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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 30, 1998
MUZAK LIMITED PARTNERSHIP
MUZAK CAPITAL CORPORATION
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(Exact Name of Registrants as Specified in their Charters)
DELAWARE
DELAWARE
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(State or Other Jurisdiction of Incorporation)
333-03741 13-3647593
333-03741-01 91-1722302
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(Commission File Numbers) (I.R.S. Employer Identification Nos.)
2901 THIRD AVENUE, SUITE 400
SEATTLE, WASHINGTON 98121
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(Address of Principal Executive Offices) (Zip Code)
(206) 633-3000
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(Registrants' Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
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NYFS08...:\63\64563\0011\1777\FRM1089T.58B
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Item 2. Acquisition or Disposition of Assets.
On December 30, 1998, Muzak Limited Partnership ("Muzak") acquired
certain of the assets and liabilities of Music Technologies, Inc. ("MTI"). MTI
is a provider of background, foreground and other forms of subscription music to
commercial and industrial subscribers, including the installation and
maintenance of business music equipment at subscriber premises, and is a
franchisee of Muzak. The aggregate consideration for the acquisition was
$11,160,000, plus the amount of certain usable inventory (in the amount of
$155,861) and certain transaction expenses (together, the "Purchase Price"). A
portion of the Purchase Price in the amount of $2,550,000 is payable pursuant to
the terms of a promissory note with a maturity date of April 30, 1999, subject
to extension by Muzak in certain circumstances. In addition, a portion of the
Purchase Price in the amount of $1,290,000 is payable 285 days after the Closing
Date, and the payment of such amount is contingent upon the execution of certain
customer contracts contemplated under the Asset Purchase Agreement between Muzak
and MTI. The Purchase Price was paid through funds available under Muzak Limited
Partnership's credit facility with Foothill Capital Corporation. A copy of the
Asset Purchase Agreement (including all amendments thereto) and a copy of the
Loan and Security Agreement with Foothill Capital Corporation are filed as
exhibits hereto.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of Business Acquired.
In accordance with Item 7(a)(d) of Form 8-K, any financial
statements of MTI required to be filed with the Commission will be
filed as an amendment to this report under cover of Form 8-K/A on or
before March 15, 1999.
(b) Pro Forma Financial Information.
In accordance with Item 7(b)(2) of Form 8-K, any pro forma financial
information required to be filed with the Commission will be filed
as an amendment to this report under cover of Form 8-K/A on or
before March 15, 1999.
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(c) Exhibits
Exhibit No. Exhibit
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2.1 Asset Purchase Agreement by and between Muzak
Limited Partnership and Music Technologies, Inc.
dated as of October 28, 1998 (the "Asset Purchase
Agreement").
2.2 Amendment to Asset Purchase Agreement dated as of
November 27, 1998.
2.3 Second Amendment to Asset Purchase Agreement dated as of
December 23, 1998.
2.4 Third Amendment to Asset Purchase Agreement dated
as of December 30, 1998.
10.1 Loan and Security Agreement by and between Muzak
Limited Partnership and Foothill Capital
Corporation dated as of December 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
MUZAK LIMITED PARTNERSHIP
(Registrant)
By: /s/ Brad D. Bodenman
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Date: January 13, 1999 Brad D. Bodenman
Chief Financial Officer
(Principal Financial
Officer and Chief
Accounting Officer of Muzak
Limited Partnership)
MUZAK CAPITAL CORPORATION
(Registrant)
By: /s/ Brad D. Bodenman
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Date: January 13, 1999 Brad D. Bodenman
Chief Financial Officer
(Principal Financial
Officer and Chief
Accounting Officer of Muzak
Limited Partnership)
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EXHIBIT INDEX
Exhibit No. Exhibit
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2.1 Asset Purchase Agreement by and between Muzak
Limited Partnership and Music Technologies, Inc.
dated as of October 28, 1998 (the "Asset Purchase
Agreement").
2.2 Amendment to Asset Purchase Agreement dated as of
November 27, 1998.
2.3 Second Amendment to Asset Purchase Agreement dated as of
December 23, 1998.
2.4 Third Amendment to Asset Purchase Agreement dated
as of December 30, 1998.
10.1 Loan and Security Agreement by and between Muzak
Limited Partnership and Foothill Capital
Corporation dated as of December 30, 1998.
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is entered into as of this
28th of October, 1998, by and between Music Technologies, Inc., a Michigan
corporation ("Seller") and Muzak Limited Partnership, a Delaware limited
partnership ("Buyer"). The parties hereby agree as follows:
RECITALS
A. Seller operates a Music Business throughout the United States. As
used herein, the term "Music Business" includes the transmission of background,
foreground and other forms of subscription music to commercial and industrial
subscribers, and the installation and maintenance of equipment used in
connection with such Services at subscriber premises (hereinafter collectively
referred to as "Services").
B. Subject to the terms and conditions of this Agreement, Buyer desires
to purchase, and Seller desires to sell, certain of the assets of Seller used in
the Music Business, and in connection with such purchase and sale, Buyer is
willing to assume certain obligations as expressly set forth herein.
AGREEMENT
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SALE AND PURCHASE OF ASSETS.
SALE OF ASSETS. AT THE CLOSING (AS DEFINED IN SECTION 4), ON THE TERMS AND
SUBJECT TO THE CONDITIONS OF THIS AGREEMENT AND FOR THE CONSIDERATION SET FORTH
HEREIN, SELLER SHALL SELL, CONVEY, ASSIGN, TRANSFER AND DELIVER TO BUYER, AND
BUYER SHALL PURCHASE AND ACQUIRE FROM SELLER, THE FOLLOWING ASSETS OF SELLER
USED IN THE MUSIC BUSINESS (THE "ASSETS"):
The tuners, tape play-back equipment, receivers, satellite equipment,
amplifiers, speakers, and other equipment owned by Seller and installed on the
premises of the Customers (as hereinafter defined).
All of Seller's rights in and to the agreements and contracts ("Customer
Contracts") to furnish Services and associated equipment to subscribers and
customers ("Customers") which will be listed on Schedule 1.1.2 to be delivered
to Buyer immediately following satisfaction (or waiver) of the financing
condition in Section 8.6. Copies of all Customer Contracts (with the exception
of one Deferred Payment Contract (as hereinafter defined)) will be furnished to
Buyer on November 15, 1998. The Customer Contracts include three national
account contracts with locations to be installed upon expiration of existing
contracts with competitors which will aggregate at least $46,000 in expected
Recurring Monthly Billings (as hereinafter defined) once installations are
complete (the "Deferred Payment Contracts").
All rights in and to the items of "Usable Inventory" of Seller used in the Music
Business. Usable Inventory shall mean inventory which, after completion of its
due diligence with respect to the inventory, Buyer determines in its sole
discretion to be usable in either its present business or its business after the
consummation of the transactions contemplated by this Agreement. Inventory which
is not Usable Inventory shall be retained by Seller.
All rights in and to the satellite space segment contracts, the software
licenses, and the Act Radio contract which are listed on Schedule 1.1.4
("Satellite Contracts").
The equipment related to Seller's music and messaging distribution system which
are listed on Schedule 1.1.5. (the "Distribution System Assets")
EXCLUDED ASSETS. SELLER SHALL NOT SELL, AND BUYER SHALL NOT ACQUIRE ANY INTEREST
IN, ANY OF SELLER'S CASH, ACCOUNTS RECEIVABLE, ADVERTISING BUSINESS ASSETS,
PERSONAL MEMORABILIA, PREPAID EXPENSES, OR ANY ASSETS NOT SET FORTH IN SECTION
1.1 (THE "EXCLUDED ASSETS"). THE EXCLUDED ASSETS SHALL REMAIN THE PROPERTY OF
SELLER AND BUYER SHALL BE DEEMED TO HAVE NO RIGHT, DUTY, LIABILITY OR OTHER
RESPONSIBILITY WITH RESPECT THERETO. ACCOUNTS RECEIVABLE INCLUDE BILLINGS
(WHENEVER GENERATED) FOR SERVICES PROVIDED BY SELLER UP TO AND INCLUDING
NOVEMBER 30, 1998.
ASSUMPTION OF OBLIGATIONS. IN CONNECTION WITH THE PURCHASE AND SALE OF THE
ASSETS PURSUANT TO THIS AGREEMENT, BUYER SHALL ASSUME IN WRITING AT THE CLOSING
ONLY THOSE OBLIGATIONS OF SELLER UNDER THE TERMS OF THE (I) CUSTOMER CONTRACTS
AND (II) THE SATELLITE CONTRACTS AND (III) THE OBLIGATIONS DESCRIBED ON SCHEDULE
1.3 ("ASSUMED OBLIGATIONS"). BUYER IS OBLIGATED TO ASSUME AND PERFORM ALL OF
SELLER'S OBLIGATIONS UNDER THE CUSTOMER CONTRACTS AND THE SATELLITE CONTRACTS
FROM AND AFTER THE CLOSING DATE. NO OTHER LIABILITIES OR OBLIGATIONS OF ANY
NATURE, WHETHER KNOWN OR UNKNOWN, FIXED OR CONTINGENT, ACCRUED OR UNACCRUED,
SHALL BE ASSUMED BY BUYER IN CONNECTION WITH THE PURCHASE AND SALE OF THE ASSETS
HEREUNDER, INCLUDING WITHOUT LIMITATION, ANY OBLIGATIONS OF SELLER TO PAY
COMMISSIONS OR OTHER COMPENSATION TO ITS EMPLOYEES, SALESPERSONS AND AGENTS. ALL
SUCH LIABILITIES AND OBLIGATIONS SHALL REMAIN THE RESPONSIBILITY OF SELLER.
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SALES AGENT AGREEMENT. AT ANY TIME AFTER THE CLOSING DATE (AS HEREINAFTER
DEFINED) AND 15 DAYS PRIOR TO THE "ADJUSTMENT DATE," WHICH IS 285 DAYS AFTER THE
CLOSING DATE, SELLER MAY, AS AGENT FOR BUYER, AND ON THE TERMS AND CONDITIONS
SET FORTH IN THIS SECTION 2, OFFER MUZAK(R) MUSIC AND ADJUNCT SERVICES FOR SALE
TO THOSE CERTAIN POTENTIAL CUSTOMERS (THE "DESIGNATED CUSTOMERS") AGREED TO IN
WRITING BY BUYER AND SELLER ON THE CLOSING DATE. ANY SUCH OFFER SHALL BE ON SUCH
TERMS AS ARE APPROVED IN ADVANCE BY BUYER'S NATIONAL SALES COMMITTEE, WHICH
APPROVAL SHALL NOT BE UNREASONABLY WITHHELD, CONDITIONED OR DELAYED. BUYER'S
NATIONAL SALES COMMITTEE SHALL CONSIDER EACH SUCH OFFER IN GOOD FAITH AND IN
ACCORDANCE WITH ITS PAST PRACTICES. IN THE EVENT THAT BUYER ENTERS INTO A
SERVICES AGREEMENT WITH A DESIGNATED CUSTOMER BETWEEN THE CLOSING DATE AND THE
ADJUSTMENT DATE (A "DESIGNATED CUSTOMER CONTRACT"), BUYER SHALL PAY TO SELLER ON
THE ADJUSTMENT DATE IN CONSIDERATION OF SELLER'S MARKETING EFFORTS WITH RESPECT
THERETO A SALES COMMISSION (THE "DESIGNATED CUSTOMER PAYMENT") EQUAL TO THIRTY
TIMES THE EXPECTED RECURRING MONTHLY BILLINGS (AS DEFINED IN SECTION 3.3.1)
UNDER THE DESIGNATED CUSTOMER CONTRACT, UNLESS SUCH DESIGNATED CUSTOMER CONTRACT
REQUIRES NO PURCHASE OR INSTALLATION OF EQUIPMENT BY BUYER, IN WHICH CASE THE
SALES COMMISSION SHALL BE FORTY-TWO TIMES THE EXPECTED RECURRING MONTHLY
BILLINGS UNDER SUCH DESIGNATED CUSTOMER CONTRACT. SUCH SALES COMMISSIONS SHALL
BE PAID IN ACCORDANCE WITH AND SUBJECT TO THE ADJUSTMENTS DESCRIBED IN SECTION
3.3.1 BELOW.
PURCHASE PRICE.
3.1 Consideration for Assets. The full consideration for the
Assets shall be Fourteen Million Two Hundred Thousand Dollars ($14,200,000),
plus the dollar value of the Usable Inventory (the "Purchase Price"), subject to
adjustments to the Escrowed Funds (as hereinafter defined) pursuant to Section
3.3. Buyer shall pay the lower of Seller's cost or the fair market value for the
Usable Inventory. For purposes of this paragraph, "fair market value" shall be
net of any costs of reconditioning, and the cost of making the equipment
compatible with Buyer's system. If the parties cannot agree on the dollar value
of one or more items of Useable Inventory, such item(s) shall remain the
property of Seller. At the Closing, subject to the terms and conditions of this
Agreement, Buyer shall (a) pay to Seller Twelve Million Two Hundred Twenty
Thousand Dollars ($12,220,000) (subject to the adjustment, if any, set forth in
Section 3.1.1), plus the dollar value of the Usable Inventory, all by wire
transfer of immediately available funds (the "Closing Payment"), (b) deposit Six
Hundred Thousand Dollars ($600,000) in escrow (the "Escrowed Funds") with
Pacific Northwest Title Company (or other mutually agreeable third party) as
escrow agent (the "Escrow Agent") pursuant to an escrow agreement to be entered
into among Buyer, Seller and the Escrow Agent substantially in the form of
Exhibit 3.1 for disbursement in accordance with Section 3.3 and (c) assume the
Assumed Obligations.
3.1.1 Reduction in Amount of Closing Payment. In the event
that between the date of this Agreement and the Closing Date, there is a
cancellation or a notice of cancellation with respect to a Customer Contract,
the Closing Payment shall be reduced by an amount equal to twenty-one (21) times
the expected Recurring Monthly Billings which would have been earned under such
cancelled contract but for such cancellation, but the maximum amount of any such
reduction in the Closing Payment as a result of this Section 3.1.1 shall not
exceed Six Hundred Thousand Dollars ($600,000).
DEFERRED PAYMENT. ON THE ADJUSTMENT DATE, BUYER SHALL PAY TO SELLER ONE MILLION
THREE HUNDRED EIGHTY THOUSAND DOLLARS ($1,380,000) (THE "DEFERRED PAYMENT") BY
WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS. IF ANY DEFERRED PAYMENT CONTRACT
HAS NOT BEEN EXECUTED BY THE ADJUSTMENT DATE, THE DEFERRED PAYMENT SHALL BE
REDUCED BY AN AMOUNT EQUAL TO 30 TIMES THE EXPECTED RECURRING MONTHLY BILLINGS
FOR SUCH DEFERRED PAYMENT CONTRACT.
With respect to any Deferred Payment Contract which: (i) has
not been executed by the Adjustment Date, or (ii) as to which a consent to
assignment has not been obtained by the Adjustment Date, or (iii) as to which a
notice of cancellation (the "Notice of Cancellation") has not been sent by the
Customer cancelling its existing contracts with competing music providers,
(hereinafter an "Undocumented Deferred Payment Contract"), Buyer will pay to
Seller on each of the first three (3) annual anniversaries of the Closing Date
the following amounts:
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(i) On the first annual anniversary of the Closing Date, for each such
Contract an amount equal to ten (10) times the Average Monthly
Recurring Revenues earned by Buyer during the one (1) year period
ending on such anniversary date with respect to each Undocumented
Deferred Payment Contract;
(ii) On the second annual anniversary of the Closing Date, for each
such Contract an amount equal to twenty (20) times the Average Monthly
Recurring Revenues with respect to each such Undocumented Deferred
Payment Contract earned by Buyer during the two (2) year period ending
on the second anniversary date, less amounts paid by Buyer to Seller
with respect to such Contract under clause (i) above; and,
(iii) On the third annual anniversary of the Closing Date, for each
such Contract an amount equal to thirty (30) times the Average Monthly
Recurring Revenues with respect to each such Undocumented Deferred
Payment Contract earned by Buyer during the three (3) year period
ending on such third anniversary date, less amounts paid by Buyer to
Seller with respect to such Undocumented Deferred Payment Contract
under clause (i) and (ii) above.
If the Seller has obtained a signed agreement, a consent to assignment,
and a copy of the Notice of Cancellation with respect to any
Undocumented Deferred Payment Contract during the three (3) year period
following the Closing Date, then at the time Seller obtains such signed
agreement and consent, Buyer shall pay to Seller an amount equal to
thirty (30) times the expected Recurring Monthly Billings with respect
to that Contract, less any amounts paid by Buyer to Seller under clause
(i) and/or (ii) above with respect to such Contract.
"Average Monthly Recurring Revenues" shall be computed on a
contract-by-contract basis for each of the Undocumented Deferred Payment
Contracts, and shall equal one-twelfth (1/12) of the total revenues from
Recurring Monthly Billings earned by Buyer with respect to each such
Undocumented Deferred Payment Contract during the twelve (12) month period
preceding the date on which Average Monthly Recurring Revenues is computed.
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ADJUSTMENT AMOUNT -- ESCROWED FUNDS.
At least fifteen (15) days prior to the Adjustment Date, Buyer shall deliver to
Seller a statement (the "Adjustment Statement") setting forth the "Adjustment
Amount" (as hereinafter defined). The Adjustment Amount shall be the total of
(i) all Designated Customer Payments plus (ii) the "Renegotiation Amount" (as
hereinafter defined) minus the sum of (a) 42 times the expected Recurring
Monthly Billings for all Customer Contracts cancelled by Customers during the
Adjustment Period where such cancellations are not attributable to the actions
of Buyer and (b) 30 times the expected Recurring Monthly Billings for all
Deferred Payment Contracts cancelled by customers during the Adjustment Period
where such cancellations are not attributable to the actions of Buyer. As used
herein, "Recurring Monthly Billings" means the recurring monthly billings for
Services and/or equipment, net of sales taxes, deriving from a customer
contract. As used herein, the "Renegotiation Amount" shall be any increase in
the Recurring Monthly Billings under any Customer Contract multiplied by 30 (if
equipment needs to be provided) or 42 (if no equipment needs to be provided),
where such increase (1) becomes effective between the date of this Agreement and
the Adjustment Date and (2) has been approved by Buyer in its reasonable
discretion prior to completion of its due diligence. The Adjustment Statement
shall be final and binding on the parties unless, within thirty days after
delivery of the Adjustment Statement, written notice is given by Seller to Buyer
of Seller's objection thereto. During the thirty day period after Buyer's
delivery to Seller of the Adjustment Statement, Buyer shall provide Seller with
copies of any records Buyer used to determine the Adjustment Amount. If Seller
does not provide Buyer written notice of objection to the Adjustment Amount,
payments shall be made on the Adjustment Date as follows: (1) If the Adjustment
Amount, as calculated above, is a positive number, such amount plus the Escrowed
Funds shall be paid to Seller on the Adjustment Date. (2) If the Adjustment
Amount, as calculated above, is a negative number in excess of negative
$990,500, the difference between the negative number and negative $990,500 shall
be paid to Buyer from the Escrowed Funds, with the balance of the Escrowed Funds
remaining after such payment, if any, to be paid to Seller. Even if the negative
number exceeds $990,500 by more than $600,000, the payment to the Buyer shall be
limited to the value of $600,000. (3) If the Adjustment Amount, as calculated
above, is a negative number that is less than negative $990,500, than the
Escrowed Funds shall be paid to Seller. (4) If no adjustment is made, the
Escrowed Funds shall be paid to Seller.
If notice of objection is given by Seller in accordance with Section 3.3.1, the
parties shall consult with each other with respect to the objection. If the
parties are unable to reach agreement within 30 days after the notice of
objection has been given, the dispute shall be resolved by a firm of independent
accountants of nationally recognized standing jointly selected by the parties,
which resolution shall be final and binding on the parties. The Escrow Agent
shall promptly disburse funds to the Seller and/or Buyer in accordance with the
accountants' determination of the Adjustment Amount. The accountants shall not
have been engaged by either party at any time within the past ten years. In the
event that the accountants determine that the statement in question was
substantially correct, the costs of the accountants shall be borne by Seller. If
the accountants determine that the statement in question was not substantially
correct, the costs of the accountants shall be borne by Buyer.
ALLOCATION OF PURCHASE PRICE. THE PURCHASE PRICE SHALL BE ALLOCATED AMONG THE
ASSETS IN ACCORDANCE WITH SCHEDULE 3.4, AS SUBMITTED BY SELLER TO BUYER. THE
PARTIES SHALL REPORT CONSISTENTLY WITH SUCH ALLOCATIONS ON ALL INCOME TAX
RETURNS AND OTHER STATEMENTS, INCLUDING WITHOUT LIMITATION, FORM 8594, AND IN
THE COURSE OF ANY TAX AUDIT, TAX REVIEW OR TAX LITIGATION RELATING THERETO.
CLOSING.
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CLOSING DATE. THE CLOSING OF THE PURCHASE AND SALE OF THE ASSETS (THE "CLOSING")
SHALL TAKE PLACE AT THE OFFICES OF SEYBURN, KAHN, GINN, BESS, DEITCH AND SERLIN,
P.C., 2000 TOWN CENTER, SUITE 1500, SOUTHFIELD, MICHIGAN 48075 AT 2:00 P.M.
EASTERN STANDARD TIME. ON NOVEMBER 30, 1998, OR AT SUCH OTHER PLACE, DATE OR
TIME AS BUYER AND SELLER MAY AGREE IN WRITING. THE CLOSING MAY BE EXTENDED BY
EITHER PARTY UP TO AND UNTIL DECEMBER 7, 1998. IN ADDITION, THE CLOSING DATE
SHALL BE AUTOMATICALLY EXTENDED UP TO AND UNTIL DECEMBER 23, 1998 IN ORDER FOR
SELLER TO CONTINUE ITS EFFORTS TO OBTAIN THE REQUIRED CONSENTS FROM CUSTOMERS TO
ASSIGN TO BUYER CUSTOMER CONTRACTS (IF SUCH REQUIRED CONSENTS HAVE NOT BEEN
OBTAINED BY NOVEMBER 30). IF THE CLOSING DATE OCCURS AFTER NOVEMBER 30, BECAUSE:
(I) SELLER HAS NOT OBTAINED THE REQUIRED CONSENTS BY NOVEMBER 30; OR (II) BUYER
IS NOT PREPARED TO DELIVER ITS DELIVERABLES SET FORTH IN SECTION 4.3 ON NOVEMBER
30, THEN ON THE CLOSING DATE (AS HEREINAFTER DEFINED), BUYER SHALL PAY TO SELLER
INTEREST ON THE CLOSING PAYMENT AT THE PRIME RATE DETERMINED AND PUBLICLY QUOTED
FROM TIME TO TIME BY BANK OF AMERICA NTS&A COMPUTED FROM NOVEMBER 30 TO THE
CLOSING DATE. THE DATE OF THE CLOSING SHALL BE REFERRED TO HEREIN AS THE
"CLOSING DATE."
SELLER'S DELIVERIES TO BUYER AT CLOSING. AT THE CLOSING, SELLER SHALL DELIVER OR
CAUSE TO BE DELIVERED TO BUYER:
A bill of sale substantially in the form of Exhibit 4.2.1, for the Assets (the
"Bill of Sale");
An executed counterpart of an assumption agreement substantially in the form of
Exhibit 4.2.2 (the "Assumption Agreement");
An executed counterpart of the Escrow Agreement;
An executed counterpart of a non-compete agreement in favor of Buyer effective
as of the Closing Date for a period of five years thereafter from each of Seller
and Lorraine Golden substantially in the form of Exhibit 4.2.4 (the "Non-Compete
Agreement");
An executed counterpart of an advertising agreement between the Seller and the
Buyer, substantially in the form of Exhibit 4.2.5 (the "Advertising Agreement");
A copy of resolutions of the Board of Directors and shareholders of Seller
authorizing consummation of the transactions contemplated by this Agreement, and
a certificate of Seller's secretary or assistant secretary that such resolutions
were duly adopted and are in full force and effect as of the Closing Date;
Tax and Secretary of State good standing certificates from the State of Michigan
for Seller as of a date not earlier than five (5) business days before the
Closing;
All third party consents (including consents from Customers with respect to
Customer Contracts constituting at least $219,750 of expected Recurring Monthly
Billings) (the "Required Consents");
Copies of notifications of cancellation of current music provider services under
each Deferred Payment Contract (or, if such Notice of Cancellation has not been
obtained by Seller, the Closing shall proceed and the procedure in Section 3.1.2
Deferred Payment shall be followed);
An opinion of counsel of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C, in
substantially the form of Exhibit 4.2.10;
4.2.11 An agreed upon list of Designated Customers as
contemplated by Section 2; and
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4.2.12 Such other documents and instruments as shall
be reasonably requested by Buyer to effect the transactions contemplated hereby.
Simultaneously with such deliveries, Seller shall take such steps as
are necessary to put Buyer in actual possession and/or control of the Assets.
BUYER'S DELIVERIES TO SELLER AT CLOSING. AT THE CLOSING, BUYER SHALL DELIVER OR
CAUSE TO BE DELIVERED TO SELLER THE FOLLOWING INSTRUMENTS AND DOCUMENTS AGAINST
DELIVERY OF THE ITEMS SPECIFIED IN SECTION 4.2:
An executed counterpart of the Assumption Agreement;
An executed counterpart of the Escrow Agreement;
An executed counterpart of the Non-Compete Agreement;
An executed counterpart of the Advertising Agreement;
An opinion of counsel of Heller Ehrman White & McAuliffe substantially in the
form of Exhibit 4.3.5;
A copy of resolutions of the Board of Directors and shareholders of Buyer
authorizing consummation of the transactions contemplated by this Agreement, and
a certificate of Buyer's secretary or assistant secretary that such resolutions
were duly adopted and are in full force and effect as of the Closing Date;
the Closing Payment;
4.3.8 An agreed upon list of Designated Customers as
contemplated by Section 2; and
4.3.9 Such other documents and instruments as shall
be reasonably requested by Seller to effect the transactions contemplated
hereby.
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REPRESENTATIONS AND WARRANTIES OF SELLER. SELLER HEREBY REPRESENTS AND WARRANTS
TO BUYER THAT:
ORGANIZATION AND AUTHORITY. SELLER (A) IS A CORPORATION DULY ORGANIZED, VALIDLY
EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF MICHIGAN; (B) HAS
ALL NECESSARY CORPORATE POWER TO OWN AND LEASE ITS PROPERTIES RELATING TO THE
MUSIC BUSINESS, CARRY ON ITS MUSIC BUSINESS AS NOW BEING CONDUCTED AND ENTER
INTO AND PERFORM THIS AGREEMENT; AND (C) IS QUALIFIED TO DO BUSINESS IN ALL
JURISDICTIONS IN WHICH THE FAILURE TO SO QUALIFY WOULD HAVE A MATERIAL ADVERSE
EFFECT ON ITS MUSIC BUSINESS OR FINANCIAL CONDITION.
AUTHORIZATION OF AGREEMENT; NO VIOLATION OF OTHER INSTRUMENTS.
The execution and delivery of this Agreement and the performance hereunder by
Seller have been duly authorized by all necessary corporate action on the part
of Seller and, assuming execution of this Agreement by Buyer, this Agreement
will constitute a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms.
Except for liens to be discharged at Closing and except for non-assignment
covenants in certain Customer Contracts as set forth in Schedule 5.9, to be
discharged or waived at or prior to Closing, neither the execution of this
Agreement nor the performance hereof by Seller will (a) conflict with or result
in any breach or violation of the terms of any decree, judgment, order, law or
regulation of any court or other governmental body now in effect applicable to
Seller; (b) conflict with, or result in, with or without the passage of time or
the giving of notice, any breach of any of the terms, conditions and provisions
of, or constitute a default under, or result in the creation of any lien,
charge, or encumbrance upon any of the Assets pursuant to, any indenture,
mortgage, lease, agreement or other instrument to which Seller is a party or by
which it or any of the Assets are bound; (c) permit the acceleration of the
maturity of any material indebtedness of Seller or of any other person secured
by the Assets; or (d) violate or conflict with any provision of its Articles of
Incorporation or Bylaws.
Except as set forth on Schedule 5.2.3, no consent, approval or authorization of,
or declaration, filing or registration with, any third party or government or
regulatory authority is required to be made or obtained by Seller in order to
permit the execution, delivery or performance of this Agreement by Seller, or
the consummation of the transactions contemplated by this Agreement.
STOCKHOLDERS. SCHEDULE 5.3 SETS FORTH A TRUE AND COMPLETE LIST OF ALL OF THE
STOCKHOLDERS OF SELLER AND THEIR RESPECTIVE PERCENTAGE OWNERSHIP OF SELLER'S
CAPITAL STOCK.
OWNERSHIP AND DELIVERY OF ASSETS. EXCEPT FOR LIENS LISTED ON THE ATTACHED
SCHEDULE 5.4 AND ANY LIENS FROM LANDLORDS OR CREDITORS OF SELLER'S CUSTOMERS,
AND SUBJECT TO OBTAINING THE CUSTOMER CONSENTS LISTED IN SCHEDULE 5.9, SELLER IS
THE TRUE AND LAWFUL OWNER OF THE ASSETS AND HAS ALL NECESSARY POWER AND
AUTHORITY TO TRANSFER THE ASSETS TO BUYER FREE AND CLEAR OF ALL LIENS, CHARGES,
EASEMENTS, SECURITY INTERESTS, MORTGAGES, CONDITIONAL SALE CONTRACTS, EQUITIES,
RIGHTS OF WAY, COVENANTS, RESTRICTIONS, TITLE DEFECTS, OBJECTIONS, CLAIMS OR
OTHER ENCUMBRANCES ("LIENS"). NO OTHER PERSON, INCLUDING ANY OFFICER, DIRECTOR,
EMPLOYEE, OR SHAREHOLDER OF SELLER, WILL HAVE ON THE CLOSING DATE ANY DIRECT OR
INDIRECT INTEREST IN ANY OF THE ASSETS. UPON DELIVERY TO BUYER OF THE BILL OF
SALE AND OTHER INSTRUMENTS OF CONVEYANCE WITH RESPECT TO THE ASSETS ON THE
CLOSING DATE, BUYER WILL ACQUIRE GOOD AND VALID TITLE TO THE ASSETS FREE AND
CLEAR OF ALL LIENS. THE ASSETS INCLUDE ALL EQUIPMENT LOCATED ON THE CUSTOMERS'
PREMISES AND USED IN CONNECTION WITH THE SERVICES.
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COMPLIANCE WITH LAW. TO THE BEST OF SELLER'S KNOWLEDGE, SELLER HOLDS ALL
LICENSES, PERMITS AND AUTHORIZATIONS NECESSARY FOR THE LAWFUL CONDUCT OF
SELLER'S MUSIC BUSINESS WHEREVER CONDUCTED PURSUANT TO ALL APPLICABLE STATUTES,
LAWS, ORDINANCES, RULES AND REGULATIONS OF ALL GOVERNMENTAL BODIES, AGENCIES AND
SUBDIVISIONS HAVING, ASSERTING OR CLAIMING JURISDICTION OVER SELLER OR OVER ANY
PART OF SELLER'S OPERATIONS, AND SELLER IS NOT IN MATERIAL VIOLATION THEREOF.
TAXES. ALL TAX RETURNS AND REPORTS WITH RESPECT TO SELLER REQUIRED BY LAW TO BE
FILED UNDER THE LAWS OF ANY JURISDICTION, DOMESTIC OR FOREIGN, HAVE BEEN DULY
AND TIMELY FILED AND ALL TAXES, FEES OR OTHER GOVERNMENTAL CHARGES OF ANY NATURE
WHICH WERE REQUIRED TO HAVE BEEN PAID HAVE BEEN PAID OR PROVIDED FOR. SELLER HAS
NO KNOWLEDGE OF ANY UNPAID TAXES OR ANY ACTUAL OR THREATENED ASSESSMENT OF
DEFICIENCY OR ADDITIONAL TAX OR OTHER GOVERNMENTAL CHARGE OR A BASIS FOR SUCH A
CLAIM AGAINST SELLER. SELLER HAS NO KNOWLEDGE OF ANY TAX AUDIT OF SELLER BY ANY
TAXING OR OTHER AUTHORITY IN CONNECTION WITH ANY OF ITS FISCAL YEARS, NOR ANY
KNOWLEDGE OF ANY SUCH AUDIT CURRENTLY PENDING OR THREATENED AGAINST SELLER, AND
THERE ARE NO TAX LIENS ON ANY OF THE PROPERTIES OF SELLER, NOR HAVE ANY SUCH
LIENS BEEN THREATENED.
LITIGATION. EXCEPT AS SET FORTH ON SCHEDULE 5.7, NEITHER SELLER NOR ANY OFFICER,
DIRECTOR, SHAREHOLDER, EMPLOYEE OR AGENT OF SELLER IS A PARTY TO ANY PENDING OR,
TO THE BEST KNOWLEDGE OF SELLER, THREATENED, ACTION, SUIT, PROCEEDING OR
INVESTIGATION FOR OR BY ANY COURT OR OTHER GOVERNMENTAL BODY THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON: THE ASSETS OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT; NOR, TO THE BEST KNOWLEDGE OF SELLER, DOES ANY BASIS EXIST FOR ANY
SUCH ACTION, SUIT, PROCEEDING OR INVESTIGATION. EXCEPT AS SET FORTH ON SCHEDULE
5.7, SELLER IS NOT SUBJECT TO ANY DECREE, JUDGMENT, OR ORDER OF ANY COURT OR
OTHER GOVERNMENTAL BODY THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
CONDITION, FINANCIAL OR OTHERWISE, OF THE ASSETS, LIABILITIES, BUSINESS,
PROSPECTS OR RESULTS OF OPERATIONS OF SELLER RELATING TO THE MUSIC BUSINESS OR
WHICH COULD PREVENT OR LIMIT THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
BROKERS AND FINDERS. EXCEPT FOR THE FEE PAYABLE BY SELLER AT THE CLOSING TO
WILLIAM WALLACE OF EQUITY PARTNERS IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT AND SET FORTH ON SCHEDULE 5.8, NEITHER THE SELLER
NOR ANY DIRECTOR, OFFICER, EMPLOYEE OR AGENT OF SELLER HAS ANY LIABILITY OR
OBLIGATION TO PAY ANY FEES OR COMMISSIONS TO ANY BROKER, FINDER, INVESTMENT
BANKER, OR AGENT WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT
FOR WHICH BUYER COULD BECOME LIABLE OR OBLIGATED.
CONTRACTS. THE CONTRACTS AND AGREEMENTS TO BE LISTED ON SCHEDULE 1.1.2
CONSTITUTE ALL OF THE CUSTOMER CONTRACTS OF SELLER IN CONNECTION WITH THE MUSIC
BUSINESS. EXCEPT AS SET FORTH ON SCHEDULE 5.9 (TO BE DELIVERED TO BUYER
IMMEDIATELY FOLLOWING SATISFACTION (OR WAIVER) OF THE FINANCING CONDITION IN
SECTION 8.6), NEITHER SELLER NOR, TO THE BEST OF SELLER'S KNOWLEDGE, ANY OTHER
PARTY TO THE CUSTOMER CONTRACTS OR SATELLITE CONTRACTS IS IN DEFAULT IN
PERFORMANCE OF OR NOT IN COMPLIANCE WITH ANY MATERIAL PROVISIONS OF SUCH
CUSTOMER CONTRACTS OR THE SATELLITE CONTRACTS. SELLER HAS NO KNOWLEDGE OF ANY
INTENT BY ANY OTHER PARTY NOT TO PERFORM ITS OBLIGATIONS UNDER ANY SUCH
CONTRACT. EXCEPT AS SET FORTH ON SCHEDULE 5.9, SELLER HAS THE RIGHT TO ASSIGN
ALL CUSTOMER CONTRACTS AND SATELLITE CONTRACTS TO BUYER PURSUANT TO THIS
AGREEMENT AND NEITHER THE ASSIGNMENT OF SUCH CUSTOMER CONTRACTS AND SATELLITE
CONTRACTS NOR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT PERMITS, OR TO THE BEST KNOWLEDGE OF SELLER, WOULD LEAD ANY PARTY TO
SUCH CUSTOMER CONTRACT OR SATELLITE CONTRACT TO TERMINATE OR ALTER SUCH
CONTRACT.
USABLE INVENTORY. TO THE BEST OF SELLER'S KNOWLEDGE, THE USABLE INVENTORY IS IN
GOOD CONDITION AND IS OF A QUALITY USEABLE AND SALEABLE IN ACCORDANCE WITH GOOD
BUSINESS PRACTICE, AND ANY ADDITIONAL ITEMS OF INVENTORY TO BE PURCHASED
PURSUANT TO THIS AGREEMENT WILL BE IN GOOD CONDITION AND OF A QUALITY USEABLE
AND SALEABLE IN ACCORDANCE WITH GOOD BUSINESS PRACTICE.
DISTRIBUTION SYSTEM ASSETS. THE SATELLITE CONTRACTS AND DISTRIBUTION SYSTEM
ASSETS CONSTITUTES ALL OF THE ASSETS NECESSARY TO OPERATE SELLER'S MUSIC AND
MESSAGING DISTRIBUTION SYSTEM AS CURRENTLY OPERATED WHEN USED IN CONJUNCTION
WITH THE ASSETS DESCRIBED IN SECTION 1.1.1 OF THIS AGREEMENT.
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ADVANCE PAYMENTS. SELLER HAS NOT RECEIVED ANY ADVANCE PAYMENTS AGAINST THE
CUSTOMER CONTRACTS.
ASCAP/BMI ROYALTIES. SELLER IS CURRENT ON ALL OF ITS ROYALTY PAYMENTS TO ASCAP
AND BMI.
TOTAL ASSETS. THE LAST REGULARLY PREPARED BALANCE SHEET OF SELLER PROVIDES THAT
THE TOTAL ASSETS OF SELLER ARE LESS THAN TEN MILLION DOLLARS ($10,000,000). THE
TOTAL ASSETS OF SELLER, INCLUDING ANY "PERSON" (AS THAT TERM IS DEFINED IN 16
C.F.R. SS. 801.1(A), A REGULATION PROMULGATED PURSUANT TO THE HART-SCOTT-RODINO
ANTITRUST IMPROVEMENTS ACT OF 1976) WITHIN SELLER, ARE LESS THAN TEN MILLION
DOLLARS ($10,000,000).
REPRESENTATIONS AND WARRANTIES OF BUYER. BUYER HEREBY REPRESENTS AND WARRANTS TO
SELLER THAT:
ORGANIZATION AND AUTHORITY. BUYER IS A LIMITED PARTNERSHIP DULY ORGANIZED,
VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF DELAWARE.
BUYER HAS ALL NECESSARY POWER AND AUTHORITY TO ENTER INTO AND PERFORM THIS
AGREEMENT.
AUTHORIZATION OF AGREEMENT; NO VIOLATION OF OTHER INSTRUMENTS.
The execution and delivery of this Agreement and the performance hereunder by
Buyer have been duly authorized by all necessary action on the part of Buyer
and, assuming execution of this Agreement by Seller, this Agreement will
constitute a legal, valid and binding obligation of Buyer.
Neither the execution of this Agreement nor the performance hereof by Buyer will
(a) conflict with or result in the breach or violation of the terms of any
decree, judgment, order, law or regulation of any court or other governmental
body now in effect applicable to Buyer; or (b) conflict with, or result in, with
or without the passage of time or the giving of notice, any breach of any of the
terms, conditions and provisions of, or constitute a default under, any
indenture, mortgage, lease, agreement or other instrument to which Buyer is a
party or by which it is bound.
No consent, approval or authorization of, or declaration, filing or registration
with, any third party or governmental or regulatory authority is required to be
made or obtained by Buyer in order to permit the execution, delivery or
performance of this Agreement, or the consummation of the transactions
contemplated by this Agreement, except as shall have been made or obtained at
the Closing.
BROKERS AND FINDERS. NEITHER BUYER NOR ANY SHAREHOLDER, DIRECTOR, OFFICER,
EMPLOYEE OR AGENT OF BUYER HAS RETAINED ANY BROKER, FINDER, AGENT OR INVESTMENT
BANKER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
BUYER'S DUE DILIGENCE. BUYER'S DUE DILIGENCE SHALL PROCEED IN TWO STAGES. FIRST,
BY NOVEMBER 15, 1998 (PROVIDED THAT ALL REASONABLY REQUESTED MATERIALS HAVE BEEN
PROVIDED ON A TIMELY BASIS), BUYER SHALL COMPLETE ITS DUE DILIGENCE TO CONFIRM
THE TRUTH AND ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES UNDER THIS
AGREEMENT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTION
5.9 OF THIS AGREEMENT AS THEY RELATE TO CUSTOMER CONTRACTS, AND TO CONFIRM THAT
THE ECONOMIC TERMS UNDER THE SATELLITE CONTRACTS ARE ACCEPTABLE TO BUYER IN ITS
REASONABLE DISCRETION. SUCH DUE DILIGENCE SHALL BE CONDUCTED OFFSITE, OR IF ON
MTI'S SITE, THEN AFTER BUSINESS HOURS, AND, IN ANY EVENT, IN SUCH A MANNER AS TO
PROTECT THE CONFIDENTIALITY OF THIS AGREEMENT AND THE PROPOSED TRANSACTION
(SOFTWARE LICENSE AGREEMENTS SHALL BE DELIVERED TO BUYER DURING THE FIRST DUE
DILIGENCE PERIOD WITH REDACTED VENDOR NAMES; SATELLITE CONTRACTS SHALL BE
DELIVERED TO BUYER DURING THE FIRST DUE DILIGENCE PERIOD WITH THE AMOUNT OF FEES
AND OTHER PAYMENTS REDACTED).
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Second, between November 17, 1998 and November 22, 1998
(provided that all reasonably requested materials have been provided on a timely
basis), Buyer shall complete its due diligence with respect to the Customer
Contracts (the "Contract Due Diligence"). With respect to the Contract Due
Diligence, Buyer's due diligence shall be conducted solely to confirm: (1). that
the Customer Contracts (excluding the Deferred Payment Contracts) represent at
least $293,000 in expected Recurring Monthly Billings, and that the Deferred
Payment Contracts represent at least $46,000 in expected Recurring Monthly
Billings; (2) except for two Customer Contracts (the "Excluded Contracts"), that
the average remaining term for the Customer Contracts taken as a whole and
weighted by number of sites is at least 3.2 years and the average rate for the
Customer Contracts taken as a whole and weighted by the number of sites is at
least $34.00; (3) that the economic terms of the Excluded Contracts are
acceptable to Buyer in its reasonable discretion; (4) that the representations
and warranties contained in Section 5.9 are true and accurate; and (5) there are
no terms in the redacted Customer Contracts which in Buyer's reasonable
discretion materially and adversely affect the accuracy of items (2), (4) or (5)
on Schedule 1.1.2.
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CONDITIONS TO THE OBLIGATIONS OF BUYER. EXCEPT AS OTHERWISE SPECIFICALLY SET
FORTH HEREIN OR AS CONTEMPLATED BY THIS AGREEMENT, ALL OBLIGATIONS OF BUYER
UNDER THIS AGREEMENT ARE SUBJECT TO THE FULFILLMENT, PRIOR TO OR AT THE CLOSING
DATE OF EACH OF THE FOLLOWING CONDITIONS:
REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. THE REPRESENTATIONS AND
WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE AGAIN AT AND AS OF THE CLOSING DATE AND SHALL THEN BE TRUE IN ALL RESPECTS.
COVENANTS PERFORMED BY SELLER. EACH OF THE OBLIGATIONS OF SELLER TO BE PERFORMED
ON OR BEFORE THE CLOSING DATE PURSUANT TO THE TERMS OF THIS AGREEMENT SHALL HAVE
BEEN DULY PERFORMED.
NO ACTION TO PREVENT COMPLETION. THERE SHALL NOT HAVE BEEN INSTITUTED AND BE
CONTINUING OR THREATENED ANY CLAIM, ACTION OR PROCEEDING THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE CONDITION, FINANCIAL OR OTHERWISE, OF THE ASSETS,
NOR SHALL THERE HAVE BEEN INSTITUTED AND BE CONTINUING OR THREATENED ANY SUCH
CLAIM, ACTION OR PROCEEDING TO RESTRAIN, PROHIBIT OR INVALIDATE, OR TO OBTAIN
DAMAGES IN RESPECT OF, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR WHICH
MIGHT AFFECT THE RIGHT OF BUYER AFTER THE CLOSING DATE TO OWN THE ASSETS.
CONSENTS. SELLER AND BUYER SHALL HAVE RECEIVED ALL PERMITS AND AUTHORIZATIONS
NECESSARY FOR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. SELLER SHALL HAVE RECEIVED THE REQUIRED CONSENTS TO ASSIGN THE
CUSTOMER CONTRACTS AND SATELLITE CONTRACTS FROM ALL OF THE PARTIES LISTED IN
SCHEDULE 5.9 AND SHALL HAVE OBTAINED A RENEWAL OF THE G-STAR 4 SATELLITE
CONTRACT WITH A TERM EXTENDING TO APPROXIMATELY JULY 15, 2002.
TAX ON PRIOR SALES AND ACTIVITIES. SELLER SHALL HAVE DELIVERED TO BUYER A LETTER
FROM THE STATE OF MICHIGAN ADVISING BUYER THAT ALL OF SELLER'S REQUIRED TAX
FILINGS HAVE BEEN MADE.
ACQUISITION FINANCING. BY NOVEMBER 15, 1998, BUYER SHALL HAVE OBTAINED: (I) A
WRITTEN COMMITMENT FROM A LENDER TO FINANCE THE ACQUISITION OF THE ASSETS OR
WAIVED ITS RIGHT TO CONDITION ITS PERFORMANCE UNDER THIS AGREEMENT TO SUCH
COMMITMENT, AND (II) A LETTER FROM CENTER PARTNERS COMMITTING TO PROVIDE UP TO
$2.0 MILLION OF FUNDS FOR THE BENEFIT OF BUYER AT CLOSING TO COVER ANY SHORTFALL
BETWEEN THE FINANCING COMMITMENT DESCRIBED IN (I) AND THE CLOSING PAYMENT, AND
SELLER SHALL HAVE APPROVED SUCH FINANCING COMMITMENT AND CENTER PARTNERS' LETTER
IN ITS SOLE DISCRETION WITHIN TWENTY-FOUR (24) HOURS FROM THE TIME IT RECEIVES
SUCH FINANCING COMMITMENT AND CENTER PARTNERS LETTER.
DUE DILIGENCE. BUYER SHALL HAVE COMPLETED AND BE SATISFIED WITH, IN ITS
REASONABLE DISCRETION, ITS DUE DILIGENCE AS DESCRIBED IN SECTION 7 OF THIS
AGREEMENT.
DELIVERY OF CLOSING DOCUMENTS. SELLER SHALL HAVE DELIVERED TO BUYER AT THE
CLOSING THE CLOSING DOCUMENTS REQUIRED TO BE DELIVERED PURSUANT TO SECTION 4.2
IN FORM AND SUBSTANCE SATISFACTORY TO BUYER AND ITS COUNSEL.
DEFERRED PAYMENT CONTRACTS. SELLER SHALL HAVE DELIVERED TO BUYER A LIST
IDENTIFYING THE DEFERRED PAYMENT CONTRACTS, THE MONTHLY RECURRING REVENUES AND
THE EXPIRATION DATES OF ALL MUSIC/ADVERTISING SERVICE CONTRACTS BETWEEN THE
CUSTOMERS THEREUNDER AND THIRD PARTIES.
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CANCELLATION OF CUSTOMER CONTRACTS. THERE SHALL HAVE BEEN NO CANCELLATION,
NOTICE OF CANCELLATION, OR ANY OTHER EVENT THAT WOULD REASONABLY RESULT IN THE
CANCELLATION, OF ANY CUSTOMER CONTRACT WHICH WOULD RESULT IN A REDUCTION OF THE
CLOSING PAYMENT UNDER SECTION 3.1.1 BY MORE THAN SIX HUNDRED THOUSAND DOLLARS
($600,000).
CONDITIONS TO THE OBLIGATIONS OF SELLER. EXCEPT AS OTHERWISE SPECIFICALLY SET
FORTH HEREIN, ALL OBLIGATIONS OF SELLER UNDER THIS AGREEMENT ARE SUBJECT TO THE
FULFILLMENT AND SATISFACTION, PRIOR TO OR AT THE CLOSING, AS THE CASE MAY BE, OF
EACH OF THE FOLLOWING CONDITIONS:
REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING. THE REPRESENTATIONS AND
WARRANTIES OF BUYER CONTAINED IN THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE AGAIN AT AND AS OF THE CLOSING DATE.
COVENANTS PERFORMED BY BUYER. EACH OF THE OBLIGATIONS OF BUYER TO BE PERFORMED
ON OR BEFORE THE CLOSING DATE PURSUANT TO THE TERMS OF THIS AGREEMENT SHALL HAVE
BEEN DULY PERFORMED.
NO ACTION TO PREVENT COMPLETION. THERE SHALL NOT HAVE BEEN INSTITUTED AND BE
CONTINUING OR THREATENED ANY ACTION OR PROCEEDING BY OR BEFORE ANY COURT OR
OTHER GOVERNMENTAL BODY TO RESTRAIN, PROHIBIT OR INVALIDATE, OR TO OBTAIN
DAMAGES IN RESPECT OF, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
DELIVERY OF CLOSING DOCUMENTS. BUYER SHALL HAVE DELIVERED TO SELLER AT THE
CLOSING THE CLOSING DOCUMENTS REQUIRED TO BE DELIVERED PURSUANT TO SECTION 4.3
IN FORM AND SUBSTANCE SATISFACTORY TO SELLER AND ITS COUNSEL.
ACQUISITION FINANCING. BY NOVEMBER 15, 1998, BUYER SHALL HAVE OBTAINED: (I) A
WRITTEN COMMITMENT FROM A LENDER TO FINANCE THE ACQUISITION OF THE ASSETS OR
WAIVED ITS RIGHT TO CONDITION ITS PERFORMANCE UNDER THIS AGREEMENT TO SUCH
COMMITMENT, AND (II) A LETTER FROM CENTER PARTNERS COMMITTING TO PROVIDE UP TO
$2.0 MILLION OF FUNDS FOR THE BENEFIT OF BUYER AT CLOSING TO COVER ANY SHORTFALL
BETWEEN THE FINANCING COMMITMENT DESCRIBED IN (I) AND THE CLOSING PAYMENT, AND
SELLER SHALL HAVE APPROVED SUCH FINANCING COMMITMENT AND CENTER PARTNERS' LETTER
IN ITS SOLE DISCRETION WITHIN TWENTY-FOUR (24) HOURS FROM THE TIME IT RECEIVES
SUCH FINANCING COMMITMENT AND CENTER PARTNERS LETTER.
CANCELLATION OF CUSTOMER CONTRACTS. THERE SHALL HAVE BEEN NO CANCELLATION,
NOTICE OF CANCELLATION, OR ANY OTHER EVENT THAT WOULD REASONABLY RESULT IN THE
CANCELLATION, OF ANY CUSTOMER CONTRACT WHICH WOULD RESULT IN A REDUCTION OF THE
CLOSING PAYMENT UNDER SECTION 3.1.1 BY MORE THAN SIX HUNDRED THOUSAND DOLLARS
($600,000).
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COVENANTS OF SELLER. SELLER COVENANTS AS FOLLOWS:
ACCESS TO PROPERTIES AND RECORDS. THROUGHOUT THE PERIOD BETWEEN THE DATE OF THIS
AGREEMENT AND THE CLOSING DATE, SELLER SHALL GIVE TO BUYER AND BUYER'S
AUTHORIZED REPRESENTATIVES FULL ACCESS, DURING NORMAL BUSINESS HOURS, IN SUCH A
MANNER AS NOT TO UNDULY DISRUPT THE BUSINESS ACTIVITIES OF SELLER, TO ANY AND
ALL OF THE ASSETS. SELLER SHALL ALSO PROVIDE COPIES OR EXTRACTS OF DOCUMENTS AND
RECORDS RELATED TO THE ASSETS AS BUYER REASONABLY MAY REQUEST.
CONDUCT OF BUSINESS PRIOR TO CLOSING. BETWEEN THE DATE OF THIS AGREEMENT AND THE
CLOSING, AND EXCEPT AS OTHERWISE CONSENTED TO OR APPROVED BY AN OFFICER OF BUYER
IN WRITING OR AS REQUIRED BY THIS AGREEMENT:
Seller's Music Business shall be operated in the ordinary course consistent with
past practices and in a normal businesslike fashion (including its normal
accounts receivable practice). Seller shall use its best efforts to preserve and
maintain its goodwill, including relationships with employees, suppliers and
customers of its Music Business.
Seller shall not take any action which would cause any material change in any of
the items and matters covered by the representations and warranties set forth in
Section 5.
Advise of Adverse Developments. Seller shall promptly advise Buyer in writing of
all significant adverse matters concerning the Assets.
SATISFACTION OF CONDITIONS. SELLER SHALL IN GOOD FAITH PROCEED TO TAKE OR CAUSE
TO BE TAKEN ALL ACTIONS WITHIN ITS POWER NECESSARY TO SATISFY ALL CONDITIONS TO
ITS OBLIGATIONS TO CLOSE AND CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
10.4 Third Party Consents. Seller, without being compelled to
spend a material amount of money, shall make its best efforts to obtain all
third party consents required by this Agreement provided that Buyer assists
Seller as reasonably requested by Seller.
COVENANTS OF BUYER. BUYER COVENANTS TO SELLER AS FOLLOWS:
SATISFACTION OF CONDITIONS. BUYER SHALL IN GOOD FAITH PROCEED TO TAKE OR CAUSE
TO BE TAKEN ALL ACTIONS WITHIN ITS POWER NECESSARY TO SATISFY ALL CONDITIONS TO
ITS OBLIGATIONS TO CLOSE AND CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
11.2 Financing Commitment. Buyer shall use commercially
reasonable efforts to obtain the financing commitment described in Section 8.6.
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INDEMNITY.
SELLER'S INDEMNITY. SELLER SHALL INDEMNIFY AND HOLD HARMLESS BUYER AND BUYER'S
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FROM AND AGAINST ANY AND ALL LOSSES,
COSTS, EXPENSES, LIABILITIES, OBLIGATIONS, CLAIMS, DEMANDS, CAUSES OF ACTION,
SUITS, SETTLEMENTS AND JUDGMENTS OF EVERY NATURE, INCLUDING THE COSTS AND
EXPENSES ASSOCIATED THEREWITH AND REASONABLE ATTORNEYS' AND WITNESS FEES
INCURRED ("BUYER'S DAMAGES") WHICH ARISE OUT OF (A) THE BREACH BY SELLER OF ANY
REPRESENTATION OR WARRANTY MADE BY SELLER IN THIS AGREEMENT, OR ANY THIRD-PARTY
ALLEGATION THEREOF; (B) THE NON-PERFORMANCE, PARTIAL OR TOTAL, OF ANY COVENANT
MADE BY SELLER IN THIS AGREEMENT, OR ANY THIRD-PARTY ALLEGATION THEREOF; (C) THE
CONDUCT OF THE MUSIC BUSINESS BY SELLER PRIOR TO THE CLOSING; OR (D) ANY OTHER
LIABILITY OR OBLIGATION OF SELLER THAT IS NOT SPECIFICALLY INCLUDED IN THE
ASSUMED OBLIGATIONS.
BUYER'S INDEMNITY. BUYER SHALL INDEMNIFY AND HOLD HARMLESS SELLER AND SELLER'S
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS FROM AND AGAINST ANY AND ALL LOSSES,
COSTS, EXPENSES, LIABILITIES, OBLIGATIONS, CLAIMS, DEMANDS, CAUSES OF ACTION,
SUITS, SETTLEMENTS AND JUDGMENTS OF EVERY NATURE, INCLUDING THE COSTS AND
EXPENSES ASSOCIATED THEREWITH AND REASONABLE ATTORNEYS' AND WITNESS FEES
INCURRED ("SELLER'S DAMAGES" AND WHEN USED TOGETHER WITH OR IN THE ALTERNATIVE
TO BUYER'S DAMAGES, "DAMAGES"), WHICH ARISE OUT OF (A) THE BREACH BY BUYER OF
ANY REPRESENTATION OR WARRANTY MADE BY BUYER IN THIS AGREEMENT; (B) THE
NON-PERFORMANCE, PARTIAL OR TOTAL, OF ANY COVENANT MADE BY BUYER IN THIS
AGREEMENT; OR ANY THIRD PARTY ALLEGATION THEREOF OR (C) EVENTS ARISING IN THE
MUSIC BUSINESS OF SELLER TRANSFERRED TO BUYER AFTER THE CLOSING NOT DIRECTLY
RELATED TO EVENTS OCCURRING PRIOR TO THE CLOSING.
LIMITATION ON INDEMNITY. EACH PARTY'S INDEMNIFICATION OBLIGATIONS HEREUNDER
SHALL BE LIMITED TO ONE MILLION DOLLARS ($1,000,000), EXCEPT WITH RESPECT TO
BREACHES BY SELLER OF THE REPRESENTATIONS AND WARRANTIES CONTAINED IN SECTIONS
5.3, 5.4 AND/OR 5.6 (AS TO WHICH BREACHES SELLER'S LIABILITY SHALL BE
UNLIMITED). ESCROWED FUNDS SHALL NOT BE USED BY EITHER PARTY TO SATISFY ITS
RESPECTIVE INDEMNIFICATION OBLIGATIONS. EACH PARTY'S RIGHT TO SEEK
INDEMNIFICATION FROM THE OTHER PARTY WITH RESPECT TO CUSTOMER CONTRACTS SHALL
TERMINATE ONE YEAR AFTER THE CLOSING DATE, AND EACH PARTY'S RIGHT TO SEEK
INDEMNIFICATION FROM THE OTHER PARTY WITH RESPECT TO DESIGNATED CUSTOMER
CONTRACTS SHALL TERMINATE ONE YEAR AFTER THE ADJUSTMENT DATE.
PROCEDURE. ALL CLAIMS FOR INDEMNIFICATION BY A PARTY UNDER THIS SECTION 12 (THE
PARTY CLAIMING INDEMNIFICATION AND THE PARTY AGAINST WHOM SUCH CLAIMS ARE
ASSERTED BEING HEREINAFTER CALLED THE "INDEMNIFIED PARTY" AND THE "INDEMNIFYING
PARTY", RESPECTIVELY) SHALL BE ASSERTED AND RESOLVED AS FOLLOWS:
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In the event that any claim or demand for which an Indemnifying Party would be
liable to an Indemnified Party hereunder is asserted against or sought to be
collected from such Indemnified Party by a third party, such Indemnified Party
shall, promptly but in any event within 30 days of the receipt thereof, give
notice (the "Claim Notice") to the Indemnifying Party of such claim or demand,
specifying the nature of and specific basis for such claim or demand and the
amount or the estimated amount thereof to the extent then feasible, which
estimate shall not be binding upon the Indemnifying Party in its effort to
collect the final amount of such claim or demand. To the extent the Indemnifying
Party is prejudiced thereby, the failure to so notify the Indemnifying Party of
any such claims or action shall relieve the Indemnifying Party from liability
that it may have to the Indemnified Party under the indemnification provisions
contained in this Section 12, but only to the extent of the actual loss
incurred, and shall not relieve the Indemnifying Party from any liability that
it may have to the Indemnified Party otherwise than under this Section 12. In
any case, if any such actions shall be brought against the Indemnified Party and
the Indemnified Party shall notify the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall be entitled to assume the defense thereof
at its own expense with counsel reasonably acceptable to the Indemnified Party.
If the Indemnifying Party does not assume such defense by written notice to the
Indemnified Party within 15 days of a request from the Indemnified Party to the
Indemnifying Party asking if it intends to assume such defense, the Indemnified
Party shall, in its sole discretion, conduct such defense with counsel of its
choice. If the Indemnifying Party assumes the defense, the Indemnified Party
shall be entitled to participate in the defense at its expense. The settlement
of any claim hereunder by the Indemnifying Party may only be made upon the prior
approval by the Indemnified Party of the terms of the settlement, which approval
shall not be unreasonably withheld. If the Indemnifying Party has assumed the
defense of a claim in accordance with this Section 12.3(a), the Indemnified
Party shall not settle the claim except with the written consent of the
Indemnifying Party or upon the waiver of any claim for indemnity hereunder with
respect to such claim.
If requested by the Indemnifying Party, the Indemnified Party agrees, at the
Indemnifying Party's expense, to cooperate with the Indemnifying Party and its
counsel in contesting any claim or demand that the Indemnifying Party elects to
contest, or, if appropriate and related to the claim in question, in making any
counterclaim against the Person asserting the third party claim or demand, or
any cross-complaint against any Person other than an affiliate of the
Indemnified Party.
If any Indemnified Party should have a claim against the Indemnifying Party
hereunder that does not involve a claim or demand being asserted against or
sought to be collected from it by a third party, the Indemnified Party shall
send a Claim Notice with respect to such claim to the Indemnifying Party. If the
Indemnifying Party disputes such claim, such dispute shall be resolved in
accordance with Section 15.11.
INSURANCE. IN DETERMINING THE AMOUNT OF ANY BUYER'S OR SELLER'S DAMAGES, THERE
SHALL BE DEDUCTED THEREFROM THE AMOUNT OF INSURANCE PROCEEDS COLLECTED IN
RESPECT THEREOF NET OF ALL COST TO OBTAIN SUCH PROCEEDS AND ANY ADDITIONAL COSTS
INCURRED OR TO BE INCURRED THROUGH RETROSPECTIVE PREMIUM ADJUSTMENTS OR
OTHERWISE ON ACCOUNT OF THE COLLECTION THEREOF.
TERMINATION.
MUTUAL AGREEMENT. THIS AGREEMENT MAY BE TERMINATED AND ABANDONED AT ANY TIME
PRIOR TO THE CLOSING DATE BY THE WRITTEN AGREEMENT OF SELLER AND BUYER.
TERMINATION BY BUYER. EXCEPT IF SUCH FAILURE TO CLOSE OR TO SATISFY CONDITIONS
IS DUE TO A BREACH BY BUYER OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THIS
AGREEMENT MAY BE TERMINATED BY BUYER IF THE CLOSING DATE HAS NOT OCCURRED BY
NOVEMBER 30, 1998 (OR BY DECEMBER 23, 1998, IF THE CLOSING DATE IS EXTENDED
PURSUANT TO SECTION 4 OF THIS AGREEMENT), OR IF ON THE CLOSING DATE THE
CONDITIONS SET FORTH IN SECTION 8 SHALL NOT HAVE BEEN MET BY SELLER OR WAIVED BY
BUYER.
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TERMINATION BY SELLER. EXCEPT IF FAILURE TO CLOSE OR TO SATISFY CONDITIONS IS
DUE TO A BREACH BY SELLER OF ITS OBLIGATIONS UNDER THIS AGREEMENT, THIS
AGREEMENT MAY BE TERMINATED BY SELLER IF THE CLOSING DATE HAS NOT OCCURRED BY
NOVEMBER 30, 1998 (OR BY DECEMBER 7, 1998, IF THE CLOSING DATE IS EXTENDED
PURSUANT TO SECTION 4 OF THIS AGREEMENT) OR IF ON THE CLOSING DATE THE
CONDITIONS SET FORTH IN SECTION 9 SHALL NOT HAVE BEEN MET BY BUYER OR WAIVED BY
SELLER.
CONFIDENTIALITY AND EFFECT OF TERMINATION. IN THE EVENT THAT THIS AGREEMENT IS
TERMINATED IN ACCORDANCE HEREWITH, (A) EACH OF THE PARTIES SHALL RETURN (WITHOUT
RETAINING COPIES) ALL DOCUMENTS AND PAPERS CONTAINING CONFIDENTIAL INFORMATION
(INCLUDING TECHNICAL INFORMATION, CUSTOMER LISTS, FINANCIAL DATA AND ANY SIMILAR
INFORMATION DEVELOPED BY ANOTHER PARTY PURSUANT TO THIS AGREEMENT OR IN
CONTEMPLATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT) AND SHALL
NEITHER USE NOR DISCLOSE ANY SUCH INFORMATION, EXCEPT TO THE EXTENT THAT SUCH
INFORMATION IS AVAILABLE TO THE PUBLIC OR IS OTHERWISE RIGHTFULLY OBTAINED AND
(B) NEITHER PARTY SHALL HAVE ANY OBLIGATION TO THE OTHER WHATSOEVER WITH RESPECT
TO THIS AGREEMENT, THE TRANSACTIONS PROVIDED FOR HEREIN, OR THE EXPENSES EITHER
OF THEM INCURRED IN CONNECTION WITH OR IN CONTEMPLATION OF SUCH TRANSACTIONS.
TRANSITION. BUYER SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO INTERVIEW
SELLER'S EMPLOYEES ENGAGED IN THE MUSIC BUSINESS, AND, AT ITS SOLE DISCRETION,
TO OFFER SAID EMPLOYEES EMPLOYMENT WITH BUYER. THE SCHEDULING OF INTERVIEWS AND
THE MAKING OF EMPLOYMENT OFFERS, IF ANY, SHALL BE MUTUALLY AGREED UPON BY THE
PARTIES. IN ADDITION, FROM THE DATE HEREOF THROUGH THE ADJUSTMENT DATE, SELLER
SHALL HAVE THE RIGHT TO FACILITATE AND PARTICIPATE IN A SMOOTH TRANSITION OF
CUSTOMERS FROM SELLER TO BUYER. BUYER WILL IN GOOD FAITH PARTICIPATE WITH SELLER
IN SUCH TRANSITION EFFORTS.
MISCELLANEOUS.
ASSIGNMENT. THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE
SUCCESSORS AND ASSIGNS OF THE PARTIES. NEITHER PARTY MAY ASSIGN EITHER THIS
AGREEMENT OR ANY OF ITS RIGHTS, INTERESTS AND DUTIES HEREUNDER WITHOUT THE PRIOR
WRITTEN CONSENT OF THE OTHER PARTY.
CONFIDENTIALITY. WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTY, NEITHER
PARTY SHALL ISSUE A PRESS RELEASE OR OTHERWISE PUBLICIZE THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR OTHERWISE DISCLOSE (INCLUDING, WITHOUT LIMIT,
TO SELLER'S CUSTOMERS AND EMPLOYEES) THE NATURE OR CONTENTS OF THIS AGREEMENT ON
OR PRIOR TO THE CLOSING DATE EXCEPT AS, AND ONLY TO THE EXTENT, OTHERWISE
REQUIRED BY APPLICABLE LAW OR REGULATION, INCLUDING WITHOUT LIMITATION, FEDERAL
AND STATE SECURITIES LAWS. NO INFORMATION, DOCUMENTS OR REPORTS PROVIDED TO OR
OBTAINED BY EITHER PARTY IN CONNECTION WITH THIS TRANSACTION SHALL BE DISCLOSED
OR TRANSFERRED TO ANY THIRD PARTY EXCEPT (A) TO ATTORNEYS, ACCOUNTANTS AND
FINANCIAL ADVISORS OF BUYER OR SELLER (WHO THEMSELVES HAVE AGREED IN WRITING TO
KEEP SUCH INFORMATION CONFIDENTIAL) AS REQUIRED IN CARRYING OUT THE TRANSACTIONS
CONTEMPLATED HEREBY OR (B) TO THE EXTENT SUCH INFORMATION, DOCUMENTS OR REPORTS
ARE AVAILABLE TO THE PUBLIC OTHER THAN BY BREACH OF THIS AGREEMENT BY SUCH
PARTY. IT IS BUYER'S CURRENT VIEW THAT NO DISCLOSURE UNDER FEDERAL OR STATE
SECURITIES LAWS IS REQUIRED UNTIL 15 DAYS AFTER THE CLOSING DATE. IN THE EVENT
BUYER DETERMINES THAT DISCLOSURE OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT IS REQUIRED BY APPLICABLE LAW OR REGULATION (INCLUDING, WITHOUT
LIMITATION, FEDERAL AND STATE SECURITIES LAWS), BUYER SHALL GIVE SELLER AT LEAST
TEN (10) DAYS PRIOR WRITTEN NOTICE OF BUYER'S INTENT TO MAKE SUCH DISCLOSURE
(SUCH NOTICE TO INDICATE THE NATURE AND EXTENT OF THE DISCLOSURE WHICH BUYER
CONTEMPLATES MAKING). IN THE EVENT THIS AGREEMENT IS TERMINATED AS PERMITTED
HEREIN, THE OBLIGATIONS OF THE PARTIES CONTAINED IN THIS SECTION 15.2 AND
SECTION 13.4 SHALL SURVIVE, AND EACH PARTY SHALL RETURN TO THE OTHER PARTY
(WITHOUT RETAINING COPIES) ALL SUCH DOCUMENTS, INFORMATION AND REPORTS. THE
NON-DISCLOSURE AGREEMENT BETWEEN BUYER AND SELLER, DATED AS OF JULY 31, 1998, IS
INCORPORATED HEREIN BY REFERENCE.
17
<PAGE>
NOTICES. ANY NOTICE OR OTHER COMMUNICATION REQUIRED OR PERMITTED HEREUNDER SHALL
BE IN WRITING AND SHALL BE DEEMED TO HAVE BEEN DULY GIVEN ON THE DATE OF SERVICE
IF SERVED PERSONALLY OR BY FACSIMILE, OR FIVE (5) DAYS AFTER THE DATE OF MAILING
IF MAILED, BY FIRST CLASS MAIL, REGISTERED OR CERTIFIED, POSTAGE PREPAID.
NOTICES SHALL BE ADDRESSED AS FOLLOWS:
To Buyer at: Muzak Limited Partnership
2901 Third Avenue
Suite 400
Seattle, Washington 98121
Attention: President
Fax: (206) 633-6210
With a copy to: Heller, Ehrman, White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7098
Attention: Louisa Barash
Fax: (206) 447-0849
To Seller at: Music Technologies, Inc.
24901 Northwestern Highway
Southfield, MI 48075
Attention: President
Fax: (248) 952-0314
With a copy to: Seyburn, Kahn, Ginn, Bess
Deitch and Serlin, P.C.
Suite 1500
2000 Town Center
Southfield, Michigan 48075
Attention: Bruce S. Kahn
Fax: (248) 353-3727
or to such other address as a party has designated by notice in writing to the
other party in the manner provided by this Section 15.3.
18
<PAGE>
TRANSFER TAXES. SELLER AGREES TO BEAR ANY AND ALL TAX LIABILITY ARISING OUT OF
OR INCURRED IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT,
EXCEPT FOR ANY SALES OR USE TAX PAYABLE BY A BUYER AND ANY TAX ON BUYER'S
OPERATIONS FOLLOWING THE CLOSING OR ACCRUED PRIOR TO THE CLOSING AND
CONSTITUTING AN ASSUMED LIABILITY PURSUANT TO SECTION 1.3 HEREOF.
EXPENSES. EACH PARTY WILL PAY ITS RESPECTIVE COSTS AND EXPENSES, INCLUDING
WITHOUT LIMITATION, LEGAL AND ACCOUNTING EXPENSES, RELATED TO THE NEGOTIATION,
PREPARATION, EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE CONSUMMATION OF
THE TRANSACTIONS CONTEMPLATED HEREBY.
FURTHER ASSURANCES. SELLER WILL FROM TIME TO TIME SUBSEQUENT TO THE CLOSING DATE
AT BUYER'S REQUEST AND WITHOUT FURTHER CONSIDERATION PAYABLE BY SELLER, EXECUTE
AND DELIVER SUCH OTHER INSTRUMENTS OF CONVEYANCE, ASSIGNMENT AND TRANSFER AND
TAKE SUCH OTHER ACTIONS AS BUYER MAY REASONABLY REQUEST IN ORDER MORE
EFFECTIVELY TO CONVEY, ASSIGN, TRANSFER TO AND VEST IN BUYER THE ASSETS AND THE
RIGHT TO OPERATE THE MUSIC BUSINESS OF SELLER.
NO WAIVER. FAILURE OR DELAY ON THE PART OF EITHER PARTY IN EXERCISING ANY
RIGHTS, POWER OR PRIVILEGES UNDER THIS AGREEMENT SHALL NOT BE DEEMED A WAIVER OF
ANY EXERCISE OF ANY RIGHT, POWER OR PRIVILEGE.
BULK SALES. BUYER HEREBY WAIVES COMPLIANCE BY SELLER WITH THE PROVISIONS OF THE
BULK SALES LAW OF ANY STATE.
ENTIRE AGREEMENT AND MODIFICATION. THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES
HERETO CONSTITUTE AND CONTAIN THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDES
ANY AND ALL PRIOR NEGOTIATIONS, CORRESPONDENCE, UNDERSTANDINGS AND AGREEMENTS
BETWEEN THE PARTIES RESPECTING THE SUBJECT MATTER HEREOF. THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO MAY ONLY BE AMENDED BY WRITTEN INSTRUMENT SIGNED
BY THE PARTIES.
SURVIVAL OF TERMS. ALL WARRANTIES, REPRESENTATIONS AND COVENANTS CONTAINED IN
THIS AGREEMENT AND ANY CERTIFICATE OR OTHER INSTRUMENT DELIVERED BY OR ON BEHALF
OF THE PARTIES PURSUANT TO THIS AGREEMENT SHALL BE CONTINUOUS AND SHALL SURVIVE
THE CLOSING.
GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF WASHINGTON, WITHOUT REGARD TO ITS CONFLICTS OF LAW
PRINCIPLES. IN CASE OF A LAWSUIT BETWEEN THEM ARISING UNDER THIS AGREEMENT,
BUYER AND SELLER SUBMIT TO EITHER (1) THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON AT SEATTLE OR,
ALTERNATIVELY, THE SUPERIOR COURT OF WASHINGTON FOR KING COUNTY ("BUYER'S
JURISDICTION") OR (2) THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT
OF MICHIGAN OR, ALTERNATIVELY, THE CIRCUIT COURT OF MICHIGAN FOR OAKLAND COUNTY
("SELLER'S JURISDICTION"). BUYER MUST COMMENCE ANY LAWSUIT ARISING UNDER THIS
AGREEMENT IN SELLER'S JURISDICTION, AND SELLER MUST COMMENCE ANY LAWSUIT ARISING
UNDER THIS AGREEMENT IN BUYER'S JURISDICTION, UNLESS: (I) THE LAWSUIT SEEKS
INJUNCTIVE OR EQUITABLE RELIEF, IN WHICH CASE BUYER OR SELLER MAY COMMENCE THE
SUIT IN BUYER'S JURISDICTION OR SELLER'S JURISDICTION; AND/OR, (II) THE LAWSUIT
SEEKS PAYMENT OF THE PURCHASE PRICE, IN WHICH CASE SELLER MAY COMMENCE THE SUIT
IN BUYER'S JURISDICTION OR SELLER'S JURISDICTION. EACH PARTY AGREES TO WAIVE ITS
RIGHT TO A JURY TRIAL. FOR THE PURPOSES OF THIS SECTION 15.11, OWNER'S RIGHT AND
OBLIGATIONS SHALL BE IDENTICAL TO SELLER'S.
ATTORNEYS' FEES. IF LEGAL PROCEEDINGS ARE BROUGHT TO ENFORCE OR INTERPRET ANY
PROVISION OF THIS AGREEMENT, THE SUBSTANTIALLY PREVAILING PARTY SHALL BE AWARDED
ITS REASONABLE ATTORNEYS' FEES AND COSTS IN ADDITION TO ANY OTHER RELIEF OR
REMEDY WHICH MAY BE AVAILABLE.
19
<PAGE>
SEVERABILITY. IF ANY PROVISION OF THIS AGREEMENT IS HELD TO BE UNENFORCEABLE FOR
ANY REASON, IT SHALL BE ADJUSTED RATHER THAN VOIDED, IF POSSIBLE, IN ORDER TO
ACHIEVE THE INTENT OF THE PARTIES TO THE EXTENT POSSIBLE. IF ANY EVENT, ALL
OTHER PROVISIONS OF THIS AGREEMENT SHALL BE DEEMED VALID AND ENFORCEABLE TO THE
FULLEST EXTENT POSSIBLE.
INTERPRETATION. THE HEADINGS CONTAINED IN THIS AGREEMENT ARE FOR REFERENCE
PURPOSES ONLY AND WILL NOT AFFECT IN ANY WAY THE MEANING OR INTERPRETATION OF
THIS AGREEMENT. NO RULE OF CONSTRUCTION BASED UPON WHICH PARTY DRAFTED A
DOCUMENT OR PROVISION IN IT WILL BE APPLIED AGAINST EITHER PARTY WITH RESPECT TO
THIS AGREEMENT OR ANY OF ITS PROVISIONS.
COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN ONE OR MORE COUNTERPARTS, EACH
OF WHICH SHALL BE DEEMED AN ORIGINAL, BUT ALL OF WHICH WHEN TAKEN TOGETHER SHALL
CONSTITUTE ONE AND THE SAME INSTRUMENT.
FACSIMILE SIGNATURES. THE PARTIES AGREE THAT A SIGNATURE OF THIS AGREEMENT
OBTAINED BY FACSIMILE MACHINE, IF FOLLOWED BY THE ORIGINAL SIGNATURE WITHIN 10
DAYS, IS ACCEPTABLE AND WILL BE BINDING AND SUFFICIENT.
MUSIC TECHNOLOGIES, INC. MUZAK LIMITED PARTNERSHIP
By /s/ Lorraine Golden By /s/ Brad D. Bodenman
----------------------------- --------------------------------
Name: Lorraine Golden Name: Brad D. Bodenman
Title: President Title: Chief Financial Officer
20
<PAGE>
[SCHEDULES]
1.1.2 - Customer Contracts
1.1.4 - Satellite Contracts
1.1.5 - Distribution Systems Assets
3.4 - Purchase Price Allocation
5.2.3 - Consents
5.3 - Stockholders
5.4 - Liens
5.7 - Litigation
5.8 - Broker Fees
5.9 - Contract Defaults, etc.
[EXHIBITS]
3.1 - form of Escrow Agreement
4.2.1 - form of Bill of Sale
4.2.2 - form of Assumption Agreement
4.2.4 - form of Non-Compete Agreement
4.2.5 - form of Advertising Agreement
4.2.10 - Opinion of Seller's Counsel
4.3.5 - Opinion of Buyer's Counsel
65353.07.SE (1#FD28B.DOC)
01/12/99 3:03 PM (12778-0036)
21
<PAGE>
PROMISSORY NOTE
---------------
$2,550,000 Southfield, Michigan
December ___ , 1998
Effective Date: November 30, 1998
FOR VALUE RECEIVED, the undersigned, MUZAK LIMITED PARTNERSHIP, a
Delaware limited partnership ("Maker"), promises to pay to the order of MUSIC
TECHNOLOGIES, INC., a Michigan corporation ("Payee"), the principal sum of Two
Million Five Hundred Fifty Thousand and 00/100 ($2,550,000) Dollars, together
with interest on the unpaid balance thereof which shall accrue from the date of
this Note until paid at the rate of fourteen (14%) percent per annum from the
Effective Date until April 30, 1999 (during the Extension Period, interest shall
accrue at the rates set forth below). Principal and interest shall be paid by
the Maker in lawful money of the United States of America at Payee's address
shown below, or at such other address as the Payee may designate in writing to
the Maker. The Maturity Date of this Note shall be April 30, 1999, unless
extended by Buyer pursuant to the Extension Privilege set forth below (in which
case the Maturity Date shall be December 31, 1999).
CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have
the following meaning:
"EXTENSION FEE" shall mean an amount equal to twenty percent (20%) of
all amounts due under this Promissory Note (unpaid principal plus accrued and
unpaid interest) on April 30, 1999. The Extension Fee shall be added to the
unpaid principal balance due under this note and shall accrue interest at the
applicable rates set forth herein.
"EXTENSION PRIVILEGE" shall mean the Maker's right to extend the
Maturity Date of this Note from April 30, 1999 to December 31, 1999, subject to
the conditions and according to the procedures set forth below in the paragraph
entitled "Extension Privilege."
"EXTENSION PERIOD" shall mean that period beginning April 30, 1999 and
ending December 31, 1999.
"AFFILIATE" shall mean:
(i) with respect to any INDIVIDUAL, any member of such
individual's immediate family, and any organization
(x) in which such individual and/or his Affiliate(s)
own, directly or indirectly, more than fifty percent
(50%) of any class of equity security or (y) in which
such individual and/or his Affiliate is the sole
general partner, or is the managing general partner,
or which is controlled by such individual and/or his
Affiliates, directly or indirectly; and
<PAGE>
(ii) with respect to any CORPORATION, PARTNERSHIP, TRUST,
OR OTHER ORGANIZATION, any other corporation,
partnership, trust, or other organization, which
controls, is controlled by, or is under common
control with, the first-referenced corporation,
partnership, trust, or other organization, and any
individual or entity who is the general partner,
officer, director, trustee of, or who directly or
indirectly controls, the first-referenced
corporation, partnership, trust, or other
organization; and,
(iii) the Maker, the Maker's General Partner and Centre
Capital Investors, L.P.
(iv) any Affiliate of any other Affiliate.
For purposes of this definition, the term "controls,"
"is controlled by" or "is under common control with"
shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the
management and policies of a person or entity,
whether through the ownership of voting securities,
by contract or otherwise.
"NON-AFFILIATE" shall mean any individual or entity which is not an
Affiliate.
"SALE OF THE MUZAK BUSINESS" shall mean a sale of substantially all
of Muzak's assets, or the sale of substantially all of Muzak's
limited partnership interests to or merger with one or more
non-affiliated third-part(ies) which results in Muzak's
current owners having less than a controlling ownership
interest in Muzak.
PAYMENT. Principal and interest shall be paid by the Maker as follows:
a. Maker shall pay to Payee the sum of Five Hundred Thousand
dollars ($500,000) (principal and interest) on each of the
following dates: January 31, 1999, February 28, 1999, and
March 31, 1999.
b. Maker shall pay the full balance due hereunder, principal and
interest, to Payee, on or before the earlier of: (i) April 30,
1999 (unless Maker has timely exercised the Extension
Privilege); or (ii) upon a Sale of the Muzak Business.
If this Note is paid in full on or before the Adjustment Date (as that
term is defined in the Asset Purchase Agreement between Maker and Payee of even
date herewith), Maker may pay $450,000 of the amount due under this Note to
Pacific Northwest Title Company (or other mutually agreeable third party) as
Escrow Agent, which funds shall be held by Escrow Agent pursuant to an Escrow
Agreement to be entered into between Maker and Payee substantially in the form
attached as Exhibit 3.1 to the Asset Purchase Agreement. Amounts paid by Maker
to the Escrow Agent and held by Escrow Agent as Escrowed Funds under such Escrow
Agreement (up to a maximum of $450,000) pursuant to the foregoing sentence,
shall be deemed to be a payment under this Note.
<PAGE>
All payments made under this Note shall be applied first against
accrued interest, and the remainder of such payment shall be applied against
principal.
All payments shall be made without any right of setoff or counterclaim
by Maker against Payee.
Maker may make payments hereunder by wire transfer (or direct deposit)
of funds to Payee's account, pursuant to wire transfer instructions provided
from time to time by Payee. Any payment made by mail will be deemed tendered and
received only upon actual receipt, promptly on the date due for each such
payment as herein required (time being of the essence), at the address of Payee
designated for such payment (or in the case of wire transfers or direct
deposits, to the account designated for such payment). Maker hereby expressly
assumes all risk of loss or liability resulting from non-delivery or delay in
delivery of any payment transmitted by mail or in any other manner. All payments
under this Note shall be in immediately available United States funds, without
set off or counterclaim.
Acceptance by Payee of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only, and the failure to pay
the entire amount then due shall be and continue to be an Event of Default (as
hereinafter defined), and at any time thereafter and until the entire amount
then due has been paid, Payee shall be entitled to exercise all rights conferred
upon it by this instrument upon the occurrence of an Event of Default as herein
set forth.
This Note is for commercial, investment or business purposes and not
for personal, family or household purposes.
Nothing contained herein shall be construed so as to require the Maker
to pay interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest or other charges, charged, paid or
payable by the Maker in connection with this Note, result in the charging,
compensation, payment or earning of interest in excess of the maximum allowed by
the applicable law as aforesaid as determined by the final order of a court of
competent jurisdiction, then any and all such excess shall be and the same is
hereby waived by the Payee, and any and all such excess paid shall be
automatically credited against and in reduction of the principal due under this
Note. If it is determined by a final order of a court of competent jurisdiction
that the interest rate under this Note is, or may be usurious or otherwise
limited by law, the unpaid balance of this Note, with accrued interest at the
highest rate then permitted to be charged by stipulation in writing between
Payee and Maker, at the option of Payee, shall immediately become due and
payable.
EXTENSION PRIVILEGE. Provided that no Event of Default has occurred hereunder,
Maker may elect to extend the Maturity Date of this Note to December 31, 1999,
by providing written notice of its election to extend to Payee on or before
April 15, 1999 (time being of the essence) and by agreeing in writing to payment
of the Extension Fee (which may be paid by adding the amount of the Extension
Fee to the unpaid principal balance of this note).
<PAGE>
During the Extension Period (that period from May 1, 1999 to December
31, 1999), interest shall accrue on the unpaid balance hereof at the following
rates:
15% during the month of May, 1999;
16% during the month of June, 1999;
17% during the month of July, 1999;
18% during the month of August, 1999;
19% during the month of September, 1999;
20% during the month of October, 1999;
21% during the month November, 1999; and
22% from December 1, 1999 until paid in full.
In addition, during the Extension Period, Maker shall pay to Payee the
sum of Five Hundred Thousand dollars ($500,000) (principal and interest) on each
of the following dates: June 30, 1999 and September 30, 1999.
PREPAYMENT. Maker shall have the right at any time to prepay the principal
balance hereof (including any accrued but unpaid interest) without penalty in
whole or in part. Any prepayment shall be credited first on interest then due
and the remainder on principal.
DEFAULT. The occurrence of any of the following events shall be deemed an Event
of Default hereunder:
a. immediately upon written notice by Payee to Maker of
the failure to make any payment hereunder which has
become due; or
b. breach of any Affirmative Covenant, or Negative
Covenant contained herein, if Maker does not cure
any such breach within ten (10) days after the
occurrence of such breach; or,
c. breach by Maker of any of its obligations: to pay
money, or to refrain from competing with Payee,
under either the Asset Purchase Agreement between
Maker and Payee dated October 28, 1998 as amended,
the Advertising Agreement between Maker and Payee of
even date herewith or the Non-Competition Agreement
between Maker and Payee of even date herewith, if
Maker does not cure any such breach within ten (10)
days after written notice of such breach is given to
Maker (provided, however, in the case of breaches by
Maker of its monetary or non-compete obligations,
Maker shall not be entitled to receive any notice or
right to cure with respect to such breach if prior
to such breach Payee has already given written
notice to Maker of an earlier monetary or
non-compete breach even if such earlier breach has
been cured); or,
d. breach of any other obligation by Maker under the
Asset Purchase Agreement, the Advertising Agreement,
or the Non-Compete Agreement (other than
<PAGE>
non-monetary breaches which Maker can show are
non-material, or breaches addressed in paragraph c
above), if Maker does not cure any such breach
within thirty (30) days after written notice of such
breach is given to Maker (provided, however, Maker
shall not be entitled to any notice or cure period
with respect to such breach if, prior to the
occurrence of such breach, Payee has already given
Maker three (3) written notices of other breaches,
even if such other breaches have been timely cured).
Upon the occurrence of any Event of Default hereunder:
a. Interest shall accrue on the unpaid principal
balance hereof at a rate equal to five percentage
points in excess of the interest rates which would
then prevail (as the same increase from time to
time) if no Event of Default had occurred.
b. Payee's obligations to make any payments to Maker
under the Advertising Agreement between Maker and
Payee of even date herewith (which payments arise
out of collections from advertising customers
received after the Event of Default but prior to
cure) shall be forever forgiven; Payee's obligations
to make payments to Maker under the Advertising
Agreement will be reinstated with respect to
payments that arise out of collections from
Advertising Customers received after the date when
all amounts due under this Note have been paid in
full by Maker (and if full payment of all amounts
due under this Note occurs on or after December 31,
1999, then the amount of Advertising Payments due
from Payee to Maker under the Advertising Agreement
shall be equal to five percent (5%) of Net
Advertising Revenues regardless of whether such
Revenues are collected from an Exclusive Customer or
a Non-Exclusive Customer. The amount of Advertising
Agreement payments which are forgiven shall not be
deemed to be payments of this Note.
c. The obligations of Payee and Payee's Owner under the
Non-Competition Agreement between them of even date
herewith shall be suspended until this note is paid
in full (or if this note is not paid in full on or
before December 31, 1999, then Payee and Owner shall
have no further obligations under the
Non-Competition Agreement, but Maker's obligations
thereunder shall continue).
d. The Deferred Payment and the Adjustment Amount (as
those terms are defined in the Asset Purchase
Agreement between the parties) shall be immediately
due and payable; interest shall accrue on such
Deferred Payment and Adjustment Amount from the date
of such Event of Default until paid at the rates set
forth in paragraph a above. For this purpose, the
Adjustment Amount shall be computed and paid as of
<PAGE>
the date of the Event of Default, and the Deferred
Payment shall be immediately due and payable in full
(as if none of the Deferred Payment Contracts were
Undocumented Deferred Payment Contracts).
Further, upon any Event of Default under this Note, then, at the option
of the Payee, without notice to the Maker, the entire indebtedness evidenced
hereby shall become immediately due and payable. Maker further promises to pay
any and all costs of collecting the amount due hereunder, including reasonable
attorney fees. No delay on the part of the Payee in the exercise of any of the
aforesaid rights or remedies shall operate as a waiver thereof, and no single or
partial exercise of any right or remedy by the Payee shall preclude the exercise
of any other right or remedy. Any remedy provided hereunder shall be in addition
to all other remedies available to Payee and such remedies shall be cumulative.
AFFIRMATIVE COVENANTS. Maker covenants and agrees that so long as any
indebtedness hereunder remains unpaid, it will:
a. furnish monthly, on January 31, 1999, February 28,
1999, March 31, 1999 and April 30, 1999: (i) an
affidavit from Maker's Chief Financial Officer,
certifying that Maker is in full compliance with the
Affirmative and Negative covenants set forth in this
Note and that there has been no default by Maker
under the Indenture (described below in Section d);
and (ii) a balance sheet, income statement and
statement of cash flows of Maker for the prior
calendar month;
b. faithfully perform any and all covenants, obligations
and other commitments under any indebtedness (which
indebtedness, when aggregated with all other
indebtedness under which there has been a declared
default or a failure by Maker to perform its
obligations, aggregates at least $100,000) to which
Maker is subject; and,
c. continue at all times to comply with all material
laws, ordinances, regulations or requirements of any
governmental authority relating to Maker's business,
property or affairs;
d. to the extent not otherwise covered herein, comply
with the affirmative covenants set forth in Article 4
and Section 5.01 of that certain Indenture between
Maker and First Trust, N.A., Indenture Trustee, dated
October 2, 1996, as if the promisee of such covenants
in such indenture was the Payee and regardless of
whether the indebtedness represented by the Indenture
has been paid.
NEGATIVE COVENANTS. Maker covenants and agree that so long as any indebtedness
hereunder remains unpaid it will not:
<PAGE>
a. Make any payments of principal under any indebtedness
to which the Maker is subject (except for regularly
scheduled payments as set forth in the attached
schedule of Permitted Principal Payments);
b. make any distributions to any partners, redeem any
partnership interests, or make any payment whatsoever
with respect to any partner's partnership interest;
c. pay any amounts whatsoever to any partner (or any
Affiliate of a partner) (whether a management fee,
salary, compensation, or fee to the general partner
or otherwise), except for (i) board of director fees
consistent with past practice; (ii) payment of a
letter of credit fee to Centre Partners in connection
with Maker's financing facility with Foothill Capital
Corporation; and, (iii) other payments consistent
with past practices, on arms length terms and not
otherwise prohibited by any other provision hereof;
d. consent to any amendment to the terms of any loan or
any indebtedness which would have the effect of
shortening the term, increasing the interest rate or
the amount of any payments, or otherwise materially
impairing the ability of Maker to make payments to
Payee hereunder, without Payee's prior written
consent.
e. to the extent not otherwise covered herein, breach
any of the Negative Covenants set forth in Article 4
and Section 5.01 of that certain Indenture between
Maker and First Trust, N.A., Indenture Trustee, dated
October 2, 1996 (the "Indenture") (such Negative
Covenants are incorporated herein by reference, shall
be deemed to be made to Payee and shall remain in
force even if the indebtedness under the Indenture is
paid in full).
f. commit any default under the Indenture.
ASSIGNMENT. This Note and all rights and remedies of the Payee shall inure to
the benefit of the Payee's legal representatives, successors and to any other
holder who derives title to or interest in this Note, and shall bind the Maker
and its legal representatives, successors and assigns.
NOTICES. Any notice or other communications required or permitted hereunder
shall be sufficiently given if in writing and delivered personally or sent by
confirmed facsimile transmission, telex, telecopy or other wire transmission
(with request for confirmation in a manner typical with respect to
communications of that type), overnight air courier (postage prepaid), or
registered or certified mail (postage prepaid with return receipt requested)
addressed to the respective party as follows:
<PAGE>
IF TO THE MAKER:
MUZAK LIMITED PARTNERSHIP
2901 Third Avenue
Suite 400
Seattle, Washington 98121
Attn: President
Fax: 206-633-6210
with copies to:
Heller, Ehrman, White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7098
Attention: Louisa Barash
Fax: 206-447-0849
IF TO PAYEE:
Music Technologies, Inc.
24901 Northwestern Highway
Southfield, Michigan 48075
Attention: President
Fax: 248-952-0314
with a copy to:
Bruce S. Kahn, Esq.
Seyburn, Kahn, Ginn, Bess, Deitch & Serlin, P.C.
2000 Town Center, Suite 1500
Southfield, MI 48075-1195.
Fax: 248-353-3727
Unless otherwise specified herein, notices shall be deemed received (a) on the
date delivered, if delivered personally, by wire transmission or confirmed
facsimile transmission; (b) on the next business day after deposit with an
overnight air courier; or (c) three (3) business days after being sent, if sent
by registered or certified mail.
AMBIGUITY. Maker and Payee acknowledge and agree that they have each contributed
to the drafting of this document, and accordingly there shall arise no
presumption in favor of or against any party as a result of any ambiguity in the
language of this document.
WAIVER. The Maker and all endorsers, sureties and guarantors hereby jointly and
severally waive presentment, demand for payment, notice of dishonor, notice of
protest, and protest, and all other notices or demands in connection with the
delivery, acceptance, performance, default, endorsement or guaranty of this
instrument (except for any notice or grace period expressly provided in this
Note); and agree that no obligation hereunder shall be discharged by any
extension, indulgence or release given to Maker or to any guarantor or other
<PAGE>
person or by the release or non-enforcement of any security or guaranty given in
connection herewith. Notwithstanding anything herein to the contrary, nothing
shall limit any rights granted to Payee by other instruments or by law.
PARTIAL INVALIDITY. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable in any manner, the
remaining provisions of this Note shall nonetheless continue in full force and
effect without being impaired or invalidated in any way. In addition, if any
provision of this Note may be modified by a court of competent jurisdiction such
that it may be enforced, then that provision shall be so modified and as
modified shall be fully enforced.
GOVERNING LAW. This Note is being executed and delivered in the State of
Michigan and shall be governed by and be construed in accordance with the laws
of the State of Michigan. The Maker agrees that all actions arising from or in
connection with this Note shall, be litigated only in the United States District
Court for the Eastern District of Michigan, or the Oakland County Michigan
Circuit Court, and the Maker consents to the jurisdiction and venue of these
courts.
MUZAK LIMITED PARTNERSHIP, a Delaware limited
partnership
By:______________________________________
Brad D. Bodenman, Chief Financial Officer
<PAGE>
NON-COMPETITION AGREEMENT
-------------------------
THIS Non-Competition Agreement is made and entered into as of the ___
day of December, 1998, by and between MUZAK LIMITED PARTNERSHIP, a Delaware
limited partnership ("Muzak"), MUSIC TECHNOLOGIES, INC., a Michigan corporation
("MTI") and LORRAINE GOLDEN ("Owner").
RECITALS
A. Pursuant to that certain Asset Purchase Agreement dated as of
October 28, 1998, between Muzak & MTI (the "Asset Purchase Agreement"), Muzak
acquired certain of MTI's assets (the "MTI Assets"). Muzak is engaged in the
business of selling business music services and other recurring music related
in-store business services within the United States (the "Business").
B. MTI and Owner possess expertise and extensive knowledge of the
Business which if shared with persons or entities that are in competition with
MTI and will be in competition with Muzak would be harmful to the Business and
Muzak.
C. The covenants and undertakings set forth in this Agreement are
integral to Muzak's acquisition of the MTI Assets. Muzak would not have acquired
the MTI Assets without the benefits of this Agreement.
AGREEMENT
In consideration of the promises and mutual covenants contained herein
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, and assuming there is no payment default (after notice and
opportunity to cure in accordance herewith) by Muzak under the Asset Purchase
Agreement, the parties agree as follows:
<PAGE>
1. NON-COMPETITION. IN CONSIDERATION OF THE MUTUAL COVENANTS CONTAINED IN THE
ASSET PURCHASE AGREEMENT, FOR A PERIOD OF FIVE (5) YEARS FROM THE DATE OF THIS
AGREEMENT (THE "NON-COMPETE PERIOD"), MTI AND OWNER JOINTLY AND SEVERALLY
COVENANT AND AGREE THAT THEY, EITHER DIRECTLY OR INDIRECTLY, WHETHER OR NOT
THROUGH OTHERS ACTING AS SUCH PARTY'S EMPLOYEE OR AGENT, SHALL NOT COMPETE WITH
THE BUSINESS. FOR PURPOSES OF THIS AGREEMENT, THE TERM "COMPETE" MEANS AND WILL
MEAN STARTING, ACQUIRING, OR OBTAINING ANY EQUITY INTEREST (EXCEPT FOR
NON-CONTROLLING INVESTMENTS IN MUTUAL FUNDS OR PUBLICLY-TRADED COMPANIES WITHOUT
ANY PARTICIPATION IN THE MANAGEMENT THEREOF) IN OR OTHERWISE ENGAGING IN ANY
BUSINESS WHICH IS IN THE BUSINESS OF SELLING BUSINESS MUSIC SERVICES AND OTHER
RECURRING MUSIC RELATED IN-STORE BUSINESS SERVICES WITHIN THE UNITED STATES.
NOTHING HEREIN SHALL RESTRICT MTI OR OWNER FROM ENGAGING IN ACTIVITIES IN THE
BUSINESS PURSUANT TO THE SALES AGENT AGREEMENT SET FORTH IN SECTION 2 OF THE
ASSET PURCHASE AGREEMENT BETWEEN MUZAK AND MTI OF EVEN DATE HEREWITH OR THE
ADVERTISING AGREEMENT BETWEEN MUZAK AND MTI OF EVEN DATE HEREWITH.
Nothing herein shall restrict MTI or Owner from engaging in activities
in the Business, to the extent reasonably necessary or desirable to enable MTI
or Owner to continue selling Business Music services and other recurring
music-related in-store business services within the United States to Kmart.
In addition, in consideration of the mutual covenants contained in the
Asset Purchase Agreement, for the period of the Muzak Non-Compete Period as
hereinafter defined, Muzak and its affiliates, jointly and severally, covenant
and agree that they, either directly or indirectly, whether or not through
others acting as such party's employee or agent, shall not compete with MTI in
the business of selling business music services or other recurring music-related
in-store business services, in the United States and Puerto Rico, covered by the
then existing contract between MTI and Kmart, provided that should Kmart extend
its services provided under the contract to any of its affiliates then the
provisions of this non-compete agreement would apply. For purposes of this
Agreement, the term "Compete" will mean "starting, acquiring, or obtaining any
equity interest (except for non-controlling investments in mutual funds or
publicly-traded companies without any participation in the management thereof)
in or otherwise engaging in any business which is in the business of selling
business music services and other recurring music-related in-store business
services within the United States to Kmart. The "Muzak Non-Compete Period" shall
mean the shorter of: (a) ten (10) years; or, (b) twelve (12) months after MTI or
its successors or assigns ceases providing business music services to Kmart.
As used in this Agreement, "Kmart" shall mean Kmart Corporation, and
its present and future affiliates, its successors or assigns. Notwithstanding
anything contained in this Section to the contrary, all geographic references in
this Section shall apply to Kmart's existing music-related in-store business
services in the United States and Puerto Rico, and shall include any such
services worldwide in the event Kmart so expands its music-related in-store
business services.
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<PAGE>
2. NONINTERFERENCE. DURING THE NON-COMPETE PERIOD, MTI AND OWNER SHALL NOT (1)
SOLICIT OR ATTEMPT TO SOLICIT ANY PERSONS EMPLOYED BY MUZAK TO BECOME EMPLOYED
IN ANY BUSINESS, INCLUDING PERSONS BECOMING EMPLOYED BY MUZAK UPON THE CLOSING
OF MUZAK'S ACQUISITION OF THE MTI ASSETS OR (2) INDUCE OR ATTEMPT TO INDUCE ANY
CUSTOMER, SUPPLIER, LICENSEE OR OTHER BUSINESS RELATION OF MUZAK TO CEASE DOING
BUSINESS WITH MUZAK, OR IN ANY WAY INTERFERE WITH THE RELATIONSHIP BETWEEN ANY
CUSTOMER OR BUSINESS RELATION AND MUZAK.
During the Muzak Non-Compete Period, Muzak and its Affiliates shall
not, unless the parties agree otherwise in writing, (1) solicit or attempt to
solicit any persons employed by MTI who are engaged by MTI in whole or in part
to service Kmart, to become employed in any business, including persons becoming
employed by MTI upon the closing of MTI's sale of assets to Muzak; or (2) induce
or attempt to induce any customer, supplier, licensee or other business relation
of MTI, which relation is used by MTI for purposes of servicing the Kmart
account, to cease doing business with MTI, or in any way to interfere with the
relationship between MTI and Kmart or any business relation which assists MTI in
servicing Kmart.
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<PAGE>
3. REMEDIES
A. IN THE EVENT OF ANY BREACH BY A PARTY OF, OR A DEFAULT BY A PARTY UNDER, ANY
OF THE PROVISIONS OF THIS AGREEMENT, THE OTHER PARTIES SHALL HAVE ANY AND ALL
RIGHTS AND REMEDIES AVAILABLE TO THEM UNDER THIS AGREEMENT, BY OPERATION OF LAW
OR IN EQUITY. ALL OF THESE RIGHTS AND REMEDIES SHALL BE CUMULATIVE AND NOT
ELECTIVE IN ANY RESPECT. ANY OF EACH SHALL BE DEEMED TO BE IN ADDITION TO AND
NOT IN LIEU OF ANY OF THE OTHER RIGHTS AND REMEDIES.
B. EACH PARTY ACKNOWLEDGES AND AGREES THAT, IN THE EVENT OF ANY BREACH BY THEM
OF OR DEFAULT BY THEM UNDER EITHER SECTION 1 OR 2 OF THIS AGREEMENT, THE OTHER
PARTY WILL SUFFER IRREPARABLE AND ONGOING HARM WHICH, WHILE SUBSTANTIAL, WILL
NOT BE FULLY COMPENSABLE BY DAMAGES. AS A CONSEQUENCE, IN THE EVENT OF ANY
ACTUAL OR THREATENED BREACH OF OR DEFAULT UNDER EITHER SECTION 1 OR 2 OF THIS
AGREEMENT BY EITHER PARTY, THE OTHER PARTY MAY, IN ADDITION AND SUPPLEMENTARY TO
ANY AND ALL OTHER RIGHTS AND REMEDIES EXISTING IN ITS FAVOR, OBTAIN IMMEDIATE
AND ONGOING INJUNCTIVE RELIEF, ENJOINING OR RESTRAINING WHATEVER VIOLATION MAY
HAVE OCCURRED OR BE OCCURRING OR MAY HAVE BEEN THREATENED. THIS INJUNCTIVE
RELIEF SHALL BE IN THE FORM OF A TEMPORARY RESTRAINING ORDER, PRELIMINARY
INJUNCTION OR SIMILAR RELIEF, AND A PERMANENT INJUNCTION, AS MAY BE SOUGHT BY
THE NON-DEFAULTING PARTY. NO BOND, OR THE MINIMUM REQUIRED BY LAW, SHALL BE
REQUIRED OF THE NON-DEFAULTING PARTY.
C. THE PROVISIONS OF THIS AGREEMENT SHALL BE DEEMED TO BE SEVERABLE. THE
INVALIDATION OF ANY ONE PROVISION BY A COURT OF COMPETENT JURISDICTION SHALL NOT
INVALIDATE ANY OTHER PROVISION. IN THE EVENT A COURT OF COMPETENT JURISDICTION
DETERMINES THAT ANY OF THE RESTRICTIONS CONTAINED IN THIS AGREEMENT ARE
UNREASONABLE, SUCH COURT IS FREE TO IMPOSE AND IS AUTHORIZED TO ENFORCE ANY
LESSER RESTRICTION OR RESTRICTIONS DETERMINED BY IT TO BE REASONABLE. INCLUSION
IN THIS AGREEMENT OF THIS SECTION 3(C) SHALL NOT IN ANY WAY BE DEEMED TO BE A
WAIVER, RENUNCIATION OR DENIAL BY ANY PARTY OF THE OTHER PARTY'S ACKNOWLEDGMENTS
AND AGREEMENTS CONTAINED IN SECTION 3(F).
D. MTI AND OWNER (ON THE ONE HAND) AND MUZAK (ON THE OTHER HAND) EACH AGREE THAT
THE COVENANTS AND AGREEMENTS MADE IN AND THE REQUIREMENTS IMPOSED BY THIS
SECTION 3 SHALL BE CONSTRUED AS AN AGREEMENT INDEPENDENT OF ANY OTHER PROVISIONS
OF THIS AGREEMENT AND SHALL SURVIVE THE TERM AND ANY TERMINATION OF THIS
AGREEMENT. THE EXISTENCE OF ANY CLAIM OR CAUSE OF ACTION OF EITHER PARTY AGAINST
THE OTHER (OR SUCH OTHER'S AFFILIATES), IRRESPECTIVE OF WHETHER PREDICATED ON
THE TERMS OF THIS AGREEMENT, SHALL NOT CONSTITUTE A DEFENSE TO THE ENFORCEMENT
OF THE COVENANTS AND AGREEMENTS OF THE PARTY MAKING SUCH CLAIM CONTAINED IN, OR
THE REQUIREMENTS IMPOSED UPON IT BY, SECTION 1, SECTION 2, AND SECTION 3 OF THIS
AGREEMENT; PROVIDED HOWEVER, THAT IN THE EVENT OF A PAYMENT DEFAULT OF THE ASSET
PURCHASE AGREEMENT, UNLESS CURED AFTER 30 DAYS PRIOR WRITTEN NOTICE BY MTI, MTI
AND OWNER SHALL NOT BE BOUND BY THIS AGREEMENT.
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<PAGE>
E. IF ANY SUIT, ARBITRATION OR OTHER PROCEEDING IS INSTITUTED BY ANY PARTY
PERTAINING TO THIS AGREEMENT OR PERFORMANCE HEREUNDER, THE SUBSTANTIALLY
PREVAILING PARTY, IN ADDITION TO ANY OTHER RELIEF AS MIGHT BE AWARDED, WILL BE
ENTITLED TO ITS COSTS, EXPENSES AND REASONABLE ATTORNEYS' FEES AS SET BY AN
ARBITRATOR, A TRIAL COURT, AND AN APPELLATE COURT.
F. MTI AND OWNER (ON THE OTHER HAND) AND MUZAK (ON THE OTHER HAND) EACH
ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THE PROVISIONS OF THIS
AGREEMENT, INCLUDING THE PROVISIONS CONTAINED IN THIS SECTION 3; HAVE DISCUSSED
THE MEANING AND EFFECT OF THESE PROVISIONS WITH COUNSEL; AND AGREE THAT THEY ARE
FAIR AND REASONABLE.
4. NOTICES. ALL NOTICES, COMMUNICATIONS AND DELIVERIES UNDER THIS AGREEMENT
SHALL BE MADE IN WRITING AND SIGNED BY THE PARTY MAKING THE SAME, AND SHALL BE
DEEMED TO BE GIVEN ON THE DATE DELIVERED IF DELIVERED IN PERSON OR BY FACSIMILE
OR ON THE THIRD (3RD) BUSINESS DAY AFTER MAILED IF MAILED CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, WITH POSTAGE PREPAID, AS FOLLOWS:
To Muzak:
Muzak Limited Partnership
2901 Third Avenue, Suite 400
Seattle, WA 98121
Attention: President
Fax: (206) 633-6210
To MTI or Owner:
Music Technologies, Inc.
24901 Northwestern Highway Suite 212
Springfield, MI 48075
Attention: Lorraine Golden
Fax: (248) 952-0314
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<PAGE>
5. ENTIRE AGREEMENT. THIS AGREEMENT CONTAINS THE ENTIRE AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ANY AND ALL
OTHER COMMUNICATIONS, REPRESENTATIONS, PROPOSALS, UNDERSTANDINGS OR AGREEMENTS,
WHETHER WRITTEN OR ORAL, BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT
MATTER HEREOF. THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED, IN WHOLE OR IN
PART, EXCEPT BY A WRITING SIGNED BY ALL PARTIES.
6. ASSIGNMENT. NO PARTY SHALL ASSIGN THIS AGREEMENT WITHOUT THE PRIOR CONSENT OF
THE OTHER PARTIES TO THIS AGREEMENT. THIS AGREEMENT SHALL BE BINDING UPON AND
INURE TO BENEFIT OF THE PARTIES AND THEIR LEGAL REPRESENTATIVES, SUCCESSORS,
PERMITTED ASSIGNS AND HEIRS.
7. CONSTRUCTION. THE LANGUAGE OF THIS IS AND WILL BE DEEMED TO BE THE LANGUAGE
CHOSEN BY THE PARTIES JOINTLY TO EXPRESS THEIR MUTUAL INTENT. NO RULE OF
CONSTRUCTION BASED ON WHICH PARTY DRAFTED THE AGREEMENT OR CERTAIN OF ITS
PROVISIONS WILL BE APPLIED AGAINST ANY PARTY.
8. COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED SEPARATELY OR INDEPENDENTLY IN
ANY NUMBER OF COUNTERPARTS AND MAY BE DELIVERED BY MANUALLY SIGNED COUNTERPART
OR FACSIMILE. EACH AND ALL OF THESE COUNTERPARTS SHALL BE DEEMED TO HAVE BEEN
EXECUTED SIMULTANEOUSLY AND FOR ALL PURPOSES TO BE ONE DOCUMENT, BINDING AS SUCH
ON THE PARTIES.
9. HEADINGS. THE HEADINGS OF THE SECTIONS OF THIS AGREEMENT ARE FOR REFERENCE
ONLY AND WILL NOT BE CONSIDERED TO MODIFY OR OTHERWISE AFFECT THE TERMS OF THE
AGREEMENT.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE
LAWS OF THE STATE OF WASHINGTON WITHOUT REFERENCE TO THE CONFLICT OF LAW
PRINCIPLES OF SUCH STATE.
MUZAK LIMITED PARTNERSHIP MUSIC TECHNOLOGIES, INC.
By:___________________________ By:_________________________
Brad D. Bodenman Lorraine Golden
Chief Financial Officer President
Owner:
- ------------------------------
Lorraine Golden
6
<PAGE>
ADVERTISING AGREEMENT
---------------------
This Advertising Agreement ("Agreement") is entered into on
_____________, 1998 by Muzak Limited Partnership ("Muzak"), a Delaware limited
partnership, whose principal business address is 2901 Third Avenue, Suite 400,
Seattle, Washington 98121 and Music Technologies, Inc. ("MTI"), a Michigan
corporation, whose principal business address is 24901 Northwestern Highway,
Suite 212, Southfield, Michigan 48075.
R E C I T A L S:
A. Muzak has agreed to purchase from MTI and MTI has agreed to sell to
Muzak certain assets of MTI upon the terms and conditions described in a certain
asset purchase agreement entered into by the parties concurrently with the
execution of this Agreement ("Purchase Agreement").
B. From and after the closing of the above-described sale of MTI's
assets to Muzak, MTI shall have the right to sell advertising on Muzak's
customers' in-store audio networks, subject to the terms and conditions
described in this Agreement.
For valuable consideration, the adequacy and receipt of which is
acknowledged, the parties agree as follows:
I. ADVERTISING SALES. During the Term (as defined in paragraph 3 below) of
this Agreement:
I. Exclusive Customers. Muzak shall provide MTI, on an
exclusive basis, the opportunity to sell advertising on the
in-store audio networks of the customers described on attached
Exhibit "A" (sometimes individually referred to as an
"Exclusive Customer" and collectively as the "Exclusive
Customers"). Notwithstanding the foregoing, Muzak's grant of
exclusivity contained herein shall be subject to the rights
(if any) of Act Radio under the Act Radio Agreement (as
defined in Section 1.1.4 of the Asset Purchase Agreement) as
such rights (if any) exist on the date hereof, but only to the
extent that Act Radio expressly requires Muzak to honor such
rights. In the event any issues arise regarding the scope of
Act Radio's rights, the parties agree to discuss them in good
faith and in an effort to resolve them. The parties intend
that the foregoing exception to MTI exclusivity shall not be
construed to permit Muzak to engage in any activities
described in the first sentence of this subparagraph unless it
does so through Act Radio as a result of Act Radio's express
requirement.
I. Non-Exclusive Customers. MTI shall also be entitled, on a
non- exclusive basis, to sell advertising on the in-store
audio networks of Muzak's current and future customers
<PAGE>
(sometimes individually referred to as a "Non-Exclusive
Customer" and collectively as the "Non-Exclusive Customers").
I. Production of All Advertisements and Indemnification.
Except for those advertisements produced by the advertisers
themselves, MTI shall be solely responsible for producing the
advertisements sold by MTI pursuant to this Agreement. MTI
agrees to indemnify Muzak against claims by third parties that
any advertisement(s) which MTI sold, infringes such third
party's U.S. copyright or other proprietary rights.
I. ADVERTISING PAYMENTS. During the Term of this Agreement:
I. Collections. MTI shall timely bill and diligently collect
all fees due from Exclusive Customers and Non-Exclusive
Customers for all advertising sold to such customers by MTI.
MTI shall provide Muzak, on a calendar quarter basis, with an
accounting of all amounts billed and actually collected from
each such customer during the subject calendar quarter.
I. Allocations and Inspections. MTI shall remit to Muzak five
(5%) percent of the Net Advertising Revenues (as defined
below) actually collected by MTI from sales of in-store
advertisements placed on the in-store audio networks of
Exclusive Customers, and with respect to a Non-Exclusive
Customer, MTI shall remit to Muzak a fee equal to the greater
of: (i) Six Hundred Dollars ($600) per advertising minute per
month per account (regardless of the number of stores in such
customer's system on which the advertisement is broadcast);
or, (ii) Eighteen Percent (18%) of the Net Advertising
Revenues (as defined below) actually collected by MTI from
sales of in-store advertisements placed on the in-store audio
networks of such Non-Exclusive Customer. The five (5%) percent
remittance is intended to compensate Muzak for the handling,
insertion and trafficking of advertisements. The remittance
with respect to Non-Exclusive Customers is intended to
compensate Muzak for its obligation to introduce and promote
MTI to such customers in accordance with this Agreement, as
well as for Muzak's handling, insertion and trafficking of
advertisements. MTI shall pay Muzak's share of said Net
Advertising Revenues actually received by MTI during the
immediately preceding calendar quarter to Muzak on or before
the fifteenth (15th) day of each March, June, September and
December during the term of this Agreement. For purposes of
this Agreement, the term "Net Advertising Revenues" shall mean
the gross amounts actually collected by MTI from the sale of
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<PAGE>
in-store advertisement(s) to the applicable advertiser(s),
less any and all amounts which MTI is obligated to pay to the
applicable customer(s) or as a "finder's fee" to any third
party(ies) for running said advertisement(s) on such
customer(s)' in-store networks. For purposes of this
paragraph, the phrase "finder's fee" shall be deemed to
exclude sales commissions regularly payable to MTI's own
employees or independent sales agents. Muzak shall have the
right, at its sole cost and expense, but not more than once
each calendar year, to inspect MTI's books and records for the
year in which the inspection(s) takes place to verify that
Muzak's share of Net Advertising Revenues is/was accurately
calculated. The date, time and location of any such
inspection(s) shall be mutually agreed upon by the parties. If
such inspection(s) discloses that Muzak's share of Net
Advertising Revenues is/was understated/overstated, said
deficiency/overpayment shall be promptly paid to Muzak or to
MTI, as applicable, by the other party. Except as specified in
this Agreement, Muzak shall not be entitled to any advertising
and/or other revenues of any kind whatsoever collected by MTI.
In the event MTI fails to remit amounts due and payable under
this paragraph, and such failure is not cured within thirty
(30) days after MTI receives written notice from Muzak
describing such failure in reasonable detail, then, in such
event, Muzak's non-competition obligations contained in
paragraph 4 of this Agreement shall be deemed terminated.
I. Promotion of MTI to Non-Exclusive Customers. Upon execution
of this Agreement, Muzak shall provide MTI with an initial
list of current and prospective Non-Exclusive Customers to
which MTI will be presented and promoted by Muzak in
accordance with this paragraph 2.c. (the "Initial List"). The
Initial List shall include Fleming, Affiliated Foods,
Associated Wholesale Grocers and Bi-Lo, and the Initial List
shall be updated and expanded over the term of this Agreement
to include such additional Non-Exclusive Customers as Muzak
determines to be appropriate in its reasonable discretion, or
that MTI identifies as a prospective advertising customer and
which Muzak agrees to add to the Initial List in its
reasonable discretion. It is the intention of both MTI and
Muzak to have Fleming, Affiliated Foods, Associated Wholesale
Grocers and Bi-Lo enter into contracts with MTI which will
(upon terms and conditions acceptable to MTI in its sole
discretion) provide MTI the exclusive right to sell
advertising on said customers' in-store audio networks. Within
ninety (90) days following execution of this Agreement, with
respect to customers identified on the Initial List, and
within ninety (90) days following any additions thereto, with
respect to such additions, Muzak shall provide MTI with a
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<PAGE>
written introduction to such customers, and will use
commercially reasonable efforts to arrange for meetings or
other business contacts with such customers. In addition to
the foregoing, and to the extent that the same will not
jeopardize in any way Muzak's relationships with its customers
(as determined by Muzak in its sole discretion), Muzak and MTI
shall cooperate in the solicitation of new in-store audio
accounts with a view to maximizing the advertising portion of
such accounts. Muzak represents to MTI that it has no
agreements or other obligations with third parties for the
sale of advertising to any Exclusive or Non-Exclusive
Customers which it has not previously disclosed to MTI in
writing. Notwithstanding anything to the contrary in this
paragraph 2.c., MTI acknowledges that Muzak previously entered
into a certain written agreement with Act Radio/News America
(now expired) which provided for Act Radio/News America's
right to sell advertising to Muzak customers and any
obligations arising under such agreement shall not be deemed a
violation of Muzak's obligations under this paragraph 2.c.
I. Satellite Segment Space. In the event that the satellite
segment assumed by Muzak (in accordance with the terms of the
Purchase Agreement) becomes insufficient to provide the
contractually required volume of advertisements to the
Exclusive Customers, and such insufficiency results in Muzak
having to acquire additional satellite segment, the parties
acknowledge and agree that the allocation of Net Advertising
Revenues as between Muzak and MTI for Exclusive Customers
(i.e. the 5% remittance only) shall be adjusted equitably to
defray a portion of Muzak's additional satellite segment
costs. Such an adjustment shall only occur if the
insufficiency of satellite segment is caused solely by an
increase in the volume of advertising sold by MTI, and for no
other reason. The amount of such adjustment, if any, shall be
determined in good faith by the mutual written agreement of
Muzak and MTI.
e. Kmart Excluded. The parties agree that
Kmart Corporation (and its present and future
affiliates), to the extent they continue to be
serviced by MTI or its successors or assigns, are
excluded from the definition of "Exclusive Customers"
and "Non-Exclusive Customers," and no advertising
payment under Section 2 of this Advertising Agreement
shall be due from MTI to Muzak in respect of services
rendered to Kmart.
I. TERM. The initial term of this Agreement shall be for five
(5) years from the date of this Agreement ("Term"). In
addition, the parties agree to commence good faith
negotiations from and after the fourth anniversary date of
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<PAGE>
this Agreement to extend the Term. Upon the termination of
this Agreement, MTI shall have no further obligations of any
kind whatsoever under this Agreement and/or liability to Muzak
(including any purchaser of Muzak), including, without
limitation, for fees paid to Muzak by MTI pursuant to
paragraph 2 of this Agreement, except only for such fees which
are due and owing on the effective date of such termination.
I. NON-COMPETITION OBLIGATIONS AND REMEDIES.
I. Non-Competition Obligations. Muzak agrees that it will not,
for the five (5) year period from and after the date of this
Agreement, in any geographic area where MTI conducts its
Advertising Business (as defined below), directly or
indirectly, on its own behalf or on behalf of any party it is
affiliated in any manner with, compete with MTI's Advertising
Business and/or solicit Advertising Business from any
advertising customer(s) of MTI. Upon a "Sale of Muzak's
Business," as defined hereinbelow, Muzak agrees to require any
purchaser of its business to agree in writing to be bound
(and, in any event, such purchaser shall be bound) by the
foregoing prohibitions, as a condition of the Sale of Muzak's
Business. For purposes of this Agreement, the phrase "Sale of
Muzak's Business" shall mean a sale of substantially all of
Muzak's assets, or the sale of substantially all of Muzak's
voting stock to or merger with one or more non-affiliated
third-party(ies) which results in Muzak's current owners
having less than a controlling ownership interest in Muzak.
Muzak agrees to provide MTI with written notice of any and all
proposed Sale(s) of Muzak's Business at least thirty (30) days
prior to the proposed closing date of such sale(s) and further
written notice indicating that a Sale of Muzak's Business was
actually consummated (including the date of such completed
Sale of Muzak's Business). Without limiting the generality of
the foregoing, the parties agree that if a Sale of Muzak's
Business (as defined above) shall be consummated while this
Agreement is in effect such purchaser: i) shall assume Muzak's
obligations under this Agreement; and ii) if Muzak has ceased
all of its operations as a separate entity following such sale
(or, in lieu of such cessation, the "Sale of Muzak's Business"
is structured as a stock sale or merger in which the Muzak
entity is the survivor entity and Muzak's current owners have
less than a controlling interest in such survivor entity),
then the purchaser of Muzak can elect, by delivering written
notice of such election to MTI at any time during the 90 day
period immediately following the consummation of the Sale of
Muzak's Business, to have the non-competition prohibitions
described in this paragraph 4.a. only apply to the Exclusive
Customers, to Kmart Corporation (and its present and future
5
<PAGE>
affiliates), and to those Non-Exclusive Customers with whom
MTI has established an advertising arrangement prior to the
date of MTI's receipt of such notice of election (which
election shall be effective sixty (60) days following MTI's
receipt of the notice of election). For purposes of this
Agreement, the term "Advertising Business" shall mean the sale
or attempted sale of promotional messages to advertisers of
their products (including, without limitation, private label
products) on the in-store audio networks of any business or
other organization. Notwithstanding anything to the contrary
contained in this Agreement, nothing in this Agreement shall
be deemed to preclude MTI from selling advertising for use on
a customer's in-store video network, from selling other video
services related to its advertising business, or from
continuing its advertising business with any and all customers
and/or prospective customers during and after the five (5)
year period referred to in this paragraph 4.a.
I. Remedies. Muzak acknowledges that the restrictions set
forth in paragraph 4.a. are fair and reasonable, and are
reasonably required for the protection of MTI's legitimate
business interests. Muzak further acknowledges and agrees that
in the event of a breach (or an attempted breach) of paragraph
4.a., MTI's damages will be substantial and difficult, if not
impossible, to ascertain, and that MTI will suffer irreparable
damage. Accordingly, Muzak hereby consents that in the event
of a breach or attempted breach by it, upon application by MTI
to a court of competent jurisdiction, such court shall grant
MTI injunctive relief, both temporary and permanent, to
prevent or restrain such breach or the continuance of such
breach, in addition to any other damages otherwise obtainable
or available at law. Muzak further agrees that the applicable
time period for the prohibitions set forth in paragraph 4.a.
shall automatically be extended for a period of time equal to
the time that Muzak is in default under this Agreement as
determined by a court of competent jurisdiction.
I. MISCELLANEOUS. All of the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of
the heirs, successors, administrators, legal representatives
and permitted assigns, as the case may be, of the parties. In
the event of a sale of substantially all of the assets or
substantially all of the capital voting stock of MTI to a
non-affiliated third party, MTI shall have the right to assign
MTI's rights and obligations under this Agreement, provided
that MTI has obtained from the assignee a written agreement to
be bound by all of the terms and conditions of this Agreement
and, provided further, that Muzak shall have consented in
writing to the assignment, which consent Muzak shall not
6
<PAGE>
unreasonably withhold or delay. Except for the foregoing right
to assign this Agreement, and except for a Sale of Muzak's
Business referred to in paragraph 4.a. of this Agreement,
neither party shall have the right to assign any of its rights
and/or delegate its obligations under this Agreement. If any
provision of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable in any
manner, the remaining provisions of this Agreement shall
nonetheless continue in full force and effect without being
impaired or invalidated in any way. In addition, if any
provision of this Agreement may be modified by a court of
competent jurisdiction such that it may be enforced, then that
provision shall be so modified and as modified shall be fully
enforced. Failure of either party to complain of any act or
omission on the part of the other party (no matter how long
the same may continue) shall not be deemed to be a waiver by
such party of any of its rights under this Agreement. No
consent or waiver by any party at any time of any provision of
this Agreement shall be deemed a consent to any other action
or waiver of any breach of any other provision of this
Agreement, or a consent to any future action or later breach
of the same or any other provision of this Agreement. Each
party acknowledges that they have been advised by the other to
seek the advice of their attorney regarding their rights under
this Agreement and the effect of entering into this Agreement.
After having received the advice of their own attorney, each
party hereby represents to the other that they understand the
language and the effect of this Agreement and knowingly and
voluntarily enter into this Agreement. Each of the parties
acknowledges that they and their counsel have reviewed this
Agreement and suggested changes to its language. Therefore,
any rule of construction that any ambiguity shall be construed
against the drafter of this Agreement shall not apply in
interpreting the provisions of this Agreement. This Agreement
may be executed in multiple counterparts, each of which shall
be deemed an original and all of which shall constitute one
agreement. The signature of any party to any counterpart shall
be deemed to be a signature to, and may be appended to, any
other counterpart. Telecopied signatures shall be binding as
originals. Any notice or communication permitted or required
under this Agreement shall be made either by letter (certified
mail with a return receipt requested), or by personal
delivery, to the other party (if to MTI, attention Lorraine
Golden and if to Muzak, attention Brad Bodenman) at their
respective addresses set forth above, with a copy, if the
notice is to Muzak, to Louisa Barash, Esq., Heller Ehrman
White & McAuliffe, 6100 Columbia Center, 701 Fifth Avenue,
Seattle, Washington 98104-7098 and, if the notice is to MTI,
to Bruce S. Kahn, Esq., Seyburn, Kahn, Ginn, Bess, Deitch and
Serlin, P.C., 2000 Town Center, Suite 1500, Southfield, MI
7
<PAGE>
48075-1195. Each party agrees to sign and deliver all
documents, instruments, certificates and applications which
may be deemed reasonably necessary by the other party, to
consummate the transactions contemplated by this Agreement.
Any dispute between the parties regarding any provision in
this Agreement (except for the provisions allowing an
aggrieved party equitable relief, disputes over which shall be
resolved at the option of the aggrieved party through court
litigation and not arbitration) shall be resolved by binding
arbitration. Judgment upon the award of the arbitrators may be
entered by any court of competent jurisdiction. The parties
agree that all actions arising directly or indirectly out of
this Agreement (which do not involve a request for equitable
relief) shall be arbitrated before the American Arbitration
Association in Seattle, Washington according to its rules of
commercial arbitration ("Seller's Jurisdiction") if such
action is commenced by Muzak, and before the American
Arbitration Association in Southfield, Michigan according to
its rules of commercial arbitration ("Buyer's Jurisdiction")
if such action is commenced by MTI; provided, however, that if
the lawsuit seeks injunctive relief, then Muzak or MTI may
commence such action in either Buyer's Jurisdiction (the
Superior Court of Washington for King County, or the United
States District Court for the Western District of Washington,
at Seattle) or Seller's Jurisdiction (the Oakland County,
Michigan Circuit Court or the United States District Court for
the Eastern District of Michigan). The laws/rules of the forum
state shall apply in any such action(s), and the parties
hereby irrevocably consent to the jurisdiction and venue of
those courts/agencies over the parties to this Agreement.
Except as provided in this Agreement otherwise, all rights and
remedies of either party under this Agreement shall be
cumulative and none shall exclude any other rights or remedies
permitted by law. This Agreement contains the entire
understanding of the parties with respect to its subject
matter, and supersedes all prior and contemporaneous
agreements, understandings and negotiations. No parol evidence
of prior or contemporaneous agreements, understandings or
negotiations shall govern or be used to construe or modify
this Agreement. No modification or alteration of this
Agreement shall be deemed effective unless in writing and
signed by the parties.
8
<PAGE>
The parties have signed this Agreement on the date set forth
above.
"MUZAK"
Muzak Limited Partnership,
a Delaware limited partnership
By:_____________________________
Its: ____________________________
"MTI"
Music Technologies, Inc.,
a Michigan corporation
By:____________________________
Lorraine Golden
Its: President
9
<PAGE>
EXHIBIT "A"
AMENDMENT TO ASSET PURCHASE AGREEMENT
-------------------------------------
This AMENDMENT TO ASSET PURCHASE AGREEMENT is entered into this 27th
day of November 1998 by and between Music Technologies, Inc., a Michigan
corporation ("Seller") and Muzak Limited Partnership, a Delaware limited
partnership ("Buyer").
R E C I T A L S
A. The parties entered into an Asset Purchase Agreement dated October 28, 1998,
with associated Schedules and Exhibits (collectively the "Asset Purchase
Agreement").
B. The parties wish to amend the Asset Purchase Agreement to reflect, among
other things, the exclusion of the contract between Kmart Corporation and Seller
(the "Kmart Contract") from the definition of "Customer Contracts," to reflect
the fact that Seller is retaining the right to engage in the Music Business to
provide business music to Kmart, and to reflect the fact that Seller is
retaining the right to engage in the Music Business to provide business music to
Kmart, and to reflect the fact that certain conditions set forth in the Asset
Purchase Agreement have been satisfied.
NOW, THEREFORE, the parties agree as follows:
The following sections of the Asset Purchase Agreement are amended as
follows:
1. Section 1.1.2 and Schedule 1.1.2. The Kmart Contract is expressly
excluded from the definition of "Customer Contract" and "Assets." The reference
herein to $46,000 shall be changed to $43,000.
2. Section 1.1.4. The "Satellite Contracts" shall exclude the software
licenses (if any), which are required by the Seller in order to service the
Kmart contract. To the extent that the software licenses are required to operate
systems both related to the Kmart contract and the other contracts Buyer and
Seller agree to the extent legally permissible to share such licenses.
3. Section 1.2. The definition of "Excluded Assets" shall include the
Kmart Contract and the software licenses identified in paragraphs 1 and 2 above,
as well as Usable Inventory and Distribution System Assets which are used by MTI
to service the Kmart account. To the extent that the same equipment is required
to operate systems both related to the Kmart contract and the other contracts
Buyer and Seller agree to the extent legally permissible and physically possible
to jointly use such equipment.
4. Section 3.1. Section 3.1 is deleted in its entirety and is substituted
with the following:
<PAGE>
Consideration for Assets. The full consideration for the
Assets shall be Ten Million Eight Hundred and Sixty Thousand
Dollars ($10,860,000), plus the dollar value of the Usable
Inventory (the "Purchase Price"), subject to adjustments to
the Escrowed Funds (as hereinafter defined) pursuant to
Section 3.2. Buyer shall pay the lower of Seller's cost or the
fair market value for the Usable Inventory. For purposes of
this paragraph, "fair market value" shall be net of any costs
of reconditioning, and the cost of making the equipment
compatible with Buyer's system. If the parties cannot agree on
the dollar value of one or more items of useable Inventory,
such item(s) shall remain the property of Seller. At the
Closing, subject to the terms and conditions of this
Agreement, Buyer shall (a) pay to Seller Nine Million One
Hundred Twenty Thousand Dollars ($9,120,000) (subject to the
adjustment, if any, set forth in Section 3.1.1), plus the
dollar value of the Usable Inventory, all by wire transfer of
immediately available funds (the "Closing Payment"), (b
deposit Four Hundred Fifty Thousand Dollars ($450,000) in
escrow (the "Escrowed Funds") with Pacific Northwest Title
Company (or other mutually agreeable third party) as escrow
agent (the "Escrow Agent") pursuant to an escrow agreement to
be entered into among Buyer, Seller and the Escrow Agent
substantially in the form of Exhibit 3.1 for disbursement in
accordance with Section 3.3 and (c) assume the Assumed
Obligations.
5. Section 3.1.1. The reference to $600,000 in Section 3.1.1 is hereby
changed to $450,000.
6. Section 3.1.2. The first paragraph of Section 3.1.2 is deleted and the
following is hereby substituted in its place:
Deferred Payment. On the Adjustment Date, Buyer shall pay to
Seller One Million Two Hundred Ninety Thousand Dollars
($1,290,000) (the "Deferred Payment") by wire transfer of
immediately available funds. If any Deferred Payment Contract
has not been executed by the Adjustment Date, the Deferred
Payment shall be reduced by an amount equal to 30 times the
expected Recurring Monthly Billings for such Deferred Payment
Contract.
2
<PAGE>
7. Section 3.2.1. The phrase "and/or equipment" is deleted from the
definition of "Recurring Monthly Billings."
The reference to $600,000 in Section 3.2.1 is hereby changed
to $450,000.
8. Section 4.2.8. The reference to $219,750 is hereby changed to $160,000.
9. Section 5.9. Notwithstanding the first sentence of Section 5.9, the
parties acknowledge that the Kmart Contract is an agreement of the Seller, used
by the Seller in connection with the Music Business. However, the parties
acknowledge and agree that the Kmart Contract is excluded from the definition of
"Customer Contracts."
10. Section 5.11. The existing Section 5.11 of the agreement is hereby
deleted and the following is substituted in its place:
"Distribution System Assets. The Satellite Contracts and
Distribution System Assets constitute all of the assets
necessary to operate Seller's music and messaging system
(except with regard to the Kmart contract) as currently
operated when used in conjunction with the assets described in
Section 1.1.1 of this Agreement."
11. Section 7. Buyer acknowledges and agrees that it has completed the
first and second stage of due diligence, and such due diligence has been
completed to Buyer's satisfaction. It is however acknowledged that the
completion of the due diligence remains subject only to paragraphs 1 and 2 of
the letter dated November 13, 1998 from Buyer's counsel to Seller's counsel
related to the completion of the first stage of due diligence.
12. Section 8.6. Buyer acknowledges and agrees that the acquisition
financing condition set forth in Section 8.6 has been satisfied.
13. Section 8.7. Buyer acknowledges and agrees that the due diligence
condition in Section 8.7 has been satisfied.
14. Section 8.10. Section 8.10 is deleted in its entirety and the
following is substituted in its place:
Cancellation of Customer Contracts. There shall have been no
cancellation, notice of cancellation, or any other event that
would reasonably result in the cancellation of any Customer
Contract which would result in a reduction of the Closing
Payment under Section 3.1.1 by more than Four Hundred Fifty
Thousand Dollars ($450,000).
3
<PAGE>
15. Section 9.5. Seller acknowledges that the acquisition financing
condition set forth in Section 9.5 has been satisfied.
16. Section 9.6. Section 9.6 is deleted in its entirety and the following
is substituted in its place:
Cancellation of Customer Contracts. There shall have been no
cancellation, notice of cancellation, or any other event that
would reasonably result in the cancellation, of any Customer
Contract which would result in a reduction of the Closing
Payment under Section 3.1.1 by more than Four Hundred Fifty
Thousand Dollars ($450,000).
17. Section 11.2. The parties acknowledge that the covenant of Buyer set
forth in Section 11.2 (Financing Commitment) has been satisfied.
18. Section 12.3. Section 12.3 is hereby deleted and the following is
substituted in its place.
Limitation on Indemnity. Each party's indemnification
obligations hereunder shall be limited to Eight Hundred
Thousand Dollars ($800,000), except with respect to breaches
by Seller of the representations and warranties contained in
Sections 5.3, 5.4 and/or 5.6 (as to which breaches Seller's
liability shall be unlimited). Escrowed Funds shall not be
used by either party to satisfy its respective indemnification
obligations. Each party's right to seek indemnification from
the other party with respect to Customer Contracts shall
terminate one year after the Closing Date, and each party's
right to seek indemnification from the other party with
respect to Designated Customer Contracts shall terminate one
year after the Adjustment Date.
19. Section 14. Notwithstanding the language of Section 14, Buyer
acknowledges and agrees that it shall not interview or hire any of Seller's
employees who are engaged in the business of assisting Seller provide services
to Kmart, except as agreed upon, in writing, by the parties.
20. Exhibit 3.2.3 -- Non-Compete Agreement.
A. The following paragraphs shall be added to the end of Section 1 of the
Non-Competition Agreement.
4
<PAGE>
"Nothing herein shall restrict MTI or Owner from engaging in
activities in the Business, to the extent reasonably necessary
or desirable to enable MTI or Owner to continue selling
Business Music services and other recurring music-related
in-store business services within the United States to Kmart.
In addition, in consideration of the mutual covenants
contained in the Asset Purchase Agreement, for the period of
the Muzak Non-Compete Period as hereinafter defined, Muzak and
its affiliates, jointly and severally, covenant and agree that
they, either directly or indirectly, whether or not through
others acting as such party's employee or agent, shall not
compete with MTI in the business of selling business music
services or other recurring music-related in-store business
services, in the United States and Puerto Rico, covered by the
then existing contract between MTI and Kmart, provided that
should Kmart extend its services provided under the contract
to any of its affiliates then the provisions of this
non-compete agreement would apply. For purposes of this
Agreement, the term "Compete" and will mean "starting,
acquiring, or obtaining any equity interest (except for
non-controlling investments in mutual funds or publicly-traded
companies without any participation in the management thereof)
in or otherwise engaging in business music services and other
recurring music-related in-store business services within the
United States to Kmart. The "Muzak Non-Compete Period" shall
mean the shorter of: (a) ten (10) years; or, (b) twelve (12)
months after MTI or its successors or assigns ceases providing
business music services to Kmart.
As used in this Agreement, "Kmart" shall mean Kmart
Corporation, and its present and future affiliates, its
successor or assigns notwithstanding anything contained in
this Section 20A to the contrary, all geographic references in
this Section 20A shall apply to Kmart's existing music-related
in-store business services in the United States and Puerto
Rico, but shall include any such services worldwide in the
event Kmart so expands its music-related in-store business
services.
B. Section 2 of the Non-Compete Agreement is modified by adding the
following at the end of Section 2:
5
<PAGE>
"During the Muzak Non-Compete Period, Muzak and its Affiliates
shall not, unless the parties agree otherwise in writing, (1)
solicit or attempt to solicit any persons employed by MTI who
are engaged by MTI in whole or in part to service Kmart, to
become employed in any business, including persons becoming
employed by MTI upon this closing of MTI's sales of assets to
Muzak; or (2) induce or attempt to induce any customer,
supplier, licensee or other business relation of MTI, which
relation is used by MTI for purposes of servicing the Kmart
account, to cease doing business with MTI, or in any way to
interfere with the relationship between MTI and Kmart or any
business relation which assists MTI in servicing Kmart."
C. The provisions of Section 3 of the Non-Compete Agreement shall be
deemed applicable to Muzak and its affiliates, mutatis mutandis, with respect to
Muzak's promise of non-competition and non-interference contained herein.
21. Advertising Agreement. The Advertising Agreement, Exhibit 4.2.5 to the
Asset Purchase Agreement, is amended to confirm that Kmart Corporation (and its
present and future Affiliates), to the extent it continues to be serviced by MTI
or its successors or assigns, are excluded from the definition of "Exclusive
Customers" and "Non-Exclusive Customers," and no advertising payment under
Section 2 of the Advertising Agreement shall be due from MTI to Muzak in respect
of services rendered to Kmart. With respect to Sections 1 and 2 of the
Advertising Agreement, Buyer acknowledges and agrees that Kmart (and its present
and future Affiliates) are excluded from the definition of "Exclusive Customers"
and "Non-Exclusive Customers" and that no advertising payments shall be due from
MTI to Muzak in respect of any revenues received by MTI with respect to Kmart.
The third to last sentence of Section 4.a. of the Advertising agreement
shall be deleted in its entirety and the following substituted in its place:
"Without limiting the generality of the foregoing, the parties agree that if a
Sale of Muzak's Business (as defined above) shall be consummated while this
Agreement is in effect such purchaser: i) shall assume Muzak's obligations under
this Agreement; and ii) if Muzak has ceased all of its operations as a separate
entity following such sale (or, in lieu of such cessation, the "Sale of Muzak's
Business" is structured as an equity unit sale or merger in which the Muzak
entity is the survivor entity and Muzak's current owners have less than a
controlling interest in such survivor entity), then the purchaser of Muzak can
elect, by delivering written notice of such election to MTI at anytime during
the 90 day period immediately following the consummation of the Sale of Muzak's
Business, to have the non-competition prohibitions described in this paragraph
4.a only apply to the Exclusive Customers, Kmart, and to those Non-Exclusive
6
<PAGE>
Customers with whom MTI has established an advertising arrangement prior to the
date of MTI's receipt of such notice of election (which election shall be
effective sixty (60) days following MTI's receipt of the notice of election).
22. Capitalized Terms. Capitalized terms not otherwise defined in this
Agreement have the same meaning as ascribed to them in the Asset Purchase
Agreement. As used in this Amendment, Kmart" shall mean Kmart Corporation, its
successors and assigns."
23. No Other Modification. Except as expressly modified herein, the Asset
Purchase Agreement shall remain in full force and effect. The provisions of
Section 15 (Miscellaneous) of the Asset Purchase Agreement are hereby
incorporated by reference.
24. Counterparts/Facsimile Signatures. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument. The parties
agree that a signature of this Agreement obtained by facsimile machine will be
binding as an original.
25. Schedule 3.4. The attached Schedule 3.4 replaces Schedule 3.4 attached
to the Asset Purchase Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Amendment to Asset
Purchase Agreement as of the date written above.
MUSIC TECHNOLOGIES, INC.
By: /s/ Lorraine Golden
---------------------------------------
Lorraine Golden, President
MUZAK LIMITED PARTNERSHIP
By: /s/ Brad D. Bodenman
---------------------------------------
Brad D. Bodenman,
Chief Financial Officer
<PAGE>
SCHEDULE 3.4
The purchase price shall be allocated to the cost of inventory at the agreed
upon amount, the deposits associated with the satellite contracts listed in
Schedule 1.1.4 for $50,000, equipment listed in Schedule 1.1.5 and the cost of
software listed in 1.1.4 for approximately $1,800,000 and customer contracts and
goodwill for $9,010,000.
This schedule will be updated to a date near the time of closing.
76763.01 .SE (1N8B01!.DOC)
01/12/99 9:43 PM
1
SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT--EXTENSION AGREEMENT
-----------------------------------------------------------------
This SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT-- EXTENSION AGREEMENT
is entered into this 23rd day of December 1998 by and between MUSIC
TECHNOLOGIES, INC., a Michigan corporation ("Seller") and MUZAK LIMITED
PARTNERSHIP, a Delaware limited partnership ("Buyer").
R E C I T A L S:
A. The parties entered into an Asset Purchase Agreement dated October
28, 1998, with associated Schedules and Exhibits (collectively the "Asset
Purchase Agreement").
B. The parties entered into an Amendment to Asset Purchase Agreement on
November 27, 1998 in order to amend the purchase price and to make other
changes to the Asset Purchase Agreement (the "First Amendment"). The terms of
the First Amendment are incorporated herein by reference.
C. The parties wish to further amend the Asset Purchase Agreement to
extend the time for closing and the delivery of customer consents and to provide
for the delivery of certain other documentation to Seller.
NOW, THEREFORE, the parties agree as follows:
The Asset Purchase Agreement is amended as follows:
1. December 23, 1998 Deadline Extended. All references to the date
"December 23, 1998" in the Asset Purchase Agreement are hereby deemed amended to
refer to the date "December 30, 1998."
2. Covenants of Buyer. The following Section 11.3 is hereby added to
the Asset Purchase Agreement:
11.3 Delivery of Financials and Opinion Letter. Buyer shall
deliver to Seller on or before Monday December 28, 1998 a copy of the finance
forecasts provided by Buyer to Foothill Capital Corp., and a copy of the
Foothill Capital financing commitment letter (accepted in writing by Buyer), in
order for Seller to determine in its reasonable discretion whether Buyer has
adequate financial resources and creditworthiness to be able to pay the Closing
Payment on the Closing Date and to pay a portion of the Purchase Price over
time. At Closing, Buyer will cause to be delivered to Seller an opinion of
counsel from the law firm of Weil Gotshal and Manges, stating that neither the
execution and delivery of the $2,550,000 promissory note from Buyer to Seller
nor the Buyer's performance under such note (including without limitation,
payment of such according to its terms) will violate any provision contained in
that certain $100 Million Bond Indenture in favor of First Trust, N.A.,
Indenture Trustee, dated October 2, 1996.
<PAGE>
2. Capitalized Terms. Capitalized terms not otherwise defined in this
Agreement have the same meaning as ascribed to them in the Asset Purchase
Agreement.
3. No Other Modification. Except as expressly modified herein, the
Asset Purchase Agreement shall remain in full force and effect. The provisions
of Section 15 (Miscellaneous) of the Asset Purchase Agreement are hereby
incorporated by reference.
4. Counterparts/Facsimile Signatures. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument. The parties
agree that a signature of this Agreement obtained by facsimile machine will be
binding as an original.
IN WITNESS WHEREOF, the parties have signed this Second Amendment to
Asset Purchase Agreement as of the date written above.
MUSIC TECHNOLOGIES, INC.
BY: /s/ Lorraine Golden
---------------------------------------
LORRAINE GOLDEN, PRESIDENT
MUZAK LIMITED PARTNERSHIP
BY: /s/ Brad D. Bodenman
---------------------------------------
BRAD D. BODENMAN, CHIEF FINANCIAL OFFICER
THIRD AMENDMENT TO ASSET PURCHASE AGREEMENT
-------------------------------------------
This THIRD AMENDMENT TO ASSET PURCHASE AGREEMENT is entered into this
30th day of December 1998 by and between MUSIC TECHNOLOGIES, INC., a Michigan
corporation ("Seller") and MUZAK LIMITED PARTNERSHIP, a Delaware limited
partnership ("Buyer").
R E C I T A L S:
A. The parties entered into an Asset Purchase Agreement dated October
28, 1998, with associated Schedules and Exhibits (collectively the "Asset
Purchase Agreement").
B. The parties amended the Asset Purchase Agreement on November 27,
1998, by entering into an Amendment To Asset Purchase Agreement (`First
Amendment"). Thereafter, the parties further amended the Asset Purchase
Agreement on December 23, 1998, by entering into a Second Amendment To Asset
Purchase Agreement--Extension Agreement ("Second Amendment"). The First
Amendment and the Second Amendment are incorporated herein by reference.
C. The parties wish to amend the Asset Purchase Agreement further to
reflect, among other things, an increase in the Purchase Price, an agreement by
Seller to receive a portion of the Purchase Price over time, an elimination of
the Escrow Fund, and certain other changes.
NOW, THEREFORE, the parties agree to amend the Asset Purchase Agreement
as follows:
1. Schedule 1.1.2, Schedule 1.1.3 and Schedule 2. The final form of
Schedule 1.1.2 (Customer Contracts, including Deferred Payment Contracts), and
Schedule 1.1.3 (a summary list of Useable Inventory), and Schedule 2 (list of
Designated Customers) are attached hereto and incorporated into the Asset
Purchase Agreement.
2. Section 2--Designated Customers. The following sentences are added
at the end of Section 2:
"Notwithstanding the foregoing approval process, Buyer (by entering
into this Third Amendment) hereby approves the terms set forth in those
two redacted contracts which were presented to Buyer's counsel by fax
on December 24, 1998, and Buyer agrees to enter into such contracts
with the other parties thereto, each of whom shall become a Designated
Customer. In the event Buyer rejects any other agreement proposed by
Seller with a Designated Customer, Buyer must advise Seller at the time
of the rejection of the specific reasons for the rejection and specify
the terms on which Buyer would enter into an agreement with such
<PAGE>
rejected Designated Customer (the "Acceptable Terms"); thereafter if
Buyer enters into an agreement with such rejected Designated Customer
(the "New Agreement") at any time within one year after the date of
Buyer's rejection of Seller's proposed agreement, which New Agreement
is on terms less favorable to Buyer than the Acceptable Terms, Buyer
shall pay a commission to Seller based upon such New Agreement computed
at the rate set forth in this section 2."
3. Section 3--Purchase Price. Section 3.1 is amended to provide that
the Purchase Price shall be Eleven Million One Hundred Sixty Thousand Dollars
($11,160,000), plus the dollar value of the Usable Inventory, plus or minus the
Adjustment Amount, plus any additions to the Purchase Price pursuant to the
Promissory Note..
In addition, the last sentence of Section 3.1 is deleted and the
following is substituted in its place:
"At the Closing, subject to the terms and conditions of this Agreement,
Buyer shall (a) pay to Seller Seven Million Two Hundred Seventy Thousand Dollars
($7,270,000) (subject to adjustment, if any, set forth in Section 3.1.1), plus
the dollar value of the Useable Inventory, all by wire transfer of immediately
available funds (the "Closing Payment"), (b) deliver Buyer's executed Promissory
Note in the principal amount of $2,550,000 (and otherwise in the form of the
promissory note attached hereto as Exhibit 3.1) (the "Promissory Note"), (c) pay
to Equity Partners, Ltd. the sum of $25,000 and pay to Seyburn Kahn Ginn Bess
Deitch and Serlin, P.C. the sum of $25,000 both by wire transfer and (d) assume
the Assumed Obligations. The Promissory Note shall provide that if it is paid on
or before the Adjustment Date, then $450,000 of the Note may be paid, by Buyer
making a payment of $450,000 to Pacific Northwest Title Company (or other
mutually agreeable third party) as Escrow Agent (the "Escrow Agent") pursuant to
an Escrow Agreement between Buyer, Seller and the Escrow Agent substantially in
the form of Exhibit 3.1 attached hereto; such $450,000 is referred to as the
"Escrowed Funds," and if an escrow account is funded, such Escrow Funds shall be
disbursed in accordance with Section 3.3.
"At the Closing, Buyer shall receive the benefit of revenues earned by
the Seller with respect to the Music Business on or after December 1, 1998;
accordingly, Seller shall prepare a list of invoices rendered by Seller for
services rendered on and after December 1, 1998 with respect to Seller's Music
Business, and for each such invoice which has been paid by the invoice recipient
on the Closing Date, Seller shall credit Buyer by such amount against the
Closing Payment, and for each such invoice which has not been paid on or before
the Closing Date, Seller shall assign the right to collect such invoice to
Buyer."
The Deferred Payment of $1,290,000 shall be paid in accord with Section
3.1.2 of the Agreement.
The Asset Purchase Agreement is further amended to confirm the parties'
agreement that the dollar value of the Useable Inventory is $155,861.00.
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4. Section 3.2.1 Adjustment Amount--Escrowed Funds. The last sentence
of Section 3.2.1 is deleted and the following is hereby substituted in its
place:
"If Seller does not provide Buyer written notice of objection to the
Adjustment Amount, payments shall be made on the Adjustment Date as follows: (1)
if the Adjustment Amount, as calculated above, is a positive number, such amount
shall be paid to Seller on the Adjustment Date (2) If the Adjustment Amount, as
calculated above, is a negative number in excess of negative $990,500, the
difference between the negative number and negative $990,500 shall be either:
(i) paid by Seller to Buyer on the Adjustment Date out of the Escrowed Funds
with the balance of the Escrowed Funds (if any) paid to Seller (if the
Promissory Note has been paid in full prior to the Adjustment Date) or (ii)
treated as a reduction in the principal amount of the Promissory Note (to be
applied to the final payment due under the Promissory Note), up to a maximum of
$450,000."
5. Sale of Muzak Business. A new section 3.4 is hereby added to the
Agreement, which shall read as follows:
"3.4 Payments Due on Sale of Muzak Business. Notwithstanding
anything to the contrary contained herein, upon a Sale of the Muzak Business (as
that term is defined in the Advertising Agreement and the Promissory Note), the
entire outstanding balance of the Promissory Note together with all interest due
thereon (as set forth in the Promissory Note) and that portion of the Deferred
Payment which is attributable to Deferred Payment Contracts (other than
Undocumented Deferred Payment Contracts) shall be due and payable no later than
the closing of the Sale of the Muzak Business. With respect to that portion of
the Deferred Payment attributable to Undocumented Deferred Payment Contracts,
Buyer shall cause the purchaser of the Muzak Business to assume Buyer's
obligations to make the annual payments described in Section 3.1.2 of the
Agreement. In the event of a sale of the Muzak Business which is closed prior to
the Adjustment Date, the Adjustment Amount shall be computed on the Adjustment
Date without regard to the sale of the Muzak Business."
6. Interest And Expenses At Closing. Section 4.1 is further amended to
provide that the interest on the Closing Payment described therein shall be due
and payable on the Closing Date; in addition, on the Closing Date, Buyer shall
reimburse Seller the amount of $117,351.00 (which Buyer and Seller acknowledge
and agree is the amount of the expenses paid by Seller relating to the Music
Business for periods on or after December 1, 1998). If the Closing is extended
beyond December 31, 1998, the reimbursement for expenses of $117,351.00 will be
increased for each day in January to the date of Closing by an amount of $3,786
per day.
7. Section 4.3 Buyer's Deliveries to Seller at Closing. Section 4.3.10,
Section 4.3.11 and Section 4.3.12 are hereby added to Section 4.3 as follows:
"4.3.10. The Promissory Note;
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4.3.11 An opinion of counsel from Weil Gotshal and Manges,
substantially in the form agreed to by the parties prior to the Closing Date,
and as more fully described in the Second Amendment to Purchase Agreement."
4.3.12 An Officer's Certificate signed by Brad Bodenman, Chief
Financial Officer of the Buyer, stating that neither the Buyer's execution and
delivery of the Promissory Note, nor the Buyer's performance under such Note:
(i) will violate any agreement or other obligation arising under any loan or
financing arrangement to which Buyer is subject (including, without limitation,
that certain $100 Million Bond Indenture in favor of First Trust National
Association, Indenture Trustee, dated 10/2/96); or, (ii) will violate any other
agreement or obligation to which Buyer is subject (except for such other
agreements or obligations which Buyer can show are non-material).
8. Advertising Agreement. The form of the Advertising Agreement is
hereby amended to conform to the form of the Advertising Agreement attached
hereto as Exhibit A.
9. Interest on Deferred Payment and Adjustment Amount. Section 3.1.2
and section 3.2 are hereby amended to provide that the Deferred Payment and the
Adjustment Amount, if not paid when due, shall bear interest at the greater of:
(I) 19% per annum; or, (ii) the interest rate (as it changes from time to time)
which would be then prevailing under the Promissory Note (assuming for this
purpose that the Promissory Note remained unpaid at such time). In addition, if
the Deferred Payment and Adjustment Amount are not paid when due, Buyer shall
continue to perform and observe the Affirmative Covenants and Negative Covenants
contained in the Promissory Note until the Adjustment Amount and the Deferred
Payment are paid in full (even if the Promissory Note has been paid prior to the
payment of those two amounts); if Buyer fails to perform and observe such
covenants, then the Adjustment Amount and the Deferred Payment shall be
immediately due and payable.
10. Capitalized Terms. Capitalized terms not otherwise defined in this
Agreement have the same meaning as ascribed to them in the Asset Purchase
Agreement.
11. No Other Modification. Except as expressly modified herein, the
Asset Purchase Agreement (as amended by the First Amendment and the Second
Amendment) shall remain in full force and effect. The provisions of Section 15
(Miscellaneous) of the Asset Purchase Agreement are hereby incorporated by
reference.
12. Counterparts/Facsimile Signatures. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original but all
of which taken together shall constitute one and the same instrument. The
parties agree that a signature of this Agreement obtained by facsimile machine
will be binding as an original.
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IN WITNESS WHEREOF, the parties have signed this Third Amendment to
Asset Purchase Agreement as of the date written above.
MUSIC TECHNOLOGIES, INC.
BY: /s/ Lorraine Golden
----------------------------------------------
LORRAINE GOLDEN, PRESIDENT
MUZAK LIMITED PARTNERSHIP
BY: /s/ Brad D. Bodenman
----------------------------------------------
BRAD D. BODENMAN, CHIEF FINANCIAL OFFICER
================================================================================
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
MUZAK LIMITED PARTNERSHIP
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF DECEMBER 30, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION. 2
1.1 Definitions.............................................. 2
1.2 Accounting Terms......................................... 19
1.3 Code..................................................... 19
1.4 Construction............................................. 19
1.5 Schedules and Exhibits................................... 20
1.6 Obligors................................................. 20
2. LOAN AND TERMS OF PAYMENT................................ 20
2.1 Revolving Advances....................................... 20
2.2 Letters of Credit........................................ 21
2.3 Acquisition Advance...................................... 24
2.4 Centre Support Advance................................... 24
2.5 Overadvances............................................. 26
2.6 Interest and Letter of Credit Fees: Rates, Payments,
and Calculations....................................... 26
2.7 Collection of Accounts................................... 27
2.8 Crediting Payments; Application of Collections........... 28
2.9 Designated Account. 28
2.10 Maintenance of Loan Account; Statements of Obligations... 29
2.11 Fees..................................................... 29
3. CONDITIONS; TERM OF AGREEMENT............................ 30
3.1 Conditions Precedent to the Initial Advance,
Acquisition Advance, or Centre Support Advance......... 30
3.2 Conditions Precedent to all Advances, the Acquisition
Advance, the Centre Support Advance and all Letters
of Credit.............................................. 33
3.3 Condition Subsequent..................................... 33
3.4 Term..................................................... 34
3.5 Effect of Termination.................................... 34
3.6 Early Termination by Borrower............................ 34
3.7 Termination Upon Event of Default........................ 35
4. CREATION OF SECURITY INTERESTS........................... 35
4.1 Grants of Security Interests............................. 35
4.2 Negotiable Collateral.................................... 35
4.3 Collection of Accounts................................... 36
4.4 Delivery of Additional Documentation Required............ 36
4.5 Power of Attorney........................................ 36
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4.6 Right to Inspect......................................... 37
5. REPRESENTATIONS AND WARRANTIES........................... 37
5.1 No Encumbrances.......................................... 37
5.2 Eligible Accounts........................................ 37
5.3 Eligible Inventory....................................... 38
5.4 Equipment................................................ 38
5.5 Location of Inventory and Equipment...................... 38
5.6 Inventory Records........................................ 38
5.7 Location of Chief Executive Office; FEIN................. 38
5.8 Due Organization and Qualification; Subsidiaries......... 38
5.9 Due Authorization; No Conflict........................... 39
5.10 Litigation............................................... 40
5.11 No Material Adverse Change............................... 41
5.12 Solvency................................................. 41
5.13 Employee Benefits........................................ 41
5.14 Environmental Condition.................................. 41
5.15 Brokerage Fees........................................... 42
5.16 Year 2000 Compliance..................................... 42
5.17 Intellectual Property.................................... 42
5.18 Leases................................................... 42
5.19 Material MTI Customer Contracts.......................... 42
6. AFFIRMATIVE COVENANTS.................................... 43
6.1 Accounting System........................................ 43
6.2 Collateral Reporting..................................... 43
6.3 Financial Statements, Reports, Certificates.............. 44
6.4 Tax Returns.............................................. 46
6.5 Guarantor Reports........................................ 46
6.6 Returns.................................................. 46
6.7 Title to Equipment....................................... 46
6.8 Maintenance of Equipment................................. 46
6.9 Taxes.................................................... 47
6.10 Insurance................................................ 47
6.11 No Setoffs or Counterclaims.............................. 48
6.12 Location of Inventory and Equipment...................... 49
6.13 Compliance with Laws..................................... 49
6.14 Employee Benefits........................................ 49
6.15 Licenses, Leases, and Satellite Access Agreements........ 50
6.16 Brokerage Commissions.................................... 50
6.17 Year 2000 Compliance..................................... 51
6.18 Transfer and License of Relevant Copyrights.............. 51
<PAGE>
7. NEGATIVE COVENANTS....................................... 51
7.1 Indebtedness............................................. 51
7.2 Liens.................................................... 52
7.3 Restrictions on Fundamental Changes...................... 52
7.4 Disposal of Assets....................................... 52
7.5 Change Name.............................................. 53
7.6 Guarantee................................................ 53
7.7 Nature of Business....................................... 53
7.8 Prepayments and Amendments............................... 53
7.9 Change of Control........................................ 53
7.10 Consignments............................................. 53
7.11 Distributions............................................ 53
7.12 Accounting Methods....................................... 54
7.13 Investments.............................................. 54
7.14 Transactions with Affiliates............................. 54
7.15 Suspension............................................... 54
7.16 [Intentionally Omitted].................................. 54
7.17 Use of Proceeds.......................................... 54
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees................... 55
7.19 No Prohibited Transactions Under ERISA................... 55
7.20 Financial Covenants...................................... 56
7.21 Capital Expenditures..................................... 58
7.22 Copyright Sub License Agreement; Relevant Copyrights..... 58
7.23 Third-Party Billing Agreements........................... 58
8. EVENTS OF DEFAULT........................................ 58
9. FOOTHILL'S RIGHTS AND REMEDIES........................... 61
9.1 Rights and Remedies...................................... 61
9.2 Remedies Cumulative...................................... 63
10. TAXES AND EXPENSES....................................... 63
11. WAIVERS; INDEMNIFICATION................................. 64
11.1 Demand; Protest; etc..................................... 64
11.2 Foothill's Liability for Collateral...................... 64
11.3 Indemnification.......................................... 64
12. NOTICES.................................................. 65
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............... 66
14. DESTRUCTION OF OBLIGORS'DOCUMENTS........................ 67
15. GENERAL PROVISIONS....................................... 67
15.1 Effectiveness............................................ 67
15.2 Successors and Assigns................................... 67
15.3 Section Headings......................................... 67
<PAGE>
15.4 Interpretation........................................... 67
15.5 Severability of Provisions............................... 68
15.6 Amendments in Writing.................................... 68
15.7 Counterparts; Telefacsimile Execution.................... 68
15.8 Revival and Reinstatement of Obligations................. 68
15.9 Integration.............................................. 68
15.10 Confidentiality.......................................... 69
<PAGE>
SCHEDULES AND EXHIBITS
Schedule E-1 (Eligible Inventory Locations)
Schedule M-1 (Material MTI Customer Contracts)
Schedule P-1 (Permitted Liens)
Schedule 5.7 (FEINs)
Schedule 5.8 (Subsidiaries)
Schedule 5.10 (Litigation)
Schedule 5.13 (ERISA Benefit Plans)
Schedule 5.14 (Environmental Conditions)
Schedule 6.12 (Location of Inventory and Equipment)
Schedule 7.1 (Permitted Indebtedness)
Exhibit C-1 (Form of Compliance Certificate)
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as of
December 30, 1998, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025-3333 and MUZAK LIMITED
PARTNERSHIP, a Delaware limited partnership ("Borrower"), with its chief
executive office located at 2901 Third Avenue, Suite 400, Seattle, Washington
98121.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to the
Obligors arising out of the sale, license, or lease of goods or General
Intangibles, or the rendition of services by the Obligors (including all
proceeds of the Relevant Copyrights), irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"Acquired Collateral" means all of Borrower's right, title,
and interest in and to each of the following, if and to the extent all or any
part of the acquisition price or cost of construction or improvement thereof is
financed from the proceeds of an Acquisition Advance:
(a) the Accounts,
(b) the Books,
(c) the Equipment,
(d) the General Intangibles (including the Material MTI
Customer Contracts),
(e) the Inventory,
(f) the Investment Property,
(g) the Negotiable Collateral,
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(h) the Real Property,
(i) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance covering any or all of
the Acquired Collateral, and any and all Accounts, Books, Equipment, General
Intangibles, Inventory, Investment Property, Negotiable Collateral, Real
Property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"Acquisition Advance" has the meaning set forth in Section
2.3.
"Adjusted Gross Accounts" means, as of any date of
determination, the result of: (a) the aggregate amount of Accounts created by
Borrower and arising out of Borrower's sale or lease of goods or rendition of
services in the ordinary course of business, minus (b) the sum of (i) the amount
of the reserve established on the books of Borrower (and reported to Foothill in
writing hereunder) with respect to uncollectable Accounts, plus (ii) the
aggregate amount of payments required to be made by Borrower to its franchisees
under its franchise agreements (including in respect of the so-called "Adjunct
Services Revenue Sharing" and the "Multi-Territory Accounts Program"), plus
(iii) the aggregate amount of Accounts, in excess of the Advance Billing Limit,
with respect to which the goods giving rise to such Account have not been
shipped and billed to the Account Debtor, the services giving rise to such
Account have not been performed and accepted by the Account Debtor, or the
Account otherwise does not represent a final sale.
"Advance Billing Limit" means, as of any date of
determination, an amount equal to: (a) during the first 6 months following the
Closing Date, $3,000,000; (b) during the 7th month following the Closing Date,
$2,500,000; (c) during the 8th month following the Closing Date, $2,000,000; (d)
during the 9th month following the Closing Date, $1,500,000; (e) during the 10th
month following the Closing Date, $1,000,000; (f) during the 11th month
following the Closing Date, $500,000; and (g) thereafter, zero (-0-).
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person
who, directly or indirectly, controls, is controlled by, is under common control
with, or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 10% or more of the Equity Interests having ordinary voting power for the
election of directors (or comparable managers) or the direct or indirect power
to direct the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
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"Applicable Margin" means, as of any date of determination,
(a) 1.25 percentage points, so long as the Advance Billing Limit exceeds zero
(-0-); and (b) 0.25 percentage points, from and after the date that the Advance
Billing Limit equals zero (-0-).
"Authorized Person" means any officer or other employee of
Borrower.
"Availability" means, as of any date of determination, the
aggregate amount of additional Advances that Borrower would be entitled to
borrow on such date under the terms of this Agreement under Sections 2.1, 2.3,
and 2.4, provided that Borrower's trade payables are aged consistent with
historical practices.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C.ss. 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"Books" means, with respect to any Obligor, all of the
Obligors' books and records including: ledgers; records indicating, summarizing,
or evidencing Borrower's properties or assets (including the Collateral) or
liabilities; all information relating to the Obligors' business operations or
financial condition; and all computer programs, disk or tape files, printouts,
runs, or other computer prepared information.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower Collateral" means all of Borrower's right, title,
and interest in and to each of the following:
(a) the Accounts,
(b) the Inventory, and
(c) the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance covering any or all of
the foregoing, and the proceeds thereof.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"Centre" means Centre Capital Investors L.P., a Delaware
limited partnership.
"Centre Support Advance" has the meaning set forth in Section
2.4.
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"Centre Support Letter of Credit" means (i) a letter of
credit, in form and substance (including conditions to drawing) satisfactory to
Foothill and as may be renewed from time to time, in the face amount not less
than $4,211,000 and with an initial stated expiration date not earlier than the
first anniversary of the Closing Date, issued for the account of Centre for the
benefit of Foothill by a bank acceptable to Foothill, or (ii) a Substitute
Centre Support Letter of Credit issued to Foothill pursuant to Section 2.4(g).
Borrower hereby acknowledges that Borrower has no right, title, or interest
whatsoever in or to the proceeds of any draw under the Centre Support Letter of
Credit.
"Change of Control" shall be deemed to have occurred at such
time as: (a) a "Change of Control" (as such term is defined in the Indenture)
occurs; (b) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) that is not a "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) as
of the Closing Date becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of more than
25% of the total voting power of all classes of Equity Interests then
outstanding of Holdings entitled to vote in the election of directors; (c) a
majority of members of the board of directors of Holdings shall not be
Continuing Directors; (d) Holdings shall cease to be the managing partner of MLP
Acquisition or MLP Administration; (e) MLP Acquisition shall cease to be the
managing partner of Borrower; or (f) Borrower shall cease to own and control,
directly and of record, 100% of the issued and outstanding capital Equity
Interests of Copyright Sub.
"Closing Date" means the date of the first to occur of the
making of the initial Advance, Acquisition Advance, Centre Support Advance or
the issuance of the initial Letter of Credit.
"Code" means the California Uniform Commercial Code.
"Collateral" means, collectively, the Acquired Collateral, the
Borrower Collateral, and the Guarantor Collateral.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment or Inventory,
in each case, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C-1 and delivered by the chief accounting officer of
Borrower to Foothill.
"Concentration Account" has the meaning set forth in Section
2.7.
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"Concentration Account Agreements" means, individually and
collectively, those certain concentration account agreements, each in form and
substance (including with respect to blocked account arrangements (if any))
satisfactory to Foothill, among Foothill, Borrower, and the Concentration
Account Bank.
"Concentration Account Bank" means Wells Fargo Bank, National
Association.
"Continuing Director" means, as of any date of determination,
a member of the board of directors of Holdings who (a) was a member of the board
of directors of Holdings on the Closing Date, or (b) was nominated to be a
member of the board of directors of Holdings by a majority of the Continuing
Directors then in office to fill a vacancy left by the death, expiration of
term, permanent disability, or resignation of a Continuing Director.
"copyright" shall have the meaning ascribed to such term in
the United States Copyright Act of 1976, and includes unregistered copyrights.
"Copyright Sub" has the meaning set forth in the definition of
"Structuring Transactions".
"Copyright Sub License Agreement" has the meaning set forth in
the definition of "Structuring Transactions".
"Daily Balance" means the amount of an Obligation owed at the
end of a given day.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 4801900838 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) that has been
designated, in writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means Wells Fargo Bank, National
Association, whose office is located at 333 South Grand Avenue, Suite 300, Los
Angeles, California 90071, and whose ABA number is 121-000-248.
"Dilution" means, in each case based upon the experience of
the immediately prior 60 days, the result of dividing the Dollar amount of (a)
bad debt write-downs, discounts, co-op advertising, returns, promotions,
credits, or other dilution with respect to the Accounts, by (b) Borrower's
Collections (excluding extraordinary items) plus the Dollar amount of clause
(a).
"Dilution Reserve" means, as of any date of determination, an
amount sufficient to reduce Foothill's advance rate against Eligible Accounts or
Adjusted Gross Accounts by one percentage point for each percentage point by
which Dilution is in excess of 10%.
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"Disbursement Letter" means an instructional letter executed
and delivered by Borrower to Foothill regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be satisfactory
to Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"EBITDA" means, with respect to any fiscal period, the sum of
Borrower's net earnings (or loss), excluding extraordinary gains or
extraordinary losses, before interest expense, taxes, amortization,
depreciation, and equity-based compensation, in each case for such period as
determined in accordance with GAAP.
"Eligible Accounts" means those Accounts of Borrower created
by Borrower in the ordinary course of business, that strictly comply with each
and all of the representations and warranties respecting Accounts made by
Borrower to Foothill in the Loan Documents, and that are and at all times
continue to be acceptable to Foothill in all respects in Foothill's reasonable
credit judgment. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within
120 days of invoice date or Accounts with selling terms of more than 30 days;
(b) Accounts owed by an Account Debtor or its Affiliates where
50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to Foothill (as to form, substance, and issuer or
domestic confirming bank) that has been delivered to Foothill and is directly
7
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drawable by Foothill, or (z) the Account is covered by credit insurance in form
and amount, and by an insurer, satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. ss. 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act or as to which Borrower
has complied with its statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account, to the extent of
the amount of such right of setoff, disputed liability, or claim;
(h) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts, to the extent
of the obligations owing by such Account Debtor in excess of such percentage;
(i) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; provided, however, that if the amount owed to Borrower by such Account
Debtor is entitled to administrative expense priority under Section 503 of the
Bankruptcy Code, such Account shall not be deemed ineligible pursuant to this
clause (i);
(j) [intentionally omitted];
(k) Accounts with respect to which the goods giving rise to
such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale, if and
to the extent such Accounts in the aggregate exceed the Advance Billing Limit;
(l) Accounts with respect to which the Account Debtor is a
franchisee of Borrower and that do not arise out of Borrower's sale or lease of
goods or rendition of services to such Account Debtor, including any Accounts
consisting of (i) franchise royalties or fees, (ii) revenues of such franchisee
shared with Borrower, or (iii) payments in respect of the licensing of General
Intangibles; and
(m) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
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such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement.
"Eligible Inventory" means System Inventory of Borrower held
for sale or lease or to be furnished under a contract of service in the ordinary
course of Borrower's business, that are not installed or in operation, that are
located at or in-transit between Borrower's premises identified on Schedule E-1,
that strictly comply with each and all of the representations and warranties
respecting Inventory made by Borrower to Foothill in the Loan Documents, and
that are and at all times continue to be acceptable to Foothill in all respects
in Foothill's reasonable credit judgment. In determining the amount to be so
included, Inventory shall be valued at the lower of cost or market on a basis
consistent with Borrower's current and historical accounting practices. An item
of Inventory shall not be included in Eligible Inventory if:
(a) it is not owned solely by Borrower or Borrower does not
have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on
Schedule E-1 (as such schedule may be updated from time to time pursuant to
Section 6.12); provided, however, that Inventory located at Borrower's Orlando,
Florida location set forth on such schedule shall not be eligible unless
Borrower has obtained a Collateral Access Agreement from the lessor of such
location;
(c) it is not located on property owned or leased by Borrower
or in a contract warehouse, in each case, subject to a Collateral Access
Agreement executed by the mortgagee, lessor, the warehouseman, or other third
party, as the case may be, and segregated or otherwise separately identifiable
from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first priority
security interest in favor of Foothill;
(e) it consists of goods returned or rejected by Borrower's
customers or goods in transit; and
(f) it is obsolete or slow moving, a restrictive or custom
item, work-in-process, a component that is not part of finished goods, or
constitutes spare parts, packaging and shipping materials, supplies used or
consumed in Borrower's business, Inventory subject to a Lien in favor of any
third Person, bill and hold goods, defective goods, "seconds," or Inventory
acquired on consignment.
"Equipment" means all of the Obligors' present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
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fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) [intentionally omitted], (b) any interest of the Obligors in any
of the foregoing, and (c) all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing.
"Equity Interests" means all shares, units, options, warrants,
interests, participations, or other equivalents (regardless of how designated)
of or in a corporation, partnership, limited liability company, or equivalent
entity, whether voting or nonvoting, including general partner partnership
interests, limited partner partnership interests, common stock, preferred stock,
or any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
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"Existing Lender" means, collectively, (a) NBD Bank, (b)
Barbara L. Berent, and (c) Bank of America, NT & SA.
"Extant Letter of Credit" has the meaning set forth in Section
2.4(g).
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by the Obligors under any of
the Loan Documents that are paid or incurred by Foothill; fees or charges paid
or incurred by Foothill in connection with Foothill's transactions with the
Obligors, including, fees or charges for photocopying, notarization, couriers
and messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Collateral
appraisals), real estate surveys, real estate title policies and endorsements,
and environmental audits; costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or otherwise); charges paid
or incurred by Foothill resulting from the dishonor of checks; costs and
expenses paid or incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated; costs and expenses paid or incurred by Foothill
in examining the Obligors' Books; costs and expenses of third party claims or
any other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with any Obligor; and Foothill's reasonable
attorneys fees and expenses incurred in advising, structuring, drafting,
reviewing, amending, terminating, enforcing (including attorneys fees and
expenses incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning any Obligor), defending, or concerning the Loan
Documents, irrespective of whether suit is brought.
"Franchisee Reserve" means, as of any date of determination, a
reserve in an amount (if any) equal to the aggregate amount of payments required
to be made by Borrower to its franchisees under its franchise agreements
(including in respect of the so-called "Adjunct Services Revenue Sharing" and
the "Multi-Territory Accounts Program") in excess of $3,000,000.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
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"General Intangibles" means all of Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, partnership agreement, certificate of limited
partnership, or other organizational or governing documents of any Person.
"Guarantor" means, individually and collectively, MLP
Acquisition, MLP Administration, MLP Communications, MCC, and Copyright Sub.
"Guarantor Collateral" means any and all property of Guarantor
that is the subject of a Lien in favor of Foothill pursuant to the Loan
Documents.
"Guarantor Security Agreement" means a security agreement, in
form and substance satisfactory to Foothill, between Foothill and Guarantor.
"Guaranty" means a general continuing guaranty, in form and
substance satisfactory to Foothill, by Guarantor in favor of Foothill.
"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Holdings" means Music Holdings Corp., a Delaware corporation.
"Indebtedness" means: (a) all obligations of the Obligors for
borrowed money, (b) all obligations of the Obligors evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations of the Obligors in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
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obligations of the Obligors under capital leases, (d) all obligations or
liabilities of others secured by a Lien on any property or asset of the
Obligors, irrespective of whether such obligation or liability is assumed, and
(e) any obligation of the Obligors guaranteeing or intended to guarantee
(whether guaranteed, endorsed, co-made, discounted, or sold with recourse to the
Obligors) any indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person.
"Indenture" means that certain Indenture, dated as of October
2, 1996, among Borrower, MCC, and First Trust National Association, as trustee.
"Indenture Documents" means, individually and collectively,
the Indenture and all agreements, instruments, and documents executed in
connection therewith or pursuant thereto to which Borrower and its Affiliates
are party or by which their assets are bound.
"Indenture Borrowing Limit" has the meaning ascribed to the
term "Borrowing Base" in the Indenture.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Inventory" means all present and future inventory in which
any Obligor has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of the Obligors' present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"Investment Property" means "investment property" as that term
is defined in Section 9115 of the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"Letter of Credit Usage" means the sum of (a) the undrawn
amount of outstanding Letters of Credit plus (b) the amount of unreimbursed
drawings under Letters of Credit.
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"Lien" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement
Letter, the Letters of Credit, the Concentration Account Agreements, the Centre
Support Letter of Credit, the Obligor Subordination Agreement, the Guaranty, the
Guarantor Security Agreements, the Pledge Agreement, any note or notes executed
by Borrower and payable to Foothill, and any other agreement entered into, now
or in the future, in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Obligors, (b) the
material impairment of the Obligors' ability to perform their obligations under
the Loan Documents of Foothill to enforce the Obligations or realize upon the
Collateral, (c) a material adverse effect on the value of the Collateral or the
amount that Foothill would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Material MTI Customer Contracts" means those customer
contracts of MTI acquired by Borrower pursuant to the MTI Purchase Agreement
that are identified on Schedule M-1, as amended and modified from time to time.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Amount" means $20,000,000.
"MCC" means Muzak Capital Corporation, a Delaware corporation.
"MLP Acquisition" means MLP Acquisition, L.P., a Delaware
limited partnership.
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"MLP Administration" means MLP Administration Corp., a
Delaware corporation.
"MLP Communications" means MLP Communications Company, a
Washington general partnership.
"MTI" means Music Technologies, Inc., a Michigan corporation.
"MTI Purchase Agreement" means that certain Asset Purchase
Agreement, dated as of October 28, 1998, between MTI and Borrower.
"MTI Seller Note" means that certain promissory note made by
Borrower to the order of MTI, in the original principal amount of not more than
$2,550,000.
"Multiemployer Plan" means a "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"Negotiable Collateral" means all of a Person's present and
future letters of credit, notes, drafts, instruments, documents, personal
property leases (wherein such Person is the lessor), chattel paper, and Books
relating to any of the foregoing.
"Net Worth" means, as of any date of determination, Borrower's
total partnership equity (deficit).
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Obligor Subordination Agreement" means a Subordination
Agreement, in form and substance satisfactory to Foothill, between Foothill and
the Obligors relative to the subordination in favor of Foothill of any and all
Indebtedness owed by an Obligor to any other Obligor.
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"Obligors" means, individually and collectively, Borrower and
Guarantor.
"Overadvance" has the meaning set forth in Section 2.5.
"Participant" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"Pay-Off Letter" means a letter, in form and substance
reasonably satisfactory to Foothill, from each Existing Lender respecting the
amount necessary to repay in full all of the obligations of Borrower owing to
such Existing Lender (or the obligations of MTI secured by the assets of MTI, as
the case may be) and obtain a termination or release of all of the Liens
existing in favor of such Existing Lender in and to the properties or assets of
Borrower (or MTI, as the case may be).
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Acquisition" means an acquisition by Borrower of
assets of another Person (other than acquisitions by Borrower of Inventory or
Equipment in the ordinary course of business), in one or more related
transactions, satisfies each of the following conditions: (a) no Event of
Default shall have occurred and be continuing or would result from the
consummation of the proposed acquisition; (b) the assets being acquired are
utilized in the core business of Borrower and are free and clear of all Liens
other than Permitted Liens; (c) Borrower shall have executed and delivered such
UCC-1 financing statements, fixture filings, Collateral Access Agreements, and
other documents as Foothill may request to perfect its Lien on all or any
portion of the assets so acquired that constitute Borrower Collateral; (d)
Borrower has provided Foothill with confirmation, supported by detailed
calculations, that on a pro forma basis created by adding the projected
consolidated financial statements of Borrower (including the financial
statements related to any other assets that were the subject of a prior
Permitted Acquisition during the relevant period) to the projected financial
statements related to the assets to be acquired) pursuant to the proposed
acquisition, Borrower will be in compliance with the financial covenants in
Section 7.20 hereof for the 12 months following the proposed date of
consummation of such proposed acquisition; (e) such proposed acquisition does
not involve consideration in excess of $5,000,000; and (f) in connection with
such proposed acquisition, Borrower may not use directly or indirectly the
proceeds of Advances in connection with the consummation of such proposed
acquisition and shall provide an officer's certificate certifying that no such
proceeds have been used, directly or indirectly, to consummate such acquisition.
Anything herein to the contrary notwithstanding, neither any Accounts nor any
Inventory acquired pursuant to a Permitted Acquisition shall become eligible for
inclusion within the Borrowing Base unless and to the extent Foothill has
completed its audit, appraisal, and standard due diligence with respect to such
Accounts or Inventory and the results thereof are reasonably satisfactory to
Foothill.
"Permitted Dispositions" means dispositions consisting of (a)
sales or other dispositions of Inventory in the ordinary course of the Obligors'
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business as currently conducted, (b) licenses of General Intangibles by Borrower
to licensees in the ordinary course of Borrower's business as currently
conducted, (c) transfers and licenses of Relevant Copyrights pursuant to the
Structuring Transactions and Section 6.18, (d) dispositions of Equipment that is
substantially worn, damaged, or obsolete in the ordinary course of business, and
(e) assignments to the relevant franchisee of customer contracts with account
debtors in such franchisee's exclusive franchise territory, in each case, to the
extent necessary to comply with the relevant franchise agreement.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens
for unpaid taxes that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) (i) the
interests of lessors under operating leases, and (ii) purchase money Liens and
the interests of lessors under capital leases to the extent that the acquisition
or lease of the underlying asset is permitted under Section 7.1(e) and so long
as the Lien only attaches to the asset purchased or acquired and only secures
the purchase price of the asset and any reasonable expenses incurred in
connection with such purchase money financing transaction, (e) Liens arising by
operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of business
of the Obligors and not in connection with the borrowing of money, and which
Liens either (i) are for sums not yet due and payable, or (ii) are the subject
of Permitted Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens or
deposits to secure performance of bids, tenders, or leases (to the extent
permitted under this Agreement), incurred in the ordinary course of business of
the Obligors and not in connection with the borrowing of money, (h) Liens
arising by reason of security for surety or appeal bonds in the ordinary course
of business of the Obligors, (i) Liens of or resulting from any judgment or
award that reasonably could not be expected to result in a Material Adverse
Change and as to which the time for the appeal or petition for rehearing of
which has not yet expired, or in respect of which the relevant Obligor is in
good faith prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review has been
secured, (j) [intentionally omitted], and (k) with respect to any Real Property,
easements, rights of way, zoning and similar covenants and restrictions, and
similar encumbrances that customarily exist on properties of Persons engaged in
similar activities and similarly situated and that in any event do not
materially interfere with or impair the use or operation of the Collateral by
the Obligors or the value of Foothill's Lien thereon or therein, or materially
interfere with the ordinary conduct of the business of the Obligors.
"Permitted Protest" means the right of an Obligor to protest
any Lien other than any such Lien that secures the Obligations (or other
obligations under the Loan Documents), tax (other than payroll taxes or taxes
that are the subject of a United States federal tax lien), or rental payment,
provided that (a) a reserve with respect to such obligation is established on
the books of the relevant Obligor in an amount that is reasonably satisfactory
to Foothill, (b) any such protest is instituted and diligently prosecuted by the
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relevant Obligor in good faith, and (c) Foothill is satisfied that, while any
such protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Liens of Foothill in and to the Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with respect to which it
may incur liability.
"Pledge Agreement" means a pledge agreement, in form and
substance satisfactory to Foothill, between Foothill and certain Obligors
signatory thereto.
"Projections" means Borrower's (a) forecasted consolidated (i)
balance sheets, (ii) income statements, (iii) cash flow statements, and (iv)
capitalization statements, all prepared on a consistent basis with Borrower's
historical financial statements, and (b) forecasted Availability, in each case,
together with appropriate supporting details and a statement of underlying
assumptions.
"Purchase Money Indebtedness" means Indebtedness (other than
the Obligations), incurred at the time of, or within 20 days after, the
acquisition of any fixed assets for the purpose of financing all or any part of
the acquisition cost thereof.
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by Borrower.
"Reference Rate" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Relevant Copyrights" means copyrights of Borrower or,
pursuant to the Structuring Transactions or Section 6.18, of Copyright Sub, (a)
that are sold, licensed, leased, or marketed by Borrower, and (b) the
exploitation of which generates Accounts or revenues of Borrower.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
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"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Structuring Transactions" means the following transactions:
(a) the creation by Borrower of a new wholly-owned Subsidiary of Borrower
("Copyright Sub"), which shall be a "Restricted Subsidiary" under the Indenture;
(b) the transfer by Borrower of all Relevant Copyrights to Copyright Sub as
consideration for the issuance by Copyright Sub to Borrower of all issued and
outstanding Equity Interests of Copyright Sub; and (c) the execution and
delivery of a license agreement between Copyright Sub, as licensor, and
Borrower, as licensee, pursuant to which Copyright Sub shall license the
Relevant Copyrights, on a non-exclusive basis, to Borrower (the "Copyright Sub
License Agreement").
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the units or shares of Equity Interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
"Substitute Centre Support Letter of Credit" has the meaning
set forth in Section 2.4(g).
"System Inventory" means finished goods Inventory consisting
of headend equipment (such as receivers, satellite dishes, and antennas, sound
systems (including, without limitation, speakers, amps, and volume controls),
compact disc players, mounts, brackets, wire, and other equipment used in the
delivery of Borrower's services.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Year 2000 Compliant" means, with regard to any Person, that
all software in goods produced or sold by, or utilized by and material to the
business operations or financial condition of, such Person are able to interpret
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and manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in relation to dates before, in,
and after the year 2000.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
1.6 OBLIGORS. By its execution and delivery of the Guaranty or
the Guarantor Security Agreement, or any joinder thereto, any Obligor that is
not party to this Agreement nevertheless shall be deemed to have agreed to be
bound by each provision herein relating to Borrower, the Guarantors, or the
Obligors, as the case may be, or their assets with the same force and effect as
though such Obligor were party to this Agreement, mutatis mutandis.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to Borrower in an
amount outstanding not to exceed at any one time the lesser of (i) the Maximum
Amount less the sum of the Letter of Credit Usage, the outstanding amount of the
Acquisition Advance, and the outstanding amount of the Centre Support Advance,
or (ii) the Borrowing Base less the Letter of Credit Usage. For purposes of this
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Agreement, "Borrowing Base", as of any date of determination, shall mean the
lesser of:
(y) the result of:
(i) the lowest of (A) 80% of Eligible
Accounts, less the amount, if any, of the Dilution Reserve,
and (B) an amount equal to Borrower's Collections with respect
to Accounts for the immediately preceding 60 day period, plus
(ii) the lowest of (A) $5,000,000, (B) 60%
of the value of Eligible Inventory, and (C) 33.33% of the
amount of credit availability created by clause (y) above,
minus
(iii) the aggregate amount of reserves, if
any, established by Foothill under Section 2.1(b); and
(z) the result of:
(i) 80% of Adjusted Gross Accounts, plus
(ii) 60% of the value of Eligible Inventory,
minus
(iii) the aggregate amount of reserves, if
any, established by Foothill under Section 2.1(b).
(b) Anything to the contrary in this Section
notwithstanding, Foothill shall have the right to establish reserves against the
Borrowing Base in such amounts as Foothill in its reasonable judgment (from the
perspective of an asset-based lender) shall deem necessary or appropriate,
including (i) the Franchisee Reserve, and (ii) reserves on account of (y) sums
that any Obligor is required to pay (such as taxes, assessments, insurance
premiums, or, in the case of licensed or leased assets (including contract
rights relative to satellite access), royalties, rents, or other amounts payable
under such licenses, leases, or satellite access agreements) and has failed to
pay under any Section of this Agreement or any other Loan Document, including
delinquent amounts owing to ASCAP, BMI, recording label licensors, mechanical
licensors, Echostar, or Microspace Communications Corp., and (z) without
duplication of the foregoing, amounts owing by the Obligors to any Person to the
extent secured by a Lien on, or trust over, any of the Collateral, which Lien or
trust, in the reasonable determination of Foothill (from the perspective of an
asset-based lender), would be likely to have a priority superior to the Liens of
Foothill (such as landlord liens, ad valorem taxes, or sales taxes where given
priority under applicable law) in and to such item of the Collateral.
(c) Foothill shall have no obligation to make
Advances hereunder to the extent they would cause the outstanding Obligations to
exceed the lesser of the Maximum Amount and the Indenture Borrowing Limit.
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(d) Amounts borrowed pursuant to this Section 2.1 may
be repaid and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
2.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue letters of credit for the account of
Borrower (each, an "L/C") or to issue guarantees of payment (each such guaranty,
an "L/C Guaranty") with respect to letters of credit issued by an issuing bank
for the account of Borrower. Foothill shall have no obligation to issue a Letter
of Credit if any of the following would result:
(i) the Letter of Credit Usage would
exceed the Borrowing Base less the amount of
outstanding Advances less the aggregate amount of
reserves established under Section 2.1(b); or
(ii) the Letter of Credit Usage would
exceed the lower of: (x) the Maximum Amount less
the amount of outstanding Advances, the
outstanding amount of the Acquisition Advance,
the outstanding amount of the Centre support
Advance, and the aggregate amount of reserves
established under Section 2.1(b); or (y)
$3,000,000; or
(iii) the outstanding Obligations would
exceed the Maximum Amount.
Borrower expressly understands and agrees that Foothill shall have no obligation
to arrange for the issuance by issuing banks of the letters of credit that are
to be the subject of L/C Guarantees. Borrower and Foothill acknowledge and agree
that certain of the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date. Each Letter of Credit shall
have an expiry date no later than 60 days prior to the date on which this
Agreement is scheduled to terminate under Section 3.4 (without regard to any
potential renewal term) and all such Letters of Credit shall be in form and
substance acceptable to Foothill in its sole discretion. If Foothill is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such amount to Foothill and, in the absence of such reimbursement, the
amount so advanced immediately and automatically shall be deemed to be an
Advance hereunder and, thereafter, shall bear interest at the rate then
applicable to Advances under Section 2.6.
(b) Borrower hereby agrees to indemnify, save,
defend, and hold Foothill harmless from any loss, cost, expense, or liability,
including payments made by Foothill, expenses, and reasonable attorneys fees
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incurred by Foothill arising out of or in connection with any Letter of Credit;
provided, however, that Borrower shall have no obligation to so indemnify or
hold harmless Foothill with respect to any such loss, cost, expense, or
liability that results proximately from the gross negligence or willful
misconduct of Foothill. Borrower agrees to be bound by the issuing bank's
regulations and interpretations of any Letters of Credit guarantied by Foothill
and opened to or for Borrower's account or by Foothill's interpretations of any
L/C issued by Foothill to or for Borrower's account, even though this
interpretation may be different from Borrower's own, and Borrower understands
and agrees that Foothill shall not be liable for any error, negligence, or
mistake, whether of omission or commission, in following Borrower's instructions
or those contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that the L/C Guarantees may require
Foothill to indemnify the issuing bank for certain costs or liabilities arising
out of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify, save, defend, and hold Foothill harmless with respect to any loss,
cost, expense (including reasonable attorneys fees), or liability incurred by
Foothill under any L/C Guaranty as a result of Foothill's indemnification of any
such issuing bank.
(c) Borrower hereby authorizes and directs any bank
that issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with such letter of credit and the related application. Borrower may or may not
be the "applicant" or "account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs
incurred by Foothill relating to the letters of credit guaranteed by Foothill
shall be considered Foothill Expenses for purposes of this Agreement and
immediately shall be reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this
Agreement, Borrower agrees to either (i) provide cash collateral to be held by
Foothill in an amount equal to 105% of the maximum amount of Foothill's
obligations under Letters of Credit, or (ii) cause to be delivered to Foothill
releases of all of Foothill's obligations under outstanding Letters of Credit.
At Foothill's discretion, any proceeds of Collateral received by Foothill after
the occurrence and during the continuation of an Event of Default may be held as
the cash collateral required by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable
law, treaty, rule, or regulation or any change in the interpretation or
application by any governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or Foothill with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
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(A) any reserve, deposit, or similar
requirement is or shall be imposed or modified in respect of
any Letters of Credit issued hereunder, or
(B) there shall be imposed on the issuing
bank or Foothill any other condition regarding any letter of
credit, or Letter of Credit, as applicable, issued pursuant
hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the issuing bank or Foothill of issuing, making, guaranteeing, or maintaining
any letter of credit, or Letter of Credit, as applicable, or to reduce the
amount receivable in respect thereof by such issuing bank or Foothill, then, and
in any such case, Foothill may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing bank or Foothill
may specify to be necessary to compensate the issuing bank or Foothill for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate set forth in
Section 2.6(a)(i) or (c)(i), as applicable. The determination by the issuing
bank or Foothill, as the case may be, of any amount due pursuant to this Section
2.2(f), as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
2.3 ACQUISITION ADVANCE. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make a one-time advance on the
Closing Date (the "Acquisition Advance") to Borrower, in an amount not to exceed
at any one time the lesser of (i) $1,000,000 or (ii) the aggregate amount of
Indebtedness that may be incurred pursuant to subsection 4.09(b)(vi) of the
Indenture, for the limited purpose of funding a portion of the purchase price of
the acquisition of MTI's assets under the MTI Purchase Agreement to the extent
permitted by subsection 4.09(b)(vi) of the Indenture.
(b) Subject to Section 2.3(c), the outstanding
principal balance and all accrued and unpaid interest under the Acquisition
Advance shall be due and payable on the earlier of (i) the Maturity Date, and
(ii) the termination of this Agreement, whether by its terms, by prepayment, by
acceleration, or otherwise.
(c) Except as required pursuant to this Section
2.3(c), or except as permitted by Section 3.6, the unpaid principal balance of
the Acquisition Advance may not be prepaid in whole or in part. In the event
that, as of any date of determination, the aggregate amount of revenue to be
earned by Borrower under the Material MTI Customer Contracts during the 12 month
period commencing with such date of determination is less than 150% of the then
outstanding balance of the Acquisition Advance, Borrower shall pay to Foothill
as a prepayment of the Acquisition Advance the amount required so that such
aggregate amount of revenue is not less than 150% of the then outstanding
balance of the Acquisition Advance (after giving effect to such prepayment).
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(d) All amounts outstanding under the Acquisition
Advance shall constitute Obligations.
(e) The Acquisition Advance shall not be made except
in accordance with Section 7.17.
2.4 CENTRE SUPPORT ADVANCE. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make a one-time advance on the
Closing Date (the "Centre Support Advance") to Borrower in an amount outstanding
not to exceed at any one time the lesser of (i) 95% of the amount available to
be drawn under the Centre Support Letter of Credit or (ii) the aggregate amount
of Indebtedness that may be incurred pursuant to subsection 4.09(a) of the
Indenture, for the limited purpose of funding a portion of the purchase price of
the acquisition of MTI's assets under the MTI Purchase Agreement to the extent
permitted by subsection 4.09(a) of the Indenture.
(b) Subject to Section 2.4(c), the outstanding
principal balance and all accrued and unpaid interest under the Centre Support
Advance shall be due and payable on the earlier of (i) the Maturity Date, and
(ii) the termination of this Agreement, whether by its terms, by prepayment, by
acceleration, or otherwise.
(c) Except as permitted under this Section 2.4(c), or
except as permitted by Section 3.6, the unpaid principal balance of the Centre
Support Advance may not be prepaid in whole or in part. At any time and from
time to time (but in no event more frequently than once every 30 days) following
the first anniversary of the Closing Date, Borrower may make partial prepayments
of the Centre Support Advance if and to the extent each of the following
conditions is satisfied: (i) no Event of Default has occurred and is continuing
or would result therefrom; (ii) Foothill shall have received from Borrower
written notice, not less than 5 Business Days prior to the proposed prepayment,
setting forth the date and amount of the proposed prepayment; (iii) the amount
of any one partial prepayment does not exceed $500,000; (iv) Foothill shall have
received, together with such notice, detailed projections in form and substance
satisfactory to Foothill that, after giving effect to the proposed prepayment
and all other such prepayments theretofore made and at all times during the
immediately following 12 month period, Borrower shall have Availability of not
less than $2,000,000 plus the aggregate amount of accrued but unpaid interest
payable under the Notes (as such term is defined in the Indenture) during such
period.
(d) All amounts outstanding under the Centre Support
Advance shall constitute Obligations.
(e) All proceeds from drawings under the Centre
Support Letter of Credit shall be applied, first, to accrued but unpaid interest
relative to the Centre Support Advance until paid in full, second, to any unpaid
Foothill Expenses related to the Centre Support Advance or Centre Support Letter
of Credit, third, to the outstanding principal balance of the Centre Support
Advance, and fourth, the balance, if any, (the "Balance") shall be remitted
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promptly by Foothill directly to Centre; provided, however, that if, prior to
the remittance of such Balance by Foothill to Centre, an Event of Default has
occurred under Sections 8.5 or 8.6 (without regard to items (a) through (e)),
then Foothill shall be entitled to retain such Balance and apply it to the
remaining Obligations. For purposes of calculating the outstanding principal
balance of the Centre Support Advance under item "third" above, there shall be
included therein the principal amount of any prepayments of the Centre Support
Advance made within 95 days prior to the date of the drawing under the Centre
Support Letter of Credit (the "Prepayment Amount"). The Prepayment Amount shall
be added to the Balance if no Event of Default has occurred under Sections 8.5
or 8.6 (without regard to items (a) through (e)) on or before the 95th day
following the date of the making of the relevant prepayment of the Centre
Support Advance. If such an Event of Default does occur during such period,
Foothill shall be entitled to hold the Prepayment Amount until it is satisfied
that no claim or action for a Voidable Transfer would be maintained on account
of the relevant prepayment or shall be entitled to use such Prepayment Amount to
satisfy any claim or action for a Voidable Transfer.
(f) The Centre Support Advance shall not be made
except in accordance with Section 7.17.
(g) If Borrower elects to prepay the Centre Support
Advance in accordance with subsection (c) above, Foothill agrees to accept a
substitute Centre Support Letter of Credit (the "Substitute Centre Support
Letter of Credit") in exchange for the then extant Centre Support Letter of
Credit (the "Extant Centre Support Letter of Credit") so long as (i) such
exchange does not occur on or prior to the 95th day following the date of the
prepayment that occasioned such exchange, (ii) an Insolvency Proceeding
commenced by or against any Obligor does not occur on or prior to the 95th day
following the date of such prepayment that occasioned such exchange, and (iii)
such Substitute Letter of Credit is in an amount equal to at least 105.3% of the
Centre Support Advance after giving effect to the applicable prepayment and
otherwise is in form and substance identical to the Extant Centre Support Letter
of Credit.
(h) In the event that all of the Obligations have
been paid in full in cash and all of Foothill's commitments to extend credit to
Borrower irrevocably have been terminated, Foothill agrees to release the Centre
Support Letter of Credit and deliver the original thereof to the issuer thereof.
2.5 OVERADVANCES.(a) If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and
2.2 is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under Section 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.
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(b) If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Sections 2.3 is greater
than the limitation set forth in Sections 2.3, Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill to repay the
Acquisition Advance outstanding under Section 2.3.
(c) If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Sections 2.4 is greater
than the limitation set forth in Sections 2.4, Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill to repay the
Centre Support Advance outstanding under Section 2.4.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate. Except as provided in clause (c)
below, all Obligations (except for undrawn Letters of Credit) shall bear
interest at a per annum rate of the Reference Rate plus the Applicable Margin.
(b) Letter of Credit Fee. Borrower shall pay Foothill
a fee (in addition to the charges, commissions, fees, and costs set forth in
Section 2.2(d)) equal to 1.5% per annum times the Letter of Credit Usage.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit) shall bear interest at a per annum rate equal to 4 percentage
points above the rate set forth in Section 2.6(a), and (ii) the Letter of Credit
fee provided in Section 2.6(b) shall be increased to 5.5% per annum times the
amount of the undrawn Letters of Credit that were outstanding during the
immediately preceding month.
(d) [intentionally omitted]
(e) Payments. Interest and Letter of Credit fees
payable hereunder shall be due and payable, in arrears, on the first day of each
month during the term hereof. Borrower hereby authorizes Foothill, at its
option, without prior notice to Borrower, to charge (unless Foothill and
Borrower shall agree in writing to alternative means of payment) such interest
and Letter of Credit fees, all Foothill Expenses (as and when incurred), the
charges, commissions, fees, and costs provided for in Section 2.2(d) (as and
when accrued or incurred), the fees and charges provided for in Section 2.11 (as
and when accrued or incurred), and all installments or other payments due under
any Loan Document to Borrower's Loan Account with respect to the Obligations
under Section 2.1, which amounts thereafter shall accrue interest at the rate
then applicable to Advances, the Acquisition Advance, or the Centre Support
Advance hereunder. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable to Advances, the
Acquisition Advance, or the Centre Support Advance hereunder.
(f) Computation. The Reference Rate as of the date of
this Agreement is 7.75% per annum. In the event the Reference Rate is changed
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from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount equal
to such change in the Reference Rate. All interest and fees chargeable under the
Loan Documents shall be computed on the basis of a 360 day year for the actual
number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate.
In no event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.7 COLLECTION OF ACCOUNTS. Borrower shall at all times
maintain one (or, as may be permitted by Foothill in writing, more than one)
concentration account (the "Concentration Account"). Borrower at all time shall
promptly deposit all Collections and other amounts received by Borrower from any
Account Debtor or any other source immediately upon receipt thereof into the
Concentration Account. Borrower, Foothill, and the Concentration Account Bank
shall enter into the Concentration Account Agreement. Neither the Concentration
Account Agreement nor the arrangement contemplated thereby or hereby shall be
modified by Borrower without the prior written consent of Foothill. Upon the
terms and subject to the conditions set forth in the Concentration Account
Agreement, all amounts received in each Concentration Account shall be wired
each Business Day into an account (the "Foothill Account") maintained by
Foothill at a depository selected by Foothill.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Foothill (whether from transfers to Foothill by
the Concentration Account Banks pursuant to the Concentration Account Agreement
or otherwise) immediately shall be applied provisionally to reduce the
Obligations outstanding under Section 2.1, but shall not be considered a payment
on account unless such Collection item is a wire transfer of immediately
available federal funds and is made to the Foothill Account or unless and until
such Collection item is honored when presented for payment. From and after the
Closing Date, Foothill shall be entitled to charge Borrower for 2 Business Days
of `clearance' or `float' at the rate set forth in Section 2.6(a) or Section
2.6(c)(i), as applicable, on all Collections that are received by Foothill
(regardless of whether forwarded by the Concentration Account Bank to Foothill,
whether provisionally applied to reduce the Obligations under Section 2.1, or
otherwise). This across-the-board 2 Business Day clearance or float charge on
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all Collections is acknowledged by the parties to constitute an integral aspect
of the pricing of Foothill's financing of Borrower, and shall apply irrespective
of the characterization of whether receipts are owned by Borrower or Foothill,
and whether or not there are any outstanding Obligations, the effect of such
clearance or float charge being the equivalent of charging 2 Business Days of
interest on such Collections. Should any Collection item not be honored when
presented for payment, then Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item shall be deemed
received by Foothill only if it is received into the Foothill Account on a
Business Day on or before 11:00 a.m. California time. If any Collection item is
received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances, the Acquisition Advance, The Centre Support Advance and the Letters of
Credit under this Agreement based upon telephonic or other instructions received
from anyone purporting to be an Authorized Person, or without instructions if
pursuant to Section 2.6(e). Borrower agrees to establish and maintain the
Designated Account wIth the Designated Account Bank for the purpose of receiving
the proceeds of the Advances, the Acquisition Advance, and the Centre Support
Advance requested by Borrower and made by Foothill hereunder. Unless otherwise
agreed by Foothill and Borrower, any Advance, Acquisition Advance, or Centre
Support Advance requested by Borrower and made by Foothill hereunder shall be
made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances, the
Acquisition Advance, or the Centre Support Advance made by Foothill to Borrower
or for Borrower's account, including, accrued interest, Foothill Expenses, and
any other payment Obligations of Borrower. In accordance with Section 2.8, the
Loan Account will be credited with all payments received by Foothill from
Borrower or for Borrower's account, including all amounts received in the
Foothill Account from any Concentration Account Bank. Foothill shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Foothill unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Foothill written objection thereto describing the
error or errors contained in any such statements.
2.11 FEES. Borrower shall pay to Foothill the following fees:
(a) [intentionally omitted];
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(b) [intentionally omitted];
(c) Annual Facility Fee. On each anniversary of the
Closing Date, an annual facility fee in an amount equal to 0.5% of the Maximum
Amount;
(d) Financial Examination and Appraisal Fees. (i)
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrower
performed by personnel employed by Foothill; provided, however, that, so long as
no Event of Default has occurred and is continuing, Borrower shall not be
obligated to pay such fees and expenses in respect of more than 4 such audits in
any year; (ii) Foothill's customary appraisal fee of $1,500 per day per
appraiser, plus out-of-pocket expenses for each appraisal of the Collateral
performed by personnel employed by Foothill; provided, however, that, so long as
no Event of Default has occurred and is continuing, Borrower shall not be
obligated to pay such fees and expenses in respect of more than 2 such
appraisals in any year; and (iii) the actual charges paid or incurred by
Foothill if it elects to employ the services of one or more third Persons to
perform such financial analyses and examinations (i.e., audits) of Borrower or
to appraise the Collateral; and
(e) Servicing Fee. On the first day of each month
during the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $7,500 per month, payable in
arrears; provided, however, that, if and so long as Borrower's computer system
is integrated, and consolidated agings can be prepared by Borrower, in a manner
acceptable to Foothill, such servicing fee shall be reduced to $2,500 per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, ACQUISITION
ADVANCE, OR CENTRE SUPPORT ADVANCE.
The obligation of Foothill to make the initial Advance,
Acquisition Advance, or Centre Support Advance, or to issue the initial Letter
of Credit is subject to the fulfillment, to the satisfaction of Foothill and its
counsel, of each of the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before
December 31, 1998;
(b) Foothill shall have received searches reflecting
the filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the
following documents, duly executed, and each such document shall be in full
force and effect:
(i) the Concentration Account
Agreements;
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(ii) the Disbursement Letter;
(iii) a Pay-Off Letter by each Existing
Lender, together with UCC termination statements
and other documentation evidencing the
termination by such Existing Lender of its Liens
in and to the properties and assets of Borrower
(or MTI);
(iv) the Centre Support Letter of
Credit;
(v) the Obligor Subordination Agreement;
(vi) the Guaranty;
(vii) the Guarantor Security Agreements;
and
(viii) the Pledge Agreement;
(d) Foothill shall have received: (i) a certificate
from the Secretary of MLP Administration attesting to the resolutions of MLP
Administration's Board of Directors authorizing its execution, delivery, and
performance of this Agreement and the other Loan Documents to which MLP
Administration is a party and authorizing specific officers of MLP
Administration to execute the same; (ii) a certificate from the Secretary of MCC
attesting to the resolutions of MCC's Board of Directors authorizing its
execution, delivery, and performance of this Agreement and the other Loan
Documents to which MCC is a party and authorizing specific officers of MCC to
execute the same; and (iii) a certificate from the Secretary of Holdings
attesting to (y) the authorization of each Obligor that is a managing partner of
any other Obligor, on behalf of such other Obligor, to execute and deliver the
Loan Documents to which such Obligor is a party, and (z) the resolutions of the
Board of Directors of Holdings authorizing the execution and delivery by
Holdings, in its capacity as the managing partner (or the managing partner of
the managing partner) of each Obligor, of this Agreement and the other Loan
Documents and authorizing specific officers of Holdings, in its capacity as the
managing partner (or the managing partner of the managing partner) of each
Obligor, to execute and deliver same;
(e) Foothill shall have received copies of the
Governing Documents of each Obligor and Holdings, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Holdings in its
individual capacity with respect to the Governing Documents of Holdings and as
the managing partner (or managing partner of the managing partner) of each
Obligor with respect to such Obligor's Governing Documents;
(f) Foothill shall have received a certificate of
status with respect to Holdings and each Obligor, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate officer of the
jurisdiction of organization of Holdings or such Obligor, which certificate
shall indicate that Holdings or such Obligor, as the case may be, is in good
standing in such jurisdiction;
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(g) Foothill shall have received certificates of
status with respect to Holdings and each Obligor, each dated within 15 days of
the Closing Date, such certificates to be issued by the appropriate officer of
the jurisdictions in which its failure to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall indicate that
Holdings or such Obligor, as the case may be, is in good standing in such
jurisdictions;
(h) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.10, the form and substance of which shall be satisfactory to Foothill and its
counsel;
(i) [intentionally omitted];
(j) Foothill shall have received such Collateral
Access Agreements from lessors, warehousemen, bailees, and other third persons
as Foothill may require;
(k) Foothill shall have received an opinion of the
counsel of the Obligors and Holdings in form and substance satisfactory to
Foothill in its reasonable discretion;
(l) Foothill shall have received: (i) evidence
satisfactory to Foothill of the consummation of each of the Structuring
Transactions (including a copy of the Copyright Sub License Agreement, certified
by an authorized official of Borrower as true, correct, and complete) ; (ii) a
true, correct, and complete copy of the Copyright Sub License Agreement; and
(iii) an opinion of the counsel of the Obligors, in form and substance
satisfactory to Foothill in its reasonable discretion, that, subject to
customary qualifications and exclusions, the Structuring Transactions do not
violate any law applicable to the Obligors and that neither the consummation of
the Structuring Transactions nor the execution, delivery, and performance of the
Copyright Sub License Agreement would violate the Indenture Documents.
(m) (i) Foothill shall have received a copy of each
of: (x) the Indenture and all other material Indenture Documents; (y) the MTI
Purchase Agreement and the MTI Seller Note; and (z) the material license
agreements (including ASCAP licenses, BMI license, mechanical licenses, and
recording label licenses), third-party billing agreements (including with First
Imaging and Laser Direct), and satellite access agreements of Borrower; in each
case, together with a certificate of the Secretary of Borrower certifying same
to be a true, complete, and correct copies thereof; and (ii) Foothill and its
counsel shall have completed its legal due diligence review of the foregoing and
the results of such review shall be satisfactory to Foothill;
(n) Foothill shall have received the respective
agreements of DSI of Hawaii, Inc., AccuDocs L.L.C. (aka First Imaging), and
Laser Direct, each in form and substance reasonably satisfactory to Foothill, to
provide Foothill, at Foothill's election upon the occurrence and during the
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continuance of an Event of Default, with substantially the same billing services
as, and under terms and conditions substantially the same for, the billing
services provided by such Person to or for the benefit of Borrower under the
third-party billing arrangements in effect between such Person and Borrower;
(o) Foothill shall have received Projections of
Borrower for the forthcoming 1 year, month by month, in form and substance
satisfactory to Foothill consistent with the financial projections delivered by
Borrower to Foothill prior to the Closing Date;
(p) Foothill shall have received satisfactory
evidence that, on the Closing Date, after giving effect to initial Advances, the
Acquisition Advance, and the Centre Support Advance to be made in accordance
with the Disbursement Letter and Section 7.17(a)(i), the initial Letters of
Credit to be issued, and the Foothill Expenses to be paid hereunder, Borrower
has Availability equal to or greater than $500,000;
(q) Foothill shall have completed its reference
checks on Borrower's management, the results of which shall be satisfactory to
Foothill;
(r) Foothill shall have received satisfactory
evidence that all tax returns required to be filed by the Obligors have been
timely filed and no payments of any taxes upon any Obligor or its properties,
assets, and income, and franchise taxes (including real property taxes and
payroll taxes) are delinquent, except such taxes that are the subject of a
Permitted Protest and except such taxes the nonpayment of which is immaterial;
and
(s) Foothill shall have received satisfactory
evidence that the Indebtedness of Borrower incurred under this Agreement
(including the Acquisition Advance and the Centre Support Advance) is permitted
under the applicable provisions of the Indenture; and
(t) all other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed, or recorded and shall be in form and substance satisfactory
to Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, THE ACQUISITION
ADVANCE, THE CENTRE SUPPORT ADVANCE AND ALL LETTERS OF CREDIT.
The following shall be conditions precedent to all Advances,
the Acquisition Advance, the Centre Support Advance, and all Letters of Credit
hereunder:
(a) the representations and warranties contained in
this Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
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(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of credit, nor shall
either result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
which shall be satisfactory to Foothill and its counsel.
(b) promptly upon Borrower's receipt of the Material
MTI Customer Contracts from MTI, deliver to Foothill copies of same, together
with an updated Schedule M-1 that provides all information missing from the
Schedule M-1 delivered on the Closing Date.
3.4 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on the date that is 3 years from the
Closing Date (the "Maturity Date"), unless sooner terminated pursuant to the
terms hereof. The foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated.
3.6 EARLY TERMINATION BY BORROWER. Borrower has the option, at
any time upon not less than 10 days and not more than 20 days prior written
notice to Foothill (such notice shall be irrevocable unless the impending
transaction that gave rise to the sending of such notice fails to occur), to
terminate this Agreement by paying to Foothill, in cash, the Obligations
(including an amount equal to 105% of the undrawn amount of the Letters of
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Credit), in full, together with a premium (the "Early Termination Premium")
equal to:
(a) $600,000, if such termination occurs during the
period from and after the Closing Date and up to and including first anniversary
of the Closing Date; provided, however, that, if such termination occurs during
such period proximately in connection with, and substantially contemporaneously
with the consummation of, an acquisition of all or substantially all of the
capital Equity Interests of Borrower or the acquisition of all or substantially
all of the Obligors' assets (including a sale effected by one or more mergers,
consolidations, or reorganizations), then, the Early Termination Premium
otherwise applicable under this Section 3.6(a) shall equal $200,000;
(b) $400,000, if such termination occurs during the
period from and after the date immediately following the first anniversary of
the Closing Date and up to and including the second anniversary of the Closing
Date; provided, however, that, if such termination occurs during such period
proximately in connection with, and substantially contemporaneously with the
consummation of, an acquisition of all or substantially all of the capital
Equity Interests of Borrower or the acquisition of all or substantially all of
the Obligors' assets (including a sale effected by one or more mergers,
consolidations, or reorganizations), then, the Early Termination Premium
otherwise applicable under this Section 3.6(b) shall equal $200,000; and
(c) $200,000, if such termination occurs after the
second anniversary of the Closing Date and before the Maturity Date.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
4. CREATION OF SECURITY INTERESTS.
4.1 GRANTS OF SECURITY INTERESTS.
(a) Borrower hereby grants to Foothill continuing security
interests in (i) all currently existing and hereafter acquired or arising
Borrower Collateral, and (ii) all currently existing and hereafter acquired or
arising Acquired Collateral consisting of Accounts or Inventory, in order to
secure prompt repayment of any and all Obligations (other than Obligations
solely and directly relating to the Centre Support Advance and the Acquisition
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Advance) and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents.
(b) With respect to each item of Acquired Collateral, whether
currently existing or hereafter acquired or arising, Borrower hereby grants to
Foothill a continuing security interest in such item of Acquired Collateral in
order to secure prompt repayment of any and all Obligations relating to the
Acquisition Advance.
(c) Foothill's security interests in the Collateral shall
attach to all Collateral without further act on the part of Foothill or
Borrower. Anything contained in this Agreement or any other Loan Document to the
contrary notwithstanding, except for Permitted Dispositions, Borrower has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall (and shall cause each
of the other Obligors to, and, by its execution and delivery of the Guaranty or
a joinder thereto, each of the Guarantors hereby agrees to) endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS. At any time after the occurrence
and during the continuation of an Event of Default, Foothill or Foothill's
designee may (a) notify customers or Account Debtors of Borrower that the
Accounts (and proceeds of Collateral consisting of Accounts, General
Intangibles, or Negotiable Collateral) have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the Accounts (and such
proceeds) directly and charge the collection costs and expenses to the Loan
Account. Borrower agrees that it will hold in trust for Foothill, as Foothill's
trustee, any Collections that it receives and immediately will deliver said
Collections to Foothill in their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall (and shall cause each of the other
Obligors to, and, by its execution and delivery of the Guaranty or a joinder
thereto, each of the Guarantors hereby agrees to) execute and deliver to
Foothill all financing statements, continuation financing statements, fixture
filings, security agreements, pledges, assignments, collateral assignments,
mortgages, leasehold mortgages, deeds of trust, leasehold deeds of trust,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Foothill reasonably may request, in form satisfactory to
Foothill, to perfect and continue perfected Foothill's security interests in the
Collateral (whether now owned or hereafter arising or acquired), and in order to
fully consummate all of the transactions contemplated hereby and under the other
Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints (and hereby causes each of the other Obligors to make,
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constitute, and appoint, and, by its execution and delivery of the Guaranty or a
joinder thereto, each of the Guarantors hereby makes, constitutes, and appoints)
Foothill (and any of Foothill's officers, employees, or agents designated by
Foothill) as the Obligors' true and lawful attorney, with power to (a) if such
Obligor refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of such Obligor on any of the documents
described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing, sign such Obligor's name on any invoice or bill of lading
relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors, (c) send requests for verification of Accounts, (d) endorse such
Obligor's name on any Collection item that may come into Foothill's possession,
(e) at any time that an Event of Default has occurred and is continuing, notify
the post office authorities to change the address for delivery of such Obligor's
mail to an address designated by Foothill, to receive and open all mail
addressed to such Obligor, and to retain all mail relating to the Collateral and
forward all other mail to such Obligor, (f) at any time that an Event of Default
has occurred and is continuing, make, settle, and adjust all claims under the
Obligors' policies of insurance and make all determinations and decisions with
respect to such policies of insurance, and (g) at any time that an Event of
Default has occurred and is continuing, settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms that Foothill determines to be reasonable, and Foothill may cause to be
executed and delivered any documents and releases that Foothill determines to be
necessary. The appointment of Foothill as the Obligors' attorney, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Prior to the time that an Event of
Default has occurred and is continuing, Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter during
normal business hours and without substantially disrupting the Obligors' normal
business operations, to inspect the Books and to check, test, and (subject to
Section 2.11(d)) appraise the Collateral in order to verify the Obligors'
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral. Upon the occurrence and during the
continuation of an Event of Default has occurred and is continuing, Foothill
(through any of its officers, employees, or agents) shall have the right, from
time to time thereafter, to inspect the Books and to check, test, and (subject
to Section 2.11(d)) appraise the Collateral in order to verify the Obligors'
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement,
Borrower makes the following representations and warranties which shall be true,
correct, and complete in all respects as of the date hereof, and shall be true,
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correct, and complete in all respects as of the Closing Date, and at and as of
the date of the making of each Advance, Acquisition Advance, Centre Support
Advance or Letter of Credit made thereafter, as though made on and as of the
date of such Advance, Acquisition Advance, Centre Support Advance or Letter of
Credit (except to the extent that such representations and warranties relate
solely to an earlier date) and such representations and warranties shall survive
the execution and delivery of this Agreement:
5.1 NO ENCUMBRANCES. Each Obligor has good and marketable
title to the Collateral of such Obligor, free and clear of Liens except for
Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation, except to the extent that
the effect of such defenses, disputes, offsets, counterclaims, or rights of
return or cancellation have been specified on the applicable Borrowing Base
certificate. The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for immediate
shipment to and unconditional acceptance by the Account Debtor. Borrower has not
received notice of actual or imminent bankruptcy, insolvency, or material
impairment of the financial condition of any one or more Account Debtors
regarding any Eligible Account or other Accounts in excess of $100,000 in the
aggregate.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good
and merchantable quality, free from defects.
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.12 or otherwise permitted by Section 6.12.
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of Borrower and each Guarantor is located at the address for
Borrower indicated in the preamble to this Agreement and the FEINs for each of
the Obligors are as set forth on Schedule 5.7.
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5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) Each
of the Obligors and Holdings is duly organized and existing and in good standing
under the laws of the jurisdiction of its organization and qualified and
licensed to do business in, and in good standing in, any state where the failure
to be so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and
accurate list of each Obligor's direct and indirect Subsidiaries, showing: (i)
the jurisdiction of their organization; (ii) the number of shares or units of
each class of Equity Interests authorized for each of such Subsidiaries; and
(iii) the number and the percentage of the outstanding shares or units of each
such class owned directly or indirectly by such Obligor. All of the outstanding
Equity Interests of each such Subsidiary has been validly issued and is fully
paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no Equity
Interests (or any securities, instruments, warrants, options, purchase rights,
conversion or exchange rights, calls, commitments or claims of any character
convertible into or exercisable for Equity Interests) of any direct or indirect
Subsidiary of any Obligor is subject to the issuance of any security,
instrument, warrant, option, purchase right, conversion or exchange right, call,
commitment or claim of any right, title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which it is a party have
been duly authorized by all necessary corporate or partnership (as the case may
be) action.
(b) The execution, delivery, and performance by each
of the other Obligors of the Loan Documents to which it is a party have been
duly authorized by all necessary corporate or partnership (as the case may be)
action.
(c) The execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which it is a party do not
and will not (i) violate any provision of federal, state, or local law or
regulation (including Regulations T, U, and X of the Federal Reserve Board)
applicable to Borrower, the Governing Documents of Borrower, or any order,
judgment, or decree of any court or other Governmental Authority binding on
Borrower, (ii) conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation or material lease of Borrower, (iii) result in or require the
creation or imposition of any Lien of any nature whatsoever upon any properties
or assets of Borrower, other than Permitted Liens, or (iv) require any approval
of holders of Equity Interests or any approval or consent of any Person under
any material contractual obligation of Borrower.
(d) The execution, delivery, and performance by each
of the other Obligors of the Loan Documents to which it is a party do not and
will not (i) violate any provision of federal, state, or local law or regulation
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(including Regulations T, U, and X of the Federal Reserve Board) applicable to
such Obligor, the Governing Documents of such Obligor, or any order, judgment,
or decree of any court or other Governmental Authority binding on such Obligor,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material contractual obligation or
material lease of such Obligor, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or assets of
Borrower, other than Permitted Liens, or (iv) require any approval of holders of
Equity Interests, or any approval or consent of any Person under any material
contractual obligation, of such Obligor.
(e) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution, delivery, and
performance by Borrower of this Agreement and the Loan Documents to which
Borrower is a party do not and will not require any registration with, consent,
or approval of, or notice to, or other action with or by, any federal, state,
foreign, or other Governmental Authority or other Person, except for any such
registrations already made, such consents or approvals already obtained, such
notices already given, and such other actions already taken.
(f) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, the execution, delivery, and
performance by each of the other Obligors of the Loan Documents to which such
Obligor is a party do not and will not require any registration with, consent,
or approval of, or notice to, or other action with or by, any federal, state,
foreign, or other Governmental Authority or other Person.
(g) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(h) With respect to each of the other Obligors, the
Loan Documents to which such Obligor is a party, and all other documents
contemplated hereby and thereby, when executed and delivered by such Obligor
will be the legally valid and binding obligations of such Obligor, enforceable
against such Obligor in accordance with their respective terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.
(i) The Liens granted by Borrower to Foothill in and
to its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and first priority Liens, subject only
to Permitted Liens.
(j) The Liens granted by each of the other Obligors
to Foothill in and to its properties and assets pursuant to the Loan Documents
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are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10 LITIGATION.There are no actions or proceedings pending by
or against any Obligor before any court or administrative agency and neither
Borrower nor any other Obligor has any knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving any Obligor, except for: (a)
ongoing collection matters in which an Obligor is the plaintiff; (b) matters
disclosed on Schedule 5.10; and (c) matters arising after the date hereof that,
if decided adversely to the Obligors, reasonably could not be expected to result
in a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower or any guarantor of the Obligations that have been
delivered by Borrower to Foothill have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
Borrower's (or such guarantor's, as applicable) financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or such
guarantor, as applicable) since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.12 SOLVENCY.Each Obligor is Solvent. No transfer of property
is being made by any Obligor and no obligation is being incurred by any Obligor
in connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of any Obligor.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its
Subsidiaries, or, to Borrower's knowledge, any of their ERISA Affiliates
maintains or contributes to any Benefit Plan, other than those listed on
Schedule 5.13. Borrower, each of its Subsidiaries and, to Borrower's knowledge,
each ERISA Affiliate have satisfied the minimum funding standards of ERISA and
the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Change. None of Borrower or its Subsidiaries, or, to Borrower's
knowledge, any ERISA Affiliate or any fiduciary of any Plan, is subject to any
direct or indirect liability with respect to any Plan under any applicable law,
treaty, rule, regulation, or agreement. None of Borrower or its Subsidiaries or,
to Borrower's knowledge, any ERISA Affiliate, is required to provide security to
any Plan under Section 401(a)(29) of the IRC.
5.14 ENVIRONMENTAL CONDITION. Except as set forth on Schedule
5.14, none of Borrower's properties or assets has ever been used by Borrower or,
to the best of Borrower's knowledge, by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any
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Hazardous Materials. None of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a Hazardous Materials disposal site, or a candidate for closure
pursuant to any environmental protection statute. No Lien arising under any
environmental protection statute has attached to any revenues or to any real or
personal property owned or operated by Borrower. Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15 BROKERAGE FEES. No brokerage commission or finders fees
has or shall be incurred or payable in connection with or as a result of
Borrower's obtaining financing from Foothill under this Agreement, and Borrower
has not utilized the services of any broker or finder in connection with
Borrower's obtaining financing from Foothill under this Agreement.
5.16 YEAR 2000 COMPLIANCE. (a) On the basis of a comprehensive
review and assessment currently being undertaken by Borrower of Borrower's
computer applications utilized by Borrower or contained in products produced or
sold by Borrower, and upon inquiry made of those suppliers and vendors of
Borrower whose failure to be Year 2000 Compliant on a timely basis could have a
Material Adverse Effect, Borrower's management is of the considered view that
Borrower's mission critical operations and operations at its headquarters will
be Year 2000 Compliant before April 30, 1999 and all other operations, its
products, and all such suppliers and vendors will be Year 2000 Compliant before
August 31, 1999.
(b) Borrower (i) has undertaken a detailed review and
assessment of all areas within its business and operations that could be
adversely affected by the failure of Borrower or its products to be Year 2000
Compliant on a timely basis, (ii) is developing a detailed plan and timeline for
becoming Year 2000 Compliant on a timely basis, and (iii) to date, is
implementing that plan in accordance with that timetable in all material
respects. Borrower reasonably anticipates that all operations of Borrower will
be Year 2000 Compliant on a timely basis.
5.17 INTELLECTUAL PROPERTY. The Obligors own, or hold licenses
in, all trademarks, trade names, copyrights, patents, patent rights, and
licenses that are necessary to the conduct of their business as currently
conducted.
5.18 LEASES. Borrower enjoys peaceful and undisturbed
possession under all leases material to the business of Borrower and to which it
is a party or under which it is operating. All of such leases are valid and
subsisting and no material default by Borrower exists under any of them.
5.19 MATERIAL MTI CUSTOMER CONTRACTS.
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(a) Schedule M-1 identifies each customer contract of MTI
acquired by Borrower pursuant to the MTI Purchase Agreement.
(b) With respect to each MTI Material Customer Contract listed
thereon, Schedule M-1 accurately identifies the expiration date of and, to the
extent set forth, the monthly revenue owing to Borrower under such MTI Material
Customer Contract.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall (and, where applicable, cause each of the other Obligors to, and, by its
execution and delivery of the Guaranty or a joinder thereto, each of the
Guarantors hereby agrees to) do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that
enables Borrower and the other Obligors to produce financial statements in
accordance with GAAP, and maintain records pertaining to the Collateral that
contain information as from time to time reasonably may be requested by
Foothill. The Obligors also shall keep an inventory reporting system that shows
all additions, sales, claims, returns, and allowances with respect to the
Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form reasonably satisfactory to Foothill:
- ----------------------- --------------------------------------------------------
Weekly (a) a sales journal, collection journal, and credit
register since the last such schedule, a calculation of
the Indenture Borrowing Limit as of such date, and a
calculation of the Borrowing Base as of such date, and
(b) notice of all returns, disputes, or claims.
(c) inventory reports specifying Borrower's cost and the
wholesale market value of its Inventory, by category,
with additional detail showing additions to and
deletions from the Inventory.
- ----------------------- --------------------------------------------------------
Monthly (not later (d) a detailed calculation of the Borrowing Base,
than the 15th day of
each month) (e) a detailed aging, by total, of the Accounts,
together with a reconciliation to the detailed
calculation of the Borrowing Base previously provided to
Lender,
(f) a summary aging, by vendor, of Borrower's accounts
payable and any book overdraft,
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(g) a calculation of Dilution for the prior month, and
(h) an updated Schedule M-1 identifying each Material
MTI Customer Contract, the expiration date thereof, and
the amount of revenue owing to Borrower thereunder
during the next 12 months.
- ----------------------- --------------------------------------------------------
Quarterly (i) a detailed list of Borrower's customers, and a
detailed list of the Relevant Copyrights.
- ----------------------- --------------------------------------------------------
Promptly (and in any (j) with respect to each Benefit Plan and Multiemployer
event within 5 Plan, copies of all annual reports and attachments
Business Days thereto (including actuarial reports and financial
after the same is statements), notices, and other information that is
received) provided by the relevant plan administrator to Borrower.
- ----------------------- --------------------------------------------------------
Upon request by Lender (k) copies of invoices in connection with the Accounts,
credit memos, remittance advices, deposit slips,
shipping and delivery documents in connection with the
Accounts and, for Inventory and Equipment acquired by
Borrower, purchase orders and invoices, and
(j) such other reports as to the Collateral or the
financial condition of Borrower as Lender reasonably may
request.
- ----------------------- --------------------------------------------------------
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after the
end of each month during each of Borrower's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow covering Borrower's
operations during such period; and (b) as soon as available, but in any event
within 90 days after the end of each of Borrower's fiscal years, financial
statements of Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants addressed
to Foothill stating that such accountants do not have knowledge of the existence
of any Default or Event of Default. Such audited financial statements shall
include a balance sheet, profit and loss statement, and statement of cash flow
and, if prepared, such accountants' letter to management. If Borrower is a
parent company of one or more Subsidiaries, or Affiliates, or is a Subsidiary or
Affiliate of another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
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consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Borrower with the
Securities and Exchange Commission, if any, promptly and in any event within 15
days after the same are filed, or any other information that is provided by
Borrower to its limited partners generally, and any other report reasonably
requested by Foothill relating to the financial condition of Borrower.
Each month, together with the financial statements provided
pursuant to Section 6.3(a), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (i) all financial
statements delivered or caused to be delivered to Foothill hereunder have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present the financial condition of Borrower, (ii) the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date), (iii) for each month that also is the date on which a financial covenant
in Section 7.20 is to be tested, a Compliance Certificate demonstrating in
reasonable detail compliance at the end of such period with the applicable
financial covenants contained in Section 7.20, and (iv) on the date of delivery
of such certificate to Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of clauses (i), (ii),
or (iii), to the extent of any non-compliance, describing such non-compliance as
to which he or she may have knowledge and what action Borrower has taken, is
taking, or proposes to take with respect thereto).
No later than December 31 of each year, Borrower shall deliver
to Foothill preliminary Projections of Borrower for the forthcoming year, month
by month. Borrower shall deliver final Projections for the forthcoming year,
month by month, by January 31 of such year.
Borrower (and, if required, each of the other Obligors) shall
have issued written instructions to its independent certified public accountants
authorizing them to communicate with Foothill and to release to Foothill
whatever financial information concerning the Obligors that Foothill may
request. Borrower hereby irrevocably authorizes and directs (and hereby agrees
to cause promptly each of the other Obligors to irrevocably authorize and
direct, and, by its execution and delivery of the Guaranty or a joinder thereto,
each of the Guarantors hereby irrevocably authorizes and directs) all auditors,
accountants, or other third parties that Foothill reasonably could expect to
have access to such information to deliver to Foothill, at Borrower's expense,
copies of the Obligors' financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding the Obligors' business affairs
and financial conditions.
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6.4 TAX RETURNS. Deliver to Foothill copies of each of the
future federal income tax returns, and any amendments thereto, of the Obligors
within 30 days of the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations to deliver, upon Foothill's reasonable request therefor, its annual
financial statements at the time when Borrower provides its audited financial
statements to Foothill and copies of all federal income tax returns as soon as
the same are available and in any event no later than 30 days after the same are
required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill) in the appropriate amount to such Account Debtor. If, at a time
when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, each Obligor
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment (other
than Equipment that is immaterial to the Obligors' business) in good operating
condition and repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date, no Obligor shall permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and such Equipment shall at all times remain personal property.
6.9 TAXES. (a) Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against any Obligor or any of its property to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest.
(b) Make due and timely payment or deposit of all such
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federal, state, and local taxes, assessments, or contributions required of it by
law, and execute and deliver to Foothill, on demand, appropriate certificates
attesting to the payment thereof or deposit with respect thereto.
(c) Make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Foothill with proof satisfactory
to Foothill indicating that the relevant Obligor has made such payments or
deposits.
6.10INSURANCE.
(a) At the Obligors' expense, keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. The Obligors also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to the Obligors' ownership and use of the Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) At the Obligors' expense, obtain and maintain (i)
insurance of the type necessary to insure the Collateral, for the full
replacement cost thereof, against any loss by fire, lightning, windstorm, hail,
explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator
collision, and other risks from time to time included under "extended coverage"
policies, in such amounts as Foothill may require, but in any event in amounts
sufficient to prevent the Obligors from becoming a co-insurer under such
policies, (ii) combined single limit bodily injury and property damages
insurance against any loss, liability, or damages on, about, or relating to each
parcel of Real Property, in an amount of not less than $1,000,000 individually
or $5,000,000 in the aggregate; (iii) [intentionally omitted]; and (iv)
insurance for such other risks as Foothill may require. Replacement costs, at
Foothill's option, may be redetermined by an insurance appraiser, satisfactory
to Foothill, not more frequently than once every 12 months at the Obligors'
cost.
(c) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably satisfactory
to Foothill. All insurance required herein shall be written by companies which
are authorized to do insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property for purposes more hazardous than permitted
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by the terms of such policy, (ii) any foreclosure or other action or proceeding
taken by Foothill pursuant to the Loan Documents upon the happening of an Event
of Default, or (iii) any change in title or ownership of the Collateral.
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.
(d) Original policies or certificates thereof
satisfactory to Foothill evidencing such insurance shall be delivered to
Foothill at least 30 days prior to the expiration of the existing or preceding
policies. The Obligors shall give Foothill prompt notice of any loss covered by
such insurance, and Foothill shall have the right to adjust (i) any loss in
excess of $250,000.00, and (ii) after the occurrence and during the continuation
of an Event of Default, any loss whatsoever. Foothill shall have the exclusive
right to adjust all such losses payable under any such insurance policies
without any liability to the Obligors whatsoever in respect of such adjustments.
Any monies received as payment for any loss under any insurance policy including
the insurance policies mentioned above, shall be paid over to Foothill to be
applied at the option of Foothill either to the prepayment of the Obligations
without premium, in such order or manner as Foothill may elect, or shall be
disbursed to the Obligors under stage payment terms satisfactory to Foothill for
application to the cost of repairs, replacements, or restorations. All repairs,
replacements, or restorations shall be effected with reasonable promptness and
shall be of a value at least equal to the value of the items or property
destroyed prior to such damage or destruction. Upon the occurrence of an Event
of Default, Foothill shall have the right to apply all prepaid premiums to the
payment of the Obligations in such order or form as Foothill shall determine.
(e) The Obligors shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required to be maintained under this Section 6.10, unless Foothill is included
thereon as named insured with the loss payable to Foothill under a standard
438BFU (NS) Mortgagee endorsement, or its local equivalent. The Obligors
immediately shall notify Foothill whenever such separate insurance is taken out,
specifying the insurer thereunder and full particulars as to the policies
evidencing the same, and originals of such policies immediately shall be
provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of the Obligors without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory
and Equipment only at the locations identified on Schedule 6.12; provided,
however, that Borrower may amend Schedule 6.12 or Schedule E-1 so long as such
amendment occurs by written notice to Foothill not less than 10 days prior to
the date on which the Inventory or Equipment is moved to such new location, so
long as such new location is within the continental United States, and so long
as, on or before the date on which the Equipment or Inventory is moved to such
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new location, the applicable Obligor provides any financing statements or
fixture filings necessary to perfect and continue perfected Foothill's security
interests in such assets and, if requested by Foothill, provides to Foothill a
Collateral Access Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not result in and reasonably could not
be expected to result in a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Cause to be delivered to Foothill, each of the
following: (i) promptly, and in any event within 10 Business Days after Borrower
or any of its Subsidiaries knows or has reason to know that an ERISA Event has
occurred that reasonably could be expected to result in a Material Adverse
Change, a written statement of the chief financial officer of Borrower
describing such ERISA Event and any action that is being taking with respect
thereto by Borrower, any such Subsidiary, or, to Borrower's knowledge, ERISA
Affiliate, and any action taken or threatened by the IRS, Department of Labor,
or PBGC -- Borrower or such Subsidiary, as applicable, shall be deemed to know
all facts known by the administrator of any Benefit Plan of which Borrower or
such Subsidiary is the plan sponsor, (ii) promptly, and in any event within 3
Business Days after the filing thereof with the IRS, a copy of each funding
waiver request filed by Borrower or any Subsidiary thereof with respect to any
Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate, with respect
to such request, (iii) promptly, and in any event within 3 Business Days after
Borrower or any Subsidiary thereof first is aware of the filing thereof with the
IRS, a copy of each funding waiver request filed by any Person other than
Borrower or any Subsidiary thereof with respect to any Benefit Plan and all
communications received by Borrower, any of its Subsidiaries or, to the
knowledge of Borrower, any ERISA Affiliate, with respect to such request, and
(iv) promptly, and in any event within 3 Business Days after receipt by
Borrower, any of its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate, of the PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon
Foothill's request, each of the following: (i) a copy of each Plan (or, where
any such plan is not in writing, complete description thereof) (and if
applicable, related trust agreements or other funding instruments) and all
amendments thereto, all written interpretations thereof and written descriptions
thereof that have been distributed to employees or former employees of Borrower
or its Subsidiaries; (ii) the most recent determination letter issued by the IRS
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with respect to each Benefit Plan; (iii) for the three most recent plan years,
annual reports on Form 5500 Series required to be filed with any governmental
agency for each Benefit Plan; (iv) all actuarial reports prepared for the last
three plan years for each Benefit Plan; (v) a listing of all Multiemployer
Plans, with the aggregate amount of the most recent annual contributions
required to be made by Borrower or, to Borrower's knowledge, any ERISA Affiliate
to each such plan and copies of the collective bargaining agreements requiring
such contributions; (vi) any information that has been provided to Borrower or,
to Borrower's knowledge, any ERISA Affiliate regarding withdrawal liability
under any Multiemployer Plan; and (vii) the aggregate amount of the most recent
annual payments made to former employees of Borrower or its Subsidiaries under
any Retiree Health Plan.
6.15 LICENSES, LEASES, AND SATELLITE ACCESS AGREEMENTS. Pay
when due all royalties, rents, and other amounts payable under any
non-immaterial licenses, leases, or satellite access agreements to which any
Obligor is a party or by which any Obligor's properties and assets are bound,
unless such payments are the subject of a Permitted Protest. To the extent that
any Obligor fails timely to make payment of such royalties, rents, and other
amounts payable when due under its licenses, leases, or satellite access
agreements, Foothill shall be entitled, in its discretion, to reserve an amount
equal to such unpaid amounts against the Borrowing Base.
6.16 BROKERAGE COMMISSIONS. Pay any and all brokerage
commission or finders fees incurred by in connection with or as a result of
Borrower's obtaining financing from Foothill under this Agreement.
6.17 YEAR 2000 COMPLIANCE. Borrower's mission critical
operations and operations at its headquarters will be Year 2000 Compliant before
April 30, 1999 and all other operations, its products, and all suppliers and
vendors of Borrower whose failure to be Year 2000 Compliant on a timely basis
could have a Material Adverse Effect will be Year 2000 Compliant before August
31, 1999.
6.18 TRANSFER AND LICENSE OF RELEVANT COPYRIGHTS. The Obligors
promptly shall transfer all Relevant Copyrights generated or acquired by any
Obligor to Copyright Sub and cause such Relevant Copyrights to be licensed by
Copyright Sub on a non-exclusive basis to Borrower pursuant to the Copyright Sub
License Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do, and will not cause, suffer, or permit any of
the other Obligors to do (and by its execution and delivery of the Guaranty or a
joinder thereto, each Guarantor hereby agrees that it will not do), any of the
following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
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(a) Indebtedness evidenced by this Agreement,
together with Indebtedness to issuers of letters of credit that are the subject
of L/C Guarantees;
(b) Indebtedness set forth in Schedule 7.1;
(c) Borrower, MCC, and Copyright Sub may be liable
for Indebtedness outstanding under the Notes (as such term is defined in the
Indenture) and the other Indenture Documents in an aggregate principal amount
not to exceed $100,000,000 at any one time outstanding;
(d) Indebtedness owed by any Obligor to any other
Obligor, so long as such Indebtedness is the subject of the Obligor
Subordination Agreement;
(e) Purchase Money Indebtedness incurred after the
Closing Date in an aggregate amount outstanding at any one time not to exceed
the result of (i) the lesser of $2,000,000 or the amount of Indebtedness
permitted under subsection 4.09(b)(vi) of the Indenture, less (ii) the aggregate
outstanding amount of the Acquisition Advance;
(f) Borrower may be liable for unsecured Indebtedness
outstanding under the MTI Seller Note;
(g) Borrower may be liable for other unsecured
Indebtedness in an aggregate amount at any one time outstanding not to exceed
S2,000,000, so long as and to the extent that the incurrence of such
Indebtedness is permitted under the Indenture;
(h) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b), (c), (d), (e), (f), and (g) of this
Section 7.1 (and continuance or renewal of any Permitted Liens associated
therewith) so long as: (i) the terms and conditions of such refinancings,
renewals, or extensions do not materially impair the prospects of repayment of
the Obligations by Borrower, (ii) the net cash proceeds of such refinancings,
renewals, or extensions do not result in an increase in the aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to Foothill as those applicable to the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any Lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
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Section 7.1(h) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. (a) Except for
Permitted Acquisitions or the acquisition of the assets of MTI pursuant to the
MTI Purchase Agreement, consummate any merger, consolidation, reorganization, or
recapitalization, or reclassify its Equity Interests, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or, (b) except for
Permitted Dispositions, convey, sell, assign, lease, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its property or assets.
7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or
otherwise dispose of any of the properties or assets of the Obligors, other than
Permitted Dispositions.
7.5 CHANGE NAME. Change any Obligor's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name, unless the applicable Obligor shall have provided
Foothill not less than 30 days prior written notice of any such proposed changes
and executed and delivered to Foothill such documents (including financing
statements, fixture filings, and Collateral Access Agreements) as Foothill
reasonably may request.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill and except to the extent of pari
passu (but not senior) guarantees required under Section 4.15 of the Indenture.
7.7 NATURE OF BUSINESS. Make any change in the principal
nature of the Obligors' business.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted
by Section 7.1(h), prepay, redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness owing to any third Person, other than the Obligations
in accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of the Centre Support Letter
of Credit or of any agreement, instrument, document, indenture, or other writing
evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c), (d),
(e), (f), (g), or (h).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
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7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory
on bill and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.11 DISTRIBUTIONS.Make any distribution or declare or pay any
dividends (in cash or other property, other than Equity Interests) on, or
purchase, acquire, redeem, or retire any of the Equity Interests of any Obligor,
of any class, whether now or hereafter outstanding. The immediately preceding
sentence shall not restrict the ability of the Obligors to make contingent
payments or issue Equity Interests, in each case to the extent not prohibited by
this Agreement, for Permitted Acquisitions.
7.12 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently existing,
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of the Obligors' accounting
records without said accounting firm or service bureau agreeing to provide
Foothill information regarding the Collateral or the Obligors' financial
condition. The Obligors waive the right to assert a confidential relationship,
if any, it may have with any accounting firm or service bureau in connection
with any information requested by Foothill pursuant to or in accordance with
this Agreement, and agree that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.13 INVESTMENTS. Directly or indirectly make, acquire, or
incur any liabilities (including contingent obligations) for or in connection
with (a) the acquisition of the securities (whether debt or equity) of, or other
interests in, a Person, (b) loans, advances, capital contributions, or transfers
of property to a Person, or (c) other than the acquisition of the assets of MTI
pursuant to the MTI Purchase Agreement and Permitted Acquisitions, the
acquisition of all or substantially all of the properties or assets of a Person.
7.14 TRANSACTIONS WITH AFFILIATES.Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of any
Obligor, except for: (a) the transfer and license of Relevant Copyrights
pursuant to the Structuring Transactions and Section 6.18, and (b) transactions
that are in the ordinary course of the Obligors' business, upon fair and
reasonable terms, that are fully disclosed to Foothill, and that are no less
favorable to the applicable Obligor than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion
of its business.
7.16 [INTENTIONALLY OMITTED]
7.17 USE OF PROCEEDS. Use: (a) the proceeds of the Advances
made hereunder for any purpose other than (i) on the Closing Date, (x) to repay
in full the outstanding principal, accrued interest, and accrued fees and
expenses owing to each Existing Lender, (y) funding a portion of the purchase
price of the acquisition of MTI's assets consisting of accounts, inventory, and
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other working capital assets under the MTI Purchase Agreement, and (z) to pay
transactional costs and expenses incurred in connection with this Agreement, and
(ii) thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted working capital purposes; in each case, solely to the extent such
Advances are permitted under subsection 4.09(b)(i) of the Indenture; (b) the
proceeds of the Acquisition Advance made hereunder for any purpose other than,
on the Closing Date, funding a portion of the purchase price of the acquisition
of the Material MTI Customer Contracts and other assets (exclusive of accounts
or inventory) of MTI under the MTI Purchase Agreement, solely to the extent the
Acquisition Advance is permitted under subsection 4.09(b)(vi) of the Indenture;
and (c) the proceeds of the Centre Support Advance made hereunder for any
purpose other than, on the Closing Date, funding a portion of the purchase price
of the acquisition of MTI's assets (exclusive of accounts and inventory) under
the MTI Purchase Agreement, solely to the extent the Centre Support Advance is
permitted under subsection 4.09(a) of the Indenture.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new
location without providing 30 days prior written notification thereof to
Foothill and so long as, at the time of such written notification, the
applicable Obligor provides any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests and
also provides to Foothill a Collateral Access Agreement with respect to such new
location. The Inventory and Equipment shall not at any time now or hereafter be
stored with a bailee, warehouseman, or similar party without Foothill's prior
written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of Borrower to
engage, in any prohibited transaction which is reasonably likely to result in a
civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the
IRC for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan
any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412
of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to
fail, to pay timely required contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower
to terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
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(e) fail, or permit any Subsidiary of Borrower to
fail, to make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to
fail, to pay any required installment or any other payment required under
Section 412 of the IRC on or before the due date for such installment or other
payment;
(g) amend, or permit any Subsidiary of Borrower to
amend, a Plan resulting in an increase in current liability for the plan year
such that either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate
is required to provide security to such Plan under Section 401(a)(29) of the
IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $50,000.
7.20 FINANCIAL COVENANTS.(a)EBITDA. Fail to achieve EBITDA for
each of the following fiscal quarters of not less than the amount shown below
for the fiscal quarter corresponding thereto:
- --------------------------------------------- ----------------------------------
Fiscal Quarter Minimum EBITDA
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 3/31/99 $6,175,000
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 6/30/99 $6,381,000
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 9/30/99 $6,586,000
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 12/31/99 $6,790,000
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 3/31/00 $7,129,000
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 6/30/00 $7,546,000
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 9/30/00 $7,986,000
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 12/31/00 $8,426,000
and each fiscal quarter thereafter
- --------------------------------------------- ----------------------------------
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(b) EBITDA Less Capital Expenditures. For each of the
following fiscal quarters, cause, suffer, or permit the amount equal to the
result of (i) EBITDA achieved for such period minus (ii) capital expenditures
made during such period to be less than the amount shown below for the fiscal
quarter corresponding thereto:
- --------------------------------------------- ----------------------------------
Fiscal Quarter Minimum EBITDA
Less Capital Expenditures
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 3/31/99 $2,719,200
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 6/30/99 $3,006,400
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 9/30/99 $3,354,400
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 12/31/99 $3,549,600
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 3/31/00 $3,672,800
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 6/30/00 $4,116,800
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 9/30/00 $4,611,200
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 12/31/00 $5,047,200
and each fiscal quarter thereafter
- --------------------------------------------- ----------------------------------
(c) Net Worth. Fail to maintain Net Worth for each of
the following fiscal quarters of not less than the amount shown below for the
fiscal quarter corresponding thereto (amounts in parenthesis (($)) are negative
amounts) less, in each case, the amount of any non-cash equity based
compensation from and after January 1, 1999:
- --------------------------------------------- ----------------------------------
Fiscal Quarter Minimum Net Worth
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 3/31/99 ($36,570,000)
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 6/30/99 ($39,690,000)
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 9/30/99 ($42,460,000)
- --------------------------------------------- ----------------------------------
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fiscal quarter ending on or about 12/31/99 ($45,080,000)
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 3/31/00 ($47,750,000)
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 6/30/00 ($50,040,000)
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 9/30/00 ($51,920,000)
- --------------------------------------------- ----------------------------------
fiscal quarter ending on or about 12/31/00 ($53,400,000)
and each fiscal quarter thereafter
- --------------------------------------------- ----------------------------------
7.21 CAPITAL EXPENDITURES. Make capital expenditures in excess
of: (a) $19,000,000 in the aggregate during the Obligors' fiscal year ending on
or about December 31, 1999, (b) $19,500,000 in the aggregate during the
Obligors' fiscal year ending on or about December 31, 2000, and (c) $19,850,000
in the aggregate during the Obligors' fiscal year ending on or about December
31, 2001.
7.22 COPYRIGHT SUB LICENSE AGREEMENT; RELEVANT COPYRIGHTS.
(a) Cause, suffer, or permit the Copyright Sub
License Agreement, or the arrangements contemplated thereunder, to be amended,
modified, terminated, suspended, or no longer in full force and effect.
(b) Cause, suffer, or permit all or any portion of
the Relevant Copyrights to be licensed in any manner, or to any Person, on an
exclusive basis.
7.23 THIRD-PARTY BILLING AGREEMENTS. Enter into a third-party
billing agreement with any Person, unless such Person executes and delivers to
Foothill an agreement, in form and substance reasonably satisfactory to
Foothill, to provide Foothill with substantially the same billing services as,
and under terms and conditions substantially the same for, the billing services
provided by such Person to Borrower under the third-party billing agreement in
effect between such Person and Borrower.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If the Obligors fail to pay, when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
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interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
provided, however, that in the case of Overadvances that are caused by the
charging of interest, fees, or Foothill Expenses to the Loan Account, such event
shall not constitute an Event of Default if, within 5 Business Days of its
receipt of telephonic notice of such Overadvance, Borrower eliminates such
Overadvance.
8.2 (a) If any Obligor fails or neglects to perform, keep, or
observe any term, provision, condition, covenant, or agreement applicable to
such Obligor contained in Sections 6.2 (Collateral Reporting), 6.3 (Financial
Statements, Reports, Certificates), 6.4 (Tax Returns), 6.12 (Location of
Inventory and Equipment), 6.13 (Compliance with Laws), 6.14 (Employee Benefits),
or 6.15 (Licenses and Leases) of this Agreement and such failure continues for a
period of 5 Business Days; (b) If any Obligor fails or neglects to perform,
keep, or observe any term, provision, condition, covenant, or agreement
contained in Sections 6.1 (Accounting System) or 6.8 (Maintenance of Equipment)
of this Agreement and such failure continues for a period of 15 Business Days;
(c) If Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant, or agreement contained in this Agreement, or in
any of the other Loan Documents (giving effect to any grace periods, cure
periods, or required notices, if any, expressly provided for in such Loan
Documents); in each case, other than any such term, provision, condition,
covenant, or agreement that is the subject of another provision of this Section
8, in which event such other provision of this Section 8 shall govern); or (d)
If any Obligor (other than Borrower) fails or neglects to perform, keep, or
observe any other term, provision, condition, covenant, or agreement applicable
to such Obligor contained in this Agreement, or in any of the other Loan
Documents (giving effect to any grace periods, cure periods, or required
notices, if any, expressly provided for in such Loan Documents); in each case,
other than any such term, provision, condition, covenant, or agreement that is
the subject of another provision of this Section 8, in which event such other
provision of this Section 8 shall govern);
8.3 If there is a Material Adverse Change and Foothill
declares same in writing;
8.4 If any material portion of the Obligors' properties or
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by any Obligor;
8.6 If an Insolvency Proceeding is commenced against any
Obligor and any of the following events occur: (a) the applicable Obligor
consents to the institution of the Insolvency Proceeding against it; (b) the
petition commencing the Insolvency Proceeding is not timely controverted; (c)
the petition commencing the Insolvency Proceeding is not dismissed within 45
calendar days of the date of the filing thereof; provided, however, that, during
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the pendency of such period, Foothill shall be relieved of its obligation to
extend credit hereunder; (d) an interim trustee is appointed to take possession
of all or a substantial portion of the properties or assets of, or to operate
all or any substantial portion of the business of, any one or more of the
Obligors; or (e) an order for relief shall have been issued or entered therein;
8.7 If any one or more of the Obligors is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs;
8.8 (a) If a notice of Lien, levy, or assessment is filed of
record with respect to any of the properties or assets of the Obligors by the
United States, or any department, agency, or instrumentality thereof, or if any
taxes or debts owing at any time hereafter to any one or more of such entities
becomes a Lien, whether choate or otherwise, upon any of the properties or
assets of the Obligors and the same is not paid on the payment date thereof, or
(b) If a notice of Lien, levy, or assessment in excess of $100,000 in
the aggregate is filed of record with respect to any of the properties or assets
of the Obligors by any state, county, municipal, or other non-federal
Governmental Authority, or if any taxes or debts owing at any time hereafter to
any one or more of such entities in excess of $100,000 in the aggregate becomes
a Lien upon any of the properties or assets of the Obligors and the same is not
paid and the same is not released, discharged, or bonded against before the
earlier of 30 days after the date it first arises or 5 days prior to the date
when such asset is subject to being forfeited by the Obligors;
8.9 If a judgment in excess of $100,000 becomes a Lien or
encumbrance upon any material portion of the properties or assets of the
Obligors and the same is not paid and the same is not released, discharged, or
bonded against before the earlier of 30 days after the date it first arises or 5
days prior to the date when such asset is subject to being forfeited by the
Obligors;
8.10 If there is a default in any material agreement to which
any Obligor is a party with one or more third Persons and such default (a)
occurs at the final maturity of the Obligor's obligations thereunder, or (b)
results in a right by such third Person(s), irrespective of whether exercised,
to accelerate the maturity of the obligations of any one or more of the Obligors
thereunder;
8.11 If any Obligor makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;
8.12 If the Centre Support Letter of Credit (as the same may
be reduced in face amount from time to time in accordance with Section 2.4) is
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not renewed, at least 60 days prior to the stated expiry date thereof, for an
additional period satisfactory to Foothill;
8.13 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made to
Foothill herein or the other Loan Documents by any Obligor, or if any such
warranty or representation is withdrawn; or
8.14 If the obligation of any Guarantor under its Guaranty or
other third Person under any Loan Document is limited or terminated by operation
of law or by the guarantor or other third Person thereunder.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower (and hereby caused by Borrower to be
authorized by each of the other Obligors (and, by its execution and delivery of
the Guaranty or a joinder thereto, each of the Guarantors hereby authorizes
same)):
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable;
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement, under any of the Loan
Documents, or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Foothill considers
advisable, and in such cases, Foothill will credit Borrower's Loan Account with
only the net amounts received by Foothill in payment of such disputed Accounts
after deducting all Foothill Expenses incurred or expended in connection
therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon any Obligor or
any other guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the Collateral.
Borrower agrees to assemble, and cause each of the other Obligors to (and, by
its execution and delivery of the Guaranty or a joinder thereto, each of the
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Guarantors hereby agrees to) assemble, the Collateral if Foothill so requires,
and to make the Collateral available to Foothill as Foothill may designate.
Borrower authorizes, and hereby agrees to cause each of the other Obligors
promptly to authorize (and, by its execution and delivery of the Guaranty or a
joinder thereto, each of the Guarantors hereby authorizes), Foothill to enter
the premises where Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Foothill's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any owned or leased premises of any of the
Obligors, Borrower hereby grants, and hereby causes each of the other Obligors
immediately to grant (and, by its execution and delivery of the Guaranty or a
joinder thereto, each of the Guarantors hereby grants), Foothill a license to
enter into possession of such premises and to occupy the same, without charge,
for up to 120 days in order to exercise any of Foothill's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to any Obligor (such notice hereby
being expressly waived by Borrower and caused by Borrower to be waived by each
of the other Obligors, and, by its execution and delivery of the Guaranty or a
joinder thereto, each of the Guarantors hereby waives same), and without
constituting a retention of any collateral in satisfaction of an obligation
(within the meaning of Section 9505 of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower or any of the
other Obligors held by Foothill (including any amount received by Foothill in
the Concentration Accounts), or (ii) indebtedness at any time owing to or for
the credit or the account of Borrower or any of the other Obligors held by
Foothill;
(h) Hold, as cash collateral, any and all balances
and deposits of Borrower or any of the other Obligors held by Foothill, and any
amounts received in the Concentration Accounts, to secure the full and final
repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Borrower hereby grants, and agrees to cause each of
the other Obligors to grant (and, by its execution and delivery of the Guaranty
or a joinder thereto, each of the Guarantors hereby grants), to Foothill a
license or other right to use, without charge, the Obligors' labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and the Obligors' rights under all licenses and
all franchise agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including the Obligors' premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
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(k) Foothill shall give notice of the disposition of
the Collateral as follows:
(1) Foothill shall give the relevant Obligor
and each holder of a security interest in the Collateral who
has filed with Foothill a written request for notice, a notice
in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, then the time on
or after which the private sale or other disposition is to be
made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to the relevant Obligor as
provided in Section 12, at least 5 days before the date fixed
for the sale, or at least 5 days before the date on or after
which the private sale or other disposition is to be made; no
notice needs to be given prior to the disposition of any
portion of the Collateral that is perishable or threatens to
decline speedily in value or that is of a type customarily
sold on a recognized market. Notice to Persons other than the
Obligors claiming an interest in the Collateral shall be sent
to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by
publishing a notice one time at least 5 days before the date
of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any
public sale; and
(m) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower for the benefit of the Obligors.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Obligor fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of licensed or leased
properties or assets, royalties, rents, or other amounts payable under such
licenses or leases) due to third Persons, or fails to make any deposits or
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furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that such
failure by the Obligors could result in a Material Adverse Change, in its
discretion, Foothill may do any or all of the following: (a) with at least 3
Business Days prior telephonic or other notice to Borrower (unless Foothill in
good faith and reasonably determines that an event or circumstance that
materially and imminently threatens the ability of Foothill to realize upon all
or any material part of the Collateral is likely to manifest itself within such
3 Business Day period, in which case, Foothill need only give Borrower
telephonic or other notice not later than 1 Business Day following Foothill's
making such payment), make payment of the same or any part thereof unless
Foothill receives satisfactory evidence of the applicable Obligor's payment of
same prior to Foothill's making of such payment; (b) without prior notice to the
Obligors, set up such reserves in Borrower's Loan Account as Foothill deems
necessary to protect Foothill from the exposure created by such failure; or (c)
without prior notice to the Obligors, obtain and maintain insurance policies of
the type described in Section 6.10, and take any action with respect to such
policies as Foothill deems prudent. Any such amounts paid by Foothill shall
constitute Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in the future or a
waiver by Foothill of any Event of Default under this Agreement. Foothill need
not inquire as to, or contest the validity of, any such expense, tax, or Lien
and the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower or any other Obligor may in any way
be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. Borrower hereby
agrees that, and agrees to cause each of the other Obligors to agree that (and,
by its execution and delivery of the Guaranty or a joinder thereto, each of the
Guarantors hereby agrees that), so long as Foothill complies with its
obligations, if any, under Section 9207 of the Code, Foothill shall not in any
way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower and the other Obligors.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend,
and hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
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against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to any Obligor or
to Foothill, as the case may be, at its address set forth below:
If to Borrower: c/o MUZAK LIMITED PARTNERSHIP
2901 Third Avenue, Suite 400
Seattle, Washington 98121
Attn: Chief Financial Officer
Fax No. 206.728.5849
With copies to: HELLER, EHRMAN, WHITE & McAULIFFE
6100 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7098
Attn: Louisa Barash, Esq.
Fax No. 206.447.0849
If to Borrower: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
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With copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower, for itself and each of the
other Obligors, acknowledges and agrees that notices sent by Foothill in
connection with Sections 9504 or 9505 of the Code shall be deemed sent when
deposited in the mail or personally delivered, or, where permitted by law,
transmitted telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
OBLIGORS AND FOOTHILL AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER
COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF THE
OBLIGORS AND FOOTHILL WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. THE OBLIGORS AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
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TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF THE OBLIGORS AND FOOTHILL REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
14. DESTRUCTION OF OBLIGORS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or any
rights or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Foothill shall release Borrower from its Obligations. Foothill may assign this
Agreement and its rights and duties hereunder and no consent or approval by
Borrower or any other Obligor is required in connection with any such
assignment. Foothill reserves the right to sell, assign, transfer, negotiate, or
grant participations in all or any part of, or any interest in Foothill's rights
and benefits hereunder. In connection with any such assignment or participation,
Foothill may disclose all documents and information which Foothill now or
hereafter may have relating to the Obligors or the Obligors' business. To the
extent that Foothill assigns its rights and obligations hereunder to a third
Person, Foothill thereafter shall be released from such assigned obligations to
the Obligors and such assignment shall effect a novation among Foothill, the
Obligors, and such third Person.
15.3 SECTION HEADINGS.Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION.Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or Borrower
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or any other Obligor, whether under any rule of construction or otherwise. On
the contrary, this Agreement has been reviewed by all parties (including
Borrower for itself and on behalf of each of the other Obligors) and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Foothill of any
property of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
Foothill is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that Foothill is required
or elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
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15.10 CONFIDENTIALITY. Foothill agrees that material,
non-public information regarding the Obligors, their operations, assets, and
existing and contemplated business plans shall be treated by Foothill in a
confidential manner, and shall not be disclosed by it to Persons who are not
parties to this Agreement, except that Foothill may disclose such information
(a) to counsel for and other advisors, accountants, and auditors to Foothill,
(b) as may be required by statute, decision, or judicial or administrative
order, rule, or regulation, (c) as may be agreed to in advance by Foothill, (d)
as to any such information that is or becomes generally available to the public
(other than as a result of prohibited disclosure by Foothill), (e) to its
Affiliates, and (f) in connection with any assignment, prospective assignment,
sale, prospective sale, participation or prospective participation, or pledge or
prospective pledge of Foothill's interests under this Agreement; provided that
any such counsel, advisors, accountants, auditors and any such assignee,
prospective assignee, purchaser, prospective purchaser, participant, prospective
participant, pledgee, or prospective pledgee shall have agreed in writing to
take its interest hereunder subject to the terms hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
MUZAK LIMITED PARTNERSHIP,
a Delaware limited partnership
By: MLP Acquisition L.P., a Delaware
limited partnership, its managing general
partner
By: Music Holdings Corp., a Delaware
corporation, its general partner
By: /s/ Brad D. Bodenman
-------------------------------------
Title: Chief Financial Officer
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ B. Foreman
---------------------------------------------
Title: Senior Vice President
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