<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 28, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- - EXCHANGE ACT OF 1934
Commission file number: 0-22074
NATIONAL RECORD MART, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 11-2782687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
507 FOREST AVENUE, CARNEGIE, PENNSYLVANIA 15106
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (412) 276-6200
Securities registered pursuant to Section 12 (b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK,
$0.01 PAR VALUE.
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained herein, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on June 18,
1998 as reported on the NASDAQ National Market System, was approximately
$50,868,552. Shares of Common Stock held by each officer and director and by
each person who owns more than 5% of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. The determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of June 18, 1998, Registrant had outstanding 4,844,624 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held September 17, 1998 (the "Proxy Statement") are
incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS
National Record Mart, Inc. (the "Company"), a Delaware corporation,
founded in 1937, operates in a single industry segment as a specialty retailer
of prerecorded home entertainment products, including compact discs ("CD"),
audio cassettes, videos and related accessories. According to BILLBOARD
magazine, the Company is the sixth largest specialty retailer of prerecorded
music in the country as measured by number of stores. The Company is a leading
specialty music retailer in its core western Pennsylvania/eastern Ohio market.
As of March 28, 1998, the Company operated 148 stores in 27 states
primarily in the eastern part of the United States. The Company has five
distinct store concepts: National Record Mart or NRM Music; Waves Music; Music
Oasis; Vibes Music; and the newest concept, Music X. The Music X store format is
a joint marketing effort in combination with a dominant radio station to
co-brand a music destination store. The Company has redesigned the Waves Music
store as a strategic mall-based growth format for the future. The prototype
Waves store ranges from 6,000 to 10,000 square feet with an expanded inventory
capacity of $400,000. The Waves strategy is to intertwine the newest customer
retail technologies with one of the largest offerings of prerecorded music and
other entertainment products available in a traditional specialty retail mall
environment.
Over the course of the past year, the Company has redefined its
operating structure, strategies and purpose. While the Company accepts the
day-to-day responsibility for managing and developing its core business
operations of running a specialty music retail company, it has recognized the
need to invest in research and development of new formats and changes to succeed
in its music sales. At the same time the Company is pursuing cross market and
parallel market opportunities to use what is considered as one of the best
customer bases in specialty retail.
The research and development function of developing the Passport
program; the Waves.net intranet base store research area; the development and
the implementation of Music X, and parallel marketing and merchandise efforts
are all typical of the efforts the Company has made to expand beyond traditional
music retailing.
At the core level of day-to-day operations the Company is focused on
increasing comparable sales per square foot, inventory turns and margin
maintenance, as well as the continued management of losses through inventory
shrinkage.
Certain statements in this annual report on Form 10-K are
forward-looking statements concerning the future operations of the Company. Such
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and there are many important factors
that could cause actual results to differ materially from those in the
forward-looking statements. Such factors include: the pricing and marketing
activities of large diversified retailers within the geographic area of the
Company's operations; the extent to which recording artists release "hit"
recordings; changes in sales and advertising promotion practices by the major
music distributors; weather, especially during the Christmas selling season; and
interest rates, which affect the Company's financing costs.
TRENDS AND CHANGES AFFECTING THE MUSIC INDUSTRY
This past year has seen a reemergence of the specialty music retailers
as a group. This has been caused in part by a contraction of the industry's
overall store base, as well as the realignment of the industry music
labels/distributors with the specialty music retailers in an effort to begin the
nurturing process of developing newer creative product for our customer base.
Previously there was a trend within the industry to use music as a loss leader
or traffic builder by some of the major electronic or "big box" retailers. The
trend has been curtailed in part as a result of the industry's need for a
continued stream of newly created talent and the imposition of significant
barriers of entry by distributors into the prerecorded music retail segment.
These barriers include more stringent credit terms on part of the distributors;
higher return penalties on inventory maintenance and more restrictive selling
practices on the part of the major music distributors.
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This past year has seen the evolution of the technology and
availability of combining digitally recorded sound along with video. The most
common newly offered retail product is the digital versatile disc also referred
to as DVD. While this product is just beginning to make its market entry into
the prerecorded entertainment business, a significant trend appears to be
developing which the Company believes is closely related to the reduction of the
cost of the hardware for its customer base to make use of such software.
SEASONALITY
The Company's business is seasonal, with its highest sales and net
income levels historically occurring during the third quarter of its fiscal
year, which includes the Christmas selling season.
MERCHANDISING
The Company's stores offer a full assortment of CDs, prerecorded audio
cassettes and related accessories with a more limited selection of movie and
music videos. The following table shows the percentage of the Company's total
merchandise sales attributable to each product group:
<TABLE>
<CAPTION>
Products Fiscal Years
- --------
1998 1997 1996
--------- ------ -------
<S> <C> <C> <C>
CDs 70.7% 66.8% 61.6%
Prerecorded audio cassettes 13.6 17.7 22.1
Singles 6.3 6.5 6.9
Movie and music videos 2.6 2.3 2.4
Accessories and other * 6.8 6.7 7.0
--------- --------- -------
Total 100.0% 100.0% 100.0%
======== ======== ========
</TABLE>
* Includes apparel, blank tapes, cleaning products, storage cases, posters,
sheet music, LPs, magazines, books and miscellaneous items.
Prerecorded Music. The Company's stores offer a broad array of CDs and
cassettes in all music categories including rock, pop, alternative, adult
contemporary, country, easy listening, classical, jazz, religious, new age,
rhythm and blues, children's, educational, show tunes, movie soundtracks, world
music and others. The Company maintains a broad inventory base, with individual
store inventory tailored to serve the particular customer demand in each store.
The Company's stores offer from 6,000 to 35,000 titles, with an average of
18,000 titles per store. The Company also offers a selection of over 200,000
SKU's which can be ordered through the Company's special order process. The
selection of prerecorded music offered at the Company's stores includes "hits"
which are best selling newer releases, "catalog" items, which are older but
still popular releases, and seasonal and promotional items such as Christmas
music, developing artist programs and "cut-outs" (low-priced items which have
been deleted from a manufacturer's current catalog).
Prerecorded Video Cassettes. The Company's stores offer for sale a
varied selection of prerecorded VHS video cassettes and DVD (digital versatile
discs). Titles are offered in all categories with an emphasis on music and
movies.
Accessories and Other Products. The Company's stores carry a variety of
accessories such as blank video and audio cassette tapes, maintenance and
cleaning products, home and portable storage cases, sheet music, posters,
T-shirts, magazines, and other items.
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Tickets. To increase customer traffic, the Company offers tickets to
entertainment events in many of its stores located in certain states including
Pennsylvania, Ohio, Michigan, Wisconsin, Illinois, West Virginia, Kentucky,
Rhode Island, Kansas, Iowa, North Carolina and South Carolina. The Company's
ticket outlets provide customers with access to tickets offered by Ticketmaster
as well as tickets to other local concerts and sporting events.
ADVERTISING
The Company supports its retail sales through various vendor supported
marketing and advertising programs. This support is realized in the form of
price and position subsidies; store signage point of purchase displays and print
and media broadcast. In addition, the Company exposes its customers to new
artists through its "Sound Discoveries" program. "Sound Discoveries" features
releases by new artists in pop and alternative formats and new releases by
established artists in other genres.
Passport, the Company's newly launched marketing program, allows a
customer to earn points on every CD or tape purchase, which may be redeemed for
a free CD or cassette of choice. The program combines the standard customer
loyalty incentives of frequent buyer programs, with cross-promotional pricing
and marketing opportunities for music manufacturers and other retail chains.
Passport also provides for database marketing directly to consumers on a
sophisticated, targeted basis. The Company believes that Passport has the
potential to differentiate its stores from the competition, while creating
incremental sales and increasing the average purchase per transaction.
CUSTOMER SERVICE
Customer service continues to be a primary focus of every employee of
the Company. The field supervisory team, corporate operations department and the
human resources area remain a key focal point of the core operating
responsibility of the Company's retail stores.
STORE EXPANSION STRATEGY
The Company intends to add approximately 20-30 new stores during fiscal
year 1999. Most of these stores will be of the Waves Music format. In addition
the Company intends to convert existing store operations to the new Waves format
where appropriate. The Company will continue to seek opportunities to improve
the operations of under performing stores or to close those stores.
The Company also expects to begin a strategic roll-out of its Music X
store format. Three incremental mall based locations have been secured and are
scheduled to be opened this year.
The Company added 11 stores in fiscal 1998, and closed 10 stores, which
were performing under the Company's expectations. During fiscal 1997, the
Company opened 8 locations, and closed 12 stores.
INVENTORY MANAGEMENT
The Company utilizes a proprietary interactive management information
and point of sale system, FOCUS 1000. This combined system permits complete
sales data and customer transactions to interact with the Company's purchasing,
inventory control and accounting functions.
Inventory Management System. FOCUS 1000 integrates the Company's
purchasing, warehousing, distribution, pricing and sales information, enabling
the Company to set the appropriate quantity and mix of products in each of its
stores, turn over inventory more quickly, minimize returns to suppliers and
limit out-of-stock situations. Individual store sale profiles are utilized to
set overall purchase quantities and store-by-store allocations of new releases,
current hits and catalog products. These parameters are periodically updated
based on sales trends and demand patterns. In addition to utilizing FOCUS 1000,
stock levels are also monitored by the Company's product distribution group to
further assure appropriate store inventory levels. The system segments the
Company's products
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into over twenty specific music categories and tracks sales in each store by
category, so as to optimize sales/inventory ratios in each store.
The Company expects to consummate its selection and begin its
implementation of a new point of sale (POS) system this year. The adoption of
this new software and equipment along with greatly enhanced data switching relay
equipment will permit the two way transfer of significantly more information in
less time and at a lower cost than our existing POS system.
Substantially all of the products sold by the Company are bar-coded.
Retail transactions and inventory shipped by vendors directly to stores are
captured through point-of-sale terminals at each store with data transmitted
nightly to the Company's central computer. This perpetual inventory system,
coupled with FOCUS 1000's replenishment system, determines target in-stock
levels for each store.
Distribution. The Company operates one distribution center from which
store inventories are replenished and items are returned to manufacturers. FOCUS
1000 also permits inter-store transfers of inventory to achieve improved stock
balancing without requiring products to be routed through the Company's
distribution facility.
Shipments from the distribution center and between stores are normally
made weekly, with more frequent shipments made to stores having very high
inventory turnover and to most stores during the Christmas shopping season.
Shipments are made by Company vehicles and by commercial shipping services such
as United Parcel Service. Certain new releases and other products are shipped
directly by manufacturers to the Company's stores.
Loss Prevention. The Company experienced a significant decrease in its
overall inventory shrinkage during fiscal 1998. Inventory shrinkage includes
internal and external theft. In the first quarter of fiscal 1998, the Company
instituted a comprehensive loss prevention program which included: increased
cycle counts, more frequent store audits, more selective recruiting and training
of store employees and the services of an external asset protection firm which
have all proved successful with a 40% decrease in shrink from the prior year.
SUPPLIERS AND PURCHASING
A substantial portion of the Company's music products are purchased
directly from the six major music distributors. They include: Sony Music;
Warner/Elektra/Atlantic (subsidiary of Time Warner); BMG Music (subsidiary of
Bertelsman); UNI Distribution; PGD (subsidiary of Philips) and EMD (subsidiary
of Thorn-EMI). These six majors account for a substantial majority of shipments
to the Company. As is typical in its industry, the Company has no material
long-term purchase agreements with its suppliers.
Vendors generally permit the Company to return and exchange products
for other titles carried by the vendors subject to certain volume limitations
and penalties. Return and exchange privileges apply only as long as a particular
title and format is in the manufacturer's current catalog. Prior to removal of
titles and formats from their current catalog, manufacturers give customers
approximately 60 to 90 days advance notice of such deletion. Upon receipt of
such notice, the Company can use the information stored in FOCUS 1000 to
determine the number of units to be returned and from which locations.
Major vendors generally offer some form of price protection in the
event the wholesale price of current stock is reduced. Typically, vendors will
either (i) provide product credit, advertising credit or free goods to cover the
difference between the original price and the reduced price, (ii) provide
additional discounts on new products, (iii) allow the Company to return older
products for the original (higher) cost or (iv) notify the Company in advance of
price reductions and give the Company a period of time to sell the product or
return it for full credit.
These industry practices of return and exchange privileges, catalog
change notice and price protection permit the Company to carry a wider selection
of music titles and at the same time reduce the risk of carrying inventory. The
exchange privilege practices of manufacturers have been changed in the past and
may change in the future.
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The major music vendors offer retailers a returns
incentive/disincentives plan that has been beneficial for the Company. To
encourage retailers to buy carefully by limiting returns, an incentive payment
is issued on most purchases and a penalty restocking fee is charged on only the
product returned. If the retailer returns-to-purchases ratio with the major
vendors is below a certain point, (generally 14% to 17%) the retailer will
benefit. The Company's return percentages have been lower than the break-even
with the majority of its major vendors allowing the Company to benefit from
their returns policies.
As part of FOCUS 1000, the Company utilizes electronic data interchange
(EDI) with its major vendors. This direct computer link enables automatic and
immediate transmission of purchase orders and, with certain vendors, return
requests, expediting their execution.
COMPETITION
The retail sale of prerecorded music products is highly competitive and
fragmented. The Company competes with national and regional home entertainment
product chains, mass merchandisers, electronic retail chains, discount stores,
warehouse clubs, music, video and other home entertainment product stores and
mail order clubs. Recently, numerous internet-based music mail order companies
have entered the competitive marketplace. Some of the Company's competitors have
substantially greater resources than the Company. The largest mail order clubs
are affiliated with major manufacturers of prerecorded music and may have
advantageous marketing arrangements with their affiliates. In addition, the
Company's products may compete with other forms of entertainment, such as
movies, concerts, sporting events, cable television and video games.
The Company believes that its ability to compete successfully depends
on offering broad product selection, securing convenient sites, maintaining
attractive locations, managing merchandise efficiently, establishing and
maintaining name recognition, pricing its products competitively and providing
effective customer service and management.
TRADEMARKS AND SERVICE MARKS
The Company operates its stores under various names and service marks,
including National Record Mart, NRM Music, Waves Music, Music Oasis, Vibes
Music, Waves Music and Gifts, One Stop Entertainment, and Music X. The Company
has obtained federal registrations of its trademarks and service marks for Waves
Music, NRM Music, Oasis Music & Video and Music Oasis and has applied for
registration of its service marks in Vibes Music, and Music X. The application
for registration of the service mark Vibes Music has been opposed by two
parties. These oppositions are currently pending before the Trademark trial and
appeal board. In addition, the Company is currently maintaining an action
against one of the opposers in the United States District Court for the Western
District of Pennsylvania seeking a determination that no likelihood of confusion
exists between the Company's Vibes Music service mark and the mark of that
opposer. In April of 1998 the District Court for Western Pennsylvania ruled in
favor of NRM's use of its Vibes Music name. The parties have reached an
agreement on a settlement of the litigation and the oppositions to the
registration of the Vibes Music service mark which permits the Company to use
such mark without making any payments to any party. The settlement is subject to
filing appropriate papers with the court. The trade names One Stop Entertainment
was acquired through an acquisition in November 1993 and will eventually be
changed to NRM Music.
PERSONNEL
As of March 28, 1998, the Company employed 1,305 persons, 140 of whom
worked at the Company's headquarters (including 14 part-time employees) or were
area supervisors and 1,165 of whom worked at the Company's stores (including 821
part-time employees). The Company also adds part-time personnel during the
Christmas season. In December 1997, the Company employed approximately 283
seasonal employees. None of the Company's employees are represented by a union.
The Company believes that its employee relations are good.
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ITEM 2. PROPERTIES
Corporate Headquarters and Distribution Facility. The Company's
headquarters and distribution center is located in Carnegie, Pennsylvania, a
suburb of Pittsburgh. This leased facility consists of approximately 60,000
square feet of distribution and warehouse space and 10,000 square feet of office
space on approximately 3.5 acres of land. Management believes that its
distribution center can service up to 350 stores with a minimal increase in
personnel and fixtures. The Company's lease expires on April 30, 2005 and
provides for rental payments of an average of approximately $148,000 per year.
Store Leases. All of the Company's stores are subject to operating
leases with various remaining terms, including renewal options, through the year
2007. The leases have initial terms ranging from 5 to 15 years, with the average
initial term being 8 years. The Company's store leases typically provide for a
fixed minimum rental, payable monthly, plus payment of a percentage of gross
receipts in excess of certain sales levels and common area maintenance, real
estate taxes and other charges. Certain of the Company's mall store leases
contain provisions permitting the landlord to relocate the Company's store or
terminate the lease upon failure to achieve specified minimum sales levels or
upon certain other conditions. In addition, many leases restrict the Company
from opening new stores within a specified mileage radius. The following table
lists the number of leases for the Company's stores due to expire in each
calendar year, including renewal options:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 17 2002 16
1999 23 2003 16
2000 14 2004 8
2001 21 2005 and thereafter 33
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Company is a party
or to which any of its properties is subject, other than routine litigation
incidental to its business which is covered by insurance or which is not
expected to have a material adverse effect on the Company's financial condition
or results of operations. See "Item 1. Business - Trademarks and Service Marks"
for a description of certain litigation relating to one of the Company's service
marks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
SUPPLEMENTARY ITEM.
IDENTIFICATION OF EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with
respect to the executive officers of the Company as of June 18, 1998.
<TABLE>
<CAPTION>
Name Age Office with the Company
---- --- -----------------------
<S> <C> <C>
William A. Teitelbaum 47 Chairman, CEO, President and
Director
Theresa Carlise 39 Senior Vice President, CFO,
Treasurer, Secretary and Director
George Balicky 48 Senior Vice President
of Merchandising
</TABLE>
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<TABLE>
<CAPTION>
Name Age Office with the Company
---- --- -----------------------
<S> <C> <C>
Scott Bargerstock 48 Vice President of Business Development
James Benedetti 35 Vice President of Information Systems
John Grandoni 48 Vice President of Purchasing
Charles Michael Stephenson 41 Vice President of Marketing
Steven Zimmerman 42 Vice President of Store Operations
</TABLE>
William Teitelbaum has served as Chairman of the Company since 1986 and served
as President since 1991. In January of 1997 Mr. Teitelbaum resigned as President
while retaining the position of Chairman and Chief Executive Officer. In January
of 1998, Mr. Teitelbaum resumed the position of President. He also served as
Vice President and Treasurer from 1986 to 1991. From 1980 to 1985, he was a
partner of Bear Stearns & Co. In addition, since 1985, Mr. Teitelbaum has been
the sole shareholder and Chairman of Remsen Partners, Ltd., a New York
investment firm.
Theresa Carlise joined the Company in July of 1986 as a financial systems
consultant and subsequently became Controller of the Company in 1987. She served
as Vice President of Finance of the Company from April 1990 to April 1993, when
she became Senior Vice President, Chief Financial Officer and a Director of the
Company. Since January of 1991, she has also served as Treasurer of the Company.
George Balicky is Senior Vice President of Merchandising. Mr. Balicky has served
with the Company in various capacities since 1970, including Director of
Advertising, Director of Store Operations and Vice President of Merchandising.
He is a member of the Retailers Advisory Board of the National Association of
Recording Merchandisers. He has been Vice President of Merchandising since 1985
and Senior Vice President since February of 1998.
Scott Bargerstock is Vice President of Business Development and has served the
Company since 1971 in various positions including Store Manager, District
Manager and Regional Manager. Mr. Bargerstock was promoted in February of 1998
to his current position.
James Benedetti is Vice President of Information Systems and has been with the
Company for ten years as Manager and Director of Information Systems. In
February of 1998 Mr. Benedetti was promoted to his current position.
John Grandoni is Vice President of Purchasing and has twenty-two years of
specialty music retail experience in various positions. Prior to joining the
Company in 1996 Mr. Grandoni was Vice President of Purchasing for Cavages, a
music specialty retailer based in Buffalo, New York. In February of 1998 Mr.
Grandoni was promoted to his current position.
Charles Michael Stephenson started his career at NRM with a music retail
background of twenty years with Camelot Music in Canton, Ohio. In April of 1996
he joined NRM as Director of Marketing. In February of 1998, Mr. Stephenson
became Vice President of Marketing for the Company.
Steven Zimmerman is Vice President of Store Operations and has been in the store
operations area for over twenty years in various capacities at Camelot Music in
Canton, Ohio. Mr. Zimmerman joined NRM in November of 1995 as Director of Store
Operations and has been in the position of Vice President since February of this
year.
Officers are elected annually to serve until the ensuing year or until
their successors are duly elected.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is traded on the NASDAQ National Market
System under the symbol NRMI. For common stock price information, see Note 10 of
Notes to Consolidated Financial Statements.
As of June 18, 1998, the approximate number of common stockholders of
record was 96. The approximate number of total stockholders as of that date was
1,600.
DIVIDEND POLICY
In conjunction with the Company's senior credit facility, the Company
is prohibited from paying cash dividends on its common stock.
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ITEM 6. SELECTED FINANCIAL DATA
NATIONAL RECORD MART, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (1)
------------------------------------------------------------
March 28, March 29, March 30, March 25, March 26,
1998 1997 1996(1)(4) 1995 1994(2)(3)
--------- -------- -------- --------- ----------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $112,488 $ 99,439 $ 99,084 $ 95,697 $ 80,628
Gross profit 42,963 37,106 36,538 35,847 32,281
Selling, general and administrative expenses 36,859 34,385 34,542 30,589 25,279
Depreciation and amortization 2,801 2,725 3,117 2,683 2,064
Impairment of assets write-down -- -- 2,906 -- --
Interest expense, net 1,822 1,696 1,597 1,011 571
Other (income) expense, net 104 (26) 446 450 175
Income (loss) before income tax expense (benefit) 1,378 (1,674) (6,069) 1,115 4,192
Net income (loss) 893 (1,101) (3,884) 712 2,490
Basic net income (loss) per share $ .18 ($ .23) ($ .79) $ .14 $ .49
Diluted net income (loss) per share $ .18 ($ .23) ($ .79) $ .14 $ .53
Weighted average number of shares outstanding 5,057 4,852 4,927 5,205 4,735
SELECTED OPERATING DATA:
Stores open at beginning of year 147 151 141 118 100
Stores opened /acquired during year 11 8 16 32 21
Stores closed /sold during year 10 12 6 9 3
Stores open at end of year 148 147 151 141 118
Comparable store net sales increase(decrease)(5) 13% (0.4)% (3)% 3% 5%
BALANCE SHEET DATA:
Working capital $ 23,892 $ 23,964 $ 22,245 $ 25,017 $ 19,771
Total assets 52,540 55,020 52,924 53,824 45,809
Long-term debt, including current maturities 19,413 21,370 19,468 19,853 12,053
Stockholders' equity 16,958 16,066 17,178 21,173 20,574
</TABLE>
(1) Each fiscal year consisted of 52 weeks except the fiscal year ended March
30, 1996, which consisted of 53 weeks. Each fiscal year is hereafter
referred to by the year in which it ended, e.g., the fiscal year ended
March 28,1998 is "fiscal 1998"
(2) The Company purchased a nine-store music chain in November 1993. The
results of operations from the date of acquisition for these stores are
included in the Consolidated Statements of Operations.
(3) A warrant to purchase 185,880 shares of common stock was canceled on June
11, 1993. Such shares were treated as outstanding for purposes of
determining net income (loss) per share for all years prior to fiscal
1994.
(4) The Company adopted Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
of," in fiscal 1996. In connection with this adoption, the Company wrote
down $2,906,481 of assets, which increased its net loss by $1,860,148 or
$0.38 per share for fiscal year ended March 30, 1996.
(5) A store is included in comparable store sales calculations at the
beginning of its 13th full month of operation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items
in the Consolidated Statements of Operations as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Years
-----------------------------
1998 1997 1996
---------- --------- -------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 61.8 62.7 63.1
---------- --------- -------
Gross profit 38.2 37.3 36.9
Selling, general and administrative expenses 32.7 34.6 34.9
Impairment of assets write-down - - 2.9
Depreciation and amortization 2.5 2.7 3.1
Interest expense, net 1.7 1.7 1.6
Other expense 0.1 0.0 0.5
---------- --------- -------
Income (loss) before income taxes expense (benefit) 1.2 (1.7) (6.1)
Expense (benefit) income taxes .4 (0.6) (2.2)
---------- --------- -------
Net income (loss) 0.8% (1.1)% (3.9)%
========== ======== ========
</TABLE>
Net Sales. Net sales increased during fiscal 1998 by $13.0 million or
13.1% compared to fiscal 1997. Factors that contributed to the increase in total
sales are the increase in comparable store sales of 12.8% and the opening of 11
new stores and the closing of 10 under-performing stores. The increase in
comparable store sales is due to several factors: a record number of new
recording artists achieving gold (sales of 500,000 units) and platinum (sales of
1,000,000 units) sales status; strong new releases in all genres of music,
bringing in a varied age group of consumers; and the initial effects of the
Company's frequent buyer marketing program, "Passport".
Net sales increased slightly during fiscal 1997 by 0.4% compared to
fiscal 1996, due to a net reduction of four stores and one less week in fiscal
1997 compared to fiscal 1996. Comparable store sales decreased by 0.4% compared
to fiscal 1996.
Gross Profit. Gross profit expressed as a percentage of net sales,
increased from 37.3% in fiscal 1997 to 38.2% or $5.8 million in fiscal 1998. The
Company's inventory shrinkage decreased from 1.9% of sales or $1.9 million in
fiscal 1997 to 1.0% of sales or $1.1 million in fiscal 1998. Management believes
that the initiation of its comprehensive loss prevention program, which
includes: increased cycle counts; more frequent store audits; more selective
training and recruiting of store employees and the services of an external asset
protection firm has proved successful in the Company's reduction of overall
shrink. Gross profit is partially offset by the continuation in the shift from
higher profit margin cassettes to CD's, which carry a lower profit margin. Gross
profit increased from 36.9% in fiscal 1996 to 37.3% in fiscal 1997. This
increase in margin is directly related to the Company's increase in purchase
discounts and the increase in shelf pricing on CD's.
Expenses. Selling, general and administrative expenses, (SG&A)
expressed as a percentage of net sales decreased from 34.6% in fiscal 1997 to
32.7% in fiscal 1998. The Company's increase in sales is proportionately related
to this reduction along with the continuation of reducing operating costs, while
more effectively managing the Company's promotional advertising area. As a
percentage of sales, SG&A decreased in fiscal 1997 to 34.6% from 34.9% in fiscal
1996.
11
<PAGE> 12
Depreciation and amortization increased slightly from $2.7 million in
fiscal 1997 to $2.8 million in fiscal 1998 primarily due to the addition of 11
new stores. Depreciation and amortization decreased from $3.1 million in fiscal
1996 to $2.7 million in fiscal 1997 due to the March 1996 write-off of impaired
and fully depreciated assets.
Adoption of New Accounting Standards. During the fourth quarter of
fiscal 1996, the Company adopted Financial Accounting Standards Board Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" ("Statement No. 121"), issued in March 1995. In March
of 1996, in connection with the adoption of Statement No. 121 the Company wrote
down $2,906,481 of property, which increased its net loss by $1,860,148 or $0.38
per share for the fiscal year ended March 30, 1996. This reduction of property
value will reduce future depreciation by $0.05 per share through the year 2003
based upon a seven year average remaining useful life of the impaired property.
Financial Accounting Standards Board Statement No. 128, "Earnings per
Share" ("Statement No. 128"), issued in February 1997 and effective for fiscal
year ended March 28, 1998, establishes and simplifies standards for computing
and presenting earnings per share ("EPS"). This statement has been retroactively
applied to all years in this Form 10K.
Interest Expense. Interest expense expressed as a percentage of net
sales was 1.7% or $1.8 million for fiscal 1998 compared to 1.7% or $1.7 million
for fiscal 1997. In fiscal 1997 interest expense was 1.7% expressed as a
percentage of sales or $1.7 million as compared to 1.7% in fiscal 1996 or $1.6
million. The slight dollar increase from year to year resulted from the increase
in borrowings related to the opening of 11 new store openings in fiscal 1998 and
8 new store openings in fiscal 1996.
Income Taxes. The Company's effective tax rate in fiscal 1998 and 1997
was 35%.
As of March 28, 1998, the Company had net deferred tax assets of
$1,327,000. The ultimate realization of the deferred tax assets is dependent
upon the generation of future taxable income. See Note 6 of Notes to
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash generated by
operations, trade credit, and amounts available under its credit facility. Net
cash provided by operating activities was $3.8 million in fiscal 1998, $0.8
million in fiscal 1997 and $4.2 million in fiscal 1996. During fiscal 1998, the
$3.8 million in cash provided by operating activities was primarily attributable
to net income, plus depreciation and amortization and refundable income taxes of
prior years, offset to some extent by a decrease in accounts payable. In fiscal
1997 and 1996, the Company's net cash provided by operating activities was
primarily due to the effect of depreciation and amortization, increases in
accounts payable, and, in 1996 the effect of the asset writedown.
During fiscal 1998, 1997 and 1996, the Company used $2.5 million, $2.9
million and $3.6 million, respectively, to purchase property and equipment. The
Company opened 11 new stores and closed 10 stores in fiscal 1998 compared to 8
new stores and 12 closed stores in fiscal 1997. The Company anticipates opening
20-30 stores in fiscal 1999. Management estimates that the capital cost of
opening the new stores will be approximately $300,000 per store which will be
funded through operating cash flow and the revolving credit facility, excluding
inventory of approximately $300,000 per store which is obtained through trade
credit.
On February 17, 1998 the Company renewed its revolving line of credit
from an institutional lender through June 10, 2003. Under the line, the Company
is permitted to borrow up to $28 million, subject to a borrowing base
calculation based upon inventory levels. Between the months of October 1 and
December 31 an overadvance of $1.5 million is available to the Company in
addition to its borrowing base calculation, not to exceed $28 million.
Borrowings under the amended facility bear interest at a floating rate equal to
the lender's base rate (8.25% at March 28, 1998 plus .25% or, at the Company's
option, the 30-day LIBOR rate (5.6875% at March 28, 1998) plus 2.375%.
12
<PAGE> 13
As of March 28, 1998, the Company's outstanding credit balance on its
revolver was $19.4 million. The Company's borrowing availability at March 28,
1998 was $3.7 million. The revolver balance and the Company's cash requirements
peak in February when the Company's trade payables become due from the Christmas
selling season.
On April 16, 1998, the Company completed a private placement of
$15,000,000 of senior subordinated notes to a group of institutional lenders.
The notes carry an interest rate of 11.75% payable semi-annually and are due on
April 16, 2001. In consideration of the placement the Company issued warrants to
purchase 400,000 shares of common stock at $.01 per share, such warrants having
an imputed value of $10.50 per share. The Company anticipates using the funds to
expand its Waves Music store concept and other retail store growth, update its
point of sale equipment and general working capital purposes.
On February 23, 1994, the Board of Directors approved a program for the
Company to purchase up to $1,000,000 in value of its common stock. Such
purchases will be made from time to time in the marketplace at the Company's
discretion. As of March 28, 1998, the Company had purchased 193,292 shares of
its stock.
Management believes that cash flows from operations, amounts available
under the revolving credit facility and the subordinated debt facility will be
sufficient to meet the Company's current liquidity and capital needs at least
through fiscal 1999.
SEASONALITY
The Company's business is seasonal in nature, with the highest sales
and earnings occurring in the third quarter of its fiscal year, which includes
the Christmas selling season. Approximately 37% of the Company's net sales for
fiscal 1998 were generated in the third quarter. (See Note 10 of Notes to the
Consolidated Financial Statements for quarterly financial data.) Year-to-year
comparisons of quarterly results and comparable store net sales can be affected
by a variety of factors, including the success and timing of new releases by
manufacturers, the timing and duration of the holiday selling seasons and the
timing of new store openings and sales promotions.
EFFECT OF ECONOMIC PATTERNS AND INFLATION
While the Company attempts to pass on increases in costs and expenses
from operations, its ability to do so is limited by competitive factors.
Although the Company's operations are affected by general economic trends, the
Company does not believe that inflation has had a material effect on the results
of its operations in the last three fiscal years.
YEAR 2000 COMPLIANCE
The Company has initiated its assessment of Year 2000 issues and has
determined that it will have to modify its current software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company expects to internally reprogram its software sometime
during fiscal 1999 and does not expect to incur any material costs in doing so.
The Company's expects to upgrade its current point of sale equipment at an
estimated cost of $10,000 per store (currently the Company operates 154 stores).
See "Business - - Inventory Management". The cost to upgrade the current point
of sale equipment is expected to be capitalized in fiscal year 1999. The Company
believes that with modifications to existing software and upgrading its point of
sale equipment, year 2000 issues will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made, or are not completed on a timely basis, year 2000 issues could have a
material impact on the operations of the Company.
13
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes are included in
Item 14 of this report. See Index to Consolidated Financial Statements contained
in Item 14 herein.
ITEM 9. CHANGES OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. (A) AND (B) DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by these items of Part III will be set forth
in the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within 120 days after March
28, 1998 under similar captions and is incorporated herein by reference, except
that the information required with respect to the executive officers of the
Company under Item 10 (b) is set forth immediately following Item 4.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM
8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
(1) CONSOLIDATED FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on Page 17.
(2) FINANCIAL STATEMENT SCHEDULES
None of the schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are required.
(3) EXHIBITS
See Exhibit Index on page 31.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
last quarter of the period covered by this Report.
14
<PAGE> 15
(C) EXHIBITS:
See Exhibit Index on pages 31 through 32.
(D) OTHER FINANCIAL STATEMENTS
Not applicable.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL RECORD MART, INC.
BY: /s/ William A. Teitelbaum
--------------------------
William A. Teitelbaum
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
Chairman of the Board, President
/s/ William A. Teitelbaum Chief Executive Officer and Director June 26, 1998
- ---------------------------
William A. Teitelbaum
Senior Vice President
Chief FinancialOfficer,
Chief Accounting Officer,
/s/ Theresa Carlise Treasurer, Secretary and Director June 26, 1998
- ---------------------------
Theresa Carlise
/s/ Samuel S. Zacharias Director June 26, 1998
- ---------------------------
Samuel S. Zacharias
/s/ Irwin B. Goldstein Director June 26, 1998
- ---------------------------
Irwin B. Goldstein
</TABLE>
16
<PAGE> 17
NATIONAL RECORD MART, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 18
Consolidated Statements of Operations for the fiscal years
ended March 28, 1998, March 29, 1997, and March 30, 1996 19
Consolidated Balance Sheets as of March 28, 1998 and March 29, 1997 20
Consolidated Statements of Cash Flows for the fiscal years
ended March 28, 1998, March 29, 1997, and March 30, 1996 21
Consolidated Statements of Stockholders' Equity for the fiscal years
ended March 28, 1998, March 29, 1997, and March 30, 1996 22
Notes to Consolidated Financial Statements 23
</TABLE>
17
<PAGE> 18
Report of Independent Auditors
To the Board of Directors and Stockholders
of National Record Mart, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of National Record
Mart, Inc. and subsidiary as of March 28, 1998 and March 29, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 28, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Record
Mart, Inc. and subsidiary at March 28, 1998 and March 29, 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 28, 1998, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the Consolidated Financial Statements, in the fourth
quarter of fiscal 1996 the Company changed its method of accounting for
long-lived assets.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 5, 1998
18
<PAGE> 19
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 28, 1998, March 29, 1997 and March 30, 1996
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
March 28, March 29, March 30,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 112,488,429 $ 99,438,863 $ 99,084,459
Cost of sales 69,524,955 62,332,670 62,546,760
------------- ------------- -------------
Gross profit 42,963,474 37,106,193 36,537,699
Selling, general and administrative expenses 36,858,670 34,385,354 34,541,524
Depreciation and amortization 2,801,248 2,725,030 3,116,547
Impairment of assets write-down - - 2,906,481
Interest expense 1,859,661 1,730,893 1,631,208
Interest income (37,935) (34,656) (34,274)
Other (income) expense 104,321 (26,450) 445,613
------------- ------------- -------------
Total expenses 41,585,965 38,780,171 42,607,099
------------- ------------- -------------
Income (loss) before income tax expense (benefit) 1,377,509 (1,673,978) (6,069,400)
Expense provision (benefit) for income taxes 484,861 (573,307) (2,184,984)
------------- ------------- -------------
Net income (loss) $ 892,648 $ (1,100,671) $ (3,884,416)
============= ============= =============
Basic net income (loss) per share $ 0.18 $ (0.23) $ (0.79)
Diluted net income (loss) per share $ 0.18 $ (0.23) $ (0.79)
Basic weighted average common shares outstanding 4,844,624 4,851,694 4,927,425
Weighted average number of common shares and
common
equivalent shares (warrants and options)
outstanding 5,057,323 4,851,694 4,927,425
</TABLE>
See accompanying notes to consolidated financial statements
19
<PAGE> 20
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED BALANCE SHEETS
As of March 28, 1998 and March 29, 1997
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 384,304 $ 834,889
Merchandise inventory 37,000,610 37,510,462
Due from stockholder 399,544 370,725
Deferred income taxes 343,000 263,000
Refundable income taxes 63,522 1,523,139
Other current assets 1,886,692 1,205,309
----------- -----------
Total current assets 40,077,672 41,707,524
Property and equipment, at cost 25,108,592 23,037,427
Accumulated depreciation and amortization (15,006,851) (12,803,745)
----------- -----------
Property and equipment, net 10,101,741 10,233,682
Other assets:
Deferred income taxes 984,000 1,249,000
Long-term investments - 262,884
Intangibles 1,001,845 1,098,984
Other assets 374,810 468,205
----------- -----------
Total other assets 2,360,655 3,079,073
----------- -----------
Total assets $52,540,068 $55,020,279
=========== ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $12,327,619 $14,535,131
Other liabilities and accrued expenses 3,659,547 3,049,032
Current maturities of long-term debt 17,127 159,301
Income taxes payable 181,782 -
----------- -----------
Total current liabilities 16,186,075 17,743,464
Long-term debt:
Notes payable 12,301 34,803
Revolving credit facility 19,383,236 21,176,204
----------- -----------
Total long-term debt 19,395,537 21,211,007
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized, none issued - -
Common Stock, $.01 par value, 9,000,000 shares authorized,
5,037,916 shares issued, and 4,844,624 shares outstanding
at March 28, 1998 and March 29, 1997 50,379 50,379
Additional paid-in capital 14,057,288 14,057,288
Retained earnings 3,281,773 2,389,125
----------- -----------
17,389,440 16,496,792
Less Treasury Stock, 193,292 shares at
March 28, 1998 and March 29, 1997 (430,984) (430,984)
----------- -----------
Total stockholders' equity 16,958,456 16,065,808
----------- -----------
Total liabilities and stockholders' equity $52,540,068 $55,020,279
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
20
<PAGE> 21
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 28, 1998, March 29, 1997 and March 30, 1996
<TABLE>
<CAPTION>
Years Ended
March 28, March 29, March 30,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 892,648 $ (1,100,671) $ (3,884,416)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,801,248 2,725,030 3,116,547
Impairment of assets write-down - - 2,906,481
Other - (221,900) 158,947
Loss from sale of property and equipment 185,475 116,269 25,777
Deferred income taxes 185,000 546,000 (1,078,000)
Changes in operating assets and liabilities:
Merchandise inventory 466,564 (2,157,839) (678,225)
Other assets (721,147) (363,945) 151,264
Refundable income taxes 1,459,617 - -
Accounts payable (2,207,512) 1,139,728 3,242,626
Other liabilities and accrued expenses 565,470 166,110 223,102
Income taxes payable 181,782 - -
------------- ------------ ------------
Net cash provided by operating activities 3,809,145 848,782 4,184,103
Cash flows from investing activities
Purchase of property and equipment (2,508,714) (2,942,008) (3,583,214)
Amounts (loaned to) received from stockholders (28,819) 17,346 ( 96,441)
Other long-term investments 235,447 172,669 219,233
------------- ------------ ------------
Net cash used in investing activities (2,302,086) (2,751,993) (3,460,422)
Cash flows from financing activities
Payments on debt (130,704,676) (115,442,498) (113,891,190)
Borrowings on revolving line of credit 128,747,032 117,620,261 113,505,662
Purchases of Treasury Stock - - (185,279)
------------- ------------ ------------
Net cash (used in) provided by financing activities (1,957,644) 2,177,763 (570,807)
------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (450,585) 274,552 152,874
Cash and cash equivalents, beginning of year 834,889 560,337 407,463
------------- ------------ ------------
Cash and cash equivalents, end of year $ 384,304 $ 834,889 $ 560,337
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements
21
<PAGE> 22
NATIONAL RECORD MART, INC. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended March 28, 1998, March 29, 1997 and March 30, 1996
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
--------- ------- ----------- ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 25, 1995 5,037,916 $50,379 $13,930,188 $7,374,212 44,100 $ (181,363) $21,173,416
Net loss - - - (3,884,416) (3,884,416)
Purchases of Treasury Stock - - - - 122,100 (185,279) (185,279)
Compensatory stock options - - 74,000 - - - 74,000
--------- ------- ----------- ---------- ------- ----------- -----------
Balance at March 30, 1996 5,037,916 50,379 14,004,188 3,489,796 166,200 (366,642) 17,177,721
Net loss (1,100,671) - - (1,100,671)
Shares obtained in exchange
for notes receivable - - - 27,092 (64,342) (64,342)
Compensatory stock options - - 53,100 - - - 53,100
--------- ------- ----------- ---------- ------- ----------- -----------
Balance at March 29, 1997 5,037,916 50,379 14,057,288 2,389,125 193,292 (430,984) 16,065,808
Net income - - - 892,648 - - 892,648
--------- ------- ----------- ---------- ------- ----------- -----------
Balance at March 28, 1998 5,037,916 $50,379 $14,057,288 $3,281,773 193,292 $ (430,984) $16,958,456
========= ======= =========== ========== ======= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
22
<PAGE> 23
NATIONAL RECORD MART, INC. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
National Record Mart, Inc. (the "Company") is a specialty retailer of home
entertainment products, including compact discs, audio and video cassettes, and
related accessories. As of March 28, 1998, the Company operated 148 stores in 27
states primarily in the eastern part of the United States and operates under
five distinct store concepts, National Record Mart or NRM Music, Waves Music,
Vibes Music, Music Oasis and Music X, each of which targets a different customer
base. The Company's fiscal year is the 52 or 53 weeks ending on the Saturday in
March closest to March 31. Fiscal years 1998, 1997 and 1996 ended on March 28
(52 weeks), March 29 (52 weeks) and March 30 (53 weeks), respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, National Record Mart Investments, Inc., a Delaware
holding company. All intercompany accounts and transactions have been eliminated
in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
MERCHANDISE INVENTORY
Inventory is comprised of records, cassettes, compact discs, video tapes and
accessories and is stated at the lower of average cost or market. Market is net
realizable value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Equipment and major improvements to
existing locations are capitalized. Expenditures for repairs and maintenance
which do not extend the useful life of assets are charged to expense as
incurred. Provisions for depreciation are computed using the straight-line
method for book purposes and accelerated methods for tax purposes based upon the
estimated useful lives of the assets. Leasehold improvements are amortized over
the shorter of the useful life of the improvement or the lease term which
includes anticipated renewal periods. Property and equipment of the Company
consist of the following:
<TABLE>
<CAPTION>
March 28, March 29,
Assets Asset Lives 1998 1997
------ ----------- ------------- -------------
<S> <C> <C> <C>
Leasehold improvements 8 years $ 10,638,275 $ 10,106,215
Fixtures and equipment 7 years 14,398,598 12,859,493
Vehicles 5 years 71,719 71,719
------------- -------------
Total 25,108,592 23,037,427
Less accumulated depreciation (15,006,851) (12,803,745)
------------- -------------
Property and equipment, net $ 10,101,741 $ 10,233,682
============= =============
</TABLE>
Depreciation expense for the years ended March 28, 1998, March 29, 1997 and
March 30, 1996 was approximately $2,562,000, $2,487,000 and $2,878,000,
respectively.
INTANGIBLE ASSETS
Intangible assets recorded by the Company are being amortized using the
straight-line method over their estimated useful lives. Goodwill represents the
excess of the purchase price over the fair value of the net assets acquired in
the original acquisition of the Company and the acquisition of a business in
fiscal 1994 and is being amortized over periods of 40 and 15 years,
respectively. The estimated useful life of other intangible assets is five
years.
23
<PAGE> 24
INVESTMENTS
Investments include equity securities carried at cost, which approximates
market. These securities are held primarily for their dividend yield and
represent less than a 20% investment in the invested companies. Securities which
the Company intends to hold for a limited period are classified as short-term
investments. Securities intended to be held for periods in excess of one year
are classified as long-term investments. In the fiscal year ended March 28,
1998, the Company had a gain of $21,168 on the sale of the securities. For
fiscal year ended March 29, 1997, no unrealized gains or losses were recorded by
the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheets for the Company's financial
instruments approximates its fair value.
STORE OPENING COSTS
The expenses associated with the opening of new stores are charged to expense as
incurred.
ADVERTISING COSTS
Advertising and sales promotional programs are charged to expense during the
period in which they are incurred. Total advertising and sales promotional
expenses for the fiscal years ended March 28, 1998, March 29, 1997 and March 30,
1996 were $1,900,000, $2,011,000, and $2,466,000, respectively.
STOCK OPTION PLANS
In October 1995, the Financial Accounting standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation", which establishes
financial accounting and reporting standards for stock based employee
compensation plans. The statement defines a fair value based method of
accounting for an employee stock option, but allows companies to continue to
measure compensation costs for such plans using the intrinsic value based method
of accounting prescribed in Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." Beginning in 1996, companies
electing to follow APB 25 must provide pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied. The Company plans to continue accounting for its stock-based employee
compensation plan under APB 25. See pro forma disclosures required under FASB
Statement No. 123 in Note 5.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
EARNINGS PER SHARE
In February 1997, The Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which was effective for the Company for fiscal 1998.
Accordingly, the Company adopted the statement for fiscal 1998, (FASB 128).
Earnings per share amounts for all periods have been restated to give effect to
the application of FASB 128. The effect of the restatement on earnings per share
for the restated periods is immaterial.
The following table shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock.
24
<PAGE> 25
<TABLE>
<CAPTION>
March 28, March 29, March 30,
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Weighted average common shares outstanding 4,844,624 4,851,694 4,927,425
Dilutive common stock equivalents 442,429 - -
Treasury stock assumed to be repurchased using
proceeds from options and warrants (229,730) - -
---------- ----------- -----------
Weighted average common shares and equivalents
outstanding 5,057,323 4,851,694 4,927,425
========== ============ ===========
Net Income (Loss) $ 892,648 $ (1,100,671) $(3,884,416)
========== ============ ===========
</TABLE>
2.IMPAIRMENT OF ASSETS WRITE-DOWN
In accordance with FASB No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of ", management evaluates the
ongoing value of leasehold improvements and store fixtures associated with
retail stores which have been open for longer than one year. Based on these
evaluations, the Company determined that no assets were impaired during the year
ended March 28, 1998 and March 29, 1997, and assets with a net carrying amount
of $2,906,481 were impaired and written off in the fourth quarter of the year
ended March 30, 1996. Fair value was based on management's estimate of potential
future benefits of such assets.
3.REVOLVING CREDIT FACILITY AND TERM DEBT
Long-term debt consisted of the following as of:
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
------------- -------------
<S> <C> <C>
REVOLVING CREDIT FACILITY -- Bears interest at
the bank's base rate (8.5% at March 28, 1998)
plus .25% or the 30-day LIBOR rate (5.6875% at
March 28, 1998) plus 2.375%. Secured by
substantially all of the assets of the Company. $ 19,383,236 $ 21,176,204
CAPITAL LEASE OBLIGATIONS -- Bears interest at
a rate of 9.00%. Secured by the leased assets.
Principal and interest due in equal monthly
amounts through March 2000. 29,428 106,393
Other - 87,711
------------- -------------
19,412,664 21,370,308
Less current maturities 17,127 159,301
------------- -------------
Long-term debt $ 19,395,537 $ 21,211,007
============= =============
</TABLE>
The Company has a revolving credit facility (the "Revolver") which expires on
June 10, 2003. The maximum borrowings under the Revolver are $28,000,000 and are
based upon eligible inventory levels as defined therein. During the months of
October through December 31 of each year, an overadvance is available in
addition to the borrowing base as calculated by levels of inventory in the
amount of $1.5 million. In any event the total borrowings under this facility
shall not exceed the limit of $28 million. The Company is required to pay a
monthly commitment fee of .25% per annum on the unused portion of the Revolver
and a monthly collateral monitoring fee of $2,750.
The Revolver also contains various financial and other covenants that place
restrictions or limitations on the Company and its subsidiaries, the more
restrictive of which include: (i) maintenance of a number of financial ratios,
as defined, (ii) a restriction on dividends, and (iii) limitation on capital
expenditures.
25
<PAGE> 26
Future scheduled maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ended
March
---------------
<S> <C>
1998 $ 17,127
1999 12,301
Thereafter 19,383,236
-------------
Total $ 19,412,664
=============
</TABLE>
Interest payments of $1,860,000, $1,731,000, and $1,631,000 were made during the
fiscal years ended March 28, 1998, March 29, 1997 and March 30, 1996,
respectively.
4.EMPLOYEE BENEFIT PLANS
Profit Sharing Plan. The Company has a qualified, noncontributory profit sharing
plan for eligible employees. Contributions to the plan, as determined by the
Board of Directors, are discretionary but generally may not exceed 15% of the
defined annual compensation paid to all participating employees. No
contributions were made to the plan for any of the years presented.
401(k) Plan. During fiscal 1996, the Company adopted a 401(k) plan for eligible
employees. Employees who have attained age 21 and are paid for 1,000 or more
hours of service within the twelve months from the date hired are eligible to
participate. Under provisions of the plan, participants may contribute up to 15%
of their eligible compensation to the plan. These contributions are made through
payroll deductions and are partially matched by the Company. Contributions made
by the Company to its 401(k) plan were $50,000, $49,000 and $33,000 for the
years ended March 28, 1998, March 29, 1997 and March 30, 1996, respectively.
5. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees" and the related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123 (FASB 123), "Accounting for Stock-Based Compensation,"
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options is greater than the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized.
The National Record Mart, Inc. 1993 Stock Option Plan (the "Plan") provides for
the grant of 185,000 incentive or non-statutory stock options to purchase common
stock. Employees who share the responsibility for the management growth or
protection of the business of the Company, are eligible to receive options which
are approved by a committee of the Board of Directors. These options primarily
vest over five years and are exercisable for a ten-year period from the date of
the grant.
Additionally, the Company's Board of Directors adopted the National Record Mart,
Inc. 1993 Non-Employee Director Stock Option Plan (the "Director Plan"). The
Director Plan provides for the grant of 15,000 stock options to purchase common
stock to all independent members (the "Directors") of the Board of Directors who
are not employees of the Company and who are disinterested persons (as used in
Rule 16b-3 promulgated under the Securities Exchange Act of 1934). These options
vest over five years and are exercisable for a ten-year period from the date of
grant.
On June 10, 1996, the Company's Board of Directors granted Mr. William A.
Teitelbaum the option to purchase 200,000 shares of Common Stock par value $.01
per share of the Company at an option exercise price of $2.50 per share. The
right to exercise such option will vest in four equal installments over a period
of four years beginning on June 15, 1997, provided that all options will vest
automatically upon (i) acquisition by a third party or group of a majority of
the Company's outstanding equity securities, or a sale of the Company, or all or
substantially all of its assets, (ii) termination of Mr. Teitelbaum's employment
without proper cause, (iii) a reorganization, merger or consolidation which
results in a change in control of the Company or (iv) Mr. Teitelbaum's death. If
Mr. Teitelbaum ceases to be employed by the Company for any other reason, the
unvested portion of the options will be extinguished. The option expires on June
15, 2007.
On May 10, 1993, the Company's Board of Directors approved the issuance to Mr.
William A. Teitelbaum, the President of the Company, of options to purchase a
total of 200,000 shares of common stock at an exercise price of $.10 per share.
Effective December 18, 1996, Mr. William A. Teitelbaum cancelled his right to
purchase such options. Included in the Consolidated
26
<PAGE> 27
Statements of Operations for the years ended March 28, 1998, March 29, 1997 and
March 30, 1996 is compensation expense of approximately $0, $53,000, and
$74,000, respectively, related to the cancelled options.
On June 30, 1997, the Company's Board of Directors approved the 1997
Non-Employee Directors Stock Option Plan. The 1997 Directors' Plan provides for
the grant of 25,000 shares to all independent members of the board who are not
employees. The options are vested as of grant date and are exercisable over a
ten year period from the date of grant at an exercise price of $2.50.
The Company's Board of Directors approved on July 1, 1997 the issuance of
200,000 shares of the Company's common stock to William A. Teitelbaum. The
options vest over twenty years and are exercisable at $0.10, with an expiration
date of July 1, 2024. The options have a vesting event to automatically vest in
full upon termination, death, merger, acquisition or liquidation.
Pro forma information regarding net income and earnings per share is required by
FASB 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted beginning in the
fiscal year subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for year ending March 28, 1998: risk-free interest rate of 6.38%; no
dividend yield; volatility factors of the expected market price of the Company's
common stock of .805; and weighted-average expected life of the option of five
years. For the year ending March 29, 1997: risk-free interest rate of 6.53%; no
dividend yield; volatility factors of the expected market price of the Company's
common stock of .784; and weighted average expected life of the option of five
years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
March 28, March 28,
1998 1997
--------------- ------------------
<S> <C> <C>
Pro forma net income (loss) $ 845,579 $ (1,100,671)
Pro forma net income (loss) per share: $ 0.17 $ (0.23)
Primary
Fully diluted $ 0.17 $ (0.23)
</TABLE>
Stock options granted prior to March 26, 1995 are specifically excluded from the
determination of pro forma net income.
27
<PAGE> 28
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
March 28, 1998 March 29, 1997 March 30, 1996
------------------------ ------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------ ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
beginning of year 268,500 $2.72 240,500 $0.75 249,700 $1.57
Granted 235,900 $0.47 228,500 $2.50 $2.50
29,000
Exercised - - - - - -
Cancelled (1,100) $2.50 (200,500) $0.11 (38,200) $7.50
------------------------ ------------------------- ------------------------
Outstanding -
end of year 503,300 $1.63 268,500 $2.72 240,500 $0.75
======================== ========================= ========================
Exercisable - end of year 121,903 $2.81 58,400 $3.46 37,987 $1.50
======================== ========================= ========================
</TABLE>
6. INCOME TAXES
The provision (benefit) for income taxes, as shown in the accompanying
Consolidated Statements of Operations, includes the following components:
<TABLE>
<CAPTION>
March 28, March 29, March 30,
1998 1997 1996
<S> <C> <C> <C>
Current provision:
Federal $ 294,741 $ (1,068,980) $ (1,054,984)
State 5,120 (50,327) (52,000)
------------- -------------- -------------
299,861 (1,119,307) (1,106,984)
Deferred 185,000 546,000 (1,078,000)
------------- -------------- -------------
Total provision (benefit) for income
taxes $ 484,861 $ (573,307) $ (2,184,984)
============= ============= =============
</TABLE>
A reconciliation of the Company's effective income tax rate with the federal
statutory rate is as follows:
<TABLE>
<CAPTION>
March 28, March 29, March 30,
1998 1997 1996
------- -------- ---------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
State income taxes, net of federal tax
benefit 1 - 3
Nontaxable amounts - 1 (1)
------- -------- ---------
Effective income tax rate 35% 35% 36%
======= ======== =========
</TABLE>
Tax (refunds) payments of approximately $(1,324,000), $(1,019,000), and $205,000
were made/(received) during the fiscal years ended March 28, 1998, March 29,
1997 and March 30, 1996, respectively.
28
<PAGE> 29
Significant components of the Company's deferred tax assets and liabilities as
of March 28, 1998 and March 29, 1997 are as follows:
<TABLE>
<CAPTION>
March 28, March 29,
1998 1997
---------- -----------
<S> <C> <C>
Deferred tax assets:
Excess tax basis in property and equipment $1,093,000 $ 1,269,000
Excess tax basis in inventory 247,000 240,000
Other 388,000 319,000
---------- -----------
1,727,000 1,828,000
Deferred tax liabilities:
Excess book basis in other current assets (401,000) 316,000
---------- -----------
Net deferred tax assets $1,328,000 $ 1,512,000
========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based on the amount of
current and projected taxable income, management believes it is more likely than
not that the Company will realize the benefits of those deductible differences.
The amount of the deferred tax asset considered realizable could be reduced if
estimates of future taxable income during the carryforward period are reduced.
7.COMMITMENTS AND CONTINGENCIES
The Company leases its retail stores and distribution center under operating
leases. The lease agreements, including renewal options, expire on various dates
through 2007. Most leases provide for additional contingent rents based on a
percentage of sales and increases in real estate taxes. Future minimum annual
lease payments under noncancellable lease agreements in excess of one year at
March 28, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 11,927,710
2000 9,546,242
2001 8,530,548
2002 7,149,869
Thereafter 19,910,728
-------------
Total future minimum lease payments $ 57,065,097
=============
</TABLE>
Rent expense for the years ended March 28, 1998, March 29, 1997 and March 30,
1996 was $10,981,000, $10,699,000 and $10,410,000 respectively, including
contingent rentals of $161,000, $144,000 and $157,000, respectively.
8.CONCENTRATION OF BUSINESS RISKS
The company purchases inventory for its stores from approximately 500 suppliers,
with approximately 74% of purchases being made from six suppliers. In the past
the Company has not experienced difficulty in obtaining satisfactory sources of
supply, and management believes that it will retain access to adequate sources
of supply. However, a loss of a major supplier could cause a possible loss of
sales, which would have an adverse effect on operating results and result in a
decrease in vendor support for the Company's advertising programs.
9. SUBSEQUENT EVENT
On April 16, 1998, the Company secured a private placement of $15,000,000 in
senior subordinated notes. The notes carry an interest rate of 11.75% payable
semi-annually and expire April 16, 2001. In consideration of the placement the
Company issued 400,000 common stock warrants with an exercise price of $0.01.
These warrants, if issued prior to March 28, 1998, would have reduced diluted
earnings per share by $0.01.
29
<PAGE> 30
10.QUARTERLY RESULTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Basic Diluted
Net Net (Loss) Net (Loss) Common Stock
Gross Income Income Income Price
Sales Profit (Loss) per share per Share High Low
----- ------ ------ --------- --------- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1998:
First $ 21,013 $ 8,038 $ (908) $ (0.19) $ (0.19) $ 1.56 $ 1.250
Second 23,691 8,967 (791) (0.16) (0.16) 4.62 2.688
Third 41,706 15,394 2,884 0.60 0.56 4.50 3.500
Fourth 26,078 10,564 (292) (0.06) (0.06) 6.50 5.500
-------- -------- -------- -------- --------
Total $112,488 $ 42,963 $ 893 $ 0.18* $ (0.18)*
1997:
First $ 20,142 $ 7,750 $ (1,276) $ (0.26) $ (0.26) $ 2.37 $ 1.313
Second 21,023 8,082 (1,086) (0.22) (0.22) 1.87 1.500
Third 35,959 13,357 2,461 0.51 0.49 1.50 1.250
Fourth 22,315 7,917 (1,200) (0.24) (0.24) 1.75 1.250
-------- -------- -------- -------- --------
Total $ 99,439 $ 37,106 $ (1,101) $ (0.23)* $ (0.23)
</TABLE>
* data rounded in quarterly calculations
30
<PAGE> 31
INDEX TO EXHIBITS
The following documents are filed as part of this 10K for the year ended
March 28, 1998
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.2 to the Company's Registration Statement No.
33-62622 on Form S-1 and incorporated by reference herein
3.2 Amended and Restated By-Laws of the Company, filed as Exhibit 3.4
to the Company's Registration Statement No. 33-62622 on Form S-1
and incorporated by reference herein
3.3 Amendment to Restated Certificate of Incorporation of the Company,
filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 25, 1995 and incorporated by
reference herein
4.1 Loan and Security Agreement, dated June 11, 1993, between the
Company and Barclays Business Credit, Inc., filed as Exhibit 10.16
to the Company's Registration Statement No. 33-62622 on Form S-1
and incorporated by reference herein
4.2 Amendment, dated January 12, 1995, between the Company and
Barclays Business Credit, Inc., to the Loan and Security
Agreement, dated June 11, 1993, between the Company and Barclays
Business Credit, Inc., filed herewith
4.3 Amendment, dated September 8, 1995, between the Company and
Shawmut Capital Corporation, successor to Barclays Credit, Inc.,
to the Loan and Security Agreement, dated June 11, 1993, between
the Company and Barclays Business Credit, Inc., filed herewith
4.4 Amendment, dated July 19, 1996, between the Company and Fleet
Capital Corporation, successor to Shawmut Capital Corporation, to
the Loan and Security Agreement, dated June 11, 1993, between the
Company and Barclays Business Credit, Inc., filed herewith
4.5 Amendment, dated October 17, 1996, between the Company and Fleet
Capital Corporation, to the Loan and Security Agreement, dated
June 11, 1993, between the Company and Barclays Business Credit,
Inc., filed as Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 28, 1997 and
incorporated by reference herein
4.6 Amendment, dated June 25, 1997, between the Company and Fleet
Capital Corporation, to the Loan and Security Agreement, dated
June 11, 1993, between the Company and Barclays Business Credit,
Inc., filed herewith
4.7 Amendment, dated February 17, 1998, between the Company and Fleet
Capital Corporation, to the Loan and Security Agreement, dated
June 11, 1993, between the Company and Barclays Business Credit,
Inc., filed herewith
4.8 Amendment, dated April , 1998, between the Company and Fleet
Capital Corporation, to the Loan and Security Agreement, dated
June 11, 1993, between the Company and Barclays Business Credit,
Inc., filed herewith
4.9 Senior Subordinated Secured Note Purchase Agreement, dated as of
April 16, 1998, among the Company, the Guarantors from time to
time party thereto, the Purchasers from time to time party
thereto, and Robert Fleming, Inc., as Agent, filed herewith
4.10 Senior Subordinated Note Purchase Agreement, dated as of April 16,
1998, among the Company, the Guarantors from time to time party
thereto, the Purchasers from time to time party thereto, and
Robert Fleming, Inc., as Agent, filed herewith
4.11 Issuer Security and Pledge Agreement, dated as of April 16, 1998,
between the Company and Robert Fleming, Inc., as Agent, filed
herewith
4.12 Guarantor Security and Pledge Agreement, dated as of April 16,
1998, between NRM Investments, Inc. and Robert Fleming, Inc., as
Agent, filed herewith
4.13 Trademark Collateral Security Agreement, dated as of April 16,
1998, between the Company and Robert Fleming, Inc., as Agent,
filed herewith
4.14 Subordination Agreement, dated as of April 16, 1998, between
Robert Fleming, Inc., as Agent, and Fleet Capital Corporation,
acknowledged by the Company and NRM Investments, Inc., filed
herewith
4.15 Junior Subordination Agreement, dated as of April 16, 1998,
between Robert Fleming, Inc., as Agent, and Fleet Capital
Corporation, acknowledged by the Company and NRM Investments,
Inc., filed herewith
31
<PAGE> 32
Exhibit No. Description
----------- -----------
4.16 Collateral Sharing and Agency Agreement, dated as of April 16,
1998, among the Company, NRM Investments, Inc., Robert Fleming,
Inc., as Agent, and Fleet Capital Corporation, for itself and as
Collateral Agent, filed herewith
10.1 Sublease dated July 1, 1992 between the Company and General Motors
Corporation, filed as Exhibit 10.12 to the Company's Registration
Statement No. 33-62622 on Form S-1 and incorporated by reference
herein
10.2 Employment Agreement dated April 1, 1993 between the Company and
William A. Teitelbaum, filed as Exhibit 10.11 to the Company's
Registration Statement No. 33-62622 on Form S-1 and incorporated
by reference herein
10.3 Stock Option Agreement dated June 10, 1996 between the Company and
William A. Teitelbaum, filed as Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 28,
1996 and incorporated by reference herein
10.4 Stock Option Agreement dated July 1, 1997 between the Company and
William A. Teitelbaum, filed herewith
10.5 Registration Rights Agreement dated July 1, 1997 between the
Company and William A. Teitelbaum, filed herewith
10.6 Employment Agreement dated as of January 1, 1996 between the
Company and Theresa Carlise, filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
March 28, 1996 and incorporated by reference herein
10.7 National Record Mart, Inc. 1993 Stock Option Plan, filed as
Exhibit 10.14 to the Compan's Registration Statement No. 33-62622
on Form S-1 and incorporated by reference herein
10.8 National Record Mart, Inc. Non-Employee Director Stock Option
Plan, filed as Exhibit 10.15 to the Company's Registration
Statement No. 33-62622 on Form S-1 and incorporated by reference
herein
10.9 National Record Mart, Inc. 1997 Non-Employee Director Stock Option
Plan, filed herewith
10.10 Warrant Agreement, dated as of April 16, 1998, between the
Company, Robert Fleming, Inc. and Seneca Capital, L.P., filed
herewith
10.11 Registration Rights Agreement, dated as of April 16, 1998, between
the Company and the holders of registrable securities referred to
therein, filed herewith
10.12 Tag Along Agreement, dated as of April 16, 1998, between the
Company, Seneca Capital, L.P., Robert Fleming, Inc. and certain
holders of shares of common stock of the Company, filed herewith
32
<PAGE> 1
Exhibit 4.2
[BARCLAY'S LETTERHEAD]
January 12, 1995
Mr. William Teitelbaum
National Record Mart, Inc.
507 Forest Avenue
Pittsburgh, PA 15106
Dear Bill,
Reference is made to the Loan and Security Agreement (the "Loan Agreement")
dated June 11, 1993, by and between National Record Mart, Inc. ("the Borrower"),
and Barclays Business Credit, Inc. ("the Lender"), together with all documents,
instruments, mortgages and letters executed pursuant thereto (collectively the
"Financing Agreements"). All capitalized terms used herein without definition
shall have the meanings ascribed to such terms in the Loan Agreement unless
indicated otherwise.
Section 9.2(F) ADVERSE TRANSACTIONS, section 10.2(C) OTHER CONDITIONS, and
section 11.1(H) ADVERSE CHANGES of the Loan and Security Agreement are hereby
deleted.
Please indicate your agreement with the above by signing one of the enclosed
originals and returning it to the Lender's attention via express mail. This
agreement shall not be binding on the Lender until such time as a fully executed
original of this letter is received by the Lender.
Sincerely,
/s/ Timothy G. Johnson
Concur:
National Record Mart, Inc.
By: /s/ Theresa Carlise
----------------------------
Senior Vice President/CFO
We Build Relationships(R)
<PAGE> 1
Exhibit 4.3
[SHAWMUT CAPITAL LETTERHEAD]
September 8, 1995
Ms. Theresa Carlise
National Record Mart, Inc.
507 Forest Avenue
Pittsburgh, PA 15106
Dear Theresa,
Reference is made to the Loan and Security Agreement (the "Loan Agreement")
dated June 11, 1993, by and between National Record Mart, Inc. ("the Borrower"),
and Shawmut Capital Corp., (f/k/a Barclays Business Credit, Inc.) ("the
Lender"), together with all documents, instruments, mortgages and letters
executed pursuant thereto (collectively the "Financing Agreements"). All
capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Financing Agreements unless indicated otherwise.
The Loan Agreement is hereby amended by adding the following to the end of
Section 3.1(A) INTEREST:
"Notwithstanding the above, interest on any Prime Loan with a balance
of less than zero at the end of any day, at a time when all loans in
total are greater than zero, shall accrue at a fluctuating rate per
annum equal to three percent (3%) below the Base Rate."
Except as expressly provided herein, all of the representations, warranties,
terms, covenants and conditions contained in the Financing Agreements shall
remain unamended and shall continue to be and shall remain in full force and
effect in accordance with their respective terms. The agreements set forth
herein shall be limited precisely as provided for herein and shall not be deemed
an amendment to or modification of any other term or provision of the Financing
Agreements.
Please indicate your agreement with the above by signing one of the enclosed
originals and returning it to the Lender's attention via express mail. This
agreement shall not be binding on the Lender until such time as a fully executed
original of this letter is received by the Lender.
Sincerely,
/s/ Timothy G. Johnson
Concur: /s/ Theresa Carlise
National Record Mart, Inc.
<PAGE> 1
Exhibit 4.4
WAIVER AND AMENDMENT NO. 4
TO
LOAN AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT NO. 4 ("Amendment No. 4") is entered into as
of July 19, 1996, by and between NATIONAL RECORD MART, INC. ("Borrower") and
FLEET CAPITAL CORPORATION ("Lender").
BACKGROUND
----------
Borrower and Barclays Business Credit, Inc. ("Barclays") entered into a
Loan and Security Agreement dated June 11, 1993 which has been amended by letter
agreements (a) dated January 12, 1995, which deleted certain covenants and
events of default, (b) dated February 24, 1995, which increased the Maximum
Revolving Amount from $17,000,000 to $22,000,000, and (c) dated September 8,
1995, which added a provision regarding the charging of interest with respect to
Prime Loans (as same has been further amended, supplemented or otherwise
modified from time to time, collectively, the "Loan Agreement"). Subsequent to
the date that Borrower and Barclays originally entered into the Loan Agreement,
Barclays assigned all of its rights and interest in and to the Loan Agreement to
Shawmut Capital Corp. ("Shawmut"). Shawmut subsequently assigned all of its
rights and interest to Lender. Pursuant to the Loan Agreement, Lender provides
Borrower with certain financial accommodations.
Borrower has requested that Lender amend the Loan Agreement to provide
for a special overadvance facility and Lender is willing to do so on the terms
and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by Lender,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. AMENDMENT TO LOAN AGREEMENT
a) Section 1.1 of the Loan Agreement is hereby amended as
follows:
(i) the following definition is hereby added in its
appropriate alphabetical order:
<PAGE> 2
"SPECIAL OVERADVANCE AMOUNT" - an amount equal to
(a) $1,400,000 from July 19, 1996 through September 30,
1996 and (b) $0 at all times thereafter, which amount
shall be permanently reduced in accordance with the
provisions of Section 2.1(C).
(ii) subsection (b) of the definition of "Borrowing Base"
is hereby amended by (A) re-lettering subparagraphs "(ii)", "(iii)" and "(iv)"
to read as "(iii)", "(iv)" and "(v)", respectively and (B) inserting the
following new subparagraph "(ii)":
"PLUS (ii) up to 100%, in Lender's sole discretion, subject
to the provisions of Section 2.1(C) hereof, of the Special
Overadvance Amount;"
(b) Section 2.1 of the Loan Agreement is hereby amended by
re-lettering subparagraph "C" as subparagraph "(D)" and inserting the
following subparagraph "(C)" in its place and stead:
"2.1(C) In the event the Borrower shall receive federal and
state tax refunds as described on EXHIBIT 2.1(C) attached
hereto (the "Refund"), Borrower shall (i) notify Lender of
the receipt of such Refund and (ii) repay the Revolving
Credit Loans in an amount equal to 100% of such Refund by
depositing same in the Dominion Account, such repayment to
be made promptly but in no event more than one (1) Business
Day after receipt thereof. Until the date of payment such
proceeds shall be held in trust for Lender. The Special
Overadvance Amount shall be automatically and permanently
reduced, without notice, in an amount equal to such
repayment. Such repayments shall be applied to Revolving
Credit Loans."
3. WAIVER. Subject to satisfaction of the conditions precedent
set forth in SECTION 4 below, Lender hereby waives the Event of Default that
otherwise would have occurred as a result of Borrower's non-compliance with
Section 9.2(L) of the Loan Agreement to the extent that such Event of Default
arose solely as a result of Borrower having an Aggregate Adjusted Availability
of less than $2,000,000 prior to making Capital Expenditures in excess of
$200,000 for the fiscal quarter ended June 29, 1996.
4. CONDITIONS OF EFFECTIVENESS. This Amendment No. 4 shall become
effective upon satisfaction of the following conditions precedent: (i) Lender
shall have received (a) four (4) copies of this Amendment No. 4 executed by
Borrower and (b) such other certificates, instruments, documents and agreements
as may be required by Lender or its
-2-
<PAGE> 3
counsel, each of which shall be in form and substance satisfactory to Lender and
its counsel, (ii) Lender shall have received payment of a $14,000 special
overadvance fee from Borrower and (iii) all legal fees and expenses incurred by
Lender in connection with the preparation of this Amendment No. 4 shall have
been paid in full.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants as follows:
(a) This Amendment No. 4 and the Loan Agreement, as amended
hereby, constitute legal, valid and binding obligations of Borrower and
are enforceable against Borrower in accordance with their respective
terms.
(b) Upon the effectiveness of this Amendment No. 4, Borrower
hereby reaffirms all covenants, representations and warranties made in
the Loan Agreement to the extent the same are not waived hereby and
agree that all such covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this Amendment
No. 4.
(c) Borrower has no defense, counterclaim or offset with
respect to the Loan Agreement.
6. EFFECT ON THE LOAN AGREEMENT.
(a) Upon the effectiveness of SECTION 2 hereof, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof, "herein" or words
of like import shall mean and be a reference to the Loan Agreement as amended
hereby.
(b) Except as specifically waived herein, the Loan Agreement, and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment
No. 4. shall not operate as a waiver of any other right, power or remedy of
Lender, nor constitute a waiver of any other provision of the Loan Agreement, or
any other documents, instruments or agreements executed and/or delivered under
or in connection therewith.
7. GOVERNING LAW. This Amendment No. 4 shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and shall be governed by and construed in accordance with the laws of
the State of New York.
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<PAGE> 4
8. HEADINGS. Section headings in this Amendment No. 4 are included
herein for convenience of reference only and shall not constitute a part of
this Amendment No. 4 for any other purpose.
9. COUNTERPARTS. This Amendment No. 4 may be executed by the parties
hereto in one or more counterparts, each of which taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment No. 4 has been duly executed as of
the day and year first written above.
NATIONAL RECORD MART, INC.
By: /s/ Theresa Carlise
------------------------------
Name: Theresa Carlise
Title: Sr. Vice President/CFO
FLEET CAPITAL CORP.
By: /s/ Timothy G. Johnson
------------------------------
Name: Timothy G. Johnson
Title: Vice President
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<PAGE> 1
Exhibit 4.6
[FLEET CAPITAL LETTERHEAD]
VIA FACSIMILE (412) 276-6201
June 25, 1997
Theresa Carlise
Chief Financial Officer
National Record Mart, Inc.
507 Forest Ave.
Carnegie, PA 15106-2873
RE: Amendment No. 6
Dear Theresa:
This letter will confirm our conversation of this morning. Effective as of the
date of this letter Fleet Capital Corporation (Lender) agrees to amend the Loan
and Security Agreement (Agreement) between Lender and National Record Mart
dated June 11, 1993 as amended from time to time as follows:
Section 9.3(A) is deleted in its entirety.
Section 9.3(C) is deleted in its entirety.
Except as specifically amended herein, the Agreement and all other documents,
instruments and agreements executed and/or delivered in connection herewith,
shall remain in full force and effect. The execution, delivery and
effectiveness of this Amendment No. 6 shall not operate as a waiver of any
other right, power or remedy of Lender, nor constitute a waiver of any other
provision of the Agreement, or any other documents, instruments or agreements
executed and/or delivered under or in connection therewith.
Very truly yours,
/s/ Walter P. Schuppe
Walter P. Schuppe
Vice President
<PAGE> 1
Exhibit 4.7
AMENDMENT NO. 7
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 7 ("Amendment No. 7") is entered into as of
February 17, 1998, by and between NATIONAL RECORD MART, INC. ("Borrower") and
FLEET CAPITAL CORPORATION ("Lender").
BACKGROUND
----------
Borrower and Lender are parties to a Loan and Security Agreement dated
June 11, 1993 (as amended by that certain (a) letter agreement dated January
12, 1995; (b) letter agreement dated February 24, 1995; (c) letter agreement
dated September 8, 1995; (d) Waiver and Amendment No. 4 dated July 19, 1996
(e) Amendment No. 5 dated October 17, 1996, (f) Letter Agreement dated June 25,
1997 (g) Amendment No. 6 to Loan and Security Agreement dated October 20, 1997
and as same may be further amended, modified, restated or supplemented from
time to time, the "Loan Agreement") pursuant to which Lender provides Borrower
with certain financial accommodations.
Borrower has requested that Lender amend the Loan Agreement to, among
other things, (i) extend the term of the Loan Agreement, (ii) increase the
total credit facility (iii) reduce the interest rates and Lender is willing to
do so on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by
Lender, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein
shall have the meanings given to them in the Loan Agreement.
2. AMENDMENT TO LOAN AGREEMENT
(a) Section 1.1 of the Loan Agreement is hereby amended by
deleting the definition "Borrowing Base," "Maximum Revolving Amount" and "Note"
in their entirety and inserting the following:
BORROWING BASE - as at any date of determination
thereof, an amount equal to the lesser of:
(a) the Maximum Revolving Amount; or
<PAGE> 2
(b) an amount equal to:
(i) sixty-five (65%) or such lesser
percentage as Lender may, in the good faith exercise
of its business judgment, determine from time to
time) of the value of Eligible Inventory at such date
consisting of finished goods, calculated on the basis
of the lower of cost or market with the cost of
finished goods calculated on an average cost basis:
PLUS (ii) an amount equal to $1,500,000 solely
during the period commencing on October 1 in each
year of the term hereof and ending on December 31 of
each such year;
MINUS (iii) in Lender's sole and absolute
discretion, an amount equal to forty percent (40%)
of all gift certificates issued by Borrower and then
outstanding;
MINUS (iv) in Lender's sole and absolute
discretion, an amount equal to one hundred percent
(100%) of Eligible Inventory subject to recorded
Liens (other than Permitted Liens); and
MINUS (v) any amounts which Lender may pay pursuant
to any of the Loan Documents for the account of
Borrower.
MAXIMUM REVOLVING AMOUNT - Twenty-Eight Million
Dollars ($28,000,000).
NOTE - the secured promissory note executed by
Borrower in favor of Lender to evidence the
Revolving Loans as some may be amended and restated
from time to time.
(b) The introductory paragraph of Section 2 of the Loan
Agreement is hereby amended by deleting the words and figures "Twenty Seven
Million Five Hundred Thousand Dollars ($27,500,000) for the period of October
20, 1997 through December 18, 1997 and Twenty-six Million Dollars ($26,000,000)
at all other times" and inserting "TWENTY-EIGHT MILLION DOLLARS ($28,000,000)"
in their place and stead.
(c) Section 3.1 of the Loan Agreement is hereby amended by
(1) deleting subsections (C) and (E) in their entirety and inserting the words
"Intentionally Omitted" in their place, and (ii) amending subsections (A) and
(B) in their entirety as follows:
(A) INTEREST. Interest shall accrue on the
principal amount of Prime Loans outstanding at the
end of each day (computed on the actual days elapsed
over a year of 360 (days) at a fluctuating rate per
annum equal to the one quarter of one percent (.25%)
above the Base Rate. After the date hereof, the
foregoing rate of interest shall be
-2-
<PAGE> 3
increased or decreased, as the case may be, by an
amount equal to any increase or decrease in the Base
Rate, with such adjustments to be effective as of
the opening of business on the day that any such
change in the Base Rate becomes effective. The Base
Rate in effect on the date hereof shall be the Base
Rate effective as of the opening of business on the
date hereof, but if this Agreement is executed on a
day that is not a Business Day, the Base Rate in
effect on the date hereof shall be the Base Rate
effective as of the opening of business on the last
Business Day immediately preceding the date hereof.
Eurodollar Loans shall bear interest on the
principal amount thereof owing, at a rate per annum
equal to two and three eighths percentage points
(2.375%) above the Eurodollar Rate. Notwithstanding
the above, interest on any Prime Loan with a balance
of less than zero at the end of any day, at a time
when all loans in total are greater than zero, shall
accrue at a fluctuating rate per annum equal to
three (3%) below the Base Rate.
(B) RATE REDUCTIONS. Provided that no Default or
Event of Default has occurred which is then
continuing and following receipt by Lender ("Receipt
Date") of Borrower's annual financial statements in
accordance with Section 9.1(J)(i) hereof ("Annual
Statements") indicating Cash Flow for such Fiscal
year of not less than $500,000 then, as of the first
day of the next succeeding Fiscal Year [or "as of
the Receipt Date"] (a "Rate Reduction Condition"):
interest shall accrue (a) on Prime Loans at a
fluctuating rate per annum equal to the Base Rate
and (b) on Eurodollar Loans at a rate per annum
equal to two percentage points (2%) above the
Eurodollar Rate ((a) and (b) above are collectively
referred to as the "Rate Reduction"); PROVIDED,
HOWEVER, in no event shall any Eurodollar Loan then
outstanding be affected by the Rate Reduction.
(d) Section 3.1(E) of the Loan Agreement is hereby deleted
in its entirety and the words "Intentionally Omitted" are inserted in its place.
(e) Section 3.1(K) of the Loan Agreement is hereby amended
in its entirety as follows:
(K) EXAMINATION AND INSPECTION. Borrower shall pay
to Lender on demand in connection with Lender's
examination of Borrower's books and records
out-of-pocket costs and expenses for loan analysts
and loan administrators. Lender, in its sole
discretion, may engage outside consultants for any
such examination and inspection.
(f) Section 3.2 of the Loan Agreement is hereby amended in
its entirety as follows:
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<PAGE> 4
3.2. TERM OF AGREEMENT. Subject to Lender's right
to cease making Loans to Borrower at any time upon
the occurrence and during the continuance of a
Default or Event of Default, this Agreement shall be
in effect for a period of ten (10) years from June
11, 1993 through and including June 10, 2003 (the
"Original Term").
(g) Section 3.3(B) is hereby amended in its entirety as
follows:
(B) At the effective date of any voluntary such
termination by Borrower, Borrower shall pay to
Lender (in addition to the then outstanding
principal, accrued interest and other charges owing
under the terms of this Agreement and any of the
other Loan Documents including prepayment premiums
under any promissory note from Borrower to Lender),
as liquidated damages for the loss of the bargain
and not as a penalty, an amount equal to two percent
(2%) of the Maximum Revolving Amount if during the
period February 17, 1998 through February 16, 1999;
one percent (1%) of the Maximum Revolving Amount if
termination occurs during the period February 17,
1999 through February 16, 2000; and one half of one
percent (.50%) of the Maximum Revolving Amount
during the period February 17, 2000 through February
16, 2001. If termination occurs after the last of
such periods, no termination charge shall be payable.
(h) Section 9.1(J)(iv) is hereby amended in its entirety as
follows:
as soon as available, and in any event no later than
thirty (30) days following the commencement of each
Fiscal Year of Borrower, a merchandising plan for
such Fiscal Year; and
(i) Section 9.3 of the Loan Agreement is hereby amended by
deleting subparagraphs (A) and (C) in their entirety and inserting in their
place in each instance the words "Intentionally Omitted."
(j) Exhibit A to this Amendment No. 7 is hereby added to the
Loan Agreement.
3. CONDITIONS OF EFFECTIVENESS. This Amendment No. 7 shall become
effective upon satisfaction of the following conditions precedent: Lender shall
have received (a) four (4) copies of this Amendment No. 7 executed by Borrower;
(b) a duly executed Fourth Amended and Restated Revolving Credit Note; (c)
evidence of the authorization by the Board of Directors of Borrower of the
execution of this Amendment No. 7; (d) an acknowledgement from NRM Investment,
Inc. ("NRM") of the continuing validity of the Subordination Agreement dated
May 9, 1996 between Lender and NRM; and (e) such other certificates,
instruments, documents and agreements as may be required by Lender or its
counsel, each of which shall be in form and substance satisfactory to Lender
and its counsel.
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<PAGE> 5
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants as follows:
(a) This Amendment No. 7 and the Loan Agreement, as amended hereby,
constitute legal, valid and binding obligations of Borrower and are enforceable
against Borrower in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment No. 7, Borrower hereby
reaffirms all covenants, representations and warranties made in the Loan
Agreement to the extent the same are not amended hereby and agree that all such
covenants, representations and warranties shall be deemed to have been remade
as of the effective date of this Amendment No. 7.
(c) Borrower has no defense, counterclaim or offset with respect to
the Loan Agreement.
(d) No Default or Event of Default would exist after giving effect to
this Amendment No. 7.
5. EFFECT ON THE LOAN AGREEMENT.
(a) Upon the effectiveness of SECTION 2 hereof, each reference in the
Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import shall mean and be a reference to the Loan Agreement as amended
hereby.
(b) Except as specifically amended herein, the Loan Agreement, and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment No. 7
shall not operate as a waiver of any other right, power or remedy of Lender,
nor constitute a waiver of any other provision of the Loan Agreement, or any
other documents, instruments or agreements executed and/or delivered under or
in connection therewith.
6. GOVERNING LAW. This Amendment No. 7 shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and shall be governed by and construed in accordance with the laws of
the State of New York.
7. HEADINGS. Section headings in this Amendment No. 7 are included
herein for convenience of reference only and shall not constitute a part of
this Amendment No. 7 for any other purpose.
8. COUNTERPARTS. This Amendment No. 7 may be executed by the parties
hereto in one or more counterparts, each of which taken together shall be
deemed to constitute one and the same instrument.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Amendment No. 7 has been duly executed as of
the day and year first written above.
NATIONAL RECORD MART, INC.
By: /s/ Theresa Carlise
--------------------------
Name: Theresa Carlise
Title: Senior Vice President and
Chief Financial Officer
FLEET CAPITAL CORPORATION
By: /s/ Kim Bushey
--------------------------
Name: Kim Bushey
Title: Vice President
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<PAGE> 7
EXHIBIT A
FOURTH AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$28,000,000.00 New York, New York
as of February 17, 1998
This Fourth Amended and Restated Revolving Credit Note is executed and
delivered under and pursuant to the terms of that certain Loan and Security
Agreement dated June 11, 1993 (as amended by a letter agreement dated January
12, 1995, a letter agreement dated February 24, 1995, a letter agreement dated
September 8, 1995, Waiver and Amendment No. 4 dated July 19, 1996, Amendment
No. 5 dated October 17, 1996, Letter Agreement dated June 25, 1997, Amendment
No. 6 to Loan and Security Agreement dated October 20, 1997 and as same may be
further amended, supplemented or modified from time to time, the "Loan
Agreement") by and between National Record Mart, Inc., a Delaware corporation
having its chief executive office at 507 Forest Avenue, Carnegie, Pennsylvania
15106 and Fleet Capital Corporation (the "Lender"). Capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Loan
Agreement.
FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of
Lender at Lender's offices located at 200 Glastonbury Boulevard, Glastonbury,
Connecticut 06033 or at such other place as the holder may from time to time
designate:
(i) the principal sum of TWENTY EIGHT MILLION AND 00/100 DOLLARS,
($28,000,000.00) or, if different from such amount, the unpaid principal
balance of the Revolving Credit Loan as may be due and owing from time to time
under the Loan Agreement, payable in accordance with the provisions of the
Loan Agreement and subject to acceleration upon the occurrence of an Event of
Default under the Loan Agreement or earlier termination of the Loan Agreement
pursuant to the terms thereof; and
(ii) interest on the principal amount of this Note from time to
time outstanding until such principal amount is paid in full at such interest
rates and at such times as are specified in the Loan Agreement. In no event,
however, shall interest hereunder exceed the maximum interest rate permitted by
law. Upon and after the declaration of an Event of Default, and during the
continuation thereof, interest shall be payable at the Default Rate.
This Note is the Note referred to in the Loan Agreement and is
secured, INTER ALIA, by the Liens granted to Lender in the Collateral pursuant
to the Loan Agreement and the Loan Documents and the various other agreements
related thereof delivered by the Borrower to the Lender, is entitled to the
benefits of the Loan Agreement and the Loan Documents and is subject to all of
the agreements, terms and conditions therein contained.
-7-
<PAGE> 8
This Note may be prepaid, in whole or in part, on the terms and
conditions set forth in the Loan Agreement.
If an Event of Default under Section 11.1(I) of the Loan Agreement
shall occur, then this Note shall immediately become due and payable, without
notice, together with reasonable attorneys' fees if the collection hereof is
placed in the hands of an attorney. If any other Event of Default shall occur
under the Loan Agreement which is not cured within any applicable grace period,
then this Note may, as provided in the Loan Agreement, be declared to be
immediately due and payable, without notice, together with reasonable
attorneys' fees if the collection hereof is placed in the hands of an attorney.
This Note is being delivered in the State of New York, and shall be
construed and enforced in accordance with the laws of such State for contracts
to be fully performed within the State of New York. Any judicial proceeding by
the Borrower against the Lender involving, directly or indirectly, any matter or
claim in any way arising out of, related to or connected with this Amended and
Restated Note or any related agreement, shall be brought only in federal or
state court located in the City of New York, State of New York. Any judicial
proceeding brought against Borrower with respect to any of the Obligations, or
with respect to this Note or any related agreement may be brought in any court
of competent jurisdiction in the City of New York, State of New York, United
States of America, and, by execution and delivery of this Amended and Restated
Note, Borrower accepts, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Note or any related agreement.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the right of the Lender to bring proceedings against the
Borrower in the courts of any other jurisdiction. Borrower waives any objection
to jurisdiction and venue of any action instituted hereunder and shall not
assert any defense based on lack of jurisdiction or venue or based upon FORUM
NON CONVENIENS.
BORROWER EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AMENDED AND RESTATED
NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR (B) IN NAY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE HOLDER AND THE BORROWER HERETO OR ANY OF THEM WITH
RESPECT TO THIS AMENDED AND RESTATED NOTE OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND BORROWER
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT THE HOLDER OR
THE BORROWER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE WAIVER OF THE RIGHT TO
TRIAL BY JURY.
-8-
<PAGE> 9
This Note restates in its entirety and is given in substitution for and in
replacement of (but not in satisfaction of) that certain Third Amended and
Restated Revolving Credit Note dated as of October 20, 1997 from Borrower to
Lender in the original principal amount of $27,500,000.
Borrower expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind except as expressly provided in the Loan
Agreement.
Witness: NATIONAL RECORD MART, INC.
/s/ Janet Salinshick By: /s/ Theresa Carlise
--------------------------
Name: Theresa Carlise
Its: Senior Vice President and
Chief Financial Officer
STATE OF PENNSYLVANIA )
:ss.:
COUNTY OF ALLEGHENY )
On the 12th day of February, 1998, before me personally came Theresa
Carlise, to me known, who being by me duly sworn, did depose and say that she is
the Senior V.P./CFO of National Record Mart, Inc., the corporation described in
and which executed the foregoing instrument, and that she was authorized to sign
her name thereto.
NOTARIAL SEAL /s/ Tina R. Reisdorf
TINA R. REISDORF, Notary Public -----------------------
Pittsburgh, Allegheny County Notary Public
My Commission Expires June 27, 1998
-9-
<PAGE> 1
Exhibit 4.8
AMENDMENT NO. 8
TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 8 ("Amendment No. 8") is entered into as of April
16, 1998, by and between NATIONAL RECORD MART, INC. ("Borrower") and FLEET
CAPITAL CORPORATION ("Lender").
BACKGROUND
Borrower and Lender are parties to a Loan and Security Agreement dated
June 11, 1993 (as same has been or may be further amended, modified, restated or
supplemented from time to time, the "Loan Agreement") pursuant to which Lender
provides Borrower with certain financial accommodations.
Borrower has requested that Lender amend the Loan Agreement to, among
other things, permit Borrower to incur additional Indebtedness and Lender is
willing to do so on the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by Lender,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement.
(a) (i) Section 1.1 of the Loan Agreement is hereby amended by
adding the following definitions in the appropriate alphabetical order:
"Guaranty Security Agreement" - the Security
Agreement dated as of April 16, 1998 issued by NRM Investment,
Inc. to Lender.
"Junior Subordinated Indebtedness" - all principal,
premium, if any, interest and other amounts payable or
chargeable in connection with the Junior Subordinated Lending
Agreements.
<PAGE> 2
"Junior Subordinated Lender" - Robert Fleming Inc.
and each of the other "holders" under and as defined in the
Junior Subordinated Lending Agreements.
"Junior Subordinated Note or Note(s)" - those certain
promissory notes issued by Borrower to the Junior Subordinated
Lender in the aggregate original principal amount of
$7,500,000 each dated April 16, 1998 as further described on
Exhibit A-1 hereto, together with any extensions thereof,
securities issued in exchange therefor or modifications or
amendments thereto.
"Senior Subordinated Lending Agreements" -
collectively the Senior Subordinated Secured Note Purchase
Agreement dated April 16, 1998 between Borrower, Guarantor and
Senior Subordinated Lender, the Senior Subordinated Note and
all promissory notes, agreements, documents, guarantees and
instruments now or at any time hereafter executed and/or
delivered by Borrower, Guarantor or any other Person to, with
or in favor of the Senior Subordinated Lender in connection
therewith or related thereto, as all of the foregoing now
exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced each as from time to
time in effect.
"Senior Subordinated Indebtedness" - all principal,
interest and other amounts payable or chargeable in connection
with the Senior Subordinated Lending Agreements.
"Senior Subordinated Lender" - Robert Fleming Inc.
and each of the other "holders" under and as defined in the
Senior Subordinated Lending Agreements.
"Senior Subordinated Note" - those certain promissory
notes issued by Borrower to Senior Subordinated Lender in the
aggregate original principal amount of $7,500,000 each dated
April 16, 1998 as further described on Exhibit A-2 hereto,
together with any extensions thereof, securities issued in
exchange therefor or modifications or amendments thereto.
"Subordinated Lending Agreements"- collectively, the
Subordinated Note Purchase Agreement dated April 16, 1998
between Borrower, Guarantor and Junior Subordinated Lender,
the Subordinated Note and all promissory notes, agreements,
guarantees, documents and instruments now or at any time
hereafter executed and/or delivered by Borrower, Guarantor or
any other Person to, with or in favor of the Junior
Subordinated Lender in connection therewith or related
thereto, as all of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated
or replaced.
2
<PAGE> 3
(ii) Section 1.1 of the Loan Agreement is hereby further
amended by amending the following definitions in their entirety:
"Guarantor" - NRM Investment, Inc., William A.
Teitelbaum and any other Person who may hereafter guarantee
payment or performance of the whole or any part of the
Obligations.
"Guaranty Agreements" - the Guaranty Security
Agreement, Teitelbaum Guaranty and each Guaranty executed and
delivered to Lender by any Guarantor in form and substance
satisfactory to Lender.
"Subordinated Agreements" - collectively, (i) the
Intercreditor and Subordination Agreement dated the Closing
Date among Borrower, Lender and Pemsen Partners, (ii) the
Intercreditor and Subordination Agreement dated the Closing
Date among Borrower, Lender and RMF Investment, (iii) the
Junior Subordinated Agreement dated as of April 16, 1998 among
Borrower, Lender, Guarantor and Junior Subordinated Lender
("Junior Subordination Agreement") and (iv) the Subordination
Agreement dated as of April 16, 1998 among Borrower, Lender,
Guarantor and Senior Subordinated Lender ("Senior
Subordination Agreement").
"Subordinated Debt" - Indebtedness of Borrower that
is expressly subordinated to the Obligations including,
without limitation, Indebtedness evidenced by the Senior
Subordinated Note, Junior Subordinated Note, Subordinated
Seller Note and the Subordinated Note.
(b) The fourth sentence of Section 8.1(I) of the Loan
Agreement is hereby amended by adding the following at the end thereof:
"except as set forth on Exhibit 8.1(I)(A) attached hereto and
made a part hereof."
(c) A new Exhibit 8.1(I)(A) is hereby added to the Loan
Agreement and shall read as set forth on Exhibit 8.1(I)(A) annexed to this
Amendment No. 8.
(d) Section 8.1(AB) of the Loan Agreement is hereby
amended by adding the following at the end thereof:
"All of the representations and warranties made by Borrower to
Senior Subordinated Lender and Junior Subordinated Lender in
the Senior Subordinated Note and Junior Subordinated Note, as
applicable, and all material agreements and documents related
thereto, are true, accurate and correct."
(e) Section 9.2(C) is hereby amended by deleting the last
sentence thereof in its entirety.
3
<PAGE> 4
(f) Section 9.3(D) of the Loan Agreement is hereby
amended in its entirety to provide as follows:
"(D) Cash Flow. Achieve Cash Flow of not less than
$250,000 at the end of each fiscal quarter with
respect to the four fiscal quarters then ended as of
the last day of such fiscal quarter."
(g) Section 9.2(H) is hereby amended by re-lettering
"(x)" as "(xi)" and inserting a new "(x)" which shall read as follows:
"(x) Liens securing the Senior Subordinated Note, and"
3. Conditions of Effectiveness. This Amendment No. 8 shall become
effective upon satisfaction of the following conditions precedent: Lender shall
have received (a) four (4) copies of this Amendment No. 8 executed by Borrower;
(b) evidence of the authorization by the Board of Directors of (i) Borrower of
the execution of this Amendment No. 8 and (ii) NRM Investment, Inc. of the
execution and delivery of the Guaranty Agreements to which it is a party; (d)
true and correct executed copies of the Junior Subordinated Lending Agreements
and the Senior Subordinated Lending Agreements; (e) four (4) copies of each of
the Junior Subordination Agreement and Senior Subordination Agreement executed
by Borrower, Guarantor and Junior Subordinated Lender and Senior Subordinated
Lender, as the case may be; (f) four (4) copies of the Collateral Sharing and
Agency Agreement executed by Senior Subordinated Lender and Borrower; and (g)
such other certificates, instruments, documents and agreements as may be
required by Lender or its counsel, each of which shall be in form and substance
satisfactory to Lender and its counsel.
4. Representations and Warranties. Borrower hereby represents and
warrants as follows:
(a) This Amendment No. 8 and the Loan Agreement, as
amended hereby, constitute legal, valid and binding obligations of Borrower and
are enforceable against Borrower in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment No. 8,
Borrower hereby reaffirms all covenants, representations and warranties made in
the Loan Agreement to the extent the same are not amended hereby and agree that
all such covenants, representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment No. 8.
(c) Borrower has no defense, counterclaim or offset with
respect to the Loan Agreement.
(d) No Default or Event of Default would exist after
giving effect to this Amendment No. 8.
4
<PAGE> 5
5. Effect on the Loan Agreement.
(a) Upon the effectiveness of this Amendment No. 8, each
reference in the Loan Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import shall mean and be a reference to the Loan
Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan Agreement,
and all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment No. 8 shall not operate as a waiver of any other right, power or
remedy of Lender, nor constitute a waiver of any other provision of the Loan
Agreement, or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.
6. Governing Law. This Amendment No. 8 shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and shall be governed by and construed in accordance with the laws of
the State of New York.
7. Headings. Section headings in this Amendment No. 8 are
included herein for convenience of reference only and shall not constitute a
part of this Amendment No. 8 for any other purpose.
8. Counterparts. This Amendment No. 8 may be executed by the
parties hereto in one or more counterparts, each of which taken together shall
be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment No. 8 has been duly executed as of
the day and year first written above.
NATIONAL RECORD MART, INC.
By: /s/ Theresa Carlise
--------------------------------------
Name: Theresa Carlise
Title: Senior Vice President and Chief
Financial Officer
FLEET CAPITAL CORPORATION
By: /s/ Kim Bushey
--------------------------------------
Name: Kim Bushey
Title: Vice President
5
<PAGE> 1
Exhibit 4.9
EXECUTION COPY
SENIOR SUBORDINATED SECURED NOTE PURCHASE AGREEMENT
DATED AS OF APRIL 16, 1998
AMONG
NATIONAL RECORD MART, INC.,
AS ISSUER
THE GUARANTORS
FROM TIME TO TIME PARTY THERETO,
THE PURCHASERS
FROM TIME TO TIME PARTY THERETO,
AND
ROBERT FLEMING INC.,
AS AGENT
--------------------------
$7,500,000
SENIOR SUBORDINATED SECURED NOTES
DUE 2001
--------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
RECITALS..........................................................................................................1
ARTICLE I
DEFINITIONS AND INTERPRETATION...........................................................................2
Section 1.01. Certain Defined Terms..................................................................2
Section 1.02. Computation of Time Periods...........................................................17
Section 1.03. Accounting Terms......................................................................18
Section 1.04. References to this Agreement..........................................................18
Section 1.05. Miscellaneous Terms...................................................................18
ARTICLE II
THE SECURED NOTES.......................................................................................18
Section 2.01. Sale and Purchase of Secured Notes....................................................18
Section 2.02. Registration of Secured Notes.........................................................18
Section 2.03. Transfer and Exchange of Secured Notes................................................19
Section 2.04. Replacement of Secured Notes..........................................................20
Section 2.05. Payments on Secured Notes.............................................................21
Section 2.06. Mandatory Offers to Repurchase the Secured Notes......................................21
Section 2.07. Call Right............................................................................23
Section 2.08. Purchases of Secured Notes............................................................23
Section 2.09. Tender of Secured Notes to Pay Warrant Exercise Price.................................23
ARTICLE III
GUARANTEE OF SECURED NOTES..............................................................................23
Section 3.01. Agreement of Guaranty.................................................................23
Section 3.02. Guaranty Irrevocable..................................................................24
Section 3.03. Certain Waivers.......................................................................25
Section 3.04. Limitations on Subrogation............................................................25
Section 3.05. Contribution..........................................................................26
Section 3.06. Certain Mergers and Consolidations....................................................27
Section 3.07. Release of Guaranty under Certain Circumstances.......................................27
Section 3.08. Subordination of Certain Indebtedness.................................................27
Section 3.09. Guarantors' Indemnity.................................................................27
Section 3.10. No Duty of Inquiry....................................................................28
Section 3.11. No Duty to Provide Data to Guarantors.................................................28
Section 3.12. Rights Cumulative.....................................................................28
Section 3.13. Continuation of Guaranty..............................................................28
Section 3.14. Continuing Guaranty...................................................................28
</TABLE>
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<TABLE>
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ARTICLE IV
CLOSING.................................................................................................29
Section 4.01. Closing of Purchase and Sale of Secured Notes.........................................29
Section 4.02. Additional Conditions to Closing......................................................29
ARTICLE V
REPRESENTATIONS AND WARRANTIES..........................................................................32
Section 5.01. Representation and Warranties of the Obligors.........................................32
Section 5.02. Representations of the Purchasers.....................................................40
ARTICLE VI
REPORTING AND AFFIRMATIVE COVENANTS.....................................................................41
Section 6.01. Financial and Business Information....................................................41
Section 6.02. Officer's Certificate.................................................................43
Section 6.03. Compliance with Law...................................................................44
Section 6.04. Insurance.............................................................................44
Section 6.05. Maintenance of Properties.............................................................45
Section 6.06. Payment of Taxes and Claims...........................................................45
Section 6.07. Corporate Existence, etc..............................................................45
Section 6.08. Maintenance of Books and Records......................................................46
Section 6.09. Maintenance of Line of Business.......................................................46
Section 6.10. Private Placement Numbers.............................................................46
Section 6.11. Liens.................................................................................46
Section 6.12. Rule 144..............................................................................46
Section 6.13. Use of Proceeds.......................................................................46
Section 6.14. Further Assurances; Security Interests................................................47
Section 6.15. Additional Wholly-Owned Subsidiaries..................................................47
ARTICLE VII
NEGATIVE COVENANTS......................................................................................48
Section 7.01. Limitation on Certain Transactions Between the Issuer and Related Persons.............48
Section 7.02. Merger, Consolidation, etc............................................................48
Section 7.03. Limitation on Asset Sales.............................................................48
Section 7.04. Restricted Payments and Restricted Investments........................................49
Section 7.05. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries..........49
Section 7.06. Limitation on Additional Indebtedness.................................................49
Section 7.07. Limitation on Creation of Liens.......................................................50
Section 7.08. Creation of Subsidiaries; Additional Guarantors.......................................50
Section 7.09. Receivables...........................................................................50
Section 7.10. Bank Accounts.........................................................................50
Section 7.11. Fiscal Year...........................................................................51
Section 7.12. Tax Consolidation.....................................................................51
</TABLE>
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<CAPTION>
<S> <C>
Section 7.13. Restrictions on Sale and Issuance of Capital Stock....................................51
Section 7.14. Limitation on Security Interest Restrictions..........................................51
Section 7.15. Minimum Adjusted Tangible Net Worth...................................................51
Section 7.16. Minimum Cash Flow.....................................................................51
Section 7.17. Amendments to the Fleet Facility......................................................51
Section 7.18. Interest Rate Contract................................................................52
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES..........................................................................52
Section 8.01. Events of Default.....................................................................52
Section 8.02. Remedies on Event of Default, Etc.....................................................55
ARTICLE IX
THE AGENT...............................................................................................57
Section 9.01. Appointment...........................................................................57
Section 9.02. Nature of Duties......................................................................57
Section 9.03. Rights, Exculpation, Etc..............................................................58
Section 9.04. Reliance..............................................................................58
Section 9.05. Indemnification.......................................................................59
Section 9.06. Successor Agents......................................................................59
Section 9.07. Relations Among Holders...............................................................60
Section 9.08. Concerning the Collateral and the Note Documents......................................60
ARTICLE X
MISCELLANEOUS...........................................................................................61
Section 10.01. Expenses, etc...........................................................................61
Section 10.02. Survival of Representations and Warranties; Entire Agreement............................62
Section 10.03. Amendment and Waiver....................................................................62
Section 10.04. Notices.................................................................................63
Section 10.05. Reproduction of Documents...............................................................64
Section 10.06. Confidential Information................................................................65
Section 10.07. Transfers of Secured Notes..............................................................66
Section 10.08. Agent=s Consent.........................................................................66
Section 10.09. Interpretation..........................................................................66
Section 10.10. Successors and Assigns..................................................................66
Section 10.11. Severability............................................................................66
Section 10.12. Construction............................................................................67
Section 10.13. Counterparts............................................................................67
Section 10.14. Governing Law...........................................................................67
Section 10.15. Waiver of Right to Trial by Jury........................................................68
Section 10.16. Indemnification.........................................................................68
Section 10.17. Maximum Rate............................................................................69
</TABLE>
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<PAGE> 5
SENIOR SUBORDINATED SECURED NOTE PURCHASE AGREEMENT
THIS SENIOR SUBORDINATED SECURED NOTE PURCHASE AGREEMENT (as
the same may be amended, supplemented or otherwise modified from time to time,
this "AGREEMENT") is entered into as of April 16, 1998 by and among (i) NATIONAL
RECORD MART, INC., a Delaware corporation (the "ISSUER"), (ii) ROBERT FLEMING
INC., a Delaware corporation, and/or its designees (the "PURCHASER"), (iii)
ROBERT FLEMING INC., a Delaware corporation, ("FLEMING"), in its capacity as
agent for the Holders (as defined below) (in such capacity, the "AGENT"), and
(iv) THE GUARANTORS FROM TIME TO TIME PARTY HERETO.
RECITALS
WHEREAS, the Issuer desires to sell and the Purchaser desires
to purchase in each case on the terms and conditions set forth in this
Agreement, secured notes issued by the Issuer in an aggregate principal amount
of $7,500,000, which notes shall be in substantially the form of EXHIBIT A
attached hereto and made a part hereof (together with any such notes issued in
substitution or replacement therefor pursuant to SECTIONS 2.03 and 2.04,
respectively, of this Agreement, the "SECURED NOTES");
WHEREAS, the Purchasers have required as a condition, among
others, to their purchase of the Secured Notes that each Wholly-Owned Subsidiary
as of the date hereof, and each other Person that becomes a Wholly-Owned
Subsidiary of Issuer after the date of this Agreement (collectively, the
"GUARANTORS") unconditionally guarantee the prompt and complete payment and
performance of the Issuer's obligations under the Secured Notes, this Agreement
and the other Note Documents; and
WHEREAS, to provide assurance for the repayment of the Secured
Notes, the Issuer and the Guarantors will provide or will cause to be provided
to the Agent, for the benefit of the Fleming and the Holders, a security
interest in the Collateral and a pledge of the Pledged Securities pursuant to
the applicable Security Agreement;
WHEREAS, concurrently with the issuance of the Secured Notes,
the Issuer has agreed to issue to the Purchaser warrants to purchase 200,000
shares of the Issuer's common stock (the "WARRANTS") on substantially the terms
set forth in the Warrant Agreement of even date herewith by and among the
Issuer, the Purchaser and the other parties thereto (the "WARRANT AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing and each of
the representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
<PAGE> 6
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. CERTAIN DEFINED TERMS. As used herein, the
following terms have the respective meanings set forth below or set forth in the
Section hereof following such term:
"ACCOUNTS" means all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or acquired by
Borrower or in which Borrower now has or hereafter acquires any interest.
"ADJUSTED NET EARNINGS FROM OPERATIONS" means, with respect to
any fiscal period, the net earnings after provision for income taxes for such
fiscal period of the Obligors, all as reflected on the financial statement of
the Issuer supplied to each Holder pursuant to SECTION 6.01 hereof, but
excluding: (i) any gain or loss arising from the sale or other disposition of
capital assets other than in the ordinary course of business; (ii) any gain
arising from any write-up of assets; (iii) earnings of any Subsidiary accrued
prior to the date it became a Subsidiary; (iv) earnings of any corporation,
substantially all of the assets of which have been acquired in any manner by the
Issuer, realized by such corporation prior to the date of such acquisition; (v)
net earnings of any business entity (other than a Subsidiary) in which Issuer
has an ownership interest unless such net earnings shall have actually been
received by Issuer in the form of cash distributions; (vi) any portion of the
net earnings of any Subsidiary which for any reason is unavailable for payment
of dividends to the Issuer; (vii) the earnings of any Person to which any assets
of Issuer shall have been sold, transferred or disposed of, or into which the
Issuer shall have merged, or been a party to any consolidation or other form of
reorganization, prior to the date of such transaction; (viii) any gain or
non-cash loss arising from the issuance or acquisition of any Securities of the
Issuer; and (ix) any gain or non-cash loss arising from extraordinary items.
"ADJUSTED TANGIBLE ASSETS" means all assets except: (i) any
surplus resulting from any write-up of assets subsequent to March 27, 1993; (ii)
deferred assets, other than prepaid items in the ordinary course such as
insurance and prepaid taxes; (iii) patents, copyrights, trademarks, trade names,
non-compete agreements, franchises and other similar intangibles; (iv) good
will, including any amounts, however designated on a consolidated balance sheet
of a Person and its Subsidiaries, representing the excess of the purchase price
paid for assets or stock over the value assigned thereto on the books of such
Person; (v) Restricted Investments; (vi) unamortized debt discount and expense;
(vii) assets located and notes and receivables due from obligors outside of the
United States of America; and (viii) Accounts, notes and other receivables from
Affiliates or employees.
"ADJUSTED TANGIBLE NET WORTH" means, at any date, a sum equal
to: (i) the net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves) at which the Adjusted
Tangible Assets of a Person would be shown on a balance sheet at such date in
accordance with GAAP, PLUS (ii) the then outstanding principal balance of
Subordinated -2-
<PAGE> 7
Debt, minus (iii) the amount at which such Person's liabilities (other than
capital stock and surplus) would be shown on such balance sheet in accordance
with GAAP, and including as liabilities all reserves for contingencies and
other personal liabilities.
"AFFILIATE" means, at any time, and with respect to any
Person, any other Person that at such time: (i) directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, such Person; (ii) beneficially owns or holds 5% or more of any
class of the Voting Stock of any Obligor; or (iii) 5% or more the Voting Stock
(or in the case of Person which is not a corporation, 5% or more of the Equity
Interest) of such Person is beneficially owned or held by any Obligor. As used
in this definition, "CONTROL" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Remsen Partners, Ltd. and AlarMax Distributors, Inc. shall be
considered Affiliates for purposes of this Agreement.
"AGENT" is defined in the preamble to this Agreement.
"AGREEMENT" is defined in the preamble to this Agreement.
"ASSET SALE" means, with respect to a Person, in one
transaction or a series of related transactions, directly or indirectly (or
having the effect, result or consequence of) (a) any conveyance, sale, lease,
transfer, assignment or other disposition of, any of its property, business or
assets or (b) any issuance sale, assignment, transfer or other disposition of
shares of Capital Stock of a Subsidiary (other than to Issuer or a Wholly Owned
Subsidiary) PROVIDED, HOWEVER, that the Obligors shall not be deemed to have
made an Asset Sale to the extent that: (i) in the ordinary course of business,
any Obligor shall convey, sell, lease, transfer, assign or otherwise dispose of
any asset acquired and held for resale or lease in the ordinary course of
business; (ii) any Obligor shall sell damaged, worn out or other obsolete
property in the ordinary course of business; (iii) any Obligor shall convey,
sell, transfer, assign or otherwise dispose of assets to Issuer or any
Subsidiary, and such assets are subject to the security interest created by the
Security Agreements to which such transferee is a party; or (iv) any Obligor
shall convey, sell, lease, transfer, assign or otherwise dispose of assets or
rights if the aggregate proceeds to the Obligors from all such actions in this
clause do not exceed $150,000 in any transaction or series of related
transactions and the total proceeds from all transactions in any Fiscal Year do
not exceed $300,000. The conveyance, sale, lease, transfer, assignment or other
disposition of all or substantially all of the assets of Issuer and its
Subsidiaries, taken as a whole, shall be governed by the provisions of SECTION
7.02 hereof, as applicable, and shall not constitute an Asset Sale.
"BANKRUPTCY CODE" means Title 11 of the United States Code
(11 U.S.C. sections 101 ET SEQ.).
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<PAGE> 8
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which commercial banks in New York, New York are required or
authorized to be closed.
"CAPITAL EXPENDITURES" means expenditures made and liabilities
incurred for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capital Leases.
"CAPITAL LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock of such Person (if a corporation) or any and all
similar ownership interests in a Person (other than a corporation) whether now
outstanding or issued after the date of this Agreement.
"CASH FLOW" means, for any period, an amount equal to (i)
Adjusted Net Earnings from Operations of the Obligors, PLUS (ii) amounts
attributable to depreciation and amortization which were deducted in determining
Adjusted Net Earnings from Operations for such fiscal period; PLUS (iii) cash
amounts contributed to the equity of the Issuer by non-Obligors during such
fiscal period; PLUS (iv) any subordinated loans or advances made to the Issuer
by non-Obligors during such fiscal period, MINUS (v) any non-financed Capital
Expenditures made during such fiscal period, MINUS (vi) all Distributions paid
during such fiscal period, MINUS (vii) scheduled repayments of principal on
Indebtedness for Money Borrowed other than the Fleet Facility.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events after the date hereof:
(a) a sale, lease, license, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or substantially
all of the assets of Issuer and its Subsidiaries, taken as a whole, to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act);
(b) a sale, lease, license, transfer, conveyance, proxy or
other disposition, in one or a series of related transactions, of all or
substantially all of the total voting power of all issued and outstanding Equity
Interests of the Issuer owned by William Teitelbaum or any of his Affiliates to
any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act), PROVIDED, HOWEVER, that a pledge or grant of security interest shall not,
in and of itself, constitute a disposition for purposes of this CLAUSE (B)
unless a proxy or other transfer of voting control has been granted to the
secured party or the secured party forecloses on such pledge or grant of
security interest;
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<PAGE> 9
(c) the dissolution or liquidation of Issuer or any of its
Subsidiaries, or Issuer or any of its Subsidiaries or its directors or
stockholders shall take any action to dissolve or liquidate Issuer or any of its
Subsidiaries;
(d) the acquisition by any Person or group (within the meaning
of Rule 13d-5 under the Exchange Act, as in effect on the Closing Date) of
beneficial ownership, directly or indirectly, through a purchase, merger,
consolidation or other acquisition transaction of 50% or more of the equity or
total voting power of all issued and outstanding shares of the Equity Interest
(i) of the Issuer entitled to vote generally in the election of directors or
(ii) of the surviving Person (if the Issuer is not the surviving entity in a
merger permitted by SECTION 7.02) entitled to vote in the election of directors,
managers or trustees of such other Person; or
(e) the election or appointment within any consecutive twelve
(12) month period of directors constituting a majority of the board of directors
who were not directors at the beginning of such period, except for changes in
the composition of the board of directors which are effectuated with the
approval, authorization or consent of William Teitelbaum or any of his
Affiliates.
"CLOSING" is defined in SECTION 4.01.
"CLOSING DATE" is defined in SECTION 4.01.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.
"COLLATERAL" means "Collateral" as defined in the Issuer
Security and Pledge Agreement and "Collateral" as defined in the Guarantor
Security and Pledge Agreement.
"COLLATERAL AGENCY AGREEMENT" means that certain Collateral
Sharing and Agency Agreement of even date herewith among the Issuer, the Agent,
Fleet and the Collateral Agent, as the same may be amended, supplemented or
otherwise modified in accordance with the terms thereof.
"COLLATERAL AGENT" means Fleet or any of its successors or
assigns permitted by the Collateral Agency Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means (i) the common shares of the Issuer,
$0.01 par value, as set forth in the certificate of incorporation of the Issuer
and (ii) any securities issued in respect of or exchange for the securities
described in clause (i) pursuant to a stock dividend, stock split,
recapitalization, merger or reclassification.
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<PAGE> 10
"CONFIDENTIAL INFORMATION" is defined in SECTION 10.06.
"CURRENT ASSETS" shall mean at any date the amount at which
all of the current assets of a Person would be properly classified as current
assets on a balance sheet at such date in accordance with GAAP except that
amounts due from Affiliates and Investments in Affiliates shall be excluded
therefrom.
"DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"DEFAULT RATE" means that rate of interest that is 1.4792% per
month.
"DISTRIBUTION" means, in respect of any corporation, means and
includes (i) the payment of any dividends or other distributions on capital
stock of the corporation (except distributions in such stock) and (ii) the
redemption or acquisition of Securities unless made contemporaneously from the
net proceeds of the sale of Securities.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"EQUITY INTEREST" means the legal or beneficial ownership of
all or a portion of the equity of a Person, including but not limited to
preferred or common stock, options, warrants or rights to acquire stock,
interests in a limited liability company, trusts, interests in a general or
limited partnership or interests in other Persons, however denominated.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with any Obligor
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in SECTION 8.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXTRAORDINARY FUNDING" means any disbursement to Issuer or
any Wholly-Owned Subsidiary in connection with the incurrence of Indebtedness or
the procurement of equity financing by such entity except those arising from the
following: (a) the issuance of Indebtedness permitted by
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<PAGE> 11
SECTION 7.06 ; (b) the issuance of stock, or options or warrants to purchase
stock, of the Issuer to any employee, officer or director of the Issuer or the
Guarantors pursuant to Plans or compensation arrangements entered into in the
ordinary course of business and approved by the Board of Directors of the Issuer
or such Guarantor, or payments, contributions or transactions relating to the
purchase or exercise thereof; or (c) the exercise of warrants, on or before
August 5, 1998, to purchase 90,000 shares and 60,000 shares of Common Stock by
Ladenburg, Thalmann & Co. and Advest, respectively, issued in connection with
the Issuer's initial public offering.
"FAIR MARKET VALUE" means, with respect to any asset of the
Issuer or any of its Subsidiaries, the value of the consideration obtainable in
a sale of such asset in the open market, assuming a sale by a willing seller to
a willing purchaser dealing at arm's length and arranged in an orderly manner
over a reasonable period of time, each having reasonable knowledge of the nature
and characteristics of such asset, neither being under any compulsion to act,
determined by the Issuer in good faith, PROVIDED, that if the book value of the
assets being sold is in excess of $100,000 and such sale is not made in the
ordinary course of business of the applicable Person, such determination shall
be evidenced by a resolution of the board of directors of the Issuer.
"FISCAL YEAR" means the fiscal year of the Issuer ending on
the date which is the Saturday in late March or early April of each year that is
consistent for such fiscal year with the 4-5-4 retail method of accounting.
"FLEET" means Fleet Capital Corporation.
"FLEET FACILITY" means that certain Loan and Security
Agreement dated June 11, 1993 between Fleet and the Issuer, as the same has been
heretofore and may be, subject to SECTION 7.17, hereafter amended, supplemented
or modified, for a $28,000,000 revolving credit facility including all
guaranties and security agreements relating thereto.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America, as applied by the
Issuer and its Subsidiaries on a consistent basis.
"GOVERNING DOCUMENTS" means, with respect to any corporation,
limited liability company or partnership (a) the articles/certificate of
incorporation (or the equivalent formation documents) of such corporation or
limited liability company, (b) the partnership agreement executed by the
partners in the partnership, (c) the by-laws (or the equivalent organizational
documents) of the corporation, limited liability company or partnership and (d)
any document setting forth the designation, amount and/or relative rights,
limitations and preferences of any class or series of such corporation's capital
stock or such limited liability company's or partnership's equity or ownership
interests.
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<PAGE> 12
"GOVERNMENTAL AUTHORITY" means (a) the government of (i) the
United States of America or any State or other political subdivision thereof, or
(ii) any jurisdiction in which any Obligor conducts all or any part of its
business, or which asserts jurisdiction over any properties of such Obligor, or
(b) any entity exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, any such government.
"GUARANTOR" and "GUARANTORS" is defined in the recitals to
this Agreement; PROVIDED, HOWEVER, that no Person shall be a Guarantor after
such time as it has been released from its guaranty of the Secured Notes
pursuant to the provisions of this Agreement.
"GUARANTOR SECURITY AND PLEDGE AGREEMENT" means the Guarantor
Security and Pledge Agreement of even date herewith among the Guarantors and the
Agent, as the same may be amended, supplemented or otherwise modified from time
to time.
"GUARANTY OBLIGATION" means, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person: (a) to purchase such indebtedness or obligation or any property
constituting security therefor; (b) to advance or supply funds (i) for the
purchase or payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available funds
for the purchase or payment of such indebtedness or obligation; (c) to lease
properties or to purchase properties or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the ability of any
other Person to make payment of the indebtedness or obligation; or (d) otherwise
to assure the owner of such indebtedness or obligation against loss in respect
thereof. The amount of any Guaranty Obligation shall be deemed to be an amount
equal to the stated or determined amount of any primary obligation in respect of
which such Guaranty Obligation is made (or, if less, the maximum amount of such
primary obligation for which such Person may be liable pursuant to the terms of
the instrument evidencing such Guaranty Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"GUARANTY" means, with respect to any Wholly-Owned Subsidiary
its guaranty of the Secured Notes and all of its obligations thereunder as set
forth in Article III hereof.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
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<PAGE> 13
which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"HIGHEST LAWFUL RATE" means, at any given time during which
any Obligations shall be outstanding hereunder, the maximum nonusurious interest
rate that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Obligations, under the laws of the State of
New York (or the law of any other jurisdiction whose laws may be mandatorily
applicable notwithstanding other provisions of this Agreement and the other Note
Documents), or under applicable federal laws which may presently or hereafter be
in effect and which allow a higher maximum nonusurious interest rate than under
the laws of the State of New York (or such other jurisdiction's) law, in any
case after taking into account, to the extent permitted by applicable law, any
and all relevant payments or charges under this Agreement and any other Note
Documents executed in connection herewith, and any available exemptions,
exceptions and exclusions.
"HOLDER" means, with respect to any Secured Note, the
Purchaser thereof or any assignee of such Purchaser.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication, (a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock; (b) its
liabilities for the deferred purchase price of Property acquired by such Person
(excluding accounts payable arising in the ordinary course of business but
including all liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such Property); (c) all
liabilities appearing on its balance sheet in accordance with GAAP in respect of
Capital Leases; (d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities); (e) all its liabilities in
respect of letters of credit or instruments serving a similar function issued or
accepted for its account by banks and other financial institutions (whether or
not representing obligations for borrowed money); (f) all monetary obligations
or liabilities owed by any Obligor under the Fleet Facility; and (g) any
Guaranty Obligation of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
"INSOLVENCY EVENT" means any of the events described in
paragraphs (h), (j) and (o) of SECTION 8.01.
"INTERCREDITOR AGREEMENTS" means (a) that certain
Subordination Agreement of even date herewith between Fleet and the Agent with
respect to the subordination of obligations evidenced by the Secured Notes, as
the same may be amended, supplemented or otherwise modified in accordance with
the terms thereof, and (b) that certain Junior Subordination Agreement of even
date herewith among Fleet, the Agent and Fleming (in its capacity as agent under
the Subordinated Note Agreement) with respect to the subordination of the
Subordinated Debt, as the same may be
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<PAGE> 14
amended, supplemented, or otherwise modified in accordance with the terms
thereof; and "INTERCREDITOR AGREEMENT" means a reference to either of them, as
applicable.
"INTEREST RATE AGREEMENT" means any interest rate protection
or hedge agreement, including without limitation, interest rate futures,
options, swap, floors and cap agreements.
"INVESTMENT" means, with respect to any Person, (i) any
purchase or other acquisition by that Person of securities, or of a beneficial
interest in securities, issued by any other Person, (ii) any purchase by that
Person of all or substantially all of the assets of a business conducted by
another Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness owed to such Person arising from a sale of
property by such Person other than in the ordinary course of its business;
PROVIDED, HOWEVER, that any cash payments to Fleet required under the Fleet
Facility shall not be deemed to be an Investment. The amount of any Investment
shall be the original cost of such Investment, plus the cost of all additions
thereto less the amount of any return of capital or principal to the extent such
return is in cash with respect to such Investment without any adjustments for
increases or decreases in value or write-ups, write-downs or write-offs with
respect to such Investment.
"ISSUER" is defined in the preamble to this Agreement.
"ISSUER SECURITY AND PLEDGE AGREEMENT" means the Issuer
Security and Pledge Agreement of even date herewith between the Issuer and the
Agent, as the same may be amended, supplemented or otherwise modified from time
to time.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"LINE OF BUSINESS" means the retail sale of prerecorded home
entertainment products, including compact discs, audio cassettes, videos and
related accessories.
"MATERIAL" means material in relation to the business,
operations, financial condition, assets, properties or prospects of the Issuer
and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, financial condition, assets, properties or
prospects of the Issuer and its Subsidiaries taken as a whole, or (b) the
ability of any Obligor to perform its Material obligations under this Agreement,
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<PAGE> 15
the Secured Notes or the other Note Documents, or (c) the validity or
enforceability of this Agreement, the Secured Notes or the other Note Documents.
"MONEY BORROWED" means, as applied to Indebtedness, (i)
Indebtedness for borrowed money; (ii) Indebtedness, whether or not in any such
case the same was for borrowed money, (A) which is represented by notes payable
or drafts accepted that evidence the extension of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments, or (C)
upon which interest charges are customarily paid (other than accounts payable)
or that was issued or assumed as full or partial payment for Property; (iii)
Indebtedness that constitutes a Capital Lease; (iv) Indebtedness for ticket
receipts which the Company receives and is obligated to remit to a promoter; and
(v) Indebtedness under any Guaranty Obligation that would constitute
Indebtedness for Money Borrowed under clauses (i) through (iii) above.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NET CASH PROCEEDS" means, with respect to any Asset Sale or
Extraordinary Funding, the aggregate amount of cash consideration received by
the Issuer or any of its Subsidiaries in connection with such Asset Sale or
Extraordinary Funding after deduction of all reasonable and customary fees,
costs and expenses (including payment of unassumed liabilities relating to such
Asset Sale within thirty (30) days after such Asset Sale and any portion of the
proceeds which the Issuer determines should be reserved for post-closing
adjustments until such post-closing adjustment reserves are no longer reserved)
directly incurred by the Issuer or such Subsidiary in connection therewith.
"NOTE DOCUMENTS" means, collectively, this Agreement, the
Secured Notes, the Warrants, the Warrant Agreement, the Registration Rights
Agreement, the Security Agreements, the Collateral Agency Agreement, the
Intercreditor Agreements and all other documents, agreements, instruments,
opinions and certificates now or hereafter delivered in connection herewith or
therewith.
"OBLIGATIONS" means all present and future obligations and
liabilities of any Obligor arising under or in connection with any Note
Document, due or to become due to any Holder or any other Person entitled to
indemnification pursuant to SECTION 10.16, or (to the extent permitted by the
Note Documents) any of their respective successors, transferees or assigns, and
shall include, without limitation, (i) unpaid principal and interest under the
Secured Notes (including, whether or not allowed, amounts that would become due
but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code or a stay granted under Section 105 of the Bankruptcy Code, and
including interest accruing on or after the occurrence of an Insolvency Event,
whether or not allowed as a claim in any proceeding relating to the Insolvency
Event), (ii) fees, expenses and indemnification and expense reimbursement
obligations arising under any of the Note Documents, and (iii) the obligations
of the Guarantors arising under ARTICLE III of this Agreement.
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<PAGE> 16
"OBLIGOR" means the Issuer or any Guarantor and "OBLIGORS"
means the Issuer and all of the Guarantors.
"OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of any Obligor whose responsibilities
extend to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PERMITTED LIENS" means (i) Liens at any time granted in favor
of the Agent; (ii) Liens for taxes (excluding any Lien imposed pursuant to any
of the provisions of ERISA) not yet due or being contested as permitted by
SECTION 6.06 hereof, but only if in the Agent's judgment such Lien does not
affect adversely Agent's rights or the priority of the Agent's Lien in the
Collateral; (iii) Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons for labor,
materials, supplies, or rentals incurred in the ordinary course of the Obligor's
business, but only if the payment thereof is not at the time required and only
if such Liens are junior to the Liens in favor of the Agent; (iv) Liens
resulting from deposits made in the ordinary course of business in connection
with workmen's compensation, unemployment insurance, social security and other
like laws; (v) attachment, judgment and other similar non-tax Liens arising in
connection with court proceedings, but only if and for so long as the execution
or other enforcement of such Liens is and continues to be effectively stayed and
bonded on appeal in a manner satisfactory to the Agent for the full amount
thereof, the validity and amount of the claims secured thereby are being
actively contested in good faith and by appropriate lawful proceedings and such
Liens do not, in the aggregate, materially detract from the value of the
Property of the Obligor or materially impair the use thereof in the operation of
any Obligor's business; (vi) Purchase Money Liens securing Purchase Money
Indebtedness which is not incurred in violation of SECTION 7.06 of this
Agreement; (vii) reservations, exceptions, easements, rights of way, and other
similar encumbrances affecting real Property, provided that, in Agent's sole
judgment, they do not in the aggregate materially detract from the value of said
Properties or materially interfere with their use in the ordinary conduct of any
Obligor's business; (viii) Liens securing Indebtedness of a Subsidiary to Issuer
or another Subsidiary; (ix) Liens securing the Fleet Facility; (x) any Liens
held by the Collateral Agent; (xi)such other Liens as appear on SCHEDULE
5.01(T)(II); and (xii) such other Liens as Agent may hereafter approve in
writing.
"PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions
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<PAGE> 17
are or, within the preceding five years, have been made or required to be made,
by any Obligor or any ERISA Affiliate or with respect to which any Obligor or
any ERISA Affiliate may have any liability.
"PLEDGED SECURITIES" means all of the issued and outstanding
Equity Interests of the Subsidiaries that are not subject to a Security Interest
Restriction.
"PLEDGORS" means those Obligors identified on SCHEDULE
5.01(f)(ii).
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, choate or inchoate.
"PURCHASE MONEY INDEBTEDNESS" means and includes (i)
Indebtedness for the payment of all or any part of the purchase price of any
fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the
time of or within ten (10) days prior to or after the acquisition of any fixed
assets for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
"PURCHASE MONEY LIEN" means a Lien upon fixed assets which
secures Purchase Money Indebtedness, but only if such Lien shall at all times be
confined solely to the fixed assets the purchase price of which was financed
through the incurrence of the Purchase Money Indebtedness secured by such Lien.
"PURCHASERS" OR "PURCHASER" means collectively, as of the
Closing Date, the Person signatory hereto as Purchaser and, at any other given
time, each Person which is a party hereto as a Purchaser.
"REDEMPTION NOTICE" shall mean the Issuer's written notice to
redeem the Notes pursuant to Section 2.06(a), Section 2.06(b), or Section 2.07,
as applicable, and which shall be delivered to the Investors in accordance with
the notice provisions of Section 10.04 below.
"REDEMPTION PERCENTAGE" means the applicable percentage by
which the Unpaid Principal Amount of Notes is to be multiplied based on the
following schedule:
(i) if a Redemption Notice is given during a
Redemption Period, the Redemption Percentage shall equal:
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<PAGE> 18
<TABLE>
<CAPTION>
------------------------------------- -----------------------------------
REDEMPTION YEAR REDEMPTION PERCENTAGE
------------------------------------- -----------------------------------
<S> <C>
First Redemption Year 103%
------------------------------------- -----------------------------------
Second Redemption Year 102%
------------------------------------- -----------------------------------
Third Redemption Year 101%
------------------------------------- -----------------------------------
</TABLE>
(ii) if a Redemption Notice is given other than
during a Redemption Period, the Redemption Percentage shall
equal:
<TABLE>
<CAPTION>
------------------------------------- -----------------------------------
REDEMPTION YEAR REDEMPTION PERCENTAGE
------------------------------------- -----------------------------------
<S> <C>
First Redemption Year 105%
------------------------------------- -----------------------------------
Second Redemption Year 104%
------------------------------------- -----------------------------------
Third Redemption Year 103%.
------------------------------------- -----------------------------------
</TABLE>
"REDEMPTION PERIOD" shall mean any thirty (30) calendar-day
period beginning the day following any Trading Period if at such time the shares
of Issuer's common stock (the "Common Stock") issuable upon exercise of the
Warrants are registered and available for immediate resale to the public.
"REDEMPTION YEAR" shall mean any one-year period commencing on
the Closing Date or any yearly anniversary thereof and extending to the day
before the next subsequent anniversary. By way of example, the second Redemption
Year shall be the one-year period commencing on a date twelve (12) months from
the Closing Date.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement of even date herewith between the Issuer and the Purchasers, as the
same may be amended, supplemented or otherwise modified from time to time.
"RELATED PERSON" means any Affiliate of the Issuer or any
officer, employee, director of the Issuer or any Affiliate or any stockholder
beneficially owning more than 5% of the equity of the Issuer or any "member of
the immediate family" of any of the foregoing (as such term is defined in Item
404 of Regulation S-K).
"REQUIRED HOLDERS" means, at any time, the Holders of more
than fifty percent in principal amount of the Secured Notes at the time
outstanding (exclusive of Secured Notes then owned by the Issuer or any of its
Related Persons).
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<PAGE> 19
"REQUIREMENT OF LAW" means (a) the Governing Documents of a
Person, (b) any law, treaty, rule, regulation, order or determination of an
arbitrator, court or other Governmental Authority or (c) any franchise, license,
lease, permit, certificate, authorization, qualification, easement, right of
way, right or approval binding on a Person or any of its property.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of any Obligor with responsibility for the administration of
the relevant portion of this Agreement or any Note Document.
"RESTRICTED INVESTMENT" means any Investment in cash or by
delivery of Property to any Person, whether by the acquisition of stock,
Indebtedness or other obligation or security, or by loan, advance or capital
contribution, or otherwise, or in any Property except the following: (i)
Investments in one or more Subsidiaries of the Issuer; (ii) Property to be used
in the ordinary course of business; (iii) Current Assets arising from the sale
of goods and services in the ordinary course of business of the Obligors; (iv)
Investments in direct obligations of the United States of America, or any agency
thereof or obligations guaranteed by the United States of America, provided that
such obligations mature within one year from the date of acquisition thereof;
(v) Investments in certificates of deposit maturing within one year from the
date of acquisition issued by a bank or trust company organized under the laws
of the United States or any state thereof having capital surplus and undivided
profits aggregating at least $100,000,000; and (vi) Investments in commercial
paper given the highest rating by a national credit rating agency and maturing
not more than two hundred and seventy (270) days from the creation thereof.
"SECURED NOTES" is defined in the recitals to this Agreement.
"SECURITIES" means the Secured Notes, the Warrants and the
Common Stock of the Issuer issuable upon exercise of the Warrants.
"SECURITIES ACT" means the Securities Act of 1933.
"SECURITY AGREEMENTS" means (a) the Issuer Security and Pledge
Agreement, (b) the Guarantor Security and Pledge Agreement, (c) the Collateral
Agency Agreement and (d) Trademark Security Agreement.
"SECURITY INTEREST RESTRICTION" means, as applicable,
"Security Interest Restriction" as defined in the Issuer Security and Pledge
Agreement or "Security Interest Restriction" as defined in the Guarantor
Security and Pledge Agreement.
"SECURITY PROPERTY" means with respect to the Issuer,
"Security Property" as defined in the Issuer Security and Pledge Agreement, and
with respect to each Guarantor, "Security Property" as defined in the Guarantor
Security and Pledge Agreement.
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<PAGE> 20
"SENECA" means Seneca Capital L.P.
"SENIOR DEBT" means, without duplication, (i) the principal of
and interest on (including, whether or not allowed, amounts that would become
due but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code or a stay granted under Section 105 of the Bankruptcy Code, and
including interest accruing on or after the occurrence of an Insolvency Event,
whether or not allowed as a claim in any proceeding relating to the Insolvency
Event) and all other amounts owing with respect to all Indebtedness under the
Fleet Facility, (ii) guarantees by the Issuer of Indebtedness under, or the
joint and several obligations of the Issuer of any Indebtedness under, the Fleet
Facility and the obligation to pay fees, expenses and other amounts due to the
lenders thereunder.
"SENIOR FINANCIAL OFFICER" means, with respect to any Obligor,
the chief financial officer, principal accounting officer, treasurer or
comptroller of such Obligor.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock
of the Issuer, as authorized in the Issuer's certificate of incorporation.
"SUBORDINATED DEBT" means, without duplication, (i) the
principal of and interest on (including, whether or not allowed, amounts that
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code or a stay granted under Section 105 of the
Bankruptcy Code, and including interest accruing on or after the occurrence of
an Insolvency Event, whether or not allowed as a claim in any proceeding
relating to the Insolvency Event) and all other amounts owing with respect to
all Indebtedness under the Subordinated Note Agreement, (ii) guarantees by the
Issuer of Indebtedness under, or the joint and several obligations of the Issuer
of any Indebtedness under, the Subordinated Note Agreement and the obligation to
pay fees, expenses and other amounts due to the lenders thereunder and, whether
or not allowed by law, interest accruing thereunder after the filing of a
petition initiating any proceedings pursuant to or under any Bankruptcy Law, and
any guarantees by the Issuer of any Indebtedness or other obligations of any
Subsidiary that is a party to the Subordinated Note Agreement and the obligation
to pay fees, expenses and other amounts due thereunder.
"SUBORDINATED NOTE AGREEMENT" means that certain Senior
Subordinated Note Purchase Agreement of even date herewith by and among the
Issuer, Guarantor, Fleming and Seneca (Fleming and Seneca being, collectively,
the "Unsecured Holders") pursuant to which Issuer sold to Unsecured Holders
unsecured notes in the principal amount of $7,500,000, as the same may be
amended, supplemented or otherwise modified in accordance with the terms hereof
and thereof.
"SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in
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<PAGE> 21
the absence of contingencies, to control or elect a majority of the directors
(or Persons performing similar functions) of such entity, and any partnership,
trust, limited liability company or joint venture if more than a 50% interest in
the profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries. Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Issuer.
"THRESHOLD PRICE" shall equal (i) during the first Redemption
Year: $6.00 per share of Common Stock; (ii) during the second Redemption Year:
$7.00 per share of Common Stock; and (iii) during the third Redemption Year:
$8.00 per share of Common Stock, with appropriate adjustments for stock splits,
dividends, reverse splits and similar events.
"TRADING PERIOD" shall mean any consecutive twenty (20)
trading days during which the Common Stock is actually traded on its principal
exchange as reported by such exchange and during which period the average
closing price of the Common Stock as reported by the principal exchange or
market on which such Common Stock is traded is equal to or in excess of the
Threshold Price. Should a Trading Period straddle a Redemption Year, the
Threshold Price shall be appropriately weighted and adjusted.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York on the date of execution of this Agreement.
"UNPAID PRINCIPAL AMOUNT" means, as to the Secured Notes in
the aggregate, $7,500,000 less the aggregate amount of all payments of principal
made by the Issuer on the Secured Notes (excluding payments made as premium and
payments made as interest). The Unpaid Principal Amount of each Secured Note
shall be similarly defined.
"VOTING STOCK" means securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
persons performing similar functions).
"WARRANT AGREEMENT" is defined in the recitals to this
Agreement.
"WARRANTS" is defined in the Recitals to this Agreement.
"WHOLLY-OWNED SUBSIDIARY" means NRM Investments, Inc. and any
other Subsidiary with respect to which one hundred percent (100%) of all of the
equity interests (except directors' qualifying shares) and voting interests are
owned by any one or more of the Issuer and the Issuer's other Wholly-Owned
Subsidiaries at such time.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement,
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and
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<PAGE> 22
including" and the words "to" and "until" each mean "to but excluding". Periods
of days referred to in this Agreement shall be counted in calendar days unless
Business Days are expressly prescribed. Any period determined hereunder by
reference to a month or months or year or years shall end on the day in the
relevant calendar month in the relevant year, if applicable, immediately
preceding the date numerically corresponding to the first day of such period,
PROVIDED, that if such period commences on the last day of a calendar month (or
on a day for which there is no numerically corresponding day in the calendar
month during which such period is to end), such period shall, unless otherwise
expressly required by the other provisions of this Agreement, end on the last
day of the calendar month.
SECTION 1.03. ACCOUNTING TERMS. For purposes of this
Agreement, all accounting terms not otherwise defined herein shall have the
meanings assigned to them in conformity with GAAP.
SECTION 1.04. REFERENCES TO THIS AGREEMENT. The words
"hereof", "herein", "hereunder" and similar terms when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and article, section, subsection, clause, schedule and exhibit
references herein are references to articles, sections, subsections, clauses,
schedules and exhibits to this Agreement unless otherwise specified.
SECTION 1.05. MISCELLANEOUS TERMS. All terms defined in this
Agreement in the singular shall have comparable meanings when used in the
plural, and VICE VERSA, unless otherwise specified. The term "including" is by
way of example and not limitation. A Default or an Event of Default shall
"continue" or be "continuing" until such Default or Event of Default has been
waived in accordance with SECTION 10.03 or, subject to SECTION 6.01(H), cured
within ten (10) Business Days from the date of Default or the Event of Default.
A reference to a statute, ordinance, code or other Requirement of Law includes
rules, regulations or guidance promulgated thereunder and consolidations,
amendments, re-enactments or replacements of, or successors to, any of them. A
reference to a Person includes a reference to the Person's executors,
administrators, successors, substitutes and assigns.
ARTICLE II
THE SECURED NOTES
SECTION 2.01. SALE AND PURCHASE OF SECURED NOTES. Subject to
the terms and conditions of this Agreement, the Issuer will issue and sell to
the Purchasers and the Purchasers will purchase from the Issuer, at the Closing
provided for in SECTION 4.01, Secured Notes in the principal amount of
$7,500,000.
SECTION 2.02. REGISTRATION OF SECURED NOTES. The Issuer hereby
acknowledges and makes the Secured Notes a registered obligation for United
States withholding tax purposes. The
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Issuer shall be the registrar for the Secured Notes (the "REGISTRAR") with full
power of substitution. In the event the Registrar becomes unable or unwilling to
act as registrar under this Agreement, the Issuer shall reasonably designate a
successor Registrar. Each Holder who is a foreign person, by its acceptance of
its Secured Note(s), hereby agrees to provide the Issuer with a completed
Internal Revenue Service Form W-8 (Certificate of Foreign Status) or a
substantially similar form for such Holder, participants or other affiliates who
are holders of beneficial interests in the Secured Notes. Notwithstanding any
contrary provision contained in this Agreement or any of the other Note
Documents, neither the Secured Notes nor any interests therein may be sold,
transferred, hypothecated, participated or assigned to any Person except upon
satisfaction of the conditions specified in this SECTION 2.02. Each Holder, by
its acceptance of its Secured Note(s), agrees to be bound by the provisions of
this SECTION 2.02 and to indemnify and hold harmless the Registrar against any
and all loss or liability arising from the disposition by such Holder of the
Secured Notes or any interest therein in violation of this SECTION 2.02. The
Registrar shall keep at its principal executive office (or an office or agency
designated by it by notice to the last registered Holder) a ledger, in which,
subject to such reasonable regulations as it may prescribe, but at its expense
(except as specified below), it shall provide for the registration and transfer
of the Secured Notes. No sale, transfer, hypothecation, participation or
assignment of any Secured Note or any interest therein shall be effective for
any purpose until it shall be registered on the books of the Registrar to be
maintained for such purpose. In the event of a sale, transfer, hypothecation,
participation or assignment of any Secured Note or any interest therein, the
Holder of such Secured Note prior to such sale, transfer, hypothecation,
participation or assignment of such Secured Note or any interest therein shall
provide Issuer with notice of such transaction at the time of such transaction.
The Registrar shall record the transfer of the Secured Notes on the books
maintained for this purpose upon receipt by the Registrar at the office or
agency designated by the Registrar of (a) a written assignment of the Secured
Note(s) being assigned (or the applicable interest therein), (b) funds
sufficient to pay any transfer taxes payable upon the making of such transfer as
well as the cost of reviewing the documents presented to the Registrar, and (c)
such evidence of due execution as the Registrar shall reasonably require. The
Registrar shall record the transfer of the Secured Notes on the books maintained
for such purpose at the cost and expense of the assignee.
SECTION 2.03. TRANSFER AND EXCHANGE OF SECURED NOTES.
(a) The Holders understand and agree that the Secured Notes
have not been registered under the Securities Act or the securities laws of any
state, and that they may be sold or otherwise disposed of only in one or more
transactions registered under the Securities Act or, where applicable, pursuant
to an exemption from the registration requirements of the Securities Act and,
where applicable, the securities laws of any state. The Holders understand and
agree that each Secured Note or certificate representing the Secured Notes shall
bear the following legends:
THIS SECURED NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF
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EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH
LAWS
(b) Subject to the requirements of clause (a) above, upon
surrender of any Secured Note at the principal executive office of the Issuer
for registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer reasonably acceptable to the Issuer, duly executed by the registered
Holder of such Secured Note or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Secured Note
or part thereof), the Issuer shall execute and deliver, at the Issuer's expense
(except as provided below), one or more new Secured Notes (as requested by the
Holder thereof) in exchange therefor, in an aggregate principal amount equal to
the Unpaid Principal Amount of the surrendered Secured Note. Each such new
Secured Note shall be payable to such Person as such Holder may request and
shall be substantially in the form of EXHIBIT A. Each such new Secured Note
shall be dated and bear interest from the date to which interest shall have been
paid on the surrendered Secured Note or dated the date of the surrendered
Secured Note if no interest shall have been paid thereon. The Issuer may require
payment of a sum sufficient to cover any stamp tax or governmental charge
imposed in respect of any such transfer of Secured Notes. Secured Notes shall
not be transferred in denominations of less than $10,000, PROVIDED that if
necessary to enable the registration of transfer by a Holder of its entire
holding of Secured Notes, one Secured Note may be in a denomination of less than
$10,000. Any Holder, by its acceptance of a Secured Note registered in its name
(or the name of its nominee), shall be deemed to have made the representation
set forth in SECTION 5.02 (other than SECTION 5.02(D)) to the extent applicable.
SECTION 2.04. REPLACEMENT OF SECURED NOTES. Upon receipt by
the Issuer of notice from any Holder of the ownership of and the loss, theft,
destruction or mutilation of any Secured Note held by such Holder, and
(a) in the case of loss, theft or destruction, a lost note
indemnity agreement reasonably satisfactory to the Issuer and the Holder, or
(b) in the case of mutilation, upon surrender and cancellation
thereof and, to the extent reasonably necessary, a lost note indemnity agreement
reasonably satisfactory to the Issuer and the Holder,
the Issuer at its own expense shall execute and deliver, in lieu thereof, a new
Secured Note, dated and bearing interest from the date to which interest shall
have been paid on such lost, stolen, destroyed or mutilated Secured Note or
dated the date of such lost, stolen, destroyed or mutilated Secured Note if no
interest shall have been paid thereon.
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SECTION 2.05. PAYMENTS ON SECURED NOTES.
(a) PLACE OF PAYMENT; SURRENDER. Payments of principal,
interest and other amounts becoming due and payable on the Secured Notes or
under the Note Documents shall be made by the method and to the address or
account specified with respect to any Holder by such method and at such address
or account as such Holder shall have from time to time specified to each Obligor
in writing for such purpose, without the presentation or surrender of such
Secured Note or the making of any notation thereon, except that upon written
request of any Obligor made concurrently with or promptly after payment or
prepayment in full of any Secured Note, the Holder of such Secured Note shall
surrender it for cancellation, reasonably promptly after any such request, to
the Obligors at the Issuer's principal executive office. Prior to any sale or
other disposition of any Secured Note by any Holder or its nominee, such Holder
will, at its election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Secured Note to the Issuer in exchange for a new Secured Note or Secured
Notes pursuant to SECTION 2.03.
(b) PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Secured Notes to the contrary notwithstanding, any payment of
principal of or interest on any Secured Note that is due on a date other than a
Business Day shall be made on the next succeeding Business Day without including
the additional days elapsed in the computation of the interest payable on such
next succeeding Business Day.
SECTION 2.06. MANDATORY OFFERS TO REPURCHASE THE SECURED
NOTES.
(a) OFFER TO PREPAY SECURED NOTES UPON A CHANGE OF CONTROL.
Promptly and in any event within five Business Days after the occurrence of any
Change of Control, the Issuer shall give written notice of such transaction or
event to each Holder, which notice shall state the date of such Change of
Control, shall describe such Change of Control in reasonable detail and shall
contain an offer to prepay all Secured Notes at the price specified below on the
date therein specified (the "CHANGE OF CONTROL PREPAYMENT DATE"), which shall be
a Business Day not less than 20 nor more than 30 days after the date of such
notice. Each Holder shall have the option to sell to the Issuer, and the Issuer
hereby agrees to repurchase as provided herein, any or all of the Secured Notes
then owned by such Holder, at a purchase price equal to the Redemption
Percentage of the Unpaid Principal Amount of Secured Notes, together with the
accrued interest thereon to and including the Change of Control Prepayment Date.
Such option may be exercised by each Holder by written notice to the Issuer
given not later than 10 days prior to the Change of Control Prepayment Date,
specifying the aggregate principal amount of Secured Notes which such Holder
intends to sell to the Issuer. On or before the Change of Control Prepayment
Date, each Holder which has accepted the Issuer's offer to repurchase the
Secured Notes shall deliver to the Issuer the Secured Notes to be repurchased
hereunder on such date against payment by the Issuer in full in immediately
available funds of the purchase price therefor specified herein; PROVIDED that,
notwithstanding its exercise of the option herein provided, any such Holder may
at any time prior to the Change of Control Prepayment Date
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waive in whole or in part, by written notice to the Issuer, its right to sell to
the Issuer the Secured Notes to be repurchased on such Change of Control
Prepayment Date.
(b) OFFER TO PREPAY SECURED NOTES UPON AN ASSET SALE OR OTHER
EXTRAORDINARY FUNDING. Promptly and in any event within five Business Days after
the occurrence of any Asset Sale or Extraordinary Funding, the Issuer shall give
written notice of such transaction or event to each Holder, which notice shall
state the date of such Asset Sale or Extraordinary Funding, shall describe such
Asset Sale or Extraordinary Funding in reasonable detail and shall contain an
offer to prepay on the date therein specified such of the Secured Notes as may
be purchased with all of the Net Cash Proceeds of such Asset Sale or
Extraordinary Funding (a "SECTION 2.06(B) OFFER"); PROVIDED, HOWEVER, that to
the extent that a Section 2.06(b) Offer is prohibited by the Fleet Facility, (i)
the Issuer shall, prior to the consummation of the related Asset Sale or
Extraordinary Funding, request that Fleet consent to the making of such Section
2.06 (b) Offer, (ii) if Fleet consents to the making of such Section 2.06(b)
Offer, the Issuer shall comply with this SECTION 2.06(B) and (iii) if Fleet does
not consent to the making of such Section 2.06(b) Offer, the Issuer shall not be
required to comply with this SECTION 2.06(B) solely with respect to the related
Asset Sale or Extraordinary Funding. Fleet's refusal to consent to the making of
any Section 2.06(b) Offer shall not relieve the Issuer from its obligation to
request Fleet's consent to the making of any subsequent offer which, but for the
prohibitions in the Fleet Facility, would be required to be made hereunder. The
date of the purchase (the "SECTION 2.06(B) PURCHASE DATE") shall be no sooner
than 20 nor later than 30 days after the Asset Sale or Extraordinary Funding, as
applicable. The purchase price shall equal the Redemption Percentage of the
Unpaid Principal Amount of the Secured Notes to be purchased, together with
accrued interest thereon to and including the Section 2.06(b) Purchase Date, as
may be purchased with such Net Cash Proceeds. Each Holder shall have the option
to sell to the Issuer, and the Issuer hereby agrees to repurchase as provided
herein, such of the Secured Notes then owned by such Holder as may be purchased
on the terms described herein.
Such option may be exercised by each Holder by written
notice to the Issuer given not later than 10 days prior to the SECTION 2.06(B)
Purchase Date, specifying the aggregate principal amount of Secured Notes which
such Holder intends to sell to the Issuer. On or before the Asset Sale Purchase
Date, each Holder which has accepted the Issuer's offer to repurchase the
Secured Notes shall deliver to the Issuer the Secured Notes to be repurchased
hereunder on such date against payment by the Issuer in full in immediately
available funds of the purchase price therefor specified herein; PROVIDED that,
notwithstanding its exercise of the option herein provided, any such holder may
at any time prior to the SECTION 2.06(B) Purchase Date waive in whole or in
part, by written notice to the Issuer, its right to sell to the Issuer the
Secured Notes to be repurchased. On the SECTION 2.06(B) Purchase Date the Issuer
shall pay to each such Holder in full in immediately available funds the
purchase price for such holder's Secured Notes specified herein. Promptly
following the SECTION 2.06(B) Purchase Date, the Issuer shall deliver to each
Holder electing to accept the SECTION 2.06(B) Offer a new Secured Note equal in
principal amount to any unpurchased portion of the Secured Note surrendered by
such Holder. To the extent the SECTION 2.06(B) Offer is not fully subscribed to
by holders of the Secured Notes, first such tendered Secured Notes shall be paid
for in full to the extent
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possible with the available Net Cash Proceeds and then any remaining Net Cash
Proceeds may be retained by the Issuer or Subsidiary.
(c) ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each
partial prepayment of the Secured Notes under SECTION 2.06(B), the principal
amount of the Secured Notes to be prepaid shall be allocated among all of the
Secured Notes at the time outstanding in proportion, as nearly as practicable,
to the respective Unpaid Principal Amounts of each Holder thereof not
theretofore called for prepayment, with adjustments, to the extent practicable,
to compensate for any prior payments not made exactly in such proportion, but so
that Secured Notes remaining outstanding after the prepayment are in the
authorized denominations specified in this Agreement.
SECTION 2.07. CALL RIGHT. The Issuer shall have the right to
redeem all, but not less than all, of the Secured Notes at the then applicable
Redemption Percentage times the Unpaid Principal Amount of the Secured Notes,
plus accrued interest, with such redemption to be completed within fifteen (15)
Business Days after the Redemption Notice is given.
SECTION 2.08. PURCHASES OF SECURED NOTES. No Obligor will and
will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire,
directly or indirectly, any of the outstanding Secured Notes except upon the
payment or prepayment of the Secured Notes in accordance with the terms of this
Agreement and the Secured Notes (including any offer to purchase the Secured
Notes pursuant to SECTIONS 2.06 or exercise of a call right pursuant to SECTION
2.07). Each Obligor will promptly cancel all Secured Notes acquired by it or any
Affiliate pursuant to any payment, prepayment or purchase of Secured Notes
pursuant to any provision of this Agreement or otherwise and no Secured Notes
may be issued in substitution or exchange for any such Secured Notes (except to
the limited extent set forth in SECTION 2.06).
SECTION 2.09. TENDER OF SECURED NOTES TO PAY WARRANT EXERCISE
PRICE. Each of the Obligors agrees that the Secured Notes may be used, and
credited at the principal amount thereof (or portion surrendered for this
purpose) together with accrued interest to the date of exercise, by the Holders
in making payment of the exercise price of the Warrants in lieu of cash.
ARTICLE III
GUARANTEE OF SECURED NOTES
SECTION 3.01. AGREEMENT OF GUARANTY. In order to induce the
Purchasers to purchase the Secured Notes, the Guarantors hereby jointly and
severally irrevocably and unconditionally guarantee as primary obligors and not
merely as sureties, the due and punctual payment in full of all Obligations when
the same shall become due, whether at stated maturity, by acceleration, demand
or otherwise (including, whether or not allowed, amounts that would become due
but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code or a
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stay granted under Section 105 of the Bankruptcy Code, and including interest
accruing on and after the occurrence of an Insolvency Event, whether or not
allowed as a claim in any such proceeding relating to the Insolvency Event). The
term "Obligations" is used herein in its most comprehensive sense and includes
any and all obligations of Issuer now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or not
due, and however arising under or in connection with any Secured Note.
SECTION 3.02. GUARANTY IRREVOCABLE. Each Guarantor agrees
that its obligations hereunder are irrevocable, absolute, independent and
unconditional and to the maximum extent permitted by applicable law, shall not
be affected by any circumstance which constitutes a legal or equitable discharge
of a guarantor or surety other than payment in full of the Obligations. In
furtherance of the foregoing and without limiting the generality thereof, each
Guarantor agrees to the maximum extent permitted by applicable law, as follows:
(a) this Guaranty is a guaranty of payment when due and not of collectibility;
(b) the Holders of Secured Notes may from time to time, without notice or demand
and without affecting the validity or enforceability of this Guaranty or giving
rise to any limitation, impairment or discharge of any Guarantor's liability
hereunder, (i) renew, extend, accelerate or otherwise change the time, place,
manner or terms of payment of the Obligations, (ii) settle, compromise, release
or discharge, or accept or refuse any offer of performance with respect to, or
substitutions for, the Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other obligations,
(iii) request and accept other guaranties of the Obligations and take and hold
security for the payment of this Guaranty or the Obligations, (iv) release,
exchange, compromise, subordinate or modify, with or without consideration, any
security for payment of the Obligations, any other guaranties of the
Obligations, or any other obligation of any Person (including any other
Guarantor) with respect to the Obligations, (v) enforce and apply any security
now or hereafter held by or for the benefit of the Holders of Secured Notes in
respect of this Guaranty or the Obligations and direct the order or manner of
sale thereof, or exercise any other right or remedy that the Holders of the
Secured Notes may have against any such security, as the Holders of the Secured
Notes in their discretion may determine consistent with any applicable security
agreement, including foreclosure on any such security pursuant to one or more
judicial or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable, and (vi) exercise any other rights available to any of
them under any of the Note Documents, at law or in equity; and (c) this Guaranty
and the obligations of Guarantors hereunder shall be valid and enforceable and
shall not be subject to any limitation, impairment or discharge for any reason
(other than payment in full of the Obligations), including without limitation
the occurrence of any of the following, whether or not any Guarantor shall have
had notice or knowledge of any of them: (i) any failure to assert or enforce or
agreement not to assert or enforce, or the stay or enjoining, by order of court,
by operation of law or otherwise, of the exercise or enforcement of, any claim
or demand or any right, power or remedy with respect to the Obligations or any
agreement relating thereto, or with respect to any other guaranty of or security
for the payment of the Obligations, (ii) any waiver, amendment or modification
of, or any consent to departure from, any of the terms or provisions (including
without limitation provisions relating to events of default) of any of the Note
Documents or any agreement or instrument executed pursuant thereto, or of any
other guaranty or security for
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the Obligations, (iii) the Obligations, or any agreement relating thereto, at
any time being found to be illegal, invalid or unenforceable in any respect,
(iv) the application of payments received from any source to the payment of
indebtedness other than the Obligations, even though the Holders of the Secured
Notes might have elected to apply such payment to any part or all of the
Obligations, (v) any failure to perfect or continue perfection of a security
interest in any collateral which secures any of the Obligations, (vi) any
defenses, set-offs or counterclaims which any Obligor may allege or assert
against any Holder of Secured Notes in respect of the Obligations, including but
not limited to failure of consideration, breach of warranty, payment, statute of
frauds, statute of limitations, accord and satisfaction and usury, and (vii) any
other act or thing or omission, or delay to do any other act or thing, which may
or might in any manner or to any extent vary the risk of any Guarantor as an
obligor in respect of the Obligations.
SECTION 3.03. CERTAIN WAIVERS. Each Guarantor hereby waives
to the maximum extent permitted by applicable law, for the benefit of the
Holders: (a) any right to require the Holders, as a condition of payment or
performance by such Guarantor, to (i) proceed against the Issuer, any other
guarantor (including any other Guarantor) of the Obligations or any other
Person, (ii) proceed against or exhaust any security held from the Issuer, any
other guarantor (including any other Guarantor) of the Obligations or any other
Person, (iii) proceed against or have resort to any balance of any deposit
account or credit on the books of any of the Holders in favor of the Issuer or
any other Person, or (iv) pursue any other remedy in the power of the Holders
whatsoever; (b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of the Issuer including, without
limitation, any defense based on or arising out of the lack of validity or the
unenforceability of the Obligations or any agreement or instrument relating
thereto or by reason of the cessation of the liability of the Issuer from any
cause other than payment in full of the Obligations; (c) any defense based upon
any statute or rule of law which provides that the obligation of a surety must
be neither larger in amount nor in other respects more burdensome than that of
the principal; (d) any defense based upon the Holders' errors or omissions in
the administration of the Obligations, except behavior which amounts to bad
faith; (e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty and any legal
or equitable discharge of such Guarantor's obligations hereunder, (ii) the
benefit of any statute of limitations affecting such Guarantor's liability
hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments
and counterclaims, and (iv) promptness, diligence and any requirement that the
Holders protect, secure, perfect or insure any security interest or lien or any
property subject thereto; (f) notices, demands, presentments, protests, notices
of protest, notices of dishonor and notices of any action or inaction, including
acceptance of this Guaranty, notices of default under this Agreement or the
Secured Notes or any agreement or instrument related thereto, notices of any
renewal, extension or modification of the Obligations or any agreement related
thereto, notices of any extension of credit to the Issuer and notices of any of
the matters referred to in the preceding paragraph and any right to consent to
any thereof; and (g) any defenses or benefits that may be derived from or
afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms of this Guaranty.
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SECTION 3.04. LIMITATIONS ON SUBROGATION. Until the
Obligations shall have been paid in full, each Guarantor shall withhold exercise
of (a) any claim, right or remedy, direct or indirect, that such Guarantor now
has or may hereafter have against the Issuer or any of its assets in connection
with this Guaranty or the performance by such Guarantor of its obligations
hereunder, in each case whether such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise and including without
limitation (i) any right of subrogation, reimbursement or indemnification that
such Guarantor now has or may hereafter have against the Issuer, (ii) any right
to enforce, or to participate in, any claim, right or remedy that any Holder of
Secured Notes now has or may hereafter have against the Issuer, and (iii) any
benefit of, and any right to participate in, any collateral or security now or
hereafter held by or for the benefit of the Holders of Secured Notes, and (b)
any right of contribution such Guarantor may have against any other guarantor
(including any other Guarantor) of any of the Obligations. Each Guarantor
further agrees that, to the extent the agreement to withhold the exercise of its
rights of subrogation, reimbursement, indemnification and contribution as set
forth herein is found by a court of competent jurisdiction to be void or
voidable for any reason, any rights of subrogation, reimbursement or
indemnification such Guarantor may have against the Issuer or against any
collateral or security, and any rights of contribution such Guarantor may have
against any such other guarantor, shall be junior and subordinate to any rights
the Holders of Secured Notes may have against the Issuer, to all right, title
and interest the Holders of Secured Notes may have in any such collateral or
security, and to any right the Holders of Secured Notes may have against such
other guarantor.
SECTION 3.05. CONTRIBUTION. The Guarantors together desire to
allocate among themselves in a fair and equitable manner their Obligations
arising under this Guaranty. Accordingly, in the event any Guarantor shall,
pursuant to the terms of this Guaranty, make a payment (a "GUARANTOR PAYMENT")
of all or any portion of the Obligations which, taking into account all other
Guarantor Payments then previously or concurrently made by any of the other
Guarantors, exceeds the amount which such Guarantor would otherwise have paid if
each Guarantor had paid its proportionate share (as defined below) of the
aggregate Obligations satisfied by such Guarantor Payment, such Guarantor shall
be entitled to contribution and indemnification from each of the other
Guarantors, and each of the other Guarantors hereby agrees to reimburse such
Guarantor, in an amount equal to such other Guarantor's respective Proportionate
Share of such Guarantor Payment. "PROPORTIONATE SHARE" of any Guarantor means,
as of any date of determination, the percentage obtained by dividing (i) such
Guarantor's Allocable Amount (as defined below) in effect immediately prior to
the making of any Guarantor Payment by (ii) the aggregate Allocable Amounts of
all of the Guarantors in effect immediately prior to the making of such
Guarantor Payment. "ALLOCABLE AMOUNT" of any Guarantor means, as of any date of
determination, an amount equal to the maximum amount which could then be claimed
by the Agent and the Holders under this Guaranty without rendering such claim
voidable or avoidable under Section 548 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law. The Guarantors acknowledge that the rights
of contribution and indemnification under this SECTION 3.05 shall constitute an
asset in favor of any Guarantor to which
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such contribution or indemnification is owing. This SECTION 3.05 is intended
only to define the relative rights of the Guarantors with respect to payments
made by the Guarantors under the Guaranty, and nothing set forth in the Guaranty
is intended to or shall impair the obligations of the Guarantors, jointly and
severally, to pay any amounts to the Agent and the Holders, as and when the same
shall become due and payable in accordance with the terms of the Guaranty.
SECTION 3.06. CERTAIN MERGERS AND CONSOLIDATIONS.
(a) Nothing contained in this Agreement or in any Secured Note
shall prevent any consolidation or merger of a Guarantor with or into the Issuer
or another Guarantor or shall prevent any sale or conveyance of the property of
a Guarantor as an entirety or substantially as an entirety, to the Issuer or
another Guarantor.
(b) Except as permitted by SECTION 7.02, no Guarantor may
merge or consolidate with or into a corporation or corporations other than the
Issuer or another Guarantor or sell or convey its property as an entirety or
substantially as an entirety to a corporation other than the Issuer or another
Guarantor.
SECTION 3.07. RELEASE OF GUARANTY UNDER CERTAIN
CIRCUMSTANCES. Upon the sale or other disposition of all or substantially all of
the assets of any Guarantor, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the Capital Stock of any Guarantor, to an
entity which is not a Guarantor and which sale or disposition is in compliance
with SECTION 7.02 hereof, then such Guarantor (in the event of a sale or other
disposition, by way of a merger, consolidation or otherwise, of all of the
Capital Stock of such Guarantor) or the corporation acquiring the property (in
the event of a sale or other disposition of all or substantially all of the
assets of such Guarantor) shall be released from and relieved of any obligations
under this Guaranty without any further action required on the part of the
Holders of the Secured Notes; PROVIDED, HOWEVER, that any such termination shall
occur only to the extent that all obligations of such Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, any other Indebtedness of the Issuer remaining
outstanding as a liability of the Issuer following such sale or disposition,
shall also terminate upon such release, sale or transfer; and PROVIDED, FURTHER,
that if such event constitutes an Asset Sale, the Net Cash Proceeds of such an
Asset Sale will be applied in accordance with SECTION 2.06 of this Agreement.
The Issuer shall deliver an appropriate instrument evidencing such release to
the Holders of the Secured Notes. Any Guarantor not so released remains liable
for the full amount of all Obligations.
SECTION 3.08. SUBORDINATION OF CERTAIN INDEBTEDNESS. Any
Indebtedness of the Issuer now or hereafter held by any Guarantor is hereby
subordinated in right of payment to the Obligations, and any such indebtedness
of the Issuer to such Guarantor collected or received by such Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for the
Holders of the Secured Notes and shall forthwith be paid over to the Holders of
the Secured Notes to be credited and applied against the Obligations.
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SECTION 3.09. GUARANTORS' INDEMNITY. The Guarantors jointly
and severally agree to pay, or cause to be paid, on demand, and to save the
Holders of Secured Notes harmless against liability for, any and all costs and
expenses (including fees and disbursements of counsel and allocated costs of
internal counsel) incurred or expended by the Holders of Secured Notes in
connection with the enforcement of or preservation of any rights under this
ARTICLE III.
SECTION 3.10. NO DUTY OF INQUIRY. It is not necessary for
the Holders of Secured Notes to inquire into the capacity or powers of any
Guarantor or the Issuer or the officers, directors or any agents acting or
purporting to act on behalf of any of them.
SECTION 3.11. NO DUTY TO PROVIDE DATA TO GUARANTORS. The
Holders of Secured Notes shall have no obligation to disclose or discuss with
any Guarantor its assessment, or any Guarantor's assessment, of the financial
condition of the Issuer. Each Guarantor has adequate means to obtain information
from the Issuer on a continuing basis concerning the financial condition of the
Issuer and its ability to perform its obligations under this Agreement, the
Secured Notes and the other Note Documents, and each Guarantor assumes the
responsibility for being and keeping informed of the financial condition of the
Issuer and of all circumstances bearing upon the risk of nonpayment of the
Obligations. Each Guarantor hereby waives and relinquishes any duty on the part
of the Holders of Secured Notes to disclose any matter, fact or thing relating
to the business, operations or conditions of the Issuer now known or hereafter
known by the Holders of Secured Notes.
SECTION 3.12. RIGHTS CUMULATIVE. The rights, powers and
remedies given to the Holders of Secured Notes by this Article III are
cumulative and shall be in addition to and independent of all rights, powers and
remedies given to the Holders of Secured Notes by virtue of any statute or rule
of law or in this Agreement, any Secured Note or any of the other Note Documents
between any Guarantor and the Holders of Secured Notes or between the Issuer and
the Holders of Secured Notes. Any forbearance or failure to exercise, and any
delay by the Holders of Secured Notes in exercising, any right, power or remedy
hereunder shall not impair any such right, power or remedy or be construed to be
a waiver thereof, nor shall it preclude the further exercise of any such right,
power or remedy.
SECTION 3.13. CONTINUATION OF GUARANTY. In the event that
all or any portion of the Obligations are paid by the Issuer, the obligations of
the Guarantors hereunder shall continue and remain in full force and effect or
be reinstated, as the case may be, in the event that all or any part of such
payment(s) are rescinded or recovered directly or indirectly from the Holders of
Secured Notes as a preference, fraudulent transfer or otherwise, and any such
payments which are so rescinded or recovered shall constitute Obligations for
all purposes under this ARTICLE III.
SECTION 3.14. CONTINUING GUARANTY. This Guaranty set forth
in this ARTICLE III is a continuing guaranty and shall be binding upon each
Guarantor and, except as expressly provided herein, its respective successors
and assigns, and each Guarantor hereby irrevocably waives any right
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to revoke the Guaranty contained in this ARTICLE III as to future transactions
giving rise to any Obligations. If, not withstanding the foregoing, any
Guarantor shall have any right under applicable law to terminate or revoke its
guaranty of the Obligations, such Guarantor agrees that such termination or
revocation shall not be effective until a written notice of such revocation or
termination, specifically referring hereto, signed by such Guarantor, is
actually received by the Agent. Such notice shall not affect the right and power
of any Holder or the Agent to enforce rights arising prior to receipt thereof by
the Agent. If the Agent or any Holder grants loans or takes other action after
such Guarantor terminates or revokes this Guaranty but before the Agent receives
such written notice, the rights of such Holder with respect thereto shall be the
same as if such termination or revocation had not occurred. The Guaranty
contained in this ARTICLE III shall inure to the benefit of the Holders of
Secured Notes and their respective successors and assigns.
SECTION 3.15. SUBORDINATION. THIS AGREEMENT IS SUBJECT TO
THE SUBORDINATION AGREEMENT, DATED APRIL 16, 1998, AMONG THE COMPANY, FLEET
CAPITAL CORPORATION AND THE AGENT, UNDER WHICH THIS AGREEMENT AND THE COMPANY'S
OBLIGATIONS HEREUNDER ARE SUBORDINATED IN THE MANNER SET FORTH THEREIN PRIOR TO
THE PAYMENT OF CERTAIN OBLIGATIONS TO THE HOLDERS OF SENIOR INDEBTEDNESS AS
DEFINED THEREIN.
ARTICLE IV
CLOSING
SECTION 4.01. CLOSING OF PURCHASE AND SALE OF SECURED NOTES.
The sale and purchase of the Secured Notes to be purchased by the Purchasers
shall occur at such place and time as the Issuer and the Purchasers may mutually
agree (the consummation of such sale and purchase being referred to herein as
the "CLOSING" and the date on which the Closing occurs being referred to herein
as the "CLOSING DATE"). At the Closing the Issuer will deliver to each Purchaser
the Secured Notes in the form of a single Secured Note (or such greater number
of Secured Notes in denominations of at least $10,000 as the Purchasers may
request) dated the date of the Closing and registered in each Purchaser's name
(or in the name of such Purchaser's nominee), against delivery by such Purchaser
to each Obligor or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds to an
account or accounts specified by the Issuer in a written notice to the
Purchasers. If at the Closing the Issuer shall fail to tender such Secured Notes
to the Purchasers as provided above in this SECTION 4.01, or any of the other
conditions specified in SECTION 4.02 shall not have been fulfilled to the
Purchasers' sole and absolute discretion, the Purchasers shall, at their
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights the Purchasers may have by reason of such failure or
such nonfulfillment.
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SECTION 4.02. ADDITIONAL CONDITIONS TO CLOSING. The
Purchasers' obligation to purchase and pay for the Secured Notes to be sold to
it at the Closing is subject to the fulfillment to the Purchasers' sole and
absolute discretion, prior to or at the Closing, of the following conditions:
(a) DELIVERY OF NOTE DOCUMENTS. The Purchasers shall have
received on or before the Closing Date all of the following, each duly executed
and acknowledged where appropriate and in form and substance satisfactory to the
Purchasers:
(i) this Agreement and the Secured Notes, together with
all Schedules hereto which shall be true, complete and correct as of the Closing
Date;
(ii) the Warrants issued to the Purchasers, the Warrant
Agreement and the Registration Rights Agreement;
(iii) a flow of funds memorandum, including a
"Statement of Sources and Uses of the
Proceeds of the Secured Notes";
(iv) the Intercreditor Agreements;
(v) evidence of insurance as described in
SECTION 6.04; and
(vii) the Collateral Agency Agreement.
(b) DELIVERY OF CORPORATE DOCUMENTS. On or before the Closing
Date, the Purchasers shall have received:
(i) an Officer's Certificate of each Obligor,
dated the Closing Date, certifying that the conditions specified in SECTIONS
4.01, and 4.02 have been fulfilled; and
(ii) a certificate of the Secretary or Assistant
Secretary of each Obligor, certifying as to (A) the resolutions of the Obligor=s
board of directors authorizing the execution, delivery and performance of the
Note Documents to which the Obligor is a party; (B) the names, incumbency, and
signatures of the officers of the Obligor, authorized to execute, deliver and
perform such documents, and (C) the accuracy and currency of such Obligor=s
Governing Documents.
(c) OPINIONS OF COUNSEL. The Purchasers shall have received
favorable legal opinions from Reed Smith Shaw & McClay, counsel for the
Obligors, in form acceptable to Purchasers (and the Obligors hereby instruct
their counsel to deliver such opinion to the Purchasers);
(d) NO MATERIAL ADVERSE CHANGE. No material adverse change
shall have occurred with respect to the business, operations, performance,
assets, properties, condition (financial or otherwise), or prospects of the
Issuer taken as a whole from March 31, 1997.
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(e) SECURITY AND OTHER DOCUMENTATION. On or prior to the
Closing Date the Purchasers shall have received fully executed copies of (i) the
Issuer Security and Pledge Agreement together with copies of the Pledged
Securities (with appropriate undated stock powers executed in blank) that have
been delivered to the Collateral Agent; (ii) the Guarantor Security and Pledge
Agreement; (iii) the Trademark Security Agreement; and (iv) appropriate UCC-1
financing statements (or amendments thereto) naming the Collateral Agent as
secured party with respect to the Collateral.
(f) SECURITY INTERESTS IN COLLATERAL. On or prior to the
Closing Date, the Purchasers shall have received evidence satisfactory to them
that all financing statements, and other filings under applicable law necessary
to provide the Agent for the benefit of the Holders with a perfected security
interest in the Pledged Securities and the Collateral have been filed or
delivered to the Agent in satisfactory form for filing.
(g) LITIGATION. Except as disclosed on SCHEDULE 4.02(H)
hereof, no litigation, inquiry, injunction or restraining order shall be
pending, entered or threatened which in the Purchasers' good faith judgment
could reasonably be expected to materially and adversely affect (i) the assets,
operations, business or condition (financial or otherwise) of the Issuer or its
Subsidiaries as a whole, (ii) the ability of the Obligors to perform their
respective Material Obligations hereunder or (iii) the rights and remedies of
the Holders.
(h) UCC SEARCHES. The Agent shall have received UCC searches
satisfactory to it indicating that no other filings (other than in connection
with Permitted Liens) with regard to the Collateral are of record in any
jurisdiction in which it shall be necessary or desirable for the Collateral
Agent to make a UCC filing in order to obtain a perfected security interest in
the Collateral.
(i) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Obligors in the Note Documents shall be correct when made and
at the time of the Closing.
(j) PERFORMANCE; NO DEFAULT. The Obligors shall have performed
and complied with all agreements and conditions contained in the Note Documents
required to be performed or complied with by it prior to or at the Closing and
after giving effect to the issue and sale of the Secured Notes (and the
application of the proceeds thereof as contemplated by SECTION 5.01(S)) no
Default or Event of Default shall have occurred and be continuing.
(k) NO LEGAL IMPEDIMENTS. No law, regulation, order, judgment
or decree of any Governmental Authority shall, and the Purchasers shall not have
received any notice that litigation is pending or threatened which is likely to,
enjoin, prohibit or restrain the consummation of the transactions evidenced by
the Note Documents.
(l) DUE DILIGENCE. The Purchasers shall have completed to
their satisfaction in their sole and absolute discretion their due diligence of
the Obligors.
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(m) PAYMENT OF EXPENSES. The Issuer shall have paid to the
Purchasers on or before the Closing Date reasonable fees, charges and
disbursements of the Purchasers and the Purchasers' counsel to the extent
reflected in statements of the Purchasers and such counsel rendered to the
Obligors at least one Business Day prior to the Closing.
(n) FLEET FACILITY. The Fleet Facility shall have been
extended and continuing on terms satisfactory to the Purchasers.
(o) SATISFACTORY COLLATERAL. The Purchasers shall be satisfied
that they have received security interests in all Property and a pledge of all
the issued and outstanding stock of the Guarantors except to the extent that
such Property or stock is subject to a Security Interest Restriction.
(p) SUBORDINATED NOTES. The Subordinated Note Agreement and
related documents thereto shall have been executed and the notes issued pursuant
to the Subordinated Note Agreement shall have been purchased by the purchasers
referred to therein.
(q) OTHER DOCUMENTS. The Purchasers shall have received such
other documentation as the Purchasers may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. REPRESENTATION AND WARRANTIES OF THE OBLIGORS.
Each of the Obligors jointly and severally represents and warrants to the
Holders as follows:
(a) ORGANIZATION; POWER AND AUTHORITY. Each Obligor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of formation, and is duly qualified as a foreign entity and
is in good standing in each jurisdiction in which such qualification is required
by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Each Obligor has the
power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver the Note Documents to which it is a party and
to perform the provisions thereof.
(b) AUTHORIZATION, ETC. Each of the Note Documents has been
duly authorized by all necessary corporate action on the part of each Obligor
which is a party thereto, and such Note Documents constitute, and upon execution
and delivery thereof each Secured Note will constitute, a legal, valid and
binding obligation of such Obligor enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency,
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reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(c) DISCLOSURE. This Agreement, the Note Documents, the
documents, certificates or other writings delivered to the Holders by or on
behalf of the Obligors in connection with the transactions contemplated hereby
and the financial statements described in SECTION 5.01(G), do not contain any
Material misstatement or Material omission except such as have been corrected in
writing and delivered to the Holders. Except as described in SCHEDULE 5.01(C),
since September 27, 1997, there has been no change in the financial condition,
operations, business, properties, or prospects of any Obligor or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. The Obligors' projections and other
forward looking information provided to the Holders are the Obligors' best
estimate as of the Closing Date of the Obligors' future financial condition,
based on reasonable assumptions and have been prepared in good faith but are not
a warranty of actual performance. There is no fact known to any Obligor that
could reasonably be expected to have a Material Adverse Effect that has not been
set forth herein or in the other documents, certificates and other writings
delivered to the Holders by or on behalf of such Obligor specifically for use in
connection with the transactions contemplated hereby.
(d) DEFAULTS; AGREEMENTS.
(i) Except as disclosed in SCHEDULE 5.01(D)(I), neither the
Issuer nor any of the Subsidiaries is in violation of its charter or by-laws or
in default in the performance, observance or fulfillment of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any other agreement, indenture or instrument
Material to Issuer and its Subsidiaries, to which Issuer or any of its
Subsidiaries is a party or by which Issuer or any of its Subsidiaries or their
respective property is bound. There exists no condition that constitutes a
Default or Event of Default under any of the Note Documents.
(ii) SCHEDULE 5.01(D)(II) is a true and complete listing as
of the date of this Agreement of all "Material Agreements" which includes (A)
all agreements relating to Indebtedness of Issuer and its Subsidiaries,
including without limitation all credit agreements, indentures and other
agreements related to any Indebtedness for borrowed money of any of the Obligors
other than the Note Documents, (B) all Material joint venture, partnership or
limited liability company agreements to which any of the Obligors is a party,
(C) all agreements for the sale of goods or services to, or purchase of goods or
services from, the Issuer's ten largest suppliers (on a consolidated basis) for
1997, and (D) all other contractual arrangements which are Material to any
Obligor, including but not limited to, guaranties and employment agreements. The
Obligors have delivered or made available to the Purchasers a true and complete
copy of each Material Agreement described on SCHEDULE 5.01(D)(II), including all
exhibits and schedules. There exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between the Obligors and any customer or any group of customers
whose purchases individually or
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in the aggregate are Material to the business of the Obligors or any Material
supplier, and there exists no present condition or state of facts or
circumstances which would create a Material Adverse Effect or prevent any
Obligor from conducting such business after the consummation of the transaction
contemplated by this Agreement in substantially the same manner in which it has
heretofore been conducted.
(e) PERMITS; LICENSES. Except as disclosed on SCHEDULE
5.01(E), the Issuer and each of its Subsidiaries (a) has all permits, licenses,
franchises and authorizations of governmental or regulatory authorities
("PERMITS"), including, without limitation, under any applicable Environmental
Laws, material to the ownership, leasing and operation of its properties and the
conduct of its business and (b) has fulfilled and performed all of its material
obligations with respect to such Permits and no event has occurred that allows,
or after notice or lapse of time would allow, revocation or termination thereof
or results or would result in any other material impairment of the rights of the
holder of any such Permit. Such Permits contain no restrictions that are
materially burdensome to Issuer or any of its Subsidiaries. In addition to the
disclosure required by the prior sentence, SCHEDULE 5.01(E) lists all Permits
which are Material to the Issuer and its Subsidiaries, and true and complete
copies of all such Permits have been made available to the Purchasers.
(f) OWNERSHIP OF PLEDGED SECURITIES.
(i) SCHEDULE 5.01(F)(I) contains (i) a diagram indicating
the corporate structure of the Issuer, its Subsidiaries and any other Person
which the Issuer or any of its Subsidiaries holds a direct or indirect
partnership, joint venture or other equity interest and indicates the nature of
such interest with respect to each Person included in such diagram; and (ii)
accurately sets forth (A) the correct legal name of such Person, the
jurisdiction of its organization and the jurisdiction in which it is qualified
to transact business as a foreign corporation or otherwise, (B) the authorized,
issued and outstanding shares or interests of each class of equity securities of
the Issuer and each of its Subsidiaries and the ownership of such shares or
interests indicating the Security Interest Restrictions with respect to such
shares or interests and (C) the Pledged Securities of each Obligor.
(ii) The Pledged Securities are owned by the Persons
specified on SCHEDULE 5.01(F)(II). All of the Pledged Securities are duly
authorized, validly issued, fully paid and non-assessable, and are owned and
held by the Pledgors, free and clear of any liens, encumbrances, or security
interests whatsoever other than those created pursuant to the Note Documents or
applicable securities laws. Except as set forth on SCHEDULE 5.01(F)(II)(A), for
the Issuer and SCHEDULE 5.01(F)(II)(B) for the other Obligors, there are no
outstanding registration rights, rights of first refusal, antidilution rights,
or rights, warrants, options, or agreements to purchase or otherwise acquire any
shares of the stock or securities or obligations of any kind convertible into
any shares of capital stock, of any shares, of the Obligors or any of their
Subsidiaries. All rights, including those set forth on SCHEDULE 5.01(F)(II)(A)
and SCHEDULE 5.01(F)(II)(B), to adjust the purchase price of any shares of
stock, or the exercise price of any warrants, options, or agreements to purchase
or otherwise acquire any
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shares of the stock or securities of the Obligors have been duly and validly
waived. The registration rights set forth on SCHEDULE 5.01(F)(II)(A) and
SCHEDULE 5.01(F)(II)(B) do not conflict with or preempt any registration rights
granted to the Agent or the Purchasers pursuant to the Note Documents. SCHEDULE
5.01(F)(II)(C) lists all options, warrants or other rights to acquire equity
securities of any Subsidiary of the Issuer that is not an Obligor, including the
class of securities to which such rights pertain, the exercise price, expiration
date, holders thereof and registration rights pertaining thereto. Except as set
forth on such schedule, SCHEDULE 5.01(F)(II)(A) and SCHEDULE 5.01(F)(II)(B)
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Issuer or any of its Subsidiaries or obligating the Issuer or any of its
Subsidiaries to issue or sell any shares of capital stock of, or other equity
interests in, the Issuer or any of its subsidiaries. True, correct and complete
copies of the forms of all options, warrants, rights, agreements, arrangements
or commitments identified in the schedule have been delivered to Purchasers.
Except as disclosed in such schedule, there are no obligations, contingent or
otherwise, of the Issuer or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of Issuer stock or the capital stock of any
subsidiary or to provide funds to or make any Investment (in the form of a loan,
capital contribution, guaranty or otherwise) in any such Subsidiary or any other
entity.
(g) FINANCIAL STATEMENTS. The Obligors have delivered to the
Purchasers copies of (i) the final audited consolidated financial statements of
the Issuer and its Subsidiaries for the Fiscal Year ending March 31, 1997, (ii)
unaudited statements of the Issuer for the quarter ending September 27, 1997;
PROVIDED that no schedules or notes have been provided for the statement
referred to in item (ii) of this sentence. All of said financial statements
(including in each case the related schedules and notes) fairly present in all
material respects the consolidated financial position of the Issuer and its
Subsidiaries as of the respective dates specified in such Schedule and the
consolidated results of their operations and cash flows for the respective
periods so specified and have been prepared in accordance with GAAP consistently
applied throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).
(h) SECURITY INTEREST; OTHER SECURITY. This Agreement and the
other Note Documents, when executed and delivered and, upon the purchase of the
Secured Notes by the Purchasers, will create and grant to the Agent for the
benefit of the Agent and the Holders (upon (i) the filing of the appropriate
UCC-1 financing statements, and (ii) delivery of the Pledged Securities with
appropriate stock powers to the Collateral Agent) valid and perfected security
interests (junior only to the lien of the Fleet Facility) in the Collateral and
the Pledged Securities in existence on the Closing Date as to which security
interests may be perfected by such filings or delivery, subject only to
Permitted Liens.
(i) PLACES OF BUSINESS. The chief executive office of each
Obligor is, on the Closing Date, as set forth on SCHEDULE 5.01(I) hereto, which
offices in the United States are the places where each Obligor is "located" for
the purpose of the UCC and the Uniform Commercial Code in
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effect in any State in which any Obligor is so located. All of the places where
each Obligor keeps the records concerning the Collateral on the date hereof or
regularly keeps any goods included in the Collateral on the date hereof are also
listed on SCHEDULE 5.01(i) hereto.
(j) COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by each Obligor of the Note Documents to
which it is a party will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of such Obligor under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement relating to the borrowing of money, any
material lease or any other Material Agreement to which such Obligor is bound or
by which such Obligor or any of its properties may be bound or affected, (ii)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to such Obligor or (iii) violate any provision
of any Requirement of Law (including, without limitation, laws regulating the
corporate practice of medicine) applicable to such Obligor.
(k) GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by any Obligor of this Agreement or the Secured Notes.
(l) LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(i) Except as disclosed in SCHEDULE 4.02(g), there are no
actions, suits or proceedings pending or, to the knowledge of any Obligor,
threatened against or affecting such Obligor in any court or before any
arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(ii) Except as disclosed in SCHEDULE 5.01(d)(ii), none of
the Obligors is in default under any term of any Material Agreement or any other
agreement or instrument to which it is a party or by which it is bound, or any
order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority or is in violation of any applicable Requirement of Law (including
without limitation Environmental Laws) of any Governmental Authority, which
default or violation.
(m) TAXES. Issuer's federal tax identification number is
11-2782687. The federal tax identification number of the Issuer's Wholly-Owned
Subsidiary, NRM Investments, Inc., a Delaware corporation, is 51-0349565. Each
Obligor has filed all tax returns that are required to have been filed in any
jurisdiction, and have paid all taxes shown to be due and payable on such
returns and all other taxes and assessments levied upon them or their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent,
except for any taxes and assessments (i) the amount of which is not individually
or in the aggregate Material or (ii) the amount, applicability or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which each Obligor, as the case may be, has established adequate
reserves in accordance with GAAP. No Obligor knows of any basis for any
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other tax or assessment that could reasonably be expected to have a
Material Adverse Effect. The Federal income tax liabilities of each Obligor
have been paid for all fiscal years up to and including the fiscal year ended
March 31, 1997.
(n) TITLE TO PROPERTY; LEASES. Each Obligor has good and
marketable title to its assets and properties that individually or in the
aggregate are Material, all of which are listed on SCHEDULE 5.01(n), in each
case free and clear of Liens (other than Liens permitted by this Agreement). All
leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects. No Obligor
owns any real property.
(o) COLLATERAL. SCHEDULE 5.01(o) accurately sets forth (i) the
Collateral of the Issuer and each Subsidiary, indicating the Security Interest
Restriction, if any, with respect to such Collateral, and (ii) the Security
Property of each Obligor.
(p) LICENSES, PERMITS, ETC. Except as disclosed in SCHEDULE
5.01(p), each Obligor owns or possesses the right to use all licenses, permits,
franchises, authorizations, patents, copyrights, service marks, trademarks and
trade names, or rights thereto, that individually or in the aggregate are
Material, without known conflict with the rights of others other than rights of
licensors with respect to those items that are subject to such licenses.
(q) COMPLIANCE WITH ERISA.
(i) Each Obligor and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. No Obligor or any ERISA
Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the incurrence
of any such liability by any Obligor or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of any Obligor
or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to
such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or in
the aggregate Material.
(ii) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of the
end of such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities. The term "BENEFIT LIABILITIES"
has the meaning specified in Section 4001 of ERISA and the terms "CURRENT VALUE"
and "PRESENT VALUE" have the meaning specified in Section 3 of ERISA.
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(iii) No Obligor or any ERISA Affiliates have incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(iv) The expected post-retirement benefit obligation
(determined as of the last day of each Obligor's most recently ended fiscal year
in accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated by
section 4980B of the Code) of each Obligor is not Material.
(v) The Obligors' execution and delivery of this Agreement
and the issuance and sale of the Secured Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code.
(r) PRIVATE OFFERING BY EACH OBLIGOR. None of the Obligors or
anyone acting on their behalf has offered the Securities or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any person other
than institutional investors. None of the Obligors or anyone acting on its
behalf has taken, or will take, any action that would subject the initial
issuance or sale of the Securities to the registration requirements of Section 5
of the Securities Act.
(s) USE OF PROCEEDS; MARGIN REGULATIONS. The Obligors will
apply the proceeds of the sale of the Secured Notes to pay costs and expenses
incurred by the Obligors in connection with the Note Documents and for working
capital. No part of the proceeds from the sale of the Secured Notes hereunder
will be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve each Obligor in
a violation of Regulation X of said Board (12 CFR 224) or to involve any broker
or dealer in a violation of Regulation T of said Board (12 CFR 220). As used in
this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall
have the meanings assigned to them in said Regulation G.
(t) EXISTING INDEBTEDNESS; FUTURE LIENS.
(i) SCHEDULE 5.01(t)(i) sets forth a complete and correct
list of all outstanding Indebtedness of each Obligor as of the Closing Date.
None of the Obligors is in default in the payment of any principal or interest
on any Indebtedness of such Obligor and no event or condition exists with
respect to any Indebtedness of such Obligor that would permit (or that with
notice or the lapse of time, or both, would permit) one or more Persons to cause
such Indebtedness to become due and payable before its stated maturity or before
its regularly scheduled dates of payment.
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(ii) Except as disclosed in SCHEDULE 5.01(t)(ii), (A) none
of the Obligors has agreed or consented to cause or permit in the future (upon
the happening of a contingency or otherwise) any of its property, whether now
owned or hereafter acquired, to be subject to a Lien other than a Permitted
Lien, and (B) there are no Liens on any of the property of the Obligors.
(u) FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale
of the Secured Notes by the Issuer hereunder nor their use of the proceeds
thereof will violate the Trading with the Enemy Act, as amended, or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
(v) STATUS UNDER CERTAIN STATUTES. None of the Obligors is
subject to regulation under the Investment Issuer Act of 1940, as amended, the
Public Utility Holding Issuer Act of 1935, as amended, the Interstate Commerce
Act, as amended, or the Federal Power Act, as amended. None of the Obligors is
an "investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
(w) ENVIRONMENTAL MATTERS. None of the Obligors has knowledge
of any claim or has received any notice of any claim, and no proceeding has been
instituted raising any claim against such Obligor or any of their respective
real properties now or formerly owned, leased or operated by any of them or
other assets, alleging any damage to the environment or violation of any
Environmental Laws. Except as otherwise disclosed to the Purchasers in writing,
(i) none of the Obligors has knowledge of any facts which
would give rise to any claim, public or private, of violation of Environmental
Laws or damage to the environment emanating from, occurring on or in any way
related to real properties now or formerly owned, leased or operated by any of
them or to other assets or their use; and
(ii) all buildings on all real properties now owned, leased
or operated by each Obligor is in compliance with applicable Environmental Laws.
(x) LABOR MATTERS. There is (a) no unfair labor practice
complaint pending against any Obligor or, to the best knowledge of such Obligor,
threatened against it, before the National Labor Relations Board or any state or
local labor relations board, and no grievance or arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against such
Obligor or, to the best knowledge of such Obligor, threatened against it and (b)
no strike, labor dispute, slowdown or stoppage pending against any Obligor or,
to the best knowledge of such Obligor, threatened against it, except for such
actions specified in clause (a) or (b) above which, singly or in the aggregate,
will have or could reasonably be expected to have a Material Adverse Effect.
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(y) CERTIFICATE OF INCORPORATION AND BY-LAWS The Issuer has
heretofore furnished to Purchasers a complete and correct copy of its
Certificate of Incorporation and By-Laws as most recently restated and
subsequently amended to date. Such Certificate of Incorporation and By-Laws are
in full force and effect. The Issuer is not in violation of any of the
provisions of its Certificate of Incorporation or By-Laws.
(z) CAPITALIZATION The authorized capital stock of the Issuer
consists of (i) 9,000,000 shares of Common Stock and (ii) 2,000,000 shares of
Preferred Stock. As of February 28, 1998, (i) 4,844,624 shares of Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) 193,292 shares of Common Stock were held in treasury, (iii)
no shares of Common Stock were held by Subsidiaries of the Issuer and (iv)
approximately 510,650 shares of Common Stock were reserved for future issuance
pursuant to outstanding stock options or warrants (collectively, the "ISSUER
STOCK PLANS"). As of the Closing, no shares of Preferred Stock were issued and
outstanding.
(aa) SOLVENCY. After giving effect to the transactions
contemplated by the Note Documents, (a) the assets of each Obligor, at a fair
valuation, are in excess of the total amount of its debts (including, without
limitation, contingent liabilities); (b) the present fair saleable value of the
assets of each Obligor is greater than its probable liability on its existing
debts as such debts become absolute and matured; (c) each Obligor is then able
and expects to be able to pay its debts (including, without limitation,
contingent debts and other commitments) as they mature; and (d) each Obligor has
capital sufficient to carry on its business as conducted and as proposed to be
conducted.
(bb) SURETY OBLIGATIONS. Issuer is not obligated as surety or
indemnitor under any surety or similar bond or other contract issued or has not
entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any person.
SECTION 5.02. REPRESENTATIONS OF THE PURCHASERS. Each
Purchaser represents and warrants to the Issuer as follows:
(a) NO REGISTRATION. The Securities are not registered under
the Securities Act or any state securities laws; it understands that the
offering and sale of the Securities are intended to be exempt from registration
under the Securities Act, by virtue of Section 4(2) and the provisions of
Regulation D promulgated thereunder, based, in part, upon the representations,
warrantees and agreements contained in this Agreement; and such Purchaser
understands that the Securities will bear a legend to that effect.
(b) ACCREDITED INVESTOR. With respect to the transaction
evidenced by this Agreement and the Securities, such Purchaser is an accredited
investor within the meaning of Regulation D under the Securities Act, and it has
such knowledge and experience in financial, tax and business matters so as to
enable it to utilize the information provided to it and other sources of
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information (including this Agreement) to evaluate the merits and risks of an
Investment in the Securities and to make an informed investment decision with
respect thereto.
(c) PURCHASE FOR INVESTMENT; LEGEND. Such Purchaser is
acquiring the Securities solely for its own account for investment and not with
a view to resale or distribution. Such Purchaser acknowledges that a restrictive
legend substantially in the form set forth in SECTION 2.03 will be placed on the
security.
(d) AUTHORIZATION, ETC. This Agreement, the Warrant Agreement
and the Registration Rights Agreement have been duly authorized, executed and
delivered by such Purchaser.
(e) ERISA MATTERS. In connection with its purchase of the
Secured Notes and the Warrants, none of the funds being used by such Purchaser
to purchase the Secured Notes and the Warrants include "plan assets" as such
term is defined in ERISA.
ARTICLE VI
REPORTING AND AFFIRMATIVE COVENANTS
Each Obligor covenants that so long as any of the Secured
Notes are outstanding:
SECTION 6.01. FINANCIAL AND BUSINESS INFORMATION. The Obligors
shall deliver to the Agent or Holders, as applicable, of Secured Notes:
(a) ANNUAL STATEMENTS. Within ninety (90) days after the close
of each Fiscal Year of the Issuer, the Holders shall receive duplicate copies of
the Issuer's Annual Report on Form 10-K for such fiscal year prepared in
accordance with the requirements therefor and filed with the Commission which
shall include unqualified audited financial statements of the Issuer and its
Subsidiaries as of the end of such Fiscal Year certified by a firm of
independent public accountants of recognized national standing or otherwise
acceptable to the Agent (except for a qualification for a change in accounting
principles with which the independent public accountant concurs). Issuer shall
also forward to the Holders a copy of the accountant's letter to the Issuer's
management that is prepared in connection with aforementioned financial
documents and shall also cause to be prepared and furnished to Holders a
certificate by the aforesaid independent public accountants certifying to
Holders that, based upon their examination of the financial statements of the
Issuer and its Subsidiaries performed in connection with their examination of
said financial statements, they are not aware of any Default or Event of Default
relating to SECTIONS 7.15 AND 7.16 hereof, or, if they are aware of such Default
or Event of Default, specifying the nature thereof. The Issuer's annual report
to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act
shall be delivered to the Holders concurrently with delivery to the
shareholders.
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(b) MONTHLY STATEMENTS. Upon the Agent's written request,
unaudited interim consolidated financial statements of the Obligors as of the
end of the most recent fiscal month and of the portion of the Obligor's Fiscal
Year then elapsed, on a consolidated and consolidating basis, certified by the
principal financial officer of the Issuer as prepared in accordance with GAAP
and fairly presenting the consolidated financial position and results of
operations of the Obligors for such month-end period subject only to changes
from audit and year-end adjustment and except that such statements need not
contain notes;
(c) QUARTERLY STATEMENTS. Within forty-five (45) days after
the end of the first three quarters of each fiscal year, copies of the Issuer's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Commission.
(d) BOARD REPORTS. Upon the Agent's written request, copies of
all reports and analysis as Issuer provides to its Board of Directors or any
committee thereof or to its stockholders from time to time.
(e) MERCHANDISING PLAN. Upon the Agent's written request, a
merchandising plan for the next Fiscal Year.
(f) ANNUAL BUDGET. Upon the Agent's written request, a plan,
operating budget and financial forecast for the next succeeding Fiscal Year of
the Issuer, including, without limitation, (i) a forecasted consolidated and
consolidating balance sheet and statement of income of the Issuer and its
Subsidiaries and a consolidated and consolidating statement of cash flows of the
Issuer for each fiscal quarter and year, (ii) a consolidated and consolidating
forecasted statement of income and a balance sheet of the Issuer and its
Subsidiaries and a consolidated and consolidating statements of cash flows of
the Issuer and its Subsidiaries for each fiscal quarter of such Fiscal Year, and
(iii) the amount of forecasted capital expenditures for such Fiscal Year of the
Issuer and its Subsidiaries (except that consolidating financial information
will be delivered only to the extent and in the form customarily prepared and
available to the Issuer). The budgets shall include projected revenues,
expenses, and earnings data and such other data as Holders may request setting
forth the breakdown between the Issuer and the other business units of the
Issuer, in a format similar to the monthly, quarterly and annual reports
provided to the Holders hereunder.
(g) SEC AND OTHER REPORTS. Within five (5) days after their
becoming available, each other financial statement, report, notice or proxy
statement sent by any Obligor to public securities Holders generally, and each
regular or periodic report, each registration statement (without exhibits except
as expressly requested by such Holder), and each prospectus and all amendments
thereto filed by such Obligor with the Commission and of all press releases and
other statements made available generally by such Obligor to the public
concerning developments that are Material to the Issuer;
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(h) NOTICE OF DEFAULT OR EVENT OF DEFAULT. Promptly, and in
any event within five (5) Business Days after a Responsible Officer of any
Obligor becoming aware of the existence of any Default or Event of Default or
that any Person has given any notice or taken any action with respect to a
claimed default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in SECTION
8.01(g), a written notice specifying the nature and period of existence thereof
and what action such Obligor is taking or proposes to take with respect thereto;
(i) NOTICES FROM GOVERNMENTAL AUTHORITY. Promptly, and in any
event within five (5) days of receipt thereof, copies of any notice to any
Obligor from any Federal or state Governmental Authority relating to any order,
ruling, statute or other law or regulation that could reasonably be expected to
have a Material Adverse Effect; and
(j) OTHER REPORTS. Upon the Agent's written request, with
reasonable promptness, copies of any documents or reports to Fleet from Issuer;
(k) REQUESTED INFORMATION; INSPECTIONS. From time to time,
with reasonable promptness, such additional financial statements and information
with respect to the financial condition of the Issuer and its Subsidiaries as
the Agent may reasonably request, including, without limitation and without
further request, (i) any financial statements or reports (including comment
letters to management) furnished to the Issuer or its Subsidiaries by its
independent certified public accountants, and (ii) to the extent not already
furnished pursuant to this Agreement, all financial statements, certificates,
reports and other information furnished by the Issuer and its Subsidiaries to
any bank pursuant to any agreement. The Issuer shall also provide such
information concerning the operations of the Issuer and its Subsidiaries as the
Agent may from time to time reasonably request in writing, and upon reasonable
advance notice permit representatives of the Agent (x) such access during normal
business hours (and in a manner which will not be disruptive to the business and
operations of the Issuer) to the properties, books and records of the Issuer and
its Subsidiaries, and (y) to discuss the affairs, accounts and finances of the
Issuer and its Subsidiaries with the financial and management personnel of the
Issuer and its Subsidiaries and with their independent certified public
accountants (and the Issuer authorizes such independent public accountants to
discuss the Issuer's or any Subsidiaries' financial matters with the Agent and
its representatives); PROVIDED, HOWEVER, that the Issuer shall not be obligated
to provide access to any information that it reasonably considers to be a trade
secret or similar confidential information unless the Agent provide assurances
in writing that they will maintain the confidentiality of the information. The
Agent will consult with the Issuer regarding the strategy and logistics of their
visits and inspections in order to minimize the costs of, and disruptions
arising from, such visits and inspections. All such information shall be treated
by the Agent and the Holders as confidential.
SECTION 6.02. OFFICER'S CERTIFICATE. The documents delivered
to the Agent or Holders of Secured Notes pursuant to SECTION 6.01(a) and SECTION
6.01(c) hereof shall be accompanied by a certificate of a Senior Financial
Officer of each Obligor setting forth:
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(a) COVENANT COMPLIANCE. The information (including detailed
calculations) required in order to establish whether the Obligors were in
compliance with the requirements of SECTIONS 7.03, 7.06, 7.07, 7.15 THROUGH
7.17, inclusive, during the quarterly or annual period covered by the statements
then being furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such Sections,
and the calculation of the amount, ratio or percentage then in existence); and
(b) EVENT OF DEFAULT. A statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of Obligors from
the beginning of the quarterly or annual period covered by the statements then
being furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or event that
constitutes a Default or an Event of Default or, if any such condition or event
existed or exists (including, without limitation, any such event or condition
resulting from the failure of any Obligor to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action such
Obligor shall have taken or proposes to take with respect thereto.
SECTION 6.03. COMPLIANCE WITH LAW. Each Obligor will comply
with all Requirements of Law to which each of them is subject, including,
without limitation, Environmental Laws, and will obtain and maintain in effect
all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, in each case to the extent necessary to ensure that non-compliance
with such Requirements of Law or failures to obtain or maintain in effect such
licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 6.04. INSURANCE. Each Obligor shall:
(a) Keep its assets which are of an insurable character
insured (to the extent and for the time periods consistent with normal industry
practices) by financially sound and reputable insurers against loss, business
interruption, or damage by fire, explosion, theft or other hazards which are
included under extended coverage in amounts not less than the insurable value of
the property insured or such lesser amounts, and with such self-insured
retention or deductible levels, as are consistent with normal industry
practices;
(b) Maintain with financially sound and reputable insurers,
insurance against other hazards and risks and liability to Persons and property
to the extent and in the manner customary for companies in similar businesses;
(c) Upon the request of any Holder, will render to such Holder
a statement of insurance in such detail as such Holder may reasonably request as
to all such insurance coverage;
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(d) Within thirty (30) days after Closing, cause each
certificate and policy relating to Property damage, to contain an endorsement,
in form and substance acceptable to the Agent, showing loss payable to the
Collateral Agent, for the benefit of Fleet and the Holders, and, if required by
the Agent, naming the Agent and/or Collateral Agent as additional insured(s)
under such policy. Each certificate and policy relating to coverage other than
the foregoing shall, if required by the Agent, contain an endorsement naming the
Agent and/or Collateral Agent as additional insured(s) under such policy. Such
endorsement or an independent instrument furnished to the Agent and/or
Collateral Agent shall provide that the insurance companies will give the Agent
and/or Collateral Agent at least thirty (30) days' written notice before any
such policy or policies of insurance shall be altered adversely to the interests
of the Holders or canceled and that no act, whether willful or negligent, or
default of the Issuer, any of its Subsidiaries or any other Person shall affect
the right of the Agent and/or Collateral Agent to recover under such policy or
policies of insurance in case of loss or damage. In the event the Issuer or any
of its Subsidiaries, at any time or times hereafter shall fail to obtain or
maintain any of the policies or insurance required herein or to pay any premium
in whole or in part relating thereto, then the Agent, without waiving or
releasing any obligations or resulting Event of Default hereunder, may at any
time or times thereafter (but shall be under no obligation to do so) obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which the Agent deems advisable. All sums so
disbursed by the Agent shall be part of the Obligations, payable as provided in
this Agreement.
SECTION 6.05. MAINTENANCE OF PROPERTIES. Each Obligor will
maintain and keep, or cause to be maintained and kept, their respective
properties in normal working order and condition (other than ordinary wear and
tear) such that, in the reasonable judgment of such Obligor, the business
carried on in connection therewith may be properly conducted at all times,
PROVIDED that this Section shall not prevent such Obligor from discontinuing the
operation and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and such Obligor has concluded that
such discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 6.06. PAYMENT OF TAXES AND CLAIMS. Each Obligor will
and will cause each of its Subsidiaries to file all tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of any
Obligor, PROVIDED that none of the Obligors need pay any such tax or assessment
or claims if the amount, applicability or validity thereof is contested by such
Obligor on a timely basis in good faith and in appropriate proceedings, and such
Obligor has established adequate reserves therefor in accordance with GAAP on
the books of such Obligor or the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
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SECTION 6.07. CORPORATE EXISTENCE, ETC. Each Obligor will at
all times preserve and keep in full force and effect its corporate existence.
Each Obligor will at all times preserve and keep in full force and effect the
corporate existence and all rights and franchises of such Obligor unless, in the
good faith judgment of such Obligor, the termination of or failure to preserve
and keep in full force and effect such corporate existence, right or franchise
could not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 6.08. MAINTENANCE OF BOOKS AND RECORDS. Each Obligor
will make and keep books, records and accounts in which full, true and correct
entries in accordance with GAAP and all Requirements of Law are made of all
dealings and transactions in relation to its business and activities.
SECTION 6.09. MAINTENANCE OF LINE OF BUSINESS. Each Obligor
will, and will cause its Subsidiaries to, devote substantially all of their
respective time to, and deploy substantially all of their respective Material
assets owned or used by such Obligor or Subsidiary in, the Line of Business as
conducted by the Obligors on the date of this Agreement and businesses
reasonably related thereto.
SECTION 6.10. PRIVATE PLACEMENT NUMBERS. At the request of
any Holder, the Issuer shall assist such Holder in obtaining a Private Placement
number ("CUSIP NUMBER") issued by Standard & Poor's CUSIP Service Bureau (in
cooperation with the Securities Valuation Office of the National Association of
Insurance Commissioners) for the Secured Notes. The costs of obtaining a CUSIP
Number following such request by any Holder shall be borne by the Issuer.
SECTION 6.11. LIENS. The Obligors shall defend its Properties
against any and all Liens howsoever arising, other than Permitted Liens, and in
any event defend against any attempted foreclosure.
SECTION 6.12. RULE 144. In order to permit the holders of
Secured Notes, Warrants and Warrant Shares (as defined in the Warrant Agreement)
to sell the same, if they so desire, pursuant to Rule 144 promulgated by the
Commission (or any successors to such rules), the Issuer will comply with all
rules and regulations of the Commission applicable in connection with the use of
Rule 144 (or any successors thereto), including the timely filing of all reports
with the Commission and the provision of any information regarding the Issuer in
order to enable such holders, if they so elect, to utilize Rule 144, and the
Issuer will cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to any sale of Secured Notes, Warrants
and Warrant Shares which is exempt from registration under the 1933 Act pursuant
to Rule 144. Upon the request of any Holder of Secured Notes, Warrants and
Warrant Shares, the Issuer will deliver to such holder a written statement
verifying that it has complied with such requirement.
SECTION 6.13. USE OF PROCEEDS. The Obligors will apply the
proceeds of the sale of the Secured Notes to pay costs and expenses incurred by
the Obligors in connection with the Note
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Documents and for working capital. No part of the proceeds from the sale of the
Secured Notes hereunder will be used, directly or indirectly, for the purpose of
buying or carrying any margin stock within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System (12 CFR 207), or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve each Obligor in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220).
SECTION 6.14. FURTHER ASSURANCES; SECURITY INTERESTS.
(a) Upon the request of the Holders, the Obligors shall duly
execute and deliver, or cause to be duly executed and delivered, at the cost and
expense of the Obligors, such further instruments as may be appropriate in the
reasonable judgment of the Holders to carry out the provisions and purposes of
this Agreement and the other Note Documents.
(b) Upon the request of the Agent, the Obligors shall promptly
execute and deliver, or cause to be duly executed and delivered, at the cost and
expense of the Obligors, such further instruments as may be appropriate in the
reasonable judgment of the Holders to provide the Agent for the benefit of the
Agent and the Holders a perfected Lien (junior only to the lien of the Fleet
Facility) in the Collateral and any and all documents (including without
limitation, the execution, amendment or supplementation of any financing
statement and continuation statement or other statement) for filing under the
provisions of the UCC and the rules and regulations thereunder, or any other
statute, rule or regulation of any applicable foreign, federal, state or local
jurisdiction, and perform or cause to be performed such other ministerial acts
which are necessary, from time to time, in order to grant and maintain in favor
of the Agent for the benefit of the Agent and the Holders the security interest
in the Collateral contemplated hereunder and under the other Note Documents.
(c) The Obligors shall promptly undertake to deliver or cause
to be delivered to the Holders from time to time such other documentation,
consents, authorizations and approvals in form and substance reasonably
satisfactory to the Holders, as the Holders shall deem reasonably necessary or
advisable to perfect or maintain the Liens of the Holders.
(d) In the event that the Fleet Facility is amended,
supplemented or modified (subsequent to Amendment #7 To Loan and Security
Agreement dated as of February 17, 1998 between Fleet and Issuer) to add to the
collateral granted to Fleet therein, the Obligors shall promptly execute and
deliver, or cause to be duly executed and delivered, at the cost and expense of
the Obligors, such further instruments as may be appropriate in the reasonable
judgment of the Holders to provide the Agent for the benefit of the Agent and
the Holders a perfected Lien (junior only to the lien of the Fleet Facility) in
such additional collateral and any and all documents (including without
limitation, the execution, amendment or supplementation of any financing
statement and continuation statement or other statement) for filing under the
provisions of the UCC and the rules and regulations thereunder, or any other
statute, rule or regulation of any applicable foreign, federal, state or local
jurisdiction, and perform or cause to be performed such other ministerial acts
which are
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necessary, from time to time, in order to grant and maintain in favor
of the Agent for the benefit of the Agent and the Holders a security interest in
such additional collateral as contemplated hereunder and under the other Note
Documents.
SECTION 6.15. ADDITIONAL WHOLLY-OWNED SUBSIDIARIES. Any
Wholly-Owned Subsidiary which is formed or acquired by any Obligor (as permitted
under the terms of this Agreement subsequent to the date hereof) shall become a
Guarantor hereunder and shall execute such documents in connection therewith as
shall be required by the Agent.
ARTICLE VII
NEGATIVE COVENANTS
Each Obligor covenants that so long as any of the Secured
Notes are outstanding:
SECTION 7.01. LIMITATION ON CERTAIN TRANSACTIONS BETWEEN THE
ISSUER AND RELATED PERSONS. The Issuer has not and shall not enter into, nor
permit any Subsidiary to enter into, directly or indirectly, any agreement
relating to any loan or other advance with any Related Person except for those
outstanding on the Closing Date and to the extent that such loans or other
advances are disclosed on SCHEDULE 7.01. In addition, the Issuer shall not enter
into any other agreement, and shall not renew or permit any Subsidiary to renew
any existing agreement, relating to the sale, purchase or lease of any assets,
property or services with any Related Person except in the ordinary course of
and pursuant to the reasonable requirements of the Issuer's or Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to the
Holders and which are no less favorable to the Issuer or Subsidiary than would
be obtained in a comparable arm's length transaction with a Person not a Related
Person; PROVIDED, HOWEVER, that in no event shall the aggregate amount of such
transactions with all Related Persons exceed $300,000 per annum.
SECTION 7.02. MERGER, CONSOLIDATION, ETC. The Issuer shall
not, in a single transaction or through a series of related transactions,
consolidate with or merge with or into any other Person or, sell, assign,
convey, transfer, lease or otherwise dispose of ("TRANSFER") all or
substantially all of its properties and assets to any other Person or group of
affiliated Persons or permit its Subsidiaries to enter into any such transaction
or transactions if such transaction or transactions, in the aggregate, would
result in a sale of all or substantially all of the assets of the Issuer and its
Subsidiaries; PROVIDED that so long as all Obligations are repaid in full at the
closing thereof (at the amounts set forth in SECTION 2.08) and as a condition
thereto in connection with such Transfer, such Transfer shall be permitted;
PROVIDED FURTHER that any Wholly-Owned Subsidiary may consolidate with or merge
with or into any other Wholly-Owned Subsidiary.
SECTION 7.03. LIMITATION ON ASSET SALES. Neither the Issuer
nor any of its Subsidiaries shall make an Asset Sale unless:
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(a) the applicable Obligor complies with the provisions of
SECTION 2.06; and
(b) at least 80% of the consideration therefor shall be cash
and any consideration consisting of notes shall be pledged to the Agent, for the
benefit of the Holders, and delivered to the Collateral Agent; and
(c) the Asset Sale must be at Fair Market Value.
SECTION 7.04. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS.
No Obligor shall, directly or indirectly, (a) make any Restricted Investments,
or (b) declare or pay any dividend on, or make any payment on account of, or set
apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of capital stock of any Obligor or any warrants, options or rights to
purchase any such capital stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of an Obligor or any of its
Subsidiaries (each a "RESTRICTED PAYMENT"); PROVIDED, HOWEVER, that, to the
extent permitted by applicable law any Subsidiary of an Issuer may make
Restricted Payments to the Issuer; PROVIDED, FURTHER, that the Issuer may
purchase either assets or capital stock with Common Stock so long as no Default
or Event of Default shall have occurred and be continuing at the time, or shall
occur as a result of such purchase after giving PRO FORMA effect to such
purchase.
Notwithstanding the foregoing, the above limitation shall not
prevent (a) the purchase, redemption, acquisition or retirement of any shares of
capital stock of the Issuer in exchange for, or out of the net proceeds of the
substantially concurrent sale (other than to a Guarantor) of, other shares of
stock of the Issuer; and (b) purchases of common stock by the Issuer or a trust
pursuant to any employee stock ownership or similar employee benefit plan of the
Issuer that has been approved by the Board of Directors of the Issuer.
SECTION 7.05. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES. The Issuer will not, and will not cause or
permit any of its Subsidiaries to, directly or indirectly, create or otherwise
cause or permit to exist or become effective any encumbrance or restriction on
the ability of any Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Issuer or any other
Subsidiary; or (c) transfer any of its properties or assets to the Issuer or any
other Subsidiary .
SECTION 7.06. LIMITATION ON ADDITIONAL INDEBTEDNESS. No
Obligor shall , directly or indirectly, create, incur, issue, assume, guarantee
or in any other manner become liable for, contingently or otherwise, or become
responsible for (including through any merger or consolidation to which such
Obligor is a party or through any other acquisition of any Wholly-Owned
Subsidiary or of any Person thereby becoming a Wholly-Owned Subsidiary) the
payment of (collectively, an
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"incurrence"), any obligations in respect of any Indebtedness or Guaranty,
except (a) Indebtedness evidenced by the Secured Notes and the Guarantors'
Guaranty with respect thereto; (b) the Fleet Facility, PROVIDED, HOWEVER, that
the Maximum Senior Debt Amount (as defined below) shall be reduced on a dollar
for dollar basis as the commitment amount under the Revolving Loan portion of
the Fleet Facility is reduced; (c) Indebtedness evidenced by the Subordinated
Notes and any Guaranty Obligation with respect thereto; (d) Indebtedness of any
Obligor to any other Obligor, PROVIDED, HOWEVER that the notes evidencing such
Indebtedness are pledged to the Agent for the benefit of the Agent and the
Holders; (e) accounts payable to trade creditors which are not aged beyond the
normal business practices and current operating expenses which are not more than
sixty (60) days past due, in each case incurred in the ordinary course of
business and paid within such time period, unless the same is actively contested
in good faith and by appropriate and lawful proceedings and the Obligors shall
have set aside such reserves, if any, with respect thereto as are required by
GAAP and deemed adequate by the Obligors= independent accountants; (f)
Indebtedness that is set forth on Schedule 5.01(t)(i); (g) Indebtedness under
operating leases (i.e., leases that are not considered Capital Leases); and (h)
Purchase Money Indebtedness and total unsecured Indebtedness incurred in
connection with the purchase of fixed assets not to exceed the sum of $500,000
in the aggregate at any time outstanding; and (i) Indebtedness other than
described in subsections 7.05(a)-(h) not in excess of $50,000. Notwithstanding
the foregoing sentence, the aggregate principal amount of the obligations
incurred in respect of any Indebtedness or Guaranty by all Obligors which
constitute Senior Debt shall not exceed the lesser of (i) the sum of (A) 65% of
Eligible Inventory PLUS (B) $1,500,000, and (ii) $42,500,000 (the "MAXIMUM
SENIOR DEBT AMOUNT"), and the aggregate principal amount of the obligations
incurred in respect of any Indebtedness or Guaranty by all Obligors which
constitute Subordinated Debt shall not exceed $7,500,000 (the "MAXIMUM
SUBORDINATED DEBT AMOUNT"), PROVIDED, HOWEVER, that the Maximum Subordinated
Debt Amount shall be reduced on a dollar for dollar basis by payments made by
Issuer which reduce the principal amount outstanding under the Subordinated
Notes.
SECTION 7.07. LIMITATION ON CREATION OF LIENS. No Obligor
shall, directly or indirectly create, incur, assume or suffer to exist any Lien
in or on any right, title or interest to or in any of its properties or assets,
except for (a) Liens existing as of the date of this Agreement and expressly
identified and described in SCHEDULE 5.01(T)(II) hereto, and any renewals and
extensions thereof that secure Indebtedness not greater in amount than the
lesser of the amount of Indebtedness secured by such Liens on the date hereof or
on the date of such renewal or extension; (b) Liens granted after the date of
this Agreement on any assets or Capital Stock of an Obligor created in favor of
the Holders of the Secured Notes; and (c) Permitted Liens.
SECTION 7.08. CREATION OF SUBSIDIARIES; ADDITIONAL GUARANTORS.
Except as provided in SECTION 7.04, no Obligor shall, directly or indirectly,
form or acquire any Subsidiaries.
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SECTION 7.09. RECEIVABLES. None of the Obligors shall sell,
discount or otherwise dispose of notes, accounts receivable or other obligations
owing to any Obligor except for the purpose of collection in the ordinary course
of business.
SECTION 7.10. BANK ACCOUNTS. SCHEDULE 7.10 identifies all
deposit accounts maintained by all Obligors as of the Closing Date into which
collections and proceeds of Collateral are deposited. The Issuer shall not and
shall not permit any of its Subsidiaries to establish or maintain any other
deposit accounts unless such accounts have been approved by the Collateral Agent
and the Collateral Agent, for the benefit of Fleet and the Holders, shall have
sole and exclusive access and control to the deposit accounts for withdrawal
purposes.
SECTION 7.11. FISCAL YEAR. The Issuer shall not change, or
permit any of its Subsidiaries to change, its Fiscal Year, or permit any
Subsidiary to have a Fiscal Year different from that of the Issuer.
SECTION 7.12. TAX CONSOLIDATION. The Issuer shall not file or
consent to the filing of any consolidated income tax return with any Person
other than a Subsidiary.
SECTION 7.13. RESTRICTIONS ON SALE AND ISSUANCE OF CAPITAL
STOCK. None of the Guarantors shall issue any Capital Stock (except that any
such Guarantor may issue its Capital Stock to its sole stockholder if such
Capital Stock becomes Pledged Securities pursuant to the Security Agreements).
In addition, neither the Issuer nor any Subsidiary shall sell or issue, directly
or indirectly, any Capital Stock of any Subsidiary of the Issuer (other than to
Holders), unless (a) such sale or transfer satisfies all of the requirements for
a valid Asset Sale under this Agreement and (b) after giving effect to such sale
or transfer, no Obligor beneficially owns any Capital Stock of such former
Guarantor.
SECTION 7.14. LIMITATION ON SECURITY INTEREST RESTRICTIONS.
No Obligor shall, directly or indirectly create, incur, assume or suffer to
exist any Security Interest Restriction on any right, title or interest to or in
any of its properties or assets, except for (a) the Security Interest
Restrictions existing as of the date of this Agreement and expressly identified
and described on SCHEDULE 5.01(o) hereto, and (b) Permitted Liens.
SECTION 7.15. MINIMUM ADJUSTED TANGIBLE NET WORTH.
Commencing with the Closing and at the end of each month thereafter, the Issuer
shall not permit its minimum Adjusted Tangible Net Worth to be less than
$10,250,000 during the Fiscal Year ended March 31, 1998, which amount shall be
increased by $250,000 on the last day of such Fiscal Year and on the last day of
each Fiscal Year thereafter.
SECTION 7.16. MINIMUM CASH FLOW. Issuer shall not permit its
Cash Flow to be less than $250,000 for the aggregate of any fiscal quarter and
the preceding three fiscal quarters.
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SECTION 7.17. AMENDMENTS TO THE FLEET FACILITY. Issuer shall
not agree to any amendment, modification, waiver, consent, renewal, replacement
or restatement of any of the provisions of the Fleet Facility which, in any way,
(i) increases the principal in excess of the amounts permitted by SECTION 7.06,
(ii) changes the financial covenants contained in the Fleet Facility, or (iii)
adversely affects the rights granted to the Holders hereunder, without the prior
written consent of the Holders. Issuer shall not amend, restate or otherwise
modify any other provisions of the Fleet Facility except in accordance with the
terms and conditions set forth in the Fleet Facility and unless Holders shall
have received notice pursuant to SECTION 10.04 at least five (5) Business Days
prior to the amendment, restatement or other modification.
SECTION 7.18. INTEREST RATE CONTRACT. Issuer shall not
obtain Interest Rate Contracts having an aggregate notional amount in excess of
50% of the Issuer's exposure to an interest rate increase under the Fleet
Facility.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.01. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall
exist if any of the following conditions or events shall occur and be
continuing:
(a) any Obligor defaults in the payment of any principal on
any Secured Note when the same becomes due and payable, whether at maturity or
at a date fixed for prepayment or by declaration or otherwise; or
(b) any Obligor defaults in the payment of any interest on any
Secured Note or any other amount due under this Agreement or under the Security
Agreements in full, for more than five Business Days after the same becomes due
and payable; or
(c) any Obligor defaults in the performance of or compliance
with any term contained in ARTICLE VII or in SECTIONS 6.04, 6.05, 6.08, 6.10,
6.14; or
(d) any Obligor defaults in the performance of or compliance
with any term contained in ARTICLE VI (other than those contained in SECTIONS
6.04, 6.05, 6.08, 6.10, 6.14) and such default is not remedied within 10
Business Days after the earlier of (i) a Responsible Officer of such Obligor
obtaining actual knowledge of such default and (ii) such Obligor receiving
written notice of such default from any Holder of a Secured Note (any such
written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (c) of SECTION 8.01); or
(e) any Obligor defaults in the performance of or compliance
with any term contained herein (other than those referred to in paragraphs (a),
(b) (c) and (d) of this SECTION 8.01) and such default is not remedied within 30
days after the earlier of (i) a Responsible Officer of such
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Obligor obtaining actual knowledge of such default and (ii) such Obligor
receiving written notice of such default from any Holder of a Secured Note (any
such written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (d) of SECTION 8.01); or
(f) any representation or warranty made in writing by or on
behalf of any Obligor or by any officer of any Obligor in any of the Note
Documents or in any writing furnished in connection with the transactions
contemplated hereby proves to have been false or incorrect in any material
respect on the date as of which made; or
(g) (i) any Obligor is in default (as principal or as
guarantor or other surety) in the payment of any principal of or premium or
make-whole amount or interest on any Indebtedness that is outstanding in an
aggregate principal amount of at least $50,000 beyond any period of grace
provided with respect thereto and as a consequence of such default such
Indebtedness has become, or has been declared (or one or more Persons are
entitled to declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (ii) any Obligor
is in default in the performance of or compliance with any term of any evidence
of any Indebtedness in an aggregate outstanding principal amount of at least
$50,000 or of any mortgage, indenture or other agreement relating thereto or any
other condition exists, and as a consequence of such default or condition such
Indebtedness has become, or has been declared (or one or more Persons are
entitled to declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or condition (other
than the passage of time or the right of the Holder of Indebtedness to convert
such Indebtedness into equity interests), (x) any Obligor has become obligated
to purchase or repay Indebtedness before its regular maturity or before its
regularly scheduled dates of payment in an aggregate outstanding principal
amount of at least $50,000, or (y) one or more Persons have the right to require
any Obligor so to purchase or repay such Indebtedness; or
(h) there shall occur a cessation of a substantial part of the
business of the Obligors for a period which significantly affects the Obligors=
capacity to continue its business on a profitable basis; or Obligors shall
suffer the loss or revocation of any license or permit now held or hereafter
acquired by Obligors which is necessary to the continued or lawful operation of
their business; or Obligors shall be enjoined, restrained or in any way
prevented by court, governmental or administrative order from conducting all or
any Material part of its business affairs; or any Material lease or agreement
pursuant to which any Obligor leases, uses or occupies shall be canceled or
terminated prior to the expiration of its stated term; or any part of the
Collateral shall be taken through condemnation or the value of such Property
shall be impaired through condemnation; and, as to all of the foregoing, the
same shall have a Material Adverse Effect on the Obligors; or
(i) William A. Teitelbaum shall cease to be employed on a
full-time basis as Issuer's chief executive officer and a suitable replacement
of comparable experience and ability shall not have been employed in his place
within ninety (90) days of his departure.
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(j) any Obligor (i) is generally not paying, or admits in
writing its inability to pay, its debts as they become due, (ii) files, or
consents by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(k) any Note Document shall, for any reason, not be or shall
cease to be in full force and effect except as provided herein or therein or
shall be declared null and void or any Note Documents shall not give or shall
cease to give the Holders the Liens, rights, powers and privileges with respect
to the Collateral purported to be created thereby in favor of the Holders
superior to and prior to the rights of all third Persons (except to the extent
expressly permitted herein or therein) other than by actions of the Holders; or
(l) any Obligor or its Affiliates shall challenge or contest
in any action, suit or proceeding the validity or enforceability of this
Agreement or any of the other Note Documents, the legality or enforceability of
any of the Obligations or the perfection or priority of any Lien granted to the
Agent; or
(m) any Guarantor shall revoke or attempt to revoke the
Guarantor Security and Pledge Agreement signed by such Guarantor, or shall
repudiate such Guarantor=s liability thereunder or shall be in material default
under the terms thereof; or
(n) any Obligor shall be criminally indicted or convicted
under any law that could lead to a forfeiture of any property of any Obligor; or
(o) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the applicable
Obligor, a custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of any Obligor, or any such petition
shall be filed against any Obligor and such petition shall not be dismissed
within 60 days; or
(p) a final judgment or judgments for the payment of money
aggregating in excess of $50,000 are rendered against one or more of the
Obligors and which judgments are not, within 60 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
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(q) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified any
Obligor or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed $500,000, (iv) any Obligor or
any ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) any Obligor or
any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) any Obligor
establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the liability
of such Obligor thereunder; and any such event or events described in clauses
(i) through (vi) above, either individually or together with any other such
event or events, could reasonably be expected to have a Material Adverse Effect.
As used in this SECTION 8.01(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA; or
(r) if any Obligor makes a payment to holders of notes issued
pursuant to the Subordinated Note Agreement that is not permitted under the
Intercreditor Agreement applicable to the Subordinated Debt; or
(s) The Purchasers shall have received Series A Preferred
Stock certificates and evidence of the filing of a Certificate of Designation
pertaining thereto with the Office of the Secretary of State of the State of
Delaware by the close of business on Friday, April 17, 1998.
SECTION 8.02. REMEDIES ON EVENT OF DEFAULT, ETC.
(a) ACCELERATION.
(i) If an Event of Default with respect to any Obligor
described in paragraph (j) or (o) of SECTION 8.01 has occurred, all the Secured
Notes then outstanding shall automatically become immediately due and payable.
(ii) If any Event of Default described in paragraph (a), (b)
or (s) of SECTION 8.01 has occurred and is continuing, any Holder or Holders of
Secured Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or notices to each Obligor, declare
all the Secured Notes held by it or them to be immediately due and payable.
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(iii) If any other Event of Default has occurred and is
continuing, the Agent upon written request of the Required Holders may at any
time at its option, by notice or notices to each Obligor, declare all the
Secured Notes then outstanding to be immediately due and payable.
Upon any Secured Notes becoming due and payable under this
SECTION 8.02, whether automatically or by declaration, such Secured Notes will
forthwith mature and the entire Unpaid Principal Amount of such Secured Notes
times the applicable Redemption Percentage, plus all accrued and unpaid interest
thereon (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived.
(b) ELECTION OF A MEMBER OF THE BOARD OF DIRECTORS. Upon
written request of the Holders, if any Default or Event of Default has occurred
the Issuer agrees to cause a designee of the Holders to be elected to the
Issuer's board of directors. To the extent that the Default or Event of Default
is cured to the satisfaction of the Holders in their sole and absolute
discretion, the Holders' designee shall thereafter resign. The Issuer's
obligation to elect the Holders' designee during the period a Default or Event
of Default has occurred and is continuing is intended to be an ongoing
obligation of the Issuer and shall apply to any subsequent Default or Event of
Default. The Holders shall be entitled to have a designee attend and observe all
meetings of the board of directors during all other periods.
(c) OTHER REMEDIES. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Secured Notes have
become or have been declared immediately due and payable under SECTION 8.02(a),
the Agent, pursuant to directions of the Required Holders, may proceed to
protect and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in any Secured Note, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law or otherwise.
(d) RESCISSION. At any time after any Secured Notes have been
declared due and payable pursuant to clause (a)(i) or (a)(ii) of SECTION 8.02,
the Agent upon written request of the Required Holders, by written notice to
each Obligor, may rescind and annul any such declaration and its consequences if
(a) each Obligor has paid all overdue interest on the Secured Notes, all
principal of any Secured Notes that are due and payable and are unpaid other
than by reason of such declaration, all interest on such overdue principal and
(to the extent permitted by applicable law) any overdue interest in respect of
the Secured Notes, at the Default Rate, (b) all Events of Default and Defaults,
other than non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to SECTION 10.03, and
(c) no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Secured Notes. No rescission and annulment under this
SECTION 8.02(c) will extend to or affect any subsequent Event of Default or
Default or impair any right consequent thereon.
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(e) NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No
course of dealing and no delay on the part of any Holder of any Secured Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such Holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Secured Note upon any Holder
thereof shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of each Obligor under SECTION 9.01,
each Obligor will pay to the Holder of each Secured Note on demand such further
amount as shall be sufficient to cover all costs and expenses of such Holder
incurred in any enforcement or collection under this SECTION 8.02, including,
without limitation, reasonable attorneys' fees, expenses and disbursements.
ARTICLE IX
THE AGENT
SECTION 9.01. APPOINTMENT.
(a) Each Purchaser hereby designates and appoints Fleming as
the Agent of such Purchaser under this Agreement, and each Purchaser hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and the Note Documents and to exercise such powers
as are set forth herein or therein together with such other powers as are
reasonably incidental thereto. The Agent agrees to act as such on the express
conditions contained in this ARTICLE IX.
(b) The provisions of this ARTICLE IX are solely for the
benefit of the Agent and the Holders and neither the Issuer nor any Subsidiary
of the Issuer shall have any rights to rely on or enforce any of the provisions
hereof (other than as expressly set forth in SECTION 9.06). In performing its
functions and duties under this Agreement, the Agent shall act solely as agent
of the Holders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency, trustee or fiduciary with or for the
Issuer or any Affiliate of the Issuer. The Agent may perform any of its duties
hereunder, or under the other Note Documents, by or through its agents or
employees.
SECTION 9.02. NATURE OF DUTIES. The Agent shall not have any
duties or responsibilities except those expressly set forth in this Agreement or
in the Note Documents. The duties of the Agent shall be mechanical and
administrative in nature. The Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Holder. Nothing in this Agreement or
any of the Note Documents, expressed or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement
or any of the other Note Documents except as expressly set forth herein or
therein. Each Holder shall make its own independent investigation of the
financial condition and affairs of the Issuer and Affiliates in connection with
the purchase of the Secured Notes hereunder and shall make its own appraisal of
the creditworthiness of the Issuer and Guarantors initially and on a continuing
basis, and the Agent shall not have any duty
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or responsibility, either initially or on a continuing basis, to provide any
Holder with any credit or other information with respect thereto (except for
reports required to be delivered by the Agent under the terms of this
Agreement). If the Agent seeks the consent or approval of the Holders to the
taking or refraining from taking of any action hereunder, the Agent shall send
notice thereof to each Holder. The Agent shall promptly notify each Holder at
any time that the Holder so required hereunder has instructed the Agent to act
or refrain from acting pursuant hereto. As to any matters not expressly provided
for by this Agreement (including, without limitation, enforcement or collection
of the Secured Notes or any amount payable when due) or the other Note
Documents, the Agent shall not be required to exercise any discretion or take
any action. Notwithstanding the foregoing, the Agent shall be required to act or
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Holders (unless the
instructions or consent of a greater percentage of Holders are required
hereunder or thereunder) and such instructions shall be binding upon all Holders
of Secured Notes; PROVIDED, HOWEVER, the Agent shall not be required to take any
action which (i) the Agent reasonably believes will expose it to personal
liability unless the Agent receives an indemnification satisfactory to it from
the Holders with respect to such action or (ii) is contrary to this Agreement,
the other Note Documents or applicable law. All payments, reports and notices to
be made or delivered by the Issuer shall be paid or delivered to the Holders and
the Agent.
SECTION 9.03. RIGHTS, EXCULPATION, ETC.
(a) LIABILITIES; RESPONSIBILITIES. None of the Agent, any
Affiliate of the Agent, or any of their respective officers, directors,
employees or agents shall be liable to any Holder for any action taken or
omitted by them hereunder or under any of the Note Documents, or in connection
therewith, except that no Person shall be relieved of any liability imposed by
law for gross negligence or willful misconduct. The Agent shall not be liable
for any apportionment or distribution of payments made by it in good faith, if
any, and if any such apportionment or distribution is subsequently determined to
have been made in error the sole recourse of any Holder to whom payment was due,
but not made, shall be to recover from other Holders any payment in excess of
the amount to which they are determined to have been entitled. The Agent shall
not be responsible to any Holder for any recitals, statements, representations
or warranties herein or for the execution, effectiveness, genuineness, validity,
legality, enforceability, collectibility, or sufficiency of this Agreement or
any of the other Note Documents or the transactions contemplated thereby, or for
the financial condition of the Issuer or any of its Affiliates or the
Guarantors. The Agent shall not be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement or any of the other Note Documents or the financial
condition of the Issuer or any of its Affiliates or the Guarantors, or the
existence or possible existence of any potential Event of Default or Event of
Default.
(b) RIGHT TO REQUEST INSTRUCTIONS. The Agent may at any time
request instructions from the Holders with respect to any actions or approvals
which by the terms of any of the Note Documents the Agent is permitted or
required to take or to grant, and the Agent shall be absolutely
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entitled to refrain from taking any action or to withhold any approval and shall
not be under any liability whatsoever to any Person for refraining from any
action or withholding any approval under any of the Note Documents until it
shall have received such instructions from those Holders from whom the Agent is
required to obtain such instructions for the pertinent matter in accordance with
the Note Documents. Without limiting the generality of the foregoing, no Holder
shall have any right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting under the Note Documents in accordance
with the instructions of the Required Holders or, where required by the express
terms of this Agreement, a greater proportion of the Holders.
SECTION 9.04. RELIANCE. The Agent shall be entitled to rely
upon any written notices, statements, certificates, orders or other documents or
any telephone message believed by it in good faith to be genuine and correct and
to have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Note Documents and its duties
hereunder or thereunder, upon advice of legal counsel (including counsel for the
Issuer), independent public accountants and other experts selected by it.
SECTION 9.05. INDEMNIFICATION. To the extent that the Agent is
required to be reimbursed and indemnified by the Issuer but is not reimbursed
and indemnified by the Issuer, the Holders will reimburse and indemnify the
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against it in any way relating to or arising out of the Note Documents or any
action taken or omitted by the Agent under the Note Documents, in proportion to
each Holders pro rata share of the Secured Notes; provided that Issuer shall
have no obligation to indemnify the Agent for any and all liabilities described
in this SECTION 9.05 which result from the gross negligence or willful
misconduct of the Agent. The obligations of the Holders under this SECTION 9.05
shall survive the payment in full of the Obligations and all other Obligations
and the termination of this Agreement.
SECTION 9.06. SUCCESSOR AGENTS.
(a) RESIGNATION. The Agent may resign from the performance of
all its functions and duties hereunder at any time by giving at least thirty
(30) Business Days' prior written notice to the Issuer and the Holders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to this SECTION 9.06.
(b) APPOINTMENT BY REQUIRED HOLDERS. Upon any such notice of
resignation, the Required Holders shall have the right to appoint a successor
Agent selected from among the Holders which appointment shall be subject to the
prior written approval of the Issuer (which may not be unreasonably withheld,
and shall not be required upon the occurrence and during the continuance of an
Event of Default).
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(c) APPOINTMENT BY RETIRING AGENT. If a successor Agent shall
not have been appointed within the thirty (30) Business Day period provided in
CLAUSE (a) of this SECTION 9.06, the retiring Agent, with the consent of the
Issuer (which may not be unreasonably withheld, and shall not be required upon
the occurrence and during the continuance of an Event of Default), shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
the Required Holders appoint a successor Agent as provided above.
(d) RIGHTS OF THE SUCCESSOR AND RETIRING AGENTS. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this ARTICLE IX shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was the Agent under this Agreement.
SECTION 9.07. RELATIONS AMONG HOLDERS. Each Purchaser agrees
that it will not take any legal action, nor institute any actions or
proceedings, against the Issuer or any other Obligor hereunder or with respect
to any Collateral, without the prior written consent of the Required Holders.
Without limiting the generality of the foregoing, no Holder may accelerate or
otherwise enforce its portion of the Obligations, except in accordance with
SECTION 8.02.
SECTION 9.08. CONCERNING THE COLLATERAL AND THE NOTE
DOCUMENTS.
(a) AUTHORITY. Each Purchaser authorizes and directs the Agent
to enter into the Collateral Agency Agreement, the Subordination Agreements (and
other documents required to be executed pursuant thereto) and any other Note
Documents relating to the Collateral for the benefit of the Holders. Each
Purchaser agrees that any action taken by the Agent or the Required Holders (or,
where required by the express terms of this Agreement, a greater proportion of
the Holders) in accordance with the provisions of this Agreement or the other
Note Documents, and the exercise by the Agent or the Required Holders (or, where
so required, such greater proportion) of the powers set forth herein or therein,
together with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of the Holders. Without limiting the generality
of the foregoing, the Agent shall have the sole and exclusive right and
authority to (i) act as the disbursing and collecting agent for the Holders with
respect to all payments and collections arising in connection with the Note
Documents relating to the collection of the Collateral and proceeds therefrom;
(ii) execute and deliver each Note Document relating to the Collateral and
accept delivery of each such agreement delivered by the Issuer, any of its
Subsidiaries or Guarantors a party thereto; (iii) appoint the Collateral Agent
for the Holders for purposes of the perfection of all security interests and
Liens created by such agreements and all other purposes stated therein;
PROVIDED, HOWEVER, the Agent may act as collateral sub-agent for purposes of the
perfection of all security interests and Liens; (iv) give instructions to the
Collateral Agent with respect to the Collateral; (v) take such action as is
necessary or desirable to maintain the perfection and priority of the security
interests and liens created or
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purported to be created by the Note Documents; and (vi) except as may be
otherwise specifically restricted by the terms of this Agreement or any other
Note Document, exercise all remedies given to the Agent or the Holders with
respect to the Collateral under the Note Documents relating thereto, applicable
law or otherwise.
(b) RELEASE OF COLLATERAL.
(i) Each Purchaser hereby directs, in accordance
with the terms of this Agreement, the Agent to release any Lien held by the
Agent for the benefit of the Holders:
(A) against all of the Collateral, upon
final and indefeasible payment in full of the Obligations and termination of
this Agreement;
(B) against any part of the Collateral sold
or disposed of by the Issuer or any of its Subsidiaries, if such sale or
disposition is permitted by SECTION 7.02 AND 7.03 or is otherwise consented to
by the Required Holders, as certified to the Agent by the Issuer in an Officer's
Certificate;
(C) against any part of the Collateral
consisting of a promissory note, upon final and indefeasible payment in full of
the Indebtedness evidenced thereby;
(D) against any part of the Collateral sold
or disposed of by the Issuer and any of its Subsidiaries, if such sale or
disposition results in the release of a Guaranty Obligation permitted by SECTION
3.07; and/or
(E) against any Collateral which is released
in accordance with the provisions of the Collateral Agency Agreement.
(ii) Each Purchaser hereby directs the Agent to
execute and deliver or file, or to authorize the Collateral Agent to execute and
deliver or file, such termination and partial release statements and do such
other things as are necessary to release Liens to be released pursuant to this
SECTION 9.08(b) promptly upon the effectiveness of any such release.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. EXPENSES, ETC. Whether or not the transactions
contemplated hereby are consummated, each Obligor agrees, jointly and severally
to pay all costs and expenses (including reasonable attorneys' fees of a special
counsel and, if reasonably required, local or other counsel) incurred by the
Holders of a Secured Note in connection with such transactions and in connection
with any amendments, waivers or consents under or in respect of this Agreement
or the Note Documents (whether or not such amendment, waiver or consent becomes
effective), including,
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without limitation: (a) the costs and expenses incurred in enforcing or
defending (or determining whether or how to enforce or defend), including any
expenses incurred in any appeals, any rights under this Agreement or the Note
Documents or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Note
Documents, or by reason of being a Holder of any Secured Note, and (b) the costs
and expenses, including financial advisors' fees, incurred in connection with
the insolvency or bankruptcy of any Obligor or in connection with any work-out
or restructuring of the transactions contemplated hereby and by the Note
Documents. Each Obligor will pay, and will save each Holder harmless from, all
claims in respect of any fees, costs or expenses if any, of brokers and finders
(other than those retained by such Holder). The obligations of each Obligor
under this SECTION 10.01 will survive the payment or transfer of any Secured
Note, the enforcement, amendment or waiver of any provision of this Agreement or
the Note Documents, and the termination of this Agreement and the Note
Documents.
SECTION 10.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT. All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Note Documents, the
purchase or transfer by any Holder of any Secured Note or portion thereof or
interest therein and the payment of any Secured Note, and may be relied upon by
any subsequent Holder of a Secured Note, regardless of any investigation made at
any time by or on behalf of any Holder. All statements contained in any
certificate or other instrument delivered by or on behalf of each Obligor
pursuant to this Agreement shall be deemed representations and warranties of
each Obligor under this Agreement. Subject to the preceding sentence, this
Agreement and the Note Documents embody the entire agreement and understanding
between each Holder and each Obligor and supersede all prior agreements and
understandings relating to the subject matter hereof.
SECTION 10.03. AMENDMENT AND WAIVER.
(a) REQUIREMENTS.
(i) This Agreement, the Secured Notes and the other
Note Documents may be amended, and the observance of any term hereof or thereof
may be waived (either retroactively or prospectively), with (and only with) the
written consent of each Obligor and the Required Holders, except that no
amendment or waiver of any of the provisions of SECTIONS 2.01, 4.01, 4.02 OR
10.07 hereof, or any defined term relating to such sections (as it is used
therein), will be effective as to any Holder unless consented to by such Holder
in writing, and no such amendment or waiver may, without the written consent of
all Holders affected thereby, subject to the provisions of SECTION 8.02 relating
to acceleration or rescission, change the amount or time of any prepayment or
payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest on, the Secured Notes, change the percentage
of the principal amount of the Secured Notes the Holders of which are required
to consent to any such amendment or waiver, or amend any of SECTIONS 8.01(a),
8.01(b), 8.02, 10.03 OR 10.06.
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(ii) Any amendment, modification, termination, waiver
or consent with respect to any of the following provisions of this Agreement
shall be effective only by a written agreement, signed by each Holder:
(A) release of any Guarantor of the
Obligations or all or a substantial portion of the Collateral (except as
provided in SECTION 9.08(b)),
(B) waiver of any Event of Default described
in SECTION 8.01.
(b) AGENT AUTHORITY. The Agent may, but shall have no
obligation to, with the written concurrence of any Holder, execute amendments,
modifications, waivers or consents on behalf of that Holder. Notwithstanding
anything to the contrary contained in this SECTION 10.03, no amendment,
modification, waiver or consent shall affect the rights or duties of the Agent
under this Agreement or the other Note Documents, unless made in writing and
signed by the Agent in addition to the Holders required above to take such
action.
(c) DELIVERY OF AMENDMENTS, WAIVERS, ETC. Each Obligor will
deliver executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this SECTION 10.03 to each Holder of
outstanding Secured Notes promptly following the date on which it is executed
and delivered by, or receives the consent or approval of, the requisite Holders
of Secured Notes.
(d) PAYMENT. Each Obligor will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any Holder of
Secured Notes as consideration for or as an inducement to the entering into by
any Holder of Secured Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each Holder of Secured Notes
then outstanding even if such Holder did not consent to such waiver or
amendment.
(e) BINDING EFFECT, ETC. Any amendment or waiver consented to
as provided in this SECTION 10.03 applies equally to all Holders of Secured
Notes and is binding upon them and upon each future Holder of any Secured Note
and upon each Obligor without regard to whether such Secured Note has been
marked to indicate such amendment or waiver. No such amendment or waiver will
extend to or affect any obligation, covenant, agreement, Default or Event of
Default not expressly amended or waived or impair any right consequent thereon.
No course of dealing between each Obligor and the Holder of any Secured Note nor
any delay in exercising any rights hereunder or under any Secured Note shall
operate as a waiver of any rights of any Holder of such Secured Note.
(f) SECURED NOTES HELD BY EACH OBLIGOR, ETC. Solely for the
purpose of determining whether the Holders of the requisite percentage of the
aggregate principal amount of
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Secured Notes then outstanding approved or consented to any amendment, waiver or
consent to be given under this Agreement or the Secured Notes, or have directed
the taking of any action provided herein or in the Secured Notes to be taken
upon the direction of the Holders of a specified percentage of the aggregate
principal amount of Secured Notes then outstanding, Secured Notes directly or
indirectly owned by each Obligor or any of its Affiliates shall be deemed not to
be outstanding.
SECTION 10.04. NOTICES. All notices and communications
provided for hereunder shall be in writing and sent by telecopy if the sender on
the same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or by registered or certified mail with
return receipt requested (postage prepaid), or by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent to the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this SECTION 10.04):
(a) if to any Obligor, to the care of:
National Record Mart, Inc.
507 Forest Avenue
Carnegie, PA 15106-2873
Attention: Theresa Carlise
Telecopier: (412) 276-6201
with a copy to:
Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219
Attention: Robert Morris, Esq.
Telecopier: (412) 288-3063
(b) if to the Agent, to the care of:
Robert Fleming Inc.
320 Park Avenue, 11th Floor
New York, NY 10022
Attention: Michael E. Rowe
Telecopier: (212) 508-3679
with a copy to:
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Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Telecopier: (213) 896-6600
(c) if to any other Holder, to its address shown on the
Secured Note register to be maintained by the Issuer, on behalf of the Issuer,
pursuant to SECTION 2.02.
Notices under this SECTION 10.04 will be deemed given only when actually
received.
SECTION 10.05. REPRODUCTION OF DOCUMENTS. This Agreement and
all documents relating thereto, including, without limitation, (a) consents,
waivers and modifications that may hereafter be executed, (b) documents received
by the Purchasers at the Closing (except the Secured Notes themselves), and (c)
financial statements, certificates and other information previously or hereafter
furnished to any Holder, may be reproduced by the Holders by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and each Holder may destroy any original document so reproduced. Each
Obligor agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by any Holder in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
SECTION 10.05 shall not prohibit each Obligor or any other Holder of Secured
Notes from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
SECTION 10.06. CONFIDENTIAL INFORMATION. For the purposes of
this SECTION 10.06, "CONFIDENTIAL INFORMATION" means information delivered to
any Holder by or on behalf of each Obligor in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is proprietary in
nature and that was clearly marked or labeled or otherwise adequately identified
when received by such Holder as being confidential information of each Obligor,
PROVIDED that such term does not include information that (a) was publicly known
to any Holder prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by any Holder or any Person acting on
behalf of any Holder, (c) otherwise becomes known to any Holder other than
through disclosure by each Obligor or its representatives or (d) constitutes
financial statements delivered to any Holder under SECTION 6.01 that are
otherwise publicly available. Each Holder will maintain the confidentiality of
such Confidential Information in accordance with procedures adopted by such
Holder in good faith to protect confidential information of third parties
delivered to such Holder, PROVIDED that each Holder may deliver or disclose
Confidential Information to its (i) directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by its Secured Notes), (ii)
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financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this SECTION 10.06, (iii) any other Holder of any Secured Note, (iv)
any Person to which such Holder sells or offers to sell such Secured Note or any
part thereof or any participation therein (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this SECTION 10.06), (v) any Person from which such Holder offers
to purchase any security of each Obligor (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this SECTION 10.06), (vi) any federal or state regulatory
authority having jurisdiction over such Holder, (vii) any nationally recognized
rating agency that requires access to information about such Holder's investment
portfolio or (viii) any other Person to which such delivery or disclosure may be
necessary or appropriate (w) to effect compliance with any Requirement of Law
applicable to such Holder, (x) in response to any subpoena or other legal
process, (y) in connection with any litigation to which such Holder is a party
or (z) if an Event of Default has occurred and is continuing, to the extent such
Holder may reasonably determine such delivery and disclosure to be necessary or
appropriate in the enforcement or for the protection of the rights and remedies
under such Holder's Secured Notes and this Agreement. Each Holder of a Secured
Note, by its acceptance of a Secured Note, will be deemed to have agreed to be
bound by and to be entitled to the benefits of this SECTION 10.06 as though it
were a party to this Agreement. On reasonable request by each Obligor in
connection with the delivery to any Holder of a Secured Note of information
required to be delivered to such Holder under this Agreement or requested by
such Holder (other than a Holder that is a party to this Agreement or its
nominee), such Holder will enter into an agreement with each Obligor embodying
the provisions of this SECTION 10.06.
SECTION 10.07. TRANSFERS OF SECURED NOTES. Subject to the
requirements of SECTION 2.02(a), the Purchasers and any subsequent Holder shall
have the right to transfer the Secured Notes held by any such Person to any
other Person, by written notice to each Obligor, which notice shall be signed by
both the Purchasers and such transferee, shall contain such transferee's
agreement to be bound by this Agreement and the Secured Notes shall contain a
confirmation by such transferee of the accuracy with respect to it of the
representations set forth in SECTION 5.02. As a condition to any transfer of a
Secured Note, the Issuer may require appropriate documentation to evidence
compliance with applicable securities laws, including an opinion of counsel with
respect thereto. Upon receipt of such notice, wherever the word "Purchaser" or
"Holder" is used in this Agreement (other than in this SECTION 10.07), such word
shall be deemed to refer to such transferee in lieu of the Purchaser or such
Holder, as the case may be. No transfer of any Secured Note shall relieve the
transferring Holder of its obligations under SECTION 10.06.
SECTION 10.08. AGENT'S CONSENT. Whenever the Agent's consent
is required to be obtained under this Agreement or any of the other Note
Documents as a condition to any action, inaction, condition or event, Agent
shall be authorized to give or withhold such consent in its sole and absolute
discretion and to condition its consent upon the giving of additional collateral
security for the Obligations, the payment of money or any other matter.
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SECTION 10.09. INTERPRETATION. No provision of this Agreement
or any of the other Note Documents shall be construed against or interpreted to
the disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured, drafted or dictated such provision.
SECTION 10.10. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent Holder of a Note) whether so
expressed or not.
SECTION 10.11. SEVERABILITY. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 10.12. CONSTRUCTION. Each covenant contained herein
shall be construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
SECTION 10.13. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
SECTION 10.14. GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW
PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE. AS PART OF THE CONSIDERATION FOR
NEW VALUE THIS DAY RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR
PRINCIPAL PLACE OF BUSINESS OF THE OBLIGORS OR THE HOLDERS, OBLIGORS HEREBY
CONSENT AND AGREE THAT THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK OR, AT
AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK SHALL HAVE THE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN OBLIGORS AND AGENT PERTAINING TO THIS AGREEMENT OR ANY
MATTER ARISING OUT OF OR RELATED
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TO THIS AGREEMENT. OBLIGORS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND OBLIGORS
HEREBY WAIVE ANY OBJECTION WHICH ISSUER MAY HAVE BASED ON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENT TO THE
GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. OBLIGORS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE OBLIGORS AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETE UPON THE EARLIER OF THE OBLIGOR=S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT
THE RIGHT OF THE AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE AGENT OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
SECTION 10.15. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS AND
HOLDERS WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE OBLIGORS AND THE
HOLDERS WITH RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE, OBLIGORS AND HOLDERS AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE OBLIGORS AND HOLDERS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY. OBLIGORS AND HOLDERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO
CONSULT WITH COUNSEL REGARDING THIS SECTION THAT THEY FULLY UNDERSTAND ITS
TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE
TERMS OF THIS SECTION.
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SECTION 10.16. INDEMNIFICATION. The Issuer hereby indemnifies
and agrees to defend and hold harmless each Holder and its directors, officers,
agents, employees and counsel from and against any and all losses, claims,
damages, liabilities, deficiencies, judgments or expenses incurred by any of
them (except to the extent that it is finally judicially determined to have
resulted from its own gross negligence or willful misconduct) arising out of or
by reason of (a) any actual or proposed use by any Issuer or any other Person of
the proceeds of the Secured Notes, (b) any litigation, investigations, claims or
proceedings which arise out of or are in any way related to the Note Documents
or the transactions contemplated hereby, including, without limitation, amounts
paid in settlement, court costs and the fees and disbursements of counsel
incurred in connection with any such litigation, investigation, claim or
proceeding or any advice rendered in connection with any of the foregoing and
(c) any remedial or other action taken by an Obligor or any of the Holders in
connection with compliance by any Obligor, or any of its properties, with any
federal, state or local environmental laws, acts, rules, regulations, orders,
directions, ordinances, criteria or guidelines. Without limiting any provision
of this Agreement, it is the express intention of the parties hereto that each
Person indemnified hereunder shall be indemnified and held harmless against any
and all losses, liabilities, claims or damages arising out of or resulting from
the sole or concurrent negligence of such Person. Without prejudice to the
survival of any other Obligations of the Obligors hereunder and under the other
Note Documents, the Obligations of each Obligor under this SECTION 10.16 will
survive the payment or transfer of any Secured Note, the enforcement, amendment
or waiver of any provision of this Agreement or the Secured Notes, and the
termination of this Agreement.
SECTION 10.17. MAXIMUM RATE. Notwithstanding anything to the
contrary contained elsewhere in this Agreement or in any other Note Document,
the Obligors and the Holders hereby agree that all agreements among them under
this Agreement and the other Note Documents, whether
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now existing or hereafter arising and whether written or oral, are expressly
limited so that in no contingency or event whatsoever shall the amount paid, or
agreed to be paid, to any Holder for the use, forbearance, or detention of the
money loaned to the Issuer and evidenced hereby or thereby or for the
performance or payment of any covenant or obligation contained herein or
therein, exceed the Highest Lawful Rate. If due to any circumstance whatsoever,
fulfillment of any provisions of this Agreement or any of the other Note
Documents at the time performance of such provision shall be due shall exceed
the Highest Lawful Rate, then, automatically, the obligation to be fulfilled
shall be modified or reduced to the extent necessary to limit such interest to
the Highest Lawful Rate, and if from any such circumstance any Holder should
ever receive anything of value deemed interest by applicable law which would
exceed the Highest Lawful Rate, such excessive interest shall be applied to the
reduction of the principal amount then outstanding hereunder or on account of
any other then outstanding Obligations and not to the payment of interest, or
if such excessive interest exceeds the principal unpaid balance then
outstanding hereunder and such other then outstanding Obligations, such excess
shall be refunded to the Issuer. All sums paid or agreed to be paid to any
Holder for the use, forbearance, or detention of the Obligations and other
Indebtedness of the Issuer to the Holders, to the extent permitted by
applicable law, shall be amortized, prorated, allocated and spread throughout
the full term of such Indebtedness, until payment in full thereof, so that the
actual rate of interest on account of all such Indebtedness does not exceed the
Highest Lawful Rate throughout the entire term of such Indebtedness. The terms
and provisions of this SECTION 10.17 shall control every other provision of
this Agreement and all agreements among the Obligors and the Holders.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ISSUER: AGENT:
- ------- ------
NATIONAL RECORD MART, INC., ROBERT FLEMING INC.,
a Delaware corporation a Delaware corporation
By: By:
---------------------- -----------------------
Name: Name:
Title: Title:
PURCHASER:
- ----------
ROBERT FLEMING INC.,
a Delaware corporation
By:
----------------------
Name:
Title:
GUARANTORS:
- -----------
NRM INVESTMENTS, INC.
a Delaware corporation,
By:
----------------------
Name:
Title:
SIGNATURE PAGE 1 OF 2 Secured Note Purchase Agreement
<PAGE> 1
Exhibit 4.10
EXECUTION COPY
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT
dated as of April 16, 1998
Among
NATIONAL RECORD MART, INC.,
as Issuer
THE GUARANTORS
FROM TIME TO TIME PARTY THERETO,
THE PURCHASERS
FROM TIME TO TIME PARTY THERETO,
and
ROBERT FLEMING INC.,
as Agent
--------------------------
$7,500,000
Senior Subordinated Notes
due 2001
--------------------------
<PAGE> 2
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TABLE OF CONTENTS
PAGE
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RECITALS .........................................................................................................1
ARTICLE I
DEFINITIONS AND INTERPRETATION...........................................................................2
Section 1.01. Certain Defined Terms..................................................................2
Section 1.02. Computation of Time Periods...........................................................17
Section 1.03. Accounting Terms......................................................................17
Section 1.04. References to this Agreement..........................................................17
Section 1.05. Miscellaneous Terms...................................................................18
ARTICLE II
THE SUBORDINATED NOTES..................................................................................18
Section 2.01. Sale and Purchase of Subordinated Notes...............................................18
Section 2.02. Registration of Subordinated Notes....................................................18
Section 2.03. Transfer and Exchange of Subordinated Notes...........................................19
Section 2.04. Replacement of Subordinated Notes.....................................................20
Section 2.05. Payments on Subordinated Notes........................................................20
Section 2.06. Mandatory Offers to Repurchase the Subordinated Notes.................................21
Section 2.07. Call Right............................................................................22
Section 2.08. Purchases of Subordinated Notes.......................................................22
Section 2.09. Tender of Subordinated Notes to Pay Warrant Exercise Price............................23
ARTICLE III
GUARANTEE OF SECURED NOTES..............................................................................23
Section 3.01. Agreement of Guaranty.................................................................23
Section 3.02. Guaranty Irrevocable..................................................................23
Section 3.03. Certain Waivers.......................................................................24
Section 3.04. Limitations on Subrogation............................................................25
Section 3.05. Contribution..........................................................................25
Section 3.06. Certain Mergers and Consolidations....................................................26
Section 3.07. Release of Guaranty under Certain Circumstances.......................................26
Section 3.08. Subordination of Certain Indebtedness.................................................27
Section 3.09. Guarantors' Indemnity.................................................................27
Section 3.10. No Duty of Inquiry....................................................................27
Section 3.11. No Duty to Provide Data to Guarantors.................................................27
Section 3.12. Rights Cumulative.....................................................................27
Section 3.13. Continuation of Guaranty..............................................................28
Section 3.14. Continuing Guaranty...................................................................28
ARTICLE IV
CLOSING.................................................................................................28
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Section 4.01. Closing of Purchase and Sale of Subordinated Notes....................................28
Section 4.02. Additional Conditions to Closing......................................................29
ARTICLE V
REPRESENTATIONS AND WARRANTIES..........................................................................31
Section 5.01. Representation and Warranties of the Obligors.........................................31
Section 5.02. Representations of the Purchasers.....................................................38
ARTICLE VI
REPORTING AND AFFIRMATIVE COVENANTS.....................................................................39
Section 6.01. Financial and Business Information....................................................39
Section 6.02. Officer's Certificate.................................................................41
Section 6.03. Compliance with Law...................................................................42
Section 6.04. Insurance.............................................................................42
Section 6.05. Maintenance of Properties.............................................................42
Section 6.06. Payment of Taxes and Claims...........................................................43
Section 6.07. Corporate Existence, etc..............................................................43
Section 6.08. Maintenance of Books and Records......................................................43
Section 6.09. Maintenance of Line of Business.......................................................43
Section 6.10. Private Placement Numbers.............................................................43
Section 6.11. Liens.................................................................................43
Section 6.12. Rule 144..............................................................................44
Section 6.13. Use of Proceeds.......................................................................44
Section 6.14. Further Assurances....................................................................44
Section 6.15. Additional Wholly-Owned Subsidiaries..................................................44
ARTICLE VII
NEGATIVE COVENANTS......................................................................................44
Section 7.01. Limitation on Certain Transactions Between the Issuer and Related
Persons........................................................................................44
Section 7.02. Merger, Consolidation, etc............................................................45
Section 7.03. Limitation on Asset Sales.............................................................45
Section 7.04. Restricted Payments and Restricted Investments........................................45
Section 7.05. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries...................................................................................46
Section 7.06. Limitation on Additional Indebtedness.................................................46
Section 7.07. Limitation on Creation of Liens.......................................................47
Section 7.08. Creation of Subsidiaries; Additional Guarantors.......................................47
Section 7.09. Receivables...........................................................................47
Section 7.10. Intentionally Omitted.................................................................47
Section 7.11. Fiscal Year...........................................................................47
Section 7.12. Tax Consolidation.....................................................................47
Section 7.13. Restrictions on Sale and Issuance of Capital Stock....................................47
Section 7.14. Limitation on Security Interest Restrictions..........................................48
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Section 7.15. Minimum Adjusted Tangible Net Worth...................................................48
Section 7.16. Minimum Cash Flow.....................................................................48
Section 7.17. Amendments to the Fleet Facility......................................................48
Section 7.18. Interest Rate Contract................................................................48
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES..........................................................................48
Section 8.01. Events of Default.....................................................................48
Section 8.02. Remedies on Event of Default, Etc.....................................................51
ARTICLE IX
THE AGENT...............................................................................................53
Section 9.01. Appointment...........................................................................53
Section 9.02. Nature of Duties......................................................................53
Section 9.03. Rights, Exculpation, Etc..............................................................54
Section 9.04. Reliance..............................................................................55
Section 9.05. Indemnification.......................................................................55
Section 9.06. Successor Agents......................................................................55
Section 9.07. Relations Among Holders...............................................................56
Section 9.08. Concerning the Note Documents.........................................................56
ARTICLE X
MISCELLANEOUS...........................................................................................56
Section 10.01. Expenses, etc...........................................................................56
Section 10.02. Survival of Representations and Warranties; Entire Agreement............................57
Section 10.03. Amendment and Waiver....................................................................57
Section 10.04. Notices.................................................................................59
Section 10.05. Reproduction of Documents...............................................................60
Section 10.06. Confidential Information................................................................60
Section 10.07. Transfers of Subordinated Notes.........................................................61
Section 10.08. Agent's Consent.........................................................................61
Section 10.09. Interpretation..........................................................................62
Section 10.10. Successors and Assigns..................................................................62
Section 10.11. Severability............................................................................62
Section 10.12. Construction............................................................................62
Section 10.13. Counterparts............................................................................62
Section 10.14. Governing Law...........................................................................62
Section 10.15. Waiver of Right to Trial by Jury........................................................63
Section 10.16. Indemnification.........................................................................63
Section 10.17. Maximum Rate............................................................................64
</TABLE>
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EXECUTION COPY
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT
THIS SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT (as the same
may be amended, supplemented or otherwise modified from time to time, this
"AGREEMENT") is entered into as of April 16, 1998 by and among (i) NATIONAL
RECORD MART, INC., a Delaware corporation (the "ISSUER"), (ii) SENECA CAPITAL
L.P., a Delaware limited parnership, and/or its designees ("SENECA"), (iii)
ROBERT FLEMING INC., a Delaware corporation, and/or its designees ("FLEMING" and
with Seneca, the "PURCHASERS"), (iv) ROBERT FLEMING INC., a Delaware
corporation, in its capacity as agent for the Holders (as defined below) (in
such capacity, the "AGENT"), and (v) THE GUARANTORS FROM TIME TO TIME PARTY
HERETO.
RECITALS
WHEREAS, the Issuer desires to sell and the Purchasers desire
to purchase in each case on the terms and conditions set forth in this
Agreement, notes issued by the Issuer in an aggregate principal amount of
$7,500,000, which notes shall be in substantially the form of EXHIBIT A attached
hereto and made a part hereof (together with any such notes issued in
substitution or replacement therefor pursuant to SECTIONS 2.03 and 2.04,
respectively, of this Agreement, the "SUBORDINATED NOTES");
WHEREAS, the Purchasers have required as a condition, among
others, to their purchase of the Subordinated Notes that each Wholly-Owned
Subsidiary as of the date hereof, and each other Person that becomes a
Wholly-Owned Subsidiary of Issuer after the date of this Agreement
(collectively, the "GUARANTORS") unconditionally guarantee the prompt and
complete payment and performance of the Issuer's obligations under the
Subordinated Notes, this Agreement and the other Note Documents; and
WHEREAS, concurrently with the issuance of the Subordinated
Notes, the Issuer has agreed to issue to the Purchaser warrants to purchase
200,000 shares of the Issuer's common stock (the "WARRANTS") on substantially
the terms set forth in the Warrant Agreement of even date herewith by and among
the Issuer, the Purchaser and the other parties thereto (the "WARRANT
AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing and each of
the representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
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EXECUTION COPY
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. CERTAIN DEFINED TERMS. As used herein, the
following terms have the respective meanings set forth below or set forth in the
Section hereof following such term:
"ACCOUNTS" means all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or acquired by
Borrower or in which Borrower now has or hereafter acquires any interest.
"ADJUSTED NET EARNINGS FROM OPERATIONS" means, with respect to
any fiscal period, the net earnings after provision for income taxes for such
fiscal period of the Obligors, all as reflected on the financial statement of
the Issuer supplied to each Holder pursuant to SECTION 6.01 hereof, but
excluding: (i) any gain or loss arising from the sale or other disposition of
capital assets other than in the ordinary course of business; (ii) any gain
arising from any write-up of assets; (iii) earnings of any Subsidiary accrued
prior to the date it became a Subsidiary; (iv) earnings of any corporation,
substantially all of the assets of which have been acquired in any manner by the
Issuer, realized by such corporation prior to the date of such acquisition; (v)
net earnings of any business entity (other than a Subsidiary) in which Issuer
has an ownership interest unless such net earnings shall have actually been
received by Issuer in the form of cash distributions; (vi) any portion of the
net earnings of any Subsidiary which for any reason is unavailable for payment
of dividends to the Issuer; (vii) the earnings of any Person to which any assets
of Issuer shall have been sold, transferred or disposed of, or into which the
Issuer shall have merged, or been a party to any consolidation or other form of
reorganization, prior to the date of such transaction; (viii) any gain or
non-cash loss arising from the issuance or acquisition of any Securities of the
Issuer; and (ix) any gain or non-cash loss arising from extraordinary items.
"ADJUSTED TANGIBLE ASSETS" means all assets except: (i) any
surplus resulting from any write-up of assets subsequent to March 27, 1993; (ii)
deferred assets, other than prepaid items in the ordinary course such as
insurance and prepaid taxes; (iii) patents, copyrights, trademarks, trade names,
non-compete agreements, franchises and other similar intangibles; (iv) good
will, including any amounts, however designated on a consolidated balance sheet
of a Person and its Subsidiaries, representing the excess of the purchase price
paid for assets or stock over the value assigned thereto on the books of such
Person; (v) Restricted Investments; (vi) unamortized debt discount and expense;
(vii) assets located and notes and receivables due from obligors outside of the
United States of America; and (viii) Accounts, notes and other receivables from
Affiliates or employees.
"ADJUSTED TANGIBLE NET WORTH" means, at any date, a sum equal
to: (i) the net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves) at which the Adjusted
Tangible Assets of a Person would be shown on a balance sheet at such date in
accordance with GAAP, PLUS (ii) the then outstanding principal balance of
Subordinated
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Debt, minus (iii) the amount at which such Person's liabilities (other than
capital stock and surplus) would be shown on such balance sheet in accordance
with GAAP, and including as liabilities all reserves for contingencies and other
personal liabilities.
"AFFILIATE" means, at any time, and with respect to any
Person, any other Person that at such time: (i) directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, such Person; (ii) beneficially owns or holds 5% or more of any
class of the Voting Stock of any Obligor; or (iii) 5% or more the Voting Stock
(or in the case of Person which is not a corporation, 5% or more of the Equity
Interest) of such Person is beneficially owned or held by any Obligor. As used
in this definition, "CONTROL" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Remsen Partners, Ltd. and AlarMax Distributors, Inc. shall be
considered Affiliates for purposes of this Agreement.
"AGENT" is defined in the preamble to this Agreement.
"AGREEMENT" is defined in the preamble to this Agreement.
"ASSET SALE" means, with respect to a Person, in one
transaction or a series of related transactions, directly or indirectly (or
having the effect, result or consequence of) (a) any conveyance, sale, lease,
transfer, assignment or other disposition of, any of its property, business or
assets or (b) any issuance sale, assignment, transfer or other disposition of
shares of Capital Stock of a Subsidiary (other than to Issuer or a Wholly Owned
Subsidiary) PROVIDED, HOWEVER, that the Obligors shall not be deemed to have
made an Asset Sale to the extent that: (i) in the ordinary course of business,
any Obligor shall convey, sell, lease, transfer, assign or otherwise dispose of
any asset acquired and held for resale or lease in the ordinary course of
business; (ii) any Obligor shall sell damaged, worn out or other obsolete
property in the ordinary course of business; (iii) any Obligor shall convey,
sell, transfer, assign or otherwise dispose of assets to Issuer or any
Subsidiary; or (iv) any Obligor shall convey, sell, lease, transfer, assign or
otherwise dispose of assets or rights if the aggregate proceeds to the Obligors
from all such actions in this clause do not exceed $150,000 in any transaction
or series of related transactions and the total proceeds from all transactions
in any Fiscal Year do not exceed $300,000. The conveyance, sale, lease,
transfer, assignment or other disposition of all or substantially all of the
assets of Issuer and its Subsidiaries, taken as a whole, shall be governed by
the provisions of SECTION 7.02 hereof, as applicable, and shall not constitute
an Asset Sale.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11
U.S.C.Sections.101 ET SEQ.). -- ---
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"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which commercial banks in New York, New York are required or
authorized to be closed.
"CAPITAL EXPENDITURES" means expenditures made and liabilities
incurred for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the total principal portion of Capital Leases.
"CAPITAL LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock of such Person (if a corporation) or any and all
similar ownership interests in a Person (other than a corporation) whether now
outstanding or issued after the date of this Agreement.
"CASH FLOW" means, for any period, an amount equal to (i)
Adjusted Net Earnings from Operations of the Obligors, PLUS (ii) amounts
attributable to depreciation and amortization which were deducted in determining
Adjusted Net Earnings from Operations for such fiscal period; PLUS (iii) cash
amounts contributed to the equity of the Issuer by non-Obligors during such
fiscal period; PLUS (iv) any subordinated loans or advances made to the Issuer
by non-Obligors during such fiscal period, MINUS (v) any non-financed Capital
Expenditures made during such fiscal period, MINUS (vi) all Distributions paid
during such fiscal period, MINUS (vii) scheduled repayments of principal on
Indebtedness for Money Borrowed other than the Fleet Facility.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events after the date hereof:
(a) a sale, lease, license, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or substantially
all of the assets of Issuer and its Subsidiaries, taken as a whole, to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act);
(b) a sale, lease, license, transfer, conveyance, proxy or
other disposition, in one or a series of related transactions, of all or
substantially all of the total voting power of all issued and outstanding Equity
Interests of the Issuer owned by William Teitelbaum or any of his Affiliates to
any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act), PROVIDED, HOWEVER, that a pledge or grant of security interest shall not,
in and of itself, constitute a disposition for purposes of this CLAUSE (B)
unless a proxy or other transfer of voting control has been granted to the
secured party or the secured party forecloses on such pledge or grant of
security interest;
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(c) the dissolution or liquidation of Issuer or any of its
Subsidiaries, or Issuer or any of its Subsidiaries or its directors or
stockholders shall take any action to dissolve or liquidate Issuer or any of its
Subsidiaries;
(d) the acquisition by any Person or group (within the meaning
of Rule 13d-5 under the Exchange Act, as in effect on the Closing Date) of
beneficial ownership, directly or indirectly, through a purchase, merger,
consolidation or other acquisition transaction of 50% or more of the equity or
total voting power of all issued and outstanding shares of the Equity Interest
(i) of the Issuer entitled to vote generally in the election of directors or
(ii) of the surviving Person (if the Issuer is not the surviving entity in a
merger permitted by SECTION 7.02) entitled to vote in the election of directors,
managers or trustees of such other Person; or
(e) the election or appointment within any consecutive twelve
(12) month period of directors constituting a majority of the board of directors
who were not directors at the beginning of such period, except for changes in
the composition of the board of directors which are effectuated with the
approval, authorization or consent of William Teitelbaum or any of his
Affiliates.
"CLOSING" is defined in SECTION 4.01.
"CLOSING DATE" is defined in SECTION 4.01.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.
"COLLATERAL AGENT" means Fleet or any of its successors or
assigns as Collateral Agent for the benefit of holders of Senior Debt.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means (i) the common shares of the Issuer,
$0.01 par value, as set forth in the certificate of incorporation of the Issuer
and (ii) any securities issued in respect of or exchange for the securities
described in clause (i) pursuant to a stock dividend, stock split,
recapitalization, merger or reclassification.
"CONFIDENTIAL INFORMATION" is defined in SECTION 10.06.
"CURRENT ASSETS" shall mean at any date the amount at which
all of the current assets of a Person would be properly classified as current
assets on a balance sheet at such date in accordance with GAAP except that
amounts due from Affiliates and Investments in Affiliates shall be excluded
therefrom.
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"DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"DEFAULT RATE" means that rate of interest that is 1.4792% per
month.
"DISTRIBUTION" means, in respect of any corporation, means and
includes (i) the payment of any dividends or other distributions on capital
stock of the corporation (except distributions in such stock) and (ii) the
redemption or acquisition of Securities unless made contemporaneously from the
net proceeds of the sale of Securities.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"EQUITY INTEREST" means the legal or beneficial ownership of
all or a portion of the equity of a Person, including but not limited to
preferred or common stock, options, warrants or rights to acquire stock,
interests in a limited liability company, trusts, interests in a general or
limited partnership or interests in other Persons, however denominated.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with any Obligor
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in SECTION 8.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXTRAORDINARY FUNDING" means any disbursement to Issuer or
any Wholly-Owned Subsidiary in connection with the incurrence of Indebtedness or
the procurement of equity financing by such entity except those arising from the
following: (a) the issuance of Indebtedness permitted by SECTION 7.06 ; (b) the
issuance of stock, or options or warrants to purchase stock, of the Issuer to
any employee, officer or director of the Issuer or the Guarantors pursuant to
Plans or compensation arrangements entered into in the ordinary course of
business and approved by the Board of Directors of the Issuer or such Guarantor,
or payments, contributions or transactions relating to the purchase or exercise
thereof; or (c) the exercise of warrants, on or before August 5, 1998, to
purchase 90,000 shares and 60,000 shares of Common Stock by Ladenburg, Thalmann
& Co. and Advest, respectively, issued in connection with the Issuer's initial
public offering.
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"FAIR MARKET VALUE" means, with respect to any asset of the
Issuer or any of its Subsidiaries, the value of the consideration obtainable in
a sale of such asset in the open market, assuming a sale by a willing seller to
a willing purchaser dealing at arm's length and arranged in an orderly manner
over a reasonable period of time, each having reasonable knowledge of the nature
and characteristics of such asset, neither being under any compulsion to act,
determined by the Issuer in good faith, PROVIDED, that if the book value of the
assets being sold is in excess of $100,000 and such sale is not made in the
ordinary course of business of the applicable Person, such determination shall
be evidenced by a resolution of the board of directors of the Issuer.
"FISCAL YEAR" means the fiscal year of the Issuer ending on
the date which is the Saturday in late March or early April of each year that is
consistent for such fiscal year with the 4-5-4 retail method of accounting.
"FLEET" means Fleet Capital Corporation.
"FLEET FACILITY" means that certain Loan and Security
Agreement dated June 11, 1993 between Fleet and the Issuer, as the same has been
heretofore and may be, subject to SECTION 7.17, hereafter amended, supplemented
or modified, for a $28,000,000 revolving credit facility including all
guaranties and security agreements relating thereto.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America, as applied by the
Issuer and its Subsidiaries on a consistent basis.
"GOVERNING DOCUMENTS" means , with respect to any corporation,
limited liability company or partnership (a) the articles/certificate of
incorporation (or the equivalent formation documents) of such corporation or
limited liability company, (b) the partnership agreement executed by the
partners in the partnership, (c) the by-laws (or the equivalent organizational
documents) of the corporation, limited liability company or partnership and (d)
any document setting forth the designation, amount and/or relative rights,
limitations and preferences of any class or series of such corporation's capital
stock or such limited liability company's or partnership's equity or ownership
interests.
"GOVERNMENTAL AUTHORITY" means (a) the government of (i) the
United States of America or any State or other political subdivision thereof, or
(ii) any jurisdiction in which any Obligor conducts all or any part of its
business, or which asserts jurisdiction over any properties of such Obligor, or
(b) any entity exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, any such government.
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"GUARANTOR" and "GUARANTORS" is defined in the recitals to
this Agreement; PROVIDED, HOWEVER, that no Person shall be a Guarantor after
such time as it has been released from its guaranty of the Subordinated Notes
pursuant to the provisions of this Agreement.
"GUARANTOR SECURITY AND PLEDGE AGREEMENT" means the Guarantor
Security and Pledge Agreement of even date herewith among the Guarantors and the
Secured Note Agent, as the same may be amended, supplemented or otherwise
modified from time to time.
"GUARANTY OBLIGATION" means, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person: (a) to purchase such indebtedness or obligation or any property
constituting security therefor; (b) to advance or supply funds (i) for the
purchase or payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available funds
for the purchase or payment of such indebtedness or obligation; (c) to lease
properties or to purchase properties or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the ability of any
other Person to make payment of the indebtedness or obligation; or (d) otherwise
to assure the owner of such indebtedness or obligation against loss in respect
thereof. The amount of any Guaranty Obligation shall be deemed to be an amount
equal to the stated or determined amount of any primary obligation in respect of
which such Guaranty Obligation is made (or, if less, the maximum amount of such
primary obligation for which such Person may be liable pursuant to the terms of
the instrument evidencing such Guaranty Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"GUARANTY" means, with respect to any Wholly-Owned Subsidiary
its guaranty of the Subordinated Notes and all of its obligations thereunder as
set forth in Article III hereof.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"HIGHEST LAWFUL RATE" means, at any given time during which
any Obligations shall be outstanding hereunder, the maximum nonusurious interest
rate that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Obligations, under the laws
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of the State of New York (or the law of any other jurisdiction whose laws may be
mandatorily applicable notwithstanding other provisions of this Agreement and
the other Note Documents), or under applicable federal laws which may presently
or hereafter be in effect and which allow a higher maximum nonusurious interest
rate than under the laws of the State of New York (or such other jurisdiction's)
law, in any case after taking into account, to the extent permitted by
applicable law, any and all relevant payments or charges under this Agreement
and any other Note Documents executed in connection herewith, and any available
exemptions, exceptions and exclusions.
"HOLDER" means, with respect to any Subordinated Note, the
Purchaser thereof or any assignee of such Purchaser.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication, (a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock; (b) its
liabilities for the deferred purchase price of Property acquired by such Person
(excluding accounts payable arising in the ordinary course of business but
including all liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such Property); (c) all
liabilities appearing on its balance sheet in accordance with GAAP in respect of
Capital Leases; (d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities); (e) all its liabilities in
respect of letters of credit or instruments serving a similar function issued or
accepted for its account by banks and other financial institutions (whether or
not representing obligations for borrowed money); (f) all monetary obligations
or liabilities owed by any Obligor under the Fleet Facility; and (g) any
Guaranty Obligation of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
"INSOLVENCY EVENT" means any of the events described in
paragraphs (h), (j) and (o) of SECTION 8.01.
"INTERCREDITOR AGREEMENT" means that certain Junior
Subordination Agreement of even date herewith among Fleet, the Agent and the
Secured Note Agent (in its capacity as agent under the Secured Note Agreement)
with respect to the subordination of the Subordinated Debt, as the same may be
amended, supplemented, or otherwise modified in accordance with the terms
thereof.
"INTEREST RATE AGREEMENT" means any interest rate protection
or hedge agreement, including without limitation, interest rate futures,
options, swap, floors and cap agreements.
"INVESTMENT" means, with respect to any Person, (i) any
purchase or other acquisition by that Person of securities, or of a beneficial
interest in securities, issued by any other Person, (ii) any purchase by that
Person of all or substantially all of the assets of a business conducted by
another Person, and (iii) any loan, advance (other than deposits with financial
institutions available
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for withdrawal on demand, prepaid expenses, accounts receivable, advances to
employees and similar items made or incurred in the ordinary course of business)
or capital contribution by that Person to any other Person, including all
Indebtedness owed to such Person arising from a sale of property by such Person
other than in the ordinary course of its business; PROVIDED, HOWEVER, that any
cash payments to Fleet required under the Fleet Facility shall not be deemed to
be an Investment. The amount of any Investment shall be the original cost of
such Investment, plus the cost of all additions thereto less the amount of any
return of capital or principal to the extent such return is in cash with respect
to such Investment without any adjustments for increases or decreases in value
or write-ups, write-downs or write-offs with respect to such Investment.
"ISSUER" is defined in the preamble to this Agreement.
"ISSUER SECURITY AND PLEDGE AGREEMENT" means the Issuer
Security and Pledge Agreement of even date herewith between the Issuer and the
Secured Note Agent, as the same may be amended, supplemented or otherwise
modified from time to time.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"LINE OF BUSINESS" means the retail sale of prerecorded home
entertainment products, including compact discs, audio cassettes, videos and
related accessories.
"MATERIAL" means material in relation to the business,
operations, financial condition, assets, properties or prospects of the Issuer
and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, financial condition, assets, properties or
prospects of the Issuer and its Subsidiaries taken as a whole, or (b) the
ability of any Obligor to perform its Material obligations under this Agreement,
the Subordinated Notes or the other Note Documents, or (c) the validity or
enforceability of this Agreement, the Subordinated Notes or the other Note
Documents.
"MONEY BORROWED" means, as applied to Indebtedness, (i)
Indebtedness for borrowed money; (ii) Indebtedness, whether or not in any such
case the same was for borrowed money, (A) which is represented by notes payable
or drafts accepted that evidence the extension of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments, or (C)
upon which interest charges are customarily paid (other than accounts payable)
or that was issued or assumed as full or partial payment for Property; (iii)
Indebtedness that constitutes a Capital Lease; (iv) Indebtedness for ticket
receipts which the Company receives and is obligated to remit to
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a promoter; and (v) Indebtedness under any Guaranty Obligation that would
constitute Indebtedness for Money Borrowed under clauses (i) through (iii)
above.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NET CASH PROCEEDS" means, with respect to any Asset Sale or
Extraordinary Funding, the aggregate amount of cash consideration received by
the Issuer or any of its Subsidiaries in connection with such Asset Sale or
Extraordinary Funding after deduction of all reasonable and customary fees,
costs and expenses (including payment of unassumed liabilities relating to such
Asset Sale within thirty (30) days after such Asset Sale and any portion of the
proceeds which the Issuer determines should be reserved for post-closing
adjustments until such post-closing adjustment reserves are no longer reserved)
directly incurred by the Issuer or such Subsidiary in connection therewith.
"NOTE DOCUMENTS" means, collectively, this Agreement, the
Subordinated Notes, the Warrants, the Warrant Agreement, the Registration Rights
Agreement, the Intercreditor Agreement and all other documents, agreements,
instruments, opinions and certificates now or hereafter delivered in connection
herewith or therewith.
"OBLIGATIONS" means all present and future obligations and
liabilities of any Obligor arising under or in connection with any Note
Document, due or to become due to any Holder or any other Person entitled to
indemnification pursuant to SECTION 10.16, or (to the extent permitted by the
Note Documents) any of their respective successors, transferees or assigns, and
shall include, without limitation, (i) unpaid principal and interest under the
Subordinated Notes (including, whether or not allowed, amounts that would become
due but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code or a stay granted under Section 105 of the Bankruptcy Code, and
including interest accruing on or after the occurrence of an Insolvency Event,
whether or not allowed as a claim in any proceeding relating to the Insolvency
Event), (ii) fees, expenses and indemnification and expense reimbursement
obligations arising under any of the Note Documents, and (iii) the obligations
of the Guarantors arising under ARTICLE III of this Agreement.
"OBLIGOR" means the Issuer or any Guarantor and "OBLIGORS"
means the Issuer and all of the Guarantors.
"OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of any Obligor whose responsibilities
extend to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
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"PERMITTED LIENS" means (i) Liens at any time granted in favor
of Fleming as agent for the holders of Secured Notes (in such capacity, the
"Secured Note Agent"); (ii) Liens for taxes (excluding any Lien imposed pursuant
to any of the provisions of ERISA) not yet due or being contested as permitted
by SECTION 6.06 hereof; (iii) Liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
for labor, materials, supplies, or rentals incurred in the ordinary course of
the Obligor's business, but only if the payment thereof is not at the time
required and only if such Liens are junior to the Liens in favor of the Secured
Note Agent; (iv) Liens resulting from deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance,
social security and other like laws; (v) attachment, judgment and other similar
non-tax Liens arising in connection with court proceedings, but only if and for
so long as the execution or other enforcement of such Liens is and continues to
be effectively stayed and bonded on appeal in a manner satisfactory to the Agent
for the full amount thereof, the validity and amount of the claims secured
thereby are being actively contested in good faith and by appropriate lawful
proceedings and such Liens do not, in the aggregate, materially detract from the
value of the Property of the Obligor or materially impair the use thereof in the
operation of any Obligor's business; (vi) Purchase Money Liens securing Purchase
Money Indebtedness which is not incurred in violation of SECTION 7.06 of this
Agreement; (vii) reservations, exceptions, easements, rights of way, and other
similar encumbrances affecting real Property, provided that, in Agent's sole
judgment, they do not in the aggregate materially detract from the value of said
Properties or materially interfere with their use in the ordinary conduct of any
Obligor's business; (viii) Liens securing Indebtedness of a Subsidiary to Issuer
or another Subsidiary; (ix) Liens securing the Fleet Facility; (x) any Liens
held by the Collateral Agent; (xi) such other Liens as appear on SCHEDULE
5.01(T)(II); and (xii) such other Liens as Agent may hereafter approve in
writing.
"PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by any Obligor or any ERISA
Affiliate or with respect to which any Obligor or any ERISA Affiliate may have
any liability.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, choate or inchoate.
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"PURCHASE MONEY INDEBTEDNESS" means and includes (i)
Indebtedness for the payment of all or any part of the purchase price of any
fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the
time of or within ten (10) days prior to or after the acquisition of any fixed
assets for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
"PURCHASE MONEY LIEN" means a Lien upon fixed assets which
secures Purchase Money Indebtedness, but only if such Lien shall at all times be
confined solely to the fixed assets the purchase price of which was financed
through the incurrence of the Purchase Money Indebtedness secured by such Lien.
"PURCHASERS" OR "PURCHASER" means collectively, as of the
Closing Date, the Person signatory hereto as Purchaser and, at any other given
time, each Person which is a party hereto as a Purchaser.
"REDEMPTION NOTICE" shall mean the Issuer's written notice to
redeem the Notes pursuant to SECTION 2.06(A), SECTION 2.06(B), or SECTION 2.07,
as applicable, and which shall be delivered to the Investors in accordance with
the notice provisions of SECTION 10.04 below.
"REDEMPTION PERCENTAGE" means the applicable percentage by
which the Unpaid Principal Amount of Notes is to be multiplied based on the
following schedule:
(i) if a Redemption Notice is given during a
Redemption Period, the Redemption Percentage shall equal:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
REDEMPTION YEAR REDEMPTION PERCENTAGE
- ---------------------------------------------------------------
<S> <C>
First Redemption Year 103%
- ---------------------------------------------------------------
Second Redemption Year 102%
- ---------------------------------------------------------------
Third Redemption Year 101%
- ---------------------------------------------------------------
</TABLE>
(ii) if a Redemption Notice is given other than
during a Redemption Period, the Redemption Percentage shall
equal:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
REDEMPTION YEAR REDEMPTION PERCENTAGE
- -------------------------------------------------------------
<S> <C>
First Redemption Year 105%
- -------------------------------------------------------------
Second Redemption Year 104%
- -------------------------------------------------------------
</TABLE>
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- ---------------------------------------------
Third Redemption Year 103%.
- ---------------------------------------------
"REDEMPTION PERIOD" shall mean any thirty (30) calendar-day
period beginning the day following any Trading Period if at such time the shares
of Issuer's common stock (the "Common Stock") issuable upon exercise of the
Warrants are registered and available for immediate resale to the public.
"REDEMPTION YEAR" shall mean any one-year period commencing on
the Closing Date or any yearly anniversary thereof and extending to the day
before the next subsequent anniversary. By way of example, the second Redemption
Year shall be the one-year period commencing on a date twelve (12) months from
the Closing Date.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement of even date herewith between the Issuer and the Purchasers, as the
same may be amended, supplemented or otherwise modified from time to time.
"RELATED PERSON" means any Affiliate of the Issuer or any
officer, employee, director of the Issuer or any Affiliate or any stockholder
beneficially owning more than 5% of the equity of the Issuer or any "member of
the immediate family" of any of the foregoing (as such term is defined in Item
404 of Regulation S-K).
"REQUIRED HOLDERS" means, at any time, the Holders of more
than fifty percent in principal amount of the Subordinated Notes at the time
outstanding (exclusive of Subordinated Notes then owned by the Issuer or any of
its Related Persons).
"REQUIREMENT OF LAW" means (a) the Governing Documents of a
Person, (b) any law, treaty, rule, regulation, order or determination of an
arbitrator, court or other Governmental Authority or (c) any franchise, license,
lease, permit, certificate, authorization, qualification, easement, right of
way, right or approval binding on a Person or any of its property.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of any Obligor with responsibility for the administration of
the relevant portion of this Agreement or any Note Document.
"RESTRICTED INVESTMENT" means any Investment in cash or by
delivery of Property to any Person, whether by the acquisition of stock,
Indebtedness or other obligation or security, or by loan, advance or capital
contribution, or otherwise, or in any Property except the following: (i)
Investments in one or more Subsidiaries of the Issuer; (ii) Property to be used
in the ordinary course of business; (iii) Current Assets arising from the sale
of goods and services in the ordinary course of business of the Obligors; (iv)
Investments in direct obligations of the United States of America, or any agency
thereof or obligations guaranteed by the United States of America, provided that
such
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obligations mature within one year from the date of acquisition thereof; (v)
Investments in certificates of deposit maturing within one year from the date of
acquisition issued by a bank or trust company organized under the laws of the
United States or any state thereof having capital surplus and undivided profits
aggregating at least $100,000,000; and (vi) Investments in commercial paper
given the highest rating by a national credit rating agency and maturing not
more than two hundred and seventy (270) days from the creation thereof.
"SECURED NOTE AGENT" means Fleming, in its capacity as agent
for the "Holders" under (and as defined in) the Secured Note Agreement
"SECURED NOTE AGREEMENT" means that certain Senior
Subordinated Secured Note Purchase Agreement of even date herewith by and among
the Issuer, Guarantor, Fleming and/or its designees as Purchasers (the"Secured
Holders"), and Fleming in its capacity as Agent for the Secured Holders (as
those terms are defined therein), as the same may be amended, supplemented or
otherwise modified in accordance with the terms hereof and thereof, pursuant to
which Issuer sold to Secured Holders secured notes in the principal amount of
$7,500,000.
"SECURITIES" means the Subordinated Notes, the Warrants and
the Common Stock of the Issuer issuable upon exercise of the Warrants.
"SECURITIES ACT" means the Securities Act of 1933.
"SECURITY INTEREST RESTRICTION" means, as applicable,
"Security Interest Restriction" as defined in the Issuer Security and Pledge
Agreement or "Security Interest Restriction" as defined in the Guarantor
Security and Pledge Agreement.
"SENIOR DEBT" means, without duplication, (i) the principal of
and interest on (including, whether or not allowed, amounts that would become
due but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code or a stay granted under Section 105 of the Bankruptcy Code, and
including interest accruing on or after the occurrence of an Insolvency Event,
whether or not allowed as a claim in any proceeding relating to the Insolvency
Event) and all other amounts owing with respect to all Indebtedness under the
Fleet Facility, (ii) the principal of and interest on (including, whether or not
allowed, amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code or a stay granted under Section
105 of the Bankruptcy Code, and including interest accruing on or after the
occurrence of an Insolvency Event, whether or not allowed as a claim in any
proceeding relating to the Insolvency Event) and all other amounts owing with
respect to all Indebtedness under the Secured Note Agreement, and (iii)
guarantees by the Issuer of Indebtedness under, or the joint and several
obligations of the Issuer of any Indebtedness under, the Fleet Facility and the
Secured Note Agreement and the obligation to pay fees, expenses and other
amounts due to the lenders thereunder.
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"SENIOR FINANCIAL OFFICER" means, with respect to any Obligor,
the chief financial officer, principal accounting officer, treasurer or
comptroller of such Obligor.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock
of the Issuer, as authorized in the Issuer's certificate of incorporation.
"SUBORDINATED DEBT" means, without duplication, (i) the
principal of and interest on (including, whether or not allowed, amounts that
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code or a stay granted under Section 105 of the
Bankruptcy Code, and including interest accruing on or after the occurrence of
an Insolvency Event, whether or not allowed as a claim in any proceeding
relating to the Insolvency Event) and all other amounts owing with respect to
all Indebtedness under this Agreement, (ii) guarantees by the Issuer of
Indebtedness under, or the joint and several obligations of the Issuer of any
Indebtedness under, this Agreement and the obligation to pay fees, expenses and
other amounts due to the lenders thereunder and, whether or not allowed by law,
interest accruing thereunder after the filing of a petition initiating any
proceedings pursuant to or under any Bankruptcy Law, and any guarantees by the
Issuer of any Indebtedness or other obligations of any Subsidiary that is a
party to this Agreement and the obligation to pay fees, expenses and other
amounts due thereunder.
"SUBORDINATED NOTES" is defined in the recitals to this
Agreement.
"SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to control or elect a majority of the directors (or
Persons performing similar functions) of such entity, and any partnership,
trust, limited liability company or joint venture if more than a 50% interest in
the profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries. Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Issuer.
"THRESHOLD PRICE" shall equal (i) during the first Redemption
Year: $6.00 per share of Common Stock; (ii) during the second Redemption Year:
$7.00 per share of Common Stock; and (iii) during the third Redemption Year:
$8.00 per share of Common Stock, with appropriate adjustments for stock splits,
dividends, reverse splits and similar events.
"TRADING PERIOD" shall mean any consecutive twenty (20)
trading days during which the Common Stock is actually traded on its principal
exchange as reported by such exchange and during which period the average
closing price of the Common Stock as reported by the principal exchange or
market on which such Common Stock is traded is equal to or in excess of the
Threshold Price. Should a Trading Period straddle a Redemption Year, the
Threshold Price shall be appropriately weighted and adjusted.
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"UCC" means the Uniform Commercial Code as in effect in the
State of New York on the date of execution of this Agreement.
"UNPAID PRINCIPAL AMOUNT" means, as to the Subordinated Notes
in the aggregate, $7,500,000 less the aggregate amount of all payments of
principal made by the Issuer on the Subordinated Notes (excluding payments made
as premium and payments made as interest). The Unpaid Principal Amount of each
Subordinated Note shall be similarly defined.
"VOTING STOCK" means securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
persons performing similar functions).
"WARRANT AGREEMENT" is defined in the recitals to this
Agreement.
"WARRANTS" is defined in the Recitals to this Agreement.
"WHOLLY-OWNED SUBSIDIARY" means NRM Investments, Inc. and any
other Subsidiary with respect to which one hundred percent (100%) of all of the
equity interests (except directors' qualifying shares) and voting interests are
owned by any one or more of the Issuer and the Issuer's other Wholly-Owned
Subsidiaries at such time.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement,
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding". Periods of days referred to in this Agreement
shall be counted in calendar days unless Business Days are expressly prescribed.
Any period determined hereunder by reference to a month or months or year or
years shall end on the day in the relevant calendar month in the relevant year,
if applicable, immediately preceding the date numerically corresponding to the
first day of such period, PROVIDED, that if such period commences on the last
day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month during which such period is to end),
such period shall, unless otherwise expressly required by the other provisions
of this Agreement, end on the last day of the calendar month.
SECTION 1.03. ACCOUNTING TERMS. For purposes of this
Agreement, all accounting terms not otherwise defined herein shall have the
meanings assigned to them in conformity with GAAP.
SECTION 1.04. REFERENCES TO THIS AGREEMENT. The words
"hereof", "herein", "hereunder" and similar terms when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and article, section, subsection, clause,
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schedule and exhibit references herein are references to articles, sections,
subsections, clauses, schedules and exhibits to this Agreement unless otherwise
specified.
SECTION 1.05. MISCELLANEOUS TERMS. All terms defined in this
Agreement in the singular shall have comparable meanings when used in the
plural, and VICE VERSA, unless otherwise specified. The term "including" is by
way of example and not limitation. A Default or an Event of Default shall
"continue" or be "continuing" until such Default or Event of Default has been
waived in accordance with SECTION 10.03 or, subject to SECTION 6.01(H), cured
within ten (10) Business Days from the date of Default or the Event of Default.
A reference to a statute, ordinance, code or other Requirement of Law includes
rules, regulations or guidance promulgated thereunder and consolidations,
amendments, re-enactments or replacements of, or successors to, any of them. A
reference to a Person includes a reference to the Person's executors,
administrators, successors, substitutes and assigns.
ARTICLE II
THE SUBORDINATED NOTES
SECTION 2.01. SALE AND PURCHASE OF SUBORDINATED NOTES. Subject
to the terms and conditions of this Agreement, the Issuer will issue and sell to
the Purchasers and the Purchasers will purchase from the Issuer, at the Closing
provided for in SECTION 4.01, Subordinated Notes in the principal amount of
$7,500,000.
SECTION 2.02. REGISTRATION OF SUBORDINATED NOTES. The Issuer
hereby acknowledges and makes the Subordinated Notes a registered obligation for
United States withholding tax purposes. The Issuer shall be the registrar for
the Subordinated Notes (the "REGISTRAR") with full power of substitution. In the
event the Registrar becomes unable or unwilling to act as registrar under this
Agreement, the Issuer shall reasonably designate a successor Registrar. Each
Holder who is a foreign person, by its acceptance of its Subordinated Note(s),
hereby agrees to provide the Issuer with a completed Internal Revenue Service
Form W-8 (Certificate of Foreign Status) or a substantially similar form for
such Holder, participants or other affiliates who are holders of beneficial
interests in the Subordinated Notes. Notwithstanding any contrary provision
contained in this Agreement or any of the other Note Documents, neither the
Subordinated Notes nor any interests therein may be sold, transferred,
hypothecated, participated or assigned to any Person except upon satisfaction of
the conditions specified in this SECTION 2.02. Each Holder, by its acceptance of
its Subordinated Note(s), agrees to be bound by the provisions of this SECTION
2.02 and to indemnify and hold harmless the Registrar against any and all loss
or liability arising from the disposition by such Holder of the Subordinated
Notes or any interest therein in violation of this SECTION 2.02. The Registrar
shall keep at its principal executive office (or an office or agency designated
by it by notice to the last registered Holder) a ledger, in which, subject to
such reasonable regulations as it may prescribe, but at its expense (except as
specified below), it shall provide for the registration and transfer of the
Subordinated Notes. No sale, transfer, hypothecation, participation or
assignment of
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any Subordinated Note or any interest therein shall be effective for any purpose
until it shall be registered on the books of the Registrar to be maintained for
such purpose. In the event of a sale, transfer, hypothecation, participation or
assignment of any Subordinated Note or any interest therein, the Holder of such
Subordinated Note prior to such sale, transfer, hypothecation, participation or
assignment of such Subordinated Note or any interest therein shall provide
Issuer with notice of such transaction at the time of such transaction. The
Registrar shall record the transfer of the Subordinated Notes on the books
maintained for this purpose upon receipt by the Registrar at the office or
agency designated by the Registrar of (a) a written assignment of the
Subordinated Note(s) being assigned (or the applicable interest therein), (b)
funds sufficient to pay any transfer taxes payable upon the making of such
transfer as well as the cost of reviewing the documents presented to the
Registrar, and (c) such evidence of due execution as the Registrar shall
reasonably require. The Registrar shall record the transfer of the Subordinated
Notes on the books maintained for such purpose at the cost and expense of the
assignee.
SECTION 2.03. TRANSFER AND EXCHANGE OF SUBORDINATED NOTES.
(a) The Holders understand and agree that the Subordinated
Notes have not been registered under the Securities Act or the securities laws
of any state, and that they may be sold or otherwise disposed of only in one or
more transactions registered under the Securities Act or, where applicable,
pursuant to an exemption from the registration requirements of the Securities
Act and, where applicable, the securities laws of any state. The Holders
understand and agree that each Subordinated Note or certificate representing the
Subordinated Notes shall bear the following legends:
THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS
(b) Subject to the requirements of clause (a) above, upon
surrender of any Subordinated Note at the principal executive office of the
Issuer for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer reasonably acceptable to the Issuer, duly executed by the
registered Holder of such Subordinated Note or its attorney duly authorized in
writing and accompanied by the address for notices of each transferee of such
Subordinated Note or part thereof), the Issuer shall execute and deliver, at the
Issuer's expense (except as provided below), one or more new Subordinated Notes
(as requested by the Holder thereof) in exchange therefor, in an aggregate
principal amount equal to the Unpaid Principal Amount of the surrendered
Subordinated Note. Each
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such new Subordinated Note shall be payable to such Person as such Holder may
request and shall be substantially in the form of EXHIBIT A. Each such new
Subordinated Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Subordinated Note or dated the
date of the surrendered Subordinated Note if no interest shall have been paid
thereon. The Issuer may require payment of a sum sufficient to cover any stamp
tax or governmental charge imposed in respect of any such transfer of
Subordinated Notes. Subordinated Notes shall not be transferred in denominations
of less than $10,000, PROVIDED that if necessary to enable the registration of
transfer by a Holder of its entire holding of Subordinated Notes, one
Subordinated Note may be in a denomination of less than $10,000. Any Holder, by
its acceptance of a Subordinated Note registered in its name (or the name of its
nominee), shall be deemed to have made the representation set forth in SECTION
5.02 (other than SECTION 5.02(D)) to the extent applicable.
SECTION 2.04. REPLACEMENT OF SUBORDINATED NOTES. Upon receipt
by the Issuer of notice from any Holder of the ownership of and the loss, theft,
destruction or mutilation of any Subordinated Note held by such Holder, and
(a) in the case of loss, theft or destruction, a lost note
indemnity agreement reasonably satisfactory to the Issuer and the Holder, or
(b) in the case of mutilation, upon surrender and cancellation
thereof and, to the extent reasonably necessary, a lost note indemnity agreement
reasonably satisfactory to the Issuer and the Holder,
the Issuer at its own expense shall execute and deliver, in lieu thereof, a new
Subordinated Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Subordinated
Note or dated the date of such lost, stolen, destroyed or mutilated Subordinated
Note if no interest shall have been paid thereon.
SECTION 2.05. PAYMENTS ON SUBORDINATED NOTES.
(a) PLACE OF PAYMENT; SURRENDER. Payments of principal,
interest and other amounts becoming due and payable on the Subordinated Notes or
under the Note Documents shall be made by the method and to the address or
account specified with respect to any Holder by such method and at such address
or account as such Holder shall have from time to time specified to each Obligor
in writing for such purpose, without the presentation or surrender of such
Subordinated Note or the making of any notation thereon, except that upon
written request of any Obligor made concurrently with or promptly after payment
or prepayment in full of any Subordinated Note, the Holder of such Subordinated
Note shall surrender it for cancellation, reasonably promptly after any such
request, to the Obligors at the Issuer's principal executive office. Prior to
any sale or other disposition of any Subordinated Note by any Holder or its
nominee, such Holder will, at its election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has
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been paid thereon or surrender such Subordinated Note to the Issuer in exchange
for a new Subordinated Note or Subordinated Notes pursuant to SECTION 2.03.
(b) PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Subordinated Notes to the contrary notwithstanding, any payment
of principal of or interest on any Subordinated Note that is due on a date other
than a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.
SECTION 2.06. MANDATORY OFFERS TO REPURCHASE THE SUBORDINATED
NOTES.
(a) OFFER TO PREPAY SUBORDINATED NOTES UPON A CHANGE OF
CONTROL. Promptly and in any event within five Business Days after the
occurrence of any Change of Control, the Issuer shall give written notice of
such transaction or event to each Holder, which notice shall state the date of
such Change of Control, shall describe such Change of Control in reasonable
detail and shall contain an offer to prepay all Subordinated Notes at the price
specified below on the date therein specified (the "CHANGE OF CONTROL PREPAYMENT
DATE"), which shall be a Business Day not less than 20 nor more than 30 days
after the date of such notice. Each Holder shall have the option to sell to the
Issuer, and the Issuer hereby agrees to repurchase as provided herein, any or
all of the Subordinated Notes then owned by such Holder, at a purchase price
equal to the Redemption Percentage of the Unpaid Principal Amount of
Subordinated Notes, together with the accrued interest thereon to and including
the Change of Control Prepayment Date. Such option may be exercised by each
Holder by written notice to the Issuer given not later than 10 days prior to the
Change of Control Prepayment Date, specifying the aggregate principal amount of
Subordinated Notes which such Holder intends to sell to the Issuer. On or before
the Change of Control Prepayment Date, each Holder which has accepted the
Issuer's offer to repurchase the Subordinated Notes shall deliver to the Issuer
the Subordinated Notes to be repurchased hereunder on such date against payment
by the Issuer in full in immediately available funds of the purchase price
therefor specified herein; PROVIDED that, notwithstanding its exercise of the
option herein provided, any such Holder may at any time prior to the Change of
Control Prepayment Date waive in whole or in part, by written notice to the
Issuer, its right to sell to the Issuer the Subordinated Notes to be repurchased
on such Change of Control Prepayment Date.
(b) OFFER TO PREPAY SUBORDINATED NOTES UPON AN ASSET SALE OR
OTHER EXTRAORDINARY FUNDING. Promptly and in any event within five Business Days
after the occurrence of any Asset Sale or Extraordinary Funding, the Issuer
shall give written notice of such transaction or event to each Holder, which
notice shall state the date of such Asset Sale or Extraordinary Funding, shall
describe such Asset Sale or Extraordinary Funding in reasonable detail and shall
contain an offer to prepay on the date therein specified such of the
Subordinated Notes as may be purchased with all of the Net Cash Proceeds of such
Asset Sale or Extraordinary Funding (a "SECTION 2.06(B) OFFER"); PROVIDED,
HOWEVER, that to the extent that a Section 2.06(b) Offer is prohibited by the
Fleet Facility or the Secured Note Agreement, (i) the Issuer shall, prior to the
consummation of the related Asset Sale or
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Extraordinary Funding, request that Fleet and the Secured Note Agent, as
applicable, consent to the making of such Section 2.06 (b) Offer, (ii) if Fleet
and the Secured Note Agent, as applicable, consent to the making of such Section
2.06(b) Offer, the Issuer shall comply with this SECTION 2.06(B) and (iii) if
Fleet or the Secured Note Agent does not consent to the making of such Section
2.06(b) Offer, the Issuer shall not be required to comply with this SECTION
2.06(B) solely with respect to the related Asset Sale or Extraordinary Funding.
Fleet's or the Secured Note Agent's refusal to consent to the making of any
Section 2.06(b) Offer shall not relieve the Issuer from its obligation to
request Fleet's and the Secured Note Agent's, as applicable, consent to the
making of any subsequent offer which, but for the prohibitions in the Fleet
Facility or the Secured Note Agreement, would be required to be made hereunder.
The date of the purchase (the "SECTION 2.06(B) PURCHASE DATE") shall be no
sooner than 20 nor later than 30 days after the Asset Sale or Extraordinary
Funding, as applicable. The purchase price shall equal the Redemption Percentage
of the Unpaid Principal Amount of the Subordinated Notes to be purchased,
together with accrued interest thereon to and including the Section 2.06(b)
Purchase Date, as may be purchased with such Net Cash Proceeds. Each Holder
shall have the option to sell to the Issuer, and the Issuer hereby agrees to
repurchase as provided herein, such of the Subordinated Notes then owned by such
Holder as may be purchased on the terms described herein.
Such option may be exercised by each Holder by written
notice to the Issuer given not later than 10 days prior to the Section 2.06(b)
Purchase Date, specifying the aggregate principal amount of Subordinated Notes
which such Holder intends to sell to the Issuer. On or before the Asset Sale
Purchase Date, each Holder which has accepted the Issuer's offer to repurchase
the Subordinated Notes shall deliver to the Issuer the Subordinated Notes to be
repurchased hereunder on such date against payment by the Issuer in full in
immediately available funds of the purchase price therefor specified herein;
PROVIDED that, notwithstanding its exercise of the option herein provided, any
such holder may at any time prior to the Section 2.06(b) Purchase Date waive in
whole or in part, by written notice to the Issuer, its right to sell to the
Issuer the Subordinated Notes to be repurchased. On the Section 2.06(b) Purchase
Date the Issuer shall pay to each such Holder in full in immediately available
funds the purchase price for such holder's Subordinated Notes specified herein.
Promptly following the Section 2.06(b) Purchase Date, the Issuer shall deliver
to each Holder electing to accept the Section 2.06(b) Offer a new Subordinated
Note equal in principal amount to any unpurchased portion of the Subordinated
Note surrendered by such Holder. To the extent the Section 2.06(b) Offer is not
fully subscribed to by holders of the Subordinated Notes, first such tendered
Subordinated Notes shall be paid for in full to the extent possible with the
available Net Cash Proceeds and then any remaining Net Cash Proceeds may be
retained by the Issuer or Subsidiary.
(c) ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each
partial prepayment of the Subordinated Notes under SECTION 2.06(B), the
principal amount of the Subordinated Notes to be prepaid shall be allocated
among all of the Subordinated Notes at the time outstanding in proportion, as
nearly as practicable, to the respective Unpaid Principal Amounts of each Holder
thereof not theretofore called for prepayment, with adjustments, to the extent
practicable, to
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compensate for any prior payments not made exactly in such proportion, but so
that Subordinated Notes remaining outstanding after the prepayment are in the
authorized denominations specified in this Agreement.
SECTION 2.07. CALL RIGHT. The Issuer shall have the right to
redeem all, but not less than all, of the Subordinated Notes at the then
applicable Redemption Percentage times the Unpaid Principal Amount of the
Subordinated Notes, plus accrued interest, with such redemption to be completed
within fifteen (15) Business Days after the Redemption Notice is given.
SECTION 2.08. PURCHASES OF SUBORDINATED NOTES. No Obligor will
and will not permit any Affiliate to purchase, redeem, prepay or otherwise
acquire, directly or indirectly, any of the outstanding Subordinated Notes
except upon the payment or prepayment of the Subordinated Notes in accordance
with the terms of this Agreement and the Subordinated Notes (including any offer
to purchase the Subordinated Notes pursuant to SECTIONS 2.06 or exercise of a
call right pursuant to SECTION 2.07). Each Obligor will promptly cancel all
Subordinated Notes acquired by it or any Affiliate pursuant to any payment,
prepayment or purchase of Subordinated Notes pursuant to any provision of this
Agreement or otherwise and no Subordinated Notes may be issued in substitution
or exchange for any such Subordinated Notes (except to the limited extent set
forth in SECTION 2.06).
SECTION 2.09. TENDER OF SUBORDINATED NOTES TO PAY WARRANT
EXERCISE PRICE. Each of the Obligors agrees that the Subordinated Notes may be
used, and credited at the principal amount thereof (or portion surrendered for
this purpose) together with accrued interest to the date of exercise, by the
Holders in making payment of the exercise price of the Warrants in lieu of cash.
ARTICLE III
GUARANTEE OF SECURED NOTES
SECTION 3.01. AGREEMENT OF GUARANTY. In order to induce the
Purchasers to purchase the Subordinated Notes, the Guarantors hereby jointly and
severally irrevocably and unconditionally guarantee as primary obligors and not
merely as sureties, the due and punctual payment in full of all Obligations when
the same shall become due, whether at stated maturity, by acceleration, demand
or otherwise (including, whether or not allowed, amounts that would become due
but for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code or a stay granted under Section 105 of the Bankruptcy Code, and
including interest accruing on and after the occurrence of an Insolvency Event,
whether or not allowed as a claim in any such proceeding relating to the
Insolvency Event). The term "Obligations" is used herein in its most
comprehensive sense and includes any and all obligations of Issuer now or
hereafter made, incurred or created, whether absolute or contingent, liquidated
or unliquidated, whether due or not due, and however arising under or in
connection with any Subordinated Note.
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SECTION 3.02. GUARANTY IRREVOCABLE. Each Guarantor agrees that
its obligations hereunder are irrevocable, absolute, independent and
unconditional and to the maximum extent permitted by applicable law, shall not
be affected by any circumstance which constitutes a legal or equitable discharge
of a guarantor or surety other than payment in full of the Obligations. In
furtherance of the foregoing and without limiting the generality thereof, each
Guarantor agrees to the maximum extent permitted by applicable law, as follows:
(a) this Guaranty is a guaranty of payment when due and not of collectibility;
(b) the Holders of Subordinated Notes may from time to time, without notice or
demand and without affecting the validity or enforceability of this Guaranty or
giving rise to any limitation, impairment or discharge of any Guarantor's
liability hereunder, (i) renew, extend, accelerate or otherwise change the time,
place, manner or terms of payment of the Obligations, (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, the Obligations or any agreement relating thereto
and/or subordinate the payment of the same to the payment of any other
obligations, (iii) request and accept other guaranties of the Obligations and
take and hold security for the payment of this Guaranty or the Obligations, (iv)
release, exchange, compromise, subordinate or modify, with or without
consideration, any security for payment of the Obligations, any other guaranties
of the Obligations, or any other obligation of any Person (including any other
Guarantor) with respect to the Obligations, (v) enforce and apply any security
now or hereafter held by or for the benefit of the Holders of Subordinated Notes
in respect of this Guaranty or the Obligations and direct the order or manner of
sale thereof, or exercise any other right or remedy that the Holders of the
Subordinated Notes may have against any such security, as the Holders of the
Subordinated Notes in their discretion may determine consistent with any
applicable security agreement, including foreclosure on any such security
pursuant to one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable, and (vi) exercise any other
rights available to any of them under any of the Note Documents, at law or in
equity; and (c) this Guaranty and the obligations of Guarantors hereunder shall
be valid and enforceable and shall not be subject to any limitation, impairment
or discharge for any reason (other than payment in full of the Obligations),
including without limitation the occurrence of any of the following, whether or
not any Guarantor shall have had notice or knowledge of any of them: (i) any
failure to assert or enforce or agreement not to assert or enforce, or the stay
or enjoining, by order of court, by operation of law or otherwise, of the
exercise or enforcement of, any claim or demand or any right, power or remedy
with respect to the Obligations or any agreement relating thereto, or with
respect to any other guaranty of or security for the payment of the Obligations,
(ii) any waiver, amendment or modification of, or any consent to departure from,
any of the terms or provisions (including without limitation provisions relating
to events of default) of any of the Note Documents or any agreement or
instrument executed pursuant thereto, or of any other guaranty or security for
the Obligations, (iii) the Obligations, or any agreement relating thereto, at
any time being found to be illegal, invalid or unenforceable in any respect,
(iv) the application of payments received from any source to the payment of
indebtedness other than the Obligations, even though the Holders of the
Subordinated Notes might have elected to apply such payment to any part or all
of the Obligations, (v) any defenses, set-offs or counterclaims which any
Obligor may allege or assert against any Holder of Subordinated Notes in respect
of the Obligations, including but not limited to failure of consideration,
breach of warranty, payment, statute
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of frauds, statute of limitations, accord and satisfaction and usury, and (vi)
any other act or thing or omission, or delay to do any other act or thing, which
may or might in any manner or to any extent vary the risk of any Guarantor as an
obligor in respect of the Obligations.
SECTION 3.03. CERTAIN WAIVERS. Each Guarantor hereby waives to
the maximum extent permitted by applicable law, for the benefit of the Holders:
(a) any right to require the Holders, as a condition of payment or performance
by such Guarantor, to (i) proceed against the Issuer, any other guarantor
(including any other Guarantor) of the Obligations or any other Person, (ii)
proceed against or have resort to any balance of any deposit account or credit
on the books of any of the Holders in favor of the Issuer or any other Person,
or (iii) pursue any other remedy in the power of the Holders whatsoever; (b) any
defense arising by reason of the incapacity, lack of authority or any disability
or other defense of the Issuer including, without limitation, any defense based
on or arising out of the lack of validity or the unenforceability of the
Obligations or any agreement or instrument relating thereto or by reason of the
cessation of the liability of the Issuer from any cause other than payment in
full of the Obligations; (c) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal; (d) any
defense based upon the Holders' errors or omissions in the administration of the
Obligations, except behavior which amounts to bad faith; (e) (i) any principles
or provisions of law, statutory or otherwise, which are or might be in conflict
with the terms of this Guaranty and any legal or equitable discharge of such
Guarantor's obligations hereunder, (ii) the benefit of any statute of
limitations affecting such Guarantor's liability hereunder or the enforcement
hereof, and (iii) any rights to set-offs, recoupments and counterclaims; (f)
notices, demands, presentments, protests, notices of protest, notices of
dishonor and notices of any action or inaction, including acceptance of this
Guaranty, notices of default under this Agreement or the Subordinated Notes or
any agreement or instrument related thereto, notices of any renewal, extension
or modification of the Obligations or any agreement related thereto, notices of
any extension of credit to the Issuer and notices of any of the matters referred
to in the preceding paragraph and any right to consent to any thereof; and (g)
any defenses or benefits that may be derived from or afforded by law which limit
the liability of or exonerate guarantors or sureties, or which may conflict with
the terms of this Guaranty.
SECTION 3.04. LIMITATIONS ON SUBROGATION. Until the
Obligations shall have been paid in full, each Guarantor shall withhold exercise
of (a) any claim, right or remedy, direct or indirect, that such Guarantor now
has or may hereafter have against the Issuer or any of its assets in connection
with this Guaranty or the performance by such Guarantor of its obligations
hereunder, in each case whether such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise and including without
limitation (i) any right of subrogation, reimbursement or indemnification that
such Guarantor now has or may hereafter have against the Issuer, and (ii) any
right to enforce, or to participate in, any claim, right or remedy that any
Holder of Subordinated Notes now has or may hereafter have against the Issuer,
and (b) any right of contribution such Guarantor may have against any other
guarantor (including any other Guarantor) of any of the Obligations. Each
Guarantor further agrees that, to the extent the agreement to
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withhold the exercise of its rights of subrogation, reimbursement,
indemnification and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification such Guarantor may have against
the Issuer, and any rights of contribution such Guarantor may have against any
such other guarantor, shall be junior and subordinate to any rights the Holders
of Subordinated Notes may have against the Issuer, and to any right the Holders
of Subordinated Notes may have against such other guarantor.
SECTION 3.05. CONTRIBUTION. The Guarantors together desire to
allocate among themselves in a fair and equitable manner their Obligations
arising under this Guaranty. Accordingly, in the event any Guarantor shall,
pursuant to the terms of this Guaranty, make a payment (a "GUARANTOR PAYMENT")
of all or any portion of the Obligations which, taking into account all other
Guarantor Payments then previously or concurrently made by any of the other
Guarantors, exceeds the amount which such Guarantor would otherwise have paid if
each Guarantor had paid its proportionate share (as defined below) of the
aggregate Obligations satisfied by such Guarantor Payment, such Guarantor shall
be entitled to contribution and indemnification from each of the other
Guarantors, and each of the other Guarantors hereby agrees to reimburse such
Guarantor, in an amount equal to such other Guarantor's respective Proportionate
Share of such Guarantor Payment. "PROPORTIONATE SHARE" of any Guarantor means,
as of any date of determination, the percentage obtained by dividing (i) such
Guarantor's Allocable Amount (as defined below) in effect immediately prior to
the making of any Guarantor Payment by (ii) the aggregate Allocable Amounts of
all of the Guarantors in effect immediately prior to the making of such
Guarantor Payment. "ALLOCABLE AMOUNT" of any Guarantor means, as of any date of
determination, an amount equal to the maximum amount which could then be claimed
by the Agent and the Holders under this Guaranty without rendering such claim
voidable or avoidable under Section 548 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law. The Guarantors acknowledge that the rights
of contribution and indemnification under this SECTION 3.05 shall constitute an
asset in favor of any Guarantor to which such contribution or indemnification is
owing. This SECTION 3.05 is intended only to define the relative rights of the
Guarantors with respect to payments made by the Guarantors under the Guaranty,
and nothing set forth in the Guaranty is intended to or shall impair the
obligations of the Guarantors, jointly and severally, to pay any amounts to the
Agent and the Holders, as and when the same shall become due and payable in
accordance with the terms of the Guaranty.
SECTION 3.06. CERTAIN MERGERS AND CONSOLIDATIONS.
(a) Nothing contained in this Agreement or in any Subordinated
Note shall prevent any consolidation or merger of a Guarantor with or into the
Issuer or another Guarantor or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety, to the
Issuer or another Guarantor.
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(b) Except as permitted by SECTION 7.02, no Guarantor may
merge or consolidate with or into a corporation or corporations other than the
Issuer or another Guarantor or sell or convey its property as an entirety or
substantially as an entirety to a corporation other than the Issuer or another
Guarantor.
SECTION 3.07. RELEASE OF GUARANTY UNDER CERTAIN CIRCUMSTANCES.
Upon the sale or other disposition of all or substantially all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor, to an entity which is
not a Guarantor and which sale or disposition is in compliance with SECTION 7.02
hereof, then such Guarantor (in the event of a sale or other disposition, by way
of a merger, consolidation or otherwise, of all of the Capital Stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
shall be released from and relieved of any obligations under this Guaranty
without any further action required on the part of the Holders of the
Subordinated Notes; PROVIDED, HOWEVER, that any such termination shall occur
only to the extent that all obligations of such Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, any other Indebtedness of the Issuer remaining
outstanding as a liability of the Issuer following such sale or disposition,
shall also terminate upon such release, sale or transfer; and PROVIDED, FURTHER,
that if such event constitutes an Asset Sale, the Net Cash Proceeds of such an
Asset Sale will be applied in accordance with SECTION 2.06 of this Agreement.
The Issuer shall deliver an appropriate instrument evidencing such release to
the Holders of the Subordinated Notes. Any Guarantor not so released remains
liable for the full amount of all Obligations.
SECTION 3.08. SUBORDINATION OF CERTAIN INDEBTEDNESS. Any
Indebtedness of the Issuer now or hereafter held by any Guarantor is hereby
subordinated in right of payment to the Obligations, and any such indebtedness
of the Issuer to such Guarantor collected or received by such Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for the
Holders of the Subordinated Notes and shall forthwith be paid over to the
Holders of the Subordinated Notes to be credited and applied against the
Obligations.
SECTION 3.09. GUARANTORS' INDEMNITY. The Guarantors jointly
and severally agree to pay, or cause to be paid, on demand, and to save the
Holders of Subordinated Notes harmless against liability for, any and all costs
and expenses (including fees and disbursements of counsel and allocated costs of
internal counsel) incurred or expended by the Holders of Subordinated Notes in
connection with the enforcement of or preservation of any rights under this
ARTICLE III.
SECTION 3.10. NO DUTY OF INQUIRY. It is not necessary for the
Holders of Subordinated Notes to inquire into the capacity or powers of any
Guarantor or the Issuer or the officers, directors or any agents acting or
purporting to act on behalf of any of them.
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SECTION 3.11. NO DUTY TO PROVIDE DATA TO GUARANTORS. The
Holders of Subordinated Notes shall have no obligation to disclose or discuss
with any Guarantor its assessment, or any Guarantor's assessment, of the
financial condition of the Issuer. Each Guarantor has adequate means to obtain
information from the Issuer on a continuing basis concerning the financial
condition of the Issuer and its ability to perform its obligations under this
Agreement, the Subordinated Notes and the other Note Documents, and each
Guarantor assumes the responsibility for being and keeping informed of the
financial condition of the Issuer and of all circumstances bearing upon the risk
of nonpayment of the Obligations. Each Guarantor hereby waives and relinquishes
any duty on the part of the Holders of Subordinated Notes to disclose any
matter, fact or thing relating to the business, operations or conditions of the
Issuer now known or hereafter known by the Holders of Subordinated Notes.
SECTION 3.12. RIGHTS CUMULATIVE. The rights, powers and
remedies given to the Holders of Subordinated Notes by this Article III are
cumulative and shall be in addition to and independent of all rights, powers and
remedies given to the Holders of Subordinated Notes by virtue of any statute or
rule of law or in this Agreement, any Subordinated Note or any of the other Note
Documents between any Guarantor and the Holders of Subordinated Notes or between
the Issuer and the Holders of Subordinated Notes. Any forbearance or failure to
exercise, and any delay by the Holders of Subordinated Notes in exercising, any
right, power or remedy hereunder shall not impair any such right, power or
remedy or be construed to be a waiver thereof, nor shall it preclude the further
exercise of any such right, power or remedy.
SECTION 3.13. CONTINUATION OF GUARANTY. In the event that all
or any portion of the Obligations are paid by the Issuer, the obligations of the
Guarantors hereunder shall continue and remain in full force and effect or be
reinstated, as the case may be, in the event that all or any part of such
payment(s) are rescinded or recovered directly or indirectly from the Holders of
Subordinated Notes as a preference, fraudulent transfer or otherwise, and any
such payments which are so rescinded or recovered shall constitute Obligations
for all purposes under this ARTICLE III.
SECTION 3.14. CONTINUING GUARANTY. This Guaranty set forth in
this ARTICLE III is a continuing guaranty and shall be binding upon each
Guarantor and, except as expressly provided herein, its respective successors
and assigns, and each Guarantor hereby irrevocably waives any right to revoke
the Guaranty contained in this ARTICLE III as to future transactions giving rise
to any Obligations. If, not withstanding the foregoing, any Guarantor shall have
any right under applicable law to terminate or revoke its guaranty of the
Obligations, such Guarantor agrees that such termination or revocation shall not
be effective until a written notice of such revocation or termination,
specifically referring hereto, signed by such Guarantor, is actually received by
the Agent. Such notice shall not affect the right and power of any Holder or the
Agent to enforce rights arising prior to receipt thereof by the Agent. If the
Agent or any Holder grants loans or takes other action after such Guarantor
terminates or revokes this Guaranty but before the Agent receives such written
notice, the rights of such Holder with respect thereto shall be the same as if
such termination or
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revocation had not occurred. The Guaranty contained in this ARTICLE III shall
inure to the benefit of the Holders of Subordinated Notes and their respective
successors and assigns.
SECTION 3.15. SUBORDINATION. THIS AGREEMENT IS SUBJECT TO THE
SUBORDINATION AGREEMENT, DATED APRIL 16, 1998, AMONG THE COMPANY, FLEET CAPITAL
CORPORATION, THE SECURED NOTE AGENT AND THE AGENT, UNDER WHICH THIS AGREEMENT
AND THE COMPANY'S OBLIGATIONS HEREUNDER ARE SUBORDINATED IN THE MANNER SET FORTH
THEREIN PRIOR TO THE PAYMENT OF CERTAIN OBLIGATIONS TO THE HOLDERS OF SENIOR
INDEBTEDNESS AS DEFINED THEREIN.
ARTICLE IV
CLOSING
SECTION 4.01. CLOSING OF PURCHASE AND SALE OF SUBORDINATED
NOTES. The sale and purchase of the Subordinated Notes to be purchased by the
Purchasers shall occur at such place and time as the Issuer and the Purchasers
may mutually agree (the consummation of such sale and purchase being referred to
herein as the "CLOSING" and the date on which the Closing occurs being referred
to herein as the "CLOSING DATE"). At the Closing the Issuer will deliver to each
Purchaser the Subordinated Notes in the form of a single Subordinated Note (or
such greater number of Subordinated Notes in denominations of at least $10,000
as the Purchasers may request) dated the date of the Closing and registered in
each Purchaser's name (or in the name of such Purchaser's nominee), against
delivery by such Purchaser to each Obligor or its order of immediately available
funds in the amount of the purchase price therefor by wire transfer of
immediately available funds to an account or accounts specified by the Issuer in
a written notice to the Purchasers. If at the Closing the Issuer shall fail to
tender such Subordinated Notes to the Purchasers as provided above in this
SECTION 4.01, or any of the other conditions specified in SECTION 4.02 shall not
have been fulfilled to the Purchasers' sole and absolute discretion, the
Purchasers shall, at their election, be relieved of all further obligations
under this Agreement, without thereby waiving any rights the Purchasers may have
by reason of such failure or such nonfulfillment.
SECTION 4.02. ADDITIONAL CONDITIONS TO CLOSING. The
Purchasers' obligation to purchase and pay for the Subordinated Notes to be sold
to it at the Closing is subject to the fulfillment to the Purchasers' sole and
absolute discretion, prior to or at the Closing, of the following conditions:
(a) DELIVERY OF NOTE DOCUMENTS. The Purchasers shall have
received on or before the Closing Date all of the following, each duly executed
and acknowledged where appropriate and in form and substance satisfactory to the
Purchasers:
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(i) this Agreement and the Subordinated Notes, together with
all Schedules hereto which shall be true, complete and correct as of the Closing
Date;
(ii) the Warrants issued to the Purchasers, the Warrant
Agreement and the Registration Rights Agreement;
(iii) a flow of funds memorandum, including a "Statement of
Sources and Uses of the Proceeds of the Subordinated Notes";
(iv) the Intercreditor Agreement; and
(v) evidence of insurance as described in SECTION 6.04.
(b) DELIVERY OF CORPORATE DOCUMENTS. On or before the Closing Date, the
Purchasers shall have received:
(i) an Officer's Certificate of each Obligor, dated the
Closing Date, certifying that the conditions specified in SECTIONS 4.01, and
4.02 have been fulfilled; and
(ii) a certificate of the Secretary or Assistant Secretary of
each Obligor, certifying as to (A) the resolutions of the Obligor's board of
directors authorizing the execution, delivery and performance of the Note
Documents to which the Obligor is a party; (B) the names, incumbency, and
signatures of the officers of the Obligor, authorized to execute, deliver and
perform such documents, and (C) the accuracy and currency of such Obligor's
Governing Documents.
(c) OPINIONS OF COUNSEL. The Purchasers shall have received favorable
legal opinions from Reed Smith Shaw & McClay, counsel for the Obligors, in form
acceptable to Purchasers (and the Obligors hereby instruct their counsel to
deliver such opinion to the Purchasers);
(d) NO MATERIAL ADVERSE CHANGE. No material adverse change shall have
occurred with respect to the business, operations, performance, assets,
properties, condition (financial or otherwise), or prospects of the Issuer taken
as a whole from March 31, 1997.
(e) Intentionally Omitted.
(f) Intentionally Omitted.
(g) LITIGATION. Except as disclosed on SCHEDULE 4.02(H) hereof, no
litigation, inquiry, injunction or restraining order shall be pending, entered
or threatened which in the Purchasers' good faith judgment could reasonably be
expected to materially and adversely affect (i) the assets, operations, business
or condition (financial or otherwise) of the Issuer or its Subsidiaries
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as a whole, (ii) the ability of the Obligors to perform their respective
Material Obligations hereunder or (iii) the rights and remedies of the Holders.
(h) Intentionally Omitted.
(i) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Obligors in the Note Documents shall be correct when made and
at the time of the Closing.
(j) PERFORMANCE; NO DEFAULT. The Obligors shall have performed
and complied with all agreements and conditions contained in the Note Documents
required to be performed or complied with by it prior to or at the Closing and
after giving effect to the issue and sale of the Subordinated Notes (and the
application of the proceeds thereof as contemplated by SECTION 5.01(S)) no
Default or Event of Default shall have occurred and be continuing.
(k) NO LEGAL IMPEDIMENTS. No law, regulation, order, judgment
or decree of any Governmental Authority shall, and the Purchasers shall not have
received any notice that litigation is pending or threatened which is likely to,
enjoin, prohibit or restrain the consummation of the transactions evidenced by
the Note Documents.
(l) DUE DILIGENCE. The Purchasers shall have completed to
their satisfaction in their sole and absolute discretion their due diligence of
the Obligors.
(m) PAYMENT OF EXPENSES. The Issuer shall have paid to the
Purchasers on or before the Closing Date reasonable fees, charges and
disbursements of the Purchasers and the Purchasers' counsel to the extent
reflected in statements of the Purchasers and such counsel rendered to the
Obligors at least one Business Day prior to the Closing.
(n) FLEET FACILITY. The Fleet Facility shall have been
extended and continuing on terms satisfactory to the Purchasers.
(o) Intentionally Omitted.
(p) SECURED NOTES. The Secured Note Agreement and related
documents thereto shall have been executed and the notes issued pursuant to the
Secured Note Agreement shall have been purchased by the purchasers referred to
therein.
(q) OTHER DOCUMENTS. The Purchasers shall have received such
other documentation as the Purchasers may reasonably request.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. REPRESENTATION AND WARRANTIES OF THE OBLIGORS.
Each of the Obligors jointly and severally represents and warrants to the
Holders as follows:
(a) ORGANIZATION; POWER AND AUTHORITY. Each Obligor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of formation, and is duly qualified as a foreign entity and
is in good standing in each jurisdiction in which such qualification is required
by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Each Obligor has the
power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver the Note Documents to which it is a party and
to perform the provisions thereof.
(b) AUTHORIZATION, ETC. Each of the Note Documents has been
duly authorized by all necessary corporate action on the part of each Obligor
which is a party thereto, and such Note Documents constitute, and upon execution
and delivery thereof each Subordinated Note will constitute, a legal, valid and
binding obligation of such Obligor enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(c) DISCLOSURE. This Agreement, the Note Documents, the
documents, certificates or other writings delivered to the Holders by or on
behalf of the Obligors in connection with the transactions contemplated hereby
and the financial statements described in SECTION 5.01(G), do not contain any
Material misstatement or Material omission except such as have been corrected in
writing and delivered to the Holders. Except as described in SCHEDULE 5.01(C),
since September 27, 1997, there has been no change in the financial condition,
operations, business, properties, or prospects of any Obligor or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. The Obligors' projections and other
forward looking information provided to the Holders are the Obligors' best
estimate as of the Closing Date of the Obligors' future financial condition,
based on reasonable assumptions and have been prepared in good faith but are not
a warranty of actual performance. There is no fact known to any Obligor that
could reasonably be expected to have a Material Adverse Effect that has not been
set forth herein or in the other documents, certificates and other writings
delivered to the Holders by or on behalf of such Obligor specifically for use in
connection with the transactions contemplated hereby.
(d) DEFAULTS; AGREEMENTS.
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(i) Except as disclosed in SCHEDULE 5.01(D)(I), neither the
Issuer nor any of the Subsidiaries is in violation of its charter or by-laws or
in default in the performance, observance or fulfillment of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any other agreement, indenture or instrument
Material to Issuer and its Subsidiaries, to which Issuer or any of its
Subsidiaries is a party or by which Issuer or any of its Subsidiaries or their
respective property is bound. There exists no condition that constitutes a
Default or Event of Default under any of the Note Documents.
(ii) SCHEDULE 5.01(D)(II) is a true and complete listing as of
the date of this Agreement of all "Material Agreements" which includes (A) all
agreements relating to Indebtedness of Issuer and its Subsidiaries, including
without limitation all credit agreements, indentures and other agreements
related to any Indebtedness for borrowed money of any of the Obligors other than
the Note Documents, (B) all Material joint venture, partnership or limited
liability company agreements to which any of the Obligors is a party, (C) all
agreements for the sale of goods or services to, or purchase of goods or
services from, the Issuer's ten largest suppliers (on a consolidated basis) for
1997, and (D) all other contractual arrangements which are Material to any
Obligor, including but not limited to, guaranties and employment agreements. The
Obligors have delivered or made available to the Purchasers a true and complete
copy of each Material Agreement described on SCHEDULE 5.01(D)(II), including all
exhibits and schedules. There exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between the Obligors and any customer or any group of customers
whose purchases individually or in the aggregate are Material to the business of
the Obligors or any Material supplier, and there exists no present condition or
state of facts or circumstances which would create a Material Adverse Effect or
prevent any Obligor from conducting such business after the consummation of the
transaction contemplated by this Agreement in substantially the same manner in
which it has heretofore been conducted.
(e) PERMITS; LICENSES. Except as disclosed on SCHEDULE
5.01(E), the Issuer and each of its Subsidiaries (a) has all permits, licenses,
franchises and authorizations of governmental or regulatory authorities
("PERMITS"), including, without limitation, under any applicable Environmental
Laws, material to the ownership, leasing and operation of its properties and the
conduct of its business and (b) has fulfilled and performed all of its material
obligations with respect to such Permits and no event has occurred that allows,
or after notice or lapse of time would allow, revocation or termination thereof
or results or would result in any other material impairment of the rights of the
holder of any such Permit. Such Permits contain no restrictions that are
materially burdensome to Issuer or any of its Subsidiaries. In addition to the
disclosure required by the prior sentence, SCHEDULE 5.01(E) lists all Permits
which are Material to the Issuer and its Subsidiaries, and true and complete
copies of all such Permits have been made available to the Purchasers.
(f) Intentionally Omitted.
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(g) FINANCIAL STATEMENTS. The Obligors have delivered to the
Purchasers copies of (i) the final audited consolidated financial statements of
the Issuer and its Subsidiaries for the Fiscal Year ending March 31, 1997, (ii)
unaudited statements of the Issuer for the quarter ending September 27, 1997;
PROVIDED that no schedules or notes have been provided for the statement
referred to in item (ii) of this sentence. All of said financial statements
(including in each case the related schedules and notes) fairly present in all
material respects the consolidated financial position of the Issuer and its
Subsidiaries as of the respective dates specified in such Schedule and the
consolidated results of their operations and cash flows for the respective
periods so specified and have been prepared in accordance with GAAP consistently
applied throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).
(h) Intentionally Omitted.
(i) PLACES OF BUSINESS. The chief executive office of each
Obligor is, on the Closing Date, as set forth on SCHEDULE 5.01(I) hereto, which
offices in the United States are the places where each Obligor is "located" for
the purpose of the UCC and the Uniform Commercial Code in effect in any State in
which any Obligor is so located.
(j) COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by each Obligor of the Note Documents to
which it is a party will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of such Obligor under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement relating to the borrowing of money, any
material lease or any other Material Agreement to which such Obligor is bound or
by which such Obligor or any of its properties may be bound or affected, (ii)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to such Obligor or (iii) violate any provision
of any Requirement of Law (including, without limitation, laws regulating the
corporate practice of medicine) applicable to such Obligor.
(k) GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by any Obligor of this Agreement or the Subordinated Notes.
(l) LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND
ORDERS.
(i) Except as disclosed in SCHEDULE 4.02(G),
there are no actions, suits or proceedings pending or, to the knowledge of any
Obligor, threatened against or affecting such Obligor in any court or before any
arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
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(ii) Except as disclosed in SCHEDULE 5.01(D)(II),
none of the Obligors is in default under any term of any Material Agreement or
any other agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable Requirement of Law
(including without limitation Environmental Laws) of any Governmental Authority,
which default or violation.
(m) TAXES. Issuer's federal tax identification number is
11-2782687. The federal tax identification number of the Issuer's Wholly-Owned
Subsidiary, NRM Investments, Inc., a Delaware corporation, is 51-0349565. Each
Obligor has filed all tax returns that are required to have been filed in any
jurisdiction, and have paid all taxes shown to be due and payable on such
returns and all other taxes and assessments levied upon them or their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent,
except for any taxes and assessments (i) the amount of which is not individually
or in the aggregate Material or (ii) the amount, applicability or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which each Obligor, as the case may be, has established adequate
reserves in accordance with GAAP. No Obligor knows of any basis for any other
tax or assessment that could reasonably be expected to have a Material Adverse
Effect. The Federal income tax liabilities of each Obligor have been paid for
all fiscal years up to and including the fiscal year ended March 31, 1997.
(n) TITLE TO PROPERTY; LEASES. Each Obligor has good and
marketable title to its assets and properties that individually or in the
aggregate are Material, all of which are listed on SCHEDULE 5.01(N), in each
case free and clear of Liens (other than Liens permitted by this Agreement). All
leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects. No Obligor
owns any real property.
(o) SECURITY INTEREST RESTRICTION. SCHEDULE 5.01(o) accurately
sets forth (i) the Property of the Issuer and each Subsidiary, indicating the
Security Interest Restriction, if any, with respect to such Property.
(p) LICENSES, PERMITS, ETC. Except as disclosed in SCHEDULE
5.01(P), each Obligor owns or possesses the right to use all licenses, permits,
franchises, authorizations, patents, copyrights, service marks, trademarks and
trade names, or rights thereto, that individually or in the aggregate are
Material, without known conflict with the rights of others other than rights of
licensors with respect to those items that are subject to such licenses.
(q) COMPLIANCE WITH ERISA.
(i) Each Obligor and each ERISA Affiliate have
operated and administered each Plan in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. No Obligor or any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the
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penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the incurrence
of any such liability by any Obligor or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of any Obligor
or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to
such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or in
the aggregate Material.
(ii) The present value of the aggregate benefit
liabilities under each of the Plans (other than Multiemployer Plans), determined
as of the end of such Plan's most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan's most recent
actuarial valuation report, did not exceed the aggregate current value of the
assets of such Plan allocable to such benefit liabilities. The term "BENEFIT
LIABILITIES" has the meaning specified in Section 4001 of ERISA and the terms
"CURRENT VALUE" and "PRESENT VALUE" have the meaning specified in Section 3 of
ERISA.
(iii) No Obligor or any ERISA Affiliates have
incurred withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(iv) The expected post-retirement benefit
obligation (determined as of the last day of each Obligor's most recently ended
fiscal year in accordance with Financial Accounting Standards Board Statement
No. 106, without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of each Obligor is not Material.
(v) The Obligors' execution and delivery of this
Agreement and the issuance and sale of the Subordinated Notes hereunder will not
involve any transaction that is subject to the prohibitions of section 406 of
ERISA or in connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code.
(r) PRIVATE OFFERING BY EACH OBLIGOR. None of the Obligors or
anyone acting on their behalf has offered the Securities or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any person other
than institutional investors. None of the Obligors or anyone acting on its
behalf has taken, or will take, any action that would subject the initial
issuance or sale of the Securities to the registration requirements of Section 5
of the Securities Act.
(s) USE OF PROCEEDS; MARGIN REGULATIONS. The Obligors will
apply the proceeds of the sale of the Subordinated Notes to pay costs and
expenses incurred by the Obligors in connection with the Note Documents and for
working capital. No part of the proceeds from the sale of the Subordinated Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the
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Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve each Obligor in
a violation of Regulation X of said Board (12 CFR 224) or to involve any broker
or dealer in a violation of Regulation T of said Board (12 CFR 220). As used in
this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall
have the meanings assigned to them in said Regulation G.
(t) EXISTING INDEBTEDNESS; FUTURE LIENS.
(i) SCHEDULE 5.01(T)(I) sets forth a complete
and correct list of all outstanding Indebtedness of each Obligor as of the
Closing Date. None of the Obligors is in default in the payment of any principal
or interest on any Indebtedness of such Obligor and no event or condition exists
with respect to any Indebtedness of such Obligor that would permit (or that with
notice or the lapse of time, or both, would permit) one or more Persons to cause
such Indebtedness to become due and payable before its stated maturity or before
its regularly scheduled dates of payment.
(ii) Except as disclosed in SCHEDULE 5.01(T)(II),
(A) none of the Obligors has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien other than a
Permitted Lien, and (B) there are no Liens on any of the property of the
Obligors.
(u) FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale
of the Subordinated Notes by the Issuer hereunder nor their use of the proceeds
thereof will violate the Trading with the Enemy Act, as amended, or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
(v) STATUS UNDER CERTAIN STATUTES. None of the Obligors is
subject to regulation under the Investment Issuer Act of 1940, as amended, the
Public Utility Holding Issuer Act of 1935, as amended, the Interstate Commerce
Act, as amended, or the Federal Power Act, as amended. None of the Obligors is
an "investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
(w) ENVIRONMENTAL MATTERS. None of the Obligors has knowledge
of any claim or has received any notice of any claim, and no proceeding has been
instituted raising any claim against such Obligor or any of their respective
real properties now or formerly owned, leased or operated by any of them or
other assets, alleging any damage to the environment or violation of any
Environmental Laws. Except as otherwise disclosed to the Purchasers in writing,
(i) none of the Obligors has knowledge of any
facts which would give rise to any claim, public or private, of violation of
Environmental Laws or damage to the environment
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emanating from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or their
use; and
(ii) all buildings on all real properties now
owned, leased or operated by each Obligor is in compliance with applicable
Environmental Laws.
(x) LABOR MATTERS. There is (a) no unfair labor practice
complaint pending against any Obligor or, to the best knowledge of such Obligor,
threatened against it, before the National Labor Relations Board or any state or
local labor relations board, and no grievance or arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against such
Obligor or, to the best knowledge of such Obligor, threatened against it and (b)
no strike, labor dispute, slowdown or stoppage pending against any Obligor or,
to the best knowledge of such Obligor, threatened against it, except for such
actions specified in clause (a) or (b) above which, singly or in the aggregate,
will have or could reasonably be expected to have a Material Adverse Effect.
(y) CERTIFICATE OF INCORPORATION AND BY-LAWS The Issuer has
heretofore furnished to Purchasers a complete and correct copy of its
Certificate of Incorporation and By-Laws as most recently restated and
subsequently amended to date. Such Certificate of Incorporation and By-Laws are
in full force and effect. The Issuer is not in violation of any of the
provisions of its Certificate of Incorporation or By-Laws.
(z) CAPITALIZATION The authorized capital stock of the Issuer
consists of (i) 9,000,000 shares of Common Stock and (ii) 2,000,000 shares of
Preferred Stock. As of February 28, 1998, (i) 4,844,624 shares of Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) 193,292 shares of Common Stock were held in treasury, (iii)
no shares of Common Stock were held by Subsidiaries of the Issuer and (iv)
approximately 510,650 shares of Common Stock were reserved for future issuance
pursuant to outstanding stock options or warrants (collectively, the "ISSUER
STOCK PLANS"). As of the Closing, no shares of Preferred Stock were issued and
outstanding.
(aa) SOLVENCY. After giving effect to the transactions
contemplated by the Note Documents, (a) the assets of each Obligor, at a fair
valuation, are in excess of the total amount of its debts (including, without
limitation, contingent liabilities); (b) the present fair saleable value of the
assets of each Obligor is greater than its probable liability on its existing
debts as such debts become absolute and matured; (c) each Obligor is then able
and expects to be able to pay its debts (including, without limitation,
contingent debts and other commitments) as they mature; and (d) each Obligor has
capital sufficient to carry on its business as conducted and as proposed to be
conducted.
(bb) SURETY OBLIGATIONS. Issuer is not obligated as surety or
indemnitor under any surety or similar bond or other contract issued or has not
entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any person.
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SECTION 5.02. REPRESENTATIONS OF THE PURCHASERS. Each
Purchaser represents and warrants to the Issuer as follows:
(a) NO REGISTRATION. The Securities are not registered under
the Securities Act or any state securities laws; it understands that the
offering and sale of the Securities are intended to be exempt from registration
under the Securities Act, by virtue of Section 4(2) and the provisions of
Regulation D promulgated thereunder, based, in part, upon the representations,
warrantees and agreements contained in this Agreement; and such Purchaser
understands that the Securities will bear a legend to that effect.
(b) ACCREDITED INVESTOR. With respect to the transaction
evidenced by this Agreement and the Securities, such Purchaser is an accredited
investor within the meaning of Regulation D under the Securities Act, and it has
such knowledge and experience in financial, tax and business matters so as to
enable it to utilize the information provided to it and other sources of
information (including this Agreement) to evaluate the merits and risks of an
Investment in the Securities and to make an informed investment decision with
respect thereto.
(c) PURCHASE FOR INVESTMENT; LEGEND. Such Purchaser is
acquiring the Securities solely for its own account for investment and not with
a view to resale or distribution. Such Purchaser acknowledges that a restrictive
legend substantially in the form set forth in SECTION 2.03 will be placed on the
security.
(d) AUTHORIZATION, ETC. This Agreement, the Warrant Agreement
and the Registration Rights Agreement have been duly authorized, executed and
delivered by such Purchaser.
(e) ERISA MATTERS. In connection with its purchase of the
Subordinated Notes and the Warrants, none of the funds being used by such
Purchaser to purchase the Subordinated Notes and the Warrants include "plan
assets" as such term is defined in ERISA.
ARTICLE VI
REPORTING AND AFFIRMATIVE COVENANTS
Each Obligor covenants that so long as any of the Subordinated
Notes are outstanding:
SECTION 6.01. FINANCIAL AND BUSINESS INFORMATION. The
Obligors shall deliver to the Agent or Holders, as applicable, of Subordinated
Notes:
(a) ANNUAL STATEMENTS. Within ninety (90) days after the close
of each Fiscal Year of the Issuer, the Holders shall receive duplicate copies of
the Issuer's Annual Report on Form 10-K for such fiscal year prepared in
accordance with the requirements therefor and filed with the
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Commission which shall include unqualified audited financial statements of the
Issuer and its Subsidiaries as of the end of such Fiscal Year certified by a
firm of independent public accountants of recognized national standing or
otherwise acceptable to the Agent (except for a qualification for a change in
accounting principles with which the independent public accountant concurs).
Issuer shall also forward to the Holders a copy of the accountant's letter to
the Issuer's management that is prepared in connection with aforementioned
financial documents and shall also cause to be prepared and furnished to Holders
a certificate by the aforesaid independent public accountants certifying to
Holders that, based upon their examination of the financial statements of the
Issuer and its Subsidiaries performed in connection with their examination of
said financial statements, they are not aware of any Default or Event of Default
relating to SECTIONS 7.15 AND 7.16 hereof, or, if they are aware of such Default
or Event of Default, specifying the nature thereof. The Issuer's annual report
to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act
shall be delivered to the Holders concurrently with delivery to the
shareholders.
(b) MONTHLY STATEMENTS. Upon the Agent's written request,
unaudited interim consolidated financial statements of the Obligors as of the
end of the most recent fiscal month and of the portion of the Obligor's Fiscal
Year then elapsed, on a consolidated and consolidating basis, certified by the
principal financial officer of the Issuer as prepared in accordance with GAAP
and fairly presenting the consolidated financial position and results of
operations of the Obligors for such month-end period subject only to changes
from audit and year-end adjustment and except that such statements need not
contain notes;
(c) QUARTERLY STATEMENTS. Within forty-five (45) days after
the end of the first three quarters of each fiscal year, copies of the Issuer's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Commission.
(d) BOARD REPORTS. Upon the Agent's written request, copies of
all reports and analysis as Issuer provides to its Board of Directors or any
committee thereof or to its stockholders from time to time.
(e) MERCHANDISING PLAN. Upon the Agent's written request, a
merchandising plan for the next Fiscal Year.
(f) ANNUAL BUDGET. Upon the Agent's written request, a plan,
operating budget and financial forecast for the next succeeding Fiscal Year of
the Issuer, including, without limitation, (i) a forecasted consolidated and
consolidating balance sheet and statement of income of the Issuer and its
Subsidiaries and a consolidated and consolidating statement of cash flows of the
Issuer for each fiscal quarter and year, (ii) a consolidated and consolidating
forecasted statement of income and a balance sheet of the Issuer and its
Subsidiaries and a consolidated and consolidating statements of cash flows of
the Issuer and its Subsidiaries for each fiscal quarter of such Fiscal Year, and
(iii) the amount of forecasted capital expenditures for such Fiscal Year of the
Issuer and its Subsidiaries (except that consolidating financial information
will be delivered only to the extent and in the form
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customarily prepared and available to the Issuer). The budgets shall include
projected revenues, expenses, and earnings data and such other data as Holders
may request setting forth the breakdown between the Issuer and the other
business units of the Issuer, in a format similar to the monthly, quarterly and
annual reports provided to the Holders hereunder.
(g) SEC AND OTHER REPORTS. Within five (5) days after their
becoming available, each other financial statement, report, notice or proxy
statement sent by any Obligor to public securities Holders generally, and each
regular or periodic report, each registration statement (without exhibits except
as expressly requested by such Holder), and each prospectus and all amendments
thereto filed by such Obligor with the Commission and of all press releases and
other statements made available generally by such Obligor to the public
concerning developments that are Material to the Issuer;
(h) NOTICE OF DEFAULT OR EVENT OF DEFAULT. Promptly, and in
any event within five (5) Business Days after a Responsible Officer of any
Obligor becoming aware of the existence of any Default or Event of Default or
that any Person has given any notice or taken any action with respect to a
claimed default hereunder or that any Person has given any notice or taken any
action with respect to a claimed default of the type referred to in SECTION
8.01(G), a written notice specifying the nature and period of existence thereof
and what action such Obligor is taking or proposes to take with respect thereto;
(i) NOTICES FROM GOVERNMENTAL AUTHORITY. Promptly, and in any
event within five (5) days of receipt thereof, copies of any notice to any
Obligor from any Federal or state Governmental Authority relating to any order,
ruling, statute or other law or regulation that could reasonably be expected to
have a Material Adverse Effect; and
(j) OTHER REPORTS. Upon the Agent's written request, with
reasonable promptness, copies of any documents or reports to Fleet from Issuer;
(k) REQUESTED INFORMATION; INSPECTIONS. From time to time,
with reasonable promptness, such additional financial statements and information
with respect to the financial condition of the Issuer and its Subsidiaries as
the Agent may reasonably request, including, without limitation and without
further request, (i) any financial statements or reports (including comment
letters to management) furnished to the Issuer or its Subsidiaries by its
independent certified public accountants, and (ii) to the extent not already
furnished pursuant to this Agreement, all financial statements, certificates,
reports and other information furnished by the Issuer and its Subsidiaries to
any bank pursuant to any agreement. The Issuer shall also provide such
information concerning the operations of the Issuer and its Subsidiaries as the
Agent may from time to time reasonably request in writing, and upon reasonable
advance notice permit representatives of the Agent (x) such access during normal
business hours (and in a manner which will not be disruptive to the business and
operations of the Issuer) to the properties, books and records of the Issuer and
its Subsidiaries, and (y) to discuss the affairs, accounts and finances of the
Issuer and its Subsidiaries with the financial and
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management personnel of the Issuer and its Subsidiaries and with their
independent certified public accountants (and the Issuer authorizes such
independent public accountants to discuss the Issuer's or any Subsidiaries'
financial matters with the Agent and its representatives); PROVIDED, HOWEVER,
that the Issuer shall not be obligated to provide access to any information that
it reasonably considers to be a trade secret or similar confidential information
unless the Agent provide assurances in writing that they will maintain the
confidentiality of the information. The Agent will consult with the Issuer
regarding the strategy and logistics of their visits and inspections in order to
minimize the costs of, and disruptions arising from, such visits and
inspections. All such information shall be treated by the Agent and the Holders
as confidential.
SECTION 6.02. OFFICER'S CERTIFICATE. The documents delivered
to the Agent or Holders of Subordinated Notes pursuant to SECTION 6.01(A) and
SECTION 6.01(C) hereof shall be accompanied by a certificate of a Senior
Financial Officer of each Obligor setting forth:
(a) COVENANT COMPLIANCE. The information (including detailed
calculations) required in order to establish whether the Obligors were in
compliance with the requirements of SECTIONS 7.03, 7.06, 7.07, 7.15 THROUGH
7.17, inclusive, during the quarterly or annual period covered by the statements
then being furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such Sections,
and the calculation of the amount, ratio or percentage then in existence); and
(b) EVENT OF DEFAULT. A statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of Obligors from
the beginning of the quarterly or annual period covered by the statements then
being furnished to the date of the certificate and that such review shall not
have disclosed the existence during such period of any condition or event that
constitutes a Default or an Event of Default or, if any such condition or event
existed or exists (including, without limitation, any such event or condition
resulting from the failure of any Obligor to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action such
Obligor shall have taken or proposes to take with respect thereto.
SECTION 6.03. COMPLIANCE WITH LAW. Each Obligor will comply
with all Requirements of Law to which each of them is subject, including,
without limitation, Environmental Laws, and will obtain and maintain in effect
all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, in each case to the extent necessary to ensure that non-compliance
with such Requirements of Law or failures to obtain or maintain in effect such
licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 6.04. INSURANCE. Each Obligor shall:
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(a) Keep its assets which are of an insurable character
insured (to the extent and for the time periods consistent with normal industry
practices) by financially sound and reputable insurers against loss, business
interruption, or damage by fire, explosion, theft or other hazards which are
included under extended coverage in amounts not less than the insurable value of
the property insured or such lesser amounts, and with such self-insured
retention or deductible levels, as are consistent with normal industry
practices;
(b) Maintain with financially sound and reputable insurers,
insurance against other hazards and risks and liability to Persons and property
to the extent and in the manner customary for companies in similar businesses;
and
(c) Upon the request of any Holder, will render to such Holder
a statement of insurance in such detail as such Holder may reasonably request as
to all such insurance coverage.
SECTION 6.05. MAINTENANCE OF PROPERTIES. Each Obligor will
maintain and keep, or cause to be maintained and kept, their respective
properties in normal working order and condition (other than ordinary wear and
tear) such that, in the reasonable judgment of such Obligor, the business
carried on in connection therewith may be properly conducted at all times,
PROVIDED that this Section shall not prevent such Obligor from discontinuing the
operation and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and such Obligor has concluded that
such discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 6.06. PAYMENT OF TAXES AND CLAIMS. Each Obligor will
and will cause each of its Subsidiaries to file all tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of any
Obligor, PROVIDED that none of the Obligors need pay any such tax or assessment
or claims if the amount, applicability or validity thereof is contested by such
Obligor on a timely basis in good faith and in appropriate proceedings, and such
Obligor has established adequate reserves therefor in accordance with GAAP on
the books of such Obligor or the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
SECTION 6.07. CORPORATE EXISTENCE, ETC. Each Obligor will at
all times preserve and keep in full force and effect its corporate existence.
Each Obligor will at all times preserve and keep in full force and effect the
corporate existence and all rights and franchises of such Obligor unless, in the
good faith judgment of such Obligor, the termination of or failure to preserve
and keep in full force and effect such corporate existence, right or franchise
could not, individually or in the aggregate, have a Material Adverse Effect.
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SECTION 6.08. MAINTENANCE OF BOOKS AND RECORDS. Each Obligor
will make and keep books, records and accounts in which full, true and correct
entries in accordance with GAAP and all Requirements of Law are made of all
dealings and transactions in relation to its business and activities.
SECTION 6.09. MAINTENANCE OF LINE OF BUSINESS. Each Obligor
will, and will cause its Subsidiaries to, devote substantially all of their
respective time to, and deploy substantially all of their respective Material
assets owned or used by such Obligor or Subsidiary in, the Line of Business as
conducted by the Obligors on the date of this Agreement and businesses
reasonably related thereto.
SECTION 6.10. PRIVATE PLACEMENT NUMBERS. At the request of any
Holder, the Issuer shall assist such Holder in obtaining a Private Placement
number ("CUSIP NUMBER") issued by Standard & Poor's CUSIP Service Bureau (in
cooperation with the Securities Valuation Office of the National Association of
Insurance Commissioners) for the Subordinated Notes. The costs of obtaining a
CUSIP Number following such request by any Holder shall be borne by the Issuer.
SECTION 6.11. LIENS. The Obligors shall defend its
Properties against any and all Liens howsoever arising, other than Permitted
Liens, and in any event defend against any attempted foreclosure.
SECTION 6.12. RULE 144. In order to permit the holders of
Subordinated Notes, Warrants and Warrant Shares (as defined in the Warrant
Agreement) to sell the same, if they so desire, pursuant to Rule 144 promulgated
by the Commission (or any successors to such rules), the Issuer will comply with
all rules and regulations of the Commission applicable in connection with the
use of Rule 144 (or any successors thereto), including the timely filing of all
reports with the Commission and the provision of any information regarding the
Issuer in order to enable such holders, if they so elect, to utilize Rule 144,
and the Issuer will cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to any sale of Subordinated Notes,
Warrants and Warrant Shares which is exempt from registration under the 1933 Act
pursuant to Rule 144. Upon the request of any Holder of Subordinated Notes,
Warrants and Warrant Shares, the Issuer will deliver to such holder a written
statement verifying that it has complied with such requirement.
SECTION 6.13. USE OF PROCEEDS. The Obligors will apply the
proceeds of the sale of the Subordinated Notes to pay costs and expenses
incurred by the Obligors in connection with the Note Documents and for working
capital. No part of the proceeds from the sale of the Subordinated Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve each Obligor in a violation of Regulation X of said Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220).
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SECTION 6.14. FURTHER ASSURANCES. Upon the request of the
Holders, the Obligors shall duly execute and deliver, or cause to be duly
executed and delivered, at the cost and expense of the Obligors, such further
instruments as may be appropriate in the reasonable judgment of the Holders to
carry out the provisions and purposes of this Agreement and the other Note
Documents.
SECTION 6.15. ADDITIONAL WHOLLY-OWNED SUBSIDIARIES. Any
Wholly-Owned Subsidiary which is formed or acquired by any Obligor (as permitted
under the terms of this Agreement subsequent to the date hereof) shall become a
Guarantor hereunder and shall execute such documents in connection therewith as
shall be required by the Agent.
ARTICLE VII
NEGATIVE COVENANTS
Each Obligor covenants that so long as any of the Subordinated
Notes are outstanding:
SECTION 7.01. LIMITATION ON CERTAIN TRANSACTIONS BETWEEN THE
ISSUER AND RELATED PERSONS. The Issuer has not and shall not enter into, nor
permit any Subsidiary to enter into, directly or indirectly, any agreement
relating to any loan or other advance with any Related Person except for those
outstanding on the Closing Date and to the extent that such loans or other
advances are disclosed on SCHEDULE 7.01. In addition, the Issuer shall not enter
into any other agreement, and shall not renew or permit any Subsidiary to renew
any existing agreement, relating to the sale, purchase or lease of any assets,
property or services with any Related Person except in the ordinary course of
and pursuant to the reasonable requirements of the Issuer's or Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to the
Holders and which are no less favorable to the Issuer or Subsidiary than would
be obtained in a comparable arm's length transaction with a Person not a Related
Person; PROVIDED, HOWEVER, that in no event shall the aggregate amount of
transactions with all Related Persons exceed $300,000 per annum.
SECTION 7.02. MERGER, CONSOLIDATION, ETC. The Issuer shall
not, in a single transaction or through a series of related transactions,
consolidate with or merge with or into any other Person or, sell, assign,
convey, transfer, lease or otherwise dispose of ("TRANSFER") all or
substantially all of its properties and assets to any other Person or group of
affiliated Persons or permit its Subsidiaries to enter into any such transaction
or transactions if such transaction or transactions, in the aggregate, would
result in a sale of all or substantially all of the assets of the Issuer and its
Subsidiaries; PROVIDED that so long as all Obligations are repaid in full at the
closing thereof (at the amounts set forth in SECTION 2.08) and as a condition
thereto in connection with such Transfer, such Transfer shall be permitted;
PROVIDED FURTHER that any Wholly-Owned Subsidiary may consolidate with or merge
with or into any other Wholly-Owned Subsidiary.
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SECTION 7.03. LIMITATION ON ASSET SALES. Neither the Issuer
nor any of its Subsidiaries shall make an Asset Sale unless:
(a) the applicable Obligor complies with the provisions of
SECTION 2.06;
(b) at least 80% of the consideration therefor shall be
cash; and
(c) the Asset Sale must be at Fair Market Value.
SECTION 7.04. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS.
No Obligor shall, directly or indirectly, (a) make any Restricted Investments,
or (b) declare or pay any dividend on, or make any payment on account of, or set
apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of capital stock of any Obligor or any warrants, options or rights to
purchase any such capital stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of an Obligor or any of its
Subsidiaries (each a "RESTRICTED PAYMENT"); PROVIDED, HOWEVER, that, to the
extent permitted by applicable law any Subsidiary of an Issuer may make
Restricted Payments to the Issuer; PROVIDED, FURTHER, that the Issuer may
purchase either assets or capital stock with Common Stock so long as no Default
or Event of Default shall have occurred and be continuing at the time, or shall
occur as a result of such purchase after giving PRO FORMA effect to such
purchase.
Notwithstanding the foregoing, the above limitation shall not
prevent (a) the purchase, redemption, acquisition or retirement of any shares of
capital stock of the Issuer in exchange for, or out of the net proceeds of the
substantially concurrent sale (other than to a Guarantor) of, other shares of
stock of the Issuer; and (b) purchases of common stock by the Issuer or a trust
pursuant to any employee stock ownership or similar employee benefit plan of the
Issuer that has been approved by the Board of Directors of the Issuer.
SECTION 7.05. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES. The Issuer will not, and will not cause or
permit any of its Subsidiaries to, directly or indirectly, create or otherwise
cause or permit to exist or become effective any encumbrance or restriction on
the ability of any Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Issuer or any other
Subsidiary; or (c) transfer any of its properties or assets to the Issuer or any
other Subsidiary .
SECTION 7.06. LIMITATION ON ADDITIONAL INDEBTEDNESS. No
Obligor shall, directly or indirectly, create, incur, issue, assume, guarantee
or in any other manner become liable for, contingently or otherwise, or become
responsible for (including through any merger or consolidation to which such
Obligor is a party or through any other acquisition of any Wholly-Owned
Subsidiary
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or of any Person thereby becoming a Wholly-Owned Subsidiary) the payment of
(collectively, an "incurrence"), any obligations in respect of any Indebtedness
or Guaranty, except (a) Indebtedness evidenced by the Secured Notes and the
Guarantors' Guaranty with respect thereto; (b) the Fleet Facility, PROVIDED,
HOWEVER, that the Maximum Senior Debt Amount (as defined below) shall be reduced
on a dollar for dollar basis as the commitment amount under the Revolving Loan
portion of the Fleet Facility is reduced; (c) Indebtedness evidenced by the
Subordinated Notes and any Guaranty Obligation with respect thereto; (d)
Indebtedness of any Obligor to any other Obligor, PROVIDED, HOWEVER that the
notes evidencing such Indebtedness are pledged to the Agent for the benefit of
the Agent and the Holders; (e) accounts payable to trade creditors which are not
aged beyond the normal business practices and current operating expenses which
are not more than sixty (60) days past due, in each case incurred in the
ordinary course of business and paid within such time period, unless the same is
actively contested in good faith and by appropriate and lawful proceedings and
the Obligors shall have set aside such reserves, if any, with respect thereto as
are required by GAAP and deemed adequate by the Obligors' independent
accountants; (f) Indebtedness that is set forth on Schedule 5.01(t)(i); (g)
Indebtedness under operating leases (i.e., leases that are not considered
Capital Leases); and (h) Purchase Money Indebtedness and total unsecured
Indebtedness incurred in connection with the purchase of fixed assets not to
exceed the sum of $500,000 in the aggregate at any time outstanding; and (i)
Indebtedness other than described in subsections 7.05(a)-(h) not in excess of
$50,000. Notwithstanding the foregoing sentence, the aggregate principal amount
of the obligations incurred in respect of any Indebtedness or Guaranty by all
Obligors which constitute Senior Debt shall not exceed the lesser of (i) the sum
of (A) 65% of Eligible Inventory PLUS (B) $9,000,000, and (ii) $50,000,000 (the
"MAXIMUM SENIOR DEBT AMOUNT"), and the aggregate principal amount of the
obligations incurred in respect of any Indebtedness or Guaranty by all Obligors
which constitute Subordinated Debt shall not exceed $7,500,000 (the "MAXIMUM
SUBORDINATED DEBT AMOUNT"), PROVIDED, HOWEVER, that the Maximum Subordinated
Debt Amount shall be reduced on a dollar for dollar basis by payments made by
Issuer which reduce the principal amount outstanding under the Subordinated
Notes.
SECTION 7.07. LIMITATION ON CREATION OF LIENS. No Obligor
shall, directly or indirectly create, incur, assume or suffer to exist any Lien
in or on any right, title or interest to or in any of its properties or assets,
except for (a) Liens existing as of the date of this Agreement and expressly
identified and described in SCHEDULE 5.01(T)(II) hereto, and any renewals and
extensions thereof that secure Indebtedness not greater in amount than the
lesser of the amount of Indebtedness secured by such Liens on the date hereof or
on the date of such renewal or extension; (b) Liens granted after the date of
this Agreement on any assets or Capital Stock of an Obligor created in favor of
the Holders of the Secured Notes; and (c) Permitted Liens.
SECTION 7.08. CREATION OF SUBSIDIARIES; ADDITIONAL GUARANTORS.
Except as provided in SECTION 7.04, no Obligor shall, directly or indirectly,
form or acquire any Subsidiaries.
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SECTION 7.09. RECEIVABLES. None of the Obligors shall
sell, discount or otherwise dispose of notes, accounts receivable or other
obligations owing to any Obligor except for the purpose of collection in the
ordinary course of business.
SECTION 7.10. Intentionally Omitted.
SECTION 7.11. FISCAL YEAR. The Issuer shall not change,
or permit any of its Subsidiaries to change, its Fiscal Year, or permit any
Subsidiary to have a Fiscal Year different from that of the Issuer.
SECTION 7.12. TAX CONSOLIDATION. The Issuer shall not
file or consent to the filing of any consolidated income tax return with any
Person other than a Subsidiary.
SECTION 7.13. RESTRICTIONS ON SALE AND ISSUANCE OF CAPITAL
STOCK. None of the Guarantors shall issue any Capital Stock (except as otherwise
permitted by the Secured Note Agreement). In addition, neither the Issuer nor
any Subsidiary shall sell or issue, directly or indirectly, any Capital Stock of
any Subsidiary of the Issuer (other than to Holders), unless (a) such sale or
transfer satisfies all of the requirements for a valid Asset Sale under this
Agreement and (b) after giving effect to such sale or transfer, no Obligor
beneficially owns any Capital Stock of such former Guarantor.
SECTION 7.14. LIMITATION ON SECURITY INTEREST RESTRICTIONS. No
Obligor shall, directly or indirectly create, incur, assume or suffer to exist
any Security Interest Restriction on any right, title or interest to or in any
of its properties or assets, except for (a) the Security Interest Restrictions
existing as of the date of this Agreement and expressly identified and described
in SCHEDULE 5.01(O) hereto, and (b) Permitted Liens.
SECTION 7.15. MINIMUM ADJUSTED TANGIBLE NET WORTH. Commencing
with the Closing and at the end of each month thereafter, the Issuer shall not
permit its minimum Adjusted Tangible Net Worth to be less than $10,250,000
during the Fiscal Year ended March 31, 1998, which amount shall be increased by
$250,000 on the last day of such Fiscal Year and on the last day of each Fiscal
Year thereafter.
SECTION 7.16. MINIMUM CASH FLOW. Issuer shall not permit its
Cash Flow to be less than $250,000 for the aggregate of any fiscal quarter and
the preceding three fiscal quarters.
SECTION 7.17. AMENDMENTS TO THE FLEET FACILITY. Issuer shall
not agree to any amendment, modification, waiver, consent, renewal, replacement
or restatement of any of the provisions of the Fleet Facility which, in any way,
(i) increases the principal in excess of the amounts permitted by SECTION 7.06 ,
(ii) changes the financial covenants contained in the Fleet Facility, or (iii)
adversely affects the rights granted to the Holders hereunder, without the prior
written consent of the
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Holders. Issuer shall not amend, restate or otherwise modify any other
provisions of the Fleet Facility except in accordance with the terms and
conditions set forth in the Fleet Facility and unless Holders shall have
received notice pursuant to SECTION 10.04 at least five (5) Business Days prior
to the amendment, restatement or other modification.
SECTION 7.18. INTEREST RATE CONTRACT. Issuer shall not obtain
Interest Rate Contracts having an aggregate notional amount in excess of 50% of
the Issuer's exposure to an interest rate increase under the Fleet Facility.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.01. EVENTS OF DEFAULT. An "EVENT OF DEFAULT"
shall exist if any of the following conditions or events shall occur and be
continuing:
(a) any Obligor defaults in the payment of any principal on
any Subordinated Note when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or by declaration or otherwise; or
(b) any Obligor defaults in the payment of any interest on any
Subordinated Note or any other amount due under this Agreement, for more than
five Business Days after the same becomes due and payable; or
(c) any Obligor defaults in the performance of or compliance
with any term contained in ARTICLE VII or in SECTIONS 6.04, 6.05, 6.08, 6.10,
6.14; or
(d) any Obligor defaults in the performance of or compliance
with any term contained in ARTICLE VI (other than those contained in SECTIONS
6.04, 6.05, 6.08, 6.10, 6.14) and such default is not remedied within 10
Business Days after the earlier of (i) a Responsible Officer of such Obligor
obtaining actual knowledge of such default and (ii) such Obligor receiving
written notice of such default from any Holder of a Subordinated Note (any such
written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (c) of SECTION 8.01); or
(e) any Obligor defaults in the performance of or compliance
with any term contained herein (other than those referred to in paragraphs (a),
(b) (c) and (d) of this SECTION 8.01) and such default is not remedied within 30
days after the earlier of (i) a Responsible Officer of such Obligor obtaining
actual knowledge of such default and (ii) such Obligor receiving written notice
of such default from any Holder of a Subordinated Note (any such written notice
to be identified as a "notice of default" and to refer specifically to this
paragraph (d) of SECTION 8.01); or
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(f) any representation or warranty made in writing by or on
behalf of any Obligor or by any officer of any Obligor in any of the Note
Documents or in any writing furnished in connection with the transactions
contemplated hereby proves to have been false or incorrect in any material
respect on the date as of which made; or
(g) (i) any Obligor is in default (as principal or as
guarantor or other surety) in the payment of any principal of or premium or
make-whole amount or interest on any Indebtedness that is outstanding in an
aggregate principal amount of at least $50,000 beyond any period of grace
provided with respect thereto and as a consequence of such default such
Indebtedness has become, or has been declared (or one or more Persons are
entitled to declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (ii) any Obligor
is in default in the performance of or compliance with any term of any evidence
of any Indebtedness in an aggregate outstanding principal amount of at least
$50,000 or of any mortgage, indenture or other agreement relating thereto or any
other condition exists, and as a consequence of such default or condition such
Indebtedness has become, or has been declared (or one or more Persons are
entitled to declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or condition (other
than the passage of time or the right of the Holder of Indebtedness to convert
such Indebtedness into equity interests), (x) any Obligor has become obligated
to purchase or repay Indebtedness before its regular maturity or before its
regularly scheduled dates of payment in an aggregate outstanding principal
amount of at least $50,000, or (y) one or more Persons have the right to require
any Obligor so to purchase or repay such Indebtedness; or
(h) there shall occur a cessation of a substantial part of the
business of the Obligors for a period which significantly affects the Obligors'
capacity to continue its business on a profitable basis; or Obligors shall
suffer the loss or revocation of any license or permit now held or hereafter
acquired by Obligors which is necessary to the continued or lawful operation of
their business; or Obligors shall be enjoined, restrained or in any way
prevented by court, governmental or administrative order from conducting all or
any Material part of its business affairs; or any Material lease or agreement
pursuant to which any Obligor leases, uses or occupies shall be canceled or
terminated prior to the expiration of its stated term; and, as to all of the
foregoing, the same shall have a Material Adverse Effect on the Obligors; or
(i) William A. Teitelbaum shall cease to be employed on a
full-time basis as Issuer's chief executive officer and a suitable replacement
of comparable experience and ability shall not have been employed in his place
within ninety (90) days of his departure.
(j) any Obligor (i) is generally not paying, or admits in
writing its inability to pay, its debts as they become due, (ii) files, or
consents by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other
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similar law of any jurisdiction, (iii) makes a general assignment for the
benefit of its creditors, (iv) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the purpose of
any of the foregoing; or
(k) any Note Document shall, for any reason, not be or shall
cease to be in full force and effect except as provided herein or therein or
shall be declared null and void; or
(l) any Obligor or its Affiliates shall challenge or contest
in any action, suit or proceeding the validity or enforceability of this
Agreement or any of the other Note Documents, the legality or enforceability of
any of the Obligations or the perfection or priority of any Lien granted to the
Agent; or
(m) Intentionally Omitted.
(n) any Obligor shall be criminally indicted or convicted
under any law that could lead to a forfeiture of any property of any Obligor; or
(o) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the applicable
Obligor, a custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of any Obligor, or any such petition
shall be filed against any Obligor and such petition shall not be dismissed
within 60 days; or
(p) a final judgment or judgments for the payment of money
aggregating in excess of $50,000 are rendered against one or more of the
Obligors and which judgments are not, within 60 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
(q) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified any
Obligor or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed $500,000, (iv) any Obligor or
any ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) any Obligor
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or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) any
Obligor establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the liability
of such Obligor thereunder; and any such event or events described in clauses
(i) through (vi) above, either individually or together with any other such
event or events, could reasonably be expected to have a Material Adverse Effect.
As used in this SECTION 8.01(J), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA; or
(r) Intentionally Omitted.
(s) The Purchasers shall have received Series A Preferred
Stock certificates and evidence of the filing of a Certificate of Designation
pertaining thereto with the Office of the Secretary of State of the State of
Delaware by the close of business on Friday, April 17, 1998.
SECTION 8.02. REMEDIES ON EVENT OF DEFAULT, ETC.
(a) ACCELERATION.
(i) If an Event of Default with respect to any
Obligor described in paragraph (j) or (o) of SECTION 8.01 has occurred, all the
Subordinated Notes then outstanding shall automatically become immediately due
and payable.
(ii) If any Event of Default described in
paragraph (a) or (b) of SECTION 8.01 has occurred and is continuing, any Holder
or Holders of Subordinated Notes at the time outstanding affected by such Event
of Default may at any time, at its or their option, by notice or notices to each
Obligor, declare all the Subordinated Notes held by it or them to be immediately
due and payable.
(iii) If any other Event of Default has occurred and
is continuing, the Agent upon written request of the Required Holders may at any
time at its option, by notice or notices to each Obligor, declare all the
Subordinated Notes then outstanding to be immediately due and payable.
Upon any Subordinated Notes becoming due and payable under
this SECTION 8.02, whether automatically or by declaration, such Subordinated
Notes will forthwith mature and the entire Unpaid Principal Amount of such
Subordinated Notes times the applicable Redemption Percentage, plus all accrued
and unpaid interest thereon (to the full extent permitted by applicable law),
shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
(b) ELECTION OF A MEMBER OF THE BOARD OF DIRECTORS. Upon
written request of the Holders, if any Default or Event of Default has occurred
the Issuer agrees to cause a designee of the
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Holders to be elected to the Issuer's board of directors. To the extent that the
Default or Event of Default is cured to the satisfaction of the Holders in their
sole and absolute discretion, the Holders' designee shall thereafter resign. The
Issuer's obligation to elect the Holders' designee during the period a Default
or Event of Default has occurred and is continuing is intended to be an ongoing
obligation of the Issuer and shall apply to any subsequent Default or Event of
Default. The Holders shall be entitled to have a designee attend and observe all
meetings of the board of directors during all other periods.
(c) OTHER REMEDIES. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Subordinated Notes
have become or have been declared immediately due and payable under SECTION
8.02(A), the Agent, pursuant to directions of the Required Holders, may proceed
to protect and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in any Subordinated Note, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law or otherwise.
(d) RESCISSION. At any time after any Subordinated Notes have
been declared due and payable pursuant to clause (a)(i) or (a)(ii) of SECTION
8.02, the Agent upon written request of the Required Holders, by written notice
to each Obligor, may rescind and annul any such declaration and its consequences
if (a) each Obligor has paid all overdue interest on the Subordinated Notes, all
principal of any Subordinated Notes that are due and payable and are unpaid
other than by reason of such declaration, all interest on such overdue principal
and (to the extent permitted by applicable law) any overdue interest in respect
of the Subordinated Notes, at the Default Rate, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
SECTION 10.03, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Subordinated Notes. No rescission and
annulment under this SECTION 8.02(C) will extend to or affect any subsequent
Event of Default or Default or impair any right consequent thereon.
(e) NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No
course of dealing and no delay on the part of any Holder of any Subordinated
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such Holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Subordinated Note upon any
Holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of each Obligor under SECTION
9.01, each Obligor will pay to the Holder of each Subordinated Note on demand
such further amount as shall be sufficient to cover all costs and expenses of
such Holder incurred in any enforcement or collection under this SECTION 8.02,
including, without limitation, reasonable attorneys' fees, expenses and
disbursements.
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ARTICLE IX
THE AGENT
SECTION 9.01. APPOINTMENT.
(a) Each Purchaser hereby designates and appoints Fleming as
the Agent of such Purchaser under this Agreement, and each Purchaser hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and the Note Documents and to exercise such powers
as are set forth herein or therein together with such other powers as are
reasonably incidental thereto. The Agent agrees to act as such on the express
conditions contained in this ARTICLE IX.
(b) The provisions of this ARTICLE IX are solely for the
benefit of the Agent and the Holders and neither the Issuer nor any Subsidiary
of the Issuer shall have any rights to rely on or enforce any of the provisions
hereof (other than as expressly set forth in SECTION 9.06). In performing its
functions and duties under this Agreement, the Agent shall act solely as agent
of the Holders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency, trustee or fiduciary with or for the
Issuer or any Affiliate of the Issuer. The Agent may perform any of its duties
hereunder, or under the other Note Documents, by or through its agents or
employees.
SECTION 9.02. NATURE OF DUTIES. The Agent shall not have any
duties or responsibilities except those expressly set forth in this Agreement or
in the Note Documents. The duties of the Agent shall be mechanical and
administrative in nature. The Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Holder. Nothing in this Agreement or
any of the Note Documents, expressed or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement
or any of the other Note Documents except as expressly set forth herein or
therein. Each Holder shall make its own independent investigation of the
financial condition and affairs of the Issuer and Affiliates in connection with
the purchase of the Subordinated Notes hereunder and shall make its own
appraisal of the creditworthiness of the Issuer and Guarantors initially and on
a continuing basis, and the Agent shall not have any duty or responsibility,
either initially or on a continuing basis, to provide any Holder with any credit
or other information with respect thereto (except for reports required to be
delivered by the Agent under the terms of this Agreement). If the Agent seeks
the consent or approval of the Holders to the taking or refraining from taking
of any action hereunder, the Agent shall send notice thereof to each Holder. The
Agent shall promptly notify each Holder at any time that the Holder so required
hereunder has instructed the Agent to act or refrain from acting pursuant
hereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Subordinated
Notes or any amount payable when due) or the other Note Documents, the Agent
shall not be required to exercise any discretion or take any action.
Notwithstanding the foregoing, the Agent shall be required to act or refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Required Holders (unless the instructions
or consent of a greater percentage of Holders are required hereunder or
thereunder) and
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such instructions shall be binding upon all Holders of Subordinated Notes;
PROVIDED, HOWEVER, the Agent shall not be required to take any action which (i)
the Agent reasonably believes will expose it to personal liability unless the
Agent receives an indemnification satisfactory to it from the Holders with
respect to such action or (ii) is contrary to this Agreement, the other Note
Documents or applicable law. All payments, reports and notices to be made or
delivered by the Issuer shall be paid or delivered to the Holders and the Agent.
SECTION 9.03. RIGHTS, EXCULPATION, ETC.
(a) LIABILITIES; RESPONSIBILITIES. None of the Agent, any
Affiliate of the Agent, or any of their respective officers, directors,
employees or agents shall be liable to any Holder for any action taken or
omitted by them hereunder or under any of the Note Documents, or in connection
therewith, except that no Person shall be relieved of any liability imposed by
law for gross negligence or willful misconduct. The Agent shall not be liable
for any apportionment or distribution of payments made by it in good faith, if
any, and if any such apportionment or distribution is subse quently determined
to have been made in error the sole recourse of any Holder to whom payment was
due, but not made, shall be to recover from other Holders any payment in excess
of the amount to which they are determined to have been entitled. The Agent
shall not be responsible to any Holder for any recitals, statements,
representations or warranties herein or for the execution, effectiveness,
genuineness, validity, legality, enforceability, collectibility, or sufficiency
of this Agreement or any of the other Note Documents or the transactions
contemplated thereby, or for the financial condition of the Issuer or any of its
Affiliates or the Guarantors. The Agent shall not be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any of the other Note Documents or
the financial condition of the Issuer or any of its Affiliates or the
Guarantors, or the existence or possible existence of any potential Event of
Default or Event of Default.
(b) RIGHT TO REQUEST INSTRUCTIONS. The Agent may at any time
request instructions from the Holders with respect to any actions or approvals
which by the terms of any of the Note Documents the Agent is permitted or
required to take or to grant, and the Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Note Documents until it shall have
received such instructions from those Holders from whom the Agent is required to
obtain such instructions for the pertinent matter in accordance with the Note
Documents. Without limiting the generality of the foregoing, no Holder shall
have any right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting under the Note Documents in accordance with the
instructions of the Required Holders or, where required by the express terms of
this Agreement, a greater proportion of the Holders.
SECTION 9.04. RELIANCE. The Agent shall be entitled to
rely upon any written notices, statements, certificates, orders or other
documents or any telephone message believed by it in good faith to be genuine
and correct and to have been signed, sent or made by the proper Person, and with
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respect to all matters pertaining to this Agreement or any of the Note Documents
and its duties hereunder or thereunder, upon advice of legal counsel (including
counsel for the Issuer), independent public accountants and other experts
selected by it.
SECTION 9.05. INDEMNIFICATION. To the extent that the Agent is
required to be reimbursed and indemnified by the Issuer but is not reimbursed
and indemnified by the Issuer, the Holders will reimburse and indemnify the
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against it in any way relating to or arising out of the Note Documents or any
action taken or omitted by the Agent under the Note Documents, in proportion to
each Holders pro rata share of the Subordinated Notes; provided that Issuer
shall have no obligation to indemnify the Agent for any and all liabilities
described in this Section 9.05 which result from the gross negligence or willful
misconduct of the Agent. The obligations of the Holders under this SECTION 9.05
shall survive the payment in full of the Obligations and all other Obligations
and the termination of this Agreement.
SECTION 9.06. SUCCESSOR AGENTS.
(a) RESIGNATION. The Agent may resign from the performance of
all its functions and duties hereunder at any time by giving at least thirty
(30) Business Days' prior written notice to the Issuer and the Holders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to this SECTION 9.06.
(b) APPOINTMENT BY REQUIRED HOLDERS. Upon any such notice of
resignation, the Required Holders shall have the right to appoint a successor
Agent selected from among the Holders which appointment shall be subject to the
prior written approval of the Issuer (which may not be unreasonably withheld,
and shall not be required upon the occurrence and during the continuance of an
Event of Default).
(c) APPOINTMENT BY RETIRING AGENT. If a successor Agent shall
not have been appointed within the thirty (30) Business Day period provided in
CLAUSE (A) of this SECTION 9.06, the retiring Agent, with the consent of the
Issuer (which may not be unreasonably withheld, and shall not be required upon
the occurrence and during the continuance of an Event of Default), shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
the Required Holders appoint a successor Agent as provided above.
(d) RIGHTS OF THE SUCCESSOR AND RETIRING AGENTS. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this ARTICLE IX shall inure to its
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benefit as to any actions taken or omitted to be taken by it while it was the
Agent under this Agreement.
SECTION 9.07. RELATIONS AMONG HOLDERS. Each Purchaser agrees
that it will not take any legal action, nor institute any actions or
proceedings, against the Issuer or any other Obligor hereunder, without the
prior written consent of the Required Holders. Without limiting the generality
of the foregoing, no Holder may accelerate or otherwise enforce its portion of
the Obligations, except in accordance with SECTION 8.02.
SECTION 9.08. CONCERNING THE NOTE DOCUMENTS.
(a) AUTHORITY. Each Purchaser authorizes and directs the Agent
to enter into the the Subordination Agreement (and other documents required to
be executed pursuant thereto) and any other Note Documents for the benefit of
the Holders. Each Purchaser agrees that any action taken by the Agent or the
Required Holders (or, where required by the express terms of this Agreement, a
greater proportion of the Holders) in accordance with the provisions of this
Agreement or the other Note Documents, and the exercise by the Agent or the
Required Holders (or, where so required, such greater proportion) of the powers
set forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the Holders.
(b) Intentionally Omitted.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. EXPENSES, ETC. Whether or not the transactions
contemplated hereby are consummated, each Obligor agrees, jointly and severally
to pay all costs and expenses (including reasonable attorneys' fees of a special
counsel and, if reasonably required, local or other counsel) incurred by the
Holders of a Subordinated Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement or the Note Documents (whether or not such amendment, waiver or
consent becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend), including any expenses incurred in any appeals, any rights
under this Agreement or the Note Documents or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the Note Documents, or by reason of being a Holder of any
Subordinated Note, and (b) the costs and expenses, including financial advisors'
fees, incurred in connection with the insolvency or bankruptcy of any Obligor or
in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Note Documents. Each Obligor will pay, and will
save each Holder harmless from, all claims in respect of any fees, costs or
expenses if any, of brokers and finders (other than those retained by such
Holder). The obligations of each Obligor under this SECTION 10.01 will survive
the payment or
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transfer of any Subordinated Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Note Documents, and the termination of this
Agreement and the Note Documents.
SECTION 10.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT. All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Note Documents, the
purchase or transfer by any Holder of any Subordinated Note or portion thereof
or interest therein and the payment of any Subordinated Note, and may be relied
upon by any subsequent Holder of a Subordinated Note, regardless of any
investigation made at any time by or on behalf of any Holder. All statements
contained in any certificate or other instrument delivered by or on behalf of
each Obligor pursuant to this Agreement shall be deemed representations and
warranties of each Obligor under this Agreement. Subject to the preceding
sentence, this Agreement and the Note Documents embody the entire agreement and
understanding between each Holder and each Obligor and supersede all prior
agreements and understandings relating to the subject matter hereof.
SECTION 10.03. AMENDMENT AND WAIVER.
(a) REQUIREMENTS.
(i) This Agreement, the Subordinated Notes and
the other Note Documents may be amended, and the observance of any term hereof
or thereof may be waived (either retroactively or prospectively), with (and only
with) the written consent of each Obligor and the Required Holders, except that
no amendment or waiver of any of the provisions of SECTIONS 2.01, 4.01, 4.02 OR
10.07 hereof, or any defined term relating to such sections (as it is used
therein), will be effective as to any Holder unless consented to by such Holder
in writing, and no such amendment or waiver may, without the written consent of
all Holders affected thereby, subject to the provisions of SECTION 8.02 relating
to acceleration or rescission, change the amount or time of any prepayment or
payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest on, the Subordinated Notes, change the
percentage of the principal amount of the Subordinated Notes the Holders of
which are required to consent to any such amendment or waiver, or amend any of
SECTIONS 8.01(A), 8.01(B), 8.02, 10.03 OR 10.06.
(ii) Any amendment, modification, termination,
waiver or consent with respect to any of the following provisions of this
Agreement shall be effective only by a written agreement, signed by each Holder:
(A) release of any Guarantor of the
Obligations,
(B) waiver of any Event of Default described
in SECTION 8.01.
(b) AGENT AUTHORITY. The Agent may, but shall have no
obligation to, with the written concurrence of any Holder, execute amendments,
modifications, waivers or consents on
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behalf of that Holder. Notwithstanding anything to the contrary contained in
this SECTION 10.03, no amendment, modification, waiver or consent shall affect
the rights or duties of the Agent under this Agreement or the other Note
Documents, unless made in writing and signed by the Agent in addition to the
Holders required above to take such action.
(c) DELIVERY OF AMENDMENTS, WAIVERS, ETC. Each Obligor will
deliver executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this SECTION 10.03 to each Holder of
outstanding Subordinated Notes promptly following the date on which it is
executed and delivered by, or receives the consent or approval of, the requisite
Holders of Subordinated Notes.
(d) PAYMENT. Each Obligor will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any Holder of
Subordinated Notes as consideration for or as an inducement to the entering into
by any Holder of Subordinated Notes of any waiver or amendment of any of the
terms and provisions hereof unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each Holder of
Subordinated Notes then outstanding even if such Holder did not consent to such
waiver or amendment.
(e) BINDING EFFECT, ETC. Any amendment or waiver consented to
as provided in this SECTION 10.03 applies equally to all Holders of Subordinated
Notes and is binding upon them and upon each future Holder of any Subordinated
Note and upon each Obligor without regard to whether such Subordinated Note has
been marked to indicate such amendment or waiver. No such amendment or waiver
will extend to or affect any obligation, covenant, agreement, Default or Event
of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between each Obligor and the Holder of any
Subordinated Note nor any delay in exercising any rights hereunder or under any
Subordinated Note shall operate as a waiver of any rights of any Holder of such
Subordinated Note.
(f) SUBORDINATED NOTES HELD BY EACH OBLIGOR, ETC. Solely for
the purpose of determining whether the Holders of the requisite percentage of
the aggregate principal amount of Subordinated Notes then outstanding approved
or consented to any amendment, waiver or consent to be given under this
Agreement or the Subordinated Notes, or have directed the taking of any action
provided herein or in the Subordinated Notes to be taken upon the direction of
the Holders of a specified percentage of the aggregate principal amount of
Subordinated Notes then outstanding, Subordinated Notes directly or indirectly
owned by each Obligor or any of its Affiliates shall be deemed not to be
outstanding.
SECTION 10.04. NOTICES. All notices and communications
provided for hereunder shall be in writing and sent by telecopy if the sender on
the same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid), or by registered or certified mail with
return receipt requested (postage prepaid), or by a recognized overnight
delivery service (with
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charges prepaid). Any such notice must be sent to the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this SECTION 10.04):
(a) if to any Obligor, to the care of:
National Record Mart, Inc.
507 Forest Avenue
Carnegie, PA 15106-2873
Attention: Theresa Carlise
Telecopier: (412) 276-6201
with a copy to:
Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219
Attention: Robert Morris, Esq.
Telecopier: (412) 288-3063
(b) if to the Agent, to the care of:
Robert Fleming Inc.
320 Park Avenue, 11th Floor
New York, NY 10022
Attention: Michael E. Rowe
Telecopier: (212) 508-3679
with a copy to:
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Telecopier: (213) 896-6600
(c) if to any other Holder, to its address shown on the
Subordinated Note register to be maintained by the Issuer, on behalf of the
Issuer, pursuant to SECTION 2.02.
Notices under this SECTION 10.04 will be deemed given only when actually
received.
SECTION 10.05. REPRODUCTION OF DOCUMENTS. This Agreement
and all documents relating thereto, including, without limitation, (a) consents,
waivers and modifications that may
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hereafter be executed, (b) documents received by the Purchasers at the Closing
(except the Subordinated Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to any
Holder, may be reproduced by the Holders by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process and each
Holder may destroy any original document so reproduced. Each Obligor agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by any Holder in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
SECTION 10.05 shall not prohibit each Obligor or any other Holder of
Subordinated Notes from contesting any such reproduction to the same extent that
it could contest the original, or from introducing evidence to demonstrate the
inaccuracy of any such reproduction.
SECTION 10.06. CONFIDENTIAL INFORMATION. For the purposes of
this SECTION 10.06, "CONFIDENTIAL INFORMATION" means information delivered to
any Holder by or on behalf of each Obligor in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is proprietary in
nature and that was clearly marked or labeled or otherwise adequately identified
when received by such Holder as being confidential information of each Obligor,
PROVIDED that such term does not include information that (a) was publicly known
to any Holder prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by any Holder or any Person acting on
behalf of any Holder, (c) otherwise becomes known to any Holder other than
through disclosure by each Obligor or its representatives or (d) constitutes
financial statements delivered to any Holder under SECTION 6.01 that are
otherwise publicly available. Each Holder will maintain the confidentiality of
such Confidential Information in accordance with procedures adopted by such
Holder in good faith to protect confidential information of third parties
delivered to such Holder, PROVIDED that each Holder may deliver or disclose
Confidential Information to its (i) directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by its Subordinated Notes),
(ii) financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this SECTION 10.06, (iii) any other Holder of any Subordinated Note,
(iv) any Person to which such Holder sells or offers to sell such Subordinated
Note or any part thereof or any participation therein (if such Person has agreed
in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this SECTION 10.06), (v) any Person from which such Holder
offers to purchase any security of each Obligor (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by the
provisions of this SECTION 10.06), (vi) any federal or state regulatory
authority having jurisdiction over such Holder, (vii) any nationally recognized
rating agency that requires access to information about such Holder's investment
portfolio or (viii) any other Person to which such delivery or disclosure may be
necessary or appropriate (w) to effect compliance with any Requirement of Law
applicable to such Holder, (x) in response to any subpoena or other legal
process, (y) in connection with any litigation to which such Holder is a party
or (z) if an Event of Default has occurred and is continuing, to the extent such
Holder may reasonably determine such delivery and disclosure to be
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necessary or appropriate in the enforcement or for the protection of the rights
and remedies under such Holder's Subordinated Notes and this Agreement. Each
Holder of a Subordinated Note, by its acceptance of a Subordinated Note, will be
deemed to have agreed to be bound by and to be entitled to the benefits of this
SECTION 10.06 as though it were a party to this Agreement. On reasonable request
by each Obligor in connection with the delivery to any Holder of a Subordinated
Note of information required to be delivered to such Holder under this Agreement
or requested by such Holder (other than a Holder that is a party to this
Agreement or its nominee), such Holder will enter into an agreement with each
Obligor embodying the provisions of this SECTION 10.06.
SECTION 10.07. TRANSFERS OF SUBORDINATED NOTES. Subject to the
requirements of SECTION 2.02(A), the Purchasers and any subsequent Holder shall
have the right to transfer the Subordinated Notes held by any such Person to any
other Person, by written notice to each Obligor, which notice shall be signed by
both the Purchasers and such transferee, shall contain such transferee's
agreement to be bound by this Agreement and the Subordinated Notes shall contain
a confirmation by such transferee of the accuracy with respect to it of the
representations set forth in SECTION 5.02. As a condition to any transfer of a
Subordinated Note, the Issuer may require appropriate documentation to evidence
compliance with applicable securities laws, including an opinion of counsel with
respect thereto. Upon receipt of such notice, wherever the word "Purchaser" or
"Holder" is used in this Agreement (other than in this SECTION 10.07), such word
shall be deemed to refer to such transferee in lieu of the Purchaser or such
Holder, as the case may be. No transfer of any Subordinated Note shall relieve
the transferring Holder of its obligations under SECTION 10.06.
SECTION 10.08. AGENT'S CONSENT. Whenever the Agent's consent
is required to be obtained under this Agreement or any of the other Note
Documents as a condition to any action, inaction, condition or event, Agent
shall be authorized to give or withhold such consent in its sole and absolute
discretion and to condition its consent upon the payment of money or any other
matter.
SECTION 10.09. INTERPRETATION. No provision of this Agreement
or any of the other Note Documents shall be construed against or interpreted to
the disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party having or being deemed to have
structured, drafted or dictated such provision.
SECTION 10.10. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent Holder of a Note) whether so
expressed or not.
SECTION 10.11. SEVERABILITY. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such
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prohibition or unenforceability in any jurisdiction shall (to the full extent
permitted by law) not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 10.12. CONSTRUCTION. Each covenant contained herein
shall be construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
SECTION 10.13. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
SECTION 10.14. GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW
PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE. AS PART OF THE CONSIDERATION FOR
NEW VALUE THIS DAY RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR
PRINCIPAL PLACE OF BUSINESS OF THE OBLIGORS OR THE HOLDERS, OBLIGORS HEREBY
CONSENT AND AGREE THAT THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK OR, AT
AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK SHALL HAVE THE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN OBLIGORS AND AGENT PERTAINING TO THIS AGREEMENT OR ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. OBLIGORS EXPRESSLY SUBMIT
AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND OBLIGORS HEREBY WAIVE ANY OBJECTION WHICH ISSUER MAY HAVE
BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
AND HEREBY CONSENT TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. OBLIGORS HEREBY WAIVE PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE
THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE OBLIGORS AT THE ADDRESS SET FORTH
IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETE UPON THE
EARLIER OF THE OBLIGOR'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT
IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO AFFECT THE RIGHT OF THE
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AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY THE AGENT OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
SECTION 10.15. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS AND
HOLDERS WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE OBLIGORS AND THE
HOLDERS WITH RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE, OBLIGORS AND HOLDERS AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE OBLIGORS AND HOLDERS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY. OBLIGORS AND HOLDERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO
CONSULT WITH COUNSEL REGARDING THIS SECTION THAT THEY FULLY UNDERSTAND ITS
TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE
TERMS OF THIS SECTION.
SECTION 10.16. INDEMNIFICATION. The Issuer hereby indemnifies
and agrees to defend and hold harmless each Holder and its directors, officers,
agents, employees and counsel from and against any and all losses, claims,
damages, liabilities, deficiencies, judgments or expenses incurred by any of
them (except to the extent that it is finally judicially determined to have
resulted from its own gross negligence or willful misconduct) arising out of or
by reason of (a) any actual or proposed use by any Issuer or any other Person of
the proceeds of the Subordinated Notes, (b) any litigation, investigations,
claims or proceedings which arise out of or are in any way related to the Note
Documents or the transactions contemplated hereby, including, without
limitation, amounts paid in settlement, court costs and the fees and
disbursements of counsel incurred in connection with any such litigation,
investigation, claim or proceeding or any advice rendered in connection with any
of the foregoing and (c) any remedial or other action taken by an Obligor or any
of the Holders in connection with compliance by any Obligor, or any of its
properties, with any federal, state or local environmental laws, acts, rules,
regulations, orders, directions, ordinances, criteria or guidelines. Without
limiting any provision of this Agreement, it is the express intention of the
parties hereto that each Person indemnified hereunder shall be indemnified and
held harmless against any and all losses, liabilities, claims or damages arising
out of or resulting from the sole or concurrent negligence of such Person.
Without prejudice to the survival of any other Obligations of the Obligors
hereunder and
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under the other Note Documents, the Obligations of each Obligor under this
SECTION 10.16 will survive the payment or transfer of any Subordinated Note, the
enforcement, amendment or waiver of any provision of this Agreement or the
Subordinated Notes, and the termination of this Agreement.
SECTION 10.17. MAXIMUM RATE. Notwithstanding anything to the
contrary contained elsewhere in this Agreement or in any other Note Document,
the Obligors and the Holders hereby agree that all agreements among them under
this Agreement and the other Note Documents, whether now existing or hereafter
arising and whether written or oral, are expressly limited so that in no
contingency or event whatsoever shall the amount paid, or agreed to be paid, to
any Holder for the use, forbearance, or detention of the money loaned to the
Issuer and evidenced hereby or thereby or for the performance or payment of any
covenant or obligation contained herein or therein, exceed the Highest Lawful
Rate. If due to any circumstance whatsoever, fulfillment of any provisions of
this Agreement or any of the other Note Documents at the time performance of
such provision shall be due shall exceed the Highest Lawful Rate, then,
automatically, the obligation to be fulfilled shall be modified or reduced to
the extent necessary to limit such interest to the Highest Lawful Rate, and if
from any such circumstance any Holder should ever receive anything of value
deemed interest by applicable law which would exceed the Highest Lawful Rate,
such excessive interest shall be applied to the reduction of the principal
amount then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then outstanding Obligations, such excess shall be refunded to the Issuer. All
sums paid or agreed to be paid to any Holder for the use, forbearance, or
detention of the Obligations and other Indebtedness of the Issuer to the
Holders, to the extent permitted by applicable law, shall be amortized,
prorated, allocated and spread throughout the full term of such Indebtedness,
until payment in full thereof, so that the actual rate of interest on account of
all such Indebtedness does not exceed the Highest Lawful Rate throughout the
entire term of such Indebtedness. The terms and provisions of this SECTION 10.17
shall control every other provision of this Agreement and all agreements among
the Obligors and the Holders.
* * *
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Exhibit 4.11
[EXECUTION COPY]
ISSUER SECURITY AND PLEDGE AGREEMENT
------------------------------------
THIS ISSUER SECURITY AND PLEDGE AGREEMENT ("Agreement") dated
as of April 16, 1998, is entered into by and between NATIONAL RECORD MART, INC.,
a Delaware corporation ("GRANTOR"), and ROBERT FLEMING INC., a Delaware
corporation, as agent (in such capacity, the "AGENT") for the Holders under (and
as defined in) the Senior Subordinated Secured Note Purchase Agreement (as
hereinafter defined). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Senior Subordinated
Secured Note Purchase Agreement.
W I T N E S S E T H
WHEREAS, the Grantor, the Guarantors from time to time party
thereto, the Purchasers referred to therein, and the Agent have entered into a
Senior Subordinated Secured Note Purchase Agreement of even date herewith (as
amended, restated, supplemented or otherwise modified from time to time, the
"SECURED NOTE PURCHASE AGREEMENT"), pursuant to which, the Agent and the
Purchasers have agreed to purchase $7,500,000 in aggregate principal amount of
the Grantor's 11.75% Senior Subordinated Secured Notes due 2001 (the "Secured
Notes");
WHEREAS, it is a condition precedent to the purchase of the
Secured Notes by the Agent and the Purchasers under the Secured Note Purchase
Agreement that the Grantor shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises set forth
herein and of the purchase of the Secured Notes by the Agent and the Purchasers
or any other Holder, or any of them the Grantor hereby agrees with the Agent,
for its benefit and the ratable benefit of the Holders, as follows:
SECTION 1. GRANT OF SECURITY. The Grantor hereby pledges to
the Agent, for its benefit and the ratable benefit of the Holders, and hereby
grants to the Agent, for its benefit and the ratable benefit of the Holders, a
security interest in, all of the Grantor's right, title and interest in and to
the following, in each case whether now owned or existing or hereafter acquired
or arising and however and wherever arising or located (collectively, the
"COLLATERAL"):
(a) All of the Grantor's machinery, apparatus, equipment,
fittings, furniture, fixtures, motor vehicles and other tangible personal
property (other than Inventory) of every kind and description used in Grantor's
operations or owned by Grantor, or in which Grantor has an interest, whether now
owned or hereafter acquired by Grantor and wherever located, and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor (all of the foregoing being the
"EQUIPMENT");
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(b) All of Grantor's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods and merchandise intended for
sale or lease by Grantor, or for display or demonstration; all works in
progress; all raw materials and other materials and supplies of every nature and
description used or which might be used in connection with the manufacture,
printing, packing, shipping, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in Grantor's business; and all documents
evidencing, and General Intangibles (as defined below) relating to, any of the
foregoing, whether now owned or hereafter acquired by Grantor (all of the
foregoing being the "INVENTORY");
(c) All of the Grantor's accounts, contract rights, chattel
paper, instruments (including those evidencing indebtedness owed to Grantor by
its affiliates), documents, General Intangibles relating to accounts, drafts and
acceptances, all other forms of obligations owing to Grantor arising out of or
in connection with the sale or lease of Inventory or the rendition of services,
all guarantees and other security interest therefor, whether secured on
unsecured, whether now owned or hereafter created or acquired by Grantor or in
which Grantor now has or hereafter acquired any interest and any proceedings
arising therefrom or relating thereto (all of the foregoing being, "ACCOUNTS");
(d) All of Grantor's general intangibles and other personal
property of Grantor (including things in action) other than goods, accounts,
chattel paper, documents, instruments and money, whether now owned or hereafter
created or acquired by Grantor, including, without limitation, all choses in
action, causes of action, corporate or other business records, inventions,
designs, patents, patent applications, equipment formulations, manufacturing
procedures, quality control procedures, trademarks, service marks, trade
secrets, goodwill, copyrights, design rights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to Grantor to secure payment of any of the Accounts by an account
debtor, all rights of indemnification, all deposit accounts of Grantor and all
other intangible property of every kind and nature (all of the foregoing being
the "GENERAL INTANGIBLES");
(e) All monies and other property of any kind now or at any
time or times hereafter in the possession or under the control of Collateral
Agent or any lender or a bailee of Collateral Agent or any lender;
(f) The following Pledged Stock and Pledged Collateral:
(i) All of the issued and outstanding shares of stock
owned by Grantor or any subsidiary of Grantor or any of its
subsidiaries (as identified on Exhibit A attached hereto and made a
part hereof), all options, warrants for the purchase of shares of the
stock of each such subsidiary now or hereafter held in the name of the
Grantor (all of said capital stock, options and warrants and all
capital stock held in the
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name of the Grantor as a result of the exercise of such options and
warrants being hereafter collectively referred to as the "PLEDGED
STOCK"), herewith delivered to the Agent accompanied by acknowledgments
of such Subsidiaries in the form of EXHIBIT B attached hereto and made
a part hereof (the "ACKNOWLEDGMENTS") and stock powers in the form of
EXHIBIT C attached hereto and made a part hereof (the "POWERS") duly
executed in blank, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, any or all of the
Pledged Stock, and all other products and proceeds of the foregoing;
(ii) all additional shares of stock of any Subsidiary
of the Grantor from time to time acquired by the Grantor in any manner,
and the certificates representing such additional shares (any such
additional shares shall constitute part of the Pledged Stock), and all
dividends, cash, instruments, equity securities, financial assets and
other interests which are, or are of a type, dealt in or traded on
financial markets, or which are recognized in any way as a medium for
investment, whether certificated or uncertificated, any property held
by a financial or securities intermediary for the Grantor, securities
accounts to which any of the foregoing are credited and warrants,
options, puts and calls, and other rights or securities entitlements
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, and all other
products and proceeds of the foregoing;
(iii) the promissory notes, intercompany notes and
other instruments identified on EXHIBIT A (the "PLEDGED NOTES"), and
all products and proceeds of the Pledged Notes, including, without
limitation, all interest and principal payments, instruments, and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for the Pledged Notes;
(iv) all additional promissory notes, instruments,
bonds or debt securities, issued by any Person from time to time issued
to, or held by, the Grantor in any manner (any such additional
promissory notes or instruments shall constitute part of the Pledged
Notes) and all products and proceeds of any such additional promissory
notes and instruments, including, without limitation, all interest and
principal payments, instruments, and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any such additional promissory notes or instruments (the
property described in CLAUSES (F)(II) through (F)(V) of this SECTION 1
is collectively referred to as the "PLEDGED COLLATERAL"); and
(v) all bills of lading, warehouse receipts and other
documents of title;
(g) All Investment Property (as defined in the Uniform
Commercial Code as adopted and in force in the State of New York, as from time
to time in effect);
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(h) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (a) through (g) above, including,
without limitation, proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral; and
(i) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Debtor pertaining to any of (a) through (h) above.
PROVIDED, HOWEVER, the foregoing grant of a security interest shall be deemed
not to grant a security interest in any of the property described below (such
property being hereinafter referred to as property subject to a "Security
Interest Restriction" and all other property being hereinafter referred to as
"Collateral"):
property that is subject to (x) the terms and
provisions of a written agreement, document or instrument in
effect on the Closing Date which prohibits the granting of a
security interest or conditions the granting of a security
interest on the consent of a third party whose consent has not
been obtained or would cause, or allow a third party to cause,
the forfeiture of such property upon the granting of a
security interest therein, as such property is described on
Exhibit G hereto; (y) the terms and provisions of a written
agreement, document or instrument entered into after the
Closing Date (or any amendment to any agreement described in
clause (x) above entered into after the Closing Date) which
prohibits the granting of a security interest or conditions
the granting of a security interest on the consent of a third
party whose consent has not been obtained or would cause, or
allow a third party to cause, the forfeiture of such property
upon the granting of a security interest, PROVIDED that (i)
the requirement of such prohibition or condition has not been
initiated by the Grantor and has been agreed or consented to
by the Grantor in the ordinary course of its business and such
prohibition or condition is believed by the Grantor in good
faith to be reasonably necessary for the Grantor to obtain the
benefits of the agreement, document or instrument entered into
by the Grantor in order to conduct its normal business
operations and (ii) the Grantor has used its best efforts to
have such prohibition or condition eliminated or to obtain
such consent; or (z) applicable law either prohibits the
granting of a security interest therein or provides for the
involuntary forfeiture of the property in the event a security
interest is granted therein without the consent of the
appropriate Governmental Authority, or at all; PROVIDED,
HOWEVER that with respect to clauses (x), (y) and (z) above,
if such prohibition or the condition requiring such consent
relates only to the foreclosure of a security interest or the
exercise of other rights or remedies upon a default but not to
the granting of a security interest therein, then a security
interest in such property shall be deemed to be granted by
this Agreement subject to the condition that the consent of
such third
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party or Governmental Authority is obtained by the Agent prior
to the foreclosure or its exercising its other rights or
remedies hereunder, so that any involuntary forfeiture of the
property is thereby avoided. .
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures,
with respect to the Grantor, and the Collateral of the Grantor is collateral
security for, the prompt and complete payment of all of the Obligations of the
Grantor, whether or not for the payment of money, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising, and however acquired (all such
obligations of the Grantor, including, without limitation, the Obligations of
the Grantor, being the "SECURED OBLIGATIONS"). Without limiting the generality
of the foregoing, this Agreement secures, with respect to the Grantor, and the
Collateral of the Grantor is collateral security for, the payment of all amounts
which constitute part of the Secured Obligations of the Grantor and would be
owed by the Grantor to the Agent, any Purchaser or any Holder but for the fact
that they are unenforceable or not allowable due to the occurrence of an
Insolvency Event or any similar proceeding involving the Grantor.
SECTION 3. GRANTOR REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under its
respective contracts and agreements included in the Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by the
Agent of any of the rights hereunder shall not release the Grantor from any of
its duties or obligations under its respective contracts and agreements included
in the Collateral, and (c) neither the Agent nor any Holder shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Agent or any Holder be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. DELIVERY OF PLEDGED COLLATERAL. Promptly upon its
receipt thereof, the Grantor shall deliver to the Collateral Agent, for the
benefit of the Holders, all certificates or instruments representing or
evidencing the Pledged Collateral acquired by the Grantor, and such Pledged
Collateral shall be held by or on behalf of the Collateral Agent pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank and, in the case
of Pledged Stock of Subsidiaries of the Grantor formed or acquired after the
date hereof, an Acknowledgment executed by such Subsidiary, all in form and
substance satisfactory to the Agent and Collateral Agent. If, at any time, (a)
any stock dividend, reclassification, readjustment or other change is declared
or made in the capital structure of any of the Subsidiaries which have issued
Pledged Stock, or any option included within the Pledged Collateral is
exercised, or both, or (b) any subscription warrant(s) or any other right(s) or
option(s) shall be issued in connection with the Pledged Collateral, then all
new, substituted and additional shares, warrants, rights, options and other
securities issued by reason of any of
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<PAGE> 6
the foregoing shall be promptly delivered to the Collateral Agent and shall be
held by the Collateral Agent under the terms of this Agreement and the
Collateral Agency Agreement and shall constitute Pledged Collateral hereunder;
PROVIDED, HOWEVER, that nothing contained in this SECTION 4 shall be deemed to
permit any stock dividend, issuance of additional stock, warrants, rights or
options, reclassification, readjustment or other change in the capital structure
of any of the Grantors which is not expressly permitted in the Secured Note
Purchase Agreement; PROVIDED, FURTHER, HOWEVER, that the Grantor's failure to so
deliver such property to the Collateral Agent shall in no way affect the Lien
granted thereon as herein provided.
SECTION 5. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL.
The Grantor represents and warrants that it has made its own arrangements for
keeping itself informed of changes and potential changes affecting its Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, payments of interest and/or principal,
reorganization and other exchanges, tender offers and voting rights), and the
Grantor agrees that neither the Agent nor any Holder shall have any obligation
to inform the Grantor of any such changes or potential changes or to take any
action or omit to take any action with respect thereto. The Agent may, after the
occurrence and during the continuance of an Event of Default, without notice and
at its option, transfer or register the Pledged Collateral or any part thereof
into its or its nominee's name with or without any indication that such Pledged
Collateral is subject to the Lien hereunder. In addition, the Agent may at any
time after the occurrence and during the continuance of an Event of Default
exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Grantor
represents and warrants as follows:
(a) The correct corporate name and federal tax identification
number of the Grantor on the date hereof is set forth on EXHIBIT D attached
hereto and made a part hereof. Except as set forth on EXHIBIT D for the
jurisdictions specified with respect thereto, the Grantor has no other
corporate, trade or fictitious name and has not, during the immediately
preceding five (5) years, been known by or used any other corporate, trade or
fictitious name.
(b) The principal place of business and chief executive office
of the Grantor are located at the address specified on EXHIBIT E attached hereto
and made a part hereof. All records concerning the Accounts are located at the
same address specified on EXHIBIT E for the Grantor. All records concerning the
Related Contracts and all originals of all chattel paper are located at the same
address specified on EXHIBIT E for the Grantor or at the addresses specified as
addresses of the Grantor on EXHIBIT F attached hereto and made a part hereof.
(c) All of the Grantor's Inventory and Equipment is located at
the places specified on EXHIBIT F. If any location of its Inventory or Equipment
is subject to a lease, sublease, mortgage or similar instrument, the name and
address of each lessor, sublessor
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<PAGE> 7
and/or mortgagee (other than the Grantor) is set forth on EXHIBIT F. The legal
name and address of each bailee, processor, warehouseman, consignee, carrier and
shipper or other Person (other than a Lessee) in possession of any of the
Grantor's Inventory or Equipment (each such Person being a "BAILEE") on the date
hereof is set forth on EXHIBIT F, together with the address of the location
where such Inventory or Equipment is or may be held. Except as otherwise
indicated on EXHIBIT F, no Person (other than a Lessee or a Person identified on
EXHIBIT F as being a consignee) in possession of any of the Grantor's Inventory
or Equipment conducts a business at the location of such Inventory or Equipment
other than a business in the nature of warehousing or transporting goods for
others. In the event that any of the Grantor's Inventory or Equipment is in the
possession of a Bailee, none of the receipts, instruments or documents received
and to be received by the Grantor from any Bailee state that the Inventory or
Equipment covered thereby is to be delivered to bearer or to the order of a
named person or to a named person and such named person's assigns.
(d) The amount represented by the Grantor from time to time to
the Agent as the amount owing by each account debtor or by all account debtors
in respect of any Accounts will, at such time, be the correct amount actually
and unconditionally owing by such account debtor(s) thereunder to the best of
the Grantor's knowledge (except to the extent, if any, that such account
debtor(s) may be entitled to normal trade discounts, adjustments, returns and
allowances). None of the Accounts is evidenced by a promissory note or other
instrument, except for promissory notes and instruments delivered to the Agent
pursuant to this Agreement.
(e) The Grantor is the sole legal and beneficial owner of its
Pledged Collateral (including, without limitation, the percentage of the issued
and outstanding capital stock of each of its Subsidiary which is set forth
opposite the name of such Subsidiary on EXHIBIT A), free and clear of any Lien
except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, (ii) Liens for taxes, assessments or other governmental charges,
and other similar Liens arising by operation of law for amounts that are not yet
due and payable, to the extent that payment thereof is not required by the
Secured Note Purchase Agreement and (iii) judgment Liens permitted by the
Secured Note Purchase Agreement.
(f) All of the Pledged Stock has been duly authorized, validly
issued and is fully paid and non-assessable. The Pledged Notes have been duly
authorized and executed by the respective issuers thereof and constitute the
legal, valid and binding obligations of such respective issuers.
(g) There are no restrictions upon the voting rights
associated with, or upon the transfer of, any of the Pledged Collateral (except
as may be disclosed to the Agent or required in connection with such disposition
by laws affecting the offering and sale of securities generally).
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<PAGE> 8
(h) The Grantor has the right to vote, pledge and grant a
security interest in or otherwise transfer its Pledged Collateral free of any
Liens except for (i) Liens of the Agent, for the benefit of the Holders, under
the Note Documents, (ii) Liens for taxes, assessments or other governmental
charges, and other similar Liens arising by operation of law for amounts that
are not yet due and payable, to the extent that payment thereof is not required
by the Secured Note Purchase Agreement and (iii) judgment Liens permitted by the
Secured Note Purchase Agreement.
(i) The Powers are duly executed and give the Agent the
authority they purport to confer.
(j) The Acknowledgments have been duly authorized, executed
and delivered by the applicable Subsidiary of Grantor.
(k) The Pledged Stock constitutes, as of the date hereof, all
of the shares of capital stock and voting securities of each Subsidiary of the
Grantor that are not subject to a Security Interest Restriction. The Pledged
Notes constitute the only promissory notes of any Person in favor of the Grantor
as of the date hereof.
(l) The pledge of the Pledged Collateral pursuant to this
Agreement does not violate Regulation G, T, U or X.
(m) No consent, authorization, permit, notice or filing is
required (i) in connection with the execution, delivery or performance of this
Agreement by the Grantor, (ii) for the creation, perfection or maintenance of
the security interest of the Liens created hereby including the maintenance of
the first priority (subject to the Lien in favor of Fleet and purchase money
liens permitted under the Secured Note Purchase Agreement) nature of such Lien,
except with respect to the property subject to liens created, or hereafter
created, under this Agreement, or (iii) for the exercise by the Agent of its
rights and remedies hereunder, except (x) those that have been obtained or made,
(y) filings necessary to create, perfect or retain the perfection or priority of
Liens against the Grantor's Collateral, and (z) with respect to the Pledged
Collateral, as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally.
(n) There are no conditions precedent to the effectiveness of
this Agreement that have not been satisfied or waived in writing.
SECTION 7. FURTHER ASSURANCES. (a) The Grantor agrees that, at
its own expense, the Grantor will, and will cause each of its Subsidiaries to,
promptly execute and deliver all further instruments and documents, and take all
further action which may be reasonably necessary or desirable in the opinion of
the Agent, in order to (x) perfect and protect any Lien created or purported to
be created hereby, (y) enable the Agent to exercise and enforce its rights and
remedies hereunder with respect to any of the Collateral, and (z)
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<PAGE> 9
cause the execution, delivery and performance of this Agreement to be duly
authorized, and the Grantor shall, and shall cause each of its Subsidiaries to,
in any event take such action as may be required to maintain the truthfulness
and accuracy of the representations and warranties contained in SECTION 6.
Without limiting the generality of the foregoing, the Grantor will: (i) if any
Account or other amount payable to the Grantor under or in connection with any
of its Collateral shall be or becomes evidenced by any promissory note, chattel
paper, letter of credit or other negotiable or non-negotiable instrument, such
note, chattel paper, letter of credit or instrument shall, within five (5) days
after the Grantor's receipt thereof, be delivered to the Agent duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance reasonably satisfactory to the Agent (or, if such note or
instrument is an item collectible through bank channels and collection accounts
have been established, deposited in one of the collection accounts, duly
endorsed in a manner reasonably satisfactory to the Agent); (ii) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as the Agent
may reasonably determine in its sole and absolute discretion to be necessary or
desirable, in order to perfect and preserve the Lien created or purported to be
created hereby; (iii) execute and deliver to the Agent landlord consents,
mortgagee and Bailee waivers, notices, agreements (including, without
limitation, subordination agreements) and other documents which the Agent may
reasonably determine in its sole discretion to be necessary or desirable, for
the purpose of giving advice of and perfecting the Liens granted to the Agent
for its benefit and the ratable benefit of the Holders and establishing the
senior priority thereof over such other parties' rights and interests in respect
of any of the Grantor's Equipment, Inventory or other Collateral held in the
possession of, Bailees, lessors, mortgagees or other third parties, and shall
use its best efforts to cause such third parties to acknowledge or consent to
such notices, agreements and other documents; (iv) within thirty (30) days after
the end of each calendar quarter, deliver to the Agent with respect to any item
for which a certificate of title has been issued by any state's registrar of
motor vehicles or other appropriate authority in such jurisdiction during such
calendar quarter (other than such certificates subject to Permitted Liens); (v)
except with respect to the deliveries made pursuant to SECTION 7(A)(IV), upon
the request of the Agent, after the occurrence and during the continuance of an
Event of Default, with respect to any item of Equipment or Inventory of the
Grantor, in either case which is covered by a certificate of title under a
statute of any jurisdiction under the law of which indication of a security
interest on such certificate is required as a condition of perfection thereof,
execute and file with the registrar of motor vehicles or other appropriate
authority in such jurisdiction an application or other document requesting the
notation or other indication of the Lien created hereunder on such certificate
of title; (vi) upon the request of the Agent, within thirty (30) days after the
end of each calendar quarter, deliver to the Agent copies of all such
applications or other documents filed pursuant to a request by the Agent under
SECTION 7(A)(V) during such calendar quarter and copies of all such certificates
of title issued during such calendar quarter indicating the Lien created
hereunder in the items of Equipment or Inventory covered thereby; and (vii) at
the Agent's reasonable request, appear in and defend any action or proceeding
that may adversely affect that Grantor's title to or the Agent's Lien on all or
any material part of the Collateral.
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<PAGE> 10
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Grantor's Collateral without the signature of the Grantor
where permitted by law. The Grantor hereby agrees that a photocopy or other
reproduction of this Agreement or any financing statement covering its
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Grantor will keep and maintain at its own cost and
expense, and will cause each of its Subsidiaries to keep and maintain at their
own cost and expense, records of the Collateral in detail, form and scope
consistent with good business practice, including, without limitation, a record
of all payments received and all credits granted with respect to the Collateral
and all other dealings with the Collateral. If an Event of Default has occurred
and is continuing, for the Agent's further security, upon the Agent's request
therefor, the Grantor shall, and shall cause each of its Subsidiaries to,
deliver copies of, or if reasonably necessary in the opinion of the Agent, turn
over originals of, any such records to the Agent or to its representatives.
(d) The Grantor will, and will cause each of its Subsidiaries
to, furnish to the Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail, and the Grantor agrees that the Agent or its agents may enter upon the
premises of the Grantor or any of its Subsidiaries at any time and from time to
time, during normal business hours and upon 24 hours' prior notice, and at any
time at all on and after the occurrence of a Default which continues beyond the
expiration of any grace or cure period applicable thereto, and which has not
otherwise been waived pursuant to the Secured Note Purchase Agreement or cured,
for the purposes of (i) inspecting and verifying the Collateral, (ii) inspecting
and/or copying (at the Grantor's expense) any and all records pertaining thereto
and (iii) discussing the affairs, finances and business of the Grantor with any
officers, employees and directors of the Grantor or with the auditors. Upon
reasonable notice to the Grantor, the Agent or any of the Agent's officers,
employees, agents or auditors shall have the right at any time or times
hereafter to verify with account debtors or other obligors of the Grantor the
validity and amount or any other matter (including, without limitation, the
assertion by account debtors of claims, offsets or counterclaims) with respect
to any of the Collateral.
(e) The Grantor will, and will cause each of its Subsidiaries
to, advise the Agent promptly, in reasonable detail, (i) of any material Lien or
claim made or asserted against any of the Collateral, (ii) of any material
change in the composition of the Collateral, and (iii) of the occurrence of any
other event which would have a material adverse effect on the aggregate value of
the Collateral or on the Liens created hereunder.
SECTION 8. TRANSFERS OF COLLATERAL. The Grantor agrees that it
will not, nor will it permit any of its Subsidiaries to (a) directly or
indirectly, sell, lease, assign, transfer or
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otherwise dispose of, or grant any option with respect to, any of the
Collateral, or any part thereof or interest therein, except as expressly
authorized under the Secured Note Purchase Agreement, (b) directly or indirectly
create, incur, assume, or suffer to exist any Lien on any of the Pledged
Collateral now owned or hereafter acquired except for the Lien under this
Agreement and as permitted under the Secured Note Purchase Agreement, or (c)
enter into any agreement or understanding that purports to or may restrict or
inhibit the Agent's rights or remedies hereunder, including, without limitation,
the Agent's right to sell or otherwise dispose of the Pledged Collateral.
SECTION 9. PLACE OF PERFECTION; NAME CHANGES; RECORDS. The
Grantor shall not (a) change its name, identity or structure or adopt or use any
trade or fictitious name not specified as a current trade or fictitious name on
EXHIBIT D, or use any existing trade or fictitious name in any jurisdiction not
specified for such name on EXHIBIT D, (b) change any location of its chief
executive office, place of business or place where records concerning its
Accounts, Related Contracts and chattel paper are maintained from the locations
specified on EXHIBIT E or EXHIBIT F or (c) change any location of any Collateral
or jurisdiction where Lessees are located from the locations specified in
EXHIBIT F, unless, in each case, the Grantor shall have given the Agent at least
thirty (30) Business Days' prior written notice of any such change. At least ten
(10) Business Days prior to any such change referred to in the preceding
sentence, the Grantor shall prepare and deliver to the Agent amended exhibit(s)
reflecting such change(s) and execute and deliver to the Agent any financing
statements or other documents required by the Agent, all in form and substance
reasonably satisfactory to the Agent, and take all other actions required by
SECTION 7.
SECTION 10. COVENANTS REGARDING ACCOUNTS AND RELATED
CONTRACTS. (a) The Grantor shall, at its expense, perform and observe all of the
material terms and provisions of the Related Contracts, employment agreements,
rental contracts, leases and chattel paper to be performed or observed by it,
maintain the Related Contracts, rental contracts, leases and chattel paper in
full force and effect and enforce the Related Contracts in accordance with their
terms, except where failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(b) In any suit, proceeding or action brought by the Agent
under any account comprising part of the Collateral, the Grantor agrees to save,
indemnify and keep the Agent and each Holder harmless from and against all
expense, loss or damages suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by the Grantor of any obligation or arising
out of any other agreement, indebtedness or liability at any time owing to or in
favor of such obligor or its successors from the Grantor and all such
obligations of the Grantor shall be and shall remain enforceable against and
only against the Grantor and shall not be enforceable against the Agent or any
Holder.
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SECTION 11. COVENANTS REGARDING EQUIPMENT AND INVENTORY. (a)
If any Equipment or Inventory of the Grantor is in the possession or control of
any Bailee or any of the Grantor's agents, the Grantor shall notify such Bailee
or agent of the Agent's Lien on such Equipment or Inventory and, upon the
Agent's request, direct such Bailee or agent to hold all such Equipment or
Inventory for the Agent's account and subject to the Agent's instructions
following the occurrence and during the continuance of an Event of Default.
(b) Upon the request of the Agent, the Grantor will promptly
deliver to the Agent a schedule listing all Equipment disposed of by the
Grantor, and the book value thereof, in the then-current (or any prior) Fiscal
Year.
(c) The Grantor will, upon request of the Agent, submit to the
Agent a current listing of all of the Grantor's Equipment, which listing shall
indicate the type, model, serial number and location of such Equipment.
(d) The Grantor shall promptly upon the issuance and delivery
to the Grantor of any negotiable document of title, upon the request of the
Agent after the occurrence and during the continuance of an Event of Default,
deliver such negotiable document of title to the Agent.
SECTION 12. VOTING RIGHTS. During the term of this Agreement,
and except as provided in the next sentence of this SECTION 12, the Grantor
shall have the right to vote its Pledged Stock on all corporate questions in a
manner not inconsistent with the terms of this Agreement, the Secured Note
Purchase Agreement and any other agreement, instrument or document executed
pursuant thereto or in connection therewith, and in a manner that would not have
a material adverse effect on the value of the Pledged Stock and the related
Pledged Collateral or any part thereof. After the occurrence and during the
continuance of an Event of Default, the Agent may, at the Agent's option and
following written notice from the Agent to the Grantor, exercise all voting
powers pertaining to the Grantor's Pledged Collateral, including the right to
take shareholder action by written consent, and the Grantor hereby irrevocably
constitutes and appoints the Agent as the Grantor's proxy and attorney-in-fact,
with full power of substitution, to do so. This proxy shall be irrevocable and
shall continue until the termination of this Agreement in accordance with
SECTION 23.
SECTION 13. DIVIDENDS AND OTHER DISTRIBUTIONS. (a) So long as
no Event of Default shall have occurred and be continuing and shall not have
been cured or waived, or no Event of Default would result therefrom:
(i) subject to SECTION 4 hereof and the provisions of the
Secured Note Purchase Agreement, the Grantor shall be entitled to receive,
retain and utilize all dividends, interest and principal paid in respect of its
Pledged Collateral unless any such dividend, interest or principal is not
permitted to be paid under the terms of the Secured Note Purchase Agreement; and
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(ii) the Agent shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other instruments as
the Grantor may reasonably request for the purpose of enabling the Grantor to
receive the dividends, interest or principal payments which it is authorized to
receive, retain and utilize pursuant to CLAUSE (I) above.
(b) Except to the extent set forth in the Secured Note
Purchase Agreement, after the occurrence and during the continuance of an Event
of Default, or if any of the following would result in an Event of Default if
paid to a Grantor:
(i) all rights of the Grantor to receive dividends, interest
and principal payments in respect of the Pledged Collateral shall cease, and all
such rights shall thereupon become vested in the Agent, for the benefit of the
Agent and the ratable benefit of the Holders, which shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends, interest
and principal payments; and
(ii) all dividends, interest and principal payments which are
received by the Grantor contrary to the provisions of CLAUSE (I) of this SECTION
13(B) shall be received in trust for the Agent, for the benefit of the Agent and
the ratable benefit of the Holders, shall be segregated from other funds of the
Grantor and shall be paid over immediately to the Agent as Pledged Collateral in
the same form as so received (with any necessary endorsements).
(c) Except as may otherwise be provided in the Secured Note
Purchase Agreement, any and all (i) dividends, interest and principal paid or
payable other than in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or in exchange for,
any Pledged Collateral, (ii) dividends and other distributions paid or payable
in cash received, receivable or otherwise distributed in respect of any Pledged
Stock in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in redemption of, or in
exchange for, any Pledged Stock, shall in each case be delivered forthwith to
the Agent to hold as Pledged Collateral and shall, if received by a Grantor, be
received in trust for the Agent, for the benefit of Holders, be segregated from
other funds of the Grantor, and be paid over immediately to the Agent as Pledged
Collateral in the same form as so received (with any necessary endorsements).
SECTION 14. DEPOSIT ACCOUNTS. Upon the occurrence and during
the continuation of an Event of Default, the Collateral Agent may exercise
dominion and control over, and refuse to permit further withdrawals (whether of
money, securities, instruments or other property) from any deposit accounts
maintained with the Agent constituting part of the Collateral in accordance with
the terms of the letter agreement by and among PNC Bank, N.A., the Issuer and
Barclays Business Credit, Inc. dated December 19, 1994, as the same has been
heretofore and may be hereafer amended, supplemented, or modified.
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SECTION 15. AGENT APPOINTED ATTORNEY-IN-FACT. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's Permitted Discretion, to take any
action and to execute any instrument which the Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, subject to the Agent's
authority as provided in the Secured Note Purchase Agreement, including, without
limitation:
(a) after the occurrence and during the continuance of an
Event of Default, to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with any of the Collateral;
(b) after the occurrence and during the continuance of an
Event of Default, to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (A) above;
(c) after the occurrence and during the continuance of an
Event of Default, to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Agent with
respect to any of the Collateral;
(d) after the occurrence and during the continuance of an
Event of Default, to discharge any Lien or encumbrance on or against any of the
Collateral or bond the same;
(e) to give any notices and record any Liens;
(f) to make any payments or take any acts which the Agent
deems reasonably necessary or desirable to protect the Lien of the Agent, for
the benefit of the Holders, on the Collateral;
(g) after the occurrence and during the continuance of an
Event of Default, to execute and give receipt for any certificate of ownership
or any document or title; and
(h) after the occurrence and during the continuance of an
Event of Default, to transfer title to any item of Collateral.
All Persons dealing with the Agent, or any employee or agent of the Agent acting
pursuant hereto, or any substitute attorney-in-fact for the Agent, shall be
fully protected in treating the powers and authorities conferred by this SECTION
15 as existing and continuing in full force and effect. The Grantor hereby
ratifies all that such attorney-in-fact shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and shall be
irrevocable. This power of attorney shall terminate upon the termination of this
Agreement pursuant to SECTION 23.
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SECTION 16. AGENT MAY PERFORM. If the Grantor fails to perform
any agreement contained herein, the Agent, after giving prior notice to the
Grantor, may itself perform, or cause performance of, such agreement, and the
expenses of the Agent incurred in connection therewith shall be payable by the
Grantor to the Agent upon demand by the Agent.
SECTION 17. THE AGENT'S RIGHTS AND DUTIES. The powers
conferred on the Agent and the Purchasers hereunder are solely to protect their
interest in the Collateral and shall not impose any duty upon any of them to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Agent shall have no duty as to any Collateral. Without limiting the generality
of the foregoing sentence, the Agent shall be under no obligation to (a)
ascertain or take action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether
or not the Agent has or is deemed to have knowledge of such matters, but may do
so at its option or (b) take any steps necessary to preserve rights in the
Pledged Collateral against any other parties but may do so at its option. All
expenses incurred in connection therewith shall be for the sole account of the
Grantor, and shall constitute part of its Obligations secured hereby. Any action
taken or omitted to be taken by the Agent in connection with any of the
Collateral shall not result in any liability of the Agent to the Grantor unless
such action or omission shall be determined by a court of competent jurisdiction
to have arisen solely out of the gross negligence or willful misconduct of the
Agent. The Agent may exercise any of its rights and execute any of its duties
hereunder by or through agents or employees and shall be entitled to advice of
counsel concerning all matters pertaining to its rights and duties hereunder.
SECTION 18. REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a) The Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein, in the Secured Note
Purchase Agreement, or otherwise available to it, all the rights and remedies of
a secured party upon default under the Uniform Commercial Code in effect in any
relevant jurisdiction at that time (the "UNIFORM COMMERCIAL CODE") (whether or
not the Uniform Commercial Code applies to the affected Collateral), and also
may (i) without notice, notice, demand or legal process of any kind, all of
which the Grantor hereby waives to the extent permitted by applicable law, at
any time or times notify the account debtors or obligors under any Accounts,
chattel paper, instruments or General Intangibles of the assignment of such
Collateral to the Agent and to direct such account debtors or obligors to make
payment of all amounts due or to become due to the Grantor thereunder directly
to the Agent, to notify each Person maintaining a lockbox or similar arrangement
to which account debtors or obligors under any Accounts, chattel paper,
instruments or General Intangibles have been directed to make payment to remit
all amounts representing collections on checks and other payment items from time
to time sent to or deposited in such lockbox or other arrangement directly to
the Agent and, upon such notification and at the expense of the Grantor, to
accelerate or extend the time of payment,
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<PAGE> 16
compromise, issue credits, or bring suit on such Collateral (in the name of the
Grantor or the Holders) and otherwise administer and collect such Collateral, in
the same manner and to the same extent as the Grantor might have done; (ii)
without notice, demand or legal process of any kind, all of which the Grantor
hereby waives to the extent permitted by applicable law, at any time or times
enter any premises where any Collateral may be located and take physical
possession of the Collateral and maintain such possession on the premises, at no
cost to the Agent, or remove the Collateral or any part thereof, to such other
places as the Agent may desire; (iii) without notice, demand or legal process of
any kind, all of which the Grantor hereby waives to the extent permitted by
applicable law, at any time or times enter any premises where any Collateral may
be located and use, manage, operate and control the Collateral thereon and the
relevant business and property to preserve the Collateral; exclude any third
parties, whether or not claiming under the Grantor, from any such premises and
property; complete any unfinished Inventory, make repairs, replacements,
alterations, additions and improvements to the Collateral; and, dispose of all
or any portion of the Collateral in the ordinary course of business; (iv)
require the Grantor to, and the Grantor hereby agrees that it will at its own
expense and upon request of the Agent forthwith, assemble all or part of its
Collateral as directed by the Agent and make it available to the Agent at a
place or places to be designated by the Agent that is reasonably convenient for
both parties, and deliver possession of said Collateral or any part thereof to
the Agent; and (v) without notice, except as specified below, sell, lease,
assign, grant an option or options to purchase or otherwise dispose of the
Collateral or any part thereof in one or more parcels with or without
advertisement, at any exchange, broker's board, public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit, for future delivery,
or otherwise, and upon such other terms as the Agent may deem commercially
reasonable. Any repossession, retaking, sale, or other disposition of the
Collateral by the Agent shall not operate to release the Grantor from its
obligations hereunder. The Agent and each Purchaser may, in its own name or in
the name of a designee or nominee, bid for or purchase the Collateral at any
public sale and, if permitted by applicable law, buy the Collateral at any
private sale. Each purchaser of any or all of the Collateral so sold shall
thereafter own the same, absolutely free from any claim, encumbrance or right of
any kind whatsoever on the part of the Grantor, and the Grantor hereby waives,
to the extent permitted by applicable law, all rights of redemption, appraisal,
valuation, stay, extension or moratorium now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute sale of the
whole or any part of the Collateral or the possession thereof by any purchaser
at any sale hereunder. The Grantor agrees that, to the extent notice of sale
shall be required by law, at least five (5) Business Days' notice to the
Grantor(s) of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The Agent
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. The Grantor hereby waives any claims against the Agent arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if
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<PAGE> 17
the Agent accepts the first offer received and does not offer such Collateral to
more than one offeree; PROVIDED that such sale was conducted in a commercially
reasonable manner.
(b) Any cash held by the Agent as Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral may, in the discretion
of the Agent, be held by the Agent as collateral for, and/or then or at any time
thereafter be applied in whole or in part by the Agent for its benefit and for
the ratable benefit of the Holders against, all or any part of the Grantor's
Secured Obligations in such order as the Agent shall elect, subject to any
provision of the Secured Note Purchase Agreement governing the application of
such cash, proceeds, or other realization upon the Collateral. If the proceeds
of any sale or other disposition of the Collateral of a Grantor are insufficient
to pay all of the Secured Obligations of the Grantor, the Grantor shall be
liable for the deficiency, in addition to any fees, expenses or other amounts
required to be paid pursuant to the Secured Note Purchase Agreement to collect
such deficiency. Any surplus of such cash or cash proceeds held by the Agent and
remaining after Payment In Full of all Secured Obligations shall be promptly
paid to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Grantor hereby consents to the voluntary dismissal by
the Agent of any judicial action, prejudgment or otherwise, brought by the
Agent, and the Grantor further consents to the exoneration of any bond that the
Agent files in such action.
SECTION 19. REGISTRATION RIGHTS. (a) In the event that the
Agent determines, after the occurrence and during the continuance of an Event of
Default, to exercise its right to sell the Pledged Stock pursuant to SECTION 18,
the Grantor shall, upon the request of the Agent, at the Grantor's expense:
(i) execute and deliver, and cause each issuer of Pledged
Stock and its respective officers and directors to execute and deliver,
all such instruments and documents, and do or cause to be done all such
other acts and things, as may be necessary or, in the opinion of the
Agent, the Grantor or its or their counsel, advisable to register the
applicable Pledged Collateral under the provisions of the Securities
Act of 1933, as amended (the "SECURITIES ACT") and to exercise its
reasonable efforts to cause the registration statement relating thereto
to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to make all
amendments and supplements thereto and to the related prospectus which,
in the opinion of the Agent, the Grantor or its or their counsel, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and
Exchange Commission applicable thereto; PROVIDED, HOWEVER, that the
Grantor shall not be required to register the Pledged Stock pursuant to
this SECTION 19(I) if the Adjusted Tangible Net Worth of the issuer of
the Pledged Stock is less than $250,000;
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<PAGE> 18
(ii) use its reasonable efforts to qualify its Pledged
Collateral under state securities or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of its Pledged
Collateral, as requested by the Agent;
(iii) cause any Subsidiary which has issued Pledged Collateral
(or any of them) to make available to the holders of its securities, as
soon as practicable, earnings statements which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(iv) do or cause to be done all such other acts and things as
may be reasonably necessary to make such sale of its Pledged Collateral
or any part thereof valid and binding and in compliance with applicable
law.
The Grantor will reimburse the Agent for all expenses incurred by the Agent,
including, without limitation, reasonable attorneys' and accountants' fees and
expenses in connection with the foregoing. Upon or at any time after the
occurrence and during the continuance of an Event of Default, if the Agent
determines that, prior to any public offering of any securities constituting
part of the Pledged Collateral, such securities should be registered under the
Securities Act and/or registered or qualified under any other federal or state
law and such registration and/or qualification is not practicable, then the
Grantor agrees that it will be commercially reasonable if a private sale is
arranged so as to avoid a public offering, even though the sales price
established and/or obtained at such private sale may be substantially less than
prices which could have been obtained for such security on any market or
exchange or in any other public sale. In so doing, the Agent may restrict the
bidders and prospective purchasers to those who are qualified and will represent
and agree that they are purchasing for investment only and not for distribution,
and the Agent may solicit offers to buy the Pledged Collateral, or any part of
it, from a limited number of investors deemed by the Agent, in its reasonable
judgment, to be financially responsible parties who might be interested in so
purchasing the Pledged Collateral. If the Agent solicits such offers from not
less than four (4) such investors, then the acceptance by the Agent of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposing of such Pledged Collateral. The Agent shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the registrant to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if the Grantor or the issuer of the Pledged Collateral would agree to do so.
(b) In addition to a private sale as provided above in SECTION
19(A), if any of the Pledged Collateral shall not be freely distributable to the
public without registration under the Securities Act (or similar statute) at the
time of any proposed sale pursuant to this SECTION 19, then the Agent shall not
be required to effect such registration or cause the same to be effected but, in
its discretion (subject only to applicable requirements of law), may require
that any sale hereunder (including a sale at auction) be conducted subject to
restrictions (i) as to the financial sophistication and ability of any Person
permitted to bid or purchase at any such sale, (ii) as to the content of legends
to be placed upon any certificates representing the Pledged
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<PAGE> 19
Collateral sold in such sale, including restrictions on future transfer thereof,
(iii) as to the representations required to be made by each Person bidding or
purchasing at such sale relating to that Person's access to financial
information about the pertinent issuer of Pledged Collateral and such Person's
intentions as to the holding of the Pledged Collateral so sold for investment,
for its own account, and not with a view of the distribution thereof, and (iv)
as to such other matters as the Agent may, in its discretion, deem necessary or
appropriate in order that such sale (notwithstanding any failure so to register)
may be effected in compliance with the Uniform Commercial Code as in effect in
the State of New York or any other relevant jurisdiction and other laws
affecting the enforcement of creditors' rights and the Securities Act and all
applicable state securities laws.
SECTION 20. WAIVERS. The Grantor waives presentment and demand
for payment of any of the Obligations, protest and notice of dishonor or Event
of Default with respect to any of the Obligations and all other notices to which
the Grantor might otherwise be entitled, except as otherwise expressly provided
herein or in the Secured Note Purchase Agreement.
SECTION 21. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Purchasers (or by the Agent on their behalf), except
as otherwise provided in the Secured Note Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 22. NOTICES, ETC. All notices and other communications
provided for hereunder shall be given in the manner and to the addresses set
forth in the Secured Note Purchase Agreement, except that any notice provided by
the Grantor to the Agent hereunder shall be effective only upon receipt thereof
by the Agent.
SECTION 23. CONTINUING LIEN; ASSIGNMENTS UNDER SECURED NOTE
PURCHASE AGREEMENT; TERMINATION; PAYMENTS SET ASIDE. This Agreement shall create
a continuing Lien on the Collateral and shall (i) remain in full force and
effect until the Payment in Full (including after the maturity date) of the
Secured Obligations and termination of the Commitments, (ii) be binding upon the
Grantor, its successors and permitted assigns (which shall include, without
limitation, the Grantor's receivers, trustees or debtors-in-possession), and
(iii) inure to the benefit of, and be enforceable by, the Agent, the Holders and
their respective successors, transferees and permitted assigns. Without limiting
the generality of the foregoing CLAUSE (III), any Purchaser may assign or
otherwise transfer all or any portion of its rights and obligations under the
Secured Note Purchase Agreement in accordance with the terms thereof (including,
without limitation, all or any portion of its Commitments and any Loans owing to
it), and any Secured Note held by it (subject to the terms of the Secured Note
Purchase Agreement), to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Purchaser
herein or otherwise.
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<PAGE> 20
The Grantor shall not assign this Agreement, or any rights or obligations
hereunder, without the prior written consent of the Agent and the Purchasers.
Upon the payment in full (including after the maturity date) of the Secured
Obligations and the termination of the Commitments, the Lien granted hereby
shall terminate and all rights to the Collateral shall revert to the Grantor. At
such time, the Agent shall, at the request and expense of the Grantor, reassign
and redeliver to the Grantor all of the Collateral hereunder which has not been
sold, disposed of, retained or applied by the Agent in accordance with the terms
of this Agreement. Such reassignment and redelivery shall be without warranty by
or recourse to the Agent, except as to the absence of any prior assignments by
the Agent of its interest in the Collateral, and shall be at the expense of the
Grantor. To the extent that the Grantor makes a payment or payments to the Agent
or any Holder, or the Agent or the Purchasers enforce their Liens or exercise
their rights of set-off, and such payment or payments or the proceeds of such
enforcement or set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or set-off had not occurred.
SECTION 24. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Grantor covenants, warrants, and represents to the Agent and the Holders that
all representations and warranties of the Grantor contained in this Agreement
shall be true at the time of the Grantor's execution of this Agreement, shall
survive the execution, delivery and acceptance hereof by the parties hereto and
the closing of the transactions described in the Secured Note Purchase Agreement
and the other Note Documents and shall continue in effect until all of the
Secured Obligations shall have been paid in full (including after the maturity
date) and the Secured Note Purchase Agreement has been terminated.
SECTION 25. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE
LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A
JURISDICTION OTHER THAN SUCH STATE. AS PART OF THE CONSIDERATION FOR NEW VALUE
THIS DAY RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL
PLACE OF BUSINESS OF THE GRANTOR OR THE HOLDERS, GRANTOR HEREBY CONSENTS AND
AGREES THAT THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK OR, AT AGENT'S
OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
SHALL HAVE THE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN GRANTOR AND AGENT PERTAINING TO THIS AGREEMENT OR ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT. GRANTOR EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
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<PAGE> 21
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GRANTOR HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED ON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. GRANTOR
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE GRANTOR AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETE UPON THE EARLIER OF THE OBLIGOR'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT
THE RIGHT OF THE AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE AGENT OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
SECTION 26. WAIVER OF RIGHT TO TRIAL BY JURY. GRANTOR AND
HOLDERS WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE GRANTOR AND THE
HOLDERS WITH RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE, GRANTOR AND HOLDERS AGREE AND CONSENT
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
GRANTOR AND HOLDERS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. GRANTOR AND
HOLDERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL
REGARDING THIS SECTION THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND EFFECT,
AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS SECTION.
SECTION 27. LIMITATION OF LIABILITY. NONE OF THE AGENT, OR THE
PURCHASERS SHALL HAVE ANY LIABILITY TO THE GRANTOR (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE GRANTOR OR THEIR RESPECTIVE
SUBSIDIARIES, AND THE GRANTOR HEREBY WAIVES AND RELEASES ANY CLAIMS, IN
CONNECTION WITH, ARISING
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<PAGE> 22
OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED
BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
HEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT
ORDER BINDING ON THE AGENT OR ANY SUCH PURCHASER, THAT THE LOSSES WERE THE
RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE, WILLFUL MISCONDUCT,
BREACH OF CONTRACT OR KNOWING OR GROSSLY NEGLIGENT VIOLATIONS OF APPLICABLE
REQUIREMENTS OF LAW. THE GRANTOR AGREES NOT TO ASSERT ANY CLAIM AGAINST ANY OF
THE AGENT, ANY PURCHASER OR ANY OTHER HOLDER ON ANY THEORY OF LIABILITY FOR
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF, OR IN ANY
WAY IN CONNECTION WITH, THE COMMITMENTS, THE OBLIGATIONS OR ANY OTHER MATTERS
GOVERNED BY THIS AGREEMENT OR THE OTHER NOTE DOCUMENTS.
SECTION 28. SEVERABILITY. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 29. PROTECTION OF COLLATERAL. The Agent shall have the
right (but shall not be obligated) to make payments and take actions it deems
reasonably necessary to protect its Lien on the Collateral. Grantor shall
reimburse the Agent for all such payments made, and expenses incurred with
respect to such actions taken, by the Agent, which amounts and expenses shall be
secured under this Agreement, and the Grantor shall be bound by any such payment
made or action taken by the Agent.
SECTION 30. NO WAIVER; REMEDIES. No failure on the part of any
Purchaser or the Agent to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided in the Secured Note Purchase
Agreement, any other Credit Document, in equity, or by law.
SECTION 31. MARSHALLING; RECOURSE TO SECURITY. None of the
Purchasers or the Agent shall be under any obligation to marshall any assets in
favor of the Grantor or any other party or against or in payment of any or all
of the Secured Obligations. Recourse to security shall not be required at any
time.
SECTION 32. EXPENSES, ETC. Whether or not the transactions
contemplated hereby are consummated, the Grantor agrees, jointly and severally
to pay all reasonable costs and expenses (including reasonable attorneys' fees
of a special counsel and, if reasonably
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<PAGE> 23
required, local or other counsel) incurred by the Agent or Purchasers of a
Secured Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement, the
Secured Notes or other Note Documents (whether or not such amendment, waiver or
consent becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement, the Secured Notes or other
Note Documents or in responding to any subpoena or other legal process or
informal investigative demand issued in connection with this Agreement, the
Secured Notes or other Note Documents, or by reason of being a Purchaser of any
Secured Note, and (b) the costs and expenses, including financial advisors'
fees, incurred in connection with the insolvency or bankruptcy of any Obligor or
in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Secured Notes and other Note Documents. The
Grantor will pay, and will save each Purchaser harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by such Purchaser). The obligations of the Grantor under
this paragraph will survive the payment or transfer of any Secured Note, the
enforcement, amendment or waiver of any provision of this Agreement, the Secured
Notes or other Note Documents, and the termination of this Agreement.
SECTION 33. CONSTRUCTION. (a) The parties acknowledge that
each party and its counsel have reviewed and revised this Agreement and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any amendments or exhibits hereto.
(b) The words "hereof", "herein" and "hereunder" and words of
like import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement and section and exhibit
references are to this Agreement and to its attachments unless otherwise
specified.
(c) All terms defined in this Agreement in the singular shall
have comparable meanings when used in the plural, and VICE VERSA, unless
otherwise specified.
(d) Unless otherwise defined herein or in the Secured Note
Purchase Agreement, terms used in Article 9 of the Uniform Commercial Code in
effect in the State of New York are used herein as therein defined.
SECTION 34. HEADINGS. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 35. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This
Agreement and any waiver or amendment hereto may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered
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<PAGE> 24
shall be an original, but all of which shall together constitute one and the
same instrument. This Agreement shall become effective on the date on which all
of the parties hereto shall have signed a copy hereof (whether the same or
different copies) and shall have delivered the same to the Agent pursuant to the
provisions of the Secured Note Purchase Agreement and of this Agreement
concerning notices.
SECTION 36. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent Holder of a Note) whether so
expressed or not.
SECTION 37. CONSTRUCTION. Each covenant contained herein shall
be construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
SECTION 38. APPOINTMENT OF COLLATERAL AGENT. The Company
hereby consents to the Agent's appointment of the Collateral Agent as the
Agent's representative with respect to the Collateral and the Agent's rights
hereunder all as set forth in the Collateral Agency Agreement. The Company
hereby acknowledges receipt of a copy of the Collateral Agency Agreement and
consents to the terms thereof.
* * *
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above writ ten.
GRANTOR: NATIONAL RECORD MART, INC.
a Delaware corporation
By:
------------------------------------
Name:
Title:
AGENT: ROBERT FLEMING INC.
a Delaware corporation,
as Agent
By:
------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.12
EXECUTION COPY
GUARANTOR SECURITY AND PLEDGE AGREEMENT
---------------------------------------
THIS GUARANTOR SECURITY AND PLEDGE AGREEMENT ("Agreement")
dated as of April 16, 1998, is entered into by and between NRM INVESTMENTS,
INC., a Delaware corporation ("GRANTOR"), and ROBERT FLEMING INC., a Delaware
corporation, as agent (in such capacity, the "AGENT") for the Holders under (and
as defined in) the Senior Subordinated Secured Note Purchase Agreement (as
hereinafter defined). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Senior Subordinated
Secured Note Purchase Agreement.
W I T N E S S E T H
WHEREAS, the National Record Mart, Inc., a Delaware
corporation (the "Issuer"), the Guarantors from time to time party thereto, the
Purchasers referred to therein, and the Agent have entered into a Senior
Subordinated Secured Note Purchase Agreement of even date herewith (as amended,
restated, supplemented or otherwise modified from time to time, the "SECURED
NOTE PURCHASE AGREEMENT"), pursuant to which, the Agent and the Purchasers have
agreed to purchase $7,500,000 in aggregate principal amount of the Grantor's
11.75% Senior Subordinated Secured Notes due 2001 (the "SECURED NOTES");
WHEREAS, pursuant to the Secured Note Purchase Agreement the
Grantor unconditionally guaranteed the prompt and complete payment and
performance of the Issuer's Obligations under the Secured Notes and the Note
Documents;
WHEREAS, pursuant to the Secured Note Purchase Agreement, the
Issuer has entered into that certain Issuer Security and Pledge Agreement of
even date herewith (the "ISSUER SECURITY AND PLEDGE AGREEMENT");
WHEREAS, it is a condition precedent to the purchase of the
Secured Notes by the Agent and the Purchasers under the Secured Note Purchase
Agreement that the Grantor shall have executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises set forth
herein and of the purchase of the Secured Notes by the Agent and the Purchasers
or any other Holder, or any of them the Grantor hereby agrees with the Agent,
for its benefit and the ratable benefit of the Holders, as follows:
SECTION 1. GRANT OF SECURITY. The Grantor hereby pledges to
the Agent, for its benefit and the ratable benefit of the Holders, and hereby
grants to the Agent, for its benefit and the ratable benefit of the Holders, a
security interest in, all of the Grantor's right, title and interest in and to
the following, in each case whether now owned or existing or hereafter
<PAGE> 2
acquired or arising and however and wherever arising or located (collectively,
the "COLLATERAL"):
(a) All of the Grantor's machinery, apparatus, equipment,
fittings, furniture, fixtures, motor vehicles and other tangible personal
property (other than Inventory) of every kind and description used in Grantor's
operations or owned by Grantor, or in which Grantor has an interest, whether now
owned or hereafter acquired by Grantor and wherever located, and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements therefor (all of the foregoing being the
"EQUIPMENT");
(b) All of Grantor's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods and merchandise intended for
sale or lease by Grantor, or for display or demonstration; all works in
progress; all raw materials and other materials and supplies of every nature and
description used or which might be used in connection with the manufacture,
printing, packing, shipping, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in Grantor's business; and all documents
evidencing, and General Intangibles (as defined below) relating to, any of the
foregoing, whether now owned or hereafter acquired by Grantor (all of the
foregoing being the "INVENTORY");
(c) All of the Grantor's accounts, contract rights, chattel
paper, instruments (including those evidencing indebtedness owed to Grantor by
its affiliates), documents, General Intangibles relating to accounts, drafts and
acceptances, all other forms of obligations owing to Grantor arising out of or
in connection with the sale or lease of Inventory or the rendition of services,
all guarantees and other security interest therefor, whether secured on
unsecured, whether now owned or hereafter created or acquired by Grantor or in
which Grantor now has or hereafter acquired any interest and any proceedings
arising therefrom or relating thereto (all of the foregoing being, "ACCOUNTS");
(d) All of Grantor's general intangibles and other personal
property of Grantor (including things in action) other than goods, accounts,
chattel paper, documents, instruments and money, whether now owned or hereafter
created or acquired by Grantor, including, without limitation, all choses in
action, causes of action, corporate or other business records, inventions,
designs, patents, patent applications, equipment formulations, manufacturing
procedures, quality control procedures, trademarks, service marks, trade
secrets, goodwill, copyrights, design rights, registrations, licenses,
franchises, customer lists, tax refunds, tax refund claims, computer programs,
all claims under guaranties, security interests or other security held by or
granted to Grantor to secure payment of any of the Accounts by an account
debtor, all rights of indemnification, all deposit accounts of Grantor and all
other intangible property of every kind and nature (all of the foregoing being
the "GENERAL INTANGIBLES");
(e) All monies and other property of any kind now or at any
time or times hereafter in the possession or under the control of Collateral
Agent or any lender or a bailee of Collateral Agent or any lender;
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<PAGE> 3
(f) The following Pledged Stock and Pledged Collateral:
(i) All of the issued and outstanding shares of stock
owned by Grantor or any subsidiary of Grantor or any of its
subsidiaries (as identified on Exhibit A attached hereto and made a
part hereof), all options, warrants for the purchase of shares of the
stock of each such subsidiary now or hereafter held in the name of the
Grantor (all of said capital stock, options and warrants and all
capital stock held in the name of the Grantor as a result of the
exercise of such options and warrants being hereafter collectively
referred to as the "PLEDGED STOCK"), herewith delivered to the Agent
accompanied by acknowledgments of such Subsidiaries in the form of
EXHIBIT B attached hereto and made a part hereof (the
"ACKNOWLEDGMENTS") and stock powers in the form of EXHIBIT C attached
hereto and made a part hereof (the "POWERS") duly executed in blank,
and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Stock, and all other products
and proceeds of the foregoing;
(ii) all additional shares of stock of any Subsidiary
of the Grantor from time to time acquired by the Grantor in any manner,
and the certificates representing such additional shares (any such
additional shares shall constitute part of the Pledged Stock), and all
dividends, cash, instruments, equity securities, financial assets and
other interests which are, or are of a type, dealt in or traded on
financial markets, or which are recognized in any way as a medium for
investment, whether certificated or uncertificated, any property held
by a financial or securities intermediary for the Grantor, securities
accounts to which any of the foregoing are credited and warrants,
options, puts and calls, and other rights or securities entitlements
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, and all other
products and proceeds of the foregoing;
(iii) the promissory notes, intercompany notes and
other instruments identified on EXHIBIT A (the "PLEDGED NOTES"), and
all products and proceeds of the Pledged Notes, including, without
limitation, all interest and principal payments, instruments, and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for the Pledged Notes;
(iv) all additional promissory notes, instruments,
bonds or debt securities, issued by any Person from time to time issued
to, or held by, the Grantor in any manner (any such additional
promissory notes or instruments shall constitute part of the Pledged
Notes) and all products and proceeds of any such additional promissory
notes and instruments, including, without limitation, all interest and
principal payments, instruments, and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any such additional promissory notes or instruments (the
property described in CLAUSES (F)(II) through (F)(V) of this SECTION 1
is collectively referred to as the "PLEDGED COLLATERAL"); and
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<PAGE> 4
(v) all bills of lading, warehouse receipts and other
documents of title;
(g) All Investment Property (as defined in the Uniform
Commercial Code as adopted and in force in the State of New York, as from time
to time in effect);
(h) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (a) through (g) above, including,
without limitation, proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral; and
(i) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Debtor pertaining to any of (a) through (h) above.
PROVIDED, HOWEVER, the foregoing grant of a security interest shall be deemed
not to grant a security interest in any of the property described below (such
property being hereinafter referred to as property subject to a "Security
Interest Restriction" and all other property being hereinafter referred to as
"Collateral"):
property that is subject to (x) the terms and
provisions of a written agreement, document or instrument in
effect on the Closing Date which prohibits the granting of a
security interest or conditions the granting of a security
interest on the consent of a third party whose consent has not
been obtained or would cause, or allow a third party to cause,
the forfeiture of such property upon the granting of a
security interest therein, as such property is described on
Exhibit G hereto; (y) the terms and provisions of a written
agreement, document or instrument entered into after the
Closing Date (or any amendment to any agreement described in
clause (x) above entered into after the Closing Date) which
prohibits the granting of a security interest or conditions
the granting of a security interest on the consent of a third
party whose consent has not been obtained or would cause, or
allow a third party to cause, the forfeiture of such property
upon the granting of a security interest, PROVIDED that (i)
the requirement of such prohibition or condition has not been
initiated by the Grantor and has been agreed or consented to
by the Grantor in the ordinary course of its business and such
prohibition or condition is believed by the Grantor in good
faith to be reasonably necessary for the Grantor to obtain the
benefits of the agreement, document or instrument entered into
by the Grantor in order to conduct its normal business
operations and (ii) the Grantor has used its best efforts to
have such prohibition or condition eliminated or to obtain
such consent; or (z) applicable law either prohibits the
granting of a security interest therein or provides for the
involuntary forfeiture of the property in the event a security
interest is granted therein without the consent of the
appropriate Governmental Authority, or at all; PROVIDED,
HOWEVER that with respect to
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<PAGE> 5
clauses (x), (y) and (z) above, if such prohibition or the
condition requiring such consent relates only to the
foreclosure of a security interest or the exercise of other
rights or remedies upon a default but not to the granting of a
security interest therein, then a security interest in such
property shall be deemed to be granted by this Agreement
subject to the condition that the consent of such third party
or Governmental Authority is obtained by the Agent prior to
the foreclosure or its exercising its other rights or remedies
hereunder, so that any involuntary forfeiture of the property
is thereby avoided.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures,
with respect to the Grantor, and the Collateral of the Grantor is collateral
security for, the prompt and complete payment of all of the Obligations of the
Grantor, whether or not for the payment of money, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising, and however acquired (all such
obligations of the Grantor, including, without limitation, the Obligations of
the Grantor, being the "SECURED OBLIGATIONS"). Without limiting the generality
of the foregoing, this Agreement secures, with respect to the Grantor, and the
Collateral of the Grantor is collateral security for, the payment of all amounts
which constitute part of the Secured Obligations of the Grantor and would be
owed by the Grantor to the Agent, any Purchaser or any Holder but for the fact
that they are unenforceable or not allowable due to the occurrence of an
Insolvency Event or any similar proceeding involving the Grantor.
SECTION 3. GRANTOR REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under its
respective contracts and agreements included in the Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by the
Agent of any of the rights hereunder shall not release the Grantor from any of
its duties or obligations under its respective contracts and agreements included
in the Collateral, and (c) neither the Agent nor any Holder shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Agent or any Holder be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. DELIVERY OF PLEDGED COLLATERAL. Promptly upon its
receipt thereof, the Grantor shall deliver to the Collateral Agent, for the
benefit of the Holders, all certificates or instruments representing or
evidencing the Pledged Collateral acquired by the Grantor, and such Pledged
Collateral shall be held by or on behalf of the Collateral Agent pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank and, in the case
of Pledged Stock of Subsidiaries of the Grantor formed or acquired after the
date hereof, an Acknowledgment executed by such Subsidiary, all in form and
substance satisfactory to the Agent and Collateral Agent. If, at any time, (a)
any stock dividend, reclassification,
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<PAGE> 6
readjustment or other change is declared or made in the capital structure of any
of the Subsidiaries which have issued Pledged Stock, or any option included
within the Pledged Collateral is exercised, or both, or (b) any subscription
warrant(s) or any other right(s) or option(s) shall be issued in connection with
the Pledged Collateral, then all new, substituted and additional shares,
warrants, rights, options and other securities issued by reason of any of the
foregoing shall be promptly delivered to the Collateral Agent and shall be held
by the Collateral Agent under the terms of this Agreement and the Collateral
Agency Agreement and shall constitute Pledged Collateral hereunder; PROVIDED,
HOWEVER, that nothing contained in this SECTION 4 shall be deemed to permit any
stock dividend, issuance of additional stock, warrants, rights or options,
reclassification, readjustment or other change in the capital structure of any
of the Grantors which is not expressly permitted in the Secured Note Purchase
Agreement; PROVIDED, FURTHER, HOWEVER, that the Grantor's failure to so deliver
such property to the Collateral Agent shall in no way affect the Lien granted
thereon as herein provided.
SECTION 5. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL.
The Grantor represents and warrants that it has made its own arrangements for
keeping itself informed of changes and potential changes affecting its Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, payments of interest and/or principal,
reorganization and other exchanges, tender offers and voting rights), and the
Grantor agrees that neither the Agent nor any Holder shall have any obligation
to inform the Grantor of any such changes or potential changes or to take any
action or omit to take any action with respect thereto. The Agent may, after the
occurrence and during the continuance of an Event of Default, without notice and
at its option, transfer or register the Pledged Collateral or any part thereof
into its or its nominee's name with or without any indication that such Pledged
Collateral is subject to the Lien hereunder. In addition, the Agent may at any
time after the occurrence and during the continuance of an Event of Default
exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Grantor
represents and warrants as follows:
(a) The correct corporate name and federal tax identification
number of the Grantor on the date hereof is set forth on EXHIBIT D attached
hereto and made a part hereof. Except as set forth on EXHIBIT D for the
jurisdictions specified with respect thereto, the Grantor has no other
corporate, trade or fictitious name and has not, during the immediately
preceding five (5) years, been known by or used any other corporate, trade or
fictitious name.
(b) The principal place of business and chief executive office
of the Grantor are located at the address specified on EXHIBIT E attached hereto
and made a part hereof. All records concerning the Accounts are located at the
same address specified on EXHIBIT E for the Grantor. All records concerning the
Related Contracts and all originals of all chattel paper are
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<PAGE> 7
located at the same address specified on EXHIBIT E for the Grantor or at the
addresses specified as addresses of the Grantor on EXHIBIT F attached hereto and
made a part hereof.
(c) All of the Grantor's Inventory and Equipment is located at
the places specified on EXHIBIT F. If any location of its Inventory or Equipment
is subject to a lease, sublease, mortgage or similar instrument, the name and
address of each lessor, sublessor and/or mortgagee (other than the Grantor) is
set forth on EXHIBIT F. The legal name and address of each bailee, processor,
warehouseman, consignee, carrier and shipper or other Person (other than a
Lessee) in possession of any of the Grantor's Inventory or Equipment (each such
Person being a "BAILEE") on the date hereof is set forth on EXHIBIT F, together
with the address of the location where such Inventory or Equipment is or may be
held. Except as otherwise indicated on EXHIBIT F, no Person (other than a Lessee
or a Person identified on EXHIBIT F as being a consignee) in possession of any
of the Grantor's Inventory or Equipment conducts a business at the location of
such Inventory or Equipment other than a business in the nature of warehousing
or transporting goods for others. In the event that any of the Grantor's
Inventory or Equipment is in the possession of a Bailee, none of the receipts,
instruments or documents received and to be received by the Grantor from any
Bailee state that the Inventory or Equipment covered thereby is to be delivered
to bearer or to the order of a named person or to a named person and such named
person's assigns.
(d) The amount represented by the Grantor from time to time to
the Agent as the amount owing by each account debtor or by all account debtors
in respect of any Accounts will, at such time, be the correct amount actually
and unconditionally owing by such account debtor(s) thereunder to the best of
the Grantor's knowledge (except to the extent, if any, that such account
debtor(s) may be entitled to normal trade discounts, adjustments, returns and
allowances). None of the Accounts is evidenced by a promissory note or other
instrument, except for promissory notes and instruments delivered to the Agent
pursuant to this Agreement.
(e) The Grantor is the sole legal and beneficial owner of its
Pledged Collateral (including, without limitation, the percentage of the issued
and outstanding capital stock of each of its Subsidiary which is set forth
opposite the name of such Subsidiary on EXHIBIT A), free and clear of any Lien
except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, (ii) Liens for taxes, assessments or other governmental charges,
and other similar Liens arising by operation of law for amounts that are not yet
due and payable, to the extent that payment thereof is not required by the
Secured Note Purchase Agreement and (iii) judgment Liens permitted by the
Secured Note Purchase Agreement.
(f) All of the Pledged Stock has been duly authorized, validly
issued and is fully paid and non-assessable. The Pledged Notes have been duly
authorized and executed by the respective issuers thereof and constitute the
legal, valid and binding obligations of such respective issuers.
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<PAGE> 8
(g) There are no restrictions upon the voting rights
associated with, or upon the transfer of, any of the Pledged Collateral (except
as may be disclosed to the Agent or required in connection with such disposition
by laws affecting the offering and sale of securities generally).
(h) The Grantor has the right to vote, pledge and grant a
security interest in or otherwise transfer its Pledged Collateral free of any
Liens except for (i) Liens of the Agent, for the benefit of the Holders, under
the Note Documents, (ii) Liens for taxes, assessments or other governmental
charges, and other similar Liens arising by operation of law for amounts that
are not yet due and payable, to the extent that payment thereof is not required
by the Secured Note Purchase Agreement and (iii) judgment Liens permitted by the
Secured Note Purchase Agreement.
(i) The Powers are duly executed and give the Agent the
authority they purport to confer.
(j) The Acknowledgments have been duly authorized, executed
and delivered by the applicable Subsidiary of Grantor.
(k) The Pledged Stock constitutes, as of the date hereof, all
of the shares of capital stock and voting securities of each Subsidiary of the
Grantor that are not subject to a Security Interest Restriction. The Pledged
Notes constitute the only promissory notes of any Person in favor of the Grantor
as of the date hereof.
(l) The pledge of the Pledged Collateral pursuant to this
Agreement does not violate Regulation G, T, U or X.
(m) No consent, authorization, permit, notice or filing is
required (i) in connection with the execution, delivery or performance of this
Agreement by the Grantor, (ii) for the creation, perfection or maintenance of
the security interest of the Liens created hereby including the maintenance of
the first priority (subject to the Lien in favor of Fleet and purchase money
liens permitted under the Secured Note Purchase Agreement) nature of such Lien,
except with respect to the property subject to liens created, or hereafter
created, under this Agreement, or (iii) for the exercise by the Agent of its
rights and remedies hereunder, except (x) those that have been obtained or made,
(y) filings necessary to create, perfect or retain the perfection or priority of
Liens against the Grantor's Collateral, and (z) with respect to the Pledged
Collateral, as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally.
(n) There are no conditions precedent to the effectiveness of
this Agreement that have not been satisfied or waived in writing.
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<PAGE> 9
SECTION 7. FURTHER ASSURANCES. (a) The Grantor agrees that, at
its own expense, the Grantor will, and will cause each of its Subsidiaries to,
promptly execute and deliver all further instruments and documents, and take all
further action which may be reasonably necessary or desirable in the opinion of
the Agent, in order to (x) perfect and protect any Lien created or purported to
be created hereby, (y) enable the Agent to exercise and enforce its rights and
remedies hereunder with respect to any of the Collateral, and (z) cause the
execution, delivery and performance of this Agreement to be duly authorized, and
the Grantor shall, and shall cause each of its Subsidiaries to, in any event
take such action as may be required to maintain the truthfulness and accuracy of
the representations and warranties contained in SECTION 6. Without limiting the
generality of the foregoing, the Grantor will: (i) if any Account or other
amount payable to the Grantor under or in connection with any of its Collateral
shall be or becomes evidenced by any promissory note, chattel paper, letter of
credit or other negotiable or non-negotiable instrument, such note, chattel
paper, letter of credit or instrument shall, within five (5) days after the
Grantor's receipt thereof, be delivered to the Agent duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance reasonably satisfactory to the Agent (or, if such note or
instrument is an item collectible through bank channels and collection accounts
have been established, deposited in one of the collection accounts, duly
endorsed in a manner reasonably satisfactory to the Agent); (ii) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as the Agent
may reasonably determine in its sole and absolute discretion to be necessary or
desirable, in order to perfect and preserve the Lien created or purported to be
created hereby; (iii) execute and deliver to the Agent landlord consents,
mortgagee and Bailee waivers, notices, agreements (including, without
limitation, subordination agreements) and other documents which the Agent may
reasonably determine in its sole discretion to be necessary or desirable, for
the purpose of giving advice of and perfecting the Liens granted to the Agent
for its benefit and the ratable benefit of the Holders and establishing the
senior priority thereof over such other parties' rights and interests in respect
of any of the Grantor's Equipment, Inventory or other Collateral held in the
possession of, Bailees, lessors, mortgagees or other third parties, and shall
use its best efforts to cause such third parties to acknowledge or consent to
such notices, agreements and other documents; (iv) within thirty (30) days after
the end of each calendar quarter, deliver to the Agent with respect to any item
for which a certificate of title has been issued by any state's registrar of
motor vehicles or other appropriate authority in such jurisdiction during such
calendar quarter (other than such certificates subject to Permitted Liens); (v)
except with respect to the deliveries made pursuant to SECTION 7(A)(IV), upon
the request of the Agent, after the occurrence and during the continuance of an
Event of Default, with respect to any item of Equipment or Inventory of the
Grantor, in either case which is covered by a certificate of title under a
statute of any jurisdiction under the law of which indication of a security
interest on such certificate is required as a condition of perfection thereof,
execute and file with the registrar of motor vehicles or other appropriate
authority in such jurisdiction an application or other document requesting the
notation or other indication of the Lien created hereunder on such certificate
of title; (vi) upon the request of the Agent, within thirty (30) days after the
end of each calendar quarter, deliver to the Agent copies of all
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such applications or other documents filed pursuant to a request by the Agent
under SECTION 7(A)(V) during such calendar quarter and copies of all such
certificates of title issued during such calendar quarter indicating the Lien
created hereunder in the items of Equipment or Inventory covered thereby; and
(vii) at the Agent's reasonable request, appear in and defend any action or
proceeding that may adversely affect that Grantor's title to or the Agent's Lien
on all or any material part of the Collateral.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Grantor's Collateral without the signature of the Grantor
where permitted by law. The Grantor hereby agrees that a photocopy or other
reproduction of this Agreement or any financing statement covering its
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Grantor will keep and maintain at its own cost and
expense, and will cause each of its Subsidiaries to keep and maintain at their
own cost and expense, records of the Collateral in detail, form and scope
consistent with good business practice, including, without limitation, a record
of all payments received and all credits granted with respect to the Collateral
and all other dealings with the Collateral. If an Event of Default has occurred
and is continuing, for the Agent's further security, upon the Agent's request
therefor, the Grantor shall, and shall cause each of its Subsidiaries to,
deliver copies of, or if reasonably necessary in the opinion of the Agent, turn
over originals of, any such records to the Agent or to its representatives.
(d) The Grantor will, and will cause each of its Subsidiaries
to, furnish to the Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail, and the Grantor agrees that the Agent or its agents may enter upon the
premises of the Grantor or any of its Subsidiaries at any time and from time to
time, during normal business hours and upon 24 hours' prior notice, and at any
time at all on and after the occurrence of a Default which continues beyond the
expiration of any grace or cure period applicable thereto, and which has not
otherwise been waived pursuant to the Secured Note Purchase Agreement or cured,
for the purposes of (i) inspecting and verifying the Collateral, (ii) inspecting
and/or copying (at the Grantor's expense) any and all records pertaining thereto
and (iii) discussing the affairs, finances and business of the Grantor with any
officers, employees and directors of the Grantor or with the auditors. Upon
reasonable notice to the Grantor, the Agent or any of the Agent's officers,
employees, agents or auditors shall have the right at any time or times
hereafter to verify with account debtors or other obligors of the Grantor the
validity and amount or any other matter (including, without limitation, the
assertion by account debtors of claims, offsets or counterclaims) with respect
to any of the Collateral.
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(e) The Grantor will, and will cause each of its Subsidiaries
to, advise the Agent promptly, in reasonable detail, (i) of any material Lien or
claim made or asserted against any of the Collateral, (ii) of any material
change in the composition of the Collateral, and (iii) of the occurrence of any
other event which would have a material adverse effect on the aggregate value of
the Collateral or on the Liens created hereunder.
SECTION 8. TRANSFERS OF COLLATERAL. The Grantor agrees that it
will not, nor will it permit any of its Subsidiaries to (a) directly or
indirectly, sell, lease, assign, transfer or otherwise dispose of, or grant any
option with respect to, any of the Collateral, or any part thereof or interest
therein, except as expressly authorized under the Secured Note Purchase
Agreement, (b) directly or indirectly create, incur, assume, or suffer to exist
any Lien on any of the Pledged Collateral now owned or hereafter acquired except
for the Lien under this Agreement and as permitted under the Secured Note
Purchase Agreement, or (c) enter into any agreement or understanding that
purports to or may restrict or inhibit the Agent's rights or remedies hereunder,
including, without limitation, the Agent's right to sell or otherwise dispose of
the Pledged Collateral.
SECTION 9. PLACE OF PERFECTION; NAME CHANGES; RECORDS. The
Grantor shall not (a) change its name, identity or structure or adopt or use any
trade or fictitious name not specified as a current trade or fictitious name on
EXHIBIT D, or use any existing trade or fictitious name in any jurisdiction not
specified for such name on EXHIBIT D, (b) change any location of its chief
executive office, place of business or place where records concerning its
Accounts, Related Contracts and chattel paper are maintained from the locations
specified on EXHIBIT E or EXHIBIT F or (c) change any location of any Collateral
or jurisdiction where Lessees are located from the locations specified in
EXHIBIT F, unless, in each case, the Grantor shall have given the Agent at least
thirty (30) Business Days' prior written notice of any such change. At least ten
(10) Business Days prior to any such change referred to in the preceding
sentence, the Grantor shall prepare and deliver to the Agent amended exhibit(s)
reflecting such change(s) and execute and deliver to the Agent any financing
statements or other documents required by the Agent, all in form and substance
reasonably satisfactory to the Agent, and take all other actions required by
SECTION 7.
SECTION 10. COVENANTS REGARDING ACCOUNTS AND RELATED
CONTRACTS. (a) The Grantor shall, at its expense, perform and observe all of the
material terms and provisions of the Related Contracts, employment agreements,
rental contracts, leases and chattel paper to be performed or observed by it,
maintain the Related Contracts, rental contracts, leases and chattel paper in
full force and effect and enforce the Related Contracts in accordance with their
terms, except where failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(b) In any suit, proceeding or action brought by the Agent
under any account comprising part of the Collateral, the Grantor agrees to save,
indemnify and keep the Agent and each Holder harmless from and against all
expense, loss or damages suffered by reason of
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<PAGE> 12
any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by the Grantor of
any obligation or arising out of any other agreement, indebtedness or liability
at any time owing to or in favor of such obligor or its successors from the
Grantor and all such obligations of the Grantor shall be and shall remain
enforceable against and only against the Grantor and shall not be enforceable
against the Agent or any Holder.
SECTION 11. COVENANTS REGARDING EQUIPMENT AND INVENTORY. (a)
If any Equipment or Inventory of the Grantor is in the possession or control of
any Bailee or any of the Grantor's agents, the Grantor shall notify such Bailee
or agent of the Agent's Lien on such Equipment or Inventory and, upon the
Agent's request, direct such Bailee or agent to hold all such Equipment or
Inventory for the Agent's account and subject to the Agent's instructions
following the occurrence and during the continuance of an Event of Default.
(b) Upon the request of the Agent, the Grantor will promptly
deliver to the Agent a schedule listing all Equipment disposed of by the
Grantor, and the book value thereof, in the then-current (or any prior) Fiscal
Year.
(c) The Grantor will, upon request of the Agent, submit to the
Agent a current listing of all of the Grantor's Equipment, which listing shall
indicate the type, model, serial number and location of such Equipment.
(d) The Grantor shall promptly upon the issuance and delivery
to the Grantor of any negotiable document of title, upon the request of the
Agent after the occurrence and during the continuance of an Event of Default,
deliver such negotiable document of title to the Agent.
SECTION 12. VOTING RIGHTS. During the term of this Agreement,
and except as provided in the next sentence of this SECTION 12, the Grantor
shall have the right to vote its Pledged Stock on all corporate questions in a
manner not inconsistent with the terms of this Agreement, the Secured Note
Purchase Agreement and any other agreement, instrument or document executed
pursuant thereto or in connection therewith, and in a manner that would not have
a material adverse effect on the value of the Pledged Stock and the related
Pledged Collateral or any part thereof. After the occurrence and during the
continuance of an Event of Default, the Agent may, at the Agent's option and
following written notice from the Agent to the Grantor, exercise all voting
powers pertaining to the Grantor's Pledged Collateral, including the right to
take shareholder action by written consent, and the Grantor hereby irrevocably
constitutes and appoints the Agent as the Grantor's proxy and attorney-in-fact,
with full power of substitution, to do so. This proxy shall be irrevocable and
shall continue until the termination of this Agreement in accordance with
SECTION 23.
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SECTION 13. DIVIDENDS AND OTHER DISTRIBUTIONS. (a) So long as
no Event of Default shall have occurred and be continuing and shall not have
been cured or waived, or no Event of Default would result therefrom:
(i) subject to SECTION 4 hereof and the provisions of the
Secured Note Purchase Agreement, the Grantor shall be entitled to receive,
retain and utilize all dividends, interest and principal paid in respect of its
Pledged Collateral unless any such dividend, interest or principal is not
permitted to be paid under the terms of the Secured Note Purchase Agreement; and
(ii) the Agent shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other instruments as
the Grantor may reasonably request for the purpose of enabling the Grantor to
receive the dividends, interest or principal payments which it is authorized to
receive, retain and utilize pursuant to CLAUSE (I) above.
(b) Except to the extent set forth in the Secured Note
Purchase Agreement, after the occurrence and during the continuance of an Event
of Default, or if any of the following would result in an Event of Default if
paid to a Grantor:
(i) all rights of the Grantor to receive dividends, interest
and principal payments in respect of the Pledged Collateral shall cease, and all
such rights shall thereupon become vested in the Agent, for the benefit of the
Agent and the ratable benefit of the Holders, which shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends, interest
and principal payments; and
(ii) all dividends, interest and principal payments which are
received by the Grantor contrary to the provisions of CLAUSE (I) of this SECTION
13(B) shall be received in trust for the Agent, for the benefit of the Agent and
the ratable benefit of the Holders, shall be segregated from other funds of the
Grantor and shall be paid over immediately to the Agent as Pledged Collateral in
the same form as so received (with any necessary endorsements).
(c) Except as may otherwise be provided in the Secured Note
Purchase Agreement, any and all (i) dividends, interest and principal paid or
payable other than in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or in exchange for,
any Pledged Collateral, (ii) dividends and other distributions paid or payable
in cash received, receivable or otherwise distributed in respect of any Pledged
Stock in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in redemption of, or in
exchange for, any Pledged Stock, shall in each case be delivered forthwith to
the Agent to hold as Pledged Collateral and shall, if received by a Grantor, be
received in trust for the Agent, for the benefit of Holders, be segregated from
other funds of the Grantor, and be paid over immediately to the Agent as Pledged
Collateral in the same form as so received (with any necessary endorsements).
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[SECTION 14. DEPOSIT ACCOUNTS. Upon the occurrence and during
the continuation of an Event of Default, the Agent may exercise dominion and
control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from any deposit accounts maintained
with the Agent constituting part of the Collateral in accordance with the terms
of the Blocked Account Agreements.]
SECTION 15. AGENT APPOINTED ATTORNEY-IN-FACT. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's Permitted Discretion, to take any
action and to execute any instrument which the Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, subject to the Agent's
authority as provided in the Secured Note Purchase Agreement, including, without
limitation:
(a) after the occurrence and during the continuance of an
Event of Default, to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with any of the Collateral;
(b) after the occurrence and during the continuance of an
Event of Default, to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE (A) above;
(c) after the occurrence and during the continuance of an
Event of Default, to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce the rights of the Agent with
respect to any of the Collateral;
(d) after the occurrence and during the continuance of an
Event of Default, to discharge any Lien or encumbrance on or against any of the
Collateral or bond the same;
(e) to give any notices and record any Liens;
(f) to make any payments or take any acts which the Agent
deems reasonably necessary or desirable to protect the Lien of the Agent, for
the benefit of the Holders, on the Collateral;
(g) after the occurrence and during the continuance of an
Event of Default, to execute and give receipt for any certificate of ownership
or any document or title; and
(h) after the occurrence and during the continuance of an
Event of Default, to transfer title to any item of Collateral.
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All Persons dealing with the Agent, or any employee or agent of the Agent acting
pursuant hereto, or any substitute attorney-in-fact for the Agent, shall be
fully protected in treating the powers and authorities conferred by this SECTION
15 as existing and continuing in full force and effect. The Grantor hereby
ratifies all that such attorney-in-fact shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and shall be
irrevocable. This power of attorney shall terminate upon the termination of this
Agreement pursuant to SECTION 23.
SECTION 16. AGENT MAY PERFORM. If the Grantor fails to perform
any agreement contained herein, the Agent, after giving prior notice to the
Grantor, may itself perform, or cause performance of, such agreement, and the
expenses of the Agent incurred in connection therewith shall be payable by the
Grantor to the Agent upon demand by the Agent.
SECTION 17. THE AGENT'S RIGHTS AND DUTIES. The powers
conferred on the Agent and the Purchasers hereunder are solely to protect their
interest in the Collateral and shall not impose any duty upon any of them to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Agent shall have no duty as to any Collateral. Without limiting the generality
of the foregoing sentence, the Agent shall be under no obligation to (a)
ascertain or take action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether
or not the Agent has or is deemed to have knowledge of such matters, but may do
so at its option or (b) take any steps necessary to preserve rights in the
Pledged Collateral against any other parties but may do so at its option. All
expenses incurred in connection therewith shall be for the sole account of the
Grantor, and shall constitute part of its Obligations secured hereby. Any action
taken or omitted to be taken by the Agent in connection with any of the
Collateral shall not result in any liability of the Agent to the Grantor unless
such action or omission shall be determined by a court of competent jurisdiction
to have arisen solely out of the gross negligence or willful misconduct of the
Agent. The Agent may exercise any of its rights and execute any of its duties
hereunder by or through agents or employees and shall be entitled to advice of
counsel concerning all matters pertaining to its rights and duties hereunder.
SECTION 18. REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a) The Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein, in the Secured Note
Purchase Agreement, or otherwise available to it, all the rights and remedies of
a secured party upon default under the Uniform Commercial Code in effect in any
relevant jurisdiction at that time (the "UNIFORM COMMERCIAL CODE") (whether or
not the Uniform Commercial Code applies to the affected Collateral), and also
may (i) without notice, notice, demand or legal process of any kind, all of
which the Grantor hereby waives to the extent permitted by applicable law, at
any time or times notify the account debtors or obligors under any Accounts,
chattel paper, instruments or
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General Intangibles of the assignment of such Collateral to the Agent and to
direct such account debtors or obligors to make payment of all amounts due or to
become due to the Grantor thereunder directly to the Agent, to notify each
Person maintaining a lockbox or similar arrangement to which account debtors or
obligors under any Accounts, chattel paper, instruments or General Intangibles
have been directed to make payment to remit all amounts representing collections
on checks and other payment items from time to time sent to or deposited in such
lockbox or other arrangement directly to the Agent and, upon such notification
and at the expense of the Grantor, to accelerate or extend the time of payment,
compromise, issue credits, or bring suit on such Collateral (in the name of the
Grantor or the Holders) and otherwise administer and collect such Collateral, in
the same manner and to the same extent as the Grantor might have done; (ii)
without notice, demand or legal process of any kind, all of which the Grantor
hereby waives to the extent permitted by applicable law, at any time or times
enter any premises where any Collateral may be located and take physical
possession of the Collateral and maintain such possession on the premises, at no
cost to the Agent, or remove the Collateral or any part thereof, to such other
places as the Agent may desire; (iii) without notice, demand or legal process of
any kind, all of which the Grantor hereby waives to the extent permitted by
applicable law, at any time or times enter any premises where any Collateral may
be located and use, manage, operate and control the Collateral thereon and the
relevant business and property to preserve the Collateral; exclude any third
parties, whether or not claiming under the Grantor, from any such premises and
property; complete any unfinished Inventory, make repairs, replacements,
alterations, additions and improvements to the Collateral; and, dispose of all
or any portion of the Collateral in the ordinary course of business; (iv)
require the Grantor to, and the Grantor hereby agrees that it will at its own
expense and upon request of the Agent forthwith, assemble all or part of its
Collateral as directed by the Agent and make it available to the Agent at a
place or places to be designated by the Agent that is reasonably convenient for
both parties, and deliver possession of said Collateral or any part thereof to
the Agent; and (v) without notice, except as specified below, sell, lease,
assign, grant an option or options to purchase or otherwise dispose of the
Collateral or any part thereof in one or more parcels with or without
advertisement, at any exchange, broker's board, public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit, for future delivery,
or otherwise, and upon such other terms as the Agent may deem commercially
reasonable. Any repossession, retaking, sale, or other disposition of the
Collateral by the Agent shall not operate to release the Grantor from its
obligations hereunder. The Agent and each Purchaser may, in its own name or in
the name of a designee or nominee, bid for or purchase the Collateral at any
public sale and, if permitted by applicable law, buy the Collateral at any
private sale. Each purchaser of any or all of the Collateral so sold shall
thereafter own the same, absolutely free from any claim, encumbrance or right of
any kind whatsoever on the part of the Grantor, and the Grantor hereby waives,
to the extent permitted by applicable law, all rights of redemption, appraisal,
valuation, stay, extension or moratorium now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute sale of the
whole or any part of the Collateral or the possession thereof by any purchaser
at any sale hereunder. The Grantor agrees that, to the extent notice of sale
shall be required by law, at least five (5) Business
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Days' notice to the Grantor(s) of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. The Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Grantor hereby waives any claims against
the Agent arising by reason of the fact that the price at which any Collateral
may have been sold at such a private sale was less than the price which might
have been obtained at a public sale, even if the Agent accepts the first offer
received and does not offer such Collateral to more than one offeree; PROVIDED
that such sale was conducted in a commercially reasonable manner.
(b) Any cash held by the Agent as Collateral and all cash
proceeds received by the Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral may, in the discretion
of the Agent, be held by the Agent as collateral for, and/or then or at any time
thereafter be applied in whole or in part by the Agent for its benefit and for
the ratable benefit of the Holders against, all or any part of the Grantor's
Secured Obligations in such order as the Agent shall elect, subject to any
provision of the Secured Note Purchase Agreement governing the application of
such cash, proceeds, or other realization upon the Collateral. If the proceeds
of any sale or other disposition of the Collateral of a Grantor are insufficient
to pay all of the Secured Obligations of the Grantor, the Grantor shall be
liable for the deficiency, in addition to any fees, expenses or other amounts
required to be paid pursuant to the Secured Note Purchase Agreement to collect
such deficiency. Any surplus of such cash or cash proceeds held by the Agent and
remaining after Payment In Full of all Secured Obligations shall be promptly
paid to the Grantor or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Grantor hereby consents to the voluntary dismissal by
the Agent of any judicial action, prejudgment or otherwise, brought by the
Agent, and the Grantor further consents to the exoneration of any bond that the
Agent files in such action.
SECTION 19. REGISTRATION RIGHTS. (a) In the event that the
Agent determines, after the occurrence and during the continuance of an Event of
Default, to exercise its right to sell the Pledged Stock pursuant to SECTION 18,
the Grantor shall, upon the request of the Agent, at the Grantor's expense:
(i) execute and deliver, and cause each issuer of Pledged
Stock and its respective officers and directors to execute and deliver,
all such instruments and documents, and do or cause to be done all such
other acts and things, as may be necessary or, in the opinion of the
Agent, the Grantor or its or their counsel, advisable to register the
applicable Pledged Collateral under the provisions of the Securities
Act of 1933, as amended (the "SECURITIES ACT") and to exercise its
reasonable efforts to cause the registration statement relating thereto
to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to
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make all amendments and supplements thereto and to the related
prospectus which, in the opinion of the Agent, the Grantor or its or
their counsel, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto; PROVIDED,
HOWEVER, that the Grantor shall not be required to register the Pledged
Stock pursuant to this SECTION 19(I) if the Adjusted Tangible Net Worth
of the issuer of the Pledged Stock is less than $250,000;
(ii) use its reasonable efforts to qualify its Pledged
Collateral under state securities or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of its Pledged
Collateral, as requested by the Agent;
(iii) cause any Subsidiary which has issued Pledged Collateral
(or any of them) to make available to the holders of its securities, as
soon as practicable, earnings statements which will satisfy the
provisions of Section 11(a) of the Securities Act; and
(iv) do or cause to be done all such other acts and things as
may be reasonably necessary to make such sale of its Pledged Collateral
or any part thereof valid and binding and in compliance with applicable
law.
The Grantor will reimburse the Agent for all expenses incurred by the Agent,
including, without limitation, reasonable attorneys' and accountants' fees and
expenses in connection with the foregoing. Upon or at any time after the
occurrence and during the continuance of an Event of Default, if the Agent
determines that, prior to any public offering of any securities constituting
part of the Pledged Collateral, such securities should be registered under the
Securities Act and/or registered or qualified under any other federal or state
law and such registration and/or qualification is not practicable, then the
Grantor agrees that it will be commercially reasonable if a private sale is
arranged so as to avoid a public offering, even though the sales price
established and/or obtained at such private sale may be substantially less than
prices which could have been obtained for such security on any market or
exchange or in any other public sale. In so doing, the Agent may restrict the
bidders and prospective purchasers to those who are qualified and will represent
and agree that they are purchasing for investment only and not for distribution,
and the Agent may solicit offers to buy the Pledged Collateral, or any part of
it, from a limited number of investors deemed by the Agent, in its reasonable
judgment, to be financially responsible parties who might be interested in so
purchasing the Pledged Collateral. If the Agent solicits such offers from not
less than four (4) such investors, then the acceptance by the Agent of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposing of such Pledged Collateral. The Agent shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the registrant to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if the Grantor or the issuer of the Pledged Collateral would agree to do so.
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(b) In addition to a private sale as provided above in SECTION
19(A), if any of the Pledged Collateral shall not be freely distributable to the
public without registration under the Securities Act (or similar statute) at the
time of any proposed sale pursuant to this SECTION 19, then the Agent shall not
be required to effect such registration or cause the same to be effected but, in
its discretion (subject only to applicable requirements of law), may require
that any sale hereunder (including a sale at auction) be conducted subject to
restrictions (i) as to the financial sophistication and ability of any Person
permitted to bid or purchase at any such sale, (ii) as to the content of legends
to be placed upon any certificates representing the Pledged Collateral sold in
such sale, including restrictions on future transfer thereof, (iii) as to the
representations required to be made by each Person bidding or purchasing at such
sale relating to that Person's access to financial information about the
pertinent issuer of Pledged Collateral and such Person's intentions as to the
holding of the Pledged Collateral so sold for investment, for its own account,
and not with a view of the distribution thereof, and (iv) as to such other
matters as the Agent may, in its discretion, deem necessary or appropriate in
order that such sale (notwithstanding any failure so to register) may be
effected in compliance with the Uniform Commercial Code as in effect in the
State of New York or any other relevant jurisdiction and other laws affecting
the enforcement of creditors' rights and the Securities Act and all applicable
state securities laws.
SECTION 20. WAIVERS. The Grantor waives presentment and demand
for payment of any of the Obligations, protest and notice of dishonor or Event
of Default with respect to any of the Obligations and all other notices to which
the Grantor might otherwise be entitled, except as otherwise expressly provided
herein or in the Secured Note Purchase Agreement.
SECTION 21. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Purchasers (or by the Agent on their behalf), except
as otherwise provided in the Secured Note Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 22. NOTICES, ETC. All notices and other communications
provided for hereunder shall be given in the manner and to the addresses set
forth in the Secured Note Purchase Agreement, except that any notice provided by
the Grantor to the Agent hereunder shall be effective only upon receipt thereof
by the Agent.
SECTION 23. CONTINUING LIEN; ASSIGNMENTS UNDER SECURED NOTE
PURCHASE AGREEMENT; TERMINATION; PAYMENTS SET ASIDE. This Agreement shall create
a continuing Lien on the Collateral and shall (i) remain in full force and
effect until the Payment in Full (including after the maturity date) of the
Secured Obligations and termination of the Commitments, (ii) be binding upon the
Grantor, its successors and permitted assigns (which shall include, without
limitation, the Grantor's receivers, trustees or debtors-in-possession),
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and (iii) inure to the benefit of, and be enforceable by, the Agent, the Holders
and their respective successors, transferees and permitted assigns. Without
limiting the generality of the foregoing CLAUSE (III), any Purchaser may assign
or otherwise transfer all or any portion of its rights and obligations under the
Secured Note Purchase Agreement in accordance with the terms thereof (including,
without limitation, all or any portion of its Commitments and any Loans owing to
it), and any Secured Note held by it (subject to the terms of the Secured Note
Purchase Agreement), to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such Purchaser
herein or otherwise. The Grantor shall not assign this Agreement, or any rights
or obligations hereunder, without the prior written consent of the Agent and the
Purchasers. Upon the payment in full (including after the maturity date) of the
Secured Obligations and the termination of the Commitments, the Lien granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor. At such time, the Agent shall, at the request and expense of the
Grantor, reassign and redeliver to the Grantor all of the Collateral hereunder
which has not been sold, disposed of, retained or applied by the Agent in
accordance with the terms of this Agreement. Such reassignment and redelivery
shall be without warranty by or recourse to the Agent, except as to the absence
of any prior assignments by the Agent of its interest in the Collateral, and
shall be at the expense of the Grantor. To the extent that the Grantor makes a
payment or payments to the Agent or any Holder, or the Agent or the Purchasers
enforce their Liens or exercise their rights of set-off, and such payment or
payments or the proceeds of such enforcement or set-off or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such recovery, the obligation or part thereof originally intended
to be satisfied, and all Liens, rights and remedies therefor, shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or set-off had not occurred.
SECTION 24. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Grantor covenants, warrants, and represents to the Agent and the Holders that
all representations and warranties of the Grantor contained in this Agreement
shall be true at the time of the Grantor's execution of this Agreement, shall
survive the execution, delivery and acceptance hereof by the parties hereto and
the closing of the transactions described in the Secured Note Purchase Agreement
and the other Note Documents and shall continue in effect until all of the
Secured Obligations shall have been paid in full (including after the maturity
date) and the Secured Note Purchase Agreement has been terminated.
SECTION 25. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE
LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A
JURISDICTION OTHER THAN SUCH STATE. AS PART OF THE CONSIDERATION FOR NEW VALUE
THIS DAY RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR
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PRINCIPAL PLACE OF BUSINESS OF THE GRANTOR OR THE HOLDERS, GRANTOR HEREBY
CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK OR, AT
AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK SHALL HAVE THE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN GRANTOR AND AGENT PERTAINING TO THIS AGREEMENT OR ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT. GRANTOR EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE
BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE GRANTOR AT THE ADDRESS SET FORTH
IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETE UPON THE
EARLIER OF THE OBLIGOR'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT
IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO AFFECT THE RIGHT OF THE AGENT TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE AGENT OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER
THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
SECTION 26. WAIVER OF RIGHT TO TRIAL BY JURY. GRANTOR AND
HOLDERS WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE GRANTOR AND THE
HOLDERS WITH RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE, GRANTOR AND HOLDERS AGREE AND CONSENT
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
GRANTOR AND HOLDERS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. GRANTOR AND
HOLDERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL
REGARDING THIS SECTION THAT
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THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY
AND KNOWINGLY AGREE TO THE TERMS OF THIS SECTION.
SECTION 27. LIMITATION OF LIABILITY. NONE OF THE AGENT, OR THE
PURCHASERS SHALL HAVE ANY LIABILITY TO THE GRANTOR (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE GRANTOR OR THEIR RESPECTIVE
SUBSIDIARIES, AND THE GRANTOR HEREBY WAIVES AND RELEASES ANY CLAIMS, IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR
RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION HEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR ANY SUCH
PURCHASER, THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING
GROSS NEGLIGENCE, WILLFUL MISCONDUCT, BREACH OF CONTRACT OR KNOWING OR GROSSLY
NEGLIGENT VIOLATIONS OF APPLICABLE REQUIREMENTS OF LAW. THE GRANTOR AGREES NOT
TO ASSERT ANY CLAIM AGAINST ANY OF THE AGENT, ANY PURCHASER OR ANY OTHER HOLDER
ON ANY THEORY OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES ARISING OUT OF, OR IN ANY WAY IN CONNECTION WITH, THE COMMITMENTS, THE
OBLIGATIONS OR ANY OTHER MATTERS GOVERNED BY THIS AGREEMENT OR THE OTHER NOTE
DOCUMENTS.
SECTION 28. SEVERABILITY. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 29. PROTECTION OF COLLATERAL. The Agent shall have the
right (but shall not be obligated) to make payments and take actions it deems
reasonably necessary to protect its Lien on the Collateral. Grantor shall
reimburse the Agent for all such payments made, and expenses incurred with
respect to such actions taken, by the Agent, which amounts and expenses shall be
secured under this Agreement, and the Grantor shall be bound by any such payment
made or action taken by the Agent.
SECTION 30. NO WAIVER; REMEDIES. No failure on the part of any
Purchaser or the Agent to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of any remedies provided in the Secured Note Purchase
Agreement, any other Credit Document, in equity, or by law.
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SECTION 31. MARSHALLING; RECOURSE TO SECURITY. None of the
Purchasers or the Agent shall be under any obligation to marshall any assets in
favor of the Grantor or any other party or against or in payment of any or all
of the Secured Obligations. Recourse to security shall not be required at any
time.
SECTION 32. EXPENSES, ETC. Whether or not the transactions
contemplated hereby are consummated, the Grantor agrees, jointly and severally
to pay all reasonable costs and expenses (including reasonable attorneys' fees
of a special counsel and, if reasonably required, local or other counsel)
incurred by the Agent or Purchasers of a Secured Note in connection with such
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement, the Secured Notes or other Note Documents (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this
Agreement, the Secured Notes or other Note Documents or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement, the Secured Notes or other Note Documents, or by
reason of being a Purchaser of any Secured Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of any Obligor or in connection with any work-out or restructuring
of the transactions contemplated hereby and by the Secured Notes and other Note
Documents. The Grantor will pay, and will save each Purchaser harmless from, all
claims in respect of any fees, costs or expenses if any, of brokers and finders
(other than those retained by such Purchaser). The obligations of the Grantor
under this paragraph will survive the payment or transfer of any Secured Note,
the enforcement, amendment or waiver of any provision of this Agreement, the
Secured Notes or other Note Documents, and the termination of this Agreement.
SECTION 33. CONSTRUCTION. (a) The parties acknowledge that
each party and its counsel have reviewed and revised this Agreement and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any amendments or exhibits hereto.
(b) The words "hereof", "herein" and "hereunder" and words of
like import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement and section and exhibit
references are to this Agreement and to its attachments unless otherwise
specified.
(c) All terms defined in this Agreement in the singular shall
have comparable meanings when used in the plural, and VICE VERSA, unless
otherwise specified.
(d) Unless otherwise defined herein or in the Secured Note
Purchase Agreement, terms used in Article 9 of the Uniform Commercial Code in
effect in the State of New York are used herein as therein defined.
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SECTION 34. HEADINGS. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 35. EXECUTION IN COUNTERPARTS; EFFECTIVENESS. This
Agreement and any waiver or amendment hereto may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. This Agreement shall
become effective on the date on which all of the parties hereto shall have
signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Agent pursuant to the provisions of the Secured Note
Purchase Agreement and of this Agreement concerning notices.
SECTION 36. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent Holder of a Note) whether so
expressed or not.
SECTION 37. CONSTRUCTION. Each covenant contained herein shall
be construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
SECTION 38. APPOINTMENT OF COLLATERAL AGENT. The Company
hereby consents to the Agent's appointment of the Collateral Agent as the
Agent's representative with respect to the Collateral and the Agent's rights
hereunder all as set forth in the Collateral Agency Agreement. The Company
hereby acknowledges receipt of a copy of the Collateral Agency Agreement and
consents to the terms thereof.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above writ ten.
GRANTOR: NATIONAL RECORD MART, INC.
a Delaware corporation
By:
Name:
Title:
AGENT: ROBERT FLEMING INC.
a Delaware corporation,
as Agent
By:
Name:
Title:
<PAGE> 1
Exhibit 4.13
EXECUTION COPY
TRADEMARK COLLATERAL SECURITY AGREEMENT
---------------------------------------
THIS TRADEMARK COLLATERAL SECURITY AGREEMENT (the "Agreement")
dated as of the 16th day of April, 1998, by and between NATIONAL RECORD MART,
INC., a Delaware corporation ("Grantor") and ROBERT FLEMING INC., a Delaware
corporation, as agent (in such capacity, the "Agent") for the Holders under (and
as defined in) the Senior Subordinated Secured Note Purchase Agreement (as
hereinafter defined). Capitalized terms used herein and not otherwise defined
herein have the meanings ascribed to such terms in the Senior Subordinated
Secured Note Purchase Agreement.
W I T N E S S E T H
WHEREAS, the Grantor, the Guarantors from time to time party
thereto, the Purchasers referred to therein, and the Agent have entered into a
Senior Subordinated Secured Note Purchase Agreement of even date herewith (as
amended, restated, supplemented or otherwise modified from time to time, the
"Secured Note Purchase Agreement"), pursuant to which, the Agent and the
Purchasers have agreed to purchase $7,500,000 in aggregate principal amount of
the Grantor's 11.75% Senior Subordinated Secured Notes due 2001 (the "Secured
Notes");
WHEREAS, the Grantor and the Agent are parties to that certain
Issuer Security and Pledge Agreement of even date herewith (as the same may
hereafter be modified, amended, restated or supplemented from time to time, the
" Security Agreement"), pursuant to which Grantor has granted a security
interest in certain of its assets to the Agent, for the benefit of the Agent and
the Purchasers; and
WHEREAS, the Agent has required the Grantor to execute and
deliver this Agreement (i) in order to secure the prompt and complete payment,
observance and performance of all of the Obligations and (ii) as a condition
precedent to the purchase of Secured Notes under the Secured Note Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises set forth
herein and of the purchase of the Secured Notes by the Agent and the Purchasers
or any other Holder, or any of them the Grantor hereby agrees with the Agent,
for its benefit and the ratable benefit of the Holders, as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms
defined in the Secured Note Purchase Agreement shall have their defined meanings
when used herein and the following terms shall have the following meanings,
unless the context otherwise requires:
"Account" shall have the meaning assigned to it under Section
9-106 of the Code;
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"Code" shall mean the Uniform Commercial Code as the same may
from time to time be in effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section
2 of this Agreement.
"Event of Default" shall have the meaning assigned to it in
the Secured Note Purchase Agreement.
"General Intangibles" shall have the meaning assigned to it in
the Security Agreement.
"Obligations" shall have the meaning assigned to it in the
Secured Note Purchase Agreement.
"Proceeds" shall have the meaning assigned to it under Section
9-306 of the Code, and in any event, shall include, but not be limited to, (i)
any and all proceeds of any insurance, indemnity, warranty or guarantee payable
to Grantor from time to time with respect to any of the Collateral, (ii) any and
all payments (in any form whatsoever) made or due and payable to Grantor from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
body, authority, bureau or agency (or any person acting under color of
governmental authority), and (iii) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Trademarks" shall mean the U.S. registered trademarks and
pending applications shown in the attached SCHEDULE A, and those trademarks
which are hereafter adopted or acquired by Grantor, and all right, title and
interest therein and thereto, and all registrations, applications, and
recordings thereof, including, without limitation, applications, registrations
and recordings in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof, all whether
now owned or hereafter acquired by Grantor.
2. GRANT OF SECURITY INTEREST. As collateral security for the
prompt payment of the Obligations, Grantor hereby grants and coneys to Agent a
security interest in and to (a) the entire right, title and interest of Grantor
in and to the Trademarks, including the applications appurtenant thereto, listed
in SCHEDULE A hereto (as the same may be amended pursuant thereto from time to
time), and in and to any and all trademarks, and registrations and applications
appurtenant thereto, hereafter acquired or filed by Grantor, including without
limitation all renewals thereof, all proceeds of infringement suits, the rights
to use for past, present and future infringements and all rights corresponding
thereto in the United States and the goodwill of the business to which each of
the Trademarks relates and (b) to the extent not otherwise included, all
Proceeds and products of any or all of the foregoing. All of the property
referred to in this paragraph 2 is hereinafter collectively called the
"Collateral."
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EXECUTION COPY
3. REPRESENTATIONS AND WARRANTIES. Grantor covenants and
warrants that as of the date of this Agreement:
(a) The Trademarks are subsisting and have not
been adjudged invalid or unenforceable; PROVIDED, HOWEVER, the applications
listed on SCHEDULE A attached hereto have not yet been approved for registration
by the United States Patent and Trademark Office;
(b) To the best of Grantor's knowledge, each of
the Trademarks is valid and enforceable;
(c) There is no outstanding claim that the use
of any of the Trademarks violates the rights of any third person;
(d) Grantor is the sole and exclusive owner of
the entire and unencumbered right, title and interest in and to each of the
Trademarks, free and clear of any liens, charges and encumbrances (including
without limitation pledges, assignments, licenses, registered user agreements
and covenants by Grantor not to sue third persons);
(e) Grantor has the right to enter into this
Agreement and perform its terms;
(f) Grantor has used, and will continue to use
for the duration of this Agreement, proper statutory notice, where appropriate,
in connection with its use of the Trademarks; and
(g) Grantor has used, and will continue to use
for the duration of this Agreement, consistent standards of quality in its
manufacture of products sold under the Trademarks.
4. RIGHT OF INSPECTION. Grantor hereby grants to Agent and its
employees and agents the right to visit Grantor's plants and facilities which
manufacture, inspect or store products sold under any of the Trademarks, and to
inspect the products and quality control relating thereto at reasonable times
during regular business hours. Grantor shall use its best efforts to do any and
all acts required by Agent to ensure Grantor's compliance with paragraph 3(g)
above.
5. NEW TRADEMARKS.
(a) If, before the Obligations shall have been
paid in full, Grantor shall obtain rights to any new trademarks, the provisions
of paragraph 2 shall automatically apply thereto and Grantor shall give Agent
prompt written notice thereof.
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<PAGE> 4
EXECUTION COPY
(b) Grantor grants Agent a power-of-attorney,
irrevocable so long as the Secured Note Purchase Agreement is in existence, to
modify this Agreement by amending SCHEDULE A to include any future trademarks,
including trademark registrations or applications appurtenant thereto covered by
this Agreement.
6. COVENANTS. Grantor covenants and agrees with Agent that
from and after the date of this Agreement and until the Obligations are fully
satisfied:
(a) FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS.
At any time and from time to time, upon the written request of Agent, Grantor
will promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as Agent may reasonably deem
necessary in obtaining the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Code with respect to the liens
and security interests granted hereby. Grantor also hereby authorizes Agent to
file any such financing or continuation statement without the signature of
Grantor to the extent permitted by applicable law. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be
immediately pledged to Agent hereunder, duly endorsed in a manner satisfactory
to Agent.
(b) MAINTENANCE OF TRADEMARKS. Grantor will not
do any act, or omit to do any act, whereby the Trademarks or any registration or
application appurtenant thereto, may become abandoned, invalidated,
unenforceable, avoided, avoidable, or will otherwise diminish in value, and
shall notify Agent immediately if it knows of any reason or has reason to know
of any ground under which this result may occur. Grantor shall take commercially
reasonable action at its expense to halt the infringement of the Trademarks.
(c) INDEMNIFICATION. Grantor assumes all
responsibility and liability arising from the use of the Trademarks, and Grantor
hereby indemnifies and holds Agent harmless from and against any claim, suit,
loss, damage or expense (including reasonable attorneys' fees) arising out of
Grantor's operations of its business from the use of the Trademarks.
(d) LIMITATION OF LIENS ON COLLATERAL. Grantor
will not create, permit or suffer to exist, and will defend the Collateral
against and take such other action as is necessary to remove any lien, security
interest, encumbrance, claim or right, in or to the Collateral.
(e) NOTICES. Grantor will advise Agent
promptly, in reasonable detail, (i) of any lien or claim made or asserted
against any of the Collateral, (ii) of any material change in the composition of
the Collateral, and (iii) of the occurrence of any other event which would have
a material adverse effect on the value of any of the Collateral or on the
security interests created hereunder.
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EXECUTION COPY
(f) LIMITATION ON FURTHER USES OF TRADEMARKS. Grantor will not
assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security
interest in or lien upon, encumber, grant an exclusive or non-exclusive license,
or otherwise dispose of any of the Collateral, without prior written consent of
Agent except Grantor may grant a non-exclusive license to a department store in
which a portion thereof is used to sell Grantor's merchandise.
7. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Grantor hereby irrevocably constitutes and appoints Agent
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of Grantor and in the name of Grantor or in its own name, from
time to time in Agent's discretion, for the purposes of carrying out the terms
of this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives Agent the power and right, on behalf of Grantor, to do
the following:
(i) Upon the occurrence and continuance of an Event of
Default, to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral, to effect
any repairs or any insurance called for by the terms of this Agreement and to
pay all or any part of the premiums therefor and the costs thereof; and
(ii) Upon the occurrence and continuance of an Event of
Default, (A) to receive payment of and receipt for any and all moneys, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (B) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (C) to defend any suit, action or proceeding brought
against Grantor with respect to any Collateral; (D) to settle, compromise, or
adjust any suit, action or proceeding described above and, in connection
therewith, to give such discharges or releases as Agent may deem appropriate;
and (E) generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
Agent were the absolute owner thereof for all purposes, and to do, at Agent's
option, all actions and things which Agent deems necessary to protect, preserve
or realize upon the Collateral and Agent's security interest therein, in order
to effect the intent of this Agreement, all as fully and effectively as Grantor
might do.
This power of attorney is a power coupled with an interest and
shall be irrevocable. Notwithstanding the foregoing, Grantor further agrees to
execute any additional documents which Agent may reasonably require in order to
confirm this power of attorney, or which may be necessary to enforce any of
Agent's rights contained in this Agreement.
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<PAGE> 6
EXECUTION COPY
(b) The powers conferred on Agent hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Agent shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to
Grantor for any act or failure to act, except for its own gross negligence or
willful misconduct.
(c) Grantor also authorizes Agent to execute, in connection
with the sale provided for in paragraph 10(b) of this Agreement, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
8. EXECUTION OF POWER OF ATTORNEY. Prior to the execution and
delivery hereof, Grantor has executed and delivered to Collateral Agent, in the
form of SCHEDULE I hereto, ten (10) originals of a Power of Attorney for the
implementation of the Assignment, sale or other disposal of the Trademarks
pursuant to paragraph 7 hereof.
9. PERFORMANCE BY AGENT OF GRANTOR'S OBLIGATIONS. If Grantor
fails to perform or comply with any of its agreements contained herein and
Agent, as provided for by the terms of this Agreement, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
reasonable expenses of Agent incurred in connection with such performance or
compliance shall be payable by Grantor to Agent on demand and shall constitute
obligations secured hereby.
10. REMEDIES, RIGHTS UPON EVENT OF DEFAULT.
(a) If an event of Default shall occur and be continuing:
(i) All payments received by Grantor under or in connection
with any of the Collateral shall be held by Grantor in trust for Agent, shall be
segregated from other funds of Grantor and shall forthwith upon receipt by
Grantor, be turned over to Agent, in the same form as received by Grantor (duly
endorsed by Grantor to Agent, if required); and
(ii) Any and all such payments so received by Agent (whether
from Grantor or otherwise) may, in the sole discretion of Agent, be held by
Agent as collateral security for, and/or then or at any time thereafter applied
in whole or in part by Agent against all or any part of the Obligations in such
order as Agent shall elect. Any balance of such payments held by Agent and
remaining after payment in full of all the Obligations shall be paid over to
Grantor or to whomsoever may be lawfully entitled to receive the same.
(b) If any Event of Default shall occur and be continuing,
Agent may exercise in addition to all other rights and remedies granted to it in
this Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Uniform Commercial Code. Grantor shall remain liable for
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<PAGE> 7
EXECUTION COPY
any deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Agent is entitled. Grantor shall also
be liable for the reasonable fees of any attorneys employed by Agent to collect
any such deficiency and also as to any reasonable attorney's fees incurred by
Agent with respect to the collection of any of the Obligations and the
enforcement of any of Agent's respective rights hereunder.
11. TERMINATION. At such time as Grantor shall completely pay
in full all of the Obligations and the Secured Note Purchase Agreement is
terminated, this Agreement shall terminate and Agent shall execute and deliver
to Grantor all such releases, deeds, assignments and other instruments as may be
necessary or proper to invest in Grantor full title to the Trademarks, subject
to any disposition thereof which may have been made by Agent pursuant hereto.
12. NOTICES. All notices or other communications hereunder
shall be given in the manner and to the addresses set forth in the Secured Note
Purchase Agreement.
13. NO WAIVER. No course of dealing between Grantor and Agent,
nor any failure to exercise, nor any delay in exercising, on the part of Agent,
any right, power or privilege hereunder or under the Secured Note Purchase
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
14. CUMULATIVE REMEDIES. All of Agent's rights and remedies
with respect to the Collateral, whether established hereby or by the Secured
Note Purchase Agreement, or by any other agreements or by law, shall be
cumulative and may be exercised singularly or concurrently.
15. SEVERABILITY. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid and
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Agreement in
any jurisdiction.
16. NO MODIFICATION EXCEPT IN WRITING. This Agreement is
subject to modification only by a writing signed by the parties, except as
provided in paragraphs 5 and 7.
17. SUCCESSORS AND ASSIGNS. The benefits and burdens of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties.
18. GOVERNING LAW. The validity and interpretation of this
Agreement and the rights and obligations of the parties shall be governed by the
laws of the State of New York.
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<PAGE> 8
EXECUTION COPY
19. APPOINTMENT OF COLLATERAL AGENT. The Company hereby
consents to the Agent's appointment of the Collateral Agent as the Agent's
representative with respect to the Trademarks, Licenses and the Agent's rights
hereunder all as set forth in the Collateral Agency Agreement. The Company
hereby acknowledges receipt of a copy of the Collateral Agency Agreement and
consents to the terms thereof.
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<PAGE> 1
Exhibit 4.14
SUBORDINATION AGREEMENT
-----------------------
Agreement dated as of April 16, 1998 between Fleet Capital
Corporation ("Senior Lender") and Robert Fleming Inc. ("Fleming"), as agent for
the "Holders" under and as defined in the Subordinated Note Agreement referred
to below (Fleming and such Holders collectively, the "Subordinated Lender")
BACKGROUND
----------
Senior Lender and National Record Mart, Inc. (the "Company")
are parties to a Loan and Security Agreement dated as of June 11, 1993 (as same
has been or may be amended from time to time, the "Loan Agreement"). The
Company, Guarantor and Subordinated Lender are entering into a Senior
Subordinated Secured Note Purchase Agreement as of this date pursuant to which
Subordinated Lender will provide credit accommodations to the Company (as the
same may be amended from time to time, the "Subordinated Note Agreement"). As an
inducement for Senior Lender to consent to the Company entering into the
Subordinated Note Agreement and to induce Senior Lender to continue to provide
credit accommodations to the Company, Subordinated Lender has agreed to enter
into this subordination agreement to provide for the subordination of the
"Subordinated Indebtedness" to the "Senior Indebtedness".
AGREEMENTS
----------
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as follows:
1.. DEFINITIONS.
1.1. GENERAL TERMS. For purposes of this
Agreement, the following terms shall have the following meanings:
"AGREEMENTS" shall mean, collectively, the Senior
Lending Agreements and the Subordinated Lending Agreements.
"COMPANY" shall mean the Company and its successors
and assigns.
"CREDITORS" shall mean, collectively, Senior Lender
and Subordinated Lender and their respective successors and assigns.
"DISTRIBUTION" shall mean any payment, whether in
cash, in kind, securities or any other property, or security for any such
Distribution.
<PAGE> 2
"DOCUMENTS" shall have the meaning given to the term
"Other Agreements" in the Loan Agreement.
"EVENT" shall have the meaning set forth in Section
2.2 (c) hereof.
"GUARANTOR" shall mean NRM Investments, Inc., a
Delaware corporation.
"HOLDER OF SUBORDINATED INDEBTEDNESS" or "SUBORDINATED
LENDER" shall mean Robert Fleming Inc. and any other Person(s) at any time or in
any manner acquiring any right or interest in any of the Subordinated
Indebtedness.
"LOAN AGREEMENT" shall mean the Loan and Security
Agreement dated June 11, 1993 between the Company and Senior Lender as the same
has been or may be amended, supplemented, modified or restated from time to
time.
"PERSON" shall mean an individual, a partnership, a
corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture, a limited liability company, a
limited liability partnership or other entity, or a government or any agency,
instrumentality or political subdivision thereof.
"SENIOR INDEBTEDNESS" shall mean all Obligations of
any kind owed by the Company or Guarantor to Senior Lender from time to time
under or pursuant to any of the Senior Lending Agreements including, without
limitation, all principal, interest (including all interest accruing after
commencement of any case, proceeding or other action relating to the bankruptcy,
insolvency or reorganization of the Company) accruing thereon, charges,
expenses, fees and other sums chargeable to the Company or Guarantor by the
Senior Lender, and reimbursement, indemnity or other obligations due and payable
Senior Lender. Senior Indebtedness shall continue to constitute Senior
Indebtedness, notwithstanding the fact that such Senior Indebtedness or any
claim for such Senior Indebtedness is subordinated, avoided or disallowed under
the federal Bankruptcy Code or other applicable law. Senior Indebtedness shall
also include any indebtedness of the Company incurred in connection with a
refinancing of the Senior Indebtedness under the Senior Lending Agreements if
the terms and conditions of the agreements, documents and instruments related to
such refinancing, taken as a whole, are not materially more onerous to the
Holder of Subordinated Indebtedness than those set forth in the Senior Lending
Agreements, as in effect on the date hereof. For purposes of this Agreement
only, the principal amount of Senior Indebtedness shall not exceed $42,500,000.
"SENIOR LENDER" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"SENIOR LENDING AGREEMENTS" shall mean collectively
the Loan Agreement, and the other Documents between the Company and Senior
Lender or Guarantor and Senior Lender each as from time to time in effect.
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<PAGE> 3
"SUBORDINATED INDEBTEDNESS" shall mean all principal, premium,
if any, interest and other amounts payable or chargeable in connection with the
Subordinated Lending Agreements.
"SUBORDINATED LENDING AGREEMENTS" shall mean, collectively,
the Subordinated Note Agreement, the Subordinated Note and all promissory notes,
agreements, guarantees, documents and instruments now or at any time hereafter
executed and/or delivered by the Company, Guarantor or any other person to, with
or in favor of the Subordinated Lender in connection therewith or related
thereto, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
"SUBORDINATED NOTE OR NOTE(S)" shall mean that certain
promissory note issued by the Company to Subordinated Lender in the original
principal amount of $7,500,000 dated April 16, 1998 together with any
extensions thereof, securities issued in exchange therefor or modifications or
amendments thereto.
1.2. OTHER TERMS. Capitalized terms not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
1.3. CERTAIN MATTERS OF CONSTRUCTION. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. Wherever
appropriate in the context, terms used herein in the singular also include the
plural and VICE VERSA. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations. All
references to any instruments or agreements, including, without limitation,
references to any of the Senior Lending Agreements or Subordinated Lending
Agreements shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.
2. COVENANTS. The Company and each Holder of Subordinated
Indebtedness hereby covenant that until the Senior Indebtedness shall have been
paid in full and satisfied in cash and the Senior Lender's obligation to provide
advances under the Loan Agreement shall have been irrevocably terminated, all in
accordance with their respective terms, each will comply with such of the
following provisions as are applicable to it:
2.1. INTENTIONALLY OMITTED.
2.2. SUBORDINATION PROVISIONS. To induce Senior Lender to
enter into the Loan Agreement and to make loans and advances thereunder,
notwithstanding any other provision of the Subordinated Indebtedness to the
contrary, any Distribution with respect to the Subordinated Indebtedness is and
shall be expressly junior and subordinated in right of payment to all amounts
due and owing upon all Senior Indebtedness outstanding from time to time.
Specifically, but not by way of limitation:
(a) PAYMENTS. Neither the Company nor Guarantor shall make any
Distribution on the Subordinated Indebtedness until such time as the Senior
Indebtedness shall have been paid in full in cash and any commitments to provide
advances under the Senior Lending Agreements shall have been irrevocably
terminated; PROVIDED, HOWEVER, so long as no Event of Default shall have
occurred under the Senior Lending Agreements, the Company may pay and the
3
<PAGE> 4
Holders of Subordinated Indebtedness may receive regularly scheduled payments of
principal and interest on the Subordinated Indebtedness as set forth on the
Closing Date in the Subordinated Lending Agreements.
Following the occurrence of an Event of Default under the
Senior Lending Agreements resulting from a failure by the Company to make
payment of any sums due and owing to Senior Lender (any such event, a "Payment
Default"), (i) neither the Company nor Guarantor shall make any Distribution on
the Subordinated Indebtedness and (ii) upon and after receipt by the Holders of
Subordinated Indebtedness of written notice of such Payment Default from Senior
Lender (such notice, a "Payment Default Notice") no such Holder of Subordinated
Indebtedness shall be entitled to receive or retain any such Distribution in
respect of the Subordinated Indebtedness. Following the occurrence of an Event
of Default other than a Payment Default under the Senior Lending Agreements, (i)
neither the Company nor Guarantor shall make any Distribution on the
Subordinated Indebtedness and (ii) upon and after receipt by the Holders of
Subordinated Indebtedness of written notice of such Event of Default from Senior
Lender (any such notice, a "Default Notice") no such Holder of Subordinated
Indebtedness shall be entitled to receive or retain any such Distribution in
respect of the Subordinated Indebtedness, PROVIDED, FURTHER, that
notwithstanding the foregoing restriction, the Company may pay and the Holders
of Subordinated Indebtedness shall be entitled to receive and retain any
principal or interest payment which shall have become due and payable (on a
non-accelerated basis) on the earliest to occur of (x) the date on which all
such Events of Default specified in the Default Notice shall have been cured or
waived, or (y) payment in full in cash of all Senior Indebtedness and the
irrevocable termination of any commitments to provide advances under the Senior
Lending Agreements or (z) the expiration of a period of ninety (90) days from
delivery of the Default Notice.
(b) LIMITATION ON ACCELERATION. During any period described in
Section 2.2 (a) hereof in which a Distribution is not permitted to be made on
Subordinated Indebtedness (any such period, a "Non-Payment Period"), no Holder
of Subordinated Indebtedness shall be entitled to accelerate the maturity of the
Subordinated Indebtedness, exercise any remedies or commence any action or
proceeding to recover any amounts due or to become due with respect to
Subordinated Indebtedness, PROVIDED, HOWEVER, the foregoing limitation on
acceleration or exercise of any remedies shall not be applicable following (x)
the occurrence of an Event (as to which Section 2.2 (c) shall apply), (y) the
maturity or acceleration of all Senior Indebtedness or (z) ninety (90) days
after the Subordinated Lender has given the Senior Lender written notice of its
intention to take such action.
(c) PRIOR PAYMENT OF SENIOR INDEBTEDNESS IN BANKRUPTCY, ETC.
In the event of any insolvency or bankruptcy proceedings relative to the
Company, Guarantor or their respective property, or any receivership,
liquidation, reorganization or other similar proceedings in connection
therewith, or, in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, Guarantor or distribution or
marshalling of their respective assets or any composition with creditors of the
Company or Guarantor, whether or not involving insolvency or bankruptcy, or if
the Company or Guarantor shall cease its operations, call a meeting of its
creditors or no longer do business as a going concern (each individually or
collectively, an "Event") then all Senior Indebtedness shall be paid in full and
satisfied in cash and any commitments to provide advances under the Senior
Lending Agreements irrevocably terminated
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<PAGE> 5
before any Distribution shall be made on account of any Subordinated
Indebtedness. Any such Distribution which would, but for the provisions hereof,
be payable or deliverable in respect of the Subordinated Indebtedness, shall be
paid or delivered directly to the Senior Lender or its representatives, in the
proportions in which they hold the same, until amounts owing upon Senior
Indebtedness shall have been paid in full in cash and any commitments to provide
advances under the Senior Lending Agreements have been irrevocably terminated.
(d) ACCELERATION. In the event of any Senior Indebtedness
becoming due and payable, whether by acceleration, maturity or otherwise, no
Distribution shall thereafter be made on account of the Subordinated
Indebtedness until all Senior Indebtedness shall be paid in full in cash and the
Loan Agreement be irrevocably terminated.
(e) POWER OF ATTORNEY. To enable the Senior Lender to assert
and enforce its rights hereunder in any proceeding referred to in Section 2.2(c)
or upon the happening of any Event, the Senior Lender or any person whom it may
designate is hereby irrevocably appointed attorney in fact for the Subordinated
Lender with full power to act in the place and stead of the Subordinated Lender
including the right to make, present, file and vote such proofs of claim against
the Company on account of all or any part of the Subordinated Indebtedness as
the Senior Lender may deem advisable in the event that Subordinated Lender shall
fail to do so and to receive and collect any and all dividends or other payments
made thereon and to apply the same on account of the Senior Indebtedness. The
Subordinated Lender will execute and deliver to the Senior Lender such
instruments as may be required by the Senior Lender to enforce any and all
Subordinated Indebtedness, to effectuate the aforesaid power of attorney and to
effect collection of any and all dividends or other payments which may be made
at any time on account thereof, and the Subordinated Lender hereby irrevocably
appoints the Senior Lender as the lawful attorney and agent of the Subordinated
Lender to execute financing statements on behalf of the Subordinated Lender and
hereby further authorizes the Senior Lender to file such financing statements in
any appropriate public office.
(f) KNOWLEDGE; DELIVERY OF PAYMENT DEFAULT NOTICE OR DEFAULT
NOTICE. No holder of any Subordinated Indebtedness shall at any time be charged
with knowledge of any of the events described in Section 2.2 (a) hereof or on
such account be prohibited from receiving or retaining any payment of monies or
from taking any action regarding acceleration or the exercise of remedies,
unless and until such holder shall have received Default Notice or Payment
Default Notice; PROVIDED, HOWEVER, any "default" or "event of default" under the
Subordinated Note and/or Subordinated Lending Agreements shall automatically
constitute an Event of Default under the Senior Lending Agreements so that
payments received by any Holder of Subordinated Indebtedness following any such
occurrence shall not be retained irrespective of the lack of receipt by such
holder of a Default Notice or Payment Default Notice, UNLESS (i) the Event of
Default is waived by the required Holders of Subordinated Indebtedness, (ii) a
copy of such waiver is given in writing by Subordinated Lender to Senior Lender,
and (iii) no Default Notice or Payment Default Notice is thereafter forthcoming
from Senior Lender within five (5) Business Days following the giving of notice
of the aforesaid waiver, in which event any Holder of Subordinated Indebtedness
may retain all payments previously or thereafter received, subject to the
provisions of Section 2.2 (a).
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<PAGE> 6
Each Default Notice and Payment Default Notice shall be deemed
to be properly given by Senior Lender or other holder of Senior Indebtedness to
the Subordinated Lender if such Default Notice or Payment Default Notice is
delivered in accordance with Section 3.7 hereof.
No more than two (2) Default Notices may be given in any
365-day period, and no Default or Event of Default which existed or which was
continuing with respect to any Senior Indebtedness to which any Default Notice
relates on the date such Default Notice was given shall be the basis for the
commencement of any subsequent Default Notice by any holder of Senior
Indebtedness unless such Default or Event of Default is cured or waived for a
period of not less than 90 days.
(g) PAYMENTS HELD IN TRUST. Should any Distribution or the
proceeds thereof, in respect of the Subordinated Indebtedness, be collected or
received by the Subordinated Lender or any Affiliate (as such term is defined in
Rule 405 of Regulation C adopted by the Securities and Exchange Commission
pursuant to the Securities Act of 1933) of the Subordinated Lender at a time
when the Subordinated Lender is not permitted to receive any such Distribution
or proceeds thereof including if same is collected or received when there is or
would be after giving effect to such payment an Event of Default under the Loan
Agreement, then the Subordinated Lender will forthwith deliver, or cause to be
delivered, the same to the Senior Lender in precisely the form held by the
Subordinated Lender (except for any necessary endorsement) and until so
delivered, the same shall be held in trust by the Subordinated Lender, or any
such Affiliate, as the property of the Senior Lender and shall not be commingled
with other property of the Subordinated Lender or any such Affiliate.
(h) SUBROGATION. Subject to the prior payment in full in cash
of the Senior Indebtedness and the irrevocable termination of any commitments to
provide advances under the Senior Lending Agreements, to the extent that Senior
Lender has received any Distribution on the Senior Indebtedness which, but for
this Agreement, would have been applied to the Subordinated Indebtedness, the
Subordinated Lender shall be subrogated to the then or thereafter rights of the
Senior Lender including, without limitation, the right to receive any
Distribution made on the Senior Indebtedness until the principal of, premium, if
any, interest on and other charges due under the Subordinated Indebtedness shall
be paid in full; and, for the purposes of such subrogation, no Distribution to
the Senior Lender to which the Subordinated Lender would be entitled except for
the provisions of this Agreement shall, as between the Company, Guarantor, their
respective creditors (other than the Senior Lender) and the Subordinated Lender,
be deemed to be a Distribution by the Company or Guarantor to or on account of
Senior Indebtedness, it being understood that the provisions hereof are and are
intended solely for the purpose of defining the relative rights of the
Subordinated Lender on the one hand, and the Senior Lender on the other hand.
(i) SCOPE OF SUBORDINATION. The provisions of this Agreement
are solely to define the relative rights of any Holder of Subordinated
Indebtedness and the Senior Lender. Nothing in this Agreement shall impair, as
between the Company, Guarantor and the Subordinated Lender the unconditional and
absolute obligation of the Company and/or Guarantor to punctually pay the
principal, interest and any other amounts and obligations owing under the
Subordinated Note and/or Subordinated Lending Agreements in accordance with the
terms thereof,
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<PAGE> 7
subject to the rights of the Senior Lender under this Agreement. If the Borrower
fails because of this Agreement to pay principal of, premium, if any, and
interest on the Subordinated Notes or any other obligations owing under the
Subordinated Lending Agreements on the date when such payment is due (other than
any payment due after, and during the effectiveness of, a Default Notice), the
failure to make such payment shall be an Event of Default under the Subordinated
Lending Agreements notwithstanding any provision of this Agreement.
(j) Tender of Subordinated Notes for Warrants. Each Holder of
Subordinated Indebtedness shall at all times, notwithstanding any provisions of
this Agreement regarding prohibitions on receiving payments or exercising rights
and remedies with respect to Subordinated Indebtedness, have the right to tender
the Subordinated Note held by it to the Company to pay the exercise price of the
Warrants (as defined in the Subordinated Note Agreement) in lieu of cash.
3. MISCELLANEOUS.
3.1. PROVISIONS OF SUBORDINATED NOTE. From and after the date
hereof, the Company, Guarantor and the Subordinated Lender shall cause each
Subordinated Note and any guarantee to contain a provision to the following
effect:
"This Agreement is subject to the Subordination Agreement,
dated April __, 1998, among the Maker, the Payee and Senior
Lender, under which this Agreement and the Maker's obligations
hereunder are subordinated in the manner set forth therein to
the prior payment of certain obligations to the holders of
Senior Indebtedness as defined therein."
Proof of compliance with the foregoing shall be promptly given
to Senior Lender.
3.2. ADDITIONAL AGREEMENTS. In the event that the Senior
Indebtedness is refinanced in full, Subordinated Lender agrees at the request of
such refinancing party to enter into a subordination agreement on terms
substantially similar to this Subordination Agreement; PROVIDED that the
refinancing Indebtedness shall be in compliance with Section 3.6.
3.3. SURVIVAL OF RIGHTS. The right of Senior Lender to enforce
the provisions of this Agreement shall not be prejudiced or impaired by any act
or omitted act of the Company, Guarantor or Senior Lender including forbearance,
waiver, consent, compromise, amendment, extension, renewal, or taking or release
of security in respect of any Senior Indebtedness or noncompliance by the
Company or Guarantor with such provisions, regardless of the actual or imputed
knowledge of Senior Lender.
3.4. RECEIPT OF AGREEMENTS. Subordinated Lender hereby
acknowledges that it has delivered to Senior Lender a correct and complete copy
of the Subordinated Lending Agreements as in effect on the date hereof. The
Subordinated Lender, solely for the purposes of this Agreement, hereby
acknowledges receipt of a correct and complete copy of each of the Senior
Lending Agreements as in effect on the date hereof.
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<PAGE> 8
3.5. NO AMENDMENT OF SUBORDINATED LENDING AGREEMENTS. So long
as the Loan Agreement remains in effect, neither the Company nor any Holder of
Subordinated Indebtedness shall enter into any amendment to or modification of
any Subordinated Lending Agreements which increases the principal amount,
increases the interest rate by more than three percent (3%) per annum or
shortens or accelerates the maturity or due date of any payments thereunder,
without the prior written consent of Senior Lender.
3.6. AMENDMENTS TO SENIOR LENDING AGREEMENTS. Nothing
contained in this Agreement, or in any other agreement or instrument binding
upon any of the parties hereto, shall in any manner limit or restrict the
ability of any Senior Lender from increasing or changing the terms of the loans
under the Senior Lending Agreements, or to otherwise waive, amend or modify the
terms and conditions of the Senior Lending Agreements, in such manner as such
Senior Lender and the Company shall mutually determine. Each Holder of
Subordinated Indebtedness hereby consents to any and all such waivers,
amendments, modifications and compromises, and any other renewals, extensions,
indulgences, releases of collateral (subject to the provisions of the Collateral
Sharing and Agency Agreement dated as of this date among the Company, Senior
Lender, Subordinated Lender and Fleet Capital Corporation, as collateral agent)
or other accommodations granted by the Senior Lender to the Company from time to
time, and agrees that none of such actions shall in any manner affect or impair
the subordination established by this Subordination Agreement in respect of the
Subordinated Indebtedness.
3.7. NOTICE OF DEFAULT AND CERTAIN EVENTS. The Senior Lender
and the Holders of Subordinated Indebtedness shall undertake in good faith to
notify the other of the occurrence of any of the following as applicable, within
five (5) Business Days after obtaining knowledge thereof, :
(a) the obtaining of actual knowledge of the occurrence of any
default under the Subordinated Lending Agreements;
(b) the acceleration of any Senior Indebtedness by the Senior
Lender or of any Subordinated Indebtedness by any Holder of Subordinated
Indebtedness;
(c) the granting by Senior Lender of any waiver of any Event
of Default under the Loan Agreement or the granting by any Holder of
Subordinated Indebtedness of any waiver of any "default" or "event of default"
under the Subordinated Lending Agreements;
(d) the payment in full by the Company (whether as a result of
refinancing or otherwise) of all Senior Indebtedness; or
(e) any amendment to any of the Agreements.
The failure of any party to give such notice shall not affect
the subordination of the Subordinated Indebtedness as provided in this
Subordination Agreement.
3.8. NOTICES. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when personally
delivered to any officer of
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<PAGE> 9
the party to whom it is addressed, (b) on the earlier of actual receipt thereof
or three (3) days following posting thereof by certified or registered mail,
postage prepaid, or (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with telephone communication confirming
receipt and subsequently confirmed by registered, certified or overnight mail to
the address set forth below, in each case addressed to each party at its address
set forth below or at such other address as has been furnished in writing by a
party to the other by like notice:
If to Senior Lender: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Northeast Loan Administrator
Telephone: (860) 659-3200
Telecopier: (860) 657-7759
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118-0075
Attention: Daniel J. Krauss, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
If to Subordinated c/o Robert Fleming Inc.
Lender: 320 Park Avenue, 11th Floor
New York, New York 10022
Attention: Michael E. Rowe
Telephone: (212) 508-3672
Telecopier: (212) 508-3579
with a copy to: Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Telephone: (213) 896-6000
Telecopier: (213) 896-6600
If to the Company
or Guarantor: c/o National Record Mart, Inc.
507 Forest Avenue
Carnegie, Pennsylvania 15106
Attention: Theresa Carlisle
Telephone: (412) 276-6200
Telecopier: (412) 276-6201
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with a copy to: Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219
Attention: Robert Morris, Esq.
Telephone: (412) 288-3131
Telecopier: (412) 288-3063
3.9. BOOKS AND RECORDS. The Subordinated Lender shall furnish
Senior Lender, upon request from time to time, a confirmation of the amount due
and owing to Subordinated Lender and the status of the account between the
Subordinated Lender and the Company
3.10. BINDING EFFECT; OTHER. This Subordination Agreement
shall be a continuing agreement, shall be binding upon and shall inure to the
benefit of the parties hereto from time to time and their respective successors
and assigns, shall be irrevocable and shall remain in full force and effect
until the Senior Indebtedness shall have been satisfied or paid in full in cash
and any commitments to provide advances under the Senior Lending Agreements
shall have been irrevocably terminated, but shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any amount paid by or on behalf of the Company or Guarantor with regard to
the Senior Indebtedness is rescinded or must otherwise be restored or returned
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Company or Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee, custodian, or similar
officer, for the Company or Guarantor any substantial part of their respective
property, or otherwise, all as though such payments had not been made. No action
which any Senior Lender or the Company or Guarantor may take or refrain from
taking with respect to the Senior Indebtedness, including any amendments
thereto, shall affect the provisions of this Subordination Agreement or the
obligations of any Subordinated Lender hereunder. Any waiver or amendment
hereunder must be evidenced by a signed writing of the party to be bound
thereby, and shall only be effective in the specific instance. This
Subordination Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The headings in this Subordination Agreement
are for convenience of reference only, and shall not alter or otherwise affect
the meaning hereof.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) By its acceptance of its Subordinated Note, each Holder of
Subordinated Indebtedness agrees that it shall not assign or transfer any of the
Subordinated Indebtedness without such assignment or transfer being made
expressly subject to the terms of this Subordination Agreement. Subordinated
Lender warrants to Senior Lender that it has full right, power and authority to
enter into this Subordination Agreement and, to the extent Subordinated Lender
is an agent or trustee for other parties, that this Subordination Agreement
shall fully bind all such other parties.
(b) Senior Lender agrees that it shall not assign or transfer
any of the Senior Indebtedness without such assignment or transfer being made
expressly subject to the terms and provisions of the Subordination Agreement.
Senior Lender further warrants to Subordinated
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Lender that it has full right, power and authority to enter into this
Subordination Agreement and, to the extent Senior Lender is an agent or trustee
for other parties, that this Subordination Agreement shall fully bind all such
other parties.
5. PROCEEDINGS. ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST
ANY HOLDER OF SUBORDINATED INDEBTEDNESS WITH RESPECT TO THIS OR ANY RELATED
AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE SUPREME
COURT OF THE STATE OF NEW YORK, ANY FEDERAL DISTRICT COURT WITHIN THE STATE OF
NEW YORK, OR ELSEWHERE AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH ANY
HOLDER OF SUBORDINATED INDEBTEDNESS, SENIOR LENDER AND THE COMPANY ACCEPT FOR
THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND
IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE SENIOR
LENDER TO BRING PROCEEDINGS AGAINST THE ANY HOLDER OF SUBORDINATED INDEBTEDNESS
IN ANY COURTS OF ANY OTHER JURISDICTION ANY JUDICIAL PROCEEDING BY ANY HOLDER OF
SUBORDINATED INDEBTEDNESS AGAINST THE SENIOR LENDER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR
CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN
A COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK; PROVIDED THAT
NOTWITHSTANDING THE FOREGOING, IF IN ANY JUDICIAL PROCEEDING BY OR AGAINST ANY
HOLDER OF SUBORDINATED INDEBTEDNESS THAT IS BROUGHT IN ANY OTHER COURT SUCH
COURT DETERMINES THAT SENIOR LENDER IS AN INDISPENSABLE PARTY, SUCH ANY HOLDER
OF SUBORDINATED INDEBTEDNESS SHALL BE ENTITLED TO JOIN OR INCLUDE SENIOR LENDER
IN SUCH PROCEEDINGS IN SUCH OTHER COURT. EACH ANY HOLDER OF SUBORDINATED
INDEBTEDNESS WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS.
6. WAIVER OF JURY TRIAL. EACH CREDITOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY CREDITOR OR ANY OF THEM WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENTS OR AGREEMENT
EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH CREDITOR
HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY
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COURT TRIAL WITHOUT JURY, AND THAT EITHER OF THEM MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF
THEIR CONSENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned have entered into this
Agreement this 16th day of April, 1998.
FLEET CAPITAL CORPORATION,
as Senior Lender
By: /s/ John Edmondson
--------------------------------
Name: John Edmondson
Title:Senior V.P.
ROBERT FLEMING INC.,
as agent for Subordinated Lender
By: Phillip S. Schaeffer
--------------------------------
Name: Phillip S. Schaefer
Title:Senior V.P.
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COMPANY'S AND GUARANTOR'S ACKNOWLEDGEMENT
The undersigned Company and Guarantor hereby acknowledges and
agrees to the foregoing Subordination Agreement. The undersigned agrees to be
bound by the terms and provisions thereof as they relate to the relative rights
of the Creditors with respect to each other. However, nothing therein shall be
deemed to amend, modify, supersede or otherwise alter the terms of the
respective agreements between the undersigned and each Creditor. The undersigned
further agrees that the Subordination Agreement is solely for the benefit of the
Creditors and shall not give the undersigned, its successors and assigns, or any
other person, any rights vis-a-vis any Creditor.
NATIONAL RECORD MART, INC.,
Company
By: /s/ Theresa Carlise
-------------------------------
Name: Theresa Carlise
Title: Senior Vice President & CEO
NRM INVESTMENTS, INC.,
Guarantor
By: /s/ Theresa Carlise
-------------------------------
Name: Theresa Carlise
Title: President
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STATE OF New York )
: ss.:
COUNTY OF New York )
On the 14th day April, 1998, before me personally came
Phillip S. Schaeffer, to me known, who being by me duly sworn, did depose and
say that he resides at C/O RFI, 320 Park Ave. N.Y., N.Y., that he is the
Senior VP of Robert Fleming Inc, the corporation described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the board of directors of said corporation, and that he
signed his name thereto by like order.
/s/ Michele Muniz
-------------------------------
Notary Public
MICHELE MUNIZ
Notary Public, State of New York
No. 31-497501
Certified in New York County
Commission Expires 11-26-98
STATE OF Connecticut )
: ss.:
COUNTY OF Hartford )
On the 14th day of April, 1998, before me personally came
John Edmondson, to me known, who being by me duly sworn, did depose and say
that he resides at 260 Hebron Ave., Glastonbury, CT, that he is the
SVP of Fleet Capital Corporation, the corporation described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the board of directors of said corporation, and that he
signed his name thereto by like order.
/s/ Lisa A. Giampaolo
-------------------------------
Notary Public
Lisa A. Giampaolo
Notary Public
My Commission Expires Oct. 28, 2000
Member, Pennsylvania Association of Notaries
STATE OF Pennsylvania )
: ss.:
COUNTY OF Allegheny )
On the 15th day of April, 1998, before me personally came
Theresa Carlise, to me known, who being by me duly sworn, did depose and say
that he resides at 507 Forest Avenue, that he is the Senior Vice President &
CFO, National Record Mart, Inc., the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the board of directors of said corporation, and that he signed his
name thereto by like order.
/s/ Geraldine A. Steele
-------------------------------
Notary Public
Notarial Seal
Geraldine A. Steele, Notary Public
Carnegie Boro, Allegheny County
My Commission Expires Dec. 24, 1998
Member, Pennsylvania Association of Notaries
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<PAGE> 15
STATE OF PENNSYLVANIA )
: ss.:
COUNTY OF ALLEGHENY )
On the 15th day of April, 1998, before me personally came
Theresa Carlise, to me known, who being by me duly sworn, did depose and
say that he resides at 507 Forest Avenue, that he is the President of
____________________, NRM Investments, Inc., the corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
/s/ Geraldine A. Steele
-------------------------------
Notary Public
Notarial Seal
Geraldine A. Steele, Notary Public
Carnegie Boro, Allegheny County
My Commission Expires Dec. 24, 1998
Member, Pennsylvania Association of Notaries
<PAGE> 1
Exhibit 4.15
JUNIOR SUBORDINATION AGREEMENT
------------------------------
Agreement dated as of April 16, 1998 between Fleet Capital
Corporation ("Senior Lender"), Robert Fleming Inc. ("Fleming"), as agent for the
"Holders" under and as defined in the Subordinated Note Agreement referenced
below (Fleming and such Holders collectively, the "Subordinated Lender") and
Fleming, as agent for the "Holders" under and as defined in the Senior Note
Agreement referenced below (Fleming, and such Holders collectively, "Senior
Subordinated Lender").
BACKGROUND
----------
Senior Lender and National Record Mart, Inc. (the "Company")
are parties to a Loan and Security Agreement dated as of June 11, 1993 (as same
has been or may be amended from time to time, the "Loan Agreement"). The
Company, NRM Investment, Inc. ("Guarantor") and Senior Subordinated Lender are
entering into a Senior Subordinated Secured Note Purchase Agreement as of this
date pursuant to which Senior Subordinated Lender will provide credit
accommodations to the Company (as the same may be amended from time to time, the
"Senior Note Agreement"). The Company, and Subordinated Lender are also entering
into a Senior Subordinated Note Purchase Agreement as of this date pursuant to
which Subordinated Lender will provide credit accommodations to the Company (as
the same may be amended from time to time, the "Subordinated Note Agreement").
As an inducement for Senior Lender and Senior Subordinated Lender to consent to
the Company entering into the Subordinated Note Agreement and to induce Senior
Lender and Senior Subordinated Lender to continue to provide credit
accommodations to the Company, Subordinated Lender, on behalf of the purchasers
party to the Subordinated Note Agreement, has agreed to enter into this
subordination agreement to provide for the subordination of the "Subordinated
Indebtedness" to the "Senior Indebtedness".
AGREEMENTS
----------
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
1.1. GENERAL TERMS. For purposes of this Agreement,
the following terms shall have the following meanings:
"AGREEMENTS" shall mean, collectively, the Senior
Lending Agreements, the Senior Subordinated Lending Agreements and the
Subordinated Lending Agreements.
"BUSINESS DAY" - a day excluding Saturday, Sunday
and any day which is a legal holiday under the laws of the State of New York or
is a day on which banking institutions located in such state are closed.
"COMPANY" shall mean the Company and its successors
and assigns.
<PAGE> 2
"CONTROLLING LENDER" means (i) until all Senior Indebtedness
under the Senior Lending Agreements has been paid in full and satisfied in cash
and all commitments to lend thereunder shall have been irrevocably terminated,
Senior Lender and (ii) thereafter, Senior Subordinated Lender.
"CREDITORS" shall mean, collectively, Senior Lender, Senior
Subordinated Lender and Subordinated Lenders and their respective successors and
assigns.
"DISTRIBUTION" shall mean any payment, whether in cash, in
kind, securities or any other property, or security for any such Distribution.
"DOCUMENTS" shall mean any and all agreements, instruments and
documents (other than the Loan Agreement), heretofore, now or hereafter executed
by Borrower or any Guarantor) and delivered to Lender in respect to the
transactions contemplated by the Loan Agreement, including, without limitation,
any and all promissory notes issued in connection therewith and any guaranty
agreements, security agreements and/or pledge agreements.
"EVENT" shall have the meaning set forth in Section 2.2 (c)
hereof.
"GUARANTOR" shall mean NRM Investments, Inc., a Delaware
corporation.
"HOLDERS OF SUBORDINATED INDEBTEDNESS" or "SUBORDINATED
LENDER" shall mean Robert Fleming Inc. and any other Person(s) at any time or in
any manner acquiring any right or interest in any of the Subordinated
Indebtedness.
"LOAN AGREEMENT" shall mean the Loan and Security Agreement
dated June 11, 1993 between the Company and Senior Lender as the same has been
or may be amended, supplemented, modified or restated from time to time.
"PERSON" shall mean an individual, a partnership, a
corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture, a limited liability company, a
limited liability partnership or other entity, or a government or any agency,
instrumentality or political subdivision thereof.
"SENIOR INDEBTEDNESS" shall mean (i) all Obligations of any
kind owed by the Company or Guarantor to Senior Lender from time to time under
or pursuant to any of the Senior Lending Agreements including, without
limitation, all principal, interest (including all interest accruing after
commencement of any case, proceeding or other action relating to the bankruptcy,
insolvency or reorganization of the Company) accruing thereon, charges,
expenses, fees and other sums chargeable to the Company or Guarantor by the
Senior Lender, and reimbursement, indemnity or other obligations due and payable
Senior Lender and (ii) all obligations of any kind owed by the Company to Senior
Subordinated Lender from time to time under or pursuant to any of the Senior
Subordinated Lending Agreements including, without limitation, all principal,
premium, if any, interest (including all interest accruing after commencement of
any case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company) accruing thereon, charges,
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<PAGE> 3
expenses, fees and other sums chargeable to the Company by the Senior
Subordinated Lender, and reimbursement, indemnity or other obligations due and
payable by Senior Subordinated Lender. Senior Indebtedness shall continue to
constitute Senior Indebtedness, notwithstanding the fact that such Senior
Indebtedness or any claim for such Senior Indebtedness is subordinated, avoided
or disallowed under the federal Bankruptcy Code or other applicable law. Senior
Indebtedness shall also include any indebtedness of the Company incurred in
connection with a refinancing of the Senior Indebtedness under the Senior
Lending Agreements and/or the Senior Subordinated Lending Agreements if the
terms and conditions of the agreements, documents and instruments related to
such refinancing, taken as a whole, are not materially more onerous to the
Holder of Subordinated Indebtedness than those set forth in the Senior Lending
Agreements and/or the Senior Subordinated Lending Agreements, as in effect on
the date hereof. For purposes of this Agreement only, the principal amount of
Senior Indebtedness shall not exceed $50,000,000.
"SENIOR LENDER" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"SENIOR LENDING AGREEMENTS" shall mean collectively the Loan
Agreement, and the other Documents between the Company and Senior Lender or
Guarantor and Senior Lender each as from time to time in effect.
"SENIOR SUBORDINATED LENDING AGREEMENTS" shall mean
collectively the Senior Note Agreement, the Senior Subordinated Note and all
promissory notes, agreements, documents, guarantees and instruments now or at
any time hereafter executed and/or delivered by the Company or any other person
to, with or in favor of the Senior Subordinated Lender in connection therewith
or related thereto, as all of the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced each as
from time to time in effect.
"SENIOR SUBORDINATED INDEBTEDNESS" shall mean all obligations
of any kind owed by the Company or Guarantor to Senior Subordinated Lender from
time to time under or pursuant to any of the Senior Subordinated Lending
Agreements.
"SENIOR SUBORDINATED LENDER" is defined in the preamble
hereto.
"SENIOR SUBORDINATED NOTE" shall mean those certain promissory
notes issued by the Company to Senior Subordinated Lender in the aggregate
original principal amount of $7,500,000 each dated April 16, 1998 as further
described on EXHIBIT A hereto, together with any extensions thereof, securities
issued in exchange therefor or modifications or amendments thereto.
"SUBORDINATED INDEBTEDNESS" shall mean all principal, premium,
if any, interest and other amounts payable or chargeable in connection with the
Subordinated Lending Agreements.
"SUBORDINATED LENDING AGREEMENTS" shall mean, collectively,
the Subordinated Note Agreement, the Subordinated Note and all promissory notes,
agreements, guarantees, documents and instruments now or at any time hereafter
executed and/or delivered by the Company, Guarantor or any other person to, with
or in favor of the Subordinated Lender in
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<PAGE> 4
connection therewith or related thereto, as all of the foregoing now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
"SUBORDINATED NOTE OR NOTE(S)" shall mean those certain
promissory notes issued by the Company to Subordinated Lender in the aggregate
original principal amount of $7,500,000 each dated April 16, 1998 as further
described on EXHIBIT B hereto, together with any extensions thereof, securities
issued in exchange therefor or modifications or amendments thereto.
1.2. CERTAIN MATTERS OF CONSTRUCTION. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. Wherever
appropriate in the context, terms used herein in the singular also include the
plural and VICE VERSA. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations. All
references to any instruments or agreements, including, without limitation,
references to any of the Senior Lending Agreements, the Senior Subordinated
Lending Agreements or Subordinated Lending Agreements shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof.
2. COVENANTS. The Company and each Holder of Subordinated
Indebtedness hereby covenant that until the Senior Indebtedness shall have been
paid in full and satisfied in cash and any commitments to lend under the Senior
Lending Agreement and the Senior Subordinated Lending Agreements shall have been
irrevocably terminated, all in accordance with their respective terms, each will
comply with such of the following provisions as are applicable to it:
2.1. INTENTIONALLY OMITTED.
2.2. SUBORDINATION PROVISIONS. To induce Senior Lender
to enter into the Senior Lending Agreements and to make loans and advances
thereunder and to induce Senior Subordinated Lender to enter into the Senior
Subordinated Lending Agreements and make loans and advances thereunder,
notwithstanding any other provision of the Subordinated Indebtedness to the
contrary, any Distribution with respect to the Subordinated Indebtedness is and
shall be expressly junior and subordinated in right of payment to all amounts
due and owing upon all Senior Indebtedness outstanding from time to time.
Specifically, but not by way of limitation:
(a) PAYMENTS. Neither the Company nor
the Guarantor shall make any Distribution on the Subordinated Indebtedness until
such time as the Senior Indebtedness shall have been paid in full in cash and
any commitments to provide advances under the Senior Lending Agreements and the
Senior Subordinated Lending Agreements shall have been irrevocably terminated;
PROVIDED, HOWEVER, so long as no Event of Default shall have occurred under the
Senior Lending Agreements or the Senior Subordinated Lending Agreements, the
Company may pay and the Holders of Subordinated Indebtedness may receive
regularly scheduled payments of principal and interest on the Subordinated
Indebtedness as set forth on the date hereof in the Subordinated Lending
Agreements.
Following the occurrence of an Event of Default under
the Senior Lending Agreements or Senior Subordinated Lending Agreements relating
to a failure by the Company to
4
<PAGE> 5
make payment of any sums due and owing to Senior Lender (any such occurrence, a
"Payment Default") (i) neither the Company nor Guarantor shall make any
Distribution on the Subordinated Indebtedness and (ii) upon and after receipt by
the Holders of Subordinated Indebtedness of written notice of such Payment
Default from Controlling Lender (any such notice, a "Payment Default Notice") no
such Holder of Subordinated Indebtedness shall be entitled to receive or retain
any such Distribution in respect of the Subordinated Indebtedness. Following the
occurrence of an Event of Default (other than a Payment Default) under the
Senior Lending Agreements or the Senior Subordinated Lending Agreements, (i)
neither the Company nor Guarantor shall make any Distribution on the
Subordinated Indebtedness and (ii) upon and after receipt by the Holders of
Subordinated Indebtedness of written notice of such Event of Default from
Controlling Lender (any such notice, a "Default Notice") no such Holder of
Subordinated Indebtedness shall be entitled to receive or retain any such
Distribution in respect of the Subordinated Indebtedness, PROVIDED, FURTHER,
that notwithstanding the foregoing restriction, the Company may pay and the
Holders of Subordinated Indebtedness shall be entitled to receive and retain any
principal or interest payment which shall have become due and payable (on a
non-accelerated basis) on the earliest to occur of (x) the date on which all
such Events of Default specified in the Default Notice shall have been cured or
waived, or (y) payment in full in cash of all Senior Indebtedness and the
irrevocable termination of any commitments to provide advances under the Senior
Lending Agreements and the Senior Subordinated Lending Agreements or (z) the
expiration of a period of ninety (90) days from delivery of the Default Notice.
(b) LIMITATION ON ACCELERATION. During
any period described in Section 2.2 (a) hereof in which a Distribution is not
permitted to be made on Subordinated Indebtedness (any such period, a
"Non-Payment Period"), no Holder of Subordinated Indebtedness shall be entitled
to accelerate the maturity of the Subordinated Indebtedness, exercise any
remedies or commence any action or proceeding to recover any amounts due or to
become due with respect to Subordinated Indebtedness, PROVIDED, HOWEVER, the
foregoing limitation on acceleration or exercise of any remedies shall not be
applicable following (x) the occurrence of an Event (as to which Section 2.2 (c)
shall apply), (y) the maturity or acceleration of all Senior Indebtedness or (z)
ninety (90) days after the Subordinated Lender has given the Controlling Lender
written notice of its intention to take such action.
(c) PRIOR PAYMENT OF SENIOR INDEBTEDNESS
IN BANKRUPTCY, ETC. In the event of any insolvency or bankruptcy proceedings
relative to the Company, Guarantor or their respective property, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, or, in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of the Company, Guarantor or
distribution or marshalling of its assets or any composition with creditors of
the Company or Guarantor, whether or not involving insolvency or bankruptcy, or
if the Company or Guarantor shall cease its operations, call a meeting of its
creditors or no longer do business as a going concern (each individually or
collectively, an "Event") then all Senior Indebtedness shall be paid in full and
satisfied in cash and any commitments to provide advances under the Senior
Lending Agreements and the Senior Subordinated Lending Agreements terminated
before any Distribution shall be made on account of any Subordinated
Indebtedness. Any such Distribution which would, but for the provisions hereof,
be payable or deliverable in respect of the Subordinated Indebtedness, shall be
paid or delivered directly first, to the Senior Lender or its representatives,
in the proportions in which they hold the same, until amounts owing
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<PAGE> 6
upon Senior Indebtedness shall have been paid in full in cash and any
commitments to provide advances under the Senior Lending Agreements and the
Senior Subordinated Lending Agreements have been terminated and second, to the
Senior Subordinated Lender or its representatives, in the proportions in which
they hold the same, until amounts owing upon Senior Indebtedness under the
Senior Subordinated Lending Agreements shall have been paid in full in cash.
(d) ACCELERATION. In the event of any
Senior Indebtedness becoming due and payable, whether by acceleration, maturity
or otherwise, no Distribution shall thereafter be made on account of the
Subordinated Indebtedness until all Senior Indebtedness shall be paid in full in
cash and the Loan Agreement be irrevocably terminated.
(e) POWER OF ATTORNEY. To enable the
Senior Lender to assert and enforce its rights hereunder in any proceeding
referred to in Section 2.2(c) or upon the happening of any Event, the Senior
Lender or any person whom it may designate or Senior Subordinated Lender if all
Senior Indebtedness under the Senior Lending Agreements has been paid in full in
cash and the Loan Agreement irrevocably terminated (any such Person, the
"Attorney in Fact") is hereby irrevocably appointed attorney in fact for the
Subordinated Lender with full power to act in the place and stead of the
Subordinated Lender including the right to make, present, file and vote such
proofs of claim against the Company on account of all or any part of the
Subordinated Indebtedness as the Attorney in Fact may deem advisable in the
event that Subordinated Lender shall fail to do so and to receive and collect
any and all dividends or other payments made thereon and to apply the same on
account of the Senior Indebtedness. The Subordinated Lender will execute and
deliver to the Attorney in Fact such instruments as may be required by the
Attorney in Fact to enforce any and all Subordinated Indebtedness, to effectuate
the aforesaid power of attorney and to effect collection of any and all
dividends or other payments which may be made at any time on account thereof,
and the Subordinated Lender hereby irrevocably appoints the Attorney in Fact as
the lawful attorney and agent of the Subordinated Lender to execute financing
statements on behalf of the Subordinated Lender and hereby further authorizes
the Attorney in Fact to file such financing statements in any appropriate public
office.
(f) KNOWLEDGE; DELIVERY OF PAYMENT
DEFAULT NOTICE. No holder of any Subordinated Indebtedness shall at any time be
charged with knowledge of any of the events described in Section 2.2 (a) hereof
or on such account be prohibited from receiving or retaining any payment of
monies or from taking any action regarding acceleration or the exercise of
remedies, unless and until such holder shall have received a Default Notice or
Payment Default Notice; PROVIDED, HOWEVER, any "default" or "event of default"
under the Subordinated Note and/or Subordinated Lending Agreements shall
automatically constitute an Event of Default under the Senior Lending
Agreements and the Senior Subordinated Lending Agreements so that payments
received by any Holder of Subordinated Indebtedness following any such
occurrence shall not be retained irrespective of the lack of receipt by such
holder of a Default Notice or Payment Default Notice, UNLESS (i) the Event of
Default is waived by the required Holders of Subordinated Indebtedness, (ii) a
copy of such waiver is given in writing by Subordinated Lender to Senior Lender
and Senior Subordinated Lender, and (iii) no Default Notice is thereafter
forthcoming from Controlling Lender within five (5) Business Days following the
giving of notice of the aforesaid waiver, in which event any Holder of
Subordinated Indebtedness may retain all payments previously or thereafter
received, subject to the provisions of Section 2.2 (a).
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<PAGE> 7
Each Default Notice and Payment Default Notice shall be deemed
to be properly given by Controlling Lender to the Subordinated Lender if such
Default Notice or Payment Default Notice is delivered in accordance with Section
3.7 hereof.
No more than two (2) Default Notices may be given in any
365-day period, and no Default or Event of Default which existed or which was
continuing with respect to any Senior Indebtedness to which the Default Notice
relates on the date such Default Notice was given shall be the basis for the
commencement of any subsequent Default Notice by any holder of Senior
Indebtedness unless such Default or Event of Default is cured or waived for a
period of not less than ninety (90) days.
(g) PAYMENTS HELD IN TRUST. Should any
Distribution or the proceeds thereof, in respect of the Subordinated
Indebtedness, be collected or received by the Subordinated Lender or any
Affiliate (as such term is defined in Rule 405 of Regulation C adopted by the
Securities and Exchange Commission pursuant to the Securities Act of 1933) of
the Subordinated Lender at a time when the Subordinated Lender is not permitted
to receive any such Distribution or proceeds thereof including if same is
collected or received when there is or would be after giving effect to such
payment an Event of Default under the Senior Lending Agreements or the Senior
Subordinated Lending Agreements, then the Subordinated Lender will forthwith
deliver, or cause to be delivered, the same to the Controlling Lender in
precisely the form held by the Subordinated Lender (except for any necessary
endorsement) and until so delivered, the same shall be held in trust by the
Subordinated Lender, or any such Affiliate, as the property of the Controlling
Lender and shall not be commingled with other property of the Subordinated
Lender or any such Affiliate.
(h) SUBROGATION. Subject to the prior
payment in full in cash of the Senior Indebtedness and the irrevocable
termination of any commitments to provide advances under the Senior Lending
Agreements or the Senior Subordinated Lending Agreements, to the extent that
Senior Lender or Senior Subordinated Lender has received any Distribution on the
Senior Indebtedness which, but for this Agreement and the Subordination
Agreement dated this date among Senior Lender, Senior Subordinated Lender,
Guarantor and the Company ("Additional Subordination Agreement"), would have
been applied to the Subordinated Indebtedness, the Subordinated Lender shall be
subrogated to the then or thereafter rights of the Senior Lender and/or Senior
Subordinated Lender, as the case may be, including, without limitation, the
right to receive any Distribution made on the Senior Indebtedness until the
principal of, premium, if any, interest on and other charges due under the
Subordinated Indebtedness shall be paid in full; and, for the purposes of such
subrogation, no Distribution to the Senior Lender and/or Senior Subordinated
Lender, as the case may be, to which the Subordinated Lender would be entitled
except for the provisions of this Agreement and the Additional Subordination
Agreement shall, as between the Company, Guarantor, their respective creditors
(other than the Senior Lender and Senior Subordinated Lender) and the
Subordinated Lender, be deemed to be a Distribution by the Company or Guarantor
to or on account of Senior Indebtedness, it being understood that the provisions
hereof are and are intended solely for the purpose of defining the relative
rights of the Subordinated Lender on the one hand, and the Senior Lender and/or
Senior Subordinated Lender on the other hand.
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<PAGE> 8
(i) SCOPE OF SUBORDINATION. The
provisions of this Agreement are solely to define the relative rights of any
Holder of Subordinated Indebtedness, the Senior Lender and the Senior
Subordinated Lender. Nothing in this Agreement shall impair, as between the
Company, Guarantor and the Subordinated Lender the unconditional and absolute
obligation of the Company and/or Guarantor to punctually pay the principal,
interest and any other amounts and obligations owing under the Subordinated Note
and/or any Subordinated Lending Agreements in accordance with the terms thereof,
subject to the rights of the Senior Lender under this Agreement. If the Borrower
fails because of this Agreement to pay principal of, premium, if any, and
interest on the Subordinated Notes or any other obligations owing under the
Subordinated Lending Agreements on the date when such payment is due (other than
any payment due after, and during the effectiveness of, a Default Notice), the
failure to make such payment shall be an Event of Default under the Subordinated
Lending Agreements notwithstanding any provision of this Agreement.
(j) Tender of Subordinated Notes for
Warrants. Each Holder of Subordinated Indebtedness shall at all times,
notwithstanding any provisions of this Agreement regarding prohibitions on
receiving payments or exercising rights and remedies with respect to
Subordinated Indebtedness, have the right to tender the Subordinated Note held
by it to the Company to pay the exercise price of the Warrants (as defined in
the Subordinated Note Agreement) in lieu of cash.
3. MISCELLANEOUS.
3.1. PROVISIONS OF SUBORDINATED NOTE. From and after
the date hereof, the Company, Guarantor and the Subordinated Lender shall cause
each Subordinated Note and any guarantee to contain a provision to the following
effect:
"This Agreement is subject to the Subordination Agreement,
dated April 16, 1998, among the Maker, the Payee, Senior
Lender and Senior Subordinated Lender, under which this
Agreement and the Maker's obligations hereunder are
subordinated in the manner set forth therein to the prior
payment of certain obligations to the holders of Senior
Indebtedness as defined therein."
Proof of compliance with the foregoing shall be promptly given
to Senior Lender.
3.2. ADDITIONAL AGREEMENTS. In the event that the
Senior Indebtedness is refinanced in full, Subordinated Lender agrees at the
request of such refinancing party to enter into a subordination agreement on
terms substantially similar to this Subordination Agreement; provided that the
refinancing Senior Indebtedness shall be in compliance with Section 3.6.
3.3. SURVIVAL OF RIGHTS. The right of Senior Lender and
Senior Subordinated Lender to enforce the provisions of this Agreement shall not
be prejudiced or impaired by any act or omitted act of the Company, Guarantor or
Senior Lender or Senior Subordinated Lender including forbearance, waiver,
consent, compromise, amendment, extension, renewal, or taking or release of
security in respect of any Senior Indebtedness or noncompliance by
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<PAGE> 9
the Company or Guarantor with such provisions, regardless of the actual or
imputed knowledge of Senior Lender or Senior Subordinated Lender.
3.4. RECEIPT OF AGREEMENTS. Subordinated Lender hereby
acknowledges that it has delivered to Senior Lender and Senior Subordinated
Lender a correct and complete copy of the Subordinated Lending Agreements as in
effect on the date hereof. The Subordinated Lender, solely for the purposes of
this Agreement, hereby acknowledges receipt of a correct and complete copy of
each of the Senior Lending Agreements and Senior Subordinated Lending Agreements
as in effect on the date hereof.
3.5. NO AMENDMENT OF SUBORDINATED LENDING AGREEMENTS. So long
as the Loan Agreement and/or Senior Subordinated Note remains in effect, neither
the Company nor any Holder of Subordinated Indebtedness shall enter into any
amendment to or modification of any Subordinated Lending Agreements which
increases the principal amount, increases the interest rate by more than three
percent (3%) per annum or shortens or accelerates the maturity or due date of
any payments thereunder, without the prior written consent of Senior Lender and
the Senior Subordinated Lender.
3.6. AMENDMENTS TO SENIOR LENDING AGREEMENTS. Nothing
contained in this Agreement, or in any other agreement or instrument binding
upon any of the parties hereto other than the Additional Subordination
Agreement, shall in any manner limit or restrict the ability of Senior Lender or
Senior Subordinated Lender from increasing or changing the terms of the loans
under the Senior Lending Agreements or Senior Subordinated Lending Agreements,
or to otherwise waive, amend or modify the terms and conditions of the Senior
Lending Agreements or Senior Subordinated Lending Agreements, in such manner as
Senior Lender and/or Senior Subordinated Lender and the Company shall mutually
determine. Each Holder of Subordinated Indebtedness hereby consents to any and
all such waivers, amendments, modifications and compromises, and any other
renewals, extensions, indulgences, releases of collateral or other
accommodations granted by the Senior Lender and/or Senior Subordinated Lender to
the Company from time to time, and agrees that none of such actions shall in any
manner affect or impair the subordination established by this Subordination
Agreement in respect of the Subordinated Indebtedness.
3.7. NOTICE OF DEFAULT AND CERTAIN EVENTS. The Senior Lender,
Senior Subordinated Lender and the Holders of Subordinated Indebtedness shall
undertake in good faith to notify the other of the occurrence of any of the
following as applicable, within five (5) Business Days after obtaining knowledge
thereof :
(a) the obtaining of actual knowledge of the occurrence
of any default under the Subordinated Lending Agreements;
(b) the acceleration of any Senior Indebtedness by the
Senior Lender or Senior Subordinated Lender or of any Subordinated Indebtedness
by any Holder of Subordinated Indebtedness;
(c) the granting by Senior Lender or Senior Subordinated
Lender of any waiver of any Event of Default under the Loan Agreement or the
Senior Subordinated
9
<PAGE> 10
Lending Agreements, as the case may be, or the granting by any Holder of
Subordinated Indebtedness of any waiver of any "default" or "event of default"
under the Subordinated Lending Agreements;
(d) the payment in full by the Company (whether as a
result of refinancing or otherwise) of all Senior Indebtedness; or
(e) any amendment to any of the Agreements.
The failure of any party to give such notice shall not affect
the subordination of the Subordinated Indebtedness as provided in this
Subordination Agreement.
3.8. NOTICES. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when personally
delivered to any officer of the party to whom it is addressed, (b) on the
earlier of actual receipt thereof or three (3) days following posting thereof by
certified or registered mail, postage prepaid, or (c) upon actual receipt
thereof when sent by a recognized overnight delivery service or (d) upon actual
receipt thereof when sent by telecopier to the number set forth below with
telephone communication confirming receipt and subsequently confirmed by
registered, certified or overnight mail to the address set forth below, in each
case addressed to each party at its address set forth below or at such other
address as has been furnished in writing by a party to the other by like notice:
If to Senior Lender: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Northeast Loan Administrator
Telephone: (860) 659-3200
Telecopier: (860) 657-7759
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118-0075
Attention: Daniel J. Krauss, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
If to Senior: c/o Robert Fleming Inc.
Subordinated Lender 320 Park Avenue, 11th Floor
Or Junior New York, New York 10022
Subordinated Attention: Michael E. Rowe
Lender: Telephone: (212) 508-3672
Telecopier: (212) 508-3579
10
<PAGE> 11
with a copy to: Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Telephone: (213) 896-6000
Telecopier: (213) 896-6600
If to the Company
or Guarantor: c/o National Record Mart, Inc.
507 Forest Avenue
Carnegie, Pennsylvania 15106
Attention: Theresa Carlisle
Telephone: (412) 276-6200
Telecopier: (412) 276-6201
with a copy to: Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219
Attention: Robert Morris, Esq.
Telephone: (412) 288-3131
Telecopier: (412) 288-3063
3.9. BOOKS AND RECORDS. The Subordinated Lender shall furnish
Senior Lender and Senior Subordinated Lender, upon request from time to time, a
confirmation of the amount due and owing to the Subordinated Lender and the
status of the account between the Subordinated Lender and the Company.
3.10. BINDING EFFECT; OTHER. This Subordination Agreement
shall be a continuing agreement, shall be binding upon and shall inure to the
benefit of the parties hereto from time to time and their respective successors
and assigns, shall be irrevocable and shall remain in full force and effect
until the Senior Indebtedness shall have been satisfied or paid in full in cash
and any commitments to provide advances under the Senior Lending Agreements or
the Senior Subordinated Lending Agreements shall have been irrevocably
terminated, but shall continue to be effective, or be reinstated, as the case
may be, if at any time payment, or any part thereof, of any amount paid by or on
behalf of the Company or Guarantor with regard to the Senior Indebtedness is
rescinded or must otherwise be restored or returned upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee, custodian, or similar officer, for the Company or
Guarantor or any substantial part of their respective property, or otherwise,
all as though such payments had not been made. No action which Senior Lender or
Senior Subordinated Lender or the Company or Guarantor may take or refrain from
taking with respect to the Senior Indebtedness, including any amendments
thereto, shall affect the provisions of this Subordination Agreement or the
obligations of any Subordinated Lender hereunder. Any waiver or amendment
hereunder must be evidenced by a signed writing of the party to be bound
thereby, and shall only be effective in the specific instance. This
Subordination Agreement shall be governed by and
11
<PAGE> 12
construed in accordance with the laws of the State of New York. The headings in
this Subordination Agreement are for convenience of reference only, and shall
not alter or otherwise affect the meaning hereof.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) By its acceptance of its Subordinated Note, each Holder
of Subordinated Indebtedness agrees that it shall not assign or transfer any of
the Subordinated Indebtedness without such assignment or transfer being made
expressly subject to the terms of this Subordination Agreement. Subordinated
Lender further warrants to Senior Lender and Senior Subordinated Lender that it
has full right, power and authority to enter into this Subordination Agreement
and, to the extent Subordinated Lender is an agent or trustee for other parties,
that this Subordination Agreement shall fully bind all such other parties.
(b) Senior Lender and Senior Subordinated Lender on behalf
of the purchasers under the Senior Note Agreement agree that neither shall
assign or transfer any of the Senior Indebtedness without such assignment or
transfer being made expressly subject to the terms and provisions of the
Subordination Agreement. Senior Lender and Senior Subordinated Lender further
warrant to Subordinated Lender that each has full right, power and authority to
enter into this Subordination Agreement and, to the extent Senior Lender and/or
Senior Subordinated Lender is an agent or trustee for other parties, that this
Subordination Agreement shall fully bind all such other parties.
5. PROCEEDINGS. ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST
ANY HOLDER OF SUBORDINATED INDEBTEDNESS WITH RESPECT TO THIS OR ANY RELATED
AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN THE SUPREME
COURT OF THE STATE OF NEW YORK, ANY FEDERAL DISTRICT COURT WITHIN THE STATE OF
NEW YORK, OR ELSEWHERE AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT ANY
HOLDER OF SUBORDINATED INDEBTEDNESS , SENIOR LENDER, SENIOR SUBORDINATED LENDER
AND THE COMPANY ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE
SENIOR LENDER OR SENIOR SUBORDINATED LENDER TO BRING PROCEEDINGS AGAINST ANY
HOLDER OF SUBORDINATED INDEBTEDNESS IN ANY COURTS OF ANY OTHER JURISDICTION ANY
JUDICIAL PROCEEDING BY ANY HOLDER OF SUBORDINATED INDEBTEDNESS AGAINST THE
SENIOR LENDER AND/OR SENIOR SUBORDINATED LENDER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR
CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN
A COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK; PROVIDED THAT
NOTWITHSTANDING THE FOREGOING, IF IN ANY JUDICIAL PROCEEDING BY OR AGAINST ANY
HOLDER OF SUBORDINATED INDEBTEDNESS THAT IS BROUGHT
12
<PAGE> 13
IN ANY OTHER COURT SUCH COURT DETERMINES THAT SENIOR LENDER AND/OR SENIOR
SUBORDINATED LENDER IS AN INDISPENSABLE PARTY, SUCH HOLDER OF SUBORDINATED
INDEBTEDNESS SHALL BE ENTITLED TO JOIN OR INCLUDE SENIOR LENDER AND/OR SENIOR
SUBORDINATED LENDER IN SUCH PROCEEDINGS IN SUCH OTHER COURT. EACH HOLDER OF
SUBORDINATED INDEBTEDNESS WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS.
6. WAIVER OF JURY TRIAL. EACH CREDITOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY CREDITOR OR ANY OF THEM WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENTS OR AGREEMENT
EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH CREDITOR
HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT EITHER OF THEM MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THEIR CONSENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned have entered into this
Agreement this 16 day of April, 1998.
FLEET CAPITAL CORPORATION,
as Senior Lender
By: /s/ John Edmondson
-------------------------------
Name: John Edmondson
-----------------------------
Title: SVP
----------------------------
ROBERT FLEMING INC.,
as agent for the Senior Subordinated Lender
By: /s/ Phillip S. Schaeffer
-------------------------------
Name: Phillip S. Schaeffer
-----------------------------
Title: Senior V.P.
----------------------------
13
<PAGE> 14
ROBERT FLEMING INC.,
as agent for the Subordinated Lender
By: /s/ Phillip S. Schaeffer
-------------------------------
Name: Phillip S. Schaeffer
-----------------------------
Title: Senior V.P.
----------------------------
14
<PAGE> 15
COMPANY'S AND GUARANTOR'S ACKNOWLEDGEMENT
The undersigned Company and Guarantor hereby acknowledges and
agrees to the foregoing Subordination Agreement. The undersigned agrees to be
bound by the terms and provisions thereof as they relate to the relative rights
of the Creditors with respect to each other. However, nothing therein shall be
deemed to amend, modify, supersede or otherwise alter the terms of the
respective agreements between the undersigned and each Creditor. The undersigned
further agrees that the Subordination Agreement is solely for the benefit of the
Creditors and shall not give the undersigned, its successors and assigns, or any
other person, any rights vis-a-vis any Creditor.
NATIONAL RECORD MART, INC.,
Company
By: /s/ Theresa Carlise
------------------------------
Name: Theresa Carlise
----------------------------
Title: Senior Vice President & CFO
---------------------------
NRM INVESTMENTS, INC.,
Guarantor
By: /s/ Theresa Carlise
------------------------------
Name: Theresa Carlise
----------------------------
Title: President
---------------------------
15
<PAGE> 16
STATE OF New York )
: ss.:
COUNTY OF New York )
On the 14th day of April, 1998, before me personally came
Phillip S. Schaeffer, to me known, who being by me duly sworn, did depose and
say that he resides at c/o RFI 320 Park Ave. NY, NY, that he is the Senior V.P.
of Robert Fleming Inc, the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that he signed his name
thereto by like order.
/s/ Michele Muniz
-------------------------------
Notary Public
MICHELE MUNIZ
Notary Public, State of New York
No. 31-4975-01
Qualified in New York County
Commission Expires 11/26/98
STATE OF _________ )
: ss.:
COUNTY OF Hartford )
On the ____ day of April, 1998, before me personally came
_________________, to me known, who being by me duly sworn, did depose and say
that he resides at ______________________ ______________________, that he is the
___________ of Seneca Capital L.P., the corporation described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the board of directors of said corporation, and that he
signed his name thereto by like order.
-------------------------------
Notary Public
STATE OF Connecicut )
: ss.:
COUNTY OF Hartford )
On the 14th day of April, 1998, before me personally came
John Edmondson, to me known, who being by me duly sworn, did depose and say
that he resides at 260 Hebron Ave. Glastonbury, CT., that he is the
SVP of Fleet Capital Corporation, the corporation described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the board of directors of said corporation, and that he
signed his name thereto by like order.
/s/ Lisa A. Giampaolo
-------------------------------
Notary Public
LISA A. GIAMPAOLO
NOTARY PUBLIC
MY COMMISSION EXPIRES FEB. 28, 2000
16
<PAGE> 17
STATE OF Pennsylvania )
: ss.:
COUNTY OF Allegheny )
On the 15th day of April, 1998, before me personally came
Theresa Carlise, to me known, who being by me duly sworn, did depose and say
that he resides at 507 Forest Avenue, that he is the Senior Vice President & CFO
of National Record Mart, Inc., the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the board of directors of said corporation, and that he signed his
name thereto by like order.
/s/ Geraldine A. Steele
-------------------------------
Notary Public
Notarial Seal
Geraldine A. Steele, Notary Public
Carnegie Boro, Allegheny County
My Commission Expires Dec. 24, 1998
Member, Pennsylvania Association of Notaries
STATE OF Pennsylvania )
: ss.:
COUNTY OF Allegheny )
On the 15th day of April, 1998, before me personally came
Theresa Carlise, to me known, who being by me duly sworn, did depose and say
that he resides at 507 Forest Avenue, that he is the President of
____________________, NRM Investments, Inc., the corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
/s/ Geraldine A. Steele
-------------------------------
Notary Public
Notarial Seal
Geraldine A. Steele, Notary Public
Carnegie Boro, Allegheny County
My Commission Expires Dec. 24, 1998
Member, Pennsylvania Association of Notaries
17
<PAGE> 1
Exhibit 4.16
COLLATERAL SHARING
AND
AGENCY AGREEMENT
----------------
This Collateral Sharing and Security Agreement is dated as of April __,
1998 by and among NATIONAL RECORD MART, INC. ("Borrower"), NRM INVESTMENT, INC.
("Guarantor"), ROBERT FLEMING INC., as agent for the "Holders" under the Senior
Note Agreement (as defined below) ("Fleming"), FLEET CAPITAL CORPORATION
("Fleet"), and Fleet, as collateral agent for (i) Fleet and (ii) Fleming (Fleet,
in such capacity, the "Collateral Agent").
BACKGROUND
----------
Fleet and Borrower have entered into a Loan and Security Agreement dated as of
June 11, 1993 (as same has been or may be amended or modified from time to time,
the "Loan Agreement"). Pursuant to the terms of the Loan Agreement, Fleet
provides credit accommodations to Borrower. Fleet is willing to continue to make
such extensions of credit available to the Borrower upon the condition, among
others, that Borrower execute and deliver this Agreement to Collateral Agent.
Borrower, Guarantor (as hereafter defined) and Fleming, individually and as
agent for the "Holders" thereunder have entered into a Senior Subordinated
Secured Note Purchase Agreement dated this date (as amended or modified from
time to time, the "Senior Note Agreement"). Pursuant to the terms of the Senior
Note Agreement, Fleming agreed to make certain extensions of credit available to
Borrower. Fleming is willing to make such extensions of credit available to
Borrower upon the condition, among others, that Borrower execute and deliver
this Agreement to Collateral Agent. Fleet has agreed to act as Collateral Agent
and allocate the Collateral among the Creditors (as herein defined) on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. DEFINITIONS.
(A) Other Terms. All capitalized terms used herein and not
otherwise defined herein shall have the meanings given to them in the Loan
Agreement.
(B) GENERAL DEFINITIONS. When used in this Agreement, the
following terms shall have the following meanings:
BORROWER - National Record Mart, Inc., a Delaware corporation.
CODE - the Uniform Commercial Code as adopted and in force in the State
of New York, as from time to time in effect.
<PAGE> 2
COLLATERAL - shall have the meaning given to such term in the Loan
Agreement and shall also include all property and interests in property that now
or hereafter secure the payment and performance of Guarantor's obligations to
the Creditors.
COLLATERAL AGENT - Fleet Capital Corporation acting in its capacity as
collateral agent for the Creditors hereunder and any successor agent.
COLLATERAL AGENT AGREEMENTS - collectively, this Agreement, together
with such other written agreements among the Creditors and Collateral Agent, or
written instructions from any Creditor to Collateral Agent, as now or at any
time hereafter may be executed and/or delivered in connection herewith, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
COLLECTIONS - any payments or amounts realized or recovered or
otherwise received on any Collateral in respect of the Obligations.
CREDIT AGREEMENTS - collectively, the Lender Documents, the Fleming
Documents and all agreements, documents and instruments now or at any time
hereafter executed and/or delivered by the Borrower in connection therewith or
related thereto, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
CREDITORS - collectively, Fleet , Fleming and their respective
successors and assigns.
EVENT OF DEFAULT - an event of default (if any) pursuant to the terms
of any Credit Agreement.
FLEET - Fleet Capital Corporation
FLEMING - Robert Fleming Inc.
FLEMING DOCUMENTS - the Senior Note Agreement and all agreements,
documents and instruments now or at any time hereafter executed and/or delivered
by Borrower in connection therewith or related thereto, as same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
GUARANTOR - NRM Investment, Inc., a Delaware corporation.
LENDER DOCUMENTS - the Loan Agreement and all agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
in connection therewith or related thereto, as same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
LOAN AGREEMENT - as defined in the background section of this
Agreement.
2
<PAGE> 3
OBLIGATIONS - all loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to the Creditors
of any kind or nature, under any Credit Agreement.
SECURED PARTY REMEDIES - any action which results in the sale,
foreclosure, realization upon, or a liquidation of, any Collateral.
SENIOR NOTE AGREEMENT - as defined in the background section of this
Agreement.
(C) ACCOUNTING TERMS. Any accounting terms used in this Agreement which
are not specifically defined shall have the meanings customarily given them in
accordance with GAAP.
(D) CODE TERMS. All terms used in this Agreement and defined in the
Code as adopted in shall have the meaning given therein unless otherwise defined
herein.
2. COLLATERAL AGENCY.
(A) APPOINTMENT OF COLLATERAL AGENT.
(i) For purposes of the Agreement, each Creditor hereby
irrevocably designates and appoints Fleet to act as Collateral Agent and
attorney-in-fact for and on behalf of each of the Creditors to take such action
on behalf of the Creditors under the provisions of this Agreement, and to
exercise such powers and to perform such duties, with respect to the management,
supervision, servicing, administration and disbursement of the Collateral
(including, without limitation, perfecting its security interest in the
Collateral by filing financing statements, holding physical possession of
instruments or otherwise) and the Collections of the Collateral as are
specifically delegated to or required of Collateral Agent by the terms of this
Agreement or the other Collateral Agent Agreements, together with such other
powers as are incidental thereto, with (1) full power of substitution and (2)
the power to select one or more sub-agents or designees to carry out certain
specific powers and obligations of Collateral Agent pursuant hereto. This power
of attorney is irrevocable while this Agreement remains in effect.
(ii) The Collateral Agent agrees to act as such on the express
conditions contained herein. The provisions of this Agreement and any other
Collateral Agent Agreements are solely for the benefit of Collateral Agent and
Creditors and neither Borrower, nor any other person shall have any right to
rely on, inquire into or enforce any of the provisions hereof. In performing its
functions and duties under this Agreement, the other Collateral Agent Agreements
and the Credit Agreements, Collateral Agent shall act solely as Collateral Agent
of Creditors and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Borrower, or
any of its Affiliates. Collateral Agent shall have no duties or responsibilities
except as expressly set forth in this Agreement or the other Collateral Agent
Agreements. Collateral Agent shall not have, by reason of this Agreement or the
other Collateral Agent Agreements, a fiduciary relationship in respect of the
Creditors. In no event shall Collateral Agent be required to take any action
which, in Collateral Agent's opinion exposes Collateral Agent to liability
unless it has received an indemnification therefor on terms and conditions
reasonably
3
<PAGE> 4
satisfactory to it or which is contrary to any of the Credit Agreements or
applicable law. Collateral Agent shall not be removed as agent for the term of
this Agreement, without the prior written consent of all of the Creditors.
Collateral Agent shall at all times have the right to resign as agent without
the consent of the Creditors upon thirty (30) days prior written notice to each
of the Creditors and the appointment of a successor collateral agent in
accordance with the provisions of this Agreement.
(B) GENERAL POWERS OF COLLATERAL AGENT. Subject to and without
limitation of the terms of this Agreement, Creditors agree that Collateral Agent
shall have the right to and shall exercise the following powers as long as this
Agreement remains in effect:
(i) maintain, in accordance with its customary business
practices, ledger and records reflecting the status of the Collateral and/or
Collections, as the case may be;
(ii) execute and/or file in its name as Collateral Agent for
the benefit of the Creditors any and all financing or similar statements or
notices, amendments, renewals, supplements, documents, instruments, proofs of
claim, notices and other written agreements with respect to the Lender Documents
and hold and maintain physical possession of the instruments constituting the
Collateral;
(iii) exclusively receive, apply and distribute Collections as
provided in the Lender Documents, this Agreement and the other Collateral Agent
Agreements;
(iv) open and maintain such bank accounts and lock boxes as
Collateral Agent deems necessary and appropriate, in its discretion, for the
foregoing purposes with respect to the Collateral and/or the Collections;
(v) exclusively perform, exercise and enforce any and all
other rights and remedies of Creditors with respect to the Collateral or
otherwise related to any of same as provided in the Lender Documents, this
Agreement and the other Collateral Agent Agreements;
(vi) enter into landlord, mortgagee, bailee and other third
party agreements with respect Collateral located at leased or mortgaged
locations or held by bailees;
(vii) incur and pay such reasonable expenses as Collateral
Agent may deem necessary or appropriate for the performance and fulfillment of
its functions and powers pursuant to the Lender Documents, this Agreement and
the other Collateral Agent Agreements.
3. MANAGEMENT OF COLLATERAL. Collateral Agent, on behalf of Creditors,
shall have the exclusive right to manage, perform and enforce the terms of this
Agreement, the other Collateral Agent Agreements and the Lender Documents with
respect to the Collateral and to exercise and enforce all privileges and rights
thereunder according to its discretion and the exercise of its business
judgment, including, without limitation the rights and powers described in
Section 2(B) above and, the exclusive right to enforce or settle insurance
claims, take or retake control or possession of such Collateral and to hold,
prepare for sale, process, sell, lease, dispose of, or liquidate such
Collateral. In connection therewith, each Creditor waives any and all
4
<PAGE> 5
rights to affect the method or challenge the appropriateness of any action by
Collateral Agent provided that (i) Collateral Agent shall always proceed in a
commercially reasonable manner and in compliance with the terms of this
Agreement and (ii) Collateral Agent shall use its best efforts to consult with
and keep each Creditor advised on a current basis with respect to the exercise
of its Secured Party Remedies and endeavor to keep each Creditor advised of
information the Collateral Agent receives with respect to the Collateral
PROVIDED, the failure of Collateral Agent to provide any Creditor with any such
information shall not give rise to any liability to Collateral Agent hereunder.
4. SALES OF COLLATERAL.
Notwithstanding anything to the contrary contained in any of
the Agreements:
(A) At any time prior to the occurrence of an Event of Default
under the Lender Documents, Collateral Agent may restrict or permit, approve or
disapprove, the sale, transfer or other disposition of Collateral only upon the
joint direction of the Creditors. At any time following the occurrence of an
Event of Default under the Lender Documents and until the payment in full in
cash of all Obligations under the Lender Documents and the irrevocable
termination of Fleet's obligation to provide advances under the Lender
Documents, only Fleet shall have the right to direct Collateral Agent to
restrict or permit, or approve or disapprove, the sale, transfer or other
disposition of Collateral;
(B) Each Creditor shall authorize Collateral Agent to, within
five (5) Business Days after the request of Collateral Agent and Collateral
Agent will, immediately upon the request of any Creditor permitted to make such
a request pursuant to Section 4(A) above, release or otherwise terminate its
Liens upon the Collateral to the extent such Collateral is sold or otherwise
disposed of either by Collateral Agent or Borrower with the consent of Fleet
and/or or Fleming, as the case may be, as may be required under the Credit
Agreements;
(C) Collateral Agent shall provide the Creditors with two (2)
Business Days prior written notice of sales of Collateral of which it has been
notified by (i) Borrower pursuant to the Loan Agreement and the Senior Note
Agreement and as to which it requests the release of the security interests
therein or (ii) the Creditor permitted to make such a request pursuant to
Section 4(A) above;
(D) In no event shall Fleming direct Collateral Agent to
exercise, nor shall Fleming exercise any Secured Party Remedies until such time
as the Obligations under the Lender Documents shall have been paid in full in
cash and Fleet's obligation to provide advances under the Lender Documents shall
have been irrevocably terminated PROVIDED, however, if Collateral Agent shall
breach its obligations to exercise Secured Party Remedies in a commercially
reasonable manner Fleming shall have the right, subject to the provisions of
Section 2(A)(ii) hereof, to direct Collateral Agent to take such action with
respect to the Collateral;
(E) Each Creditor acknowledges that this Agreement shall
constitute notice of their respective interests in the Collateral, request for
notice of sale and notice of demand for satisfaction of debt, in each case as
provided by Section 9-504 of the Uniform Commercial Code and each hereby waive
any right to compel any marshaling of any of the Collateral.
5
<PAGE> 6
5. INTERCREDITOR, COLLATERAL AND COLLECTIONS.
(A) Collateral Agent will, and shall have in such capacity the
exclusive right, to collect and receive all Collections. All Collections shall
be promptly distributed by Collateral Agent to the Creditors on the following
basis:
(i) So long as (x) no Event of Default shall have occurred and
be continuing and (y) Collateral Agent shall not have commenced exercising
Secured Party Remedies, the Collections shall be applied to the Obligations
under the Lender Documents in accordance with the provisions of the Loan
Agreement.
(ii) At any time following (x) the occurrence and during the
continuation of an Event of Default and (y) the commencement of Secured Party
Remedies by Collateral Agent:
(a) First, to the payment of any and all reasonable expenses
incurred by Collateral Agent for which reimbursement has not been made by
Borrower pursuant to the Lender Documents;
(b) Second, to Fleet to pay in full the outstanding
Obligations under the Lender Documents;
(c) Third, to Fleming to pay in full the outstanding
Obligations under the Fleming Documents;
(d) Fourth, any sums remaining after such applications and
disbursements shall be paid to the Person(s) entitled thereto or as a court of
competent jurisdiction shall direct.
(B) The security interests and liens upon the Collateral applicable
to Fleming shall be, in all respects, subject and subordinate to the security
interests and liens upon the Collateral of Fleet to the full extent of the
Obligations outstanding from time to time under the Lender Documents.
(C) All Collections received by Collateral Agent shall be held by
Collateral Agent for the benefit of Creditors and deposited by Collateral
Agent in one or more of its bank accounts and applied as provided herein.
Collateral Agent does not assume and shall not have any liability to Creditors
for the repayment of the Obligations except that Collateral Agent shall have
the obligation to account to Creditors for their applicable share of the
Collections as set forth in Section 5(A) hereof.
(D) Each Creditor hereby authorizes, instructs and directs the
Borrower to pay all sums now or hereafter due in respect of the Obligations
held by such Creditors constituting Collections directly to the Collateral
Agent for distribution to the Creditors in accordance with this Agreement.
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<PAGE> 7
6. SETTLEMENT AND ADMINISTRATION.
(A) SETTLEMENT. Collateral Agent will from time to time in its
reasonable discretion (but no less frequently than once every quarter) provide
to each of the Creditors a statement of account with Borrower. Such statement
of account shall state the value of the Collateral as reported to Collateral
Agent by Borrower.
(B) COLLATERAL AGENT'S BOOKS AND RECORDS. Collateral Agent agrees
that it will keep a separate record or records of all the Collateral and of
the status of its account with Borrower, appropriately marked so as to show
the interest of the Creditors therein and that it will in the recording of the
Collateral on its books appropriately disclose the interests of Creditors
therein. Collateral Agent agrees that at any time and from time to time during
normal business hours, upon five days prior written notice it will permit
Creditors or their agents to examine Collateral Agent's books, records and
accounts relating to the Collateral and the Creditors Agreements. Creditors
agree that they will keep all such information confidential.
7. SCOPE OF COLLATERAL AGENCY, LIABILITY; INDEMNIFICATION.
(A) NON-RELIANCE ON COLLATERAL AGENT. Each Creditor agrees that it
has, independently and without reliance upon Collateral Agent or the other
Creditors, and based on such documents and information as it has deemed
appropriate, made and shall continue to make (a) its own independent
investigation of the financial condition and affairs of Borrower in connection
with the extension of credit pursuant to the Credit Agreements and the taking
or not taking of any action in connection herewith, and (b) its own appraisal
of the Collateral and the creditworthiness of Borrower. Except as specifically
provided herein, Collateral Agent shall have no duty or responsibility either
initially or on a continuing basis, to provide Creditors with any credit or
other information with respect thereto, whether coming into its possession
before making the extension of credit pursuant to the Credit Agreements or at
any time or times thereafter.
(B) RESPONSIBILITY OF COLLATERAL AGENT.
(i) Neither Collateral Agent nor any of its officers,
directors, employees or agents shall be liable to any Creditor or the Borrower
for any action taken or omitted to be taken in accordance with this Agreement,
the other Collateral Agent Agreements or, the Credit Agreements except as a
result of willful misconduct, bad faith or gross negligence on the part of
Collateral Agent or such other Persons. Collateral Agent does not assume any
responsibility for any failure or delay in performance or breach by Borrower
or any Creditor of its obligations in this Agreement, the other Collateral
Agent Agreements or the Credit Agreements.
(ii) Collateral Agent does not make to Creditors, and each of
Creditors, in their capacity as a lender, does not make to the others, any
express or implied warranty, representation or guarantee with respect to the
Obligations, Collateral, the Collections or the Credit Agreements. Collateral
Agent shall not be responsible to Lenders, and each Creditor shall not be
responsible to the other or the Collateral Agent, for: (i) any recitals,
statements, information, representations or warranties in connection with the
Credit Agreements, or (ii) the execution,
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<PAGE> 8
effectiveness, genuineness, validity, enforceability, collectability, value or
sufficiency of the Obligations, the Collateral, the Collections, the Credit
Agreements, or be required to make any inquiry concerning either the
performance or observance of any other terms, provisions or conditions of the
Credit Agreements, or (iii) the assets, liabilities, financial condition,
results of operations, business or creditworthiness of Borrower, any obligor
or any account debtors.
(iii) Collateral Agent shall be entitled to act, and shall be
fully protected in acting upon, any communication in whatever form reasonably
believed by Collateral Agent to be genuine and correct and to have been signed
or sent or made by a proper person or persons or entity. Collateral Agent may
consult counsel and shall be entitled to act, and shall be fully protected in
any action taken in good faith in accordance with advice given by counsel.
Collateral Agent may employ agents and attorneys-in-fact approved in advance
and reasonably satisfactory to Creditors and shall not be liable for the
default or misconduct of any such agents or attorneys-in-fact selected by
Collateral Agent with reasonable care.
(C) CERTAIN RIGHTS OF COLLATERAL AGENT. If Collateral Agent shall
request instructions from Creditors with respect to any act or action
(including failure to act) in connection with the Credit Agreements,
Collateral Agent shall be entitled to refrain from such act or taking such
action unless and until Collateral Agent shall have received instructions from
the Creditors; and Collateral Agent shall not incur liability to any person by
reason of so refraining. Collateral Agent shall be entitled to act or refrain
from acting, and in all cases shall be fully protected in acting or refraining
from acting under this Agreement, the other Collateral Agent Agreements or the
Credit Agreements in accordance with any instructions from Creditors.
(D) INDEMNIFICATION.
(i) Borrower shall reimburse and indemnify Collateral Agent
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind whatsoever which may be imposed on, incurred by or asserted against
Collateral Agent, in its capacity as such, in performing its duties hereunder
or in any way relating to or arising out of this Agreement or the Credit
Agreements, other than as a consequence of bad faith, willful misconduct or
gross negligence on the part of the Collateral Agent.
(ii) To the extent Collateral Agent is not reimbursed and
indemnified by Borrower out of Collateral or otherwise, Creditors will
reimburse and indemnify Collateral Agent in proportion to the Obligations
owing to them by Borrower at the time of such reimbursement or indemnification
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against Collateral Agent, in its capacity as such, in performing its duties
hereunder or in any way relating to or arising out of this Agreement or the
Credit Agreements, other than as a consequence of bad faith, willful
misconduct or gross negligence on the part of Collateral Agent.
(iii) Without limiting the generality of the foregoing in the
event that, at any time, whether during, or after the term of this Agreement,
any action or proceeding shall be
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<PAGE> 9
brought against Collateral Agent by Borrower or by any other person claiming
by, through or under Borrower or otherwise, which action shall be to recover
damages for any act taken or omitted by Collateral Agent under the Credit
Agreements or in the performance of any rights, powers or remedies of
Collateral Agent against Borrower, any account debtors of Borrower, the
Collateral or with respect to the Obligations, or which action or proceeding
shall be for any other relief of any kind, arising directly or indirectly out
of any transaction between Collateral Agent and Borrower under or in relation
to the Credit Agreements, each of the Creditors agree to indemnify and hold
harmless with respect thereto and to pay to Collateral Agent its proportionate
share based on the Obligations owing to them by Borrower at the time of such
reimbursement or indemnification of such amount as Collateral Agent shall be
required to pay by reason of a judgment, decree, or other order entered in
such action or proceeding or by reason of any compromise or settlement agreed
to by Collateral Agent with consent of each Credit, including, without
limitation, all interest and costs assessed against Collateral Agent in
defending or compromising such action, together with attorneys' fees and other
legal expenses paid or incurred by Collateral Agent in connection therewith
other than in connection with any action or proceeding arising as a
consequence of actual bad faith, willful misconduct or gross negligence on the
part of Collateral Agent. In Collateral Agent's reasonable discretion,
Collateral Agent may also, to the extent Collateral Agent is entitled to
indemnification hereunder, reserve for and/or satisfy any such judgment,
decree or order from Collections prior to any distributions therefrom to or
for the account of the Creditors.
(E) THE COLLATERAL AGENT IN ITS INDIVIDUAL CAPACITY. With
respect to its obligation to extend credit under the Lender Documents, the
Collateral Agent shall have the rights and powers specified herein for a
"Creditor" and may exercise the same rights and powers as though it were not
performing the duties specified herein; and the terms "Creditors", or any
similar terms shall, unless the context clearly otherwise indicates, include
Fleet in its individual capacity.
8. POWER OF ATTORNEY. Borrower hereby irrevocably appoints
Collateral Agent or any other Person whom Collateral Agent may designate as
Borrower's attorney-in-fact, with full power and authority in place and stead of
Borrower and in its own name to: (i) endorse Borrower's name on any checks,
notes, acceptances, money orders, drafts or other forms of payment or security
that may come into Collateral Agent's possession; (ii) sign Borrower's name on
any invoice or bill of lading relating to any Receivables, drafts against
customers, schedules and assignments of Receivables, notices of assignment,
financing statements and other public records, verifications of account and
notices to or from customers; (iii) verify the validity, amount or any other
matter relating to any Receivable by mail, telephone, telegraph or otherwise
with Account Debtors; (iv) execute customs declarations and such other documents
as may be required to clear Inventory through United States Customs; (v) do all
things necessary to carry out this Agreement, and all related documents; (vi)
continue any insurance existing pursuant to the terms of this Security Agreement
and pay all or any part of the premium therefor and the cost thereof; and (vii)
on or after the occurrence and continuation of an Event of Default, notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by Collateral Agent, and to receive, open and dispose of
all mail addressed to Borrower. Borrower hereby ratifies and approves all acts
of the attorney. The powers conferred on the Collateral Agent hereunder are
solely to protect its interests in the Collateral and shall not impose any duty
upon it to exercise any such powers. Neither Collateral Agent nor the attorney
will be liable for any acts or omissions or for any
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<PAGE> 10
error of judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable until the Obligations have been fully satisfied.
9. REMEDIES. Promptly upon obtaining actual knowledge of the
existence of an Event of Default under any Credit Agreement, Collateral Agent or
any Creditor shall notify the Creditors or the other Creditors and Collateral
Agent, as the case may be, of such Event of Default. Upon the occurrence and
during the continuance of an Event of Default, Collateral Agent shall have,
subject to Section 4(D), the sole and exclusive right to direct the time, method
and place of, and may exercise from time to time any rights and remedies
available to or any power conferred on the following rights and remedies:
(A) All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable rights
to which Collateral Agent may be entitled, all of which rights and remedies
shall be cumulative and shall be in addition to any other rights or remedies
contained in this Agreement or any Credit Agreement, and none of which shall be
exclusive.
(B) The right to take immediate possession of the Collateral,
and to (i) require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Collateral Agent at a place designated by Collateral
Agent which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
Borrower, Borrower agrees not to charge Collateral Agent for storage thereof).
(C) The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Collateral
Agent, in its reasonable discretion, may deem advisable. Borrower agrees that 10
days written notice to Borrower of any public or private sale or other
disposition of Collateral shall be reasonable notice thereof, and such sale
shall be at such locations as Collateral Agent may designate in said notice.
Collateral Agent shall have the right to conduct such sales on Borrower's
premises, without charge therefor, and such sales may be adjourned from time to
time in accordance with applicable law. Collateral Agent shall have the right to
sell, lease or otherwise dispose of the Collateral, or any part thereof, for
cash, credit or any combination thereof, and Collateral Agent or any Creditor
may purchase all or any part of the Collateral at public or, if permitted by
law, private sale and, in lieu of actual payment of such purchase price, may set
off the amount of such price against the Obligations. The Collections shall be
applied in accordance with Section 5 hereof. If any deficiency shall arise,
Borrower shall remain liable to Collateral Agent and the Creditors therefor.
(D) Collateral Agent is hereby granted a license or other
right to use, without charge, Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, tradenames, trademarks and advertising matter,
or any Property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Collateral Agent's benefit.
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<PAGE> 11
(E) No individual Creditor shall have any right to institute
any suit, action or proceeding at law or in equity for the enforcement of any
provisions of any Credit Agreement with respect to the Collateral. Except as
otherwise expressly provided herein, all rights and remedies provided in the
Credit Agreements with respect to the Collateral shall reside in and inure to
the benefit of Collateral Agent and Creditors collectively, and shall be
exercised solely by Collateral Agent for the ratable benefit of the Lenders in
accordance with the terms hereof and of the Credit Agreements. The provisions
of this Section are solely for the benefit of Collateral Agent and Creditors
and neither Borrower, any obligor nor any other person shall have any rights
to rely on, inquire into, or enforce any of the provisions hereof.
(F) All covenants, conditions, provisions, warranties,
guaranties, indemnities, and other undertakings of Borrower contained in this
Agreement, the Credit Agreements or in any document referred to herein or
contained in any agreement supplementary hereto or in any schedule given to
Creditors or contained in any other agreement between any Creditor and Borrower,
heretofore, concurrently, or hereafter entered into, shall be deemed cumulative
to and not in derogation or substitution of any of the terms, covenants,
conditions, or agreements of Borrower herein contained. The failure or delay of
Collateral Agent or any Creditor to require strict performance by Borrower of
any provision of this Agreement or to exercise or enforce any rights, Liens,
powers, or remedies hereunder or under any of the aforesaid agreements or other
documents or security or Collateral shall not operate as a waiver of such
performance, Liens, rights, powers and remedies, but all such requirements,
Liens, rights, powers, and remedies shall continue in full force and effect
until all Loans and all other Obligations owing or to become owing from Borrower
to any Creditor shall have been fully satisfied. None of the undertakings,
agreements, warranties, covenants and representations of Borrower contained in
this Agreement, the Credit Agreements and no Event of Default by Borrower under
this Agreement or any Credit Agreement shall be deemed to have been suspended or
waived by any Creditor, unless such suspension or waiver is by an instrument in
writing specifying such suspension or waiver and is signed by a duly authorized
representative of each Creditor and directed to Borrower.
10. COSTS AND EXPENSES.
(A) Collateral Agent may incur and pay reasonable costs and
expenses to the extent it deems reasonably necessary or appropriate for the
performance and fulfillment of its functions ("Collateral Expenses"), powers and
obligations pursuant to the Credit Agreements including without limiting the
generality of the foregoing, court costs, attorneys' fees, costs of collection
by outside collection agencies and auctioneer's fees and costs of security
guards or insurance premiums paid to maintain the Collateral, whether or not
Borrower is obligated to reimburse Collateral Agent or the Creditors for such
expenses pursuant to the Credit Agreements or otherwise. Collateral Agent is
authorized and directed to deduct and retain sufficient amounts from Collections
to reimburse Collateral Agent for such costs and expenses prior to the
distribution of any amounts to any of the Creditors.
(B) All reasonable costs and expenses of Collections and/or
disposition or realization upon the Collateral including, without limitation,
attorneys' fees, expenses of liquidations, salaries of employees involved in
collecting and/or liquidating Collateral and living expenses of such employees
if required to live away from home, incurred by Collateral Agent or
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<PAGE> 12
Creditors hereunder or in connection herewith or in enforcing any of the
Obligations shall constitute a part of the Obligations and shall be borne by
Creditors PRO RATA in accordance with the outstanding principal balance of the
Obligations owing to each respectively, but only out of Collections. In
furtherance of the foregoing, in the event of liquidation, all Collections
thereafter received shall be applied by Collateral Agent as provided in
Section 5 hereof.
11. MISCELLANEOUS.
(A) NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been duly given or made: if
by telecopy, telex, telegram or by hand, immediately upon sending; if by
Federal Express, Express Mail or any other overnight delivery service, one (1)
day after dispatch; and if mailed by certified mail, return receipt requested,
five (5) days after mailing. All notices, requests and demands are to be given
or made to the respective parties at the following addresses (or to such other
address as any party may designate by notice in accordance with this Section):
If To Collateral Agent: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Northeast Loan Administrator
Telephone: (860) 659-3200
Telecopier: (860) 657-7759
with copies to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118-0075
Attention: Daniel J. Krauss, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
If to Borrower: National Record Mart, Inc.;
507 Forest Avenue
Carnegie, Pennsylvania 15106
Attention: Theresa Carlise
Telephone: (412) 276-6200
Telecopier: (412) 276-6201
with a copy to: Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219
Attention: Robert Morris, Esq.
Telephone: (412) 288-3131
Telecopier: (412) 288-3063
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If to Fleming: Robert Fleming Inc.
320 Park Avenue, 11th Floor
New York, New York 10022
Attention: Michael E. Rowe
Telephone: (212) 508-3672
Telecopier: (212) 508-3679
with a copy to: Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Telephone: (213) 896-6000
Telecopier: (213) 896-6600
or to such other address as each party may designate for itself by notice given
in accordance with this Section.
(B) TERM. This Agreement shall become effective upon the date hereof
and shall continue in full force and effect for the term of the Credit
Agreements as provided therein. This Agreement shall automatically terminate
effective upon the effective date of the termination of the Credit Agreements,
except as otherwise specifically provided herein. Termination of this
Agreement shall not affect the respective rights or obligations hereunder
incurred prior to the effective date of such termination.
(C) NO BENEFIT TO THIRD PARTIES. The terms and provisions of this
Agreement shall be for the sole benefit of Collateral Agent, Creditors and, to
the extent permitted hereunder, Borrower and their permitted successors and
assigns and no other person, firm, entity or corporation shall have any right,
benefit, priority or interest under, or because of the existence of this
Agreement.
(D) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which, together, shall constitute one and the same instrument.
(E) FURTHER ASSURANCES. Each Creditor and Collateral Agent hereby
agree to execute and/or deliver any and all further documents, instruments or
agreements reasonably requested by the other party in order to give effect to,
and more fully carry out the terms and provisions of this Agreement including,
without limitation, providing copies of all amendments to any Credit
Agreements to each Creditor and Collateral Agent. Borrower, at its own
expense, shall do, make, execute and deliver all such additional and further
acts, things, deeds, assurances and instruments as the Collateral Agent may
require more completely to vest in and assure to the Collateral Agent its
rights hereunder or in any of the Collateral, including, without limitation,
(a) executing, delivering and, where appropriate, filing financing statements
and continuation statements under the Uniform Commercial Code, and powers of
attorney or other documents
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<PAGE> 14
required by the Internal Revenue Service in order to enable the Collateral
Agent to exercise its rights hereunder, and (b) obtaining governmental and
other third party consents and approvals.
12. GOVERNING LAW AND WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. EACH CREDITOR SHALL HAVE THE RIGHTS AND REMEDIES OF A
CREDITOR UNDER APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UNIFORM
COMMERCIAL CODE OF NEW YORK. BORROWER AGREES THAT ALL ACTIONS AND PROCEEDINGS
RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY CREDIT AGREEMENT OR
ANY OTHER OBLIGATIONS SHALL BE LITIGATED IN THE FEDERAL DISTRICT COURT OF THE
SOUTHERN DISTRICT OF NEW YORK OR, AT COLLATERAL AGENT'S OPTION, IN ANY OTHER
COURTS LOCATED IN NEW YORK STATE OR ELSEWHERE AS EACH CREDITOR MAY SELECT AND
THAT SUCH COURTS ARE CONVENIENT FORUMS AND BORROWER SUBMITS TO THE PERSONAL
JURISDICTION OF SUCH COURTS. BORROWER WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS THAT SERVICE OF PROCESS UPON BORROWER MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER AT BORROWER'S
ADDRESS APPEARING ON CREDITORS' RECORDS, AND SERVICE SO MADE SHALL BE DEEMED
COMPLETED TWO (2) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED. BOTH PARTIES
HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN
BORROWER AND EACH CREDITOR AND BORROWER WAIVES THE RIGHT TO ASSERT IN ANY
ACTION OR PROCEEDING INSTITUTED BY EACH CREDITOR WITH REGARD TO THIS AGREEMENT
OR ANY OF THE OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.
13. LIMITATION OF LIABILITY. Borrower acknowledges and understands
that in order to assure repayment of the Obligations Collateral Agent may be
required to exercise any and all of Collateral Agent's rights and remedies
hereunder and agrees that neither Collateral Agent nor any of Collateral
Agent's agents shall be liable for acts taken or omissions made in connection
herewith or therewith except for actual bad faith.
14. ENTIRE UNDERSTANDING. This Agreement and the Credit Agreements
contain the entire understanding between Borrower and the Creditors and any
promises, representations, warranties or guarantees not herein contained shall
have no force and effect unless in writing, signed by the Borrower's and each
Creditor's respective officers. Neither this Agreement, the Credit Agreements,
nor any portion or provisions thereof may be changed, modified, amended,
waived, supplemented, discharged, cancelled or terminated orally or by any
course of dealing, or in any manner other than by an agreement in writing,
signed by the party to be charged.
15. SEVERABILITY. Wherever possible each provision of this Agreement
or the Credit Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement or the Credit Agreements shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibi-
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<PAGE> 15
tion or invalidity, without invalidating the remainder of such provision or
the remaining provisions thereof.
16. CAPTIONS. All captions are and shall be without substantive
meaning or content of any kind whatsoever.
17. MARSHALING. Collateral Agent shall not be required to marshal any
present or future collateral security (including but not limited to this
Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of its rights hereunder
and in respect of such collateral security and other assurances of payment
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that it lawfully may, Borrower hereby agrees that it
will not invoke any law relating to the marshaling of collateral which might
cause delay in or impede the enforcement of the Collateral Agent's rights
under this Agreement or under any other instrument creating or evidencing any
of the Obligations or under which any of the Obligations is outstanding or by
which any of the Obligations is secured or payment thereof is otherwise
assured, and, to the extent that it lawfully may, Borrower hereby irrevocably
waives the benefits of all such laws.
18. CONSTRUCTION. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or any
amendments, schedules or exhibits thereto.
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<PAGE> 16
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
NATIONAL RECORD MART, INC.
By:______________________________
Name: Theresa Carlise
Title: Senior Vice President/CFO
NRM INVESTMENT, INC.
By:_____________________________
Name: Theresa Carlise
Title: President
FLEET CAPITAL CORPORATION
By:_____________________________
Name: John Edmondson
Title: Senior VP
ROBERT FLEMING INC., as Agent
By:____________________________
Name: Phillips, Schaeffer
Title: Senior VP
16
<PAGE> 1
Exhibit 10.4
NATIONAL RECORD MART, INC.
507 Forest Avenue
Carnegie, Pennsylvania 15106
July 1, 1997
Mr. William A. Teitelbaum
16 Carlisle Drive
Old Brookville, New York 11545
Re: Stock Option Agreement
----------------------
Dear Mr. Teitelbaum:
1. Option Grant.
-------------
I am pleased to advise you that in recognition of your services to
National Record Mart, Inc. (the "Company") and as an incentive for you to
continue to provide such services, as of the date hereof, the Company hereby
grants to you an option to purchase up to 200,000 shares (the "Shares") of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company at
an option exercise price of $.10 per Share (the "Option").
2. Vesting Schedule.
-----------------
The Option expires at 5:00 p.m., Eastern Time, on July 1, 2024 (the
"Expiration Date"). The Option shall not be exercisable other than in accordance
with the following vesting schedule: 10,000 Shares shall vest on July 1, 1998,
thereafter, 10,000 Shares shall vest on July 1 of each of the next succeeding
nineteen (19) years, until July 1, 2017, except as otherwise provided herein.
All Shares shall automatically vest in the event of a "Vesting Event"
(as hereinafter defined) and, upon the occurrence os such event, the Option
shall be immediately exercisable by you or (in the event of your death) your
personal representative for a period of seven (7) years thereafter. For the
purposes of this Agreement, a "Vesting Event" shall mean:
(a) The acquisition, in one or more transactions, by any individual,
entity or group, of beneficial ownership of a number of shares of Common Stock
(or other voting securities of the Company) in excess of fifty percent (50%) of
the total outstanding shares of Common Stock (or other voting securities); or
(b) Approval by the shareholders of the Company of a reorganization,
merger or consolidation unless all of the individuals or entities who were the
respective beneficial owners of outstanding Common Stock immediately prior to
such transaction own directly or indirectly more than fifty percent (50%) of the
outstanding Common Stock (or voting securities) following such transaction; or
(c) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or a sale or other disposition of all
or substantially all the assets of the Company; or
(d) Termination of your employment with the Company for any reason
other than "proper cause" (as such term is defined in that certain Employment
Agreement by and between you and the Company dated as of the 1st day of April,
1993 (the "Employment Agreement"); or
(e) Your death while employed by the Company.
3. Termination of Option.
----------------------
If your employment with the Company is terminated for proper cause, or
if you elect to resign from the Company at any time prior to July 1, 2017, then
(a) the Option shall terminate automatically on such date of termination as to
all unvested Shares and (b) the Option as to all vested Shares may be
<PAGE> 2
exercised by you (or your personal representative in the event of your
subsequent death) at any time within five years after such termination, at the
end of which period the Option shall automatically terminate. Notwithstanding
the foregoing, the Option may not be exercised beyond the Expiration Date.
4. Restrictions on Alienation.
---------------------------
(a) Except as specifically provided below, the Option may not be
assigned or transferred, and the Option shall be exercisable during your
lifetime only by you. More particularly, but without limiting the generality of
the foregoing, the Option shall not be subject to anticipation, alienation,
sale, gift, assignment, pledge, hypothecation, encumbrance, charge, garnishment,
execution, attachment, or lien of any kind, either voluntary or involuntary,
whether arising at law or equity, other than by testamentary gift, subject
to the limits on exercise of the Option by your personal representative. Any
attempted anticipation, alienation, sale, gift, assignment, pledge,
hypothecation, encumbrance, charge, garnishment or other disposition of the
Option and any levy or any attachment or similar process upon the Option will be
null and void and without effect, and the Company may, in its discretion upon
the happening of any such event, terminate the Option immediately.
(b) The provisions of subsection (a) above shall not apply to the
transfer or retransfer of any Option right by you in any manner including inter
vivos gift or at death, and with or without consideration, to any spouse,
parent, child, grandchild or lineal descendent, provided all such transferees
shall take such Option rights subject to all the restrictions, terms and
conditions of this Agreement and shall execute and deliver to the Secretary of
the Company a written statement confirming the same prior to acquiring any right
to the Option in the Company. In addition, you may transfer Option rights to not
more than 20,000 shares in the aggregate to any one or more individuals,
partnerships, corporations or other entities, provided all such transferees
shall take such Option rights subject to all the restrictions, terms and
conditions of this Agreement and shall execute and deliver to the Secretary of
the Company a written statement confirming the same prior to acquiring any right
to the Option in the Company.
5. Adjustment of Common Stock.
---------------------------
The number of Shares (vested and unvested) which shall at any time be
and remain subject to purchase pursuant to exercise of the Option, shall be
adjusted in the following events:
(a) DIVIDENDS. In the event that a dividend shall be declared upon the
Common Stock of the Company payable in shares of said stock, the number of
Shares covered by the Option shall be adjusted by adding thereto the number of
shares of Common Stock which would have been distributable thereon if such
Shares had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend.
(b) REORGANIZATIONS, CONSOLIDATION, MERGERS. In the event that the
outstanding shares of Common Stock of the Company shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for the Shares covered by the
Option, the number and kind of shares of stock or other securities which would
have been substituted therefor if such Shares had been outstanding on the date
fixed for determining the stockholders entitled to receive such changed or
substituted stock or other securities.
(c) OTHER CHANGES. In the event there shall be any change, other than
specified above, in the number or kind of outstanding shares of Common Stock of
the Company or of any stock or other securities into which such Common Stock
shall be changed or for which it shall have been exchanged, then if the Board of
Directors shall determine, in good faith, that such change equitably requires
an adjustment in the number or kind of Shares covered by the Option, such
adjustment shall be made by the Board of Directors and shall be effective and
binding for all purposes on this Agreement.
6. Other Option Terms.
-------------------
Except as specifically set forth herein, on or before the Expiration
Date, the Option for Vested Shares may be exercised in whole or in part at any
time and from time to time. The Option may be
-2-
<PAGE> 3
exercised by delivery of written notice to the Company setting forth the
election to exercise and the number of Shares to be purchased. The notice must
be dated and signed by the person(s) exercising the Option and must be
accompanied by such documents as the Company may reasonably request as specified
below. If the Option is exercised by someone other than yourself, the notice
must be accompanied by proof, satisfactory to the Company, of the right of such
person(s) to exercise the Option.
The option price upon exercise of all or part of the Option must be
paid in full in United States Dollars in cash (by check, bank draft and money
order).
The date of exercise of the Option is the date on which the notice of
exercise, proof of right to exercise (if required) and payment in full for the
Shares to be purchased are received by the Company at its office located at 507
Forest Avenue, Carnegie, Pennsylvania 15106, to the attention of the Company's
Corporate Secretary. As of the date of exercise, you will be considered by the
Company for all purposes to be the owner of the Shares purchased, subject to the
terms set forth in this Agreement.
7. Securities Law Matters.
-----------------------
The Shares which may be issued upon the exercise of the Option may not
be sold, transferred, pledged or hypothecated in the absence of (i) an effective
registration statement or post-effective amendment thereto for such Option, or
Shares, respectively, under the Securities Act of 1933 (the "Act"); or (ii) the
availability of an exemption from the registration requirements of the Act.
The Company is under no obligation to register the Common Stock which
may be issued or delivered upon the exercise of the Option under the Act, to
register such Common Stock or take any other action under any state or foreign
securities law in connection with the offer or sale of such Common Stock or to
prepare any disclosure document for distribution to you under the Act or any
state or foreign securities law in connection with such offer or sale.
Prior to the issuance or delivery of any Shares pursuant to the
exercise of the Option in whole or in part, you will be required to represent
and warrant that you will not sell or otherwise transfer any such Shares unless
the Shares are registered under the Act or an exemption from registration is
available. The certificate or certificates representing the Shares to be issued
or delivered upon exercise of the Option shall bear any legends required by
applicable securities laws, and appropriate stop-transfer instructions may be
issued by the Company to its stock transfer agent with respect to such Common
Stock.
8. Miscellaneous.
--------------
When accepted by you, this Agreement shall constitute an agreement
which shall be binding upon the successors and assigns of the Company and upon
your heirs, legal representatives, successors and assigns. Except as otherwise
specifically set forth above, neither this Agreement, the Option, nor any Shares
acquired by you pursuant to the Option may be assigned, transferred, pledged,
hypothecated or similarly disposed of except as provided herein.
The Company covenants that, so long as the Option is exercisable, it
will reserve from its authorized and unused Common Stock a sufficient number of
shares to provide for the delivery of stock pursuant to the exercise of the
Option.
This Agreement does not confer upon you any rights of a stockholder of
the Company, including, without limitation, any right to vote or to consent to
or receive notice as a stockholder of the Company.
The exercise of the Option when the fair market value of the Common
Stock exceeds the option exercise price will cause you to recognize taxable
income equal to such excess. You hereby authorize the Company to withhold from
your salary or any other payment due to you, upon exercise of all or any portion
of the Option, the amount of any taxes required by law to be withheld with
respect to the exercise of the Option or any portion thereof, as determined by
the Company in its reasonable discretion, such amount may be withheld at any
time after exercise of the Option or portion thereof, in a lump sum or
installments, in the Company's reasonable discretion.
-3-
<PAGE> 4
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania. If you wish to accept this
Agreement, please sign, date and return one copy to the Secretary of National
Record Mart, Inc., 507 Forest Avenue, Carnegie, Pennsylvania 15106.
Very truly yours,
NATIONAL RECORD MART, INC.
BY /S/ Theresa Carlise
--------------------------
Receipt Acknowledged and
Option Accepted:
/s/ William A. Teitelbaum
- ----------------------------
William A. Teitelbaum
Date: 7-1-97
-4-
<PAGE> 1
Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
This Agreement is made and entered into as of the 1st day of
July, 1997, by and between NATIONAL RECORD MART, INC., a Delaware corporation
(hereinafter called the "Company"), and WILLIAM A. TEITELBAUM ("Teitelbaum"),
for himself and his successors and assigns.
WHEREAS, Teitelbaum and the Company are parties to a Stock
Option Agreement of even date herewith (the "Option Agreement") pursuant to
which the Company has granted Teitelbaum options to purchase 200,000 shares of
the Company's Common Stock, which vest over a 20 year period (the "Options");
and
WHEREAS, the Options have been, and the Shares (as defined
below) will be, issued to Teitelbaum without registration under the securities
Act of 1933, as amended (the "Securities Act") and applicable state securities
laws, and the Company and Teitelbaum desire to provide hereunder for the
possible registration of shares of Stock issuable upon exercise of Options
(hereinafter "Shares");
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN OTHER DEFINITIONS. As used in this Agreement the
following terms shall have the following respective meanings:
"Commission" shall mean the United States Securities
and exchange Commission and any successor federal agency
having similar powers.
"Common Stock" means the Common Stock, par value
$.01, of the Company.
"Holder" Shall mean Teitelbaum and his successors
and registered assigns of any Options.
"Option Agreement" shall mean the Stock Option
Agreement dated as of the date hereof by and between the
Company and Teitelbaum.
The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act,
and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean Shares which
previously have not been sold to the public pursuant to a
registration statement and which have been issued or are
issuable upon exercise of Options.
"Registration Expenses" shall mean all expenses
incurred in connection with the Company's complying with
Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and
expenses and accountants expenses including without
limitation, any special audits or "comfort" letters incidental
to or required by any such registration, any fees and
disbursements of underwriters customarily paid by issuers or
sellers of securities (but excluding underwriting discounts
and commissions and the reasonable fees and disbursements of
special counsel retained by holders of the Registrable
Securities being registered, except for the compensation of
regular employees of the Company, which shall be paid in any
event by the Company).
"Requesting Holder" shall mean any Holder who shall
request registration of registable securities pursuant to this
Agreement.
"Shares" means the shares of Common Stock of the
Company issued by the Company upon exercise of Options.
<PAGE> 2
All other capitalized terms not defined herein shall have the meaning as set
forth in the Option Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 Registration Rights.
(a) Right to Include Registrable Securities. If, at any time
hereafter, the Company proposes to register any of its equity securities under
the Securities Act, whether or not for sale for its own account, on a form and
in a manner which would permit registration of Registrable Securities of the
Company for sale to the public under the Securities Act, it will each such time
give prompt written notice to Teitelbaum and all holders of Registrable
Securities of its intention to do so, describing such securities and specifying
the form and manner and other relevant facts involved in such proposed
registration. Upon the written request of Teitelbuam or any other Holder
delivered to the Company within ten (10) business days after the giving of any
such notice (which request shall specify the Registrable Securities intended to
be disposed of by Teitelbaum or such Holder and the intended method or methods
of disposition thereof), the Company will use its best efforts to effect the
registration under the Securities Act of all registrable Securities which the
Company has been so requested to register to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, provided that:
(i) If, at any time after giving such written notice
of its intention to register any of its securities and prior
to the effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such securities, the Company
may, at its election, give written notice of such
determination to each holder of Registrable Securities and
thereupon shall be relieved of its obligation to register any
Registrable Securities in connection with such registration
(but not from its obligation to pay the Registration Expenses
in connection therewith as provided herein);
(ii) If (A) the registration so proposed by the
Company involves an underwritten offering of the securities so
being registered and (B) the managing underwriter of such
underwritten offering shall advise the Company in writing
that, in its good faith judgment, all the Registrable
Securities and all the shares to be offered by the Company are
greater than can be accommodated without interfering with the
successful marketing of all the securities to be then offered
publicly for the account of the Company, then the managing
underwriter or underwriters, subject to any applicable
contractual limitation, shall reduce of eliminate the
securities (including the Registrable Securities) proposed to
be sold to a number deemed satisfactory by the managing
underwriter or underwriters; and
(iii) For purposes of this Section 2.1(a), the term
"best efforts" shall not require the Company to reduce the
amount or sales price of such securities proposed to be
distributed by or through such underwriters except as
otherwise required by this Section 2.1.
(b) Expenses. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities requested
pursuant to this Section 2.1.
2.2 Registration Procedures. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in section 2.1, the Company will promptly:
(a) prepare and file with the Commission (unless withdrawn by
the Company) a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, such registration statement to comply as to form and content
and all material respects with the Commission's forms, rules and regulations;
2
<PAGE> 3
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities and other securities covered by such
registration statement until the earlier of such time as all of such Registrable
Securities and other securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set froth in
such registration statement or the expiration of forty-five (45) days after such
registration statement becomes effective, and will furnish to each such seller
prior to the filing thereof a copy of any amendment or supplement to such
registration statement or prospectus;
(c) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits) and such
number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus) in conformity
with the requirements of the Securities Act; such documents, if any,
incorporated by reference in such registration statement or prospectus; and such
other documents, in each case, as such seller may reasonably request;
(d) use its best efforts (subject to the Company's right to
withdraw its registration) to register or qualify all Registrable Securities and
other securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the company shall
reasonably determine, to keep such registration or qualification in effect for
so long as such registration statement remains in effect, and do any and all
other reasonable acts and things which may be necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this subdivision (d) be obligated to be so qualified, or
to subject itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction or to agree to any restrictions on
the ownership or sale of the shares of Common Stock owned by the Company's
existing shareholders; and
(e) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the discovery of the happening of any event as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and at the request
of any such seller, prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company within ten (10) days: (i)
an Opinion of qualified legal counsel as to the seller's title to the
Registrable Securities, (ii) the execution and delivery by the seller of the
underwriting agreement to be executed by the Company and each seller, and (iii)
such information regarding such seller and the distribution of such securities
as the Company may from time to time reasonably request in writing and as shall
be required by law or by the Commission in connection therewith.
2.3. Underwritten Offerings.
(a) Inclusion of Registrable Securities. If the Company is
requires to effect the registration of any Registrable Securities pursuant to
Section 2.1, the holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters and the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters, shall also be made to and for the benefit of such holders of
Registrable Securities, and the Company will cooperate with such holders of
Registrable Securities to the end that the conditions precedent to the
obligations of such holders of Registrable
3
<PAGE> 4
Securities under such underwriting agreement shall not include conditions that
are not customary in underwriting agreements with respect to combined primary
and secondary distributions.
(b) Selection of Underwriters. If the Company at any time
proposes to register any of its securities under the Securities Act for sale for
its own account and such securities are to be distributed by or through one or
more underwriters, the selection of the managing underwriter(s) shall be made by
the Company and notice of the selection thereof delivered to the holders of all
Registrable Securities eligible to participate in such registration.
(c) Holdback Agreements. If any registration pursuant to
Section 2.1 shall be in connection with an underwritten public offering, each
holder of Registrable Securities agrees by acquisition of such Registrable
Securities, if so required by the managing underwriter, not to effect any public
sale or distribution of Registrable Securities (other than as part of such
underwritten public offering) within seven (7) days prior to the effective date
of such registration statement or one hundred eighty (180) days after the
effective date of such registration statement.
2.4. Indemnification.
(a) Indemnification by Company. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless the seller of any
Registrable Securities covered by such registration statement, its directors,
trustees and officers and each other person, if any, who controls such seller
within the meaning of the Securities Act, in each case, against any losses,
claims, damages, liabilities or expenses, joint or several (including, without
limitation, the costs and expenses of investigating, preparing for and defending
any legal proceeding, including reasonable attorney's fees), to which such
seller or any such director, trustee or officer or controlling person may become
subject under the securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon (x) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any document incorporated by reference
therein, or (y) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Company will reimburse such seller and each such
director, trustee, officer and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense (or action or proceeding in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and conformity with information furnished to the
Company by or on behalf of such seller or any such director, trustee officer or
controlling person of such seller. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such seller or
any such director, trustee, officer or controlling person and shall survive the
transfer of such securities by such seller. The Company shall agree to make
provision for contribution in lieu of any such indemnity that may be disallowed
as shall be reasonably requested by any seller.
(b) Indemnification by the Sellers. In the event of any
securities of the Company under the Securities Act pursuant to which a holder of
Registrable Securities sells Registrable Securities covered by such registration
statement, such seller of Registrable Securities will, and hereby does,
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 2.4) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement
and each other person, if any, who controls the Company within the meaning of
the Securities act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement hereto, if such
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of such seller. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such
4
<PAGE> 5
seller. The seller shall agree to make provision for contribution in lieu of any
such indemnity that may be disallowed as shall be reasonably requested by the
Company.
(c) Notice of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action proceeding
involving a claim referred to in the preceding subdivisions of this Section,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to he latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section except to the extent that the
indemnifying party is damaged by such failure. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof a release from all liability in respect to such claim or litigation by
the claimant or plaintiff to such indemnified party.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by he Company and each seller or Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any federal or state law or regulation of a
governmental authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
3. AMENDMENTS AND WAIVERS. This Agreement may be amended, and
the Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omissions to act of the holder
or holders of at least 75% or more of the shares of Registrable Securities (and,
in the case of any amendment, action or omission to act which adversely affects
any holder of Registrable Securities or a group of holders of Registrable
Securities, the written consent of each such holder or each member of such
group).
4. NOTICES. Notices and other communications under this
Agreement shall be in writing and shall be sent by registered mail, postage
prepaid, addressed:
(a) to any holder of Registrable Securities at the address
shown on the stock or warrant transfer books of the Company unless such holder
has advised the Company in writing of a different address as to which notices
shall be sent under this Agreement; and
(b) if to the Company at 540 Forest Avenue, Carnegie, PA
15106, to the attention of its President, or to such other address as the
Company shall have furnished to each holder of Registrable Securities at the
time outstanding.
5. MISCELLANEOUS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, whether so expressed or not, and, in particular,
shall inure to the benefit of and be enforceable by any holder or holders of
Registrable Securities. This Agreement embodies the entire agreement and
understanding between the Company and the other parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
relating to the subject matter hereof. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
The headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect the meaning hereof. This Agreement may be executed in
any number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
ATTEST: NATIONAL RECORD MART, INC.
By
- -------------------------------- ----------------------------------
Title Theresa Carlise
Senior VP/CFO
[Corporate Seal]
WITNESS:
By
- -------------------------------- ----------------------------------
William A. Teitelbaum
6
<PAGE> 1
Exhibit 10.9
NATIONAL RECORD MART, INC.
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The purposes of the 1997 Non-employee Directors Stock Option Plan (the
"Plan") are to encourage non-employee directors of National Record Mart, Inc.
(the "Corporation"), a Delaware corporation, to increase their efforts to make
the Corporation more successful, to provide an additional inducement for persons
to remain as directors of the Corporation, to reward such persons by providing
an opportunity to acquire shares of Common Stock, par value $.01 per share, of
the Corporation (the "Common Stock") on favorable terms and to provide a means
through which the Corporation may attract able persons to become directors of
the Corporation.
SECTION 1
ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"). The Board shall interpret the Plan and prescribe such
rules, regulations and procedures in connection with the operations of the Plan
as it shall deem to be necessary and advisable for the administration of the
Plan consistent with the purposes of the Plan. All questions of interpretation
and application of the Plan, or as to grants under the Plan, shall be subject to
the determination of the Board, which shall be final and binding.
The Board shall keep records of action taken. A majority of the Board
shall constitute a quorum at any meeting, and the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved
in writing by all the members of the Board, shall be the acts of the Board.
SECTION 2
ELIGIBILITY
-----------
Those directors of the Corporation who are not employees of the
Corporation shall be eligible to be granted stock options as described herein.
Subject to the provisions of the Plan, the Board shall have full and
final authority, in its discretion, to grant stock options as described herein
and to determine the non-employee directors to whom any such grant shall be made
and the number of shares to be covered thereby. In determining the eligibility
of any person, as well as in determining the number of shares covered by each
grant, the Board shall consider the nature and value to the Corporation of his
or her services, his or her present and/or potential contribution to the success
of the Corporation and such other factors as the Board may deem relevant.
SECTION 3
SHARES AVAILABLE UNDER THE PLAN
-------------------------------
The aggregate number of shares of the Common Stock that may be issued
and as to which grants may be made under the Plan is 25,000. If any stock option
granted under the Plan is canceled by mutual consent or terminates or expires
for any reason without having been exercised in full, the number of shares
subject thereto shall again be available for purposes of the Plan.
The shares which may be issued under the Plan may be either authorized
but unissued shares or treasury shares or partly each.
<PAGE> 2
SECTION 4
GRANT OF STOCK OPTIONS
----------------------
The Board shall have authority, in its discretion, to grant
"nonstatutory stock options" (i.e., stock options which do not qualify under
Sections 422 or 423 of the Internal Revenue Code of 1986 (the "Code")).
SECTION 5
TERMS AND CONDITIONS OF STOCK OPTIONS
-------------------------------------
Stock options granted under the Plan shall be subject to the following
terms and conditions of Sections 5(A) through 5(I):
(A) The purchase price at which each stock option may be exercised
(the "option price") shall be not less than one hundred percent (100%) of the
fair market value per share of the Common Stock covered by the stock option on
the date of grant. For purposes of this Section 5(A), the fair market value of
the Common Stock shall be determined as provided in Section 5(H).
(B) The option price for each stock option shall be payable in cash in
United States dollars (including check, bank draft or money order). The
exercise of the stock option shall not be deemed to occur and no shares of
Common Stock will be issued by the Corporation upon exercise of the stock
option until the Corporation has received payment of the option price in full.
The date of exercise of a stock option shall be determined under procedures
established by the Board, and as of the date of exercise the person exercising
the stock option shall be considered for all purposes to be the owner of the
shares with respect to which the stock option has been exercised.
(C) Each stock option shall be exercisable at such time or times as
the Board, in its discretion, shall determine at grant. No stock option shall
be exercisable after the expiration of ten years from the date of grant. A
stock option to the extent exercisable at any time may be exercised in whole or
in part.
(D) Subject to the last two sentences of this Section 5(D), (i) no
stock option shall be transferable by the optionee otherwise than by Will, or
if the optionee dies intestate, by the laws of descent and distribution of the
state of domicile of the optionee at the time of death and (ii) all stock
options shall be exercisable during the lifetime of the optionee only by the
optionee. However, the Board may, in its discretion, determine that an optionee
may transfer an option by gift to the optionee's spouse or to any of the
optionee's lineal descendants or the trustee(s) of a trust for the benefit of
such persons to the extent approved in advance by the Board in writing. Any
options gifted to such persons or trusts shall be subject to the restrictions,
terms and conditions of this Plan, and any such transferee shall be deemed to
be an optionee and shall upon receipt of such stock options, as a condition of
effectiveness of the transfer, sign a written agreement with the Corporation
in the form prescribed by the Board agreeing to such restrictions, terms and
conditions.
(E) Unless the Board, in its discretion, shall otherwise determine, if
the optionee ceases to be a director of the Corporation for any reason,
including death all outstanding stock options held by the optionee or the
optionee's transferee at the time of such cessation shall automatically
terminate six months after the date of such cessation.
(F) If an optionee (i) engages in the operation or management of a
business (whether as owner, partner, officer, director, employee or otherwise
and whether during or after the optionee's tenure as a director of the
Corporation) which is in competition with the Corporation, (ii) induces or
attempts to induce any customer, supplier, licensee or other individual,
corporation or other business organization having a business relationship with
the Corporation to cease doing business with the Corporation or in any way
interferes with the relationship between any such customer, supplier, licensee
or other person and the Corporation, or (iii) solicits any employee of the
Corporation to leave the employment thereof or in any way interferes with the
relationship of such employee with the Corporation, the Board, in its
discretion, may immediately terminate all outstanding stock options held by the
optionee without paying any consideration therefor. Whether an optionee has
engaged in any of the activities
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<PAGE> 3
referred to in the preceding sentence which would cause the outstanding stock
options to be terminated shall be determined, in its discretion, by the Board,
and any such determination by the Board shall be final and binding.
(G) All stock options shall be confirmed by an agreement which shall
be executed on behalf of the Corporation by the Chief Executive Officer (if
other than the President), the President or any Vice President and by the
optionee. The provisions of such agreements need not be identical.
(H) The fair market value per share of Common Stock for the purposes
of this Plan shall, so long as the Common Stock is listed on a United States
securities exchange registered under the Securities Exchange Act of 1934 (the
"1934 Act") or on the National Association of Securities Dealers Automated
Quotations System or any successor system then in use ("NASDAQ"), be the mean
between the highest and lowest sales prices per share of the Common Stock on
such exchange or system for the date as of which fair market value is to be
determined. At any time when the Common Stock is not so listed, the fair market
value per share of Common Stock for the purposes of this Plan shall be the
value determined in good faith by the Board.
(I) In the discretion of the Board, no shares of the Common Stock
shall be issued or delivered upon the exercise of a stock option granted under
the Plan unless the Corporation has received an opinion from counsel for the
Corporation that the issuance or delivery of the shares to which the person
exercising the stock option is entitled will not cause the Corporation to
violate the Securities Act of 1933, as amended (the "1933 Act"), any applicable
state or foreign securities law or any applicable rules or regulations under
the 1933 Act or under any such state or foreign securities law. The Corporation
is under no obligation to register shares issuable upon the exercise of stock
options granted under the Plan under the 1933 Act or to register such shares,
or take any other action, under any state or foreign securities law in
connection with the offer or sale of such shares under the Plan or to prepare
any disclosure document for distribution to optionees under the 1933 Act or any
state or foreign securities law in connection with such offer or sale. As a
condition precedent to the issuance or delivery of shares upon the exercise of
a stock option, the person exercising the stock option may be required to
represent, warrant and agree (i) that the shares to be acquired upon exercise
of the stock option are being acquired for the account of such person for
investment and not with a view to the resale or other distribution thereof and
(ii) that such person will not, directly or indirectly, transfer, sell, assign,
pledge, hypothecate or otherwise dispose of any such shares unless the
transfer, sale, assignment, pledge, hypothecation or other disposition of the
shares is pursuant to effective registrations under the 1933 Act and any
applicable state or foreign securities laws or pursuant to appropriate
exemptions from any such registrations. The certificate or certificates
representing the shares to be issued or delivered upon exercise of a stock
option may bear a legend to this effect and other legends required by any
applicable securities laws, and appropriate stop-transfer instructions may be
issued to the Corporation's stock transfer agent with respect to such shares.
In addition, also as a condition precedent to the issuance or delivery of
shares upon the exercise of a stock option, the person exercising the stock
option may be required to make certain other representations and warranties and
to provide certain other information to enable counsel for the Corporation to
render the opinion under the first sentence of this Section 5(I).
Subject to the foregoing provisions of this section and the other
provisions of the Plan, stock options granted under the Plan shall be subject
to such restrictions and other terms and conditions, if any, as shall be
determined, in its discretion, by the Board and set forth in the agreement
referred to in Section 5(G), or an amendment thereto.
SECTION 6
ADJUSTMENT AND SUBSTITUTION OF SHARES
-------------------------------------
If a dividend or other distribution shall be declared upon the Common
Stock payable in shares of the Common Stock, the number of shares of the Common
Stock subject to any outstanding stock options, and the number of shares of
the Common Stock which may be issued under the Plan but are not subject to
outstanding stock options on the date fixed for determining the stockholders
entitled to receive such stock dividend or distribution shall be adjusted on
the payment date of such dividend or distribution by adding thereto the number
of shares of the Common Stock which would have been distributable thereon if
such shares had been outstanding on such record date.
<PAGE> 4
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
share of the Common Stock subject to any then outstanding stock option, and for
each share of the Common Stock which may be issued under the Plan but which is
not then subject to any outstanding stock option, the number and kind of shares
of stock or other securities into which each outstanding share of the Common
Stock shall be so changed or for which each such share shall be exchangeable.
In case of any adjustment or substitution as provided for in the first
two paragraphs of this Section 6, the aggregate option price for all shares
subject to each then outstanding stock option prior to such adjustment or
substitution shall be the aggregate option price for all shares of stock or
other securities (including any fraction) to which such shares shall have been
adjusted or which shall have been substituted for such shares. Any new option
price per share shall be carried to three decimal places with the last decimal
place rounded upwards to the nearest whole number.
If the outstanding shares of the Common Stock shall be changed in
value by reason of any spin-off, split-off, or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Common Stock, the Board shall make any adjustments to any
then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of optionees which would
otherwise result from any such transaction.
No adjustment or substitution provided for in this Section 6 shall
require the Corporation to issue or sell a fraction of a share or other
security. Accordingly, all fractional shares or other securities which result
from any such adjustment or substitution shall be eliminated and not carried
forward to any subsequent adjustment or substitution.
Except as provided in this Section 6, an optionee shall have no rights
by reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
SECTION 7
NO RIGHTS CONFERRED BY THE PLAN
-------------------------------
Neither the adoption of the Plan nor any action of the Board pursuant
to the Plan shall be deemed to give any person any right to be granted a stock
option under the Plan. Nothing in the Plan, in any stock option, or in any
agreement providing for any stock option shall confer any right on any person
to tenure as a director of the Corporation.
SECTION 8
AMENDMENT
---------
The right to alter and amend the Plan at any time and from time to
time and the right to revoke or terminate the Plan are hereby specifically
reserved to the Board; provided that no such revocation or termination shall
terminate any outstanding stock options granted under the Plan. No alteration,
amendment, revocation or termination of the Plan may, without the consent of
the holder of an outstanding grant under the Plan, adversely affect the rights
of such holder with respect to such outstanding grant.
<PAGE> 5
SECTION 9
EFFECTIVE DATE OF PLAN
----------------------
The effective date and date of adoption of the Plan shall be June 30,
1997, the date of adoption of the Plan by the Board.
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Exhibit 10.10
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WARRANT AGREEMENT
OF
NATIONAL RECORD MART, INC.
A DELAWARE CORPORATION
400,000 SHARES
Dated as of April 16, 1998
- ------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT
<PAGE> 2
EXECUTION COPY
WARRANT AGREEMENT dated as of April 16, 1998, between National
Record Mart, Inc., a Delaware corporation (the "Company"), the Company as
Warrant Agent, Robert Fleming Inc., a Delaware corporation ("Fleming"), and
Seneca Capital L.P., a Delaware limited partnership ("Seneca" and with Fleming,
the "Holders").
WHEREAS, pursuant to that certain Senior Subordinated Secured
Note Purchase Agreement of even date herewith, by and between the Company,
Fleming and the Guarantors referred to therein (the "Secured Note Purchase
Agreement"), Fleming has purchased the Company's 11.75% Senior Subordinated
Secured Notes (the "Secured Notes") and is to receive warrants to acquire
200,000 shares of the Company's common stock;
WHEREAS, pursuant to that certain Senior Subordinated Note
Purchase Agreement of even date herewith, by and between the Company, Fleming,
Seneca and the Guarantors referred to therein (the "Unsecured Note Purchase
Agreement"), the Holders have purchased the Company's 11.75% Senior Subordinated
Notes (the "Unsecured Notes") and is to receive warrants to acquire 200,000
shares of the Company's common stock;
WHEREAS, the Company proposes to issue at the closing (the
"Closing") of both the Secured Note Purchase Agreement and the Unsecured Note
Purchase Agreement the common stock purchase warrants as hereinafter described
(the "Warrants") exercisable to purchase an aggregate of 400,000 shares of its
common stock, $0.01 par value ("Common Stock") (the shares of Common Stock
issuable on exercise of the Warrants being referred to herein as the "Warrant
Shares"), in favor of the Holders.
NOW THEREFORE, in consideration of the benefits and services
provided to the Company by the Holders, and for the purpose of defining the
terms and provisions of all of the Warrants and the respective rights and
obligations thereunder of the Company and the Holders, the Company and the
Holders hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF THE WARRANTS.
a. REGISTRATION. The Warrants shall be numbered and shall be
registered on the books of the Company maintained at the principal office of the
Company at 507 Forest Avenue, Carnegie, PA 15106 (the "Warrant Register"). The
Company shall be entitled to treat the Holders of the Warrants as the owners in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrants on the part of any other person,
and shall not be liable for any Company registration or transfer of the Warrants
which is registered or to be registered in the name of a fiduciary or the
nominee of a fiduciary unless made with the actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration of
transfer, or with such knowledge of such facts that its participation therein
amounts to bad faith.
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b. TRANSFER RESTRICTIONS. The Warrants are freely
transferable, subject to applicable securities laws restrictions. The holder of
any Warrants so transferred shall continue to be bound by this Agreement.
Notwithstanding the foregoing, the Holders shall be restricted from selling the
Warrants in a public sale for six months following the Closing.
c. TRANSFER-GENERAL. Subject to the terms hereof, the Warrants
shall be transferable only on the books of the Company maintained at its
principal office upon delivery thereof duly endorsed by a Holder or by its duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or a copy thereof, duly
certified, shall be deposited and remain with the Company. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited and to remain with the Company in its discretion. Upon any
registration of transfer, the Company shall countersign and deliver new Warrants
to the Persons entitled thereto. The Company or the Warrant Agent may require
the payment of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any such transfer.
d. NOTICES OF CORPORATE ACTIONS. In the event of: (a) any
taking by the Company of a record of the holders of the Common Stock for the
purpose of determining the holders thereof who are entitled to receive any
dividend or distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of capital stock of any class or any other securities, (b)
any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer or other
disposition of all or substantially all the assets of the Company to another
Person; (c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company, or (d) any amendment of the certificate of incorporation of the
Company, the Company shall mail to each Holder in accordance with the provisions
of Section 12 hereof a notice specifying (i) the date or expected date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right and
(ii) the date or expected date on which any such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
disposition, dissolution, liquidation or winding-up is to take place, the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
disposition, dissolution, liquidation or winding-up and a description in
reasonable detail of the transaction. Such notice shall be mailed to the extent
practicable at least thirty (30), but not more than ninety (90) days prior to
the date therein specified. In the event that the Company at any time sends any
notice to the holders of its Common Stock, it shall concurrently send a copy of
such notice to each Holder.
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EXECUTION COPY
e. FORM OF THE WARRANTS. The text of the Warrants and of the
form of election to purchase Warrant Shares (the "Purchase Form") shall be
substantially as set forth in Exhibit A attached hereto. The Exercise Price (as
defined in and determined in accordance with the provisions of Sections 2 and 6
hereof) and the number of Warrant Shares issuable upon exercise of a Warrant is
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. Each Warrant shall be executed on behalf of the Company by its
Chairman of the Board, its Chief Executive Officer, President, Chief Financial
Officer, or one of its Vice Presidents, and attested by its Secretary or an
Assistant Secretary.
The Warrants shall be dated as of the date of countersignature
thereof by the Company either upon initial issuance or upon transfer.
SECTION 2. TERMS OF THE WARRANTS; EXERCISE OF THE WARRANTS;
EXERCISE PRICE, ETC.
a. TERM OF THE WARRANTS/VESTING. Subject to the terms of this
Agreement, the Holder shall have the right, which may be exercised from time to
time commencing on the date six months from the Closing until a date five (5)
years from the Closing, to purchase from the Company the number of fully paid
and nonassessable Warrant Shares which the Holder may at the time be entitled to
purchase on exercise of such Warrant. The Warrant shall immediately vest in full
at Closing. If the last day for the exercise of the Warrant shall not be a
business day, then the Warrant may be exercised on the next succeeding business
day.
b. EXERCISE OF THE WARRANTS. The Warrants may be exercised
upon surrender to the Company, at its principal office, of the certificate
evidencing the particular Warrant to be exercised, together with the Purchase
Form on the reverse thereof duly completed and executed, and upon payment to the
Company of the Exercise Price, for the number of Warrant Shares in respect of
which such Warrant is then exercised. Upon partial exercise, a Warrant
certificate for the unexercised portion shall be delivered to the Holder.
Payment of the aggregate Exercise Price shall be made as provided in Section 2.3
below.
Subject to Section 3 hereof, upon such surrender of a Warrant,
a completed Purchase Form, and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate or certificates for the number of full Warrant Shares
so purchased upon the exercise of the particular Warrant; PROVIDED, that any
partial exercise of a Warrant shall be for a whole number of Warrant Shares; and
PROVIDED, FURTHER that upon the full exercise of any then outstanding Warrants
held by a Holder, the Company shall be permitted to make a cash payment to such
Holder in lieu of any fractional Warrant Shares otherwise issuable. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of
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<PAGE> 5
EXECUTION COPY
the particular Warrant, completed Purchase Form, and payment of the Exercise
Price, as aforesaid; PROVIDED, HOWEVER, that if, at the date of surrender of the
particular Warrant, completed Purchase Form, and payment of such Exercise Price,
the transfer books for the Warrant Shares or other class of stock purchasable
upon the exercise of the particular Warrant shall be closed, the certificates
for the Warrant Shares in respect of which the particular Warrant is then
exercised shall be issuable as of the date on which such books shall next be
opened (whether before or after the Expiration Date) and until such date the
Company shall be under no duty to deliver any certificate for such Warrant
Shares; PROVIDED, FURTHER, that the transfer books of record, unless otherwise
required by law, shall not be closed at any one time for a period longer than 20
calendar days.
c. PAYMENT OF THE EXERCISE PRICE. Payment of the Exercise
Price shall be made at the option of the Holder by one or more of the following
methods: (i) by delivery of cash, or a certified or official bank check in the
amount of such Exercise Price, (ii) by instructing the Company to withhold a
number of Warrant Shares then issuable upon exercise of the particular Warrant
with an aggregate Fair Value (as defined in Section 7 hereof) equal to such
Exercise Price (the "Net Exercise Option"), (iii) by surrender to the Company of
Secured Notes or Unsecured Notes in principal amount plus accrued interest equal
to the applicable Exercise Price, or (iv) by surrendering to the Company shares
of Common Stock previously acquired by the Holder with an aggregate Fair Value
equal to such Exercise Price, or any combination of foregoing. In the event of
any withholding of Warrant Stock or surrender of Common Stock pursuant to clause
(ii) or (iv) above where the number of shares whose Fair Value is equal to the
Exercise Price is not a whole number, the number of shares withheld by or
surrendered to the Company shall be rounded down to the nearest whole share.
d. COMPLIANCE WITH GOVERNMENT REGULATIONS. Holder acknowledges
that none of the Warrants or Warrant Shares has been registered under the Act,
and may be sold or disposed of in the absence of such registration only pursuant
to an exemption from such registration and in accordance with this Agreement.
The Warrants and Warrant Shares will bear a legend to the following effect:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES
UNDERLYING THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT."
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<PAGE> 6
EXECUTION COPY
e. EXERCISE PRICE. The price per share at which Warrant Shares
shall be purchasable upon exercise of the Warrant (the "Exercise Price") shall
be $0.01 per share, subject to adjustment pursuant to Section 6 hereof.
SECTION 3. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants and Warrant
Shares upon the exercise of any of the Warrants; PROVIDED, HOWEVER, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issue or delivery of the Warrants or
certificates for Warrant Shares in a name other than that of the Holder of the
particular Warrant.
SECTION 4. MUTILATED OR MISSING WARRANTS. In case the Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant certificate of like tenor and representing an equivalent right or
interest; but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of the particular Warrant certificate
and indemnity or bond, if requested, also reasonably satisfactory to them. An
applicant for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
SECTION 5. RESERVATION OF WARRANT SHARES.
a. RESERVATION OF WARRANT SHARES. There have been reserved,
and the Company shall at all times keep reserved, out of its authorized shares
of Common Stock, a number of shares of Common Stock sufficient to provide for
the exercise of the rights of purchase represented by the outstanding Warrants.
The transfer agent for the Common Stock ("Transfer Agent"), and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid will be and are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized shares as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant. The Company covenants that all Warrant Shares which may be issued upon
exercise of the Warrant will, upon issue, be fully paid, nonassessable, free of
preemptive rights in any third party and free from all taxes, liens, charges and
security interests with respect to the issue thereof. The Company will supply
such Transfer Agent and any subsequent transfer agent with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash which may be payable as provided in Section 8 of this
Agreement. The Company will furnish to such Transfer Agent a copy of all notices
of adjustments, and certificates related thereto, transmitted to each Holder.
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<PAGE> 7
EXECUTION COPY
The particular Warrant surrendered in the exercise of the rights thereby
evidenced shall be canceled by the Company.
b. CANCELLATION OF THE WARRANTS. In the event the Company
shall purchase a Warrant, or otherwise acquire any of the Warrants, the
particular Warrant shall be canceled and retired.
SECTION 6. ADJUSTMENT OF THE EXERCISE PRICE AND NUMBER OF WARRANT
SHARES. The number and kind of securities purchasable upon the exercise of the
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of certain events, as hereinafter defined.
6.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If
at any time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, additional shares of Common Stock,
(b) subdivide its shares of Common Stock outstanding into a
larger number of shares of such Common Stock, or
(c) combine its shares of Common Stock outstanding into a
smaller number of shares of such Common Stock,
then the number of Warrant Shares shall be adjusted so that the Holder
thereafter will be entitled to receive the number of shares of Common Stock that
such Holder would have owned immediately following such action had the Warrant
been exercised immediately prior thereto, and the Exercise Price of the Warrant
shall be adjusted to equal the product of the Exercise Price in effect
immediately prior to such event multiplied by a fraction the numerator of which
is equal to the number of Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and the denominator of which is
equal to the number of Warrant Shares purchasable immediately thereafter, and
thereafter the provisions of this Warrant Agreement shall apply with like effect
to such additional or reclassified shares.
6.2 RIGHTS OFFERINGS, OFFERINGS OF COMMON STOCK, AND OTHER
DISTRIBUTIONS. If at any time the Company shall:
(a) issue rights, options, or warrants to all holders of its
Common Stock in respect of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Fair Value
per share (as determined below) of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such
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EXECUTION COPY
rights, options or warrants, the Holders shall be entitled to subscribe for or
purchase shares of Common Stock on the same terms and to the same extent as the
other holders of Common Stock; PROVIDED, HOWEVER, that the foregoing shall not
apply to any grant of options to purchase Common Stock at an exercise price not
less than Fair Value per share directed to the Company's employees, officers, or
directors pursuant to a plan approved by the Company's board of directors or its
shareholders;
(b) issue shares of Common Stock, Stock Purchase Rights or
Convertible Securities, for a price per share of Common Stock, in the case of
issuance of Common Stock, or for a price per share of Common Stock initially
deliverable upon a conversion or exchange of such securities less than the Fair
Value per share of Common Stock on the date the Company fixed the offering,
conversion or exchange price of such additional shares, the Holders shall be
entitled to participate to the same extent and on the same terms that the
Holders would have been entitled to participate had the Warrants been exercised
immediately prior thereto; or
(c) by dividend or otherwise, distribute to all holders of its
Common Stock cash, evidences of indebtedness, shares of any class of capital
stock or any other property or rights (including securities, but excluding (i)
any dividend or distribution referred to in Section 6.1, and (ii) any merger or
consolidation or other transactions to which Section 6.3 applies), then, in such
event, upon the exercise of the Warrant, the Holder shall receive from the
Company, in addition to the shares of Common Stock to which the Holder is
entitled, any cash, evidences of indebtedness, shares of any class of capital
stock or any other property distributed by the Company with respect to the
shares of Common Stock as to which the exercised Warrant pertains.
In the event of a distribution by the Company to holders of
its shares of Common Stock of stock of a subsidiary or securities convertible
into or exercisable for such stock, then in lieu of an adjustment in the number
of Shares purchasable upon the exercise of any of the Warrants, the Holder of
any of the Warrants, upon the exercise thereof at any time after such
distribution, shall be entitled to receive from the Company, such subsidiary or
both, as the Company shall determine, the stock or other securities to which
such Holder would have been entitled if such Holder had exercised the particular
Warrant immediately prior thereto, all subject to further adjustment as provided
in this Section 6.
6.3 REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION OR DISPOSITION OF ASSETS.
(a) In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is any change whatsoever in, or distribution with respect to, the outstanding
Common Stock of the Company), or sell, transfer or otherwise dispose of
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EXECUTION COPY
all or substantially all of its property, assets or business to another
corporation and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, (i) shares of common stock of
the successor or acquiring corporation or of the Company (if it is the surviving
corporation) or (ii) any cash, shares of stock or other securities or property
of any nature whatsoever (including warrants, options, or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation are to be received by or distributed to the holders of
Common Stock of the Company who are holders immediately prior to such
transaction, then the Holder of the Warrants shall have the right thereafter to
receive from the Company, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and other property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which the Warrants are exercisable
immediately prior to such event.
(b) In case of any such reorganization, reclassification,
merger, consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Agreement to be performed and observed by the Company and all the
obligations and liabilities hereunder. For purposes of this Section 6.4, "common
stock of the successor or acquiring corporation" shall include stock of such
corporation of any class that is not preferred as to dividends or assets over
any other class of stock of such corporation and that is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities that are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Section 6.4 shall
similarly apply to successive reorganizations, reclassification, mergers,
consolidations or disposition of assets.
6.4 ADDITIONAL WARRANTS IF STOCK IS RESTRICTED. If the Warrant
Shares issuable upon exercise of the Warrants are not freely transferrable to
the public on or after a date six months from the Closing pursuant the
Registration Rights Agreement (i.e., restricted), for each month or portion
thereafter that the Warrant Shares remain so restricted the Company shall
provide the Holders with additional Warrants exercisable to purchase 20,000
Warrant Shares to be allocated pro rata among the Holders. The provisions of
this Section 6.4 shall survive the exercise of the Warrants and the termination
of this Agreement.
6.5 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provisions shall be applicable to the adjustments
provided for pursuant to this Section 6:
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(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this Section 6 shall be made whenever and as often as any specified event
requiring such an adjustment shall occur. For the purpose of any such
adjustment, any specified event shall be deemed to have occurred at the close of
business in New York on the date of its occurrence.
(b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 6, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution to which the provisions of Section 6 would
apply, but shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
(d) CERTAIN LIMITATIONS. Notwithstanding anything herein to
the contrary, the Company agrees not to enter into any transaction that, by
reason of any adjustment under Section 6 above, would cause the Exercise Price
to be less than the par value of the Common Stock, if any, unless the Company
first reduces the par value of the Common Stock to be less than the Exercise
Price that would result from such transaction.
(e) NOTICE OF ADJUSTMENTS. Whenever the number of shares of
Common Stock for which the Warrants are exercisable or the Exercise Price shall
be adjusted pursuant to this Section 6, the Company forthwith shall prepare a
certificate to be executed by either the chief executive or chief financial
officer of the Company setting forth, in reasonable detail, the event requiring
the adjustment and the method by which such adjustment was calculated,
specifying the number of shares of Common Stock for which the Warrants are
exercisable and (if such adjustment was made pursuant to Section 6.3) describing
the number and kind of any other shares of stock or other property for which the
Warrants are exercisable, and any related change in the Exercise Price, after
giving effect to such adjustment or change. The Company shall promptly deliver a
signed copy of such certificate to the Holder in accordance with Section 12. The
Company shall keep at its principal office copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by any Holder or any prospective transferee of any Warrants
designated by a Holder thereof.
(f) INDEPENDENT APPLICATION. Except as otherwise provided
herein, all subsections of this Section 6 are intended to operate independently
of one another (but without duplication). If an event occurs that requires the
application of more than one subsection, all applicable subsections shall be
given independent effect without duplication.
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SECTION 7. DEFINITIONS.
As used in this Warrant Agreement, the following terms shall
have the following respective meanings:
ACT shall mean the Securities Act of 1933, as amended.
BUSINESS DAY shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in New York.
CLOSING means the date of closing of the Note Purchase Agreement.
COMMON STOCK means the Common Stock of the Company, $0.01 par value per
share, and any capital stock into which such Common Stock may thereafter be
changed, and shall also include (i) capital stock of the Company of any other
class (regardless of how denominated) issued to the holders of shares of any
Common Stock upon any reclassification thereof which is also not preferred as to
dividends or liquidation over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 6.4 hereof) received by or
distributed to the holders of Common Stock of the Company in the circumstances
contemplated by Section 6.4 hereof.
CONVERTIBLE SECURITIES shall mean evidences of indebtedness, shares of
stock or other securities that are convertible into or exchangeable for, with or
without payment of additional consideration in cash or property, shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
CURRENT MARKET PRICE shall mean as of any specified date the average of
the Daily Market Price of the Common Stock of the Company for the twenty (20)
consecutive Trading Days immediately preceding such date. The "Daily Market
Price" for each such Trading Day shall be the closing price of the Common Stock
on the principal stock exchange or market on which such stock is actually
traded.
FAIR VALUE means, per share of Common Stock as of any specified date,
(i) if the Common Stock is publicly traded on such date, the Current Market
Price per share or (ii) if the Common Stock is not publicly traded on such date,
the fair market value per share of Common Stock shall be agreed upon in good
faith between the Holders and the Company.
OUTSTANDING shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
and
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outstanding shares of Common Stock, except shares then owned or held by or for
the account of the Company or any Subsidiary thereof.
PERSON shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
PREEMPTIVE RIGHT means a right of a stockholder to preempt or to
purchase before others a new issue of shares in proportion to one's present
interest in the Company.
REGISTRATION RIGHTS AGREEMENT means that certain Registration Rights
Agreement of even date herewith by and among the Company, Seneca and Fleming.
SECURED NOTE PURCHASE AGREEMENT shall have the meaning set forth in the
recitals.
STOCK PURCHASE RIGHTS shall mean any options, warrants or other
securities or rights to subscribe to or exercisable for the purchase of shares
of Common Stock or Convertible Securities, whether or not immediately
exercisable.
TRADING DAY means any day that the principal stock exchange or market on
which the securities of the Company are traded is open for trading.
UNSECURED NOTE PURCHASE AGREEMENT shall have the meaning set forth in
the recitals.
SECTION 8. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Warrant Shares on the exercise of the Warrant. If any fraction
of a Warrant Shares would, except for the provisions of this Section 8, be
issuable on the exercise of the Warrant (or specified portion thereof), the
Company shall round up such share to an additional whole share of Common Stock.
SECTION 9. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDER. Nothing
contained in either this Agreement or the Warrant shall be construed as
conferring upon the Holder or its permitted transferees the right to vote or to
receive dividends or to consent to or receive notice as a stockholder in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter, or any rights whatsoever as a stockholder of the Company.
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SECTION 10. INSPECTION OF WARRANT AGREEMENT. The Company shall keep
copies of this Agreement and any notices given or received hereunder available
for inspection by the Holder during normal business hours at its principal
office.
SECTION 11. IDENTITY OF TRANSFER AND WARRANT AGENT. Forthwith upon the
appointment of any subsequent transfer agent for the Common Stock or Warrant
Agent, or any other shares of the Company's capital stock issuable upon the
exercise of the Warrant, the Company will notify the Holder of the name and
address of such subsequent transfer agent.
SECTION 12. NOTICES. Any notice pursuant to this Agreement by any
Holder to the Company, shall be in writing and shall be mailed first class,
postage prepaid, or delivered to the Company at its office at 507 Forest Avenue,
Carnegie, PA 15106.
Each party hereto may from time to time change the address to
which notices to it are to be delivered or mailed hereunder by notice in writing
to the other party. Any notice mailed pursuant to this Agreement by the Company
or the Warrant Agent to the Holder shall be in writing and shall be mailed first
class, postage prepaid, or delivered to the Holder at its address on the books
of the Warrant Agent.
SECTION 13. EXPENSES, ETC. Whether or not the transactions contemplated
hereby are consummated, the Company agrees, jointly and severally to pay all
costs and expenses (including reasonable attorneys' fees of a special counsel
and, if reasonably required, local or other counsel) incurred by the Holders in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement or the Note Documents (whether
or not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend), including any expenses
incurred in any appeals, any rights under this Agreement or the Note Documents
or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Note
Documents, or by reason of being a Holder of Warrants, and (b) the costs and
expenses, including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or in connection with any work-out or
restructuring of the transactions contemplated hereby and by the Note Documents.
The Company will pay, and will save each Holder harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by such Holder). The obligations of the Company under this
SECTION 13 will survive the enforcement, amendment or waiver of any provision of
this Agreement or the Note Documents, and the termination of this Agreement and
the Note Documents
SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW
OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION
OTHER THAN
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SUCH STATE. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, AND
REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF
THE OBLIGORS OR THE HOLDERS, OBLIGORS HEREBY CONSENT AND AGREE THAT THE SUPREME
COURT OF NEW YORK COUNTY, NEW YORK OR, AT AGENT'S OPTION, THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SHALL HAVE THE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OBLIGORS AND
AGENT PERTAINING TO THIS AGREEMENT OR ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT. OBLIGORS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND OBLIGORS
HEREBY WAIVE ANY OBJECTION WHICH COMPANY MAY HAVE BASED ON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENT TO THE
GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. OBLIGORS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE OBLIGORS AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETE UPON THE EARLIER OF THE OBLIGOR'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT
THE RIGHT OF THE AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE AGENT OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
SECTION 15. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS AND HOLDERS WAIVE
ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a)
ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO
HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE OBLIGORS AND THE HOLDERS WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN
OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE, OBLIGORS AND HOLDERS AGREE AND CONSENT THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE OBLIGORS AND
HOLDERS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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OBLIGORS AND HOLDERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT
WITH COUNSEL REGARDING THIS SECTION THAT THEY FULLY UNDERSTAND ITS TERMS,
CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS
OF THIS SECTION.
SECTION 16. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 17. MERGER OR CONSOLIDATION OF THE COMPANY. So long as the
Warrant remains outstanding, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
SECTION 18. AMENDMENTS AND WAIVERS. This Agreement may not be modified
or amended except by an instrument or instruments in writing signed by the
Company and a majority of the Holders (by number of shares). Either the Company
or any Holder may, by an instrument in writing, waive compliance by the other
party with any term or provision of this Agreement on the part of such other
party hereto to be performed or complied with. The waiver by any such party of a
breach of any term or provision of this Agreement shall not be construed as a
waiver by any other party or of any subsequent breach.
SECTION 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation, other than the Company and
the Holder, any legal or equitable right, remedy or claim under this Agreement,
but this Agreement shall be for the sole and exclusive benefit of the Company
and the Holder.
SECTION 20. AGREEMENT IN CONFIDENCE. This Agreement and its terms and
the relationship between the Company and the Holder and its principals shall be
kept confidential by the Holder and its affiliates and by Company and its
affiliates and will not be disclosed by either of them except to the extent that
as a matter of law it must be disclosed by either party in any document filed
with any government agency or authority and available for public inspection or
as may be required to be disclosed in connection with the Company's sale of its
capital stock or assets or its merger, reorganization, consolidation or similar
event.
SECTION 21. INTERPRETATION. No provision of this Agreement or any of
the other Note Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.
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SECTION 22. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 23. CAPTIONS. The captions of the Sections of this Agreement
have been inserted for convenience only and shall have no substantive effect.
SECTION 24. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all, of the
parties hereto.
* * *
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Exhibit 10.11
REGISTRATION RIGHTS AGREEMENT
dated as of April 16, 1998
among
NATIONAL RECORD MART, INC.
a Delaware corporation
and
THE HOLDERS OF REGISTRABLE SECURITIES
REFERRED TO HEREIN
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of
April 16, 1998, by and among NATIONAL RECORD MART, INC., a Delaware corporation
(the "Company"), ROBERT FLEMING INC., a Delaware corporation ("Fleming"), and
SENECA CAPITAL L.P., a Delaware limited partnership ("Seneca" and collectively
with Fleming, the "Holders").
RECITALS
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WHEREAS, pursuant to that certain Senior Secured Subordinated
Note Purchase Agreement of even date herewith, by and among the Company, Fleming
and the Guarantors referred to therein (the "Secured Note Purchase Agreement"),
the Purchasers of Secured Notes (as defined in the Secured Note Purchase
Agreement) received warrants exercisable to acquire 200,000 shares of the
Company's common stock;
WHEREAS, pursuant to that certain Senior Subordinated Note
Purchase Agreement of even date herewith, by and among the Company, Fleming,
Seneca and the Guarantors referred to therein (the "Unsecured Note Purchase
Agreement"), the Purchasers of Unsecured Notes (as defined in the Unsecured Note
Purchase Agreement) received warrants exercisable to acquire 200,000 shares of
the Company's common stock (the warrants issued to the Purchasers of the Secured
Notes and the Unsecured Notes being, collectively, the "Warrants");
WHEREAS, the Company and Holders of Warrants issued pursuant
to the Secured Note Purchase Agreement and the Unsecured Note Purchase Agreement
hereby desire to set forth the Holders' rights and the Company's obligations to
cause the registration pursuant to the Securities Act of 1933 of the shares of
common stock received or receivable upon the exercise of the Warrants;
NOW, THEREFORE, in consideration of the agreement by the
Holders to provide the benefits under the Secured Note Purchase Agreement and
the Unsecured Note Purchase Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
Section 1. AGREEMENTS AND REPRESENTATIONS OF THE COMPANY.
1.1. The Company represents and warrants to the
Holders that it has the requisite power and authority to execute, deliver and
carry out this Agreement and has taken all necessary action to approve this
Agreement and to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly and properly executed and
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delivered by the Company and constitutes the legally valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
Section 2. DEFINITIONS AND USAGE.
As used in this Agreement:
2.1. DEFINITIONS.
AGENT. "Agent" means the principal placement agent
on an agented placement of Registrable Securities.
COMMISSION. "Commission" shall mean the Securities
and Exchange Commission.
COMMON STOCK. "Common Stock" shall mean (i) the
common stock, $0.01 par value, of the Company, and (ii) shares of capital stock
of the Company issued by the Company in respect of or in exchange for shares of
such common stock in connection with any stock dividend or distribution, stock
split-up, recapitalization, recombination or exchange by the Company generally
of shares of such common stock.
CONTINUOUSLY EFFECTIVE. "Continuously Effective,"
with respect to a specified registration statement, shall mean that it shall not
cease to be effective and available for Transfers of Registrable Securities
thereunder for longer than either (i) any ten (10) consecutive business days, or
(ii) an aggregate of fifteen (15) business days during any calendar year during
the period specified in the relevant provision of this Agreement.
DEMAND REGISTRATION. "Demand Registration" shall
have the meaning set forth in SECTION 5.1.
DEMANDING HOLDERS. "Demanding Holders" shall have
the meaning set forth in Section 5.1.
EXCHANGE ACT. "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended and the rules and regulations
promulgated thereunder.
HOLDERS. "Holders" shall mean Robert Fleming Inc.
and Seneca Capital L.P., and Transferees of such Persons' Registrable Securities
with respect to the rights that such Transferees shall have acquired in
accordance with SECTION 9, at such times as such Persons shall have beneficial
or record ownership of Registrable Securities.
MAJORITY OF THE HOLDERS. A "Majority of the Holders"
means those Holders holding at any time a majority of the Registrable Securities
and Transferees of such
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Persons' Registrable Securities with respect to the rights that such Transferees
shall have acquired in accordance with SECTION 9, at such times as such Persons
shall have beneficial or record ownership of Registrable Securities.
PERSON. "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
PIGGYBACK REGISTRATION. "Piggyback Registration" shall have
the meaning set forth in Section 4.
PIGGYBACK SHELF REGISTRATION. "Piggyback Shelf Registration"
shall have the meaning set forth in Section 4.
REGISTER, REGISTERED AND REGISTRATION. "Register,"
"registered," and "registration" shall refer to a registration effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act, and the declaration or ordering by the Commission of
effectiveness of such registration statement or document.
REGISTRABLE SECURITIES. "Registrable Securities" shall mean,
subject to SECTION 9 and SECTION 12.2: (i) the Shares owned by a Holder on the
date of determination, (ii) any shares of Common Stock or other securities
issued or issuable upon the conversion or exercise of the Warrants or issued as
a dividend or other distribution with respect to, or in exchange by the Company
generally for, or in replacement by the Company generally of, such Shares; and
(iii) any securities issued in exchange for Shares in any merger or
reorganization of the Company; PROVIDED, HOWEVER, that Registrable Securities
shall not include any Shares which have theretofore been registered and sold
pursuant to the Securities Act or which have been sold to the public pursuant to
Rule 144 or any similar rule promulgated by the Commission pursuant to the
Securities Act, and, PROVIDED FURTHER, the Company shall have no obligation
under SECTIONS 3 and 4 to register any Registrable Securities of a Holder if the
Company shall deliver to the Holders requesting such registration an opinion of
counsel reasonably satisfactory to such Holders and its counsel to the effect
that the proposed sale or disposition of all of the Registrable Securities for
which registration was requested does not require registration under the
Securities Act for any sales or dispositions of such shares within the period
set forth in Rule 144(e), currently three (3) months. For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable Securities
whenever such Person has the then-existing right to acquire such Registrable
Securities (by conversion, subscription or otherwise), whether or not such
acquisition has actually been effected.
REGISTRABLE SECURITIES THEN OUTSTANDING. "Registrable
Securities then outstanding" shall mean, with respect to a specified
determination date, the Registrable Securities owned by all Holders on such
date.
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REGISTRATION EXPENSES. "Registration Expenses" shall have the
meaning set forth in SECTION 7.1.
SECURED NOTE PURCHASE AGREEMENT. "Secured Note Purchase
Agreement" shall have the meaning set forth in the RECITALS.
SECURITIES ACT. "Securities Act" shall mean the Securities Act
of 1933, as amended and the rules and regulations promulgated thereunder.
SELLING HOLDERS. "Selling Holders" shall mean, with respect to
a specified registration pursuant to this Agreement, Holders whose Registrable
Securities are included in such registration.
SHARES. "Shares" shall mean the shares of Common Stock
acquired on exercise of a Warrant.
TRANSFER. "Transfer" shall mean and include the act of
selling, giving, transferring, creating a trust (voting or otherwise), assigning
or otherwise disposing of (other than pledging, hypothecating or otherwise
transferring as security) (and correlative words shall have correlative
meanings); PROVIDED HOWEVER, that any transfer or other disposition upon
foreclosure or other exercise of remedies of a secured creditor after an event
of default under or with respect to a pledge, hypothecation or other transfer as
security shall constitute a "Transfer".
UNDERWRITERS' REPRESENTATIVE. "Underwriters' Representative
shall mean the managing underwriter, or, in the case of a co-managed
underwriting, the managing underwriter designated as the Underwriters'
Representative by the co-managers.
UNSECURED NOTE PURCHASE AGREEMENT. "Unsecured Note Purchase
Agreement" shall have the meaning set forth in the RECITALS.
VIOLATION. "Violation" shall have the meaning set forth in
SECTION 8.1.
WARRANT. "Warrant" or "Warrants" shall have the meaning set
forth in the RECITALS.
2.2. USAGE.
(i) References to a Person are also references to its assigns
and successors in interest (by means of merger, consolidation or sale of all or
substantially all the assets of such Person or otherwise, as the case may be).
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(ii) References to Registrable Securities "owned" by a Holder
shall include Registrable Securities beneficially owned by such Person but which
are held of record in the name of a nominee, trustee, custodian, or other agent,
but shall exclude shares of Common Stock held by a Holder in a fiduciary
capacity for customers of such Person.
(iii) References to a document are to it as amended, waived
and otherwise modified from time to time and references to a statute or other
governmental rule are to it as amended and otherwise modified from time to time
(and references to any provision thereof shall include references to any
successor provision).
(iv) References to Sections or to Schedules or Exhibits are to
sections hereof or schedules or exhibits hereto, unless the context otherwise
requires.
(v) The definitions set forth herein are equally applicable
both to the singular and plural forms and the feminine, masculine and neuter
forms of the terms defined.
(vi) The term "including" and correlative terms shall be
deemed to be followed by "without limitation" whether or not followed by such
words or words of like import.
(vii) The term "hereof" and similar terms refer to this
Agreement as a whole.
(viii) The "date of" any notice or request given pursuant to
this Agreement shall be determined in accordance with SECTION 15.
Section 3. SHELF REGISTRATION
3.1. Pursuant to Rule 415 of the Securities Act,
the Company covenants that it shall have a registration statement pertaining to
the Registerable Securities on Form S-3 filed with and declared effective by
the Commission within six months of the date first written above and said
registration statement shall thereafter remain Continuously Effective for a
period not less than thirty-six (36) months from the date first written above.
Any Registration Expenses incurred by the Company pursuant to this Section
shall be borne solely by the Company.
3.2. If at any time prior to the thirty-six (36)
month period set forth in SECTION 3.1, the registration statement filed in
accordance with SECTION 3.1 ceases to be Continuously Effective the Holders
shall be entitled to Piggyback Registration rights set forth in SECTION 4 and
Demand Registration rights set forth in SECTION 5.
Section 4. PIGGYBACK REGISTRATIONS.
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4.1. Subject to SECTION 3.2, if at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for holders of the Company's securities other than the Holders)
securities under the Securities Act in connection with the public offering
solely for cash on Form S-1, S-2 or S-3 (or any replacement or successor forms),
the Company shall promptly give each Holder of Registrable Securities written
notice of such registration (a "Piggyback Registration"). Upon the written
request of each Holder given within 20 days following the date of such notice,
the Company shall cause to be included in such registration statement and use
its best efforts to be registered under the Securities Act all the Registrable
Securities that each such Holder shall have requested to be registered. The
Company shall have the absolute right to withdraw or cease to prepare or file
any registration statement for any offering referred to in this SECTION 4
without any obligation or liability to any Holder.
4.2. If the Underwriters' Representative or Agent shall advise
the Company in writing (with a copy to each Selling Holder) that, in its
opinion, the amount of Registrable Securities requested to be included in such
Piggyback Registration would materially adversely affect such offering, or the
timing thereof, then the Company will include in such registration, to the
extent of the amount and class which the Company is so advised can be sold
without such material adverse effect in such offering: First, all securities
proposed to be sold by the Company for its own account and, if applicable, all
securities proposed to be sold by such holders other than the Holders for which
such registration is made, in accordance with the agreement between the Company
and such holders; second, the Registrable Securities requested to be included in
such registration by Holders pursuant to this SECTION 4, third, all other
securities being registered pursuant to the exercise of contractual rights
comparable to the rights granted in this SECTION 3, pro rata based on the
estimated gross proceeds from the sale thereof; and fourth, all other securities
requested to be included in such registration.
4.3. Each Holder shall be entitled to have its Registrable
Securities included in an unlimited number of Piggyback Registrations pursuant
to this SECTION 4.
4.4. If the Company has previously filed a registration
statement with respect to Registerable Securities pursuant to SECTION 5 or
pursuant to this SECTION 4 pursuant to which Registerable Securities were sold,
and if such previous registration has not been withdrawn or abandoned, the
Company will not file or cause to be effected any other registration of any of
its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-4, S-8 or any equivalent or successor forms thereto), whether on its own
behalf or at the request of any holder or holders of such securities, until a
period of 180 days has elapsed from the effective date of such a previous
registration, or, if such registration was for an underwritten offering, such
shorter period of days as the Underwriter's Representative or Agent shall have
given its consent.
Section 5. DEMAND REGISTRATION.
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5.1.
(i) Subject to SECTION 3.2, if the Holders of at least 30% of
the Registrable Securities make a written request to the Company (the "Demanding
Holders"), the Company shall cause there to be filed with the Commission a
registration statement meeting the requirements of the Securities Act (a "Demand
Registration"), and each Demanding Holder shall be entitled to have included
therein (subject to SECTION 5.6) all or such number of such Demanding Holder's
Registrable Securities, as the Demanding Holder shall request in writing;
provided, however, that no request may be made pursuant to this SECTION 5.1 if
within six (6) months prior to the date of such request a registration statement
pursuant to this SECTION 5.1 shall have been declared effective by the
Commission. Such Demand Registration shall be effected by the Company by means
of a shelf registration pursuant to Rule 415 of the Securities Act if so
requested by the Demanding Holders. Any request made pursuant to this SECTION
5.1 shall be addressed to the attention of the Secretary of the Company, and
shall specify the number of Registrable Securities to be registered, the
intended methods of disposition thereof and that the request is for a Demand
Registration pursuant to this SECTION 5.1(i). The Holders shall be entitled to
no more than two (2) Demand Registrations.
(ii) The Company shall be entitled to postpone for up to
ninety (90) days the filing of any registration statement otherwise required to
be prepared and filed pursuant to this SECTION 5.1, if the Board determines, in
its good faith reasonable judgment (with the concurrence of the managing
underwriter, if any), that such registration and the Transfer of Registrable
Securities contemplated thereby would materially interfere with, or require
premature disclosure of, any financing, acquisition or reorganization involving
the Company or any of its wholly owned subsidiaries and the Company promptly
gives the Demanding Holders notice of such determination; PROVIDED, HOWEVER,
that the Company shall not have postponed pursuant to this SECTION 5.1(ii) the
filing of any other registration statement otherwise required to be prepared and
filed pursuant to this SECTION 5.1 during the twelve (12) month period ended on
the date of the relevant request pursuant to SECTION 5.1(i).
(iii) Whenever the Company shall have received a demand
pursuant to SECTION 5.1(i) to effect the registration of any Registrable
Securities, the Company shall promptly give written notice of such proposed
registration to all Holders. Any such Holder may, within twenty (20) days after
receipt of such notice, request in writing that all of such Holder's Registrable
Securities, or any portion thereof designated by such Holder, be included in the
registration.
(iv) Subject to SECTION 5.6, in connection with
an underwritten offering, the Company and, with the approval of the Company,
other holders of Common Stock (other than Holders) shall be given the
opportunity to include shares of Common Stock in such offering ("Other Included
Shares").
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5.2. Following receipt of a request for a Demand
Registration, the Company shall:
(i) File the registration statement with the
Commission as promptly as practicable, and shall use all reasonable efforts to
have the registration declared effective under the Securities Act as soon as
reasonably practicable, in each instance giving due regard to the need to
prepare current financial statements, conduct due diligence and complete other
actions that are reasonably necessary to effect a registered public offering.
(ii) Use all reasonable efforts to keep the
registration statement Continuously Effective for up to two hundred seventy
(270) days or until such earlier date as of which all the Registrable Securities
under the registration statement shall have been disposed of in the manner
described in the Registration Statement, or such earlier time as the Company
would not have any obligation to include the Registrable Securities that have
not been disposed of in the manner described in the Registration Statement in a
registration pursuant to SECTION 5 or SECTION 4 or the Registerable Securities
are no longer Registerable Securities under the definition of "Registrable
Securities." Notwithstanding the foregoing, if for any reason the effectiveness
of a registration pursuant to this SECTION 5 is suspended or, in the case of a
Demand Registration, postponed as permitted by SECTION 5.1(ii), the foregoing
period shall be extended by the aggregate number of days of such suspension or
postponement.
5.3. The Company shall be obligated to effect no
more than a total of two (2) Demand Registrations. For purposes of the preceding
sentence, registration shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective, (ii) if after
such registration statement has become effective, such registration or the
related offer, sale or distribution of Registrable Securities thereunder is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason not
attributable to the Selling Holders and such interference is not thereafter
eliminated, or (iii) if the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such registration are not
satisfied or waived, other than by reason of a failure on the part of the
Selling Holders. If the Company shall have complied with its obligations under
this Agreement, a right to a Demand Registration pursuant to this SECTION 5
shall be deemed to have been satisfied upon the earlier of the date as of which
all of the Registrable Securities included therein shall have been disposed of
pursuant to the Registration Statement or the date as of which such Demand
Registration shall have been Continuously Effective for a period of two hundred
seventy (270) days, or such earlier time as the Company would not have any
obligation to include the Registrable Securities that have not been disposed of
in the manner described in the Registration Statement in a registration pursuant
to SECTION 5 or SECTION 4, or the Registerable Securities are no longer
Registerable Securities under the definition of "Registrable Securities." Any
Demand Registration Statement which, after filing with the Commission is
withdrawn by the Holders, shall be deemed to have been effective in determining
the number of Demand Registrations the Company is obligated to effect hereunder.
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5.4. A registration pursuant to this SECTION 5
shall be on such appropriate registration form of the Commission as shall (i) be
selected by the Company and be reasonably acceptable to the Demanding Holders
and (ii) permit the disposition of the Registrable Securities in accordance with
the intended method or methods of disposition specified in the request pursuant
to SECTION 5.1(i).
5.5. If any registration pursuant to SECTION 5
involves an underwritten offering (whether on a "firm," "best efforts" or "all
reasonable efforts" basis or otherwise), or an agented offering, the Demanding
Holders, shall have the right to select the underwriter or underwriters and
manager or managers to administer such underwritten offering or the placement
agent or agents for such agented offering; PROVIDED, HOWEVER, that each Person
so selected shall be reasonably acceptable to the Company.
5.6. Whenever the Company shall effect a
registration pursuant to this SECTION 5 in connection with an underwritten
offering by one or more Selling Holders of Registrable Securities: if the
Underwriters' Representative or Agent advises each such Selling Holder in
writing that, in its opinion, the amount of securities requested to be included
in such offering (whether by Selling Holders or others) exceeds the amount which
can be sold in such offering within a price range acceptable to the Demanding
Holders, securities shall be included in such offering and the related
registration, to the extent of the amount which can be sold within such price
range, and on a pro rata basis among all Selling Holders; first for the account
of the Demanding Holders, second by all other Selling Holders and third by the
Company and other holders with respect to the Other Included Shares.
Section 6. REGISTRATION PROCEDURES. Whenever required under
SECTION 4 or SECTION 5 to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as practicable:
6.1. Prepare and file with the Commission a
registration statement with respect to such Registrable Securities and use the
Company's best efforts to cause such registration statement to become effective;
PROVIDED, HOWEVER, that before filing a registration statement or prospectus or
any amendments or supplements thereto, including documents incorporated by
reference after the initial filing of the registration statement and prior to
effectiveness thereof, the Company shall furnish to one firm of counsel for the
Selling Holders (selected by the Demanding Holders) copies of all such documents
in the form substantially as proposed to be filed with the Commission at least
four (4) business days prior to filing for review and comment by such counsel,
which opportunity to comment shall include an absolute right to control or
contest disclosure if the applicable Selling Holder reasonably believes that it
may be subject to controlling person liability under applicable securities laws
with respect thereto.
6.2. Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such
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registration statement as may be necessary to comply with the provisions of the
Securities Act and rules thereunder with respect to the disposition of all
securities covered by such registration statement. If the registration is for an
underwritten offering, the Company shall amend the registration statement or
supplement the prospectus whenever required by the terms of the underwriting
agreement entered into pursuant to SECTION 6.2. The Company shall amend the
registration statement or supplement the prospectus so that it will remain
current and in compliance with the requirements of the Securities Act for the
period after its effective date during which the Demand Registration is to be
kept Continuously Effective by the Company pursuant to SECTION 5.2(ii), and if
during such period any event or development occurs as a result of which the
registration statement or prospectus contains a misstatement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, the Company shall promptly notify
each Selling Holder, amend the registration statement or supplement the
prospectus so that each will thereafter comply with the Securities Act and
furnish to each Selling Holder of Registrable Securities such amended or
supplemented prospectus, which each such Holder shall thereafter use in the
Transfer of Registrable Securities covered by such registration statement.
Pending such amendment or supplement each such Holder shall cease making offers
or Transfers of Registrable Securities pursuant to the prior prospectus. In the
event that any Registrable Securities included in a registration statement
subject to, or required by, this Agreement remain unsold at the end of the
period during which the Company is obligated to use all reasonable efforts to
maintain the effectiveness of such registration statement, the Company may file
a post-effective amendment to the registration statement for the purpose of
removing such Securities from registered status.
6.3. Furnish to each Selling Holder of
Registrable Securities, without charge, such number of copies of the
registration statement, any pre-effective or post-effective amendment thereto,
the prospectus, including each preliminary prospectus and any amendments or
supplements thereto, in each case in conformity with the requirements of the
Securities Act and the rules thereunder, and such other related documents as any
such Selling Holder may reasonably request in order to facilitate the
disposition of Registrable Securities owned by such Selling Holder.
6.4. Use all reasonable efforts (i) to register
and qualify the securities covered by such registration statement under such
other securities or Blue Sky laws of such states or jurisdictions as shall be
reasonably requested by the Underwriters' Representative or Agent (as
applicable, or if inapplicable, the Demanding Holders) and (ii) to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of the offer and transfer of any of the Registrable
Securities in any jurisdiction, at the earliest possible moment; PROVIDED,
HOWEVER, that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such state or jurisdiction.
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6.5. In the event of any underwritten or agented
offering, enter into and perform the Company's obligations under an underwriting
or agency agreement (including indemnification and contribution obligations of
underwriters or agents), in usual and customary form, with the managing
underwriter or underwriters of or agents for such offering. The Company shall
also cooperate with the Demanding Holders and the Underwriters' Representative
or Agent for such offering in the marketing of the Registrable Securities,
including making available the Company's officers, accountants, counsel,
premises, books and records for such purpose, but the Company shall not be
required to incur any material out-of-pocket expense pursuant to this sentence.
6.6. Promptly notify each Selling Holder of any
stop order issued or threatened to be issued by the Commission in connection
therewith (and take all reasonable actions required to prevent the entry of such
stop order or to remove it if entered).
6.7. Make generally available to the Company's
security holders copies of all periodic reports, proxy statements, and other
information referred to in SECTION 11.1 and an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act no later than 90 days
following the end of the 12-month period beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of each
registration statement filed pursuant to this Agreement.
6.8. Make available for inspection by any
Selling Holder, any underwriter participating in such offering and the
representatives of such Selling Holder and Underwriter (but not more than one
firm of counsel to such Selling Holders), all financial and other information as
shall be reasonably requested by them, and provide the Selling Holder, any
underwriter participating in such offering and the representatives of such
Selling Holder and Underwriter the opportunity to discuss the business affairs
of the Company with its principal executives and independent public accountants
who have certified the audited financial statements included in such
registration statement, in each case all as necessary to enable them to exercise
their due diligence responsibility under the Securities Act; PROVIDED, HOWEVER,
that information that the Company determines, in good faith, to be confidential
and which the Company advises such Person in writing, is confidential shall not
be disclosed unless such Person signs a confidentiality agreement reasonably
satisfactory to the Company or the related Selling Holder of Registrable
Securities agrees to be responsible for such Person's breach of confidentiality
on terms reasonably satisfactory to the Company.
6.9. Use the Company's commercially reasonable
efforts to obtain a so-called "comfort letter" from its independent public
accountants, and legal opinions of counsel to the Company addressed to the
Selling Holders, in customary form and covering such matters of the type
customarily covered by such letters, and in a form that shall be reasonably
satisfactory to Demanding Holders. The Company shall furnish to each Selling
Holder a signed counterpart of any such comfort letter or legal opinion.
Delivery of any such opinion or comfort letter shall be subject to the recipient
furnishing such written
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representations or acknowledgments as are customarily provided by selling
shareholders who receive such comfort letters or opinions.
6.10. Provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement.
6.11. Use all reasonable efforts to cause the
Registrable Securities covered by such registration statement (i) if the Common
Stock is then listed on a securities exchange or included for quotation in a
recognized trading market, to continue to be so listed or included for a
reasonable period of time after the offering, and (ii) to be registered with or
approved by such other United States or state governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable the Selling Holders of Registrable Securities to consummate
the disposition of such Registrable Securities.
6.12. Use the Company's reasonable efforts to
provide a CUSIP number for the Registrable Securities prior to the effective
date of the first registration statement including Registrable Securities.
6.13. Take such other actions as are reasonably
required in order to expedite or facilitate the disposition of Registrable
Securities included in each such registration.
Section 7. HOLDERS' OBLIGATIONS. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Agreement with respect to the Registrable Securities of any Selling Holder of
Registrable Securities that such Selling Holder shall:
7.1. Furnish to the Company such information
regarding such Selling Holder, the number of the Registrable Securities owned
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Selling Holder's Registrable
Securities, and to cooperate with the Company in preparing such registration.
7.2. If applicable, agree to sell their Registrable
Securities to the underwriters at the same price and on substantially the same
terms and conditions as the Company or the other Persons on whose behalf the
registration statement was being filed have agreed to sell their securities,
and to execute the underwriting agreement agreed to by the Demanding Holders
(in the case of a registration under SECTION 5), or the Company and the Selling
Holders (in the case of a registration under SECTION 4).
Section 8. EXPENSES OF REGISTRATION. Expenses in connection
with registrations pursuant to this Agreement shall be allocated and paid as
follows:
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8.1. With respect to each Demand Registration, the
Company shall bear and pay all expenses incurred in connection with any
registration, filing, or qualification of Registrable Securities with respect
to such Demand Registration for each Selling Holder (which right may be
assigned to any Person to whom Registrable Securities are Transferred as
permitted by SECTION 9), including all registration, filing and The Nasdaq
Stock Market's National Market fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the reasonable fees and
disbursements of counsel for the Company, and of the Company's independent
public accountants, including the expenses of "cold comfort" letters required
by or incident to such performance and compliance (the "Registration
Expenses"), but excluding underwriting discounts and commissions relating to
Registrable Securities (which shall be paid on a pro rata basis by the Selling
Holders).
8.2. The Company shall bear and pay all
Registration Expenses incurred in connection with any Piggyback Registrations
or Piggyback Shelf Registration pursuant to SECTION 4 for each Selling Holder
(which right may be Transferred to any Person to whom Registrable Securities
are Transferred as permitted by SECTION 9), but excluding underwriting
discounts and commissions relating to Registrable Securities (which shall be
paid on a pro rata basis by the Selling Holders of Registrable Securities).
8.3. Any failure of the Company to pay any
Registration Expenses as required by this SECTION 7 shall not relieve the
Company of its obligations under this Agreement.
Section 9. INDEMNIFICATION; CONTRIBUTION. If any Registrable
Securities are included in a registration statement under this Agreement,
including a Shelf Registration:
9.1. To the extent permitted by applicable law, the
Company shall indemnify and hold harmless each Selling Holder, each Person, if
any, who controls such Selling Holder within the meaning of the Securities Act,
and each officer, director, partner, employee, agent and consultant of such
Selling Holder and such controlling Person, against any and all losses, claims,
damages, liabilities and expenses (joint or several), including attorneys' fees
and disbursements and expenses of investigation, incurred by such party
pursuant to any actual or threatened action, suit, proceeding or investigation,
or to which any of the foregoing Persons may become subject under the
Securities Act, the Exchange Act or other federal or state laws, insofar as
such losses, claims, damages, liabilities and expenses arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein, or any amendments
or supplements thereto;
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(ii) The omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
(iii) Any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any applicable state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
applicable state securities law;
PROVIDED, HOWEVER, that the indemnification required by this SECTION 8.1 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company by the indemnified party expressly for use in
connection with such registration; PROVIDED, FURTHER, that the indemnity
agreement contained in this SECTION 8 shall not apply to any underwriter to the
extent that any such loss is based on or arises out of an untrue statement or
alleged untrue statement of a material fact, or an omission or alleged omission
to state a material fact, contained in or omitted from any preliminary
prospectus if the final prospectus shall correct such untrue statement or
alleged untrue statement, or such omission or alleged omission, and a copy of
the final prospectus has not been sent or given to such person at or prior to
the confirmation of sale to such person if such underwriter was under an
obligation to deliver such final prospectus and failed to do so. The Company
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers, directors, agents and employees and each person who controls such
persons (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Selling Holders.
9.2. To the extent permitted by applicable law, each Selling
Holder shall indemnify and hold harmless the Company, each of its directors,
each of its officers who shall have signed the registration statement, each
Person, if any, who controls the Company within the meaning of the Securities
Act, any other Selling Holder, any controlling Person of any such other Selling
Holder and each officer, director, partner, and employee of such other Selling
Holder and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint and several), including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may otherwise become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration; PROVIDED, HOWEVER, that the indemnification required by this
SECTION 8.2 shall not apply to amounts paid in settlement of
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any such loss, claim, damage, liability or expense if settlement is effected
without the consent of the relevant Selling Holder of Registrable Securities,
which consent shall not be unreasonably withheld.
9.3. Promptly after receipt by an indemnified party under this
SECTION 8 of notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing for which such indemnified party
may make a claim under this SECTION 8, such indemnified party shall deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and disbursements and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time following the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this SECTION
8 but shall not relieve the indemnifying party of any liability that it may have
to any indemnified party otherwise than pursuant to this SECTION 8. Any fees and
expenses incurred by the indemnified party (including any fees and expenses
incurred in connection with investigating or preparing to defend such action or
proceeding) shall be paid to the indemnified party, as incurred, within thirty
(30) days of written notice thereof to the indemnifying party; PROVIDED,
HOWEVER, that if it is ultimately determined that an indemnified party is not
entitled to indemnification hereunder such indemnified party shall be obligated
to repay the indemnifying party. Any such indemnified party shall have the right
to employ separate counsel in any such action, claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be the expenses of such indemnified party unless (i) the indemnifying
party has agreed to pay such fees and expenses or (ii) the indemnifying party
shall have failed to promptly assume the defense of such action, claim or
proceeding or (iii) the named parties to any such action, claim or proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to it which are
different from or in addition to those available to the indemnifying party and
that the assertion of such defenses would create a conflict of interest such
that counsel employed by the indemnifying party could not faithfully represent
the indemnified party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of
such indemnified party, it being understood, however, that the indemnifying
party shall not, in connection with any one such action, claim or proceeding or
separate but substantially similar or related actions, claims or proceedings in
the same jurisdiction arising out of the same general
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allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties. No indemnifying party
shall be liable to an indemnified party for any settlement of any action,
proceeding or claim without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld.
9.4. If the indemnification required by this SECTION 8 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to in
this SECTION 8:
(i) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as the relative benefits received by indemnifying party and indemnified parties.
The relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any Violation has been
committed by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Violation. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in SECTION 8.1 and SECTION 8.2, any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this SECTION 8.4 were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in SECTION 8.4(i). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
9.5. If indemnification is available under this SECTION 8, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in this Section 8 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in SECTION 8.4.
9.6. The obligations of the Company and the Selling Holders of
Registrable Securities under this SECTION 8 shall survive the completion of any
offering of Registrable Securities pursuant to a registration statement under
this Agreement, and otherwise.
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Section 10. TRANSFER OF REGISTRATION RIGHTS. Rights with
respect to Registrable Securities may be Transferred as follows: (i) the rights
of a Holder to require a Demand Registration pursuant to SECTION 5 may be
Transferred to any Person in connection with the Transfer to such Person by such
Holder of at least 1,000 shares or share equivalents of Registrable Securities,
and (ii) the rights of a Holder to participate in a Piggyback or Piggyback Shelf
Registration pursuant to SECTION 4 may be Transferred by such Holder to any
Person in connection with the Transfer of Registrable Securities to such Person,
in all cases, if (x) any such Transferee that is not a party to this Agreement
shall have executed and delivered to the Secretary of the Company a properly
completed agreement substantially in the form of EXHIBIT A, and (y) the
Transferor shall have delivered to the Secretary of the Company, no later than
15 days following the date of the Transfer, written notification of such
Transfer setting forth the name of the Transferor, name and address of the
Transferee, and the number of Registrable Securities which shall have been so
Transferred.
Section 11. HOLDBACK. Each Holder entitled pursuant to this
Agreement to have Registrable Securities included in a Demand Registration
statement prepared pursuant to this Agreement, if so requested by the
Underwriters' Representative or Agent in connection with an offering of any
Registrable Securities, shall not effect any public sale or distribution of
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock, including a sale pursuant to Rule 144
under the Securities Act (except as part of such underwritten or agented
registration), during the 5-day period prior to, and during such period as the
Underwriter's Representative or Agent may request, not to exceed a period of 180
days, beginning on, the date such registration statement is declared effective
under the Securities Act by the Commission PROVIDED that such Holder is timely
notified of such effective date in writing by the Company or such Underwriters'
Representative or Agent, and PROVIDED, FURTHER, that this SECTION 11 shall apply
to a distribution of Registerable Securities pursuant to Section 3. In order to
enforce the foregoing covenant, the Company shall be entitled to impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder until the end of such period.
Section 12. COVENANTS OF THE COMPANY. The Company hereby
agrees and covenants as follows:
12.1. The Company shall file as and when applicable, on a
timely basis, all reports required to be filed by it under the Exchange Act. If
the Company is not required to file reports pursuant to the Exchange Act, upon
the request of any Holder of Registrable Securities, the Company shall make
publicly available the information specified in Rule 144 of the Securities Act,
and take such further action as may be reasonably required from time to time and
as may be within the reasonable control of the Company, to enable the Holders to
Transfer Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 under the
Securities Act or any similar rule or regulation hereafter adopted by the
Commission.
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12.2. (i) The Company shall not, and shall not permit its
majority owned subsidiaries to, effect any public sale or distribution of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock, during the five business days prior to,
and during the 180-day period beginning on, the commencement of a public
distribution of the Registrable Securities pursuant to any registration pursuant
to this Agreement (other than by the Company pursuant to such registration);
PROVIDED, HOWEVER, that the provisions of this SECTION 12.2(i) shall not apply
to a distribution of Registerable Securities pursuant to SECTION 3.
(ii) Any agreement entered into after the date of this
Agreement pursuant to which the Company or any of its majority owned
subsidiaries issues or agrees to issue any privately placed securities similar
to any issue of the Registrable Securities (other than (x) shares of Common
Stock pursuant to a stock incentive, stock option, stock bonus, stock
subscription or other employee benefit plan of the Company approved by its Board
of Directors, and (y) securities issued to Persons in exchange for ownership
interests in any Person in connection with a business combination in which the
Company or any of its majority owned subsidiaries is a party) shall contain a
provision whereby holders of such securities agree not to effect any public sale
or distribution of any such securities during the periods described in the first
sentence of SECTION 11.2(i), in each case including a sale pursuant to Rule 144
under the Securities Act (unless such Person is prevented by applicable statute
or regulation from entering into such an agreement) PROVIDED, HOWEVER, that the
provisions of this SECTION 12.2(ii) shall not apply to a distribution of
Registerable Securities pursuant to SECTION 3.
12.3. The Company shall not, directly or indirectly, (x) enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation or (y) Transfer or agree to Transfer all or
substantially all the Company's assets, unless prior to such merger,
consolidation, reorganization or asset Transfer, the surviving corporation or
the Transferee, respectively, shall have agreed in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Securities" shall be deemed to include the securities
which the Holders of Registrable Securities would be entitled to receive in
exchange for Registrable Securities pursuant to any such merger, consolidation
or reorganization.
12.4. The Company shall not grant to any Person (other than a
Holder of Registrable Securities) any registration rights with respect to
securities of the Company, or enter into any agreement, that would (i) entitle
the holder thereof to have securities owned by it included in a Demand
Registration or (ii) be inconsistent with the terms of this Agreement.
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Section 13. AMENDMENT, MODIFICATION AND WAIVERS; FURTHER
ASSURANCES.
(i) This Agreement may be amended with the consent of the
Company, and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent of Holders owning Registrable Securities
possessing a Majority of the Registrable Securities then outstanding to such
amendment, action or omission to act.
(ii) No waiver of any terms or conditions of this Agreement
shall operate as a waiver of any other breach of such terms and conditions or
any other term or condition, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
No written waiver hereunder, unless it by its own terms explicitly provides to
the contrary, shall be construed to effect a continuing waiver of the provisions
being waived and no such waiver in any instance shall constitute a waiver in any
other instance or for any other purpose or impair the right of the party against
whom such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision.
(iii) Each of the parties hereto shall execute all such
further instruments and documents and take all such further action as any other
party hereto may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 14. ASSIGNMENT; BENEFIT. This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, assigns, executors, administrators or
successors; PROVIDED, HOWEVER, that except as specifically provided herein with
respect to certain matters, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by the Company
without the prior written consent of Holders owning Registrable Securities
possessing a majority in number of the Registrable Securities outstanding on the
date as of which such delegation or assignment is to become effective. A Holder
may Transfer its rights with respect to requiring Demand Registrations and
Piggyback Registrations hereunder to a successor in interest to the Registrable
Securities owned by such assignor only as permitted by SECTION 9.
Section 15. MISCELLANEOUS.
15.1. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW
OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION
OTHER THAN SUCH STATE. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR
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PRINCIPAL PLACE OF BUSINESS OF THE COMPANY OR HOLDERS, THE COMPANY HEREBY
CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK OR, AT
HOLDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK SHALL HAVE THE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN THE COMPANY AND HOLDER(S) PERTAINING TO THIS AGREEMENT OR
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. THE COMPANY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH
COMPANY MAY HAVE BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
NON CONVENIENS AND HEREBY CONSENT TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. THE COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT
THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETE UPON THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF A HOLDER TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY A HOLDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.
15.2. WAIVER OF RIGHT TO TRIAL BY JURY. THE
COMPANY AND HOLDERS WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT
OR INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE COMPANY
AND THE HOLDERS WITH RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR
INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, THE COMPANY AND HOLDERS AGREE
AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE COMPANY AND HOLDERS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY. THE COMPANY AND HOLDERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO
CONSULT WITH COUNSEL REGARDING THIS
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SECTION THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND EFFECT,
AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF
THIS SECTION.
15.3. NOTICES. All notices and requests given pursuant to this
Agreement shall be in writing and shall be made by hand-delivery, first-class
mail (registered or certified, return receipt requested), confirmed facsimile or
overnight air courier guaranteeing next business day delivery to the relevant
address specified on SCHEDULE I to this Agreement or in the relevant agreement
in the form of EXHIBIT A whereby such party became bound by the provisions of
this Agreement. Except as otherwise provided in this Agreement, the date of each
such notice and request shall be deemed to be, and the date on which each such
notice and request shall be deemed given shall be: at the time delivered, if
personally delivered or mailed; when receipt is acknowledged, if sent by
facsimile; and the next business day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next business day delivery.
15.4. ENTIRE AGREEMENT; INTEGRATION. This Agreement supersedes
all prior agreements between or among any of the parties hereto with respect to
the subject matter contained herein and therein, and such agreements embody the
entire understanding among the parties relating to such subject matter.
15.5. INJUNCTIVE RELIEF. Each of the parties hereto
acknowledges that in the event of a breach by any of them of any material
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. Each of the parties therefore agrees that in the event of such a
breach hereof the aggrieved party may elect to institute and prosecute
proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach hereof. By seeking or obtaining
any such relief, the aggrieved party shall not be precluded from seeking or
obtaining any other relief to which it may be entitled.
15.6. SECTION HEADINGS. Section headings are for convenience
of reference only and shall not affect the meaning of any provision of this
Agreement.
15.7. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
15.8. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
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15.9. FILING. A copy of this Agreement and of all amendments
thereto shall be filed at the principal executive office of the Company and with
the transfer agent for the Common Stock of the Company.
15.10. TERMINATION. This Agreement may be terminated or
amended at any time by a written instrument signed by the Holders of greater
than seventy-five percent (75%) of the Registerable Securities. Unless sooner
terminated in accordance with the preceding sentence, this Agreement (other than
SECTION 8 hereof) shall terminate in its entirety at the earlier of (i) such
date as there shall be no Registrable Securities outstanding, (ii) such date as
the registration statement filed pursuant to SECTION 3.1 shall have remained
Continuously Effective for thirty-six (36) months, or (iii) the fifth
anniversary of the date hereof, PROVIDED that any shares of Common Stock
previously subject to this Agreement shall not be Registrable Securities
following the sale of any such shares in an offering registered pursuant to this
Agreement.
15.11. EXPENSES, ETC. Whether or not the transactions
contemplated hereby are consummated, the Company agrees, jointly and severally
to pay all costs and expenses (including reasonable attorneys' fees of a special
counsel and, if reasonably required, local or other counsel) incurred by the
Holders in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement or the
Note Documents (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses incurred
in enforcing or defending (or determining whether or how to enforce or defend),
including expenses incurred in any appeals, any rights under this Agreement or
the Note Documents or in responding to any subpoena or other legal process or
informal investigative demand issued in connection with this Agreement or the
Note Documents, or by reason of being a Holder, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of the Company or in connection with any work-out or restructuring
of the transactions contemplated hereby and by the Note Documents. The Company
will pay, and will save each Holder harmless from, all claims in respect of any
fees, costs or expenses if any, of brokers and finders (other than those
retained by such Holder). The obligations of the Company under this SECTION
14.11 will survive the enforcement, amendment or waiver of any provision of this
Agreement or the Note Documents, and the termination of this Agreement and the
Note Documents.
15.12. NO THIRD PARTY BENEFICIARIES. Nothing herein expressed
or implied is intended to confer upon any person, other than the parties hereto
or their respective permitted assigns, successors, heirs and legal
representatives, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
15.13. INTERPRETATION. No provision of this Agreement or any
of the other Note Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.
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Exhibit 10.12
EXECUTION COPY
TAG ALONG AGREEMENT
-------------------
THIS TAG ALONG AGREEMENT (this "AGREEMENT") dated as of April
16, 1998, by and among NATIONAL RECORD MART INC., a Delaware corporation (the
"COMPANY"), SENECA CAPITAL L.P., a Delaware limited partnership ("SENECA"),
ROBERT FLEMING INC., a Delaware corporation ("FLEMING" and with Seneca, the
"SENIOR HOLDERS") and those certain holders of shares of common stock of the
Company, par value $0.01, (the "COMMON STOCK") listed on the attached Schedule A
(collectively referred to as the "SELLING HOLDERS"). Terms used herein are
defined below.
WITNESSETH
----------
WHEREAS, pursuant to that certain Senior Subordinated Secured
Note Purchase Agreement of even date herewith, by and among the Company, Fleming
and the Guarantors referred to therein (the "SECURED NOTE PURCHASE AGREEMENT"),
Fleming has purchased $7,500,000 in aggregate principal amount of the Company's
11.75% Senior Subordinated Secured Notes due 2001(the "SECURED NOTES") and is to
receive warrants to acquire 200,000 shares of Common Stock;
WHEREAS, pursuant to that certain Senior Subordinated Note
Purchase Agreement of even date herewith, by and among the Company, Seneca,
Fleming and the Guarantors referred to therein (the "UNSECURED NOTE PURCHASE
AGREEMENT"), Fleming and Seneca have purchased $7,500,000 in aggregate principal
amount of the Company's 11.75% Senior Subordinated Notes due 2001 (the
"UNSECURED NOTES") and are to receive warrants to acquire 200,000 shares of
Common Stock (the warrants issued pursuant to the Secured Note Purchase
Agreement and Unsecured Note Purchase Agreement being, collectively, the
"WARRANTS");
WHEREAS, the Selling Holders are stockholders of the Company
and as such are interested in the welfare of the Company and will benefit if the
Secured Notes and Unsecured Notes are purchased from the Company; and
WHEREAS, it is a condition precedent to the purchase of
Secured Notes and Unsecured Notes that the Selling Holders shall have executed
and delivered this Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the
premises set forth herein and as an inducement for Purchasers of Secured Notes
and Unsecured Notes to extend credit to the Company, and intending to be legally
bound hereby, agree as follows:
1. DEFINITIONS. Terms used in this Agreement and not defined below
shall have the meanings set forth in the Secured Note Purchase Agreement.
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"AFFILIATE" means, at any time, and with respect to any
Person, any other Person that at such time directly or indirectly through one or
more intermediaries Controls, or is Controlled by, or is under common Control
with, such Person. As used in this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"FAMILY MEMBER OF THE SELLING HOLDER" means, with respect to a
proposed Transfer of Shares by a Selling Holder, the spouse, issue or adopted
child of such Selling Holder.
"PRO RATA" shall mean with respect to any offer of securities,
an offer based on the relative percentages of such securities then held by all
of the Persons to whom such offer is made. By way of example, if a Selling
Holder sells or has sold in one or more transactions an aggregate of 85% of its
Shares, then the Senior Holders shall be entitled to sell 85% of the Common
Stock (or an equivalent number of Warrants) they hold.
"SHARES" means the shares held by the Selling Holders as
indicated on Exhibit A hereto.
"TRANSFER" means any volitional change in the record or
beneficial ownership of a Selling Holder's Shares and shall include a change due
to sale, assignment, gift or any other disposition. A pledge or other grant of
security interest in the Shares shall not be deemed a Transfer for purposes of
this Agreement.
"TRANSFEREE" means the Person to whom Shares are to be
Transferred.
"TRANSFEROR" means a Selling Holder who desires to Transfer
Shares hereunder.
2. GENERAL PROVISIONS REGARDING TRANSFER.
2.1 GENERAL RESTRICTIONS. So long as this Agreement shall
remain in force, no Shares may be Transferred to a Transferee unless such
Transfer is made in compliance with Sections 3 and 4 this Agreement.
2.2 TRANSFERS VOID. Any Transfer of the Shares in violation of
this Agreement shall be void and of no force and effect. Upon a Senior Holder's
notice to the Company's transfer agent of a Transfer in violation of this
Agreement, the transfer agent shall not effect said Transfer.
3. TRANSFERS NOT SUBJECT TO TAG ALONG.
3.1 PERMITTED TRANSFERS. The following Transfers shall not be
subject to the tag along right set forth in Section 4 hereof (each, a "Permitted
Transfer"):
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(a) CERTAIN TRANSFERS BY SELLING HOLDERS.
Subject to the restrictions set forth in Section 6, each Selling Holder who is
not a natural person or any subsequent holder of the Shares initially held by
such Selling Holder may Transfer any or all of its Shares to any Affiliate of
such Selling Holder. Any Shares, or interest therein, transferred pursuant to
this Section 3.1(a)(i) may be subsequently transferred back to the Transferor.
(b) INTER VIVOS TRANSFERS. Subject to the
restrictions set forth in Section 6, any Selling Holder who is a natural person
may Transfer any or all of his or her Shares to a trust primarily for such
Selling Holder's benefit or a trust for the benefit of a Family Member of the
Selling Holder so long as such Selling Holder acts as the trustee or co-trustee
of such trust. Any Shares transferred pursuant to this Section 3.1(a)(ii) may
subsequently be transferred back to the transferor.
(c) TESTAMENTARY TRANSFERS. Subject to the
restrictions set forth in Section 6, any Selling Holder who is a natural person
may, upon the death of such Selling Holder, Transfer by gift, will or intestacy
any or all of his or her Shares to any other Person.
3.2 OTHER SHARES. Notwithstanding the fact that a particular
Transfer of Shares may be a Permitted Transfer, the tag along right set forth in
Section 4 shall be applicable to any subsequent transfer of such Shares, unless
any such subsequent Transfer shall also constitute a Permitted Transfer
hereunder.
3.3 NOTICES. A Selling Holder who desires to Transfer Shares
as a Permitted Transfer shall notify the Senior Holders of the foregoing prior
to the closing of the Transfer and provide such details of the Transfer as to
enable the Senior Holders to determine if the Transfer complies with Sections 2
and 3 hereof.
3.4 TRANSFEREE ACKNOWLEDGMENT. The Transferee shall deliver to
the Senior Holders a written acknowledgment reasonably satisfactory in form and
substance to the Senior Holders that the Shares delivered in a Permitted
Transfer are subject to this Agreement and that such Transferee and such
Transferee's successors in interest are bound hereby. The Shares transferred by
all Transferees in a Permitted Transfer shall be aggregated with the Shares held
by all of the Holders hereunder in determining whether the Senior Holders are
entitled to Tag Along rights.
4. TAG-ALONG RIGHT. Each Selling Holder of Shares agrees that, subject
to Section 2 and except as provided in Section 3 hereof, such Holder will not
Transfer any Shares, or any right, title or interest therein, unless and until
such Holder shall have first complied with the provisions set forth in this
Section 4.
(a) TRANSFER NOTICE. A Transferor who desires in good faith to
Transfer Shares that would confer Tag Along rights under Section 4(b) pursuant
to a bona fide written offer to purchase such Shares received from an
unaffiliated, third party shall deliver a written
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notice of the proposed Transfer (the "Transfer Notice") to the Senior Holders.
The Transfer Notice shall contain a description of the proposed transaction and
the terms thereof including the number of Shares proposed to be transferred
(collectively, the "Transfer Shares"), the name of the Transferor, the name of
each Transferee, a description of the consideration to be received by the
Transferor upon Transfer of the Transfer Shares and the proposed closing
arrangements. The Transfer Notice shall be accompanied by a copy of the bona
fide written third party offer. No offer shall be considered bona fide, and no
Transfer to a Transferee shall be permissible, unless the consideration for the
Transfer involved is to consist of cash, recourse promissory notes of a
credit-worthy Transferee or a combination of cash and such promissory notes.
(b) TAG ALONG RIGHT. If the proposed Transfer would constitute
when aggregated with all prior Transfers of any Selling Holder and Transferees
thereof other than a Permitted Transfer, a Transfer of Common Stock representing
more than eighty-five percent (85%) of the outstanding Common Stock of the
Company held by the Selling Holders as measured on April 16, 1998 (with
appropriate adjustments for stock splits, dividends, reverse splits and other
similar events), then in either case the Transferor shall make no sale or
Transfer to the Transferee of such shares unless the Senior Holders shall be
offered the right (which shall be accepted or rejected within thirty (30) days
of receipt of the notice set forth in Section 4(a) above) to sell to the
Transferee on terms and conditions at least as favorable to the Transferee as
set out in the Transfer Notice, their Pro Rata (as to the Transferor) portion of
such Transfer Shares (and the Senior Holders may in lieu of selling shares of
the Company's Common Stock sell Warrants to purchase the same). This provision
shall be applied to each individual Transfer by each individual Transferor.
(c) TRANSFER OF SHARES. Transfers of Shares pursuant to offers
subject to this Section 4 made and accepted in accordance with this Section 4
and to a Transferee shall occur simultaneously on a business day not more than
thirty (30) days after the last date on which any offer made in accordance with
this Section 4 could have been accepted.
5. COVENANT OF THE SELLING HOLDERS. Each Selling Holder covenants that
upon any Transfer of Shares subject to this Agreement, the Selling Holder shall
provide written notice to the Transferee that the Shares are subject to the
terms of this Agreement and shall provide such Transferee with a copy of this
Agreement upon request.
6. ALL SHARES SUBJECT TO THIS AGREEMENT. All Shares shall be held
subject to the terms of this Agreement and the holder thereof shall be deemed a
Selling Holder for purposes of this Agreement, as follows:
6.1 Any Shares hereafter held by any Person shall be held by
such Person subject to the provisions of this Agreement and such Person shall be
deemed to be a "Selling Holder" for all purposes of this Agreement;
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6.2 Any Selling Holder who ceases to own any Shares as
provided for in this Agreement shall cease to be a Selling Holder for purposes
of this Agreement, except that such Selling Holder shall be responsible for any
subsequent Transfers in violation of this Agreement by a Transferor who obtained
such Shares through a Permitted Transfer;
6.3 If William Teitelbaum's employment is terminated by the
Company, unless such termination is directly or indirectly related to a Transfer
of the Shares, the Shares owned by William Teitelbaum shall cease to be subject
to this Agreement; and
6.4 The provisions of this Agreement shall be deemed to apply
equally to any security or other Shares or other securities distributed in
respect of the Shares.
7. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will be deemed an original but all of which will
constitute one and the same.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto and contains all of the agreements among such parties
with respect to the subject matter hereof. This Agreement supersedes any and all
other agreements, either oral or written, between such parties with respect to
the subject matter hereof.
9. PARTIAL INVALIDITY. Wherever possible, each provision hereof shall
be interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.
10. AMENDMENT. Except as expressly provided herein, this Agreement may
be amended only by a written agreement executed by all Selling Holders.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH
STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER
THAN SUCH STATE. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED,
AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS
OF THE SENIOR HOLDERS OR SELLING HOLDERS, THE SELLING HOLDERS HEREBY CONSENT AND
AGREE THAT THE SUPREME COURT OF NEW YORK COUNTY, NEW YORK OR, AT SENIOR HOLDER'S
OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
SHALL HAVE THE EXCLUSIVE JURISDICTION TO BEAR AND DETERMINE ANY CLAIMS OR
- 5 -
<PAGE> 6
EXECUTION COPY
DISPUTES BETWEEN SENIOR HOLDERS AND SELLING HOLDERS PERTAINING TO THIS AGREEMENT
OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. SELLING HOLDERS
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND SELLING HOLDERS HEREBY WAIVE ANY OBJECTION
WHICH SELLING HOLDERS MAY HAVE BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENT TO THE GRANTING FOR SUCH LEGAL
OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. SELLING HOLDERS
HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED
IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE
SELLING HOLDERS AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETE UPON THE EARLIER OF THE SELLING HOLDER'S ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT
THE RIGHT OF THE SENIOR HOLDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE SENIOR HOLDER OF ANY
JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
AGREEMENT TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
12. FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Selling Holder shall execute and deliver
any additional documents and instruments and perform any additional acts that
may be necessary or appropriate to effectuate and perform the provisions of this
Agreement and such transactions.
13. NOTICES. All notices, requests, and other communications made or
given in connection with this Agreement shall be in writing and, unless receipt
is stated herein to be required shall be deemed to have been validly given if
delivered personally against receipt by private carrier, registered or certified
mail, return receipt requested, or by telecopy with the original forwarded by
first class mail, in all cases with charges prepaid, addressed as follows, or
delivered to the individual or division or department to whose attention notices
to a party are to be addressed, until some other address (or individual or
division or department for attention) shall have been designated by notice given
by a party to the other:
To Senior Holders: Robert Fleming Inc.
320 Park Avenue, 11th Floor
New York, NY 10022
Attn: Michael Rowe
Telecopier: (212) 508-3679
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<PAGE> 7
EXECUTION COPY
and
Seneca Capital L.P.
830 Third Avenue, 14th Floor
New York, NY 10022
Attn: Doug Hirsch
Telecopier: (212) 758-6060
To Company: National Record Mart, Inc.
507 Forest Avenue
Carnegie, PA 15106-2873
Attn: Theresa Carlise
Telecopy: (412) 276-6201
To the Selling Holders: See Schedule A
14. MISCELLANEOUS. Subject to the provisions of this Agreement relating
to transferability, this Agreement will be binding upon and shall inure to the
benefit of the parties, and their respective distributees, heirs, successors and
assigns. If any party hereto is a partnership, all provisions of this Agreement
applicable to such party shall be binding upon and include not only the
partnership but each and all of the partners thereof individually. This
Agreement may not be modified except in writing executed by the party against
which enforcement of such modification is sought. The rights granted to Senior
Holders hereby shall be in addition to any other rights of Senior Holders under
any other subordination agreement, if any, now or hereafter outstanding. All
rights and remedies of Senior Holders shall be cumulative. The provisions of
this Agreement shall operate only in favor of and only for the benefit of Senior
Holders, their successors and assigns, and not in favor of or for the benefit of
any Selling Holder or any other person or entity. Whenever Senior Holder's
consent is required or permitted, such consent shall be in the sole and absolute
discretion of Senior Holder.
15. SEVERABILITY. If any provision herein shall for any reason be held
invalid or unenforceable, no other provision shall be affected thereby, and this
Agreement shall be construed as if the invalid or unenforceable provision had
never been a part of it.
16. WAIVER OF RIGHT TO TRIAL BY JURY. SENIOR HOLDERS AND SELLING
HOLDERS WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO
HEREIN OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE, SENIOR HOLDERS AND SELLING
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<PAGE> 8
EXECUTION COPY
HOLDERS AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS
AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS SECTION WITH ANY
COURT AS WRITTEN EVIDENCE OF THE SENIOR HOLDERS AND SELLING HOLDERS TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY. SENIOR HOLDERS AND SELLING HOLDERS
ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING
THIS SECTION THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND EFFECT, AND THAT
THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS SECTION.
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<PAGE> 9
EXECUTION COPY
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the day, month and year first above written.
THE COMPANY:
NATIONAL RECORD MART, INC.,
a Delaware corporation
By: /s/ Theresa Carlise
--------------------------
Name: Theresa Carlise
Title:CFO
THE SELLING HOLDERS: THE SENIOR HOLDERS:
William Teitelbaum ROBERT FLEMING, INC.,
a Delaware corporation
/s/ William Teitelbaum
- -----------------------------
William Teitelbaum By: ????
----------------------------
Name:
Title:
SENECA CAPITAL L.P.
a Delaware limited partnership
By: ????
----------------------------
Name:
Title:
SIGNATURE PAGE 1 OF 1
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000904535
<NAME> NATIONAL RECORD MART
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> MAR-28-1998
<CASH> 384,304
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 37,000,610
<CURRENT-ASSETS> 40,077,672
<PP&E> 25,108,592
<DEPRECIATION> 15,006,851
<TOTAL-ASSETS> 52,540,068
<CURRENT-LIABILITIES> 16,186,075
<BONDS> 0
0
0
<COMMON> 50,379
<OTHER-SE> 16,908,077
<TOTAL-LIABILITY-AND-EQUITY> 52,540,068
<SALES> 112,488,429
<TOTAL-REVENUES> 112,488,429
<CGS> 69,524,955
<TOTAL-COSTS> 69,524,955
<OTHER-EXPENSES> 39,726,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,859,661
<INCOME-PRETAX> 1,377,509
<INCOME-TAX> 484,861
<INCOME-CONTINUING> 892,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 892,648
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
