by such
Fronting Bank, for the period from and including the date of issuance of such
Letter of Credit to and including the date of termination of such Letter of
Credit, computed at a rate, and payable at times, to be determined by such
Fronting Bank and the Borrower. Accrued fees described in clause (i) of the
first sentence of this paragraph in respect of each Letter of Credit shall be
due and payable monthly in arrears on the last calendar day of each month of
each year and on the Termination Date, or such earlier date as the Total
Commitment is terminated. Accrued fees described in clause (ii) of the first
sentence of this paragraph in respect of each Letter of Credit shall be payable
at times to be determined by the Fronting Bank, the Borrower and the Agent.
SECTION 2.22. Nature of Fees. All Fees shall be paid on the dates due, in
immediately available funds, to the Agent for the respective accounts of the
Agent and the Banks, as provided herein and in the letter described in Section
2.19. Once paid, none of the Fees shall be refundable under any circumstances.
SECTION 2.23. Priority and Liens; Adequate Protection.
(a) The Borrower and each of the Guarantors hereby covenants, represents
and warrants that, upon entry of the Interim Order (i) pursuant to Section
364(c)(1) of the Bankruptcy Code, the Obligations of the Borrower and the
Guarantors hereunder and under the Loan Documents shall at all times constitute
allowed administrative expense claims in the Cases having priority over all
administrative expenses of the kind specified in Sections 503(b) or 507(b) of
the Bankruptcy Code, (ii) pursuant to Section 364(c)(2) of the Bankruptcy Code,
the Obligations of the Borrower and the Guarantors hereunder and under the Loan
Documents shall at all times be secured by a perfected first priority Lien on
(x) all unencumbered property of the Borrower and the Guarantors and (y) all
cash maintained in the Letter of Credit Account and any direct investments of
the funds contained therein, (iii) pursuant to Section 364(c)(3) of the
Bankruptcy Code, the Obligations of the Borrower and the Guarantors hereunder
and under the Loan Documents shall be secured by a perfected Lien upon all
property of the Borrower and the Guarantors (other than the property that is
subject to existing Liens in Inventory of the Primed Vendors and existing Liens
that currently secure the obligations of the Borrower and the Guarantors under
the Existing Agreements, as to which the Lien in favor of the Agent and the
Banks will be as described in clause (iv) of this sentence) that is subject to
valid and perfected Liens in existence on the Filing Date or perfected
thereafter pursuant to Section 362(b)(18) of the Bankruptcy Code (to the extent
that under State or federal law, such Liens are senior to the Liens granted to
the Agent and the Banks hereunder and prime existing Liens), Permitted Liens and
property subject to Liens for ad valorem taxes permitted pursuant to the Section
6.1(a)(iv), junior to such valid and perfected Liens and claims, and (iv)
pursuant to Section 364(d)(1) of the Bankruptcy Code, the Obligations of the
Borrower and the Guarantors hereunder and under the Loan Documents shall be
<PAGE>
secured by a perfected first priority, senior priming Lien on all property of
the Borrower and the Guarantors (including without limitation, Receivables,
Inventory, intellectual property and the capital stock of all of the
Subsidiaries of the Borrower and the proceeds thereof) that is subject to
existing Liens on Inventory in favor of the Primed Vendors and existing Liens
that presently secure the Borrower's and the Guarantors' pre-petition
Indebtedness under the Existing Agreements and any Liens granted after the
Filing Date to provide adequate protection to the Primed Vendors or in respect
of the Existing Agreements, subject in each case with respect to subclauses (i)
through (iv) above, only to (x) in the event of the occurrence and during the
continuance of an unwaived Event of Default or an event that would constitute an
Event of Default with the giving of notice or lapse of time or both, the payment
of unpaid professional fees and disbursements incurred by the Borrower, the
Guarantors, and any statutory committees appointed in the Cases, as and when
allowed, and any disbursements of any member of such committee in an aggregate
amount not in excess of $2,500,000 and (y) the payment of unpaid fees pursuant
to 28 U.S.C. ss.1930 (collectively, the "Carve-Out"), provided that following
the Termination Date amounts in the Letter of Credit Account shall not be
subject to the Carve-Out. The Banks agree that the Borrower and the Guarantors
shall be permitted to pay compensation and reimbursement of expenses allowed and
payable under 11 U.S.C. ss. 330 and 11 U.S.C. ss. 331, as the same may be due
and payable, and so long as no Event of Default or event which with the giving
of notice or lapse of time or both would constitute an Event of Default shall
have occurred, the same shall not reduce the Carve-Out. Goods held for sale by
the Borrower and the Guarantors on consignment or under any licensing agreement
(under which neither the Borrower nor the Guarantors obtain title to such goods)
and the proceeds thereof (collectively, the "Consignor Property") shall not be
subject to the Liens or Superpriority Claims granted hereunder. The indemnities
permitted pursuant to Section 6.7(iii) shall not be subject to the Liens or
Superpriority Claims granted hereunder. Notwithstanding anything to the contrary
contained herein, all claims and Liens granted hereunder and under the Orders
(including those granted in favor of the Existing Lenders under the Existing
Agreements), shall be senior in all respects to all claims granted to Vendors
pursuant to Section 546(g)* of the Bankruptcy Code, to the extent permitted by
this Agreement.
(b) As to all real property the title to which is held by the Borrower or
any Guarantor, or the possession of which is held by the Borrower or any
Guarantor pursuant to leasehold interest, each of the Borrower and the
Guarantors hereby assigns and conveys as security, grants a security interest
in, hypothecates, mortgages, pledges and sets over unto the Agent on behalf of
the Banks all of the right, title and interest of the Borrower and such
Guarantor in all of such owned real property and in all such leasehold
interests, together in each case with all of the right, title and interest of
the Borrower and each Guarantor in and to all buildings, improvements, and
fixtures related thereto, any lease or sublease thereof, all general intangibles
relating thereto and all proceeds thereof. The Borrower and each Guarantor
acknowledges that, pursuant to the Orders, the Liens in favor of the Agent on
behalf of the Banks in all of such real property and leasehold interests shall
be perfected without the recordation of any instruments of mortgage or
assignment. Each of the Borrower and the Guarantors further agrees that (i) the
Agent on behalf of the Banks shall have rights and remedies in respect of such
real property and leasehold interests substantially as set forth in the
mortgages described in Schedule 1.1, and (ii) if requested by the Agent, each of
the Borrower and the Guarantors shall enter into separate fee and leasehold
mortgages with respect to such properties substantially in the form of such
mortgages and leasehold mortgages and otherwise on terms satisfactory to the
Agent, the Borrower and such Guarantor.
<PAGE>
(c) The Borrower and each of the Guarantors acknowledge and agree that, as
adequate protection for the interests of the Existing Lenders in the Liens that
are being primed as set forth in Section 2.23(a)(iv), the holders of such Liens
shall receive (i) a priority claim as contemplated by Section 507(b) of the
Bankruptcy Code, (ii) a Lien on substantially all of the assets of the Borrower
and the Guarantors having a priority junior to the priming and other Liens
granted in favor of the Agent and the Banks hereunder and under the other Loan
Documents (subject and subordinate, in the case of clause (i) and (ii) above, to
the Carve-Out, the Consignor Property, the Permitted Liens, the indemnities
permitted pursuant to Section 6.7(iii) and other valid and perfected Liens in
existence on the Filing Date), (iii) the making of current monthly interest
payments in respect of the principal amounts outstanding under the Existing
Agreements at the applicable non-default rate interest rate (including on a
LIBOR basis at the option of the Borrower in the absence of an Event of
Default), the making of current letter of credit fees and the reimbursement on a
monthly basis of the reasonable expenses incurred by the Agent under the
Existing Agreements prior to and after the Filing Date in connection with the
enforcement of its rights under the Existing Agreements. It shall be understood
and agreed that in the event the Existing Lenders receive the payment in full of
the principal and non-default interest under the Existing Agreements, the
Existing Lenders shall be deemed to have waived any claim for interest at the
default rate.
(d) The Borrower and each of the Guarantors acknowledge and agree that, as
adequate protection for the interests of the Primed Vendors in the Liens that
are being primed as set forth in Section 2.23(a)(iv), the holders of such Liens
shall receive (x) a priority claim as contemplated by Section 507(b) of the
Bankruptcy Code and (y) a Lien on the Inventory of the Primed Vendors and on all
other non-Inventory assets of the Borrower and the Guarantors having a priority
junior and subordinate to the Liens and claims in favor of the Agent and the
Banks and the Liens and claims in favor of the Existing Lenders, and subject and
subordinate to the Carve-Out, the Consignor Property, the Permitted Liens, the
indemnities permitted pursuant to Section 6.7(iii) and other valid and perfected
Liens in existence on the Filing Date.
(e) So long as any Commitment shall be in effect or any Loans or any Letter
of Credit shall remain outstanding or any other amount shall remain outstanding
under this Agreement, the Existing Lenders shall not take any action in the
Bankruptcy Court or otherwise seeking payment of the obligations under the
Existing Agreements or related to the enforcement of rights or remedies with
respect to Liens on the assets of the Borrower or any of the Guarantors ("the
Proscribed Actions"), provided that upon the occurrence of a material adverse
change in the business, operations, properties or condition (financial or
otherwise) of the Borrower and the Guarantors, taken as a whole, subsequent to
the Filing Date, the Existing Lenders shall be permitted to seek further or
other adequate protection not inconsistent with the Proscribed Actions or seek
to terminate the Borrower's or the Guarantors' use of cash collateral (in every
case on not less than five (5) Business Days notice) to the Borrower.
SECTION 2.24. Right of Set-Off. Subject to the provisions of Section 7.1
(which for the purposes hereof shall apply to the Banks), upon the occurrence
and during the continuance of any Event of Default, the Agent and each Bank is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law and without further order of or application to the Bankruptcy
Court, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Agent and each such Bank to or for the credit or the account
of the Borrower or any Guarantor against any and all of the obligations of such
Borrower or Guarantor now or hereafter existing under the Loan Documents,
irrespective of whether or not such Bank shall have made any demand under any
Loan Document and although such obligations may be unmatured. Each Bank and the
Agent agrees promptly to notify the Borrower and Guarantors after any such
set-off and application made by such Bank or by the Agent, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Bank and the Agent under this Section are in
addition to other rights and remedies which such Bank and the Agent may have
upon the occurrence and during the continuance of any Event of Default.
<PAGE>
SECTION 2.25. Security Interest in Letter of Credit Account. Pursuant to
Section 364(c)(2) of the Bankruptcy Code, the Borrower and the Guarantors hereby
assign and pledge to the Agent, for its benefit and for the ratable benefit of
the Banks, and hereby grant to the Agent, for its benefit and for the ratable
benefit of the Banks, a first priority security interest, senior to all other
Liens, if any, in all of the Borrower's and the Guarantors' right, title and
interest in and to the Letter of Credit Account and any direct investment of the
funds contained therein.
SECTION 2.26. Payment of Obligations. Upon the maturity (whether by
acceleration or otherwise) of any of the obligations under this Agreement or any
of the other Loan Documents of the Borrower and the Guarantors, the Banks shall
be entitled to immediate payment of such obligations without further application
to or order of the Bankruptcy Court.
SECTION 2.27. No Discharge; Survival of Claims. Each of the Borrower and
the Guarantors agrees that (i) its obligations hereunder shall not be discharged
by the entry of an order confirming a Plan of Reorganization (and each of the
Borrower and the Guarantors pursuant to Section 1141(d)(4) of the Bankruptcy
Code, hereby waives any such discharge) and (ii) the Superpriority Claim granted
to the Agent and the Banks pursuant to the Orders and described in Section 2.23
and the Lien granted to the Agent pursuant to the Orders and described in
Section 2.25 shall not be affected in any manner by the entry of an order
confirming a Plan of Reorganization.
SECTION 2.28. Use of Cash Collateral. Notwithstanding anything to the
contrary contained herein, the Borrower shall not be permitted to request a
Borrowing of Loans under Section 2.6 unless the Borrower and the Guarantors
shall at that time have used all cash collateral subject to the Interim Order
and the Final Order for the purposes described in Section 3.10.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to make Loans and issue and/or participate in
Letters of Credit hereunder, the Borrower and each of the Guarantors jointly and
severally represent and warrant as follows:
SECTION 3.1. Organization and Authority. Each of the Borrower and the
Guarantors (i) is a corporation duly organized and validly existing under the
laws of the State of its incorporation and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which the failure to
so qualify would have a material adverse effect on the financial condition,
operations, business, properties or assets of the Borrower and the Guarantors
taken as a whole; (ii) subject to the entry by the Bankruptcy Court of the
Orders, has the requisite corporate power and authority to effect the
transactions contemplated hereby, and by the other Loan Documents, and (iii)
subject to the entry by the Bankruptcy Court of the Orders has all requisite
corporate power and authority and the legal right to own, pledge, mortgage and
operate its properties, and to conduct its business as now or currently proposed
to be conducted.
<PAGE>
SECTION 3.2. Due Execution. The execution, delivery and performance by each
of the Borrower and the Guarantors of each of the Loan Documents to which it is
a party (i) are within the respective corporate powers of each of the Borrower
and the Guarantors, have been duly authorized by all necessary corporate action,
including the consent of shareholders where required, and do not (A) contravene
the charter or by-laws of any of the Borrower or the Guarantors, (B) violate any
law (including, without limitation, the Securities Exchange Act of 1934) or
regulation (including, without limitation, Regulation G, T, U or X of the Board
of Governors of the Federal Reserve System), or any order or decree of any court
or governmental instrumentality, (C) conflict with or result in a breach of, or
constitute a default under, any material indenture, mortgage or deed of trust
entered into after the Filing Date or any material lease, agreement or other
instrument entered into after the Filing Date binding on the Borrower or the
Guarantors or any of their properties, or (D) result in or require the creation
or imposition of any Lien upon any of the property of any of the Borrower or the
Guarantors other than the Liens granted pursuant to this Agreement or the other
Loan Documents or the Orders; and do not require the consent, authorization by
or approval of or notice to or filing or registration with any Governmental
Authority other than the entry of the Orders. This Agreement has been duly
executed and delivered by each of the Borrower and the Guarantors. This
Agreement is, and each of the other Loan Documents to which the Borrower and
each of the Guarantors is or will be a party, when delivered hereunder or
thereunder, will be, a legal, valid and binding obligation of the Borrower and
each Guarantor, as the case may be, enforceable against the Borrower and the
Guarantors, as the case may be, in accordance with its terms and in accordance
with and subject to the terms of the Orders.
SECTION 3.3. Statements Made. The statements, written or oral, which have
been made by the Borrower or any of the Guarantors to the Agent, any of the
Banks (solely in their capacity as a Bank hereunder) or to the Bankruptcy Court
in connection with any Loan Document, and any financial statement delivered
pursuant hereto or thereto (other than to the extent that any such statements
constitute projections), taken as a whole and in light of the circumstances in
which made (including circumstances which customarily occur and as a result of
events leading up to and following the commencement of a proceeding under
Chapter 11 of the Bankruptcy Code), contain no untrue statement of a material
fact and do not omit to state a material fact necessary to make such statements
not misleading; and, to the extent that any such written statements constitute
projections, such projections were prepared in good faith on the basis of
assumptions, methods, data, tests and information believed by the Borrower or
such Guarantor to be valid and accurate in all material respects at the time
such projections were furnished to the Banks.
SECTION 3.4. Financial Statements. The Borrower has furnished the Banks
with copies of (i) the audited consolidated financial statement of the Borrower
and its consolidated Subsidiaries for the fiscal year ended December 31, 1996
and (ii) the unaudited consolidated financial statement and schedules of the
Borrower and its consolidated Subsidiaries for the fiscal quarter ended March
31, 1997. Such financial statements present fairly the financial condition and
results of operations of the Borrower and its consolidated Subsidiaries on a
consolidated and consolidating basis as of such dates and for such periods; such
balance sheets and the notes thereto disclose all liabilities, direct or
contingent, of the Borrower and its consolidated Subsidiaries as of the dates
thereof required to be disclosed by GAAP and such financial statements were
prepared in accordance with GAAP, subject (in the case of such fiscal quarter
statement) to normal year end adjustments. No material adverse change in the
financial condition, operations, business, properties or assets of the Borrower
and the Guarantors, taken as a whole, has occurred from that set forth in the
Borrower's consolidated financial statements for the fiscal year ended December
31, 1996, or the fiscal quarter ended March 31, 1997 other than (w) the
bankruptcy filing of or litigation against any of the Foreign Subsidiaries, (x)
events occurring prior to the Closing Date as set forth on Schedule 3.4 hereto,
(y) those which customarily occur and as a result of events leading up to and
following the commencement of a proceeding under Chapter 11 of the Bankruptcy
Code and (z) the commencement of the Cases.
SECTION 3.5. Ownership. Each of the Persons listed on Schedule 3.5 is a
wholly-owned direct or indirect Subsidiary of the Borrower, and the Borrower
owns no other Subsidiaries, whether directly or indirectly which (other than in
the case of the Foreign Subsidiaries and, until such time as they become
Guarantors pursuant to Section 5.14, the Red Ant Entities) (i) has not commenced
a Case and (ii) is not a Guarantor.
<PAGE>
SECTION 3.6. Liens. There are no Liens of any nature whatsoever on any
assets of the Borrower or any of the Guarantors other than: (i) Liens in favor
of the Existing Lenders in respect of the Existing Agreements, (ii) pledges of
the capital stock of the Subsidiaries pursuant to the Existing Agreements; (iii)
Liens existing on the Filing Date as reflected on Schedule 3.6; (iv) Liens
permitted pursuant to Section 6.1(a)(iv) and (v) and Section 6.1(c); (v)
Permitted Liens; and (vi) Liens in favor of the Agent and the Banks. Neither the
Borrower nor the Guarantors are parties to any contract, agreement, lease or
instrument entered into after the Filing Date the performance of which, either
unconditionally or upon the happening of an event, will result in or require the
creation of a Lien on any assets of the Borrower or any Guarantor or otherwise
result in a violation of this Agreement other than the Liens granted to the
Agent and the Banks as provided for in this Agreement.
SECTION 3.7. Compliance with Law.
(a) (i) The operations of the Borrower and the Guarantors comply in all
material respects with all applicable environmental, health and safety statutes
and regulations, including, without limitation, regulations promulgated under
the Resource Conservation and Recovery Act (42 U.S.C. ss.ss.6901 et seq.); (ii)
to the Borrower's and each of the Guarantor's knowledge, none of the operations
of the Borrower or the Guarantors is the subject of any Federal or state
investigation evaluating whether any remedial action involving a material
expenditure by the Borrower or any Guarantor is needed to respond to a release
of any Hazardous Waste or Hazardous Substance (as such terms are defined in any
applicable state or Federal environmental law or regulations) into the
environment; and (iii) to the Borrower's and each of the Guarantor's knowledge,
the Borrower and the Guarantors do not have any material contingent liability in
connection with any release of any Hazardous Waste or Hazardous Substance into
the environment.
(b) Neither the Borrower nor any Guarantor is, to the best of its
knowledge, in violation of any law, rule or regulation, or in default with
respect to any judgment, writ, injunction or decree of any Governmental
Authority the violation of which, or a default with respect to which, would have
a material adverse effect on the financial condition, operations, business,
properties or assets of the Borrower and the Guarantors taken as a whole.
SECTION 3.8. Insurance. All policies of insurance of any kind or nature
owned by or issued to the Borrower and the Guarantors, including, without
limitation, policies of life, fire, theft, product liability, public liability,
property damage, other casualty, employee fidelity, workers' compensation,
employee health and welfare, title, property and liability insurance, are in
full force and effect and are of a nature and provide such coverage as is
sufficient and as is customarily carried by companies of the size and character
of the Borrower and the Guarantors.
<PAGE>
SECTION 3.9. The Orders. On the date of the making of any Loan) (including
the initial Loan) or the issuance of any Letter of Credit (including the initial
Letter of Credit) whichever first occurs, the Interim Order or the Final Order,
as the case may be, will have been entered and will not have been stayed,
amended, vacated, reversed or rescinded in any respect. Upon the maturity
(whether by the acceleration or otherwise) of any of the obligations of the
Borrower and the Guarantors hereunder and under the other Loan Documents, the
Banks shall, subject to the provisions of Section 7.1, be entitled to immediate
payment of such obligations, and to enforce the remedies provided for hereunder,
without further application to or order by the Bankruptcy Court.
SECTION 3.10. Use of Proceeds. The proceeds of the Loans shall be used (i)
for general working capital of the Borrower and the Guarantors, and (ii) for
other general corporate purposes of the Borrower and the Guarantors (including
among such general corporate purposes, the making of permitted intercompany
loans and advances to the Guarantors, and the making of Capital Expenditures,
subject to the limitations provided for in Section 6.4), the payment of expenses
included in the Carve-Out and the making of indemnification payments permitted
pursuant to Section 6.7 (iii).
SECTION 3.11. Litigation. Except as set forth on Schedule 3.11, as of the
Closing Date there are no unstayed actions, suits or proceedings pending or, to
the knowledge of the Borrower or the Guarantors, threatened against or affecting
the Borrower or the Guarantors or any of its properties, before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which is reasonably likely to be determined adversely to
the Borrower or the Guarantors and, if so determined adversely to the Borrower
or the Guarantors would have a material adverse effect on the financial
condition, business, properties, prospects, operations or assets of the Borrower
and the Guarantors, taken as a whole (other than the bankruptcy filing of or the
litigation against any of the Foreign Subsidiaries).
SECTION 3.12. Ad Valorem Taxes. Schedule 3.12 sets forth the amount of ad
valorem taxes reasonably anticipated to be incurred as of the Filing Date, which
such amount shall not exceed $500,000 in the aggregate.
SECTION 3.13. Additional Vendor Obligations. Schedule 3.13 sets forth the
obligations, as of the Filing Date, of the Borrower and the Guarantors to the
vendors listed thereon.
SECTION 4. CONDITIONS OF LENDING
SECTION 4.1. Conditions Precedent to Initial Loans and Initial Letters of
Credit. The obligation of the Banks to make the initial Loans or the Fronting
Bank to issue the initial Letter of Credit, whichever may occur first, is
subject to the following conditions precedent:
(a) Supporting Documents. The Agent shall have received for each of the
Borrower and the Guarantors:
(i) a copy of the certificate of incorporation of the Borrower and each of
the Guarantors, as amended, certified as of a recent date by the Secretary of
State of the state or jurisdiction of its incorporation;
(ii) a certificate of such Secretary of State, dated as of a recent date,
as to the good standing of and payment of taxes by, that entity set forth in
clause (i) above and as to the charter documents on file in the office of such
Secretary of State or Governmental Authority; and
<PAGE>
(iii) a certificate of the Secretary or an Assistant Secretary of that
entity set forth in clause (i) above dated the date of the initial Loans or the
initial Letter of Credit hereunder, whichever first occurs, and certifying (A)
that attached thereto is a true and complete copy of the by-laws of that entity
as in effect on the date of such certification, (B) that attached thereto is a
true and complete copy of resolutions adopted by the Board of Directors of that
entity authorizing the Borrowings and Letter of Credit extensions hereunder, the
execution, delivery and performance in accordance with their respective terms of
this Agreement, the Notes to be executed by it, the Loan Documents and any other
documents required or contemplated hereunder or thereunder and the granting of
the security interest in the Letter of Credit Account contemplated hereby, (C)
that the certificate of incorporation of that entity has not been amended since
the date of the last amendment thereto indicated on the certificate of the
Secretary of State or Governmental Authority furnished pursuant to clause (i)
above and (D) as to the incumbency and specimen signature of each officer of
that entity executing this Agreement, and the Loan Documents or any other
document delivered by it in connection herewith or therewith (such certificate
to contain a certification by another officer of that entity as to the
incumbency and signature of the officer signing the certificate referred to in
this clause (iii)).
(b) Interim Order. At the time of the making of the initial Loans or at the
time of the issuance of the initial Letter of Credit, whichever first occurs,
but not later than fifteen (15) days following the Filing Date, the Agent and
the Banks shall have received a certified copy of an order of the Bankruptcy
Court in substantially the form of Exhibit A-1 (the "Interim Order") approving
the Loan Documents and granting the Superpriority Claim status and Liens
described in Section 2.23 and the use by the Borrower and the Guarantors of any
cash collateral in which the Existing Lenders or the Primed Vendors may have an
interest which (i) shall have been entered upon an application of the Borrower
satisfactory in form and substance to the Agent, on no less than two (2)
Business Days' prior notice to each of the Existing Lenders, the Primed Vendors,
counsel to the Official Committee of Unsecured Creditors (if appointed), the
United States Trustee, any party who has filed a notice with the Bankruptcy
Court requesting service of papers and any other parties in interest which have
been designated by the Bankruptcy Court to receive pleadings in the case, (ii)
shall have authorized extensions of credit under this Agreement of not less than
$20,000,000 in the aggregate, (iii) shall be in full force and effect, and (iv)
shall not have been stayed, reversed, vacated, rescinded, modified or amended in
any respect and, if the Interim Order is the subject of a pending appeal in any
respect, neither the making of such Loans nor the issuance of such Letter of
Credit nor the performance by the Borrower or any of the Guarantors of any of
their respective obligations hereunder or under the Loan Documents or under any
other instrument or agreement referred to herein shall be the subject of a
presently effective stay pending appeal.
<PAGE>
(c) Security and Pledge Agreement. The Borrower and the Guarantors shall
have duly executed and delivered to the Agent a Security and Pledge Agreement in
substantially the form of Exhibit B (the "Security and Pledge Agreement").
(d) Opinion of Counsel to the Borrower. The Agent and the Banks shall have
received the favorable written opinion of counsel to the Borrower and the
Guarantors reasonably acceptable to the Agent, dated the Closing Date,
substantially in the form of Exhibit C.
(e) Payment of Fees. The Borrower shall have paid to the Agent the then
unpaid balance of all accrued and unpaid Fees and expenses owed under and
pursuant to this Agreement and the letter referred to in Section 2.19.
(f) Corporate and Judicial Proceedings. All corporate and judicial
proceedings and all instruments and agreements in connection with the
transactions among the Borrower, the Guarantors, the Agent and the Banks
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Agent, and the Agent shall have received all information and
copies of all documents and papers, including records of corporate and judicial
proceedings, which the Agent may have reasonably requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate, governmental or judicial authorities.
(g) Information. The Agent shall have received such information (financial
or otherwise) as may be reasonably requested by the Agent.
(h) Environmental Compliance. The Borrower and the Guarantors shall have
granted the Agent access to and the right to inspect all reports, audits and
other internal information of the Borrower and the Guarantors relating to
environmental matters, and any third party verification of certain matters
relating to compliance with environmental laws and regulations requested by the
Agent, and the Agent shall be satisfied that the Borrower and the Guarantors are
in compliance in all material respects with all applicable environmental laws
and regulations and be satisfied with the costs of maintaining such compliance.
(i) UCC Searches. The Agent shall have received the results of UCC-11
searches conducted in jurisdictions in which the Borrower and the Guarantors
conduct business, which searches shall be satisfactory to the Agent (in each
case dated as of a date reasonably satisfactory to the Agent).
(j) Appraisal; Reporting and Control Systems. The Agent shall have received
(i) an appraisal of the Inventory of the Borrower prepared (at the Borrower's
expense) by Universal Asset-Based Services, Inc. and such appraisal shall be
satisfactory in form and substance to the Agent and (ii) a report with respect
to the Borrower's and the Guarantor's reporting and Inventory control and
accounts receivable systems prepared (at the Borrower's expense) by the Agent's
Specialized Due Diligence Group and such report shall be satisfactory in form
and substance to the Agent.
<PAGE>
(k) Inventory. The Agent shall be satisfied that the Inventory of the
Borrower and the Guarantors is located at such places and is in the amounts
heretofore represented by the Borrower to the Agent.
(l) First Day Orders. All of the "first day orders" entered by the
Bankruptcy Court at the time of the commencement of the Cases shall be
reasonably satisfactory in form and substance to the Agent.
(m) Closing Documents. The Agent shall have received all documents required
by this Agreement satisfactory in form and substance to the Agent.
SECTION 4.2. Conditions Precedent to Each Loan and Each Letter of Credit.
The obligation of the Banks to make each Loan and of the Fronting Bank to issue
each Letter of Credit, including the initial Loan and the initial Letter of
Credit, is subject to the following conditions precedent:
(a) Notice. The Agent shall have received a notice with respect to such
borrowing or issuance, as the case may be, as required by Section 2.
(b) Representations and Warranties. All representations and warranties
contained in this Agreement and the other Loan Documents or otherwise made in
writing in connection herewith or therewith shall be true and correct in all
material respects on and as of the date of each Borrowing or the issuance of
each Letter of Credit hereunder with the same effect as if made on and as of
such date except to the extent such representations and warranties expressly
relate to an earlier date.
(c) No Default. On the date of each Borrowing hereunder or the issuance of
each Letter of Credit, the Borrower and Guarantors shall be in compliance with
all of the terms and provisions set forth herein to be observed or performed and
no Event of Default or event which upon notice or lapse of time or both would
constitute an Event of Default shall have occurred and be continuing.
(d) Orders. The Interim Order shall be in full force and effect and shall
not have been stayed, reversed, modified or amended in any respect without the
prior written consent of the Agent and the Required Banks, provided, that at the
time of the making of any Loan or the issuance of any Letter of Credit the
aggregate amount of either of which, when added to the sum of the principal
amount of all Loans then outstanding and the Letter of Credit Outstandings,
would exceed the amount thereof which was authorized by the Bankruptcy Court in
the Interim Order (collectively, the "Additional Credit"), the Agent and each of
the Banks shall have received a certified copy of an order of the Bankruptcy
Court in substantially the form of Exhibit A-2 (the "Final Order"), which, in
any event, shall have been entered by the Bankruptcy Court no later than 30 days
after the entry of the Interim Order, and at the time of the extension of any
Additional Credit the Final Order shall be in full force and effect, and shall
not have been stayed, reversed, modified or amended in any respect without the
prior written consent of the Agent and the Required Banks; and if either the
Interim Order or the Final Order is the subject of a pending appeal in any
respect, neither the making of the Loans nor the issuance of any Letter of
Credit nor the performance by the Borrower or any Guarantor of any of their
respective obligations under any of the Loan Documents shall be the subject of a
presently effective stay pending appeal.
<PAGE>
(e) Borrowing Base Certificate. The Agent shall have received the timely
delivery of the most recent Borrowing Base Certificate (dated no more than seven
(7) calendar days prior to the making of a Loan or the issuance of a Letter of
Credit) required to be delivered hereunder.
(f) Payment of Fees. The Borrower shall have paid to the Agent the then
unpaid balance of all accrued and unpaid Fees and expenses then payable under
and pursuant to this Agreement and the letter referred to in Section 2.19.
The request by the Borrower for, and the acceptance by the Borrower of,
each extension of credit hereunder shall be deemed to be a representation and
warranty by the Borrower that the conditions specified in this Section have been
satisfied or waived at that time and that after giving effect to such extension
of credit the Borrower shall continue to be in compliance with the Borrowing
Base.
SECTION 5. AFFIRMATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in effect
or any Letter of Credit shall remain outstanding (in a face amount in excess of
the amount of cash then held in the Letter of Credit Account pursuant to
Sections 2.3(b) or 2.13(a)), or any amount shall remain outstanding under this
Agreement, the Borrower and each of the Guarantors agree that, unless the
Required Banks shall otherwise consent in writing, it will:
SECTION 5.1. Financial Statements, Reports, etc. In the case of the
Borrower and the Guarantors, deliver to the Agent and each of the Banks:
(a) within 90 days after the end of each fiscal year, the Borrower's
consolidated and consolidating balance sheets and related statements of
operations, stockholders' equity and cash flows, showing the financial condition
of the Borrower and its consolidated Subsidiaries on a consolidated and
consolidating basis as of the close of such fiscal year and the results of their
operations during such year, audited by Coopers & Lybrand or other independent
public accountants of recognized national standing acceptable to the Required
Banks and accompanied by an opinion of such accountants (which shall not be
qualified in any material respect other than with respect to the Cases or the
maturity of the Loans on January 31, 1999) to the effect that such consolidated
and consolidating financial statements fairly present the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries on a
consolidated and consolidating basis in accordance with GAAP consistently
applied and certified by a Financial Officer as fairly presenting the results of
operation of the Borrower and its consolidated Subsidiaries on a consolidated
and consolidating basis, in accordance with GAAP consistently applied;
(b) within 45 days after the end of the first three fiscal quarters
(commencing with the Borrower's first fiscal quarter ended September 30, 1997),
the Borrower's consolidated balance sheets and related statements of operations,
stockholders' equity and cash flows, showing the financial condition of the
Borrower and its consolidated Subsidiaries on a consolidated and consolidating
basis as of the close of such fiscal quarter and the results of their operations
during such fiscal quarter and the then elapsed portion of the fiscal year,
certified by a Financial Officer as fairly presenting the results of operations
of the Borrower and its consolidated Subsidiaries on a consolidated and
consolidating basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments in accordance with generally accepted
accounting statements;
<PAGE>
(c) within 30 days after the end of each fiscal month, other than the last
month of any fiscal quarter (commencing with the fiscal month ending on or about
August 31, 1997), (i) the Borrower's consolidated balance sheets and related
statements of operations, stockholders' equity and cash flows showing the
financial condition of the Borrower and its consolidated Subsidiaries on a
consolidated basis as of the close of such month and the results of their
operations during such month and the then elapsed portion of the fiscal year,
certified by a Financial Officer as fairly presenting the financial conditions
and results of operations of (x) the Borrower and its consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(d) concurrently with any delivery of financial statements under (a) or (b)
above, (i) a certificate of the accounting firm (which certificate may be
limited to accounting matters and disclaim responsibility for legal
interpretations) or Financial Officer, opining on or certifying such statements
(A) certifying that no Event of Default or event which upon notice or lapse of
time or both would constitute an Event of Default has occurred, or, if such an
Event of Default or event has occurred, specifying the nature and extent thereof
(and the Certificate of Financial Officer shall specify any corrective action
taken or proposed to be taken with respect thereto) and (B) setting forth
computations in reasonable detail satisfactory to the Agent demonstrating
compliance with the provisions of Sections 6.4, 6.5, 6.6 and 6.13;
(e) no later than 90 days after the Closing Date, the Borrower's and
Guarantors' balance sheet as of the Filing Date in detail reasonably
satisfactory to the Agent;
(f) as soon as possible, and in any event within 45 days of the end of each
fiscal quarter (commencing with the fiscal quarter ending on or about September
30, 1997), monthly financial projections for the next succeeding six fiscal
month period, in detail reasonably satisfactory to the Agent;
(g) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by it
with the Securities and Exchange Commission, or any Governmental Authority
succeeding to any of or all the functions of said commission, or with any
national securities exchange, as the case may be;
(h) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Guarantor, or compliance with the terms of any material loan or financing
agreements, as the Agent or any Bank may reasonably request;
(i) to counsel to the Agent, promptly after the same is available, copies
of all pleadings, motions, applications, judicial information, financial
information and other documents filed by or on behalf of the Borrower or any of
the Guarantors with the Bankruptcy Court in the Cases, or distributed by or on
behalf of the Borrower or any of the Guarantors to any official committee
appointed in the Cases; and
<PAGE>
(j) as soon as possible, and in any event, within 5 Business Days of the
end of each fiscal month, the supporting documentation required on Schedule 1 to
the Borrowing Base Certificate.
SECTION 5.2. Corporate Existence. Do or cause to be done and cause each of
the Guarantors to do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its corporate existence, material rights,
licenses, permits and franchises and comply in all material respects with all
laws and regulations applicable to it.
SECTION 5.3. Insurance.
(a) Keep its insurable properties insured at all times, against such risks,
including fire and other risks insured against by extended coverage, as is
customary with companies of the same or similar size in the same or similar
businesses; and maintain in full force and effect public liability insurance
against claims for personal injury or death or property damage occurring upon,
in, about or in connection with the use of any properties owned, occupied or
controlled by the Borrower or any Subsidiary, as the case may be, in such
amounts and with such deductibles as are customary with companies of the same or
similar size in the same or similar businesses and in the same geographic area;
and (b) maintain such other insurance or self insurance as may be required by
law.
SECTION 5.4. Obligations and Taxes. With respect to the Borrower and each
Guarantor, pay all its material obligations arising after the Closing Date
promptly and in accordance with their terms and pay and discharge promptly all
material taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or in respect of its property arising after the
Closing Date, before the same shall become in default, as well as all material
lawful claims for labor, materials and supplies or otherwise arising after the
Closing Date which claims, taxes or obligations, if unpaid, might become a Lien
or charge upon such properties or any part thereof; provided, however, that the
Borrower and each Guarantor shall not be required to pay and discharge or to
cause to be paid and discharged any such tax, assessment, charge, levy or claim
so long as the validity or amount thereof shall be contested in good faith by
appropriate proceedings (if the Borrower and the Guarantors shall have set aside
on their books adequate reserves therefor).
SECTION 5.5. Notice of Event of Default, etc. Promptly give to the Agent
notice in writing of any Event of Default or the occurrence of any event or
circumstance which with the passage of time or giving of notice or both would
constitute an Event of Default.
SECTION 5.6. Borrowing Base Certificate. Furnish to the Agent as soon as
available and in any event on or before Wednesday of each week a Borrowing Base
Certificate for the last day of the immediately preceding week substantially in
the form of Exhibit E, each such Borrowing Base Certificate to be certified as
complete and correct on behalf of the Borrower by a Financial Officer of the
Borrower.
<PAGE>
SECTION 5.7. Access to Books and Records. Maintain or cause to be
maintained at all times true and complete books and records of the financial
operations of the Borrower and the Guarantors; and provide the Agent and its
representatives access to all such books and records during regular business
hours, in order that the Agent may examine and make abstracts from such books,
accounts, records and other papers (including, but not limited to the conduct of
audits with respect to Inventory and Receivables included in the Borrowing Base)
for the purpose of verifying the accuracy of the various reports delivered by
the Borrower or the Guarantors to the Agent or the Banks pursuant to this
Agreement or for otherwise ascertaining compliance with this Agreement; and at
any reasonable time and from time to time during regular business hours, upon
reasonable notice, permit the Agent and any agents or representatives
(including, without limitation, appraisers) thereof to visit the properties of
the Borrower with a view to, among other things, ascertaining compliance with
the Borrowing Base.
SECTION 5.8. Business Plan. As soon as practicable, furnish to the Agent a
report with respect to any material modifications to the Borrower's Projections
and Assumptions dated July 2, 1997 heretofore delivered to the Agent, and make
its senior officers available to discuss the same with the Agent.
SECTION 5.9. Concentration and Disbursement Accounts. The Borrower and the
Guarantors shall continue to maintain (i) with Chase in its capacity as Agent
the existing account or accounts owned by Chase, to be used by the Borrower and
the Guarantors as the principal concentration accounts and (ii) with Chase in
its capacity as Agent their existing accounts to be used by the Borrower and the
Guarantors as their principal disbursement accounts for day-to-day operations
conducted by the Borrower and the Guarantors.
SECTION 5.10. Employee Benefits.
(a) Comply in all material respects with the applicable provisions of ERISA
and the Code and (b) furnish to the Agent:
(1) (i) as soon as possible after, and in any event (A) within 30 days
after any Responsible Officer of the Borrower or any of its ERISA Affiliates
knows that any Reportable Event has occurred that alone or together with any
other Reportable Event could reasonably be expected to result in liability of
the Borrower to the PBGC in an aggregate amount exceeding $5,000,000, a
statement of a Financial Officer of the Borrower setting forth details as to
such Reportable Event and the action, if any, which the Borrower or such ERISA
Affiliate proposes to take with respect thereto, together with a copy of the
notice, if any, of such Reportable Event given to the PBGC;
(ii) promptly after receipt thereof, a copy of any notice that the Borrower
or any ERISA Affiliate may receive from the PBGC relating to the intention of
the PBGC to terminate any Plan or Plans or to appoint a trustee to administer
any such Plan;
<PAGE>
(iii) within 10 days after the due date for filing with the PBGC pursuant
to Section 412(n) of the Code a notice of failure of the Borrower or any of its
ERISA Affiliates to make a required installment or other payment with respect to
a Plan, a statement of a Financial Officer of the Borrower setting forth details
as to such failure and the action that the Borrower or any of its ERISA
Affiliates proposes to take with respect thereto, together with a copy of any
such notice given to the PBGC;
(iv) promptly and in any event with 30 days after receipt thereof by the
Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy
of each notice received by the Borrower or any ERISA Affiliate from such sponsor
or the PBGC concerning (A) the imposition of Withdrawal Liability, (B) a
determination by such sponsor or the PBGC that a Multiemployer Plan is, or is
expected to be, terminated or in reorganization, both within the meaning of
Title IV of ERISA or (c) an increase in the amount or rate of contributions
required to be made to a Multiemployer Plan.
SECTION 5.11. Asset Sales. Deliver to the Agent and the agent for the
Existing Lenders, by not later than 45 days following the Closing Date, an asset
disposition plan identifying all non-core assets and/or businesses proposed to
be sold by the Borrower and the Guarantors, together with a proposed timetable
for such dispositions.
SECTION 5.12. Investment Banking Firm. Seek, by not later than 30 days
following the Closing Date, and thereafter take all reasonable steps to retain
an investment banking firm, acceptable to the Agent, to assist the Borrower in
the disposition of the assets and businesses referred to in the asset
disposition plan delivered pursuant to Section 5.11, and for such other duties
as are satisfactory to the Agent , and make such investment banking firm
available to the Agent to discuss same.
SECTION 5.13. Employment Contracts. Within 15 days following the Closing
Date, seek Bankruptcy Court approval to implement the employment contract
rejection and salary reduction plan previously delivered to the Agent.
SECTION 5.14. Concerning The Red Ant Entities. Contemporaneously with the
commencement of the Chapter 11 cases of the Red Ant Entities, which will occur
within five (5) Business Days of the Filing Date (it being understood that the
failure to so file will not result in an Event of Default), cause each of the
Red Ant Entities to execute and deliver to the Agent (i) an instrument,
satisfactory in form and substance to the Agent, under which each of the Red Ant
Entities assumes all of the obligations of a Guarantor hereunder and (ii) such
additional documents, instruments, agreements and statements in form and
substance satisfactory to the Agent, as requested (or as may be required by
applicable law) in order to grant to the Agent for its benefit and for the
benefit of the Banks the Liens and claims on the assets and properties of each
of the Red Ant Entities as are contemplated hereunder, under the Orders or under
the other Loan Documents.
<PAGE>
SECTION 6. NEGATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in effect
or any Letter of Credit shall remain outstanding (in a face amount in excess of
the amount of cash then held in the Letter of Credit Account pursuant to
Sections 2.3(b) or 2.13(a)) or any amount shall remain outstanding under this
Agreement, unless the Required Banks shall otherwise consent in writing, the
Borrower and each of the Guarantors will not (and will not apply to the
Bankruptcy Court for authority to):
SECTION 6.1. Liens and Reclamation Claims.
(a) Incur, create, assume or suffer to exist any Lien on any asset of the
Borrower or the Guarantors, now owned or hereafter acquired by the Borrower or
any of such Guarantors (or apply to the Bankruptcy Court for authority so to
do), other than (i) Liens described in clauses (i) and (ii) of Section 3.6; (ii)
Liens existing on the Filing Date as reflected on Schedule 3.6 hereto; (iii)
Permitted Liens; (iv) Liens relating to ad valorem taxes described on Schedule
3.12 in an aggregate amount not in excess of $500,000; (v) other Liens arising
in the ordinary course of business (and not involving Indebtedness for borrowed
money but including permitted Capitalized Leases) in an aggregate amount not in
excess of $2,500,000; (vi) adequate protection Liens in favor of the Existing
Lenders and the Primed Vendors pursuant to the Orders; and (vii) Liens in favor
of the Agent and the Banks.
(b) Make any payments or transfer any property on account of claims
asserted by any of the Borrower's or Guarantors' pre-petition vendors for
reclamation rights in accordance with Section 2-702 of the Uniform Commercial
Code and Section 546(c) of the Bankruptcy Code in an aggregate amount in excess
of $50,000.
(c) The return of goods and the granting of or claims (which claims shall
be junior and subordinate to the Liens and claims granted to the Agent, the
Banks and the Existing Lenders pursuant to the Orders or pursuant to the
Agreement) in favor of trade vendors in amounts not to exceed an aggregate
amount acceptable to the Required Banks pursuant to Bankruptcy Code Section
546(g)* Agreements in form and substance reasonably satisfactory to the Required
Banks and which have been approved by one or more orders of the Bankruptcy
Court.
SECTION 6.2. Merger, etc. Consolidate or merge with or into another Person,
or apply to the Bankruptcy Court for authority so to do, other than mergers
among any Guarantor and any other Guarantor or the Borrower (provided, the
Borrower is the surviving entity of such merger).
SECTION 6.3. Indebtedness. Contract, create, incur, assume or suffer to
exist any Indebtedness, or apply to the Bankruptcy Court for authority so to do,
except for (i) Indebtedness under this Agreement, (ii) Indebtedness incurred
prior to the Filing Date (including existing Capitalized Leases), (iii)
Indebtedness incurred subsequent to the Filing Date secured by purchase money
Liens (exclusive of Capitalized Leases) in an aggregate amount not to exceed
$2,500,000 at any one time outstanding, (iv) Capitalized Leases to the extent
permitted by Section 6.4, (v) guarantees permitted under Section 6.7, and (vi)
inter-company Indebtedness among the Borrower and the Guarantors permitted
pursuant to Section 6.11.
SECTION 6.4. Capital Expenditures. Make Capital Expenditures in an amount
not to exceed $1,500,000 in any fiscal quarter of the Borrower (after the Filing
Date) or in an aggregate amount in excess of $6,000,000.
SECTION 6.5. EBITDA. Permit cumulative EBITDA for period commencing on July
1, 1997 and ending on or about the dates listed below to be less than the amount
specified opposite such period:
Period Ended EBITDA
------------ ------
September 30, 1997 ($10,000,000)
December 31, 1997 ($12,000,000)
March 31, 1998 ($ 9,000,000)
June 30, 1998 ($ 6,000,000)
September 30, 1998 ($ 1,000,000)
December 31, 1998 $ 6,000,000
<PAGE>
provided, that upon the sale or other disposition of AEC Holdings (U.K.)
Ltd. and/or Concord Records, Inc. in calculating EBITDA for any period, the
projected EBITDA set forth on the Borrowers Projections and Assumptions dated
July 2, 1997 for AEC Holdings (U.K.) Ltd. and/or Concord Records, Inc. (as
applicable) will be added back for purposes of the calculation of EBITDA for any
subsequent period.
SECTION 6.6. Inventory. Permit the amount of Inventory of the Borrower
(valued on a FIFO basis in accordance with GAAP and shown on the Borrower's
financial statements) at any time to be less than $55,000,000.
SECTION 6.7. Guarantees and Other Liabilities. Purchase or repurchase (or
agree, contingently or otherwise, so to do) the Indebtedness of, or assume,
guarantee (directly or indirectly or by an instrument having the effect of
assuring another's payment or performance of any obligation or capability of so
doing, or otherwise), endorse or otherwise become liable, directly or
indirectly, in connection with the obligations, stock or dividends of any
Person, or permit any Subsidiary so to do, or apply to the Bankruptcy Court for
authority so to do, except (i) for any guaranty of Indebtedness or other
obligations of any Borrower or Guarantor if the guarantor could have incurred
such Indebtedness or obligations under this Agreement, (ii) by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business, and (iii) for the indemnification (pursuant to the terms of an
indemnity agreement or agreements reasonably acceptable to the Agent) of the
directors of the Foreign Subsidiaries, in an amount not to exceed $500,000 in
the aggregate, for legal and professional fees and settlement costs directly
incurred by such directors in connection with any litigation threatened or
commenced against or liability incurred by such directors in respect of "trading
while insolvent" claims (it being understood that such indemnities shall be
senior to the Carve-Out and Liens and claims in favor of the Agent, the Banks
and the Existing Lenders, and the Primed Vendors, and the current payment of
which shall be permitted notwithstanding the existence of an Event of Default)
and (iv) as permitted under this Agreement.
SECTION 6.8. Chapter 11 Claims. Incur, create, assume, suffer to exist or
permit any other Super-Priority Claim which is pari passu with or senior to the
claims of the Agent and the Banks against the Borrower and the Guarantors
hereunder, or apply to the Bankruptcy Court for authority so to do, except for
the Carve-Out.
SECTION 6.9. Dividends; Capital Stock. Declare or pay, directly or
indirectly, any dividends or make any other distribution or payment, whether in
cash, property, securities or a combination thereof, with respect to (whether by
reduction of capital or otherwise) any shares of capital stock (or any options,
warrants, rights or other equity securities or agreements relating to any
capital stock), or set apart any sum for the aforesaid purposes, provided that
any Guarantor may pay dividends to the Borrower or to another Guarantor that is
its parent corporation.
SECTION 6.10. Transactions with Affiliates. Sell or transfer any property
or assets to, or otherwise engage in any other transactions with, any of its
Affiliates (provided that the Borrower and the Guarantors shall not be deemed
Affiliates for this purpose), except that the Borrower or any Guarantor may
engage in any of the foregoing transactions in the ordinary course of business
at prices and on terms and conditions not less favorable to the Borrower or such
Guarantor than could be obtained on an arm's-length basis from unrelated third
parties.
<PAGE>
SECTION 6.11. Investments, Loans and Advances. Purchase, hold or acquire
any capital stock, evidences of indebtedness or other securities of, make or
permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other Person (all of the foregoing,
"Investments"), except for (i) ownership of the capital stock of each of the
Guarantors listed on Schedule 3.5 by the Borrower and any other entity set forth
on Schedule 3.5, (ii) Permitted Investments, and (iii) advances among the
Borrower and the Guarantors (other than the Red Ant Entities) in the ordinary
course, (iv) advances to Foreign Subsidiaries but only for the indemnities
permitted by Section 6.7(iii), (v) any Investments received upon the sale or
other liquidation of asset dispositions permitted hereunder, provided such
Investments are pledged to the Agent as security for the Obligations, and (vi)
advances to the Red Ant Entities during the thirty (30) day period following the
date on which they have filed cases under Chapter 11 of the Bankruptcy Code and
have become Guarantors pursuant to Section 5.14, in weekly amounts not to exceed
$312,500 or $1,250,000 in the aggregate.
SECTION 6.12 Disposition of Assets. Sell or otherwise dispose of any assets
(including, without limitation, the capital stock of any Subsidiary or any
copyrights or intellectual property) except for (i) sales of Inventory, leases,
fixtures and equipment in the ordinary course of business, (ii) sales of the
assets set forth on Schedule 6.12 hereto for fair market value and on terms
reasonably satisfactory to the Agent and the Required Banks, (iii) sales or
dispositions among any of the Guarantors and the Borrower and (iv) other sales
of assets having a fair market value not exceeding $500,000 in the aggregate,
provided, as to clauses (ii), (iii) and (iv) of this Section 6.12 that after
giving effect to any such transaction, no Event of Default or event which with
the giving of notice or lapse of time, or both, would become an Event of Default
shall have occurred and be continuing, provided, further, that with respect to
clause (ii) above, upon the execution of a "claw back" agreement among the
Agent, the Banks and the Existing Lenders in form and substance satisfactory to
the Agent and the Banks in the exercise of their sole discretion (the "Claw Back
Agreement"), the Banks shall consent to the payment of the Net Cash Proceeds of
sales of assets listed on Schedule 6.12 hereto (other than with respect to Indi
and the Red Ant Entities) for application to amounts outstanding under the
Existing Agreements, provided (x) that with respect to the sale or other
liquidation of the Red Ant Entities, the Borrower shall promptly apply the Net
Cash Proceeds thereof to any Loans then outstanding and (y) the Borrower shall
apply an amount equal to 25% of the Net Cash Proceeds thereof to the principal
under the Existing Agreements on December 31, 1997 and an additional amount
equal to 25% of such Net Cash Proceeds thereof to the principal under the
Existing Agreements on March 31, 1998 (or if the sale or other liquidation of
Indi shall have occurred subsequent to December 31, 1997, the Borrower shall
have applied an amount equal to 50% of the Net Cash Proceeds thereof to the
principal under the Existing Agreements on March 31, 1998), it being understood
that, prior to any required repayment hereunder with respect to the sale of
Indi, the Borrower shall be permitted to use the Net Cash Proceeds thereof for
working capital purposes not inconsistent with the terms of this Agreement,
provided, that in the event that, upon the Termination Date, there exist any
Loans or Letters of Credit outstanding, each of the Existing Lenders shall,
within two Business Days of receipt of notice from the Agent, remit their
pro-rata share of the aggregate amount of Loans outstanding and amounts
necessary to cash collateralize outstanding Letters of Credit in an amount equal
to 105% of the face amount of outstanding Letters of Credit in immediately
available funds. Any such amounts which are not paid by any Existing Lender when
due shall accrue interest at the rates provided for in Section 2.8 but the
aggregate amount paid by any Lender shall not exceed the aggregate amount of Net
Cash Proceeds paid to such Existing Lender. The Borrower hereby agrees that, to
the extent any amounts are remitted to the Banks pursuant to the Claw Back
Agreement, the claims of the Existing Lenders shall be reinstated in a like
amount. All assignments of pre-petition interests and claims under the Existing
Agreements shall, in addition to existing provisions, require the consent of the
Agent in the exercise of its sole discretion.
Notwithstanding anything to the contrary contained in this Section 6.12, in
the absence of the execution of a Claw Back Agreement, all Net Cash Proceeds of
the sale of assets set forth on Schedule 6.12 (other than the sale of the Red
Ant Entities, which shall be applied to the Loans as provided above) shall be
deposited into an interest-bearing segregated escrow account with the Agent as
collateral security for the Obligations.
<PAGE>
SECTION 6.13 SG&A Expenses. Permitted selling, general and administrative
operating expenses (exclusive of bad debt expense) of Indi and expenses incurred
in a liquidation of Indi, for each period commencing on the Filing Date and
ending on the date listed below to exceed, on a cumulative basis the amounts
opposite such dates set forth below:
Date Amount
September 30,1997 $ 4,500,000
December 31, 1997 $ 8,500,000
March 31, 1998 $10,500,000
each fiscal quarter thereafter $11,500,000
SECTION 6.14 Nature of Business. Modify or alter in any material manner the
nature and type of its business as conducted at or prior to the Closing Date or
the manner in which such business is conducted (except as required by the
Bankruptcy Code).
SECTION 7. EVENTS OF DEFAULT
SECTION 7.1. Events of Default. In the case of the happening of any of the
following events and the continuance thereof beyond the applicable period of
grace if any (each, an "Event of Default"):
(a) any material representation or warranty made by the Borrower or any
Guarantor in this Agreement or in any Loan Document or in connection with this
Agreement or the credit extensions hereunder or any material statement or
representation made in any report, financial statement, certificate or other
document furnished by the Borrower or any Guarantors to the Banks under or in
connection with this Agreement, shall prove to have been false or misleading in
any material respect when made or delivered; or
(b) default shall be made in the payment of any (i) Fees or interest on the
Loans when due, and such default shall continue unremedied for more than two (2)
Business Days or (ii) principal of the Loans or other amounts payable by the
Borrower hereunder (including, without limitation, reimbursement obligations or
cash collateralization in respect of Letters of Credit), when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or by acceleration thereof or otherwise, or (iii) amounts
payable pursuant to Section 2.23(c), Section 6.12 and the Orders in respect of
amounts outstanding under the Existing Agreements, including current interest or
principal or fees and expenses under the Existing Agreements which are required
to be made pursuant to Section 2.23(c) and the Orders, and such default shall
continue unremedied for more than five (5) Business Days; or
(c) default shall be made by the Borrower or any Guarantor in the due
observance or performance of any covenant, condition or agreement contained in
Section 6 hereof; or
<PAGE>
(d) default shall be made by the Borrower or any Guarantor in the due
observance or performance of any other covenant, condition or agreement to be
observed or performed pursuant to the terms of this Agreement or any of the
other Loan Documents and such default shall continue unremedied for more than
ten (10) days (provided that such period shall be three Business Days in the
case of the weekly Borrowing Base Certificate to be delivered pursuant to
Section 5.6); or
(e) the Borrower's or any of the Guarantors' Cases shall be dismissed or
converted to a case under Chapter 7 of the Bankruptcy Code (other than (i) Red
Ant Entities and (ii) any Guarantor having assets of less than $5,000.00); a
trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code shall be appointed
in any of the Cases and the order appointing such trustee shall not be reversed
or vacated within 30 days after the entry thereof; or an application shall be
filed by the Borrower or any Guarantor for the approval of any other
Super-Priority Claim (other than the Carve-Out) in any of the Cases which is
pari passu with or senior to the claims of the Agent and the Banks against the
Borrower or any Guarantor hereunder, or there shall arise any such pari passu or
senior Super-Priority Claim; or
(f) the Bankruptcy Court shall enter an order or orders granting relief
from the automatic stay applicable under Section 362 of the Bankruptcy Code to
the holder or holders of any security interest to permit foreclosure (or the
granting of a deed in lieu of foreclosure or the like) in any assets of the
Borrower or any of the Guarantors (other than the Coral Springs distribution
center subject to the existing industrial revenue bond Liens) which have a value
in excess of $300,000 in the aggregate; or
(g) any person or group (as defined in the Securities Exchange Act of 1934,
as amended), other than Wasserstein & Co., and its Affiliates, BT Capital L.P.
and its Affiliates, Joseph J. Bianco and Alvin N. Teller, shall acquire for the
first time the direct or indirect ownership (constructive or otherwise), or the
direct or indirect power to vote more than 30% of the outstanding voting stock
of the Borrower; or
(h) any material provision of any Loan Document shall, for any reason,
cease to be valid and binding on the Borrower or any of the Guarantors, or the
Borrower or any of the Guarantors shall so assert in any pleading filed in any
court; or
(i) an order of the Bankruptcy Court shall be entered in any of the Cases
of the Borrower or any of the Guarantors appointing an examiner with enlarged
powers relating to the operation of the business (powers beyond those set forth
in Section 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of
the Bankruptcy Code and such order shall not be reversed or vacated within 30
days after the entry thereof; or
(j) an order of the Bankruptcy Court shall be entered reversing, amending,
supplementing, staying for a period in excess of 10 days, vacating, rescinding
or otherwise modifying the Orders; or
(k) any judgment or order as to a liability or debt for the payment of
money (arising after the Filing Date in the case of the Borrower or any of the
Guarantors) in excess of $500,000 (net of insurance payments) shall be rendered
against the Borrower or any of the Guarantors and either (i) enforcement
proceedings shall have been commenced and shall be continuing by any creditor
upon such judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
<PAGE>
(l) any non-monetary judgment or order with respect to a post-petition
event shall be rendered against the Borrower or any of the Guarantors which does
or would reasonably be expected to (i) cause a material adverse change in the
financial condition, business, operations or assets of the Borrower and the
Guarantors taken as a whole on a consolidated basis, (ii) have a material
adverse effect on the ability of the Borrower and the Guarantors to perform
their respective obligations under any Loan Document, or (iii) have a material
adverse effect on the rights and remedies of the Agent or any Bank under any
Loan Document, and there shall be any period of 10 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect; or
(m) the Borrower or the Guarantors shall make any Pre-Petition Payment
other than (i) as permitted under the "first day orders" referred to in Section
4.1(l), (ii) as permitted under the Orders or Section 2.23(c), (iii) payments of
interest in respect of the existing Liens securing industrial revenue bonds on
the Coral Springs distribution center, or (iv) other Pre-Petition Payments in an
aggregate amount in excess of $50,000 since the Filing Date or such other amount
as may be mutually agreed to between the Borrower and the Agent, and authorized
by one or more orders of the Bankruptcy Court; or
(n) any (i) provision of a notice of intent to terminate a Plan pursuant to
Section 4041(c) of ERISA or the treatment of a Plan amendment as a termination
under Section 4041 of ERISA, or (ii) institution of proceedings to terminate a
Plan by the PBGC under Section 4042 of ERISA (each of (i) and (ii), a
"Termination Event") shall have occurred with respect to any Plan and shall
continue unremedied for more than 10 days and the sum (determined as of the date
of occurrence of such Termination Event) of the Insufficiency of the Plan in
respect of which such Termination Event shall have occurred and be continuing
and the Insufficiency of any and all other Plans with respect to which such a
Termination Event shall have occurred and then exist is equal to or greater than
$5,000,000; or
(o) (i) the Borrower or any ERISA Affiliate thereof shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA Affiliate
does not have reasonable grounds to contest such Withdrawal Liability and is not
in fact contesting such Withdrawal Liability in a timely and appropriate manner,
and (iii) the amount of such Withdrawal Liability specified in such notice, when
aggregated with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date of such
notification), exceeds $5,000,000 allocable to post-petition obligations or
requires payments exceeding $500,000 per annum in excess of the annual payments
made with respect to such Multiemployer Plans by the Borrower or such ERISA
Affiliate for the plan year immediately preceding the plan year in which such
notification is received; or
(p) the Borrower or any ERISA Affiliate thereof shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years that include the date hereof by an amount exceeding $5,000,000; or
<PAGE>
(q) the Borrower or any ERISA Affiliate shall have committed a failure
described in Section 302(f)(1) of ERISA (other than the failure to make any
contribution accrued and unpaid as of the Filing Date) and the amount determined
under Section 302(f)(3) of ERISA is equal to or greater than $5,000,000; or
(r) it shall be determined (whether by the Bankruptcy Court or by any other
judicial or administrative forum) that the Borrower is liable for the payment of
claims arising out of any failure to comply (or to have complied) with
applicable environmental laws or regulations the payment of which will have a
material adverse effect on the financial condition, business, properties,
operations or assets of the Borrower or the Guarantors, taken as a whole;
(s) then, and in every such event and at any time thereafter during the
continuance of such event, and without further order of or application to the
Bankruptcy Court, the Agent may, and at the request of the Required Banks, the
Agent shall, by notice to the Borrower (with a copy to counsel for the Official
Creditors' Committee appointed in the Cases and to the United States Trustee for
the Southern District of New York), take one or more of the following actions,
at the same or different times (provided, that with respect to clause (iv) below
and the enforcement of Liens or other remedies with respect to the Collateral
under clause (v) below, the Agent shall provide the Borrower (with a copy to
counsel for the Official Creditors' Committee appointed in the Cases and to the
United States Trustee for the Southern District of New York) with five Business
Days' written notice prior to taking the action contemplated thereby and
provided, further, that upon receipt of notice referred to in the immediately
preceding clause with respect to the accounts referred to in clause (iv) below,
the Borrower may continue to make ordinary course disbursements from such
accounts (other than the Letter of Credit Account) but may not withdraw or
disburse any other amounts from such accounts): (i) terminate forthwith the
Total Commitment; (ii) declare the Loans then outstanding to be forthwith due
and payable, whereupon the principal of the Loans together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrower
accrued hereunder and under any other Loan Document, shall become forthwith due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are hereby expressly waived by the Borrower and the
Guarantors, anything contained herein or in any other Loan Document to the
contrary notwithstanding; (iii) require the Borrower and the Guarantors upon
demand to forthwith deposit in the Letter of Credit Account cash in an amount
equal to the sum of 105% of the then outstanding Letters of Credit and to the
extent the Borrower and the Guarantors shall fail to furnish such funds as
demanded by the Agent, the Agent shall be authorized to debit the accounts of
the Borrower and the Guarantors maintained with the Agent in such amount; (iv)
set-off amounts in the Letter of Credit Account or any other accounts maintained
with the Agent and apply such amounts to the obligations of the Borrower and the
Guarantors hereunder and in the other Loan Documents; and (v) exercise any and
all remedies under the Loan Documents and under applicable law available to the
Agent and the Banks.
SECTION 8. THE AGENT
SECTION 8.1. Administration by Agent. The general administration of the
Loan Documents shall be by the Agent. Each Bank hereby irrevocably authorizes
the Agent, at its discretion, to take or refrain from taking such actions as
agent on its behalf and to exercise or refrain from exercising such powers under
the Loan Documents and the Notes as are delegated by the terms hereof or
thereof, as appropriate, together with all powers reasonably incidental thereto
(including the release of Collateral in connection with any transaction that is
expressly permitted by the Loan Documents). The Agent shall have no duties or
responsibilities except as set forth in this Agreement and the remaining Loan
Documents.
<PAGE>
SECTION 8.2. Advances and Payments.
(a) On the date of each Loan, the Agent shall be authorized (but not
obligated) to advance, for the account of each of the Banks, the amount of the
Loan to be made by it in accordance with its Commitment hereunder. Should the
Agent do so, each of the Banks agrees forthwith to reimburse the Agent in
immediately available funds for the amount so advanced on its behalf by the
Agent, together with interest at the Federal Funds Effective Rate if not so
reimbursed on the date due from and including such date but not including the
date of reimbursement.
(b) Any amounts received by the Agent in connection with this Agreement or
the Notes (other than amounts to which the Agent is entitled pursuant to
Sections 2.19, 8.6, 10.5 and 10.6), the application of which is not otherwise
provided for in this Agreement shall be applied, first, in accordance with each
Bank's Commitment Percentage to pay accrued but unpaid Commitment Fees or Letter
of Credit Fees, and second, in accordance with each Bank's Commitment Percentage
to pay accrued but unpaid interest and the principal balance outstanding on each
Note and all unreimbursed Letter of Credit drawings. All amounts to be paid to a
Bank by the Agent shall be credited to that Bank, after collection by the Agent,
in immediately available funds either by wire transfer or deposit in that Bank's
correspondent account with the Agent, as such Bank and the Agent shall from time
to time agree.
SECTION 8.3. Sharing of Setoffs. Each Bank agrees that if it shall, through
the exercise of a right of banker's lien, setoff or counterclaim against the
Borrower, including, but not limited to, a secured claim under Section 506 of
the Bankruptcy Code or other security or interest arising from, or in lieu of,
such secured claim and received by such Bank under any applicable bankruptcy,
insolvency or other similar law, or otherwise, obtain payment in respect of its
Loans as a result of which the unpaid portion of its Loans is proportionately
less than the unpaid portion of the Loans of any other Bank (a) it shall
promptly purchase at par (and shall be deemed to have thereupon purchased) from
such other Bank a participation in the Loans of such other Bank, so that the
aggregate unpaid principal amount of each Bank's Loans and its participation in
Loans of the other Banks shall be in the same proportion to the aggregate unpaid
principal amount of all Loans then outstanding as the principal amount of its
Loans prior to the obtaining of such payment was to the principal amount of all
Loans outstanding prior to the obtaining of such payment and (b) such other
adjustments shall be made from time to time as shall be equitable to ensure that
the Banks share such payment pro-rata, provided that if any such non-pro-rata
payment is thereafter recovered or otherwise set aside such purchase of
participations shall be rescinded (without interest). The Borrower expressly
consents to the foregoing arrangements and agrees that any Bank holding (or
deemed to be holding) a participation in a Loan may exercise any and all rights
of banker's lien, setoff (in each case, subject to the same notice requirements
as pertain to clause (iv) of the remedial provisions of Section 7.1) or
counterclaim with respect to any and all moneys owing by the Borrower to such
Bank as fully as if such Bank was the original obligee thereon, in the amount of
such participation.
SECTION 8.4. Agreement of Required Banks. Upon any occasion requiring or
permitting an approval, consent, waiver, election or other action on the part of
the Required Banks, action shall be taken by the Agent as provided for herein
for and on behalf or for the benefit of all Banks upon the direction of the
Required Banks, and any such action shall be binding on all Banks. No amendment,
modification, consent, or waiver shall be effective except in accordance with
the provisions of Section 10.10.
<PAGE>
SECTION 8.5. Liability of Agent.
(a) The Agent when acting on behalf of the Banks, may execute any of its
duties under this Agreement by or through any of its officers, agents, and
employees, and neither the Agent nor its directors, officers, agents, or
employees shall be liable to the Banks or any of them for any action taken or
omitted to be taken in good faith, or be responsible to the Banks or to any of
them for the consequences of any oversight or error of judgment, or for any
loss, unless the same shall happen through its gross negligence or willful
misconduct. The Agent and its directors, officers, agents, and employees shall
in no event be liable to the Banks or to any of them for any action taken or
omitted to be taken by them pursuant to instructions received by them from the
Required Banks or in reliance upon the advice of counsel selected by it. Without
limiting the foregoing, neither of the Agent, nor any of its directors,
officers, employees, or agents shall be responsible to any Bank for the due
execution, validity, genuineness, effectiveness, sufficiency, or enforceability
of, or for any statement, warranty, or representation in, this Agreement, any
Loan Document or any related agreement, document or order, or shall be required
to ascertain or to make any inquiry concerning the performance or observance by
the Borrower of any of the terms, conditions, covenants, or agreements of this
Agreement or any of the Loan Documents.
(b) Neither the Agent nor any of its directors, officers, employees, or
agents shall have any responsibility to the Borrower or the Guarantors on
account of the failure or delay in performance or breach by any Bank or by the
Borrower or the Guarantors of any of their respective obligations under this
Agreement or the Notes or any of the Loan Documents or in connection herewith or
therewith.
(c) The Agent, in its capacities as Agent hereunder, shall be entitled to
rely on any communication, instrument, or document reasonably believed by such
person to be genuine or correct and to have been signed or sent by a person or
persons believed by such person to be the proper person or persons, and such
person shall be entitled to rely on advice of legal counsel, independent public
accountants, and other professional advisers and experts selected by such
person.
SECTION 8.6. Reimbursement and Indemnification. Each Bank agrees (i) to
reimburse (x) the Agent for such Bank's Commitment Percentage of any expenses
and fees incurred for the benefit of the Banks under this Agreement, the Notes
and any of the Loan Documents, including, without limitation, counsel fees and
compensation of agents and employees paid for services rendered on behalf of the
Banks, and any other expense incurred in connection with the operations or
enforcement thereof not reimbursed by the Borrower or the Guarantors and (y) the
Agent for such Bank's Commitment Percentage of any expenses of the Agent
incurred for the benefit of the Banks that the Borrower has agreed to reimburse
pursuant to Section 10.5 and has failed to so reimburse and (ii) to indemnify
and hold harmless the Agent and any of its directors, officers, employees, or
agents, on demand, in the amount of its proportionate share, from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against it or any
of them in any way relating to or arising out of this Agreement, the Notes or
any of the Loan Documents or any action taken or omitted by it or any of them
under this Agreement, the Notes or any of the Loan Documents to the extent not
reimbursed by the Borrower or the Guarantors (except such as shall result from
their respective gross negligence or willful misconduct).
SECTION 8.7. Rights of Agent. It is understood and agreed that Chase shall
have the same rights and powers hereunder (including the right to give such
instructions) as the other Banks and may exercise such rights and powers, as
well as its rights and powers under other agreements and instruments to which it
is or may be party, and engage in other transactions with the Borrower or any
Guarantor, as though it were not the Agent of the Banks under this Agreement.
SECTION 8.8. Independent Banks. Each Bank acknowledges that it has decided
to enter into this Agreement and to make the Loans hereunder based on its own
analysis of the transactions contemplated hereby and of the creditworthiness of
the Borrower and the Guarantors and agrees that the Agent shall bear no
responsibility therefor.
<PAGE>
SECTION 8.9. Notice of Transfer. The Agent may deem and treat a Bank party
to this Agreement as the owner of such Bank's portion of the Loans for all
purposes, unless and until a written notice of the assignment or transfer
thereof executed by such Bank shall have been received by the Agent.
SECTION 8.10. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Borrower. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent which shall
be reasonably satisfactory to the Borrower. If no successor Agent shall have
been so appointed by the Required Banks and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of notice of
resignation, the retiring Agent may, on behalf of the Banks, appoint a successor
Agent, which shall be a commercial bank organized under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of a least $100,000,000, which shall be reasonably satisfactory to the
Borrower. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
SECTION 9. GUARANTY
SECTION 9.1. Guaranty.
(a) Each of the Guarantors unconditionally and irrevocably guarantees the
due and punctual payment and performance by the Borrower of the Obligations.
Each of the Guarantors further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice to or further assent from it, and
it will remain bound upon this guaranty notwithstanding any extension or renewal
of any of the Obligations. The Obligations of the Guarantors shall be joint and
several.
(b) Each of the Guarantors waives presentation to, demand for payment from
and protest to the Borrower or any other Guarantor, and also waives notice of
protest for nonpayment. The Obligations of the Guarantors hereunder shall not be
affected by (i) the failure of the Agent or a Bank to assert any claim or demand
or to enforce any right or remedy against the Borrower or any other Guarantor
under the provisions of this Agreement or any other Loan Document or otherwise;
(ii) any extension or renewal of any provision hereof or thereof; (iii) any
rescission, waiver, compromise, acceleration, amendment or modification of any
of the terms or provisions of any of the Loan Documents; (iv) the release,
exchange, waiver or foreclosure of any security held by the Agent for the
Obligations or any of them; (v) the failure of the Agent or a Bank to exercise
any right or remedy against any other Guarantor; or (vi) the release or
substitution of any Guarantor or any other Guarantor.
(c) Each of the Guarantors further agrees that this guaranty constitutes a
guaranty of performance and of payment when due and not just of collection, and
waives any right to require that any resort be had by the Agent or a Bank to any
security held for payment of the Obligations or to any balance of any deposit,
account or credit on the books of the Agent or a Bank in favor of the Borrower
or any other Guarantor, or to any other Person.
(d) Each of the Guarantors hereby waives any defense that it might have
based on a failure to remain informed of the financial condition of the Borrower
and of any other Guarantor and any circumstances affecting the ability of the
Borrower to perform under this Agreement.
(e) Each Guarantor's guaranty shall not be affected by the genuineness,
validity, regularity or enforceability of the Obligations, or any instrument
evidencing any Obligations, or by the existence, validity, enforceability,
perfection, or extent of any collateral therefor or by any other circumstance
relating to the Obligations which might otherwise constitute a defense to this
Guaranty. Neither the Agent, nor any of the Banks makes any representation or
warranty in respect to any such circumstances or shall have any duty or
responsibility whatsoever to any Guarantor in respect of the management and
maintenance of the Obligations.
<PAGE>
(f) Subject to the grace periods provided by Section 7.1, upon the
Obligations becoming due and payable (by acceleration or otherwise), the Banks
shall be entitled to immediate payment of such Obligations by the Guarantors
upon written demand by the Agent, without further application to or order of the
Bankruptcy Court.
SECTION 9.2. No Impairment of Guaranty. The obligations of the Guarantors
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason (other than payment in full), including, without
limitation, any claim of waiver, release, surrender, alteration or compromise,
and shall not be subject to any defense or set-off, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations. Without limiting the generality of the
foregoing, the obligations of the Guarantors hereunder shall not be discharged
or impaired or otherwise affected by the failure of the Agent or a Bank to
assert any claim or demand or to enforce any remedy under this Agreement or any
other agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
the Guarantors or would otherwise operate as a discharge of the Guarantors as a
matter of law, unless and until the Obligations are paid in full.
SECTION 10. MISCELLANEOUS
SECTION 10.1. Notices. Notices and other communications provided for herein
shall be in writing (including telegraphic, telex, facsimile or cable
communication) and shall be mailed, telegraphed, telexed, transmitted, cabled or
delivered to the Borrower or any Guarantor at 110 East 59th Street, 18th Floor,
New York, New York 10022, Attention: Chief Financial Officer and to a Bank or
the Agent to it at its address set forth on the signature pages of this
Agreement, or such other address as such party may from time to time designate
by giving written notice to the other parties hereunder. All notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the fifth Business Day
after the date when sent by registered or certified mail, postage prepaid,
return receipt requested, if by mail; or when delivered to the telegraph
company, charges prepaid, if by telegram; or when receipt is acknowledged, if by
any telegraphic communications or facsimile equipment of the sender; in each
case addressed to such party as provided in this Section 10.1 or in accordance
with the latest unrevoked written direction from such party; provided, however,
that in the case of notices to the Agent notices pursuant to the preceding
sentence and pursuant to Section 2 shall be effective only when received by the
Agent. Copies of all notices and other communications given to the Agent shall
go to Zalkin, Rodin & Goodman LLP, 750 Third Avenue, New York, New York 10017,
Attn: Richard S. Toder, Esq. Copies of all notices and other communications
given to the Borrower shall go to Willkie, Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York, New York 10022-4677, Attn: Marc Abrams,
Esq.
SECTION 10.2. Survival of Agreement, Representations and Warranties, etc.
All warranties, representations and covenants made by the Borrower or any
Guarantor herein or in any certificate or other instrument delivered by it or on
its behalf in connection with this Agreement shall be considered to have been
relied upon by the Banks and shall survive the making of the Loans herein
contemplated and the issuance and delivery to the Banks of the Notes regardless
of any investigation made by any Bank or on its behalf and shall continue in
full force and effect so long as any amount due or to become due hereunder is
outstanding and unpaid and so long as the Commitments have not been terminated.
All statements in any such certificate or other instrument shall constitute
representations and warranties by the Borrower and the Guarantors hereunder with
respect to the Borrower.
<PAGE>
SECTION 10.3. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Agent and the Banks and their respective successors and assigns.
Neither the Borrower nor any of the Guarantors may assign or transfer any of
their rights or obligations hereunder without the prior written consent of all
of the Banks. Each Bank may sell participations to any Person in all or part of
any Loan, or all or part of its Note or Commitment, in which event, without
limiting the foregoing, the provisions of Section 2.15 shall inure to the
benefit of each purchaser of a participation (provided that such participant
shall look solely to the seller of such participation for such benefits and the
Borrower's and the Guarantors' liability, if any, under Sections 2.15 and 2.18
shall not be increased as a result of the sale of any such participation) and
the pro rata treatment of payments, as described in Section 2.17, shall be
determined as if such Bank had not sold such participation. In the event any
Bank shall sell any participation, such Bank shall retain the sole right and
responsibility to enforce the obligations of the Borrower and each of the
Guarantors relating to the Loans, including, without limitation, the right to
approve any amendment, modification or waiver of any provision of this Agreement
other than amendments, modifications or waivers which (i) reduce any Fees
payable hereunder to the Banks, (ii) reduce the amount of any scheduled
principal payment on any Loan or reduce the principal amount of any Loan or the
rate of interest payable hereunder or (iii) extend the maturity of the
Borrower's obligations hereunder. The sale of any such participation shall not
alter the rights and obligations of the Bank selling such participation
hereunder with respect to the Borrower.
(b) Each Bank may assign to one or more Banks or Eligible Assignees all or
a portion of its interests, rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment and the same
portion of the related Loans at the time owing to it, provided, however, that
(i) other than in the case of an assignment to a Person at least 50% owned by
the assignor Bank, or by a common parent of both, or to another Bank, the Agent
and the Fronting Bank must give their respective prior written consent, which
consent will not be unreasonably withheld, (ii) the aggregate amount of the
Commitment and/or Loans of the assigning Bank subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Agent) shall, unless otherwise agreed to in
writing by the Borrower and the Agent, in no event be less than $5,000,000 (or
$1,000,000 in the case of an assignment between Banks or their Affiliates)
provided, that it shall be a condition precedent to the assignment of all or a
portion of any Bank's interest under this Agreement that if such Bank is also an
Existing Lender, such assignment shall also include an assignment of such Bank's
interests under the Existing Agreements in the same percentage of interests as
is being assigned in respect of the Commitments hereunder and (iii) the parties
to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance with blanks appropriately completed, and a processing and recordation
fee of $3,500 (for which the Borrower shall have no liability). Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be
within ten Business Days after the execution thereof (unless otherwise agreed to
in writing by the Agent), (A) the assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Bank hereunder and (B) the Bank thereunder shall, to the
extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Bank's rights
and obligations under this Agreement, such Bank shall cease to be a party
hereto).
<PAGE>
(c) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Bank assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents; (ii) such Bank assignor makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Guarantor or the performance or observance by
the Borrower or any Guarantor of any of its obligations under this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement and the other Loan Documents, together with copies of the
financial statements referred to in Section 3.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such Bank assignor or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee appoints and
authorizes the Agent to take such action as agents on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
thereto, together with such powers as are reasonably incidental hereof; and (vi)
such assignee agrees that it will perform in accordance with their terms all
obligations that by the terms of this Agreement are required to be performed by
it as a Bank.
(d) The Agent shall maintain at its office a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of the Loans
owing to, each Bank from time to time (the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Guarantors, the Agent and the Banks shall treat each Person the
name of which is recorded in the Register as a Bank hereunder for all purposes
of this Agreement. The Register shall be available for inspection by the
Borrower or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and the assignee thereunder and the fee payable in respect
thereto, the Agent shall, if such Assignment and Acceptance has been completed
with blanks appropriately filled, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register and (iii) give
prompt written notice thereof to the Borrower (together with a copy thereof).
Any Bank may at any time assign all or any portion of its rights under this
Agreement to a Federal Reserve Bank to secure extensions of credit by such
Federal Reserve Bank to such Bank, provided that no such assignment shall
release a Bank from any of its obligations hereunder or substitute any such Bank
for such Bank as a party hereto. In order to facilitate such an assignment to a
Federal Reserve Bank, the Borrower shall, at the request of the assigning Bank,
and without further order of the Bankruptcy Court, duly execute and deliver to
the assigning Bank a promissory note or notes evidencing the Loans made to the
Borrower to the assigning Bank hereunder.
(f) Any Bank may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 10.3, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrower or any of the Guarantors furnished to such Bank by or
on behalf of the Borrower or any of the Guarantors; provided that prior to any
such disclosure, each such assignee or participant or proposed assignee or
participant shall agree in writing to be bound by the provisions of Section
10.4.
<PAGE>
(g) The Borrower hereby agrees, to the extent set forth in the Commitment
Letter to actively assist and cooperate with the Agent in the Agent's efforts to
sell participations herein (as described in Section 10.3(a)) and assign to one
or more Banks or Eligible Assignees a portion of its interests, rights and
obligations under this Agreement (as set forth in Section 10.3(b)).
SECTION 10.4. Confidentiality. Each Bank agrees to keep any information
delivered or made available by the Borrower or any of the Guarantors to it
confidential from anyone other than persons employed or retained by such Bank
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any Bank
from disclosing such information (i) to any other Bank, (ii) to any other person
if reasonably incidental to the administration of the Loans, (iii) upon the
order of any court or administrative agency, (iv) upon the request or demand of
any regulatory agency or authority, (v) which has been publicly disclosed other
than as a result of a disclosure by the Agent or any Bank which is not permitted
by this Agreement, (vi) in connection with any litigation to which the Agent,
any Bank, or their respective Affiliates may be a party, (vii) to the extent
reasonably required in connection with the exercise of any remedy hereunder,
(viii) to such Bank's legal counsel and independent auditors, and (ix) to any
actual or proposed participant or assignee of all or part of its rights
hereunder subject to the proviso in Section 10.3(f) provided that in the case of
clauses (iii), (iv) and (vi) above, the Agent shall give the Borrower notice of
such disclosure.
SECTION 10.5. Expenses. Documentary Taxes. Whether or not the transactions
hereby contemplated shall be consummated, the Borrower and the Guarantors agree
to pay all reasonable out-of-pocket expenses incurred by the Agent (including
but not limited to the reasonable fees and disbursements of Zalkin, Rodin &
Goodman LLP, and any other counsel that the Agent, shall retain and any internal
or third-party consultants and auditors advising the Agent, or Chase Securities
Inc.) in connection with the preparation, execution, delivery, administration
of, and protection of their rights and the rights of any of the Banks under,
this Agreement, and the other Loan Documents (and any amendments, modifications
or waivers of the provisions of this Agreement, and the other Loan Documents),
the making of the Loans and the issuance of the Letters of Credit, the
syndication of the transactions contemplated hereby, the reasonable and
customary costs, fees and expenses of the Agent in connection with its initial,
monthly and other periodic field audits, monitoring of Inventory and publicity
expenses, and all reasonable out-of-pocket expenses incurred by the Banks, the
Fronting Bank, and the Agent in the enforcement or protection of the rights of
any one or more of the Banks, the Fronting Bank, or the Agent in connection with
this Agreement, the Notes or the other Loan Documents, including but not limited
to the reasonable fees and disbursements of any counsel for the Banks, the
Fronting Bank, or the Agent. The obligations of the Borrower and the Guarantors
under this Section shall survive the termination of this Agreement and/or the
payment of the Loans.
SECTION 10.6. Indemnity. The Borrower and each of the Guarantors agree to
indemnify and hold harmless the Agent and the Banks and their directors,
officers, employees and agents (each an "Indemnified Party") from and against
any and all expenses, losses, claims, damages and liabilities incurred by such
Indemnified Party arising out of claims made by any Person in any way relating
to the transactions contemplated hereby, but excluding therefrom all expenses,
losses, claims, damages, and liabilities arising out of or resulting from the
gross negligence or willful misconduct of such Indemnified Party.
SECTION 10.7. CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN
DOCUMENTS SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE AND BY THE BANKRUPTCY CODE.
<PAGE>
SECTION 10.8. No Waiver. No failure on the part of the Agent or any of the
Banks to exercise, and no delay in exercising, any right, power or remedy
hereunder or under the Notes or any of the other Loan Documents shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided by law.
SECTION 10.9. Extension of Maturity. Should any payment of principal of or
interest on the Notes or any other amount due hereunder become due and payable
on a day other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day and, in the case of principal, interest shall
be payable thereon at the rate herein specified during such extension.
SECTION 10.10. Amendments, etc.
(a) No modification, amendment or waiver of any provision of this Agreement
or any other Loan Document, and no consent to any departure by the Borrower or
any Guarantor therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Required Banks, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given; provided, however, that no such modification or amendment shall without
the written consent of the Bank affected thereby (x) increase the Commitment of
a Bank (it being understood that a waiver of an Event of Default shall not
constitute an increase in the Commitment of a Bank), or (y) reduce the principal
amount of any Loan or the rate of interest payable thereon, or extend any date
for the payment of interest hereunder or reduce any Fees payable hereunder or
extend the final maturity of the Borrower's obligations hereunder; and,
provided, further, that no such modification or amendment shall without the
written consent of (A) all of the Banks (i) waive, amend or modify any provision
of this Agreement which provides for the unanimous consent or approval of the
Banks, (ii) amend this Section 10.10 or the definition of Required Banks or
(iii) amend or modify the Super-Priority Claim status of the Banks contemplated
by Section 2.23 or (B) the Supermajority Banks (i) approve the release of the
Liens granted to the Agent and the Banks hereunder or under the other Loan
Documents or the Orders or (ii) approve the release of any Guarantor. No such
waiver, amendment or modification may adversely affect the rights and
obligations of the Agent or any Fronting Bank hereunder without its prior
written consent. No notice to or demand on the Borrower or any Guarantor shall
entitle the Borrower or any Guarantor to any other or further notice or demand
in the same, similar or other circumstances. No amendment to this Agreement
shall be effective against the Borrower or any Guarantor unless signed by the
Borrower or such Guarantor, as the case may be.
(b) Notwithstanding anything to the contrary contained in Section 10.10(a),
in the event that the Borrower requests that this Agreement be modified or
amended in a manner which would require the unanimous consent of all of the
Banks and such modification or amendment is agreed to by the Super-majority
Banks (as hereinafter defined), then with the consent of the Borrower and the
Super-majority Banks, the Borrower and the Super-majority Banks shall be
permitted to amend the Agreement without the consent of the Bank or Banks which
did not agree to the modification or amendment requested by the Borrower (such
Bank or Banks, collectively the "Minority Banks") to provide for (w) the
termination of the Commitment of each of the Minority Banks, (x) the addition to
this Agreement of one or more other financial institutions (each of which shall
be an Eligible Assignee), or an increase in the Commitment of one or more of the
Super-majority Banks, so that the Total Commitment after giving effect to such
amendment shall be in the same amount as the Total Commitment immediately before
<PAGE>
giving effect to such amendment, (y) if any Loans are outstanding at the time of
such amendment, the making of such additional Loans by such new financial
institutions or Super-majority Bank or Banks, as the case may be, as may be
necessary to repay in full the outstanding Loans of the Minority Banks
immediately before giving effect to such amendment and (z) such other
modifications to this Agreement as may be appropriate. As used herein, the term
"Super-majority Banks" shall mean, at any time, Banks, holding Loans
representing at least 66-2/3% of the aggregate principal amount of the Loans
outstanding, or if no Loans are outstanding, Banks having Commitments
representing at least 66-2/3% of the Total Commitment. The Agent shall pay to
the Minority Banks their pro rata portion of all accrued and unpaid interest and
Fees in respect of the Loans and Letters of Credit through the date of such
amendment provided for in the first sentence hereof within two Business Days of
the dates on which such interest and Fees are paid to the Agent by the Borrower
pursuant to the terms of this Agreement.
SECTION 10.11. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.12. Headings. Section headings used herein are for convenience
only and are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 10.13. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall constitute an original, but all
of which taken together shall constitute one and the same instrument.
SECTION 10.14. Prior Agreements. This Agreement represents the entire
agreement of the parties with regard to the subject matter hereof and the terms
of any letters and other documentation entered into between the Borrower or a
Guarantor and any Bank or the Agent prior to the execution of this Agreement
which relate to Loans to be made hereunder shall be replaced by the terms of
this Agreement (except as otherwise expressly provided herein with respect to
the Commitment Letter and the Fee Letter, including without limitation the
Borrower's agreement to actively assist the Agent in the syndication of the
transactions contemplated hereby referred to in Section 10.3(g) and including
also the provisions of Section 2.22).
SECTION 10.15. Further Assurances. Whenever and so often as reasonably
requested by the Agent, the Borrower and the Guarantors will promptly execute
and deliver or cause to be executed and delivered all such other and further
instruments, documents or assurances, and promptly do or cause to be done all
such other and further things as may be necessary and reasonably required in
order to further and more fully vest in the Agent all rights, interests, powers,
benefits, privileges and advantages conferred or intended to be conferred by
this Agreement and the other Loan Documents.
SECTION 10.16. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE GUARANTORS,
THE AGENT AND EACH BANK HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first written.
ALLIANCE ENTERTAINMENT CORP.
By: /s/Timothy Dahltorp
-------------------------------------
Title:
GUARANTORS:
CONCORD RECORDS, INC.
INDEPENDENT NATIONAL DISTRIBUTORS, INC.
AEC ONE STOP GROUP, INC.
PASSPORT MUSIC DISTRIBUTION, INC.
FL ACQUISITION CORP.
ALLIANCE VENTURES, INC.
EXECUSOFT, INC.
AEC ACQUISITION CORP.
CASTLE COMMUNICATIONS (U.S.), INC.
PASSPORT MUSIC WORLDWIDE, INC.
AEC AMERICAS, INC.
A.E. LAND CORP.
ONE WAY RECORDS, INC.
MATRIX SOFTWARE, INC.
By:/s/Timothy Dahltorp
--------------------------------------
Title: Vice President
of each of the foregoing
<PAGE>
RED ANT BOX, INC.
RED ANT HOLDINGS, INC.
BLACK ANT MUSIC, INC.
ARMY ANT MUSIC, INC.
VELVET ANT MUSIC, INC.
By:
--------------------------------------
Title: Chief Executive Officer
of each of the foregoing
RED ANT LLC
By:
--------------------------------------
Red Ant Box, Inc., its managing member
By:
-------------------------------
Title: Chief Executive Officer
THE CHASE MANHATTAN BANK,
Individually and as Agent
By:/s/Jane B. Jacobs
------------------------------
Title:Vice President
270 Park Avenue
New York, New York 10017
<PAGE>
ANNEX A TO
REVOLVING CREDIT AND
GUARANTY AGREEMENT
ANNEX A
to
REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of July 17, 1997
Commitment Commitment
Bank Amount Percentage
The Chase Manhattan Bank $50,000,000 100.0000%
- ------------------------ ----------- ---------
TOTAL $50,000,000 100.0000%
=========== =========
<PAGE>
EXHIBIT A-1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------------X
In re
: Chapter 11
ALLIANCE ENTERTAINMENT CORP., : Case No. 97-B 44673 (BRL)
et. al.,
(Jointly Administered)
Debtors. :
- -----------------------------------X
INTERIM ORDER AUTHORIZING DEBTORS TO OBTAIN
POST-PETITION FINANCING PURSUANT TO 11 U.S.C. ss.ss.364(c)(1),
364(c)(2), 364(c)(3) and 364(d)(1), AND TO UTILIZE
CASH COLLATERAL PURSUANT TO 11 U.S.C. ss.363; GRANTING
ADEQUATE PROTECTION TO PRE-PETITION SECURED PARTIES
AND SCHEDULING FINAL HEARING
Upon the motion (the "Motion") dated July 13, 1997 of Alliance
Entertainment Corp., as Debtor and Debtor-in-Possession (the "Borrower"), and of
Independent National Distributors, Inc., AEC One Stop Group, Inc., One Way
Records, Inc., Concord Records, Inc., FL Acquisition Corp., Execusoft, Inc.,
Castle Communications (U.S.), Inc., AEC Americas, Inc., Passport Music
Worldwide, Inc., Passport Music Distribution, Alliance Ventures, Inc., AEC
Acquisitions Corp., Alliance Entertainment Corp., and Matrix Softwear Corp.,
each as a Debtor and Debtor-in-Possession (hereinafter referred to collectively
as the "Guarantors"; the Borrower and the Guarantors hereinafter referred to
collectively as the "Debtors"),
(i) seeking this Court's authorization, pursuant to Sections 364(c)(1),
364(c)(2), 364(c)(3) and 364(d)(1) of the United States Bankruptcy Code, 11
U.S.C. ss.ss.101, et seq. (the "Code"), and Bankruptcy Rule 4001, for the
Borrower to (1) obtain post-petition financing (the "Financing"), and for the
Guarantors to guaranty the payment of such obligations, up to the principal
amount of $50,000,000 from The Chase Manhattan Bank ("Chase" or "Agent"), 270
Park Avenue, New York, New York 10017, with Chase acting as Agent for itself and
a syndicate of financial institutions to be arranged by Chase (together with
Chase, the "Banks"), (w) with priority over any and all administrative expenses
of the kind specified in Sections 503(b) and 507(b) of the Code pursuant to
Section 364(c)(1) of the Code, (x) to be secured pursuant to Section 364(c)(2)
of the Code by a perfected first priority security interest in and lien upon all
(A) unencumbered pre- and post-petition property of the Debtors that is held,
beneficially or of record, by the Borrower or any of the Guarantors and (B) cash
maintained in the Letter of Credit Account (as defined in the Credit Agreement
hereinafter referred to) and any investment of the funds contained therein (all
of such property referred to in this clause (x) (B) being hereinafter referred
to as the "Credit Agreement Cash Collateral"), (y) to be secured pursuant to
Section 364(c)(3) of the Code by a perfected security interest in and lien upon
all pre- and post-petition property of the Debtors (other than the property
described in (z) below, as to which the liens and security interests in favor of
the Agent will be as described in such clause) that is subject to valid and
perfected liens in existence on the date of the petitions herein or perfected
post-petition pursuant to Section 362(b)(18) of the Code (to the extent that
under State or federal law, such liens are senior to the liens granted to the
Agent and the Banks herein and prime existing liens), junior to such valid and
perfected liens, and (z) to be secured pursuant to Section 364(d)(1) of the Code
by a perfected first priority senior priming security interest in and lien upon
<PAGE>
all pre- and post-petition property of the Borrower and the Guarantors
(including, without limitation, inventory, equipment, accounts receivable,
intellectual property and the capital stock of certain subsidiaries of the
Borrower and the proceeds of all of the foregoing) that is subject to the
existing liens presently securing the Debtors' indebtedness owing to (i) certain
lenders (the "Pre-Petition Secured Lenders") under or in connection with that
certain Third Amended and Restated Credit Agreement, dated as of July 25, 1995
and the Loan Documents referred to therein (as each has heretofore been amended,
collectively, the "Existing Credit Agreements"), among the Borrower, AEC
Holdings (UK) Limited, Castle Communications Limited and other institutions from
time to time parties thereto, and The Chase Manhattan Bank, N.A., as agent, and
(ii) pursuant to those certain security agreements and vendor subordination
agreements (identified on Schedule A hereto) among any of the Debtors or
Guarantors and Polygram Group Distribution, Inc., ("Polygram"), BMG Music
("BMG"), Sony Discos, Inc. ("Sony"), Sony Music Entertainment, Inc. ("SME"),
Relativity Entertainment Dist., Inc. ("Relativity"), c/o Sony Music
Entertainment, Inc., Cema Distribution, a Division of Capitol Records, Inc.
("Cema"), UNI Distribution Corp. ("UNI"), Warner/Electra/Atlantic Corp. ("WEA")
and TDK Electronics Corporation ("TDK" and together with Polygram, BMG, Sony,
Relativity, SME, Cema, UNI and WEA, the "Vendors") (as each of the foregoing has
heretofore been amended, collectively the "Existing Vendor Agreements", and
together with the Existing Credit Agreements, the "Existing Agreements"), and
other loan documentation executed in connection therewith, senior in all
respects to such existing liens and to any liens granted after the date of the
petitions herein to provide adequate protection in respect of such liens (all of
the foregoing property specified in clauses (x), (y) and (z) above, being
hereinafter collectively referred to in this Order as the "Collateral") and (2)
provide adequate protection to the Pre-Petition Secured Lenders and the Vendors
(and, together with the Pre-Petition Secured Lenders, the "Primed Parties"),
whose liens and security interests are being primed by the Financing,
(ii) seeking this Court's authorization, pursuant to Section 363(c)(2) of
the Code, for the use of cash collateral (as such term is defined in the Code)
in which the Primed Parties have an interest and for the provision of adequate
protection to the Primed Parties,
(iii) requesting, pursuant to Bankruptcy Rule 4001, that an interim hearing
(the "Interim Hearing") on the Motion be held on Wednesday, July 16, 1997 for
this Court to consider entry of an interim order authorizing the Borrower to
forthwith borrow or obtain letters of credit up to an aggregate of $20,000,000
of the Financing from the Banks, authorizing the use by the Debtors of cash
collateral and granting the adequate protection hereinafter described, and
(iv) requesting that a final hearing (the "Final Hearing") thereafter be
held for this Court to consider entry of an order authorizing the balance of the
Financing, as set forth in the Motion and the loan documentation filed with this
Court; and pursuant to Bankruptcy Rule 4001(c)(1), and as otherwise provided in
the Order to Show Cause in Respect of Motion for Orders Pursuant to Bankruptcy
Code Sections 105, 361, 362, 363 and 364 and Bankruptcy Rules 2002, 4001 and
9014: (A) Authorizing Debtors In Possession to Obtain (i) Interim and Final
Secured Postpetition Financing with Priority Over All Other Indebtedness, (ii)
Emergency, Interim and Final Use of Cash Collateral; (B) Providing Adequate
Protection; (C) Approving Agreements Related to Foregoing; (D) Scheduling
Interim and Final Hearings and Prescribing Form and Manner of Notice; and (E)
Granting Related Relief dated July 14, 1997 (the "Order to Show Cause") due
notice under the circumstances of the Motion having been given by the Debtors to
the thirty largest unsecured creditors of the Debtors on a combined basis, the
Primed Parties and the United States Trustee for the Southern District of New
York and upon all of the pleadings filed with this Court and all of the
proceedings had before this Court, and upon the record of the Hearing held on
this matter on July 16, 1997 and after due deliberation and consideration and
sufficient cause appearing therefor; <PAGE>
IT IS, FOUND, DETERMINED, ORDERED AND ADJUDGED, that:
1. This Court has core jurisdiction over these proceedings and the parties
and property affected hereby pursuant to 28 U.S.C. ss.ss.157(b) and 1334.
2. No other or further notice of the Motion's request for interim approval
of the Financing and of the Interim Hearing need be provided, and any
requirement for such other or further notice is hereby dispensed with and
waived.
3. Without prejudice to the rights of any other party to challenge such
findings for a period of sixty days from the date of entry of this Interim
Order, the Debtors admit that, in accordance with the terms of the Existing
Credit Agreements, the Borrower and the Guarantors are truly and justly indebted
to the Pre-Petition Secured Lenders, without defense, counterclaim, offset or
recoupment of any kind, and that as of the date of the petitions herein (i) the
Borrower and the Guarantors were liable to the Pre-Petition Secured Lenders in
the aggregate principal amount of approximately $187,492,945, in respect of
loans made and letters of credit issued by the Pre-Petition Secured Lenders
pursuant to the Existing Credit Agreements, plus interest thereon, plus fees and
expenses (including reasonable attorneys fees) incurred in connection therewith
as provided in the Existing Credit Agreements and (ii) the Guarantors were
contingently liable to the Pre-Petition Secured Lenders in respect of the
guarantees by the Guarantors in respect of the Existing Agreements.
4. Without prejudice to the rights of any other party to challenge such
findings for a period beginning upon the earlier of (x) seventy days from the
date of entry of this Interim Order and (y) sixty days from the appointment of
an official committee for unsecured creditors, the Debtors further admit that,
by reason of the Existing Credit Agreements, their obligations thereunder are
secured by enforceable and perfected liens and security interests granted by the
Borrower and the Guarantors to the Pre-Petition Secured Lenders upon and in all
of the Borrower's and the Guarantors' right, title and interest in, to and under
the property of each described in the Existing Credit Agreements to which they
are party (including the set-off rights described in paragraph 5 below),
including, without limitation, inventory, equipment, accounts receivable,
intellectual property and the capital stock of certain subsidiaries of the
Borrower and the proceeds of all of the foregoing. <PAGE>
5. As of the date of the petitions herein, funds on deposit at Chase and
various of the other Pre-Petition Secured Lenders were subject to rights of
set-off under applicable law and the Existing Agreements and, by virtue of such
set-off rights, are subject to a lien in favor of such Pre-Petition Secured
Lenders pursuant to Sections 506(a) and 553 of the Code. Pursuant to the
Existing Credit Agreements, such Pre-Petition Secured Lenders are obligated to
share the benefit of such lien with the other Pre-Petition Secured Lenders party
to such Existing Credit Agreements based upon their respective pro rata shares
of the obligations under such agreements. Accordingly, any proceeds of the
pre-petition collateral (including cash on deposit at the Pre-Petition Secured
Lenders as of the date of the petitions herein) are cash collateral of the
Pre-Petition Secured Lenders within the meaning of Section 363(a) of the
Code("Cash Collateral"). The Pre-Petition Secured Lenders are entitled, pursuant
to Sections 361, 363(e) and 364(d)(1) of the Code, to adequate protection of
their interest in the pre-petition collateral, including the Cash Collateral,
for any diminution in value of the pre-petition collateral, including, without
limitation, resulting from the use of the Cash Collateral, the incurrence by the
Debtors of post-petition financing secured by priming liens on the pre-petition
collateral, the use, sale or lease of the pre-petition collateral (other than
the Cash Collateral) and the imposition of the automatic stay.
6. The Borrower has an immediate need to obtain financing in order to
permit, among other things, the orderly continuation of the operation of its
business and the businesses of the Guarantors, to maintain business
relationships with vendors and suppliers, to make certain strategic capital
expenditures and investments and to satisfy other working capital needs. The
Borrower is unable to obtain adequate unsecured credit allowable under Section
503(b)(1) of the Code as an administrative expense. A facility in the amount
provided by the Financing is unavailable to the Borrower without the Borrower
and the Guarantors granting to the Banks (i) pursuant to Section 364(c)(1) of
the Code, allowed claims, with respect to all indebtedness and obligations of
the Borrower and the Guarantors under the Credit Agreement, having priority over
any and all administrative expenses of the kind specified in Sections 503(b) and
507(b) of the Code, (ii) pursuant to Section 364(c)(2) of the Code, security for
such obligations by the granting of a perfected first priority senior security
interest in and lien upon (x) all of the Collateral that is not encumbered by
liens in favor of the Primed Parties or any other party or entity and (y) the
Credit Agreement Cash Collateral, (iii) pursuant to Section 364(c)(3) of the
Code, security for such obligations by the granting of a perfected junior
priority security interest in and lien upon all of the Collateral (other than
the Collateral that is described in clause (iv) below, as to which the security
interest and lien in favor of the Agent shall be as described in such clause)
that is subject to valid and perfected liens in existence on the date of the
petitions herein or perfected post-petition pursuant to Section 362(b)(18) of
the Code (to the extent that under State and federal law such liens are senior
to the liens granted to the Agent and the Banks herein and prime existing liens)
and (iv) pursuant to Section 364(d)(1) of the Code, security for such
obligations by the granting of a first priority senior priming security interest
in and lien upon all of the Collateral that is subject to existing liens in
favor of the Primed Parties, senior in all respects to such existing liens and
to any liens granted after the date of the petitions herein to provide adequate
protection in respect of such liens, subject, in the cases of clauses (i)
through (iv) above, to the Carve-Out, as defined herein. The ability of the
Borrower and the Guarantors to obtain sufficient working capital and liquidity
through the incurrence of new indebtedness for borrowed money and other
financial accommodations is vital to the Borrower and the Guarantors. The
preservation and maintenance of the going concern values of the Borrower and the
Guarantors is integral to a successful reorganization of the Debtors pursuant to
the provisions of Chapter 11 of the Code. <PAGE>
7. The terms of the Financing are fair and reasonable, reflect the Debtors'
exercise of prudent business judgment consistent with their fiduciary duty and
are supported by reasonably equivalent value and fair consideration. The
Financing has been negotiated in good faith and at arm's-length between the
Debtors and the Agent and any credit extended, letters of credit issued and
loans made to the Debtors by the Banks pursuant to the Revolving Credit and
Guaranty Agreement dated as of July 17, 1997 shall be deemed to have been
extended by the Banks in good faith, as that term is used in Section 364(e) of
the Code.
8. The Documents (as defined below) are hereby approved in their entireties
and the Borrower is immediately authorized to borrow or obtain letters of credit
pursuant to the Credit Agreement, and the Guarantors may guaranty such
borrowings, up to an aggregate of $_________. Notwithstanding anything herein to
the contrary, no Loans or Letters of Credit under the Credit Agreement, Cash
Collateral or any portion of the Carve-Out (as defined below) may be used to
object to or contest in any manner, or raise any defenses to, the validity,
perfection, priority, enforceability or amount of the obligations of the Debtors
under the Existing Credit Agreements or any security interests or liens securing
such obligations, or to investigate (other than by professionals of an official
committee during the period permitted by this order, as set forth in paragraphs
3 and 4 herein) or assert any claims or causes of action against the
Pre-Petition Secured Lenders or any agent under the Existing Credit Agreements.
9. The Debtors are expressly authorized and empowered to execute and
deliver, among other documents, the Credit Agreement and the Security and Pledge
Agreement to which such Debtors are party (as each such term is defined in the
Credit Agreement) in substantially the forms heretofore filed with this Court
(the "Documents"). The Debtors are hereby authorized to perform and do all acts
that may be required in connection with the Documents. Upon execution and
delivery of the Documents, the Documents shall constitute valid and binding
obligations of the Debtors party thereto, enforceable against each Debtor party
thereto in accordance with their terms.
10. For all of the Debtors' obligations and indebtedness arising under the
Financing and the Documents, the Agent and the Banks are granted pursuant to
Section 364(c)(1) of the Code an allowed claim having priority over any and all
administrative expenses of the kind specified in Sections 503(b) and 507(b) of
the Code, subject only in the event of the occurrence and continuation of an
unwaived Event of Default (as defined in the Credit Agreement) or an event that
would constitute an Event of Default with the giving of notice or lapse of time
or both to the payment of (x) accrued and unpaid and future fees and
disbursements incurred by the Debtors' professionals and any statutory committee
professionals appointed in the Debtors' Chapter 11 cases (the "Cases") in an
aggregate amount not in excess of $2,500,000, (y) certain indemnification claims
of directors of foreign subsidiaries of Borrower in an amount not to exceed
$500,000, all as more fully described in the Credit Agreement, and (z) fees
pursuant to 28 U.S.C. ss.1930 (collectively, the "Carve-Out"), provided that (i)
following the Termination Date (as defined in the Credit Agreement) amounts in
the Letter of Credit Account shall not be subject to the Carve-Out and (ii) the
Carve-Out shall not include any professional fees or disbursements incurred in
connection with investigating or asserting any claims or causes of action
against the Banks, the Pre-Petition Secured Lenders, the Agent or the agent
under the Existing Credit Agreements (including discovery proceedings in
anticipation thereof) and/or investigating or challenging the validity,
perfection, priority, enforceability, avoidance, extent or amount of any
security interest, lien or claim of the Pre-Petition Secured Lenders or the
agent under the Existing Credit Agreements (provided that an investigation by
professionals of a single statutory committee with respect to the validity,
perfection, priority, enforceability, avoidance, extent or amount of any
security interest, lien or claim of the Pre-Petition Secured Lenders or the
Agent under the Existing Credit Agreements during the period permitted by this
Order, as set forth in paragraphs 3 and 4 herein is covered by the Carve-Out).
No other claim having a priority superior or pari passu with that granted by
this Order to the Agent and the Banks shall be granted while any portion of the
Financing or the commitment thereunder remains outstanding.
<PAGE>
11. Debtors shall be permitted to pay administrative expenses allowed and
payable under Sections 330 and 331 of the Code, as the same may be due and
payable, and so long as an unwaived Event of Default or an event with the giving
of notice or lapse of time or both would constitute an Event of Default shall
not have occurred, such payments shall not be applied against the Carve-Out.
Except to the extent of the Carve-Out, no expenses of administration of the
Cases or any future proceeding or case which may result therefrom, including
liquidation in bankruptcy or other proceedings under the Code, shall be charged
against the Collateral, pursuant to Section 506(c) of the Code or otherwise,
without the prior written consent of the Agent and the Required Banks referred
to in the Credit Agreement granted pursuant to the Credit Agreement and no such
consent shall be implied from any other action, inaction, or acquiescence by the
Agent or the Banks.
12. As security for all of the Debtors' obligations and indebtedness
arising under the Financing and the Documents, the Agent on behalf of the Banks
is hereby granted (effective immediately and without the necessity of the
execution by the Debtors of mortgages, security agreements or otherwise), (x)
pursuant to Section 364(c)(2) of the Code, a perfected first priority senior
security interest in and lien upon all unencumbered Collateral and on the Credit
Agreement Cash Collateral, (y) pursuant to Section 364(c)(3) of the Code, a
perfected junior priority security interest in and lien upon encumbered
Collateral (other than the Collateral described in clause (z) below, as to which
the security interest and lien in favor of the Agent will be as described in
such clause) that is subject to valid and perfected liens in existence on the
date of the petitions herein or which are perfected post-petition pursuant to
Section 362(b)(18) of the Code and (z) pursuant to Section 364(d)(1) of the
Code, a perfected first priority senior priming security interest in and lien
upon all of the Collateral that is subject to existing liens in favor of the
Primed Parties, such security interests and liens being senior in all respects
to any and all present and future liens, if any, which encumber the Collateral
referred to in this clause (z) and any liens granted after the filing of the
petitions to provide adequate protection in respect of such existing liens, in
each case subject only to the Carve-Out, provided that following the Termination
Date (as defined in the Credit Agreement) amounts in the Letter of Credit
Account shall not be subject to the Carve-Out. The security interests and liens
granted to the Agent on behalf of the Banks hereunder shall not be (i) subject
to any lien or security interest which is avoided and preserved for the benefit
of the Debtors' estates under Section 551 of the Code or (ii) subordinated to or
made pari passu with any other lien or security interest under Section 364(d) of
the Code or otherwise.
13. Debtors are hereby authorized to use all Cash Collateral of the Primed
Parties, provided that the Primed Parties are granted adequate protection as
hereinafter set forth and as set forth in the Credit Agreement.
<PAGE>
14. As adequate protection for (x) the use by the Debtors of Cash
Collateral and any other property upon which security interests and liens have
been previously granted by the Debtors to the Pre-Petition Secured Lenders and
(y) the priming of such security interests and liens by the Banks pursuant to
the Financing and this Order, the Pre-Petition Secured Lenders (A) shall receive
from the Debtors cash payments in an amount that is equal to current interest
payments and letter of credit fees at the applicable non-default rates provided
for under the Existing Credit Agreements (including any unreimbursed drawn
amounts under letters of credit issued pursuant to any of the Existing Credit
Agreements) and on the dates specified therein for the payment of interest (B)
are granted (limited in amount to the aggregate diminution, if any, subsequent
to the commencement of the Cases in the value of the interests of the
Pre-Petition Secured Lenders in the pre-petition Collateral resulting from such
utilization and priming), a replacement security interest in and lien upon all
the Collateral, subject and subordinate to (i) pre-existing liens, (ii) the
security interests and liens granted to the Banks in this Order and pursuant to
the Documents, and (iii) the Carve-Out, (C) are granted a priority claim
pursuant to Section 507(b) of the Code (limited in amount to the aggregate
diminution, if any, subsequent to the commencement of the Cases in the value of
the interests of Pre-Petition Secured Lenders in the pre-petition Collateral
resulting from such utilization and priming), subject and subordinate to the
Carve-Out and (D) shall receive reimbursement on a monthly basis of reasonable
expenses incurred by the agent for the Pre-Petition Secured Lenders (including
reasonable attorneys fees) prior to and after the date of these Cases in
connection with the administration of the Existing Credit Agreements, collection
efforts and enforcement of rights under the Existing Credit Agreements.
15. As adequate protection for (x) the use by the Debtors of Cash
Collateral and any other property upon which security interests and liens have
been previously granted by the Debtors to each of the Vendors pursuant to the
Vendor Agreements and (y) the priming of such security interests and liens by
the Banks pursuant to the Financing and this Order, each of the Vendors (A) is
granted (limited in amount to the aggregate diminution, if any, subsequent to
the commencement of the Cases in the value of the interests of such Vendor in
the pre-petition Collateral resulting from such utilization and priming) a
replacement security interest in and lien upon the inventory of such Vendor held
by any Debtor who granted such Vendor such pre-petition security interests and
liens and all other non-inventory assets of the Borrower and the Guarantors,
subject and subordinate to (i) pre-existing liens, (ii) the security interests
and liens granted to the Banks in this Order and pursuant to the Documents,
(iii) the security interests and liens granted to the Pre-Petition Secured
Lenders in this Order, and (iv) the Carve-Out, (B) is granted a priority claim
pursuant to Section 507(b) of the Code (limited in amount to the aggregate
diminution, if any, subsequent to the commencement of the Cases in the value of
the interests of each of the Vendors in the pre-petition Collateral resulting
from such utilization and priming), subject and subordinate to the Carve-out and
to the priority claim granted to the Pre-Petition Secured Lenders and (C) shall
receive reimbursement on a monthly basis of reasonable legal fees and expenses
incurred by each of the Vendors after the date of these Cases in aggregate
amount not to exceed $25,000 per Vendor in connection with the collection
efforts and enforcement of their respective rights in connection with amounts
owing to such Vendors.
16. The Court finds that the adequate protection provided herein is
reasonable and sufficient to protect the interests of the Primed Parties and so
long as there are any borrowings or Letters of Credit outstanding, or the
Commitment is in effect, the Primed Parties shall not take any action in the
Court or otherwise (i) seeking payment of the obligations under the Existing
Agreements or other agreements or (ii) related to enforcement of rights or
remedies with respect to liens on the assets of the Borrower and Guarantors.
17. The Agent, the Banks, and the Primed Parties granted security interests
and liens hereunder shall not be required to file or record financing
statements, mortgages, notices of lien or similar instruments in any
jurisdiction (including, without limitation, with the United States Patent and
Trademark Office or the United States Copyright Office) or take any other action
in order to validate and perfect the security interests and liens granted to
them pursuant to this Order. If the Agent, the Banks or any of the Primed
Parties shall, in their sole discretion, choose to file such financing
statements, mortgages, notices of lien or similar instruments or otherwise
confirm perfection of such security interests and liens, all such documents
shall be deemed to have been filed or recorded at the time and on the date of
entry of this Order. The Primed Parties shall not file such financing
statements, mortgages, notices of lien or similar instruments, or otherwise
confirm perfection of such security interests and liens, unless the Agent and
the Banks shall theretofore have done so. <PAGE>
18. Upon request of the Agent, the Primed Parties are directed to take,
execute and deliver such instruments and do all things necessary to perfect,
preserve and enforce the security interests and liens granted to the Agent for
the benefit of the Banks by the Documents and this Order including without
limitation, delivery to the Agent of any capital stock of the Borrower or
Guarantors held in pledge by the Primed Parties.
19. The Pre-Petition Secured Lenders are directed to immediately turn over
to the Debtors all Cash Collateral held by them.
20. Each of the Debtors is authorized and directed to do and perform all
acts, to make, execute and deliver all instruments and documents (including,
without limitation, the execution of security agreements, mortgages and
financing statements) and, to pay fees, which may be reasonably required or
necessary for the Debtors' performance under the Financing, including, without
limitation: (i) the execution of the Documents, (ii) the execution of one or
more amendments to the Credit Agreement for, among other things, the purpose of
adding additional financial institutions as Banks and reallocating the
commitments for the Financing among the Banks in such form as the Debtors, the
Agent and the Banks may agree, and (iii) the non-refundable payment to Chase or
the Banks, as the case may be, of the Fees referred to in the Credit Agreement
and such Letter of Credit Fees, Commitment Fees and reasonable costs and
expenses as may be due from time to time including, without limitation,
reasonable attorneys' fees and disbursements as provided in the Documents, all
as such terms are defined in the Documents.
21. Subject only to the provisions of Section 7.1 of the Credit Agreement,
the automatic stay provisions of Section 362 of the Code are vacated and
modified to the extent necessary so as to permit the Agent and the Banks to
exercise, upon the occurrence of an Event of Default, all rights and remedies
provided for in the Documents (including, without limitation, the right to
setoff monies of the Debtors in accounts maintained with the Agent or any Bank).
The Debtors' right to use Cash Collateral shall terminate on the Termination
Date (as defined in the Credit Agreement).
22. The Documents and the provisions of this Order shall be binding upon
the Banks, the Primed Parties and the Debtors and their respective successors
and assigns (including any Chapter 7 or Chapter 11 trustee hereinafter appointed
or elected for the estate of any of the Debtors) and inure to the benefit of the
Banks, the Primed Parties and the Debtors and (except with respect to any
trustee hereinafter appointed or elected for the estate of any of the Debtors)
their respective successors and assigns.
23. No order dismissing any of the Cases under Section 1112 of the Code or
otherwise shall be entered unless prior to the entry thereof, either (i) all
obligations and indebtedness owing to the Agent and the Banks shall have been
paid in full, or with respect to outstanding letters of credit, the same shall
have been fully cash collateralized in accordance with the provisions of the
Credit Agreement or (ii) all material assets of the Debtors shall have been
liquidated and the proceeds thereof distributed in accordance with the
priorities established by this Order and the Code. If any or all of the
provisions of this Order are hereafter reversed, modified, vacated or stayed,
such reversal, stay, modification or vacation shall not affect (x) the validity
and enforceability of any obligation, indebtedness or liability incurred by the
Debtors to the Banks prior to written notice to the Agent of the effective date
of such reversal, stay, modification or vacation, or (y) the validity and
enforceability of any security interest, lien or priority authorized or created
hereby or pursuant to the Credit Agreement. Notwithstanding any such reversal,
stay, modification or vacation, any indebtedness, obligation or liability
incurred by the Debtors to the Banks prior to written notice to the Agent of the
effective date of such reversal, stay, modification or vacation shall be
governed in all respects by the original provisions of this Order, and the Banks
shall be entitled to all the rights, remedies, privileges and benefits, granted
herein and pursuant to the Credit Agreement with respect to all such
indebtedness, obligation or liability. The obligations of the Debtors under the
Financing shall not be discharged by the entry of an order confirming a plan of
reorganization in any of the Cases and, pursuant to Section 1141(d)(4) of the
Code, the Debtors have waived such discharge. <PAGE>
24. The Final Hearing on the Motion is scheduled for _________, 1997 at
______ a.m. before this Court.
25. Under the circumstances, the notice given by the Debtors of the Motion
and of the Interim Hearing constitutes due and sufficient notice of the Motion
and of the Interim Hearing. Debtors shall promptly mail by __________, 1997
copies of this Order to the parties who were given notice of the Interim Hearing
and to any other party which has filed a request for notices with either the
Court (by 12 noon on _________, 1997) or the Debtors' counsel, and to any
Official Committee after the same has been appointed, or to Committee counsel,
if the same shall have been appointed. Any party in interest objecting to the
relief sought at the Final Hearing shall serve and file written objections;
which objections shall be served upon (i) Willkie, Farr & Gallagher, 153 East
53rd Street, New York, New York, 10022, Attention: Marc Abrams, Esq., Attorneys
for the Debtors; (ii) Zalkin, Rodin & Goodman LLP, 750 Third Avenue, New York,
New York 10017, Attention: Richard S. Toder, Esq., Attorneys for the Agent;
Milbank Tweed Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York
10005-1413, Attention: David C.L. Frauman, Esq., Attorneys for the Agent for the
Pre-Petition Secured Lenders; Morgan Lewis & Bockius, 2000 One Logan Square,
Philadelphia, Pennsylvania 19103-6993, Attention: Michael Bloom, Esq., Attorneys
for certain Vendors; and (iii) Office of the United States Trustee for the
Southern District of New York and shall be filed with the Clerk of the United
States Bankruptcy Court for the Southern District of New York, so as to be
received no later than 5:00 p.m. three (3) days before such hearing.
New York, New York
Dated: July ___, 1997
--------------------------------
UNITED STATES BANKRUPTCY JUDGE
<PAGE>
EXHIBIT A-2
Doc. No. 12714
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------------X
In re
: Chapter 11
ALLIANCE ENTERTAINMENT CORP., :
et. al.,
Debtors.
: Case No. 97-B 44673 (BRL)
(Jointly Administered)
- -----------------------------------X
FINAL ORDER AUTHORIZING DEBTORS TO OBTAIN
POST-PETITION FINANCING PURSUANT TO 11 U.S.C. ss.ss.364(c)(1),
364(c)(2), 364(c)(3) and 364(d)(1), AND TO UTILIZE
CASH COLLATERAL PURSUANT TO 11 U.S.C. ss.363; GRANTING
ADEQUATE PROTECTION TO PRE-PETITION SECURED PARTIES
AND SCHEDULING FINAL HEARING
Upon the motion (the "Motion") dated July 13, 1997 of Alliance
Entertainment Corp., as Debtor and Debtor-in-Possession (the "Borrower"), and of
Independent National Distributors, Inc., AEC One Stop Group, Inc., One Way
Records, Inc., Concord Records, Inc., FL Acquisition Corp., Execusoft, Inc.,
Castle Communications (U.S.), Inc., AEC Americas, Inc., Passport Music
Worldwide, Inc., Passport Music Distribution, Alliance Ventures, Inc., AEC
Acquisitions Corp., Alliance Entertainment Corp., and Matrix Softwear Corp.,
each as a Debtor and Debtor-in-Possession (hereinafter referred to collectively
as the "Guarantors"; the Borrower and the Guarantors hereinafter referred to
collectively as the "Debtors"),
(i) seeking this Court's authorization, pursuant to Sections 364(c)(1),
364(c)(2), 364(c)(3) and 364(d)(1) of the United States Bankruptcy Code, 11
U.S.C. ss.ss.101, et seq. (the "Code"), and Bankruptcy Rule 4001, for the
Borrower to (1) obtain post-petition financing (the "Financing"), and for the
Guarantors to guaranty the payment of such obligations, up to the principal
amount of $50,000,000 from The Chase Manhattan Bank ("Chase" or "Agent"), 270
Park Avenue, New York, New York 10017, with Chase acting as Agent for itself and
a syndicate of financial institutions to be arranged by Chase (together with
Chase, the "Banks"), (w) with priority over any and all administrative expenses
of the kind specified in Sections 503(b) and 507(b) of the Code pursuant to
Section 364(c)(1) of the Code, (x) to be secured pursuant to Section 364(c)(2)
of the Code by a perfected first priority security interest in and lien upon all
(A) unencumbered pre- and post-petition property of the Debtors that is held,
beneficially or of record, by the Borrower or any of the Guarantors and (B) cash
maintained in the Letter of Credit Account (as defined in the Credit Agreement
hereinafter referred to) and any investment of the funds contained therein (all
of such property referred to in this clause (x) (B) being hereinafter referred
to as the "Credit Agreement Cash Collateral"), (y) to be secured pursuant to
Section 364(c)(3) of the Code by a perfected security interest in and lien upon
all pre- and post-petition property of the Debtors (other than the property
described in (z) below, as to which the liens and security interests in favor of
the Agent will be as described in such clause) that is subject to valid and
perfected liens in existence on the date of the petitions herein or perfected
post-petition pursuant to Section 362(b)(18) of the Code (to the extent that
under State or federal law, such liens are senior to the liens granted to the
Agent and the Banks herein and prime existing liens), junior to such valid and
perfected liens, and (z) to be secured pursuant to Section 364(d)(1) of the Code
by a perfected first priority senior priming security interest in and lien upon
all pre- and post-petition property of the Borrower and the Guarantors
(including, without limitation, inventory, equipment, accounts receivable,
intellectual property and the capital stock of certain subsidiaries of the
Borrower and the proceeds of all of the foregoing) that is subject to the
existing liens presently securing the Debtors' indebtedness owing to (i) certain
<PAGE>
lenders (the "Pre-Petition Secured Lenders") under or in connection with that
certain Third Amended and Restated Credit Agreement, dated as of July 25, 1995
and the Loan Documents referred to therein (as each has heretofore been amended,
collectively, the "Existing Credit Agreements"), among the Borrower, AEC
Holdings (UK) Limited, Castle Communications Limited and other institutions from
time to time parties thereto, and The Chase Manhattan Bank, N.A., as agent, and
(ii) those certain security agreements and vendor subordination agreements
(identified on Schedule A hereto) among any of the Debtors or Guarantors and
Polygram Group Distribution, Inc., ("Polygram"), BMG Music ("BMG"), Sony Discos,
Inc. ("Sony"), Sony Music Entertainment, Inc. ("SME"), Relativity Entertainment
Dist., Inc. ("Relativity"), c/o Sony Music Entertainment, Inc., Cema
Distribution, a Division of Capitol Records, Inc. ("Cema"), UNI Distribution
Corp. ("UNI"), Warner/Electra/Atlantic Corp. ("WEA") and TDK Electronics
Corporation ("TDK" and together with Polygram, BMG, Sony, Relativity, SME, Cema,
UNI and WEA, the "Vendors") (as each of the foregoing has heretofore been
amended, collectively the "Existing Vendor Agreements", and together with the
Existing Credit Agreements, the "Existing Agreements"), and other loan
documentation executed in connection therewith, senior in all respects to such
existing liens and to any liens granted after the date of the petitions herein
to provide adequate protection in respect of such liens (all of the foregoing
property specified in clauses (x), (y) and (z) above, being hereinafter
collectively referred to in this Order as the "Collateral") and (2) provide
adequate protection to the Pre-Petition Secured Lenders and the Vendors (and,
together with the Pre-Petition Secured Lenders, the "Primed Parties"), whose
liens and security interests are being primed by the Financing,
(ii) seeking this Court's authorization, pursuant to Section 363(c)(2) of
the Code, for the use of cash collateral (as such term is defined in the Code)
in which the Primed Parties have an interest and for the provision of adequate
protection to the Primed Parties,
(iii) requesting, pursuant to Bankruptcy Rule 4001, that an interim hearing
(the "Interim Hearing") on the Motion be held on Wednesday, July 16, 1997 for
this Court to consider entry of an interim order authorizing the Borrower to
forthwith borrow or obtain letters of credit up to an aggregate of $20,000,000
of the Financing from the Banks, authorizing the use by the Debtors of cash
collateral and granting the adequate protection hereinafter described, and
<PAGE>
(iv) requesting that a final hearing (the "Final Hearing") thereafter be
held for this Court to consider entry of an order authorizing the balance of the
Financing, as set forth in the Motion and the loan documentation filed with this
Court; and pursuant to Bankruptcy Rule 4001(c)(1), and as otherwise provided in
the Order to Show Cause in Respect of Motion for Orders Pursuant to Bankruptcy
Code Sections 105, 361, 362, 363 and 364 and Bankruptcy Rules 2002, 4001 and
9014: (A) Authorizing Debtors In Possession to Obtain (i) Interim and Final
Secured Postpetition Financing with Priority Over All Other Indebtedness, (ii)
Emergency, Interim and Final Use of Cash Collateral; (B) Providing Adequate
Protection; (C) Approving Agreements Related to Foregoing; (D) Scheduling
Interim and Final Hearings and Prescribing Form and Manner of Notice; and (E)
Granting Related Relief dated July 14, 1997 (the "Order to Show Cause") due
notice under the circumstances of the Motion having been given by the Debtors to
the thirty largest unsecured creditors of the Debtors on a combined basis, the
Primed Parties and the United States Trustee for the Southern District of New
York and any official committee appointed in the Cases (as hereinafter defined)
and the Court having held an Interim Hearing on July 16, 1997 and the Interim
Order having been entered and upon all of the pleadings filed with this Court
and all of the proceedings had before this Court, and upon the record of the
Hearing held on this matter on July 30, 1997 and after due deliberation and
consideration and sufficient cause appearing therefor;
IT IS, FOUND, DETERMINED, ORDERED AND ADJUDGED, that:
1. This Court has core jurisdiction over these proceedings and the parties
and property affected hereby pursuant to 28 U.S.C. ss.ss.157(b) and 1334.
2. No other or further notice of the Motion's request for final approval of
the Financing and of the Final Hearing need be provided, and any requirement for
such other or further notice is hereby dispensed with and waived.
3. Without prejudice to the rights of any other party to challenge such
findings for a period of sixty days from the date of entry of the Interim Order,
the Debtors admit that, in accordance with the terms of the Existing Credit
Agreements, the Borrower and the Guarantors are truly and justly indebted to the
Pre-Petition Secured Lenders, without defense, counterclaim, offset or
recoupment of any kind, and that as of the date of the petitions herein (i) the
Borrower and the Guarantors were liable to the Pre-Petition Secured Lenders in
the aggregate principal amount of approximately $187,492,945, in respect of
loans made and letters of credit issued by the Pre-Petition Secured Lenders
pursuant to the Existing Credit Agreements, plus interest thereon, plus fees and
expenses (including reasonable attorneys fees) incurred in connection therewith
as provided in the Existing Credit Agreements and (ii) the Guarantors were
contingently liable to the Pre-Petition Secured Lenders in respect of the
guarantees by the Guarantors in respect of the Existing Agreements.
4. Without prejudice to the rights of any other party to challenge such
findings for a period of sixty days from the date of entry of the Interim Order,
the Debtors further admit that, by reason of the Existing Credit Agreements,
their obligations thereunder are secured by enforceable and perfected liens and
security interests granted by the Borrower and the Guarantors to the
Pre-Petition Secured Lenders upon and in all of the Borrower's and the
Guarantors' right, title and interest in, to and under the property of each
described in the Existing Credit Agreements to which they are party (including
the set-off rights described in paragraph 5 below), including, without
limitation, inventory, equipment, accounts receivable, intellectual property and
the capital stock of certain subsidiaries of the Borrower and the proceeds of
all of the foregoing. <PAGE>
5. As of the date of the petitions herein, funds on deposit at Chase and
various of the other Pre-Petition Secured Lenders were subject to rights of
set-off under applicable law and the Existing Agreements and, by virtue of such
set-off rights, are subject to a lien in favor of such Pre-Petition Secured
Lenders pursuant to Sections 506(a) and 553 of the Code. Pursuant to the
Existing Credit Agreements, such Pre-Petition Secured Lenders are obligated to
share the benefit of such lien with the other Pre-Petition Secured Lenders party
to such Existing Credit Agreements based upon their respective pro rata shares
of the obligations under such agreements. Accordingly, any proceeds of the
pre-petition collateral (including cash on deposit at the Pre-Petition Secured
Lenders as of the date of the petitions herein) are cash collateral of the
Pre-Petition Secured Lenders within the meaning of Section 363(a) of the
Code("Cash Collateral"). The Pre-Petition Secured Lenders are entitled, pursuant
to Sections 361, 363(e) and 364(d)(1) of the Code, to adequate protection of
their interest in the pre-petition collateral, including the Cash Collateral,
for any diminution in value of the pre-petition collateral, including, without
limitation, resulting from the use of the Cash Collateral, the incurrence by the
Debtors of post-petition financing secured by priming liens on the pre-petition
collateral, the use, sale or lease of the pre-petition collateral (other than
the Cash Collateral) and the imposition of the automatic stay.
6. The Borrower has an immediate need to obtain financing in order to
permit, among other things, the orderly continuation of the operation of its
business and the businesses of the Guarantors, to maintain business
relationships with vendors and suppliers, to make certain strategic capital
expenditures and investments and to satisfy other working capital needs. The
Borrower is unable to obtain adequate unsecured credit allowable under Section
503(b)(1) of the Code as an administrative expense. A facility in the amount
provided by the Financing is unavailable to the Borrower without the Borrower
and the Guarantors granting to the Banks (i) pursuant to Section 364(c)(1) of
the Code, allowed claims, with respect to all indebtedness and obligations of
the Borrower and the Guarantors under the Credit Agreement, having priority over
any and all administrative expenses of the kind specified in Sections 503(b) and
507(b) of the Code, (ii) pursuant to Section 364(c)(2) of the Code, security for
such obligations by the granting of a perfected first priority senior security
interest in and lien upon (x) all of the Collateral that is not encumbered by
liens in favor of the Primed Parties or any other party or entity and (y) the
Credit Agreement Cash Collateral, (iii) pursuant to Section 364(c)(3) of the
Code, security for such obligations by the granting of a perfected junior
priority security interest in and lien upon all of the Collateral (other than
the Collateral that is described in clause (iv) below, as to which the security
interest and lien in favor of the Agent shall be as described in such clause)
that is subject to valid and perfected liens in existence on the date of the
petitions herein or perfected post-petition pursuant to Section 362(b)(18) of
the Code (to the extent that under State and federal law such liens are senior
to the liens granted to the Agent and the Banks herein and prime existing liens)
and (iv) pursuant to Section 364(d)(1) of the Code, security for such
obligations by the granting of a first priority senior priming security interest
in and lien upon all of the Collateral that is subject to existing liens in
favor of the Primed Parties, senior in all respects to such existing liens and
to any liens granted after the date of the petitions herein to provide adequate
protection in respect of such liens, subject, in the cases of clauses (i)
through (iv) above, to the Carve-Out, as defined herein. The ability of the
Borrower and the Guarantors to obtain sufficient working capital and liquidity
through the incurrence of new indebtedness for borrowed money and other
financial accommodations is vital to the Borrower and the Guarantors. The
preservation and maintenance of the going concern values of the Borrower and the
Guarantors is integral to a successful reorganization of the Debtors pursuant to
the provisions of Chapter 11 of the Code.
7. The terms of the Financing are fair and reasonable, reflect the Debtors'
exercise of prudent business judgment consistent with their fiduciary duty and
are supported by reasonably equivalent value and fair consideration. The
Financing has been negotiated in good faith and at arm's-length between the
Debtors and the Agent and any credit extended, letters of credit issued and
loans made to the Debtors by the Banks pursuant to the Revolving Credit and
Guaranty Agreement dated as of July ___, 1997 shall be deemed to have been
extended by the Banks in good faith, as that term is used in Section 364(e) of
the Code. <PAGE>
8. The Documents (as defined below) are hereby approved in their entireties
and the Borrower is immediately authorized to borrow or obtain letters of credit
pursuant to the Credit Agreement, and the Guarantors may guaranty such
borrowings, up to an aggregate of $50,000,000 (inclusive of amounts authorized
pursuant to the Interim Order). Notwithstanding anything herein to the contrary,
no Loans or Letters of Credit under the Credit Agreement, Cash Collateral or any
portion of the Carve-Out (as defined below) may be used to object to or contest
in any manner, or raise any defenses to, the validity, perfection, priority,
enforceability or amount of the obligations of the Debtors under the Existing
Credit Agreements or any security interests or liens securing such obligations,
or to investigate (other than by professionals of an official committee during
the period permitted by this order, as set forth in paragraphs 3 and 4 herein)
or assert any claims or causes of action against the Pre-Petition Secured
Lenders or any agent under the Existing Credit Agreements.
9. The Debtors are expressly authorized and empowered to execute and
deliver, among other documents, the Credit Agreement and the Security and Pledge
Agreement to which such Debtors are party (as each such term is defined in the
Credit Agreement) in substantially the forms heretofore filed with this Court
(the "Documents"). The Debtors are hereby authorized to perform and do all acts
that may be required in connection with the Documents. Upon execution and
delivery of the Documents, the Documents shall constitute valid and binding
obligations of the Debtors party thereto, enforceable against each Debtor party
thereto in accordance with their terms.
10. For all of the Debtors' obligations and indebtedness arising under the
Financing and the Documents, the Agent and the Banks are granted pursuant to
Section 364(c)(1) of the Code an allowed claim having priority over any and all
administrative expenses of the kind specified in Sections 503(b) and 507(b) of
the Code, subject only in the event of the occurrence and continuation of an
unwaived Event of Default (as defined in the Credit Agreement) or an event that
would constitute an Event of Default with the giving of notice or lapse of time
or both to the payment of (x) accrued and unpaid and future fees and
disbursements incurred by the Debtors' professionals and any statutory committee
professionals appointed in the Debtors' Chapter 11 cases (the "Cases") in an
aggregate amount not in excess of $2,500,000, (y) certain indemnification claims
of directors of foreign subsidiaries of Borrower in an amount not to exceed
$500,000, all as more fully described in the Credit Agreement, and (z) fees
pursuant to 28 U.S.C. ss.1930 (collectively, the "Carve-Out"), provided that (i)
following the Termination Date (as defined in the Credit Agreement) amounts in
the Letter of Credit Account shall not be subject to the Carve-Out and (ii) the
Carve-Out shall not include any professional fees or disbursements incurred in
connection with investigating or asserting any claims or causes of action
against the Banks, the Pre-Petition Secured Lenders, the Agent or the agent
under the Existing Credit Agreements (including discovery proceedings in
anticipation thereof) and/or investigating or challenging the validity,
perfection, priority, enforceability, avoidance, extent or amount of any
security interest, lien or claim of the Pre-Petition Secured Lenders or the
agent under the Existing Credit Agreements (provided that an investigation by
professionals of a single statutory committee with respect to the validity,
perfection, priority, enforceability, avoidance, extent or amount of any
security interest, lien or claim of the Pre-Petition Secured Lenders or the
Agent under the Existing Credit Agreements during the period permitted by this
Order, as set forth in paragraphs 3 and 4 herein is covered by the Carve-Out).
No other claim having a priority superior or pari passu with that granted by
this Order to the Agent and the Banks shall be granted while any portion of the
Financing or the commitment thereunder remains outstanding.
<PAGE>
11. Debtors shall be permitted to pay administrative expenses allowed and
payable under Sections 330 and 331 of the Code, as the same may be due and
payable, and so long as an unwaived Event of Default or an event with the giving
of notice or lapse of time or both would constitute an Event of Default shall
not have occurred, such payments shall not be applied against the Carve-Out.
Except to the extent of the Carve-Out, no expenses of administration of the
Cases or any future proceeding or case which may result therefrom, including
liquidation in bankruptcy or other proceedings under the Code, shall be charged
against the Collateral, pursuant to Section 506(c) of the Code or otherwise,
without the prior written consent of the Agent and the Required Banks referred
to in the Credit Agreement granted pursuant to the Credit Agreement and no such
consent shall be implied from any other action, inaction, or acquiescence by the
Agent or the Banks.
12. As security for all of the Debtors' obligations and indebtedness
arising under the Financing and the Documents, the Agent on behalf of the Banks
is hereby granted (effective immediately and without the necessity of the
execution by the Debtors of mortgages, security agreements or otherwise), (x)
pursuant to Section 364(c)(2) of the Code, a perfected first priority senior
security interest in and lien upon all unencumbered Collateral and on the Credit
Agreement Cash Collateral, (y) pursuant to Section 364(c)(3) of the Code, a
perfected junior priority security interest in and lien upon encumbered
Collateral (other than the Collateral described in clause (z) below, as to which
the security interest and lien in favor of the Agent will be as described in
such clause) that is subject to valid and perfected liens in existence on the
date of the petitions herein or which are perfected post-petition pursuant to
Section 362(b)(18) of the Code and (z) pursuant to Section 364(d)(1) of the
Code, a perfected first priority senior priming security interest in and lien
upon all of the Collateral that is subject to existing liens in favor of the
Primed Parties, such security interests and liens being senior in all respects
to any and all present and future liens, if any, which encumber the Collateral
referred to in this clause (z) and any liens granted after the filing of the
petitions to provide adequate protection in respect of such existing liens, in
each case subject only to the Carve-Out, provided that following the Termination
Date (as defined in the Credit Agreement) amounts in the Letter of Credit
Account shall not be subject to the Carve-Out. The security interests and liens
granted to the Agent on behalf of the Banks hereunder shall not be (i) subject
to any lien or security interest which is avoided and preserved for the benefit
of the Debtors' estates under Section 551 of the Code or (ii) subordinated to or
made pari passu with any other lien or security interest under Section 364(d) of
the Code or otherwise.
13. Debtors are hereby authorized to use all Cash Collateral of the Primed
Parties, provided that the Primed Parties are granted adequate protection as
hereinafter set forth and as set forth in the Credit Agreement.
<PAGE>
14. As adequate protection for (x) the use by the Debtors of Cash
Collateral and any other property upon which security interests and liens have
been previously granted by the Debtors to the Pre-Petition Secured Lenders and
(y) the priming of such security interests and liens by the Banks pursuant to
the Financing and this Order, the Pre-Petition Secured Lenders (A) shall receive
from the Debtors cash payments in an amount that is equal to current interest
payments and letter of credit fees at the applicable non-default rates provided
for under the Existing Credit Agreements (including any unreimbursed drawn
amounts under letters of credit issued pursuant to any of the Existing Credit
Agreements) and on the dates specified therein for the payment of interest (B)
are granted (limited in amount to the aggregate diminution, if any, subsequent
to the commencement of the Cases in the value of the interests of the
Pre-Petition Secured Lenders in the pre-petition Collateral resulting from such
utilization and priming), a replacement security interest in and lien upon all
the Collateral, subject and subordinate to (i) pre-existing liens (other than
liens being primed by this Order), (ii) the security interests and liens granted
to the Banks in this Order and pursuant to the Documents, and (iii) the
Carve-Out, (C) are granted a priority claim pursuant to Section 507(b) of the
Code (limited in amount to the aggregate diminution, if any, subsequent to the
commencement of the Cases in the value of the interests of Pre-Petition Secured
Lenders in the pre-petition Collateral resulting from such utilization and
priming), subject and subordinate to the Carve-Out and (D) shall receive
reimbursement on a monthly basis of reasonable expenses incurred by the agent
for the Pre-Petition Secured Lenders (including reasonable attorneys fees) prior
to and after the date of these Cases in connection with the administration of
the Existing Credit Agreements, collection efforts and enforcement of rights
under the Existing Credit Agreements.
15. As adequate protection for (x) the use by the Debtors of Cash
Collateral and any other property upon which security interests and liens have
been previously granted by the Debtors to each of the Vendors pursuant to the
Vendor Agreements and (y) the priming of such security interests and liens by
the Banks pursuant to the Financing and this Order, each of the Vendors (A) is
granted (limited in amount to the aggregate diminution, if any, subsequent to
the commencement of the Cases in the value of the interests of such Vendor in
the pre-petition Collateral resulting from such utilization and priming) a
replacement security interest in and lien upon the inventory of such Vendor held
by any Debtor who granted such Vendor such pre-petition security interests and
liens and all other non-inventory assets of the Borrower and the Guarantors,
subject and subordinate to (i) pre-existing liens (other than liens being primed
by this Order), (ii) the security interests and liens granted to the Banks in
this Order and pursuant to the Documents, (iii) the security interests and liens
granted to the Pre-Petition Secured Lenders in this Order, and (iv) the
Carve-Out, (B) is granted a priority claim pursuant to Section 507(b) of the
Code (limited in amount to the aggregate diminution, if any, subsequent to the
commencement of the Cases in the value of the interests of each of the Vendors
in the pre-petition Collateral resulting from such utilization and priming),
subject and subordinate to the Carve-out and to the priority claim granted to
the Pre-Petition Secured Lenders and (C) reimbursement on a monthly basis of
reasonable legal fees and expenses incurred jointly by the Vendors for a single
counsel for such Vendors after the date of these Cases in connection with the
collection efforts and enforcement of their respective rights in connection with
amounts owing to such Vendors.
16. The Court finds that the adequate protection provided herein is
reasonable and sufficient to protect the interests of the Primed Parties and so
long as there are any borrowings or Letters of Credit outstanding, or the
Commitment is in effect, the Primed Parties shall not take any action in the
Court or otherwise (i) seeking payment of the obligations under the Existing
Agreements or other agreements or (ii) related to enforcement of rights or
remedies with respect to liens on the assets of the Borrower and Guarantors.
<PAGE>
17. The Agent, the Banks, and the Primed Parties granted security interests
and liens hereunder shall not be required to file or record financing
statements, mortgages, notices of lien or similar instruments in any
jurisdiction (including, without limitation, with the United States Patent and
Trademark Office or the United States Copyright Office) or take any other action
in order to validate and perfect the security interests and liens granted to
them pursuant to this Order. If the Agent, the Banks or any of the Primed
Parties shall, in their sole discretion, choose to file such financing
statements, mortgages, notices of lien or similar instruments or otherwise
confirm perfection of such security interests and liens, all such documents
shall be deemed to have been filed or recorded at the time and on the date of
entry of this Order. The Primed Parties shall not file such financing
statements, mortgages, notices of lien or similar instruments, or otherwise
confirm perfection of such security interests and liens, unless the Agent and
the Banks shall theretofore have done so.
18. Upon request of the Agent, the Primed Parties are directed to take,
execute and deliver such instruments and do all things necessary to perfect,
preserve and enforce the security interests and liens granted to the Agent for
the benefit of the Banks by the Documents and this Order including without
limitation, delivery to the Agent of any capital stock of the Borrower or
Guarantors held in pledge by the Primed Parties.
19. The Pre-Petition Secured Lenders are directed to immediately turn over
to the Debtors all Cash Collateral held by them.
20. Each of the Debtors is authorized and directed to do and perform all
acts, to make, execute and deliver all instruments and documents (including,
without limitation, the execution of security agreements, mortgages and
financing statements) and, to pay fees, which may be reasonably required or
necessary for the Debtors' performance under the Financing, including, without
limitation: (i) the execution of the Documents, (ii) the execution of one or
more amendments to the Credit Agreement for, among other things, the purpose of
adding additional financial institutions as Banks and reallocating the
commitments for the Financing among the Banks in such form as the Debtors, the
Agent and the Banks may agree, and (iii) the non-refundable payment to Chase or
the Banks, as the case may be, of the Fees referred to in the Credit Agreement
and such Letter of Credit Fees, Commitment Fees and reasonable costs and
expenses as may be due from time to time including, without limitation,
reasonable attorneys' fees and disbursements as provided in the Documents, all
as such terms are defined in the Documents.
21. Subject only to the provisions of Section 7.1 of the Credit Agreement,
the automatic stay provisions of Section 362 of the Code are vacated and
modified to the extent necessary so as to permit the Agent and the Banks to
exercise, upon the occurrence of an Event of Default, all rights and remedies
provided for in the Documents (including, without limitation, the right to
setoff monies of the Debtors in accounts maintained with the Agent or any Bank).
The Debtors' right to use Cash Collateral shall terminate on the Termination
Date (as defined in the Credit Agreement). <PAGE>
22. The Documents and the provisions of this Order shall be binding upon
the Banks, the Primed Parties and the Debtors and their respective successors
and assigns (including any Chapter 7 or Chapter 11 trustee hereinafter appointed
or elected for the estate of any of the Debtors) and inure to the benefit of the
Banks, the Primed Parties and the Debtors and (except with respect to any
trustee hereinafter appointed or elected for the estate of any of the Debtors)
their respective successors and assigns.
23. No order dismissing any of the Cases under Section 1112 of the Code or
otherwise shall be entered unless prior to the entry thereof, either (i) all
obligations and indebtedness owing to the Agent and the Banks shall have been
paid in full, or with respect to outstanding letters of credit, the same shall
have been fully cash collateralized in accordance with the provisions of the
Credit Agreement or (ii) all material assets of the Debtors shall have been
liquidated and the proceeds thereof distributed in accordance with the
priorities established by this Order and the Code. If any or all of the
provisions of this Order are hereafter reversed, modified, vacated or stayed,
such reversal, stay, modification or vacation shall not affect (x) the validity
and enforceability of any obligation, indebtedness or liability incurred by the
Debtors to the Banks prior to written notice to the Agent of the effective date
of such reversal, stay, modification or vacation, or (y) the validity and
enforceability of any security interest, lien or priority authorized or created
hereby or pursuant to the Credit Agreement. Notwithstanding any such reversal,
stay, modification or vacation, any indebtedness, obligation or liability
incurred by the Debtors to the Banks prior to written notice to the Agent of the
effective date of such reversal, stay, modification or vacation shall be
governed in all respects by the original provisions of this Order, and the Banks
shall be entitled to all the rights, remedies, privileges and benefits, granted
herein and pursuant to the Credit Agreement with respect to all such
indebtedness, obligation or liability. The obligations of the Debtors under the
Financing shall not be discharged by the entry of an order confirming a plan of
reorganization in any of the Cases and, pursuant to Section 1141(d)(4) of the
Code, the Debtors have waived such discharge.
Dated: July ___, 1997
-------------------------------
UNITED STATES BANKRUPTCY JUDGE
<PAGE>
EXHIBIT B
SECURITY AND PLEDGE AGREEMENT
SECURITY AND PLEDGE AGREEMENT (the "Agreement"), dated as of July 17,
1997, by and between ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
"Borrower"), and each of the subsidiaries of the Borrower party hereto
(collectively with the Borrower, the "Grantors"), each a debtor and
debtor-in-possession under Chapter 11 of the Bankruptcy Code, and THE CHASE
MANHATTAN BANK, as agent (in such capacity, the "Agent") for the banks (the
"Banks") party to the Credit Agreement (as hereinafter defined):
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Agent, the Banks and the Grantors are entering into a Revolving
Credit and Guaranty Agreement dated as of the date hereof (as amended, modified
or supplemented from time to time, the "Credit Agreement"); and
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined; and
WHEREAS, it is a condition precedent to the making of Loans and the
issuance of Letters of Credit that the Grantors shall have granted a security
interest, pledge and lien on substantially all of the Grantors' assets and
properties and the proceeds thereof pursuant to Sections 364(c)(2), 364(c)(3)
and 364(d)(1) of the Bankruptcy Code; and
WHEREAS, the grant of such security interest, pledge and lien has been
authorized pursuant to Section 364(c)(2), 364(c)(3) and 364(d)(1) of the
Bankruptcy Code by the Interim Order and, after the entry thereof, will have
been so authorized by the Final Order (collectively, the "Order"); and
WHEREAS, to supplement the Order without in any way diminishing or
limiting the effect of the Order or the security interests, pledges and liens
granted thereunder, the parties hereto desire to more fully set forth their
respective rights in connection with such security interests, pledges and liens;
and
WHEREAS, this Agreement has been approved by the Order;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks to make Loans and issue Letters of Credit, the Grantors hereby agree
with the Banks as follows:
<PAGE>
SECTION 1. Grant of Security and Pledge. Each of the Grantors hereby
transfers, grants, bargains, sells, conveys, hypothecates, assigns, pledges and
sets over to the Agent for its benefit and the ratable benefit of the Banks and
hereby grants to the Agent for its benefit and the ratable benefit of the Banks,
a perfected pledge and security interest in all of the Grantors' right, title
and interest in and to the following (the "Collateral"), which pledge and
security interest shall be (x) junior to the Permitted Senior Liens hereinafter
referred to and (y) subject to the Carve-Out:
(a) all present and future accounts, accounts receivable and other rights
of each of the Grantors to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising, and whether or not they have
been earned by performance (collectively, the "Accounts");
(b) all goods and merchandise now owned or hereafter acquired by each of
the Grantors wherever located, whether in the possession of a Grantor or of a
bailee or other person for sale, storage, transit, processing, use or otherwise
consisting of whole goods, components, supplies, materials, or consigned,
returned or repossessed goods) which are held for sale or lease or to be
furnished (or have been furnished) under any contract of service or which are
raw materials, work-in-process, finished goods or materials used or consumed in
such Grantor's business or processed by or on behalf of any Grantor
(collectively, the "Inventory");
(c) all machinery, all manufacturing, distribution, selling, data
processing and office equipment, all furniture, furnishings, appliances,
fixtures and trade fixtures, tools, tooling, molds, dies, vehicles, vessels,
aircraft and all other goods of every type and description (other than
Inventory), in each instance whether now owned or hereafter acquired by each of
the Grantors and wherever located (collectively, the "Equipment");
(d) all works of art now owned or hereafter acquired by each of the
Grantors, including, without limitation, paintings, sketches, drawings, prints,
sculptures, crafts, tapestries, porcelain, carvings, artifacts, renderings and
designs;
(e) all rights, interests, choses in action, causes of action, claims and
all other intangible property of each of the Grantors of every kind and nature
(other than Accounts, Trademarks, Patents and Copyrights), in each instance
whether now owned or hereafter acquired by such Grantor, including, without
limitation, all general intangibles; all corporate and other business records;
all loans, royalties, and other obligations receivable; all inventions, designs,
trade secrets, computer programs, software, printouts and other computer
materials, goodwill, registrations, copyrights, licenses, franchises, customer
lists, credit files, correspondence, and advertising materials; all customer and
supplier contracts, firm sale orders, rights under license and franchise
agreements (including all license agreements with any other Person in connection
with any of the Trademarks or such other Person's names or marks, whether such
Grantor is a licensor or licensee under any such license agreement), and other
contracts and contract rights; all interests in partnerships and joint ventures;
all tax refunds and tax refund claims; all right, title and interest under
leases, subleases, licenses and concessions and other agreements relating to
real or personal property; all payments due or made to each of the Grantors in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any property by any person or governmental authority; all deposit
accounts (general or special) with any bank or other financial institution; all
credits with and other claims against carriers and shippers; all rights to
indemnification; all reversionary interests in pension and profit sharing plans
and reversionary, beneficial and residual interest in trusts; all proceeds of
insurance of which each of the Grantors is beneficiary; and all letters of
credit, guaranties, liens, security interest and other security held by or
granted to each of the Grantors; and all other intangible property, whether or
not similar to the foregoing (collectively, the "General Intangibles"); <PAGE>
(f) all chattel paper, all instruments, all notes and debt instruments and
all payments thereunder and instruments and other property from time to time
delivered in respect thereof or in exchange therefor, and all bills of lading,
warehouse receipts and other documents of title and documents, in each instance
whether now owned or hereafter acquired by each of the Grantors;
(g) all property or interests in property now or hereafter acquired by each
of the Grantors which may be owned or hereafter may come into the possession,
custody or control of the Agent or any agent or affiliate of the Agent in any
way or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise), and all rights and interests of each of
the Grantors, now existing or hereafter arising and however and wherever
arising, in respect of any and all (i) notes, drafts, letters of credits,
stocks, bonds, and debt and equity securities, whether or not certificated, and
warrants, options, puts and calls and other rights to acquire or otherwise
relating to the same; (ii) money (including all cash and cash equivalents held
in the Letter of Credit Account (as defined and referred to in the Credit
Agreement)); (iii) proceeds of loans, including, without limitation, Loans made
under the Credit Agreement; and (iv) insurance proceeds and books and records
relating to any of the property covered by this Agreement; together, in each
instance, with all accessions and additions thereto, substitutions therefor, and
replacements, proceeds and products thereof;
(h) all trademarks, trade names, trade styles, service marks, prints and
labels on which said trademarks, trade names, trade styles and service marks
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, and all registrations and recordings
thereof, including, without limitation, applications, registrations and
recordings in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof, or any other country
or political subdivision thereof, all whether now owned or hereafter acquired by
each of the Grantors, including, but not limited to, those described in Schedule
3 annexed hereto and made a part hereof, and all reissues, extensions or
renewals thereof and all licenses thereof together, in each case, with the
goodwill of the business connected with the use of, and symbolized by each such
trademark, service mark, trade name and trade style (all of the foregoing being
herein referred to as the "Trademarks"); <PAGE>
(i) all letters patent of the United States or any other country, and all
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, all
whether now owned or hereafter acquired by each of the Grantors, including, but
not limited to, those described in Schedule 4 annexed hereto and made apart
hereof, and (ii) all reissues, continuations, continuations-in-part or
extensions thereof and all licenses thereof (all of the foregoing being herein
referred to as the "Patents");
(j) all copyrights of the United States, or any other country, and all
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any State thereof, or
any other country or political subdivision thereof, all whether now owned or
hereafter acquired by each of the Grantors, including, but not limited to, those
described in Schedule 5 hereto and all renewals and extensions thereof and all
licenses thereof (all of the foregoing being herein referred to as the
"Copyrights");
(k) all books, records, ledger cards and other property at any time
evidencing or relating to the Accounts, Equipment, General Intangibles,
Trademarks, Patents or Copyrights;
(l) (i) all the shares of capital stock owned by each Grantor, as
applicable, listed on Part I of Schedule 6 hereto of the issuers listed thereon
(individually, an "Issuer", and collectively, the "Issuers") and all shares of
capital stock of any Issuer obtained in the future by such Grantor and the
certificates representing or evidencing all such shares (the "Pledged Shares");
(ii) all other property which may be delivered to and held by the Agent in
respect of the Pledged Shares pursuant to the terms hereof; (iii) subject to
Section 9 below, all dividends, cash, instruments and other property from time
to time received, receivable or otherwise distributed, in respect of, in
exchange for or upon the conversion of the securities referred to in clauses (i)
and (ii) above; and (iv) subject to Section 9 below, all rights and privileges
of each Grantor, as applicable, with respect to the securities and other
property referred to in clauses (i), (ii) and (iii)(the items referred to in
clauses (i) through (iv) being collectively referred to as the "Pledged
Collateral");
(m) all other personal property of each of the Grantors, whether tangible
or intangible, and whether now owned or hereafter acquired; and
(n) all proceeds and products of any of the foregoing, in any form,
including, without limitation, any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
As used herein, the term "Permitted Senior Liens" shall mean (i) valid and
perfected Liens existing on the Filing Date, including Liens perfected
thereafter pursuant to Section 362(b)(18) of the Bankruptcy Code but excluding
Liens granted pursuant to the Existing Agreements or Liens in favor of certain
of the Grantors' pre-petition vendors set forth on Schedule 3.6 to the Credit
Agreement, (ii) the Carve-Out and (iii) payments under Section 6.7(iii) of the
Credit Agreement. The Collateral shall not include goods consigned to any
Grantor. <PAGE>
SECTION 2. Security for Obligations. This Agreement and the Collateral
secure the payment of all obligations of each of the Grantors, now or hereafter
existing, under the Credit Agreement, in each case, which are being "primed"
pursuant to the terms of the Credit Agreement and the Order the Notes and the
other Loan Documents, whether for principal, interest, fees, expenses or
otherwise, and all obligations of each of the Grantors now or hereafter existing
under or in respect of this Agreement (all such obligations of the Grantor being
herein called the "Obligations").
SECTION 3. Delivery of Pledged Collateral; Other Action. The Grantors shall
deliver all certificates or instruments representing or evidencing the Pledged
Collateral to the Agent pursuant hereto and shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Agent. Upon the occurrence and during the
continuance of any Event of Default, the Agent shall have the right (for the
ratable benefit of the Banks), at any time in its discretion and without notice
to the Grantors, to transfer to or to register in the name of the Agent or any
of its nominees any or all of the Pledged Collateral. To the extent that the
certificates or instruments representing or evidencing the Pledged Collateral
have heretofore been delivered in pledge pursuant to the Existing Agreements,
each of the Pledgors hereby agree and acknowledge that the Pledged Collateral is
now being held in pledge by the Agent pursuant to this Agreement as security for
the Obligations, subject to the terms of the Order.
SECTION 4. Representations and Warranties. Each Grantor, jointly and
severally, represents and warrants as follows:
(a) All of the Inventory and/or Equipment is located at the places
specified in Schedule 1 hereto. The chief places of business and chief executive
offices of each of the Grantors and the offices where each Grantor keeps its
records concerning any Accounts and all originals of all chattel paper which
evidence any Account are located at the places specified in Schedule 2 hereto.
All trade names under which each of the Grantors have sold and will sell
Inventory are listed on Schedule 3 hereto.
(b) Each of the Grantors owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement and except as permitted under Section 6.1 of the
Credit Agreement and except as described on Schedule 6. No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except (x) such as may have been
filed in favor of the Agent relating to this Agreement and (y) in favor of any
holder of a Lien permitted under Section 6.1 of the Credit Agreement.
(c) As of the Filing Date, no Grantor owns any material Trademarks, Patents
or Copyrights or has any material Trademarks, Patents or Copyrights registered
in, or the subject of pending applications in, the United States Patent and
Trademark Office or any similar office or agency in any other country or any
political subdivision thereof, other than those described in Schedules 3, 4 and
5 hereto. The registrations for the Collateral disclosed on such Schedules 3, 4
and 5 hereto are valid and subsisting and in full force and effect. None of the
material Patents or Copyrights have been abandoned or dedicated.
<PAGE>
(d) The Pledged Shares have been duly authorized and validly issued and are
fully paid and non-assessable.
(e) Each Grantor, as the case may be, is the legal and beneficial owner of
the Pledged Collateral described on Schedule 6 free and clear of any lien,
security interest, option or other charge or encumbrance, except for the
security interest created by this Agreement and the Orders and except as
disclosed on Schedule 6.
(f) Except as disclosed on Schedule 6, the Pledged Shares described in
Section 1(l) hereof constitute all of the issued and outstanding shares of stock
of each of the Issuers and no Issuer is under any contractual obligation to
issue any additional shares of stock or any other securities, rights or
indebtedness.
(g) Except for the Order, no authorization, approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either (i) for the grant and pledge by each of the Grantors of the
security interests granted hereby or for the execution, delivery or performance
of this Agreement by each of the Grantors or (ii) for the perfection of the
security interests or the exercise by the Agent of its rights and remedies
hereunder.
SECTION 5. Further Assurances.
(a) Each of the Grantors agrees that from time to time, at the expense of
the Grantors, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary, or that the Agent
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Agent to exercise and
enforce any of its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, and without further order of
the Bankruptcy Court, each of the Grantors will execute and file such financing
or continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary, or as the Agent may reasonably request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby.
(b) Each grantor hereby authorizes the Agent to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of such Grantor where permitted by law.
(c) Each Grantor will furnish to the Agent from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Agent may reasonably request,
all in reasonable detail. <PAGE>
SECTION 6. As to Equipment and Inventory. Each Grantor shall:
(a) Keep the Equipment and Inventory (other than Inventory sold in the
ordinary course of business) at the places specified therefor in Schedule 1
hereto or, upon 30 days' prior written notice to the Agent, at other places in
jurisdictions where all action required by Section 5 shall have been taken to
assure the continuation of the perfection of the security interest of the Agent
(for its benefit and the ratable benefit of the Banks) with respect to the
Equipment and Inventory.
(b) Maintain or cause to be maintained in good repair, working order and
condition, excepting ordinary wear and tear and damage due to casualty, all of
the Equipment, and make or cause to be made all appropriate repairs, renewals
and replacements thereof, to the extent not obsolete and consistent with past
practice of such Grantor, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or reasonably desirable to such end,
except where the failure to do any of the foregoing would not result in a
material adverse effect on the assets, properties or condition (financial or
otherwise) of the Grantors, taken as a whole.
(c) Until satisfaction in full of the Obligations, at any time when an
Event of Default has occurred and is continuing: (i) each Grantor will perform
any and all reasonable actions requested by the Agent to enforce the Agent's
security interest in the Inventory and all of the Agent's rights hereunder, such
as leasing warehouses to the Agent or its designee, placing and maintaining
signs, appointing custodians, transferring Inventory to warehouses, and
delivering to the Agent warehouse receipts and documents of title in the Agent's
name; (ii) if any Inventory is in the possession or control of any of the
Grantors' agents, contractors or processors or any other third party, each such
Grantor will notify the Agent thereof and will notify such agents, contractors
or processors or third party of the Agent's security interest therein and, upon
request, instruct them to hold all such Inventory for the Agent and such
Grantor's account, as their interests may appear, and subject to the Agent's
instructions; (iii) the Agent shall have the right to hold all Inventory subject
to the security interest granted hereunder; and (iv) the Agent shall have the
right to take possession of the Inventory or any part thereof and to maintain
such possession on such Grantor's premises or to remove any or all of the
Inventory to such other place or places as the Agent desires in its sole
discretion. If the Agent exercises its right to take possession of the
Inventory, such Grantor, upon the Agent's demand, will assemble the Inventory
and make it available to the Agent at such Grantor's premises at which it is
located.
SECTION 7. As to Accounts.
(a) Each Grantor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts, and
the offices where it keeps all originals of all chattel paper which evidence
Accounts, at the location therefor specified in Section 4(a) or, upon 30 days'
prior written notice to the Agent, at such other locations in a jurisdiction
where all actions required by Section 5 shall have been taken with respect to
the Accounts. Each Grantor will hold and preserve such records and chattel paper
and will permit representatives of the Agent, at any time during normal business
hours, to inspect and make abstracts from such records and chattel paper in
accordance with Section 5.7 of the Credit Agreement. <PAGE>
(b) Except as otherwise provided in this subsection (b), each Grantor shall
continue to collect in accordance with its customary practice, at its own
expense, all amounts due or to become due to such Grantor under the Accounts
and, prior to the occurrence of an Event of Default, such Grantor shall have the
right to adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon, all in accordance with its customary practices. In
connection with such collections, the Grantors may, upon the occurrence and
during the continuation of an Event of Default, take (and at the direction of
the Agent shall take) such action as the Grantors or the Agent may reasonably
deem necessary or advisable to enforce collection of the Accounts; provided,
that upon written notice by the Agent to any Grantor, following the occurrence
and during the continuation of an Event of Default, of its intention so to do,
the Agent shall have the right to notify the account debtors or obligors under
any Accounts of the assignment of such Accounts to the Agent and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to such Grantor thereunder directly to the Agent and, upon such notification and
at the expense of such Grantor, to enforce collection of any such Accounts, and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as such Grantor might have done. After receipt by
such Grantor of the notice referred to in the proviso to the preceding sentence,
(i) all amounts and proceeds (including instruments) received by such Grantor in
respect of the Accounts shall be received in trust for the benefit of the Agent
(for the ratable benefit of the Banks) hereunder, shall be segregated from other
funds of the Grantors and shall be forthwith paid over to the Agent in the same
form as so received (with any necessary endorsement) to be held as cash
collateral and either (A) released to the Grantors if such Event of Default
shall have been cured or waived or (B) if such Event of Default shall be
continuing, applied as provided by Section 15, and (ii) the Grantors shall not
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
SECTION 8. As to Trademarks, Patents and Copyrights.
(a) Each Grantor shall, either itself or through licensees, continue to use
the Trademarks as each is currently used in the Grantor's business in order to
maintain the Trademarks in full force free from any claim of abandonment for
nonuse and each such Grantor will not (and will not permit any licensee thereof
to) do any act or knowingly omit to do any act whereby any Trademark may become
invalidated, unless such failure to use a Trademark is not reasonably likely to
have a material adverse effect on the condition (financial or otherwise),
operation or properties of the Grantors taken as a whole.
(b) No Grantor will do any act, or omit to do any act, whereby the Patents
or Copyrights may become abandoned or dedicated and each such Grantor shall
notify the Agent immediately if it knows of any reason or has reason to know
that any application or registration may become abandoned or dedicated, unless
such abandonment or dedication is not reasonably likely to have a material
adverse effect on the condition (financial or otherwise), operations or
properties of the Grantors taken as a whole. <PAGE>
(c) No Grantor will, either itself or through any agent, employee, licensee
or designee, (i) file an application for the registration of any Patent or
Trademark with the United States Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision thereof or
(ii) file any assignment of any patent or trademark, which such Grantor may
acquire from a third party, with the United States Patent and Trademark Office
or any similar office or agency in any other country or any political
subdivision thereof, unless such Grantor shall, within 30 days after the date of
such filing, notify the Agent thereof, and, upon request of the Agent, execute
and deliver any and all assignments, agreements, instruments, documents and
papers as the Agent may request to evidence the Agent's interest in such Patent
or Trademark and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby, and such Grantor hereby constitutes the Agent
its attorney-in-fact to execute and file all such writings for the foregoing
purposes, all lawful acts of such attorney being hereby ratified and confirmed;
such power being coupled with an interest is irrevocable until the Obligations
are paid in full.
(d) Each Grantor will take all necessary steps in any proceeding before the
United States Patent and Trademark Office, the United States Copyright Office or
any similar office or agency in any other country or any political subdivision
thereof, to maintain each application and registration of all material
Trademarks, Patents and Copyrights, including, without limitation, filing of
renewals, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings.
(e) Each Grantor will, without further order of the Bankruptcy Court,
perform all acts and execute and deliver all further instruments and documents,
including, without limitation, assignments for security in form suitable for
filing with the United States Patent and Trademark Office, and the United States
Copyright Office, respectively, reasonably requested by the Agent at any time to
evidence, perfect, maintain, record and enforce the Agent's interest in all
material Trademarks, Patents and Copyrights or otherwise in furtherance of the
provisions of this Agreement, and each Grantor hereby authorizes the Agent to
execute and file one or more accurate financing statements (and similar
documents) or copies thereof or of this Security Agreement with respect to
material Patents, Trademarks and Copyrights signed only by the Agent.
(f) Each Grantor will, upon acquiring knowledge of any use by any person of
any term or design likely to cause confusion with any material Trademark,
promptly notify the Agent of such use, and if requested by the Agent, shall join
with the Agent, at such Grantor's expense, in such action as the Agent, in its
reasonable discretion, may deem advisable for the protection of the Agent's
interest in and to the Trademarks.
SECTION 9. As to the Pledged Collateral; Voting Rights; Dividends; Etc. (a)
So long as no Event of Default shall have occurred and be continuing:SECTION 9.
As to the Pledged Collateral; Voting Rights; Dividends; Etc. (a) So long as no
Event of Default shall have occurred and be continuing\:
(i) the Grantors (as applicable) shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Collateral or any
part thereof for any purpose not inconsistent with the terms of this Agreement
provided, that such Grantors shall not exercise or shall refrain from exercising
any such right if, in the Agent's reasonable judgment, such action would result
in a breach of the Credit Agreement;
(ii) notwithstanding the provisions of Section 1 hereof, such Grantors
shall be entitled to receive and retain any and all dividends paid in respect of
the Pledged Shares ; provided, that any and all <PAGE>
(A) dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Shares, and
(B) dividends and other distributions paid or payable in cash in respect of
any Pledged Shares in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of principal of,
or in redemption of, or in exchange for, any Pledged Shares;
shall be, and shall be forthwith delivered to the Agent to hold as, Pledged
Collateral and shall, if received by any of the Grantors, be received in trust
for the benefit of the Agent, be segregated from the other property or funds of
such Grantor, and be forthwith delivered to the Agent as Pledged Collateral in
the same form as so received (with any necessary endorsement); and
(iii) the Agent shall execute and deliver (or cause to be executed and
delivered) to the Grantors (as applicable) all such proxies and other
instruments as the Grantors (as applicable) may reasonably request for the
purpose of enabling such Grantor to exercise the voting and other rights which
it is entitled to exercise pursuant to paragraph (i) above and to receive the
dividends which it is authorized to receive and retain pursuant to paragraph
(ii) above;
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) upon written notice from the Agent to the Grantors (as applicable) to
such effect, all rights of such Grantors (as applicable) to exercise the voting
and other consensual rights which it would otherwise be entitled to exercise
pursuant to Section 9(a)(i) and to receive the dividends which it would
otherwise be authorized to receive and retain pursuant to Section 9(a)(ii) shall
cease, and all such rights shall thereupon become vested in the Agent, who shall
thereupon have the sole right to exercise such voting and other consensual
rights and to receive and hold as Pledged Collateral any such dividends; and
(ii) all dividends which are received by such Grantors contrary to the
provisions of paragraph (i) of this Section 9(b) shall be received in trust for
the benefit of the Agent, shall be segregated from other funds of the Grantors
and shall be forthwith paid over to the Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement). <PAGE>
SECTION 10. Insurance. Each Grantor shall, at its own expense, maintain
insurance with respect to the Inventory and Equipment in such amounts, against
such risks, in such form and with such insurers, as is provided for in Section
5.3 of the Credit Agreement. Following an Event of Default and during its
continuance, each Grantor shall, at the request of the Agent, duly execute and
deliver instruments of assignment of such insurance policies and cause the
respective insurers to acknowledge notice of such assignment.
Upon the occurrence and during the continuance of any Event of Default, all
insurance payments in respect of such Inventory and Equipment shall be held,
applied and paid to the Agent as specified in Section 15 hereof.
SECTION 11. Transfers to Others; Liens; Additional Shares. Each Grantor
shall not:
(a) Sell, assign (by operation of law or otherwise) or otherwise dispose of
any of the Collateral, except for dispositions otherwise permitted by the Credit
Agreement.
(b) Create or suffer to exist any lien, security interest or other charge
or encumbrance upon or with respect to any of the Collateral to secure any
obligation of any person or entity, except for the security interest created by
this Agreement and the Order, or except as otherwise permitted by the Credit
Agreement.
(c) Each of the Grantors (as applicable) agrees that it will (i) cause each
of the Issuers that are wholly-owned Subsidiaries not to issue any stock or
other securities in addition to or substitution for the Pledged Shares issued by
such Issuer, except to the respective Grantor and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
such additional shares of stock or other securities of each Issuer of the
Pledged Shares.
SECTION 12. Agent Appointed Attorney-in-Fact. Each Grantor hereby
irrevocably appoints the Agent such Grantor's attorney-in-fact (which
appointment shall be irrevocable and deemed coupled with an interest), with full
authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from time to time in the Agent's discretion, upon and during the
occurrence and continuation of an Event of Default, to take any action and to
execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(i) to obtain and adjust insurance required to be paid to the Agent
pursuant to Section 10,
(ii) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral,
(iii) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (i) or (ii) above,
(iv) to receive, endorse and collect all instruments made payable to the
Grantors representing any dividend or other distribution in respect of the
Pledged Collateral or any part thereof and to give full discharge for the same,
and
(v) to file any claims or take any action or institute any proceedings
which the Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Agent with respect to any
of the Collateral.
<PAGE>
SECTION 13. Agent May Perform. If any Grantor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Grantors under Section 16(b).
SECTION 14. The Agent's Duties. The powers conferred on the Agent hereunder
are solely to protect its interest and the interests of the Banks in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral,
including, without limitation, ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters.
SECTION 15. Remedies. If any Event of Default shall have occurred and be
continuing, and subject to the provisions of Section 7 of the Credit Agreement:
(a) The Agent may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, and
without application to or order of the Bankruptcy Court, all the rights and
remedies of a secured party on default under the Uniform Commercial Code and
also may (i) require each Grantor to, and each Grantor hereby agrees that it
will at its expense and upon request of the Agent forthwith, assemble all or
part of the Collateral as directed by the Agent and make it available to the
Agent at a place to be designated by the Agent which is reasonably convenient to
both parties and (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the Agent may
deem commercially reasonable. Each Grantor agrees that, to the extent notice of
such sale shall be required by law, at least ten days' notice to the Grantors of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(b) The Agent may instruct the Grantors not to make any further use of the
Patents, Copyrights or Trademarks or any mark similar thereto for any purpose.
(c) The Agent may license, whether general, special or otherwise, and
whether on an exclusive or nonexclusive basis, any of the Trademarks, Patents or
Copyrights throughout the world for such term or terms, on such conditions, and
in such manner, as the Agent shall in its sole discretion determine.
<PAGE>
(d) The Agent may (without assuming any obligations or liability
thereunder), at any time, enforce (and shall have the exclusive right to
enforce) against any licensee or sublicensee all rights and remedies of the
Grantors in, to and under any one or more license agreements with respect to the
Collateral, and take or refrain from taking any action under any thereof, and
each of the Grantors hereby releases the Agent from, and agrees to hold the
Agent free and harmless from and against any claims arising out of, any action
taken or omitted to be taken with respect to any such license agreement.
(e) In the event of any such license, assignment, sale or other disposition
of the Collateral, or any of it, each Grantor shall supply its know-how and
expertise relating to the manufacture and sale of the products bearing or in
connection with the Trademarks, Patents or Copyrights, and its customer lists
and other records relating to the Trademarks, Patents or Copyrights and to the
distribution of said products, to the Agent or its designee.
(f) In order to implement the assignment, sale or other disposal of any of
the Trademarks, Patents or Copyrights, the Agent may, at any time, pursuant to
the authority granted in Section 12 hereof, execute and deliver on behalf of the
Grantors, one or more instruments of assignment of the Trademarks, Patents or
Copyrights (or any application of registration thereof), in form suitable for
filing, recording or registration in any country.
(g) All cash proceeds received by the Agent in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Agent, be held by the Agent as collateral for, and
then or at any time thereafter applied (after payment of any amounts payable to
the Agent pursuant to Section 16) in whole or in part against, all or any part
of the Obligations in such order as the Agent shall elect. Any surplus of such
cash or cash proceeds held by the Agent and remaining after payment in full of
all the Obligations shall be paid over to the Grantors or to whomsoever may be
lawfully entitled to receive such surplus.
(h) If at any time when the Agent shall determine to exercise its right to
sell all or any part of the Pledged Collateral pursuant to this Section 15, such
Pledged Collateral or the part thereof to be sold shall not be effectively
registered under the Securities Act of 1933, as amended, and as from time to
time in effect, and the rules and regulations thereunder (the "Securities Act"),
the Agent is hereby expressly authorized to sell such Pledged Collateral or such
part thereof by private sale in such manner and under such circumstances as the
Agent may deem necessary or advisable in order that such sale may legally be
effected without such registration. Without limiting the generality of the
foregoing, in any such event the Agent, in compliance with applicable securities
laws, (a) to the extent permitted by applicable law, may proceed to make such
private sale notwithstanding that a registration statement for the purpose of
registering such Pledged Collateral or such part thereof shall have been filed
under such Securities Act, (b) may approach and negotiate with a restricted
number of potential purchasers to effect such sale and (c) may restrict such
sale to purchasers as to their number, nature of business and investment
intention including without limitation to purchasers each of whom will represent
and agree to the satisfaction of the Agent that such purchaser is purchasing for
its own account, for investment, and not with a view to the distribution or sale
of such Pledged Collateral, or part thereof, it being understood that the Agent
may cause or require each Grantor, and each Grantor hereby agrees upon the
written request of the Agent, to cause (i) a legend or legends to be placed on
the certificates to be delivered to such purchasers to the effect that the
Pledged Collateral represented thereby have not been registered under the
Securities Act and setting forth or referring to restrictions on the
transferability of such securities; and (ii) the issuance of stop transfer
instructions to such Issuer's transfer agent, if any, with respect to the
Pledged Collateral, or, if such Issuer transfers its own securities, a notation
in the appropriate records of such Issuer. In the event of any such sale, each
Grantor does hereby consent and agree that the Agent shall incur no
responsibility or liability for selling all or any part of the Pledged
Collateral at a price which the Agent may deem reasonable under the
circumstances, notwithstanding the possibility that a substantially higher price
might be realized if the sale were public and deferred until after registration
as aforesaid. <PAGE>
SECTION 16. Indemnity and Expenses.
(a) Each Grantor, jointly and severally, agrees to indemnify the Agent from
and against any and all claims, losses and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities directly arising from the
Agent's own gross negligence, willful misconduct or bad faith.
(b) The Grantors will upon demand pay to the Agent the amount of any and
all reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which the Agent may incur in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation 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 hereunder or (iv) the failure by any of the Grantors to perform or
observe any of the provisions hereof.
(c) The Grantors assume all responsibility and liability arising from the
use of the Trademarks, Patents and Copyrights, and the Grantors hereby, jointly
and severally, indemnify and hold the Agent harmless from and against any claim,
suit, loss, damage or expense (including reasonable attorneys' fees) arising out
of any alleged defect in any product manufactured, promoted or sold by any of
the Grantors in connection with any Trademark or out of the manufacture,
promotion, labeling, sale or advertisement of any such product by any of the
Grantors except as the same may have resulted from the gross negligence, willful
misconduct or bad faith of the Agent.
(d) Each of the Grantors agree that the Agent does not assume, and shall
have no responsibility for, the payment of any sums due or to become due under
any agreement or contract included in the Collateral or the performance of any
obligations to be performed under or with respect to any such agreement or
contract by any of the Grantors, and except as the same may have resulted from
the gross negligence or willful misconduct of the Agent, each of the Grantors
hereby jointly and severally agree to indemnify and hold the Agent harmless with
respect to any and all claims by any person relating thereto.
SECTION 17. Security Interest Absolute. All rights of the Agent and
security interests hereunder, and all obligations of each of the Grantors
hereunder, shall be absolute and unconditional, irrespective of any circumstance
which might constitute a defense available to, or a discharge of, any guarantor
or other obligor in respect of the Obligations.
SECTION 18. Amendments; Etc. No amendment or waiver of any provision of
this Agreement, nor any consent to any departure by any of the Grantors
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the party against whom enforcement is sought, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
<PAGE>
SECTION 19. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and shall be given in accordance with
the applicable provisions of the Credit Agreement.
SECTION 20. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until payment in full of the Obligations, (ii) be binding upon
each of the Grantors, their successors and assigns and (iii) inure, together
with the rights and remedies of the Agent hereunder, to the benefit of the Agent
and each of the Banks and their respective successors, transferees and assigns.
Upon the payment in full of the Obligations, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantors subject to any existing liens, security interests or encumbrances on
such Collateral. Upon any such termination, the Agent will, at the Grantor's
expense, execute and deliver to the Grantors such documents as the Grantors
shall reasonably request to evidence such termination.
SECTION 21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, 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 New York and by Federal law (including,
without limitation, the Bankruptcy Code) to the extent the same has pre-empted
the law of the State of New York or such other jurisdiction.
SECTION 22. Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
<PAGE>
IN WITNESS WHEREOF, each of the Grantors and the Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
GRANTORS:
ALLIANCE ENTERTAINMENT CORP.
CONCORD RECORDS, INC.
INDEPENDENT NATIONAL DISTRIBUTORS, INC.
AEC ONE STOP GROUP, INC.
PASSPORT MUSIC DISTRIBUTION, INC.
FL ACQUISITION CORP.
ALLIANCE VENTURES, INC.
EXECUSOFT, INC.
AEC ACQUISITION CORP.
CASTLE COMMUNICATIONS (U.S.), INC.
PASSPORT MUSIC WORLDWIDE, INC.
AEC AMERICAS, INC.
A.E. LAND CORP.
ONE WAY RECORDS, INC.
MATRIX SOFTWARE, INC.
By:
-------------------------------
Title: Vice President
of each of the foregoing
RED ANT BOX, INC.*
RED ANT HOLDINGS, INC.*
BLACK ANT MUSIC, INC.*
ARMY ANT MUSIC, INC.*
VELVET ANT MUSIC, INC.*
RED ANT MUSIC, INC.*
By:
-------------------------------
Title: Chief Executive Officer
of each of the foregoing
RED ANT LLC*
By: Red Ant Box, Inc., its managing
member
By:
-------------------------------
Title: Chief Executive Officer
THE CHASE MANHATTAN BANK,
as Agent
By:
-----------------------------
Title:
270 Park Avenue
New York, New York 10017
July 23, 1997
THE CHASE MANHATTAN BANK
270 Park Avenue
New York, New York 10017-2070
July 23, 1997
Alliance Entertainment Corp.
110 East 59th Street, 18th Floor
New York, New York 10022
Attention: Chief Financial Officer
Letter Agreement
Gentlemen:
This has reference to (i) the Revolving Credit and Guaranty Agreement dated
as of July 17, 1997 (the "Agreement") among Alliance Entertainment Corp. as
Borrower, the Guarantors named therein who are parties thereto as of the date
hereof and The Chase Manhattan Bank, as Agent and as Bank and (ii) the Security
and Pledge Agreement referred to therein. All terms used herein that are defined
in the Agreement shall have the same meanings herein.
The Borrower has advised that it is not, at the present time, intending to
cause the Red Ant Entities to commence Chapter 11 proceedings and that it
desires to make intercompany advances to such entities using the proceeds of
certain Loans in an aggregate amount not to exceed $1,250,000. The Agent and the
Banks have agreed to permit such financing on the condition each of the Red Ant
Entities become party to the Agreement and the Security and Pledge Agreement.
In connection with the foregoing, the Borrower has requested that certain
provisions of the Agreement be modified as set forth herein. Accordingly, the
Borrower, the Guarantors, the Agent and the Bank hereby agree as follows:
(i) Section 3.5 is hereby amended by deleting the parenthetical appearing
therein in its entirety and by inserting in lieu thereof the following:
"(other than in the case of the Foreign Subsidiaries and the Red Ant
Entities)";
(ii) Notwithstanding the provisions of Sections 5.2, 6.2 and 6.10 of the
Agreement, the Borrower shall be permitted to sell the assets or stock of the
Red Ant Entities in accordance with the provision of Section 6.12(ii) of the
Agreement;
(iii) Section 5.9 is hereby amended by adding the parenthetical "(other
than the Red Ant Entities)" after the defined term "Guarantor" in each instance
where such defined term appears; <PAGE>
(iv) Section 6.11 of the Agreement is hereby amended by deleting clause
(vi) in its entirety and by inserting in lieu thereof the following:
"(vi) advances to the Red Ant Entities (whether or not the Red Ant Entities
shall have filed petitions under Chapter 11 of the Bankruptcy Code) during the
period (the "Period") commencing on the date of this Amendment Letter and ending
thirty (30) days thereafter in an amount not to exceed the amounts set forth in
the cash flow budget for the Red Ant Entities previously delivered to the Agent,
or in an aggregate amount not to exceed $1,250,000."
(v) Schedule 3.5 to the Credit Agreement and Schedules 1, 3, 5 and 6 to the
Security and Pledge Agreement are hereby amended in their entirety in the form
of Exhibit A and Exhibit B hereto, respectively.
(vi) By their execution hereof, each of the Red Ant Entities shall become
party to the Agreement and the Pledge and Security Agreement upon the
effectiveness of this Letter Agreement.
Notwithstanding anything to the contrary in Section 5.14 of the Agreement
or elsewhere, upon their execution hereof the Red Ant Entities shall be deemed
to be Guarantors under the Agreement for all purposes under the Agreement and
under all other Documents.
This Letter Agreement shall not become effective until (i) the Agent shall
have received counterparts hereof executed by the Agent, the Bank, the Borrower
and the Guarantors, (ii) the Bankruptcy Court shall have approved the terms of
this Letter Agreement by entry of an order satisfactory in form and substance to
the Agent in its sole discretion,(iii) the Agent shall have received the
Borrower's budget for the Red Ant Entities for the Period and such budget shall
be satisfactory in form and substance to the Agent in its sole discretion and
(iv) the Agent shall have received evidence satisfactory to it that the Red Ant
Entities shall have satisfied each of the conditions precedent set forth in
Section 4.1 of the Agreement applicable to it (other than the entry of the
Interim Order or any other order of the Bankruptcy Court).
This Letter Agreement shall be limited precisely as written and shall not
be deemed to be a consent granted pursuant to, or a waiver or modification of,
any other term or condition of the Agreement or any of the instruments or
agreements referred to therein or to prejudice any right or rights which the
Agent or the Bank may now have or may have in the future under or in connection
with the Agreement or any of the instruments or agreements referred to therein.
This Letter Agreement may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
when taken together shall constitute but one and the same letter.
<PAGE>
This Letter Agreement shall be construed in accordance with and governed by
the laws of the State of New York.
Very truly yours,
THE CHASE MANHATTAN BANK,
Individually and as Agent
By:
---------------------------
Title:
AGREED AND ACCEPTED:
ALLIANCE ENTERTAINMENT CORP.
By:
----------------------
Title:
GUARANTORS:
CONCORD RECORDS, INC.
INDEPENDENT NATIONAL DISTRIBUTORS, INC.
AEC ONE STOP GROUP, INC.
PASSPORT MUSIC DISTRIBUTION, INC.
FL ACQUISITION CORP.
ALLIANCE VENTURES, INC.
EXECUSOFT, INC.
AEC ACQUISITION CORP.
CASTLE COMMUNICATIONS (U.S.), INC.
PASSPORT MUSIC WORLDWIDE, INC.
AEC AMERICAS, INC.
AE LAND CORP.
ONE WAY RECORDS, INC.
MATRIX SOFTWARE, INC.
By:
-----------------------------
Title:
RED ANT BOX, INC.
RED ANT HOLDINGS, INC.
BLACK ANT MUSIC, INC.
ARMY ANT MUSIC, INC.
VELVET ANT MUSIC, INC.
By:
-------------------------
Title:
RED ANT LLC
By: Red Ant Box, Inc., its managing member
By:
--------------------------
Title:
SECOND AMENDMENT TO REVOLVING CREDIT AND GUARANTY AGREEMENT
SECOND AMENDMENT, dated as of July 25, 1997 (the "Amendment"), to the
REVOLVING CREDIT AND GUARANTY AGREEMENT dated as of July 17, 1997 among ALLIANCE
ENTERTAINMENT CORP., a Delaware corporation (the "Borrower"), as a debtor and
debtor-in-possession under Chapter 11 of the Bankruptcy Code, the Guarantors
named therein (the "Guarantors"), as debtors and debtors-in-possession under
Chapter 11 of the Bankruptcy Code, THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), each of the other financial institutions party thereto
(together with Chase, the "Banks") and THE CHASE MANHATTAN BANK, as
administrative and collateral agent for the Banks (in such capacity, the
"Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, Chase and the Agent are parties to
that certain Revolving Credit and Guaranty Agreement, dated as of July 17, 1996,
as amended by that certain Letter Agreement, dated July 23, 1997 (and as the
same may be further amended, modified or supplemented from time to time, the
"Credit Agreement"); and
WHEREAS, Section 10.3(b) of the Credit Agreement provides that each Bank
may assign to one or more Eligible Assignees all or a portion of its interests,
rights and obligations under the Credit Agreement (including, without
limitation, all or a portion of its Commitment and the same portion of the
related Loans at the time owing to it) by executing and delivering with such
Eligible Assignee an Assignment and Acceptance in substantially the form of
Exhibit D to the Credit Agreement (a copy of which is annexed hereto as Schedule
I); and
WHEREAS, Chase wishes to assign to each of the financial institutions
(other than Chase) that is named on Annex A hereto (such financial institutions
other than Chase, collectively the "New Banks"), and each of the New Banks
wishes to assume, a pro rata portion of Chase's interests, rights and
obligations under the Credit Agreement; and
WHEREAS, the Borrower, the Guarantors, Chase, the New Banks and the Agent
have determined that the execution and delivery of this Amendment to effectuate
a reallocation of the Total Commitment among Chase and the New Banks will be
more expeditious and administratively efficient than the execution and delivery
of a separate Assignment and Acceptance between Chase and each of the New Banks;
and
WHEREAS, upon the occurrence of the Effective Date (as hereinafter defined)
of this Amendment, each of the New Banks shall become a party to the Credit
Agreement as a Bank and shall have the rights and obligations of a Bank
thereunder and the respective Commitment of Chase and each of the New Banks
under the Credit Agreement shall be in the amount set forth opposite its name on
Annex A hereto, as the same may be reduced from time to time pursuant to Section
2.10 of the Credit Agreement; <PAGE>
NOW, THEREFORE, it is agreed:
1. As used herein all terms that are defined in the Credit Agreement shall
have the same meanings herein.
2. Section 6.12 of the Credit Agreement is hereby amended by deleting the
words "in the exercise of its sole discretion" set forth in the last sentence of
the first paragraph thereof and inserting in lieu thereof the words ", such
consent not to be unreasonably withheld".
3. Annex A to the Credit Agreement is hereby replaced in its entirety by
Annex A hereto.
4. The signature pages of the Credit Agreement are hereby amended to
conform to the signature pages hereto.
5. By its execution and delivery hereof, Chase shall be deemed to have made
each of the statements set forth in clauses (i) and (ii) of paragraph 2 of the
Assignment and Acceptance as if such statements were fully set forth herein at
length.
6. By its execution and delivery hereof, each of the New Banks shall be
deemed to have made each of the statements set forth in clauses (i), (ii),
(iii), (iv) and (v) of paragraph 3 of the Assignment and Acceptance as if such
statements were fully set forth herein at length.
7. On the Effective Date, (i) each New Bank will pay to the Agent (for the
account of Chase) such amount as represents such New Bank's pro rata portion of
the aggregate principal amount of the Loans, if any, that are outstanding on the
Effective Date and such New Bank's pro rata portion of the aggregate amount of
the then unreimbursed drafts, if any, that were theretofore drawn under Letters
of Credit, and (ii) the Agent shall pay to each of the New Banks such fees as
have been previously agreed to between the Agent and such New Bank.
8. By its execution and delivery hereof, each of the New Banks (i) agrees
that any interest, Commitment Fees and Letter of Credit Fees (pursuant to
Sections 2.8, 2.20 and 2.21 of the Credit Agreement) that accrued prior to the
Effective Date shall not be payable to such New Bank and authorizes and directs
the Agent to deduct such amounts from any interest, Commitment Fees or Letter of
Credit Fees paid after the date hereof and to pay such amounts to Chase (it
being understood that interest, Commitment Fees and Letter of Credit Fees
respecting the Commitment of Chase and each New Bank which accrue on or after
the Effective Date shall be payable to such Bank in accordance with its
Commitment), (ii) acknowledges that if such New Bank is organized under the laws
of a jurisdiction outside of the United States, such New Bank has heretofore
furnished to the Agent the forms prescribed by the Internal Revenue Service of
the United States certifying as to such New Bank's exemption from United States
withholding taxes with respect to any payments to be made to such New Bank under
the Credit Agreement (or such other documents as are necessary to indicate that
all such payments are subject to such tax at a rate reduced by an applicable tax
treaty) and (iii) acknowledges that such New Bank has heretofore supplied to the
Agent the information requested on the administrative questionnaire which is
attached to the Assignment and Acceptance as Exhibit A. <PAGE>
9. This Amendment shall not become effective (the "Effective
Date") until (i) the date on which this Amendment shall have been executed by
the Borrower, the Guarantors, Chase, the New Banks and the Agent, and the Agent
shall have received evidence satisfactory to it of such execution and (ii) the
payments provided for in clauses (i) and (ii) of paragraph 6 hereof shall have
been made.
10. The Borrower agrees that its obligations set forth in
Section 10.5 of the Credit Agreement shall extend to the preparation, execution
and delivery of this Amendment.
11. This Amendment shall be limited precisely as written and
shall not be deemed (a) to be a consent granted pursuant to, or a waiver or
modification of, any other term or condition of the Credit Agreement or any of
the instruments or agreements referred to therein or (b) to prejudice any right
or rights which the Agent or the Banks may now have or have in the future under
or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein. Whenever the Credit Agreement is referred to in
the Credit Agreement or any of the instruments, agreements or other documents or
papers executed or delivered in connection therewith, such reference shall be
deemed to mean the Credit Agreement as modified by this Amendment.
12. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.
13. This Amendment shall in all respects be construed in
accordance with and governed by the laws of the State of New York applicable to
contracts made and to be performed wholly within such State.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and the year first above written.
ALLIANCE ENTERTAINMENT CORP.
By:
-----------------------------
Title:
GUARANTORS:
CONCORD RECORDS, INC.
INDEPENDENT NATIONAL DISTRIBUTORS, INC.
AEC ONE STOP GROUP, INC.
PASSPORT MUSIC DISTRIBUTION, INC.
FL ACQUISITION CORP.
ALLIANCE VENTURES, INC.
EXECUSOFT, INC.
AEC ACQUISITION CORP.
CASTLE COMMUNICATIONS (U.S.), INC.
PASSPORT MUSIC WORLDWIDE, INC.
AEC AMERICAS, INC.
AE LAND CORP.
ONE WAY RECORDS, INC.
MATRIX SOFTWARE, INC.
By:
-----------------------------
Title:
RED ANT BOX, INC.
RED ANT HOLDINGS, INC.
BLACK ANT MUSIC, INC.
ARMY ANT MUSIC, INC.
VELVET ANT MUSIC, INC.
By:
----------------------------
Title:
<PAGE>
RED ANT LLC
By:
---------------------------
Red Ant Box, Inc., its managing member
By:
-----------------------------
Title:
THE CHASE MANHATTAN BANK,
Individually and as Agent
By:
-----------------------------
Title:
270 Park Avenue
New York, New York 10017
Attn: Agnes Levy
NEW BANKS:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
-----------------------------
Title:
335 Madison Avenue, Fifth Floor
New York, New York 10017
Attn: Fred Zagar
THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------
Title:
One First National Plaza, Suite 0173
Chicago, Illinois 60607
Attn: Phil Martin
CARGILL FINANCIAL SERVICES CORP.
By:
-----------------------------
Title:
6000 Clearwater Drive
Minnetonka, Minnesota 55343
Attn: John Foley
<PAGE>
MERRILL LYNCH, PIERCE, FENNER & SMITH,
INCORPORATED
By:
-----------------------------
Title:
250 Vesey Street, 7th Floor
World Financial Center. North Tower
North Tower
New York, New York 10281
Attn: John Humphrey
FIRST SOURCE FINANCIAL, LLP
By:
-----------------------------
Title:
c/o First Source Financial
2858 West Golf Road, 5th Floor
Rolling Meadows, Illinois 60008
Attn: Maureen Ault
NATIONAL BANK OF CANADA
By:
-----------------------------
Title:
125 West 55th Street, 23rd Floor
New York, New York 10019
Attn: Gaetan Frosina
<PAGE>
ANNEX A TO
SECOND AMENDMENT
ANNEX A
to
REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of July 17, 1996, as amended
Commitment Commitment
Bank Amount Percentage
The Chase Manhattan Bank $12,375,000 24.75%
Bank of America National Trust $12,125,000 24.25%
and Savings Association
The First National Bank of Chicago $ 7,500,000 15.00%
Cargill Financial Services Corp. $ 7,250,000 14.50%
Merrill Lynch, Pierce, Fenner & $ 4,000,000 8.00%
Smith Incorporated
National Bank of Canada $ 3,750,000 7.50%
First Source Financial LLP $ 3,000,000 6.00%
- -------------------------- ----------- -----
Total $50,000,000 100.00%
=========== =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from consolidated
Balance Sheets as of June 30, 1997 and Consolidated Statements of Operations for
the Six Months Ended June 30, 1997 and is qualified in its entirety by reference
to such financial statements. </LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,537
<SECURITIES> 0
<RECEIVABLES> 111,521
<ALLOWANCES> 0
<INVENTORY> 122,926
<CURRENT-ASSETS> 268,578
<PP&E> 35,371
<DEPRECIATION> 0
<TOTAL-ASSETS> 487,675
<CURRENT-LIABILITIES> 303,577
<BONDS> 243,189
0
5
<COMMON> 4
<OTHER-SE> (60,533)
<TOTAL-LIABILITY-AND-EQUITY> 487,675
<SALES> 235,295
<TOTAL-REVENUES> 235,295
<CGS> 199,763
<TOTAL-COSTS> 199,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,367
<INCOME-PRETAX> (74,321)
<INCOME-TAX> 3,195
<INCOME-CONTINUING> (77,516)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,516)
<EPS-PRIMARY> (1.73)
<EPS-DILUTED> (1.73)
</TABLE>
