<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996 Commission File No. 0-24134
------------- -------
INTEGRITY INCORPORATED
----------------------
(Exact name of registrant as specified in its charter)
Delaware 63-0952549
- -------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Cody Road
Mobile, Alabama 36695
----------------------
(Address of principal executive offices, zip code)
(334) 633-9000
--------------
(Registrant's telephone number, including area code)
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 at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 9, 1996
- ----- -----------------------------
Class A Common Stock, $.01 par value 2,079,000
Class B Common Stock, $.01 par value 3,435,000
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
INTEGRITY INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
JUN 30, 1996 DEC 31, 1995
----------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,861 $ 1,045
Trade receivables, less allowance for returns and doubtful 5,721 5,191
accounts of $1,435 and $1,676
Other receivables 873 1,927
Inventories 3,659 4,068
Prepaid expenses and other assets 2,814 3,474
-------- --------
Total current assets 14,928 15,705
Property and equipment, net 4,984 4,936
Product masters, net of accumulated amortization of $1,824 and 10,416 9,986
$3,161
Non-compete agreement, net of accumulated amortization of $770 and 480 605
$645
Other assets, net 3,286 3,427
-------- --------
Total assets $ 34,094 $ 34,659
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt and capital lease obligation $18,765 $18,018
Accounts payable and accrued expenses 2,293 2,384
Royalties payable 299 960
Other current liabilities 244 395
-------- --------
Total current liabilities 21,601 21,757
Deferred revenue 186 209
-------- --------
Total liabilities 21,787 21,966
-------- --------
Stockholders' equity
Common stock 55 55
Additional paid-in capital 12,035 12,035
Retained earnings 415 762
Foreign currency translation (198) (159)
-------- --------
Total stockholders' equity 12,307 12,693
-------- --------
Total liabilities and stockholders' equity $ 34,094 $ 34,659
======== ========
</TABLE>
1
<PAGE> 3
INTEGRITY INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
-----------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenue $ 6,432 $ 9,442 $ 16,194 $ 19,535
Cost of Sales 2,453 3,317 6,801 6,978
-------- -------- -------- --------
Gross Profit 3,979 6,125 9,393 12,557
Marketing and Fulfillment 2,130 4,337 5,306 7,706
General and Administrative 2,069 2,277 3,865 3,899
-------- -------- -------- --------
(Loss) income from Operations (220) (489) 222 952
Other Income (Expenses)
Interest (442) (225) (781) (327)
Other 3 (10) (25) (36)
-------- -------- -------- --------
(Loss) income before taxes (659) (724) (584) 589
(Benefit from) provision for income (262) (279) (237) 205
taxes -------- -------- -------- --------
Net (loss) income $ (397) $ (445) $ (347) $ 384
======== ======== ======== ========
Net Income (loss) per Share $ (0.07) $ (0.08) $ (0.06) $ 0.07
======== ======== ======== ========
Weighted average number of
shares outstanding 5,514 5,514 5,514 5,514
======== ======== ======== ========
</TABLE>
2
<PAGE> 4
INTEGRITY INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Equity
Class A Class B Additional Adjustments
Common Stock Common Stock Paid-in Retained from
Shares Amount Shares Amount Capital Earnings Translations Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995 2,079,000 21 3,435,000 34 12,035 3,643 (123) 15,610
Net income (loss) (445) (445)
Translation adjustments (36) (36)
----------- ------ --------- ----- -------- -------- -------- --------
Balance, June 30, 1995 2,079,000 21 3,435,000 34 12,035 3,198 (159) 15,129
Net income (loss) (1,070) (1,070)
Translation adjustments 54 54
----------- ------ ------- ----- -------- -------- -------- --------
Balance, September 30, 1995 2,079,000 21 3,435,000 34 12,035 2,128 (105) 14,113
Net income (loss) (1,366) (1,366)
Translation adjustments (54) (54)
----------- ------ --------- ----- -------- -------- -------- -----
Balance December 31, 1995 2,079,000 21 3,435,000 34 12,035 762 (159) 12,693
Net income (loss) 50 50
Translation adjustments 51 51
---------- ------ --------- ----- -------- -------- -------- --------
Balance, March 31, 1996 2,079,000 21 3,435,000 34 12,035 812 (108) 12,794
Net income (loss) (397) (397)
Translation adjustments (90) (90)
---------- ------ --------- ----- -------- -------- -------- --------
Balance, June 30, 1996 2,079,000 $ 21 3,435,000 $ 34 $ 12,035 $ 415 $ (198) $ 12,307
========== ====== ========= ===== ======== ======== ======== ========
</TABLE>
3
<PAGE> 5
INTEGRITY INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30 JUNE 30
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES (UNAUDITED) (UNAUDITED)
--------------- ---------------
<S> <C> <C>
Net (loss) income $ (347) 384
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 585 449
Amortization of product masters 1,395 971
Allowance for returns and doubtful accounts (241) 453
Changes in operating assets and liabilities
Increase in trade receivables (289) (1,409)
Decrease (increase) in other receivables 1,054 (614)
Decrease (increase) in inventories 409 (492)
Decrease in prepaid and other assets 660 342
Decrease in accounts payable and accrued expenses (91) (532)
Decrease in royalties payable (661) (158)
Decrease in other current liabilities and deferred revenue (174) (500)
------- -------
Net cash provided (used) by operating activities 2,300 (1,106)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (449) (1,318)
Payments for product masters (1,825) (3,606)
Increase in other assets 82 (873)
------- -------
Net cash used in investing activities (2,192) (5,797)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit 1,068 7,460
Proceeds for issuance of long-term debt -- 3,000
Principal payments on debt (321) (2,797)
------- -------
Net cash provided by financing activities 747 7,663
------- -------
Effect of foreign currency rate fluctuations on cash (39) 56
------- -------
Increase in cash 816 816
CASH BEGINNING OF PERIOD 1,045 229
------- -------
CASH END OF PERIOD $ 1,861 $ 1,045
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 740 $ 327
======= =======
Income taxes $ 0 $ 683
======= =======
</TABLE>
4
<PAGE> 6
INTEGRITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
Integrity Incorporated (the "Company" or "Integrity") is a producer and
publisher of Christian lifestyle products developed to facilitate worship,
entertainment and education. Product formats include cassettes, compact discs,
videos and songbooks. The Company produces Christian music ranging from praise
and worship music, its largest category, to other styles of adult contemporary
Christian music and children's music. Integrity's products are sold primarily
through retail stores and direct mail throughout the United States and in over
110 other countries worldwide.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
financial statements contained in the Company's Annual Report dated December
31, 1995. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the quarter ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Net income (loss) per share of common stock is computed by dividing net
income (loss) applicable to common stock by the weighted average number of
shares of common stock outstanding during the periods. The effect of the
Company's outstanding stock options on earnings per share is not significant.
5
<PAGE> 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Total net revenue decreased $3.3 million or 17.1% to $16.2 million for the
six months ended June 30, 1996, from $19.5 million during the six months ended
June 30, 1995. The decrease is partly attributable to lower direct response
sales as a result of fewer direct response marketing promotions in 1996.
During the second quarter the transition to the Word distribution sales force
was completed. The transition, while successful, did have an impact on retail
sales. The retail division for the quarter was down 66.3%. International
sales continue to show increases over the prior period up 39.5% for the quarter
and 9.7% for the six months ended June 30, 1996. For the quarter ended June
30, 1996, total net revenue decreased 31.9% to $6.4 million, from $9.4 million
for the same period in 1995. New product sales in all divisions amounted to
$4.5 million or 27.9% of net revenue for the year-to-date 1996.
Gross profit decreased 25.2% to $9.4 million for the six months ended June
30, 1996 from $12.6 million for the same period in 1995. Gross profit as a
percentage of sales decreased to 58.0% for the six months ended June 30, 1996,
from 64.3% for the same period in 1995. Second-quarter results as compared
with the prior year period, reflected a decrease of 35.0% to $4.0 million, from
$6.1 million for the same period in 1995. Retail sales experienced some margin
pressure in the first six months with gross margin declining from 56.1% in 1995
to 51.3% in 1996. Also in an effort to reduce inventory levels, the direct,
international and retail divisions conducted special inventory clearance sales
with low gross margins.
Marketing and fulfillment expenses decreased 31.1% to $5.3 million or
32.8% of net sales for the six months ended June 30, 1996, as compared with
$7.7 million or 39.4% of net sales for the same period in 1995. For the
quarter ended June 30, 1995, marketing and fulfillment expenses decreased 50.9%
to $2.1 million or 33.1% of net sales, compared to $4.3 million or 45.9% of net
sales for the same period in 1995. The decrease in marketing and fulfillment
expenses is attributable to lower expenditures for mailings to direct response
clubs in December which are amortized over the first six months from the mail
date.
General and administrative expenses were $3.9 million or 23.9% of net
sales for the six months ended June 30, 1996 as compared to $3.9 million or
20.0% of net sales for the same period in 1995. For the quarter ended June 30,
1996, general and administrative expenses were $2.1 million or 32.2% of net
sales, compared to $2.3 million or 24.1% of net sales for the same period in
1995. This is due, in part, to severance and related benefit costs associated
with the outsourcing of the Company's retail sales force.
Interest expense increased to $781,000 for the six months ended June 30,
1996 as compared with $327,000 for the same period in 1995. The increase was
the result of higher average debt levels and higher interest rates in the first
six months of 1996. The average interest rates for the six months ended June
30, 1996 and 1995 were 8.9% and 7.2% respectively.
On August 2, 1996, Integrity signed a product distribution agreement
whereby Integrity's music and video products will be distributed through Word
Distribution's Christian and mainstream market channels, thereby broadening the
Company's overall market reach. As part of the transition, Integrity
eliminated 16 sales positions. A charge of $280,000 related to the change in
distribution is included in the Company's second-quarter 1996 results.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations primarily through
cash generated from operations, although such funds have also been supplemented
by borrowing under a line of credit and term notes as needed.
6
<PAGE> 8
Cash generated or (used) from operations totaled $2.3 million and $(1.1)
million in the six months ended June 30, 1996 and 1995, respectively. A
decrease in marketing expenditures for direct response, artist marketing and
artist advances and receipt of an income tax refund were the primary
contributors to cash generated from operations for the six months ended June
30, 1996. The use of cash will vary from quarter to quarter based on product
releases and scheduled marketing promotions.
In accordance with industry practice, the Company's music products are
sold on a returnable basis. The Company's allowance for returns and doubtful
accounts is based upon historical returns of the Company. Due to the nature of
sales through direct response continuity programs, the Company has a somewhat
higher product return and doubtful account exposure than other music companies
where the majority of sales are in traditional retail markets. For the six
months ended June 30, 1996 and the same period in 1995 the amounts charged
against income for returns and allowances for doubtful accounts were $3,789,000
and $4,397,000, respectively. Returns in the retail division have been higher
than the same period last year due to the transition to the Word Distribution
sales force.
Capital expenditures totaled $355,000 and $1.3 million for the six month
periods ended June 30, 1996 and 1995, respectively. Capital expenditures made
during 1996 included weather proofing the new office building. At this point
construction has been halted and no additional expenditures are anticipated for
the new building in 1996. Other significant uses of cash were $1.8 million and
$3.6 million for product master development for the six months ended June 30,
1996 and 1995, respectively.
Primarily as a result of net losses experienced in 1995 and lower earnings
in the first six months of 1996, at June 30, 1996 the Company was in
noncompliance with certain financial covenants under substantially all of its
loan agreements. As a result, all sums outstanding under the line of credit
and the term loan were due and payable on the demand of the lender and all of
the debt was classified as a current liability on the consolidated balance
sheets at June 30, 1996 and December 31, 1995.
On August 2, 1996, the Company entered into a $19 million, six-year
financing agreement with a lender. The credit agreement includes a $6 million
revolving credit facility and $13 million term loan. The lender received
warrants exercisable for up to 12.5% of the Company's Class A common stock,
with an exercise price of $1.875, and the warrants expire in 10 years. Under
the terms of the financing agreement, the lender cannot exercise the warrants
for two years (unless the Company undergoes a change in control.) Due to the
new financing, approximately $291,000 of debt issue costs included in current
assets at June 30, 1996 will be expensed during the third quarter of 1996.
7
<PAGE> 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the Annual Meeting of Stockholders of the Company held on May 3, 1996, the
following matters were brought before and voted upon by the stockholders:
1. A proposal to elect the following to the Board of Directors to serve until
the 1997 annual meeting:
<TABLE>
<CAPTION>
Class A Common Stock
--------------------
Withhold
For Authority
--- ---------
<S> <C> <C>
P. Michael Coleman 1,291,382 18,363
Jean C. Coleman 1,286,722 23,023
John B. Ellis 1,291,632 18,113
Charles V. Simpson 1,291,332 18,413
Heeth Varnedoe, III 1,291,882 17,863
Class B Common Stock
--------------------
Withhold
For Authority
--- ---------
P. Michael Coleman 34,350,000 0
Jean C. Coleman 34,350,000 0
John B. Ellis 34,350,000 0
Charles V. Simpson 34,350,000 0
Heeth Varnedoe, III 34,350,000 0
</TABLE>
2. A proposal to adopt an amendment to the Company's Long-Term Incentive Plan
to authorize the issuance of an additional 200,000 shares of Class A Common
Stock as described in the related Class A and Class B Proxy Statements of the
Company:
<TABLE>
Class A
-------
<S> <C> <C>
For Against Abstain
--- ------- -------
445,717 78,622 20,139
Class B
-------
For Against Abstain
--- ------- -------
34,350,000 0 0
</TABLE>
3. A proposal to ratify the selection of Price Waterhouse LLP as independent
auditors of the Company for the fiscal year ending December 31, 1996, as
described in the related Class A and Class B Proxy Statements of the Company:
Class A
-------
<TABLE>
<S> <C> <C>
For Against Abstain
--- ------- -------
1,299,307 4,970 5,468
Class B
-------
For Against Abstain
--- ------- -------
34,350,000 0 0
</TABLE>
8
<PAGE> 10
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Exhibit Description
------- -------------------
3(i) Certificate of Incorporation of the Registrant, as amended
(incorporated by reference from Exhibit 4(a) to the
Registrant's Registration Statement on Form S-8 (File No.
33-84584) filed on September 29, 1994).
3(i).1 Certificate of Amendment to the Certificate of Incorporation
of the Registrant, dated July 21, 1995, (incorporated by
reference from Exhibit 3(i).1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995).
3(ii) Bylaws of the Registrant, as amended (incorporated by
reference from Exhibit 3(ii) to the Registrant's Registration
Statement on Form S-1 (File No. 33-78582), and amendments
thereto, originally filed on May 6, 1994).
10.1 Loan and Security Agreement, dated as of August 2, 1996, by
and among Integrity Incorporated and Creditanstalt Corporate
Finance, Inc.
10.2 Stock Pledge Agreement, dated as of August 2, 1996, by
Integrity Incorporated in favor of Creditanstalt Corporate
Finance, Inc.
10.3 Conditional Assignment and Trademark Security Agreement,
dated August 2, 1996, between Integrity Incorporated and
Creditanstalt Corporate Finance, Inc.
10.4 Collateral Assignment and Agreement, dated as of August 2,
1996, by and between Integrity Incorporated and Creditanstalt
Corporate Finance, Inc.
10.5 Copyright Security Agreement, dated as of August 2, 1996,
made by Integrity Incorporated in favor of Creditanstalt
Corporate Finance, Inc.
10.6 Warrant Agreement dated as of August 2, 1996, between
Integrity Incorporated and Creditanstalt Corporate
Finance, Inc.
10.7 Product Distribution Agreement by and between Integrity
Incorporated and Word, Inc., dated as of April 1, 1996. (The
foregoing is the subject of a request for confidential
treatment.)
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
quarter ended June 30, 1996
9
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Integrity Incorporated
Date: August 9, 1996 /s/ P. Michael Coleman
-------------------------- --------------------------------------
P. Michael Coleman
Chairman, President and
Chief Executive Officer
Date: August 9, 1996 /s/ Alison S. Richardson
-------------------------- --------------------------------------
Alison S. Richardson
Vice President, Corporate Controller
10
<PAGE> 12
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.1 Loan and Security Agreement, dated as of August 2, 1996, by and
among Integrity Incorporated and Creditanstalt Corporate
Finance, Inc.
10.2 Stock Pledge Agreement, dated as of August 2, 1996, by Integrity
Incorporated in favor of Creditanstalt Corporate Finance, Inc.
10.3 Conditional Assignment and Trademark Security Agreement,
dated August 2, 1996, between Integrity Incorporated and
Creditanstalt Corporate Finance, Inc.
10.4 Collateral Assignment and Agreement, dated as of August 2,
1996, by and between Integrity Incorporated and Creditanstalt
Corporate Finance, Inc.
10.5 Copyright Security Agreement, dated as of August 2, 1996, made
by Integrity Incorporated in favor of Creditanstalt Corporate
Finance, Inc.
10.6 Warrant Agreement dated as of August 2,
1996, between Integrity Incorporated
and Creditanstalt Corporate Finance, Inc.
10.7 Product Distribution Agreement by and
between Integrity Incorporated and
Word, Inc., dated as of April 1, 1996. (The
foregoing is the subject of a request for
confidential treatment).
27 Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 10.1
-----------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 2, 1996
BY AND AMONG
INTEGRITY INCORPORATED
a Delaware corporation,
as Borrower
and
CREDITANSTALT CORPORATE FINANCE, INC.,
as Lender
-----------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS, TERMS AND REFERENCES
1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.4 Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.5 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.6 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2. THE LOANS
2.1 Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.4 Loan Account; Statements of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.6 Term; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7 Loans in Excess of Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.8 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.9 Prepayment; Commitment Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.10 Certain Notices; Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3. FEES AND INTEREST
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.3 Limitations on Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4 Conversions and Continuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.5 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.6 Illegality; Inability to Determine the Quoted Rate . . . . . . . . . . . . . . . . . . . . . . . . 25
3.7 Increased Costs and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.8 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.9 Notice of Amounts Payable to Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.10 Interest Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4. SECURITY INTEREST - COLLATERAL
4.1 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 Additional Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
4.3 Perfection of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.4 Right to Inspect; Verifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.5 Copyright Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5. REPRESENTATIONS AND WARRANTIES
5.1 Corporate Existence and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Corporate Authority; Valid and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.3 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.4 Governmental Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.5 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.6 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.8 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.9 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.10 Violations of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.12 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.13 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.14 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.15 Chief Executive Office; Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.16 Corporate and Trade or Fictitious Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.17 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.18 Adequacy of Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.19 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.20 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.21 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.22 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.23 Existing Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.24 Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.25 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.26 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.27 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.29 Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.30 Integrity Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6. AFFIRMATIVE COVENANTS
6.1 Records Respecting Collateral; Lockbox or Blocked Account Arrangement . . . . . . . . . . . . . . 36
6.2 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.3 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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6.4 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.5 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.7 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.8 Notifications to the Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.9 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.10 Maintenance of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.11 Preservation of Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.12 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.13 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.14 Additional Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7. NEGATIVE COVENANTS
7.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.3 Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.4 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.5 Investments and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.6 Prohibition of Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.7 Issuance of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.8 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.9 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.10 Relocations; Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.11 Arm's-Length Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.12 Integrity Music . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8. FINANCIAL COVENANTS
8.1 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.2 Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.3 Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.4 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.5 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.6 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9. EVENTS OF DEFAULT
9.1 Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.2 Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.3 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.4 Other Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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9.5 Tax Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.7 Voluntary Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.8 Involuntary Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.9 Suspension of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.10 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.11 RICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.12 Failure of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.13 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.14 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.15 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10. REMEDIES
10.1 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.2 Termination; Acceleration of the Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.3 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.4 Rights and Remedies of a Secured Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.5 Take Possession of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.6 Sale of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.7 Judicial Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.8 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.9 Appointment of Lender as Borrower's Lawful Attorney . . . . . . . . . . . . . . . . . . . . . . . 50
11. CONDITIONS PRECEDENT
11.1 Conditions Precedent to Initial Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.2 All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.3 Delay in Satisfaction of Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12. MISCELLANEOUS
12.1 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.3 Assignments; Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.5 Expense Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.8 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.9 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
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12.11 Lender Not a Joint Venturer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.12 Cure of Defaults by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.13 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
12.14 Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.15 Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.16 Termination Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.17 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.18 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
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Schedule 1.1 - Description of the Realty
Schedule 5.5 - Litigation and Related Proceedings
Schedule 5.7 - Federal Tax Identification Numbers
Schedule 5.11 - ERISA Matters
Schedule 5.15 - Executive Offices; Business and Collateral Locations
Schedule 5.16 - Corporate and Trade or Fictitious Names
Schedule 5.18 - Copyrights, Trademarks and other Intellectual Property
Schedule 5.21 - Investments
Schedule 5.22 - Indebtedness
Schedule 5.23 - Permitted Liens
Schedule 5.25 - Broker's or Finder's Fees
Schedule 11.1 - Foreign Qualifications
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Term Note
Exhibit C - Form of Notice of Borrowing
Exhibit D - Form of Stock Pledge Agreement
Exhibit E - Form of Copyright Security Agreement
Exhibit F - Form of Trademark Assignment
Exhibit G - Form of Compliance Certificate
Exhibit H - Form of Borrowing Base Certificate
Exhibit I-1 - Form of Opinion of Alston & Bird
Exhibit I-2 - Form of Opinion of Balch & Bingham
Exhibit I-3 - Form of Opinion of Manatt, Phelps & Phillips, L.L.P.
Exhibit J - Form of Assignment
</TABLE>
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made and entered
into as of the 2nd day of August, 1996, by and between INTEGRITY INCORPORATED,
a Delaware corporation, having a principal place of business at 1000 Cody Road,
Mobile, Alabama 36695-3425 ("Borrower"), and CREDITANSTALT CORPORATE FINANCE,
INC., a Delaware corporation having its principal place of business in
Greenwich, Connecticut (hereinafter referred to as the "Lender").
W I T N E S S E T H:
WHEREAS, Borrower has requested that the Lender make available to
Borrower a revolving credit facility permitting advances of up to Six Million
Dollars ($6,000,000) at any one time outstanding; and
WHEREAS, Borrower has also requested that the Lender make a term loan
to Borrower in the principal amount of Thirteen Million Dollars ($13,000,000);
and
WHEREAS, the Lender is willing to extend such financing to Borrower
subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are acknowledged by the parties hereto, Borrower and Lender hereby agree
as follows:
1. DEFINITIONS, TERMS AND REFERENCES
1.1 CERTAIN DEFINITIONS. When used herein, the
following terms shall have the following respective meanings:
"Accounts" shall mean any "account", as such term is defined
in Section 9-106 of the UCC, now owned or hereafter acquired by Borrower and,
in any event, shall include all of the accounts, contract rights, book debts
and other forms of obligations (other than forms of obligations evidenced by
Chattel Paper, Documents or Instruments) of Borrower, whether now existing or
hereafter acquired or arising or in which Borrower now has or hereafter
acquires any rights, including, without limitation, all present and future
rights to payments for goods, merchandise or Inventory sold or leased or for
services rendered, whether or not represented by invoices or other billing, and
whether or not earned by performance; proceeds of any letter of credit on which
Borrower is a beneficiary and all forms of obligations whatsoever owing to
Borrower, together with all instruments and documents of title representing any
of the foregoing, all rights in any goods, merchandise or Inventory which any
of the foregoing may represent, all
<PAGE> 8
rights in any returned or repossessed goods, merchandise or Inventory, and all
rights, security and guaranties with respect to each of the foregoing,
including, without limitation, any rights of stoppage in transit.
"Account Debtor" shall mean any "account debtor", as such term
is defined in Section 9-105(1)(a) of the UCC and, in any event, shall include
any Person who is or may become obligated to Borrower on any Account.
"Acquisition" shall mean any transaction, or any series of
related transactions, consummated after the date hereof, by which (i) Borrower
acquires the business or all or substantially all of the assets of any Person,
or any division of any Person, whether through Investment, purchase of assets,
merger or otherwise or (ii) any Person that was not theretofore a Subsidiary of
Borrower becomes a Subsidiary of Borrower.
"Affiliate" shall mean, as to any Person, any other Person
which, directly or indirectly, owns or controls, on an aggregate basis,
including all beneficial ownership and ownership or control as a trustee,
guardian or other fiduciary, at least ten percent (10%) of the outstanding
shares of capital stock having ordinary voting power to elect a majority of the
board of directors or other governing body (irrespective of whether, at the
time, stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) of such
Person or at least ten percent (10%) of the partnership or other ownership
interest of such Person; or which controls, is controlled by or is under common
control with such Person; provided, however, that in no event shall Borrower
and the Lender be deemed or regarded as Affiliates of each other. For the
purposes of this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" shall mean this Loan and Security Agreement, as
amended, modified or supplemented from time to time.
"Amortization Date" shall mean January 1, April 1, July 1 and
October 1 of each year, commencing October 1, 1996.
"Applicable Law" shall mean all provisions of statutes, rules,
regulations and orders of any Governmental Authority applicable to a Person,
and all orders and decrees of all courts and arbitrators in proceedings or
actions in which the Person in question is a party.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of
1978, as may be amended from time to time.
"Base Lending Rate" shall mean an interest rate per annum,
fluctuating daily, equal to the higher of (a) the rate announced by
Creditanstalt-Bankverein from time to time at its principal office in New York
City, New York, as its prime rate for domestic (United States) commercial loans
in effect on such day; and (b) the Federal Funds Rate in effect on such day
plus one-half percent (1/2%). The Base Lending Rate is not necessarily
intended to be the lowest rate
2
<PAGE> 9
of interest charged by Creditanstalt-Bankverein in connection with extensions
of credit. Each change in the Base Lending Rate shall result in a
corresponding change in the interest rate hereunder with respect to a Base Rate
Loan and such change shall be effective on the effective date of such change in
the Base Lending Rate.
"Base Rate Loan" shall mean a Loan bearing interest at a rate
based on the Base Lending Rate.
"Borrowing Base" shall mean the sum of (a) eighty-five percent
(85%) of the net amount of Borrower's Eligible Accounts aged not more than 90
days plus (b) fifty percent (50%) of the value, calculated at the lower of cost
or market, with cost determined on an first-in, first-out basis, of Borrower's
Eligible Inventory less (c) such reserves as the Lender in its reasonable
judgment deems necessary or appropriate from time to time.
"Borrowing Base Certificate" shall have the meaning given to
such term in Section 6.2(e) hereof.
"Business Day" shall mean a day on which banks are not
required or authorized to close in New York City, New York and, if such day
relates to a borrowing of, a payment or prepayment of principal or interest on
a Continuation or Conversion of or into, or an Interest Period for, a
Eurodollar Loan or a notice by Borrower with respect to any such borrowing,
payment, prepayment, Continuation, Conversion or Interest Period, which is also
a day on which dealings by and between banks in U.S. dollar deposits are
carried out in the interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period,
expenditures (including the aggregate amount of Capital Lease Obligations
incurred during such period) incurred by Borrower to acquire or construct fixed
assets, plant and equipment (including renewals, improvements and replacements,
but excluding repairs) during such period, computed on a consolidated basis for
Borrower and its consolidated Subsidiaries in accordance with GAAP.
"Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board) and,
for the purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP (including such
Statement No. 13).
"Capital Stock" shall mean, as to any Person, any and all
shares, interests, warrants, participation or other equivalents (however
designated) of corporate stock of such Person.
"Cash Flow" shall mean, for any Person, for any period, the
sum of (a) such Person's net income (loss) for such period
3
<PAGE> 10
plus (b) such Person's Interest Expense for such period plus (c) such Person's
depreciation and amortization for financial reporting purposes for such period;
plus (d) income tax expense for such period, computed in each case on a
consolidated basis for Borrower and its consolidated Subsidiaries in accordance
with GAAP; provided that Persons who become a Subsidiary of the Borrower after
the first day of any period for which Cash Flow is being calculated and or
prior to the date of calculation shall be deemed to have been a Subsidiary of
Borrower commencing on the first day of such period.
"Change of Control" shall mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), other than P.
Michael Coleman (or any partnership, trust or other Person controlled by P.
Michael Coleman), is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has a right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 50% of
the total Voting Stock of the Borrower; (b) the Borrower consolidates with, or
merges with or into, another Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into, the Borrower,
in any such event pursuant to a transaction in which the outstanding Voting
Stock of the Borrower is converted into or exchanged for cash, securities or
other property; or (c) the directors of Borrower (or the executive committee
thereof) constituting that percentage necessary to approve corporate action not
being current directors of Borrower or directors designated or approved by such
directors or directors approved by such directors. For purposes of this
definition, "Voting Stock" shall mean any class or classes of Capital Stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the
time, stock of any other class or classes shall have, or might have, voting
power by reason of the happening of any contingency).
"Chattel Paper" shall mean any "chattel paper", as such term
is defined in Section 9-105(1)(b) of the UCC, now owned or hereafter acquired
by Borrower.
"Closing Date" shall mean the date that this Agreement has
been signed by Borrower and the Lender and the Term Loan has been made
hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder from time to
time.
"Collateral" shall mean the property of Borrower in which
Lender has, or is to have, a Lien on or security interest in pursuant to this
Agreement or the Loan Documents, or any of them, as security for payment of the
Obligations.
"Commitment" shall mean the obligation of the Lender to make
Revolving Credit Loans to Borrower, subject to the terms and conditions hereof,
up to an aggregate principal amount not to exceed at any one time outstanding
Six Million Dollars ($6,000,000), subject to reduction as set forth in Section
2.9 hereof.
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"Commitment Fee" shall mean that amount due and payable to the
Lender from Borrower pursuant to and in the amount specified in Section 3.5
hereof.
"Capital Expenditures" of any Person shall mean, for any
period, the aggregate gross increase during that period, in product masters and
in the property, plant or equipment reflected in the consolidated balance sheet
of such person and its consolidated Subsidiaries, in conformity with GAAP, but
excluding expenditures made in connection with the replacement, substitution or
restoration of assets (i) to the extent financed from insurance proceeds paid
on account of the loss of or damage to the assets being replaced or restored,
(ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced or (iii) with regard to equipment
that is purchased simultaneously with the trade-in of existing equipment, fixed
assets or improvements, the credit granted by the seller of such equipment for
the trade-in of such equipment, fixed assets or improvements; provided that
Consolidated Capital Expenditures shall in any event include the purchase price
paid in connection with the acquisition of any other Person (including through
the purchase of all of the capital stock or other ownership interests of such
Person or through merger or consolidation) to the extent allocable to property,
plant and equipment.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 3.4 hereof of a Eurodollar Loan as a
Eurodollar Loan from one Interest Period to the next Interest Period.
"Contracts" shall mean all contracts, undertakings, or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 3.4 hereof of a Base Rate Loan into a Eurodollar
Loan or of a Eurodollar Loan into a Base Rate Loan.
"Copyrights" shall mean all of the following now or hereafter
acquired by Borrower: (a) all copyrights, registrations and applications
therefor, (b) all renewals and extensions thereof, (c) all income, royalties,
damages and payments now and hereafter due or payable or both with respect
thereto, including, without limitation, damages and payments for past or future
infringements or misappropriation thereof, (d) all rights to sue for past,
present and future infringements or misappropriation thereof, and (e) all other
rights corresponding thereto throughout the world.
"Creditanstalt-Bankverein" shall mean
Creditanstalt-Bankverein, an Austrian banking corporation having offices at 245
Park Avenue, New York, New York 10167, and its successors and assigns.
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<PAGE> 12
"Default" shall mean the occurrence of any event or condition
which, after satisfaction of any requirement for the giving of notice or the
lapse of time, or both, would become an Event of Default.
"Default Rate" shall mean (a) with respect to any Loan or
portion thereof, an interest rate per annum equal to two percent (2%) above the
interest rate set forth for such Loan in Section 3.1(a) hereof or (b) with
respect to any portion of the Obligations other than Loans, two percent (2%)
above the rate set forth in Section 3.1(a)(ii) hereof.
"Documents" shall mean any "documents", as such term is
defined in Section 9-105(1)(f) of the UCC, now owned or hereafter acquired by
Borrower.
"Eligible Accounts" shall mean and include only such Accounts
consisting of trade accounts receivable arising in the ordinary course of
Borrower's business pursuant to contracts between Borrower and the Account
Debtors providing for the bona fide sale or delivery of goods to or performance
of services for the Account Debtors which Lender, in its reasonable discretion
deems to be Eligible Accounts. Unless Lender specifically consents otherwise,
no Account shall be an Eligible Account if:
(a) the Lender does not have (i) a first priority
perfected Lien in such Account or (ii) a copyright registration with
respect to the Work which gave rise to the Account on file in the
Copyright Office made pursuant to Section 4.5 hereof; or
(b) it arises out of a sale made or services rendered
by Borrower to an Affiliate of Borrower; or
(c) the Account is not with The Rep Company or any
similar general marketing distributor and it remains due and unpaid
more than sixty (60) days after the due date thereof or more than
ninety (90) days after the date of the invoice in respect of such
Account; or
(d) the Account is with The Rep Company or any similar
general marketing distributor and it remains due and unpaid more than
one hundred and twenty (120) days after the due date thereof or more
than one hundred and fifty (150) days after the date of the invoice in
respect of such Account; or
(e) fifty percent (50%) or more of the Accounts from
the Account Debtor are not deemed Eligible Accounts hereunder; or
(f) any covenant, representation or warranty contained
in this Agreement with respect to such Account has been breached; or
(g) the Account Debtor is also a creditor or supplier
to Borrower, or the Account Debtor has disputed liability in writing,
or the Account Debtor has made any claim in writing with respect to
any other Account due from such Account Debtor to
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<PAGE> 13
Borrower, or the Account otherwise is subject to any right of setoff
by the Account Debtor, whether by virtue of the terms of the contract
between Borrower and the Account Debtor, or by virtue of any other
defense or claim of the Account Debtor against Borrower (including,
without limitation, by virtue of guaranties by such Account Debtor of
the trade obligations of Borrower or otherwise); provided, however,
that the Accounts of such Account Debtor shall only be ineligible to
the extent of such offset or potential offset; or
(h) the Account Debtor has commenced a voluntary case
under the Bankruptcy Code, as now constituted or hereafter amended, or
made an assignment for the benefit of creditors, or if a decree or
order for relief has been entered by a court having jurisdiction in
the premises in respect of the Account Debtor in an involuntary case
under the Bankruptcy Code, as now constituted or hereafter amended, or
if any other petition or other application for relief under the
Bankruptcy Code has been filed or the Account Debtor has failed,
suspended business, ceased to be Solvent, or consented to or suffered
a receiver, trustee, liquidator or custodian to be appointed for it or
for all or a significant portion of its assets or affairs; or
(i) the goods giving rise to such Account have not
been shipped and delivered to and accepted by the Account Debtor or
the services giving rise to such Account have not been performed by
Borrower with respect thereto and accepted by the Account Debtor or
the Account otherwise does not represent a final sale; or
(j) the Account Debtor is the United States of America
or any department, agency or instrumentality thereof, unless Borrower
assigns its right to payment of such Account to Lender pursuant to the
Assignment of Claims Act of 1940, as amended (31 U.S.C. Section
3727); or
(k) the Accounts of The Rep Company or any similar
general marketing distributor exceed One Million Dollars ($1,000,000)
at any one time outstanding, to the extent such Accounts exceed such
limit, or the Accounts of any other Account Debtor (other than The Rep
Company or any similar general marketing distributor) exceed a credit
limit determined by Lender, in its sole discretion based on its
customary credit and collateral considerations, to the extent such
Accounts exceed such limit; or
(l) the goods or servicing giving rise to such account
have been delivered or performed in connection with a Medicare or
Medicaid reimbursement program; or
(m) Lender believes, in its reasonable discretion,
that collection of such Account is insecure or that such Account may
not be paid by reason of the Account Debtor's financial inability to
pay.
"Eligible Inventory" shall mean and include only such
Inventory owned by Borrower (a) in which Lender has a perfected first priority
security interest; (b) which, in Lender's reasonable opinion, is in good and
saleable condition and is not obsolete or unmerchantable; (c) in respect of
which no covenant, representation or warranty hereunder has been breached; (d)
which is located on premises for which Lender has received a properly executed
Landlord's waiver in
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<PAGE> 14
form and substance acceptable to Lender, and (e) which is not Inventory which
Lender, in its reasonable discretion, deems not to be Eligible Inventory.
"Environmental Laws" shall mean all federal, state, local and
foreign laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of any
Hazardous Substance into the environment (including without limitation ambient
air, surface water, ground water or land), or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of Hazardous Substances and any and all
regulations, codes, standards, plans, orders, decrees, writs, judgments,
injunctions, notices or demand letters issued, entered, promulgated or approved
thereunder.
"Equipment" shall mean any "equipment", as such term is
defined in Section 9-109(2) of the UCC, now owned or hereafter acquired by
Borrower, and, in any event, shall include all of the equipment, fixtures and
leasehold improvements of Borrower, whether now existing or hereafter acquired
or arising or in which Borrower now has or hereafter acquires any rights,
including, without limitation, all furniture, machinery, vehicles and trade
fixtures, together with any and all accessories, accessions, parts and
appurtenances thereto, substitutions therefor and replacements thereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and all rules and regulations from time
to time issued or promulgated thereunder.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which, together with Borrower is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean that portion of a Loan bearing
interest at a rate based on the Quoted Rate.
"Event of Default" shall mean any of the events or conditions
described in Article 9 hereof.
"Federal Funds Rate" shall mean, for any day, the overnight
federal funds rate in New York City, New York, as published for such day (or,
if such day is not a New York Business Day, for the next preceding Business
Day) in the Federal Reserve Statistical Release H.15 (519) or any successor
publication, or if such rate is not so published for any day which is a New
York Business Day, the average of the quotations for such day on overnight
federal funds transactions in New York City received by the Lender from three
federal funds brokers of recognized standing selected by the Lender.
"First Union" shall mean First Union National Bank of
Tennessee, a national banking association.
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<PAGE> 15
"Fixed Charge Coverage Ratio" shall mean, for any period, the
ratio of (a) Borrower's Cash Flow for such period less Capital Expenditures to
(b) the sum of (i) Borrower's scheduled payments of principal of Indebtedness
during such period, plus (ii) Borrower's Interest Expense for such period, in
each case calculated on a consolidated basis in accordance with GAAP.
"Foreign Subsidiaries" shall mean Integrity Music Europe,
Ltd., a U.K. private company Integrity Music PTY, Ltd., an Australian
proprietary company and Integrity Media Asia Pte, Ltd., a Singapore
corporation.
"GAAP" shall mean generally accepted accounting principles
consistently applied and maintained throughout the period indicated and
consistent with the prior financial practice of Borrower, as reflected in the
financial information referred to in Section 5.8 hereof.
"General Intangibles" shall mean any "general intangibles," as
such term is defined in Section 9-106 of the UCC, now owned or hereafter
acquired by Borrower, and, in any event shall include all general intangibles
of Borrower, whether now existing or acquired or arising or in which Borrower
now has or hereafter acquires any rights, including, without limitation, all
choses in action, causes of action, corporate or other business records,
inventions, designs, Patents, patent applications, service marks, Trademarks,
trade names, Trade Secrets, proprietary or confidential information, inventions
(whether patented or patentable or not) and technical information, procedures,
designs, knowledge, know-how, software, data bases, data, skill, expertise,
experience, processors, models, drawings, materials, records, goodwill,
Copyrights, registrations, Licenses, franchises, customer lists, agency and
other contracts, tax refund claims, computer programs, all claims under
guaranties, Liens or other security held by or granted to Borrower to secure
payment of any of the Accounts by an Account Debtor, all rights to
indemnification, and all other intangible property of every kind and nature
(other than Accounts).
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to any government.
"Guarantee" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
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<PAGE> 16
"Hazardous Substances" shall mean any pollutant, contaminant,
hazardous, toxic or dangerous waste, substance or material, or any other
substance or material regulated or controlled pursuant to any Environmental
Law, including, without limiting the generality of the foregoing, asbestos,
PCBs, petroleum products (including crude oil, natural gas, natural gas
liquids, liquified natural gas or synthetic gas) or any other substance defined
as a "hazardous substance," "extremely hazardous waste," "restricted hazardous
waste," "hazardous material," "hazardous chemical," "hazardous waste,"
"regulated substance," "toxic chemical," "toxic substance" or other similar
term in any Environmental Law.
"Indebtedness" shall mean, as applied to any Person at any
time without duplication, (a) all indebtedness, obligations or other
liabilities of such Person (i) for borrowed money or evidenced by debt
securities, debentures, acceptances, notes or other similar instruments, and
any accrued interest, fees and charges relating thereto; (ii) under earnout
agreements or similar agreements; (iii) with respect to letters of credit
issued for such Person's account; (iv) to pay the deferred purchase price of
property or services, except unsecured accounts payable and accrued expenses
arising in the ordinary course of business which are less than 60 days past due
or accounts which are being properly contested in good faith by the Borrower;
or (v) Capital Lease Obligations; (b) all indebtedness, obligations or other
liabilities of such Person or others secured by a Lien on any property of such
Person, whether or not such indebtedness, obligations or liabilities are
assumed by such Person, all as of such time; (c) all indebtedness, obligations
or other liabilities of such Person in respect of any foreign exchange contract
or Interest Hedge Agreement, net of liabilities owed to such Person by the
counterparties thereon; (d) all Capital Stock of such Person subject (upon the
occurrence of any contingency or otherwise) to mandatory redemption prior to
the first anniversary of the Maturity Date; (e) indebtedness of others
Guaranteed by such Person.
"Instruments" shall mean any "instrument", as such term is
defined in Section 9-105(1)(i) of the UCC, now owned or hereafter acquired by
Borrower, other than instruments that constitute, or are a part of a group of
writings that constitute, Chattel Paper.
"Integrity Music" shall mean Integrity Music, Inc., a Delaware
corporation and wholly-owned Subsidiary of Borrower.
"Interest Coverage Ratio" shall mean, as to any Person, for
any period, the ratio of (a) such Person's Cash Flow for such period to (b)
such Person's Interest Expense for such period, in each case calculated in
accordance with GAAP.
"Interest Expense" shall mean, for any period, as to any
Person, total interest expense, whether paid, accrued or capitalized (including
the interest component of Capital Lease Obligations), net of interest income,
of such Person, including, but not limited to, all origination and other fees,
all amortization of original issue discount and the net amount payable under
any Interest Hedge Agreement between such Person and any other Person, all as
calculated in accordance with GAAP.
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<PAGE> 17
"Interest Hedge Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"Interest Period" shall mean, in connection with any
Eurodollar Loan, the period beginning on the date such Eurodollar Loan is made,
Continued or Converted and continuing for one (1), two (2), three (3) or six
(6) months as selected by Borrower in its Notice of Borrowing. Notwithstanding
the foregoing, however, (a) any applicable Interest Period which would
otherwise end on a day which is not a Business Day shall be extended to the
next succeeding Business Day unless such Business Day falls in another calendar
month, in which case such Interest Period shall end on the immediately
preceding Business Day; and (b) any applicable Interest Period which begins on
a day for which there is no numerically corresponding day in the calendar month
during which such Interest Period is to end shall (subject to clause (a) above)
end on the last day of such calendar month.
"Inventory" shall mean all "inventory", as such term is
defined in Section 9-109(4) of the UCC, owned or hereafter acquired by
Borrower, and, in any event, shall include all of the inventory of Borrower,
whether now existing or acquired or arising or in which Borrower now has or
hereafter acquires any rights, including, without limitation, any and all
goods, merchandise and other personal property, wheresoever located and whether
or not in transit, which is or may at any time be held for sale or lease or to
be furnished under any contract of service or held as raw materials, work in
process, finished goods or materials, and supplies of any kind, nature or
description used or consumed in the business of Borrower, including, without
limitation, all such property, the sale or other disposition of which has given
rise to an Account and which may have been returned to or repossessed or
stopped in transit by Borrower.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, property, services or securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are now owned by the Person entering
into such short sale), (b) any deposit with, or advance, loan or other
extension of credit to, such Person (other than any such advance, loan or
extension of credit representing the purchase price of goods, intangibles or
services sold or supplied in the ordinary course of business) or Guarantee of,
or other contingent obligation with respect to, Indebtedness or other liability
of such Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person, (c) any Acquisition other than the acquisition
of goods, intangibles or services purchased in the ordinary course of business
and accounted for as an expense in accordance with GAAP or as a Capital
Expenditure or (d) the entering into of any Interest Hedge Agreement.
"Lender" shall mean Creditanstalt Corporate Finance, Inc., a
Delaware corporation, and its successors and assigns.
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<PAGE> 18
"Leverage Ratio" shall mean, as of any date, the ratio of (a)
the principal amount of Indebtedness of Borrower and its consolidated
Subsidiaries as of such date (b) the Net Worth of Borrower and its consolidated
Subsidiaries as of such date, in each case, computed on a consolidated basis
for Borrower and its consolidated Subsidiaries in accordance with GAAP.
"License" shall mean any Patent License, Trademark License or
other license as to which the Lender has been granted a security interest
hereunder.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the UCC or comparable law of any
jurisdiction).
"Loans" shall mean, collectively, the Revolving Credit Loans
and the Term Loan and "Loan" shall mean either a Revolving Credit Loan or the
Term Loan.
"Loan Documents" shall mean this Agreement, the Notes, the
Mortgage, the Stock Pledge Agreement, the other instruments, documents or
agreements executed by Borrower or any of its Affiliates pursuant to Sections
4.2 and 11.1 hereof, any financing statements covering portions or all of the
Collateral and any and all other instruments, documents, and agreements now or
hereafter executed and/or delivered by Borrower in connection herewith, or any
one, more, or all of the foregoing, as the context shall require, and "Loan
Document" shall mean any one of the Loan Documents.
"Material Adverse Effect" shall mean any event or condition
which, alone or when taken with other events or conditions occurring or
existing concurrently therewith (a) has or is reasonably expected to have a
material adverse effect on the business, operations, condition (financial or
otherwise), assets, liabilities, prospects, or properties of Borrower or any of
its Subsidiaries; (b) has or is reasonably expected to have any material
adverse effect on the validity or enforceability of this Agreement or any Loan
Document; (c) materially impairs or is reasonably expected to materially impair
the ability of Borrower to pay and perform the Obligations; (d) materially
impairs or is reasonably expected to materially impair the ability of the
Lender to enforce its rights and remedies under this Agreement and the Loan
Documents; or (e) has or is reasonably expected to have any material adverse
effect on the Collateral or the Realty, the Liens of the Lender in the
Collateral or the Realty or the priority of such Liens.
"Margin Stock" shall mean "margin stock" as such term is
defined from time to time in Regulations G, T, U or X of the Board of Governors
of the Federal Reserve System.
"Maturity Date" shall mean August 2, 2002.
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<PAGE> 19
"Mortgage" shall mean that certain Mortgage, Security
Agreement and Assignment of Leases and Rents, dated of even date herewith,
conveying a first priority Lien on the Realty to the Lender as security for the
Obligations.
"MPPAA" shall mean the Multiemployer Pension Plan Amendments
Act of 1980, amending Title V of ERISA.
"Multiemployer Plan" shall have the same meaning as set forth
in Section 4001(a)(3) of ERISA.
"Net Income" shall mean, for any period and for any Person,
the income (or loss) of such Person for such period, after deducting therefrom
all operating expenses, provisions for all taxes and reserves and all other
proper deductions, all determined in accordance with GAAP.
"Net Worth" shall mean, as to any Person, at any time, the
excess of such Person's total assets over Total Liabilities, excluding,
however, from the definition of assets the amount of (a) any write-up in the
book value of any asset resulting from a revaluation thereof subsequent to the
later to occur of (i) the Closing Date and (ii) the date any such Person
acquired such asset; (b) treasury stock; (c) receivables from Affiliates of
such Person; and (d) unamortized debt discount and expense of such Person, all
determined in accordance with GAAP on a consolidated basis for such Person and
its Subsidiaries.
"Notes" shall mean, collectively, the Revolving Credit Note
and the Term Note and Note shall mean the Revolving Credit Note or the Term
Note.
"Obligations" shall mean the Loans and any and all other
indebtedness, liabilities and obligations of Borrower to the Lender of every
kind and nature (including, without limitation, interest, charges, expenses,
attorneys' fees and other sums chargeable to Borrower by Lender and future
advances made to or for the benefit of Borrower), arising under this Agreement
or under any of the other Loan Documents, or acquired by Lender from any other
source, whether arising by reason of an extension of credit, loan, lease,
guaranty, indemnification, Interest Hedge Agreement or in any other manner,
direct or indirect, absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter acquired.
"Operating Lease" shall mean, as to any Person, any lease that
is not required to be classified and accounted for as a capital lease on a
balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board).
"Patent License" shall mean all of the following, whether now
owned or existing or hereafter acquired or arising or in which Borrower now has
or hereafter acquires any rights: any written agreement granting any right to
make, use, sell, sublicense and/or practice any invention on which a Patent is
in existence.
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<PAGE> 20
"Patents" shall mean all of the following, whether now owned
or existing or hereafter acquired or arising or in which Borrower now has or
hereafter acquires any rights: (a) all patents and patent applications, (b) all
inventions and improvements described and claimed therein, (c) all reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof, (d) all income, royalties, damages and payments now and hereafter due
and/or payable to Borrower with respect thereto, including without limitation,
damages and payments for past, present or future infringements or
misappropriation thereof, (e) all rights to sue for past present and future
infringements or misappropriation thereof, and (f) all other rights
corresponding thereto throughout the world.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established under ERISA, or any successor agency or Person performing
substantially the same functions.
"Permitted Liens" shall mean, collectively: (a) those Liens
existing on the date hereof with respect to specific items of Equipment and
described on Schedule 5.23 attached hereto; (b) Liens in favor of the Lender;
(c) Liens for (i) property taxes not delinquent, (ii) taxes not yet subject to
penalties, (iii) pledges or deposits made under Workmen's Compensation,
Unemployment Insurance, Social Security and similar legislation, or in
connection with appeal or surety bonds incident to litigation, or to secure
statutory obligations, and (iv) mechanics' and materialmen's Liens with respect
to liabilities which are not yet due or which are being contested in good
faith; and (d) such Liens, encumbrances, restrictions, rights of way,
easements, licenses and title irregularities, if any, on the Realty as are
expressly permitted to exist with respect to the Realty, or portions thereof,
pursuant to the applicable terms of the Mortgage; (e) purchase money Liens on
Equipment; provided, however, that (i) such Lien is created contemporaneously
with the acquisition of such Equipment; (ii) such Lien attaches only to the
specific items of Equipment so acquired; (iii) such Lien secures only the
Indebtedness incurred to acquire such Equipment; and (iv) the Indebtedness
secured by such Lien is permitted by the terms of Section 7.2 hereof;
"Person" shall mean and include any individual, sole
proprietorship, partnership, joint venture, limited liability company, trust,
unincorporated organization, association, corporation, institution, entity,
party or government (whether national, federal, state, county, city, municipal,
or otherwise, including, without limitation, any instrumentality, division,
agency, body or department thereof).
"Plan" shall mean any employee benefit plan, program,
arrangement, practice or contract, maintained by or on behalf of Borrower or an
ERISA Affiliate, which provides benefits or compensation to or on behalf of
employees or former employees, whether formal or informal, whether or not
written, including, but not limited to, the following types of plans:
(a) Executive Arrangements - any bonus, incentive
compensation, stock option, deferred compensation, commission,
severance, "golden parachute," "rabbi trust," or other executive
compensation plan, program, contract, arrangement or practice
("Executive Arrangements");
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<PAGE> 21
(b) ERISA Plans - any "employee benefit plan", except
any Multiemployer Plan, as defined in Section 3(3) of ERISA, whether
maintained by or for a single employee or by or for multiple
employees, including, but not limited to, any defined benefit pension
plan, profit sharing plan, money purchase plan, savings or thrift
plan, stock bonus plan, employee stock ownership plan, or any plan,
fund, program, arrangement or practice providing for medical
(including post-retirement medical), hospitalization, accident,
sickness, disability, or life insurance benefits ("ERISA Plans");
(c) Other Employee Fringe Benefits - any stock
purchase, vacation, scholarship, day care, prepaid legal services,
severance pay or other fringe benefit plan, program, arrangement,
contract or practice ("Fringe Benefit Plans"); and
(d) Multiemployer Plan - any Multiemployer Plan.
"Proceeds" shall mean "proceeds", as such term is defined in
Section 9-306(1) of the UCC and, in any event, shall include, without
limitation, (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Borrower from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to the Borrower from time to time in connection with any requisitions,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting under color of
Governmental Authority) and (c) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Quoted Rate" shall mean, when used with respect to an
Interest Period for a Eurodollar Loan, the quotient of (i) the offered rate
quoted by Creditanstalt-Bankverein in the interbank Eurodollar market in New
York City, New York or London, England on or about 11:00 a.m. (New York or
London time, as the case may be) two Business Days prior to such Interest
Period for U.S. dollar deposits of an aggregate amount comparable to the
principal amount of the Eurodollar Loan to which the Quoted Rate is to be
applicable and for a period comparable to such Interest Period, divided by (ii)
one minus the Reserve Percentage. For purposes of this definition, (a)
"Reserve Percentage" shall mean with respect to any Interest Period, the
percentage which is in effect on the first day of such Interest Period under
Regulation D as the maximum reserve requirement for member banks of the Federal
Reserve System in New York City with deposits comparable in amount to those of
Creditanstalt-Bankverein against Eurocurrency Liabilities and (b) "Eurocurrency
Liabilities" has the meaning assigned to that term in Regulation D, as in
effect from time to time. The Quoted Rate for the applicable period shall be
adjusted automatically on and as of the effective date of any change in the
applicable Reserve Percentage.
"Realty" shall mean all of those tracts or parcels of real
property, and the improvements located thereon, owned by Borrower, situate in
Mobile County, Alabama and more fully described on Schedule 1.1 attached
hereto, to which Borrower has conveyed a Lien to the Lender pursuant to the
Mortgage.
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<PAGE> 22
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System, as it may be amended from time to
time.
"Reportable Event" shall have the meaning set forth in Section 4043 of ERISA.
"Revolving Credit Loans" shall mean, collectively, the loans
made pursuant to Section 2.1 hereof and "Revolving Credit Loan" shall mean any
loan made pursuant to Section 2.1 hereof.
"Revolving Credit Note" shall have the meaning given to such
term in Section 2.1 hereof.
"Solvent" shall mean, as to any Person, that such Person (a)
has capital sufficient to carry on its business and transactions and all
business and transactions in which it is about to engage, (b) is able to pay
its debts as they mature and (c) owns property whose fair saleable value is
greater than the amount required to pay its debts (including contingent
obligations).
"Stock Pledge Agreement" shall have the meaning given such
term in Section 4.2 hereof.
"Subsidiary" shall mean, as to any Person, any other Person,
of which more than fifty percent (50%) of the outstanding shares of Capital
Stock or other ownership interest having ordinary voting power to elect a
majority of the board of directors of such corporation or similar governing
body of such other Person (irrespective of whether or not at the time stock or
other ownership interests of any other class or classes of such other Person
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by such
Person or by one or more "Subsidiaries" of such Person.
"Tax" shall mean and include any present or future tax, levy,
cost or charge of any nature imposed by any government or any authority or
political subdivision thereof, excluding taxes on or measured by the net income
of the Lender imposed by any jurisdiction in which the principal or relevant
lending office of the Lender is located.
"Termination Date" shall mean the earliest of (a) the Maturity
Date; (b) the date the Commitment is reduced to zero pursuant to Section 2.9
hereof; and (c) the date the Commitment is terminated pursuant to Section 10.2
hereof.
"Term Loan" shall mean the loan made pursuant to Section 2.2
hereof. The Term Loan may consist of either a Base Rate Loan, a Eurodollar
Loan or a combination thereof, each of which is a "type" of Loan.
"Term Note" shall have the meaning given to such term in
Section 2.2 hereof.
"Total Liabilities" shall mean all Obligations, Indebtedness
or other liabilities of any kind or nature, fixed or contingent, due or not
due, which, in accordance with GAAP, would be
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<PAGE> 23
classified as a liability on the consolidated balance sheet of Borrower and its
consolidated Subsidiaries, together with any obligation, indebtedness or other
liability of any kind or nature, fixed or contingent, due or not due, which, in
accordance with GAAP, would be classified as a liability on the balance sheet
of any Person other than Borrower and its consolidated Subsidiaries and which
has been Guaranteed by Borrower or any of its consolidated Subsidiaries.
"Trade Secrets" shall mean trade secrets, along with any and
all (a) income, royalties, damages and payments now and hereafter due and/or
payable to Borrower with respect thereto, including, without limitation,
damages and payments for past or future infringements or misappropriation
thereof, (b) rights to sue for past, present and future infringements or
misappropriation thereof, and (c) all rights corresponding thereto throughout
the world.
"Trademark License" shall mean all of the following, whether
now owned or existing or hereafter acquired or arising or in which Borrower now
has or hereafter acquires any rights: any written agreement granting any right
to use any Trademark or trademark registration.
"Trademarks" shall mean all of the following, whether now
owned or existing or hereafter acquired or arising or in which Borrower now has
or hereafter acquires any rights: (a) all trademarks (including service marks
and trade names, whether registered or at common law), registrations and
applications therefor, and the entire product lines and goodwill of the
business of Borrower connected therewith and symbolized thereby, (b) all
renewals thereof, (c) all income, royalties, damages and payments now and
hereafter due or payable or both with respect thereto, including, without
limitation, damages and payments for past, present or future infringements or
misappropriation thereof, (d) all rights to sue for past, present and future
infringements or misappropriation thereof, and (e) all other rights
corresponding thereto throughout the world.
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of New York.
"Whitney Bank" shall mean Whitney Bank of Alabama, an Alabama
banking corporation.
"Work" shall mean each music composition, including all
lyrics, music and titles thereof.
1.2 USE OF DEFINED TERMS. All terms defined in this
Agreement and the Exhibits hereto shall have the same defined meanings when
used in any other Loan Document, unless the context shall require otherwise.
1.3 ACCOUNTING TERMS; CALCULATIONS. All accounting
terms not specifically defined herein shall have the meanings generally
attributed to such terms under GAAP. Calculations hereunder shall be made and
financial data required hereby shall be prepared, both as to classification of
items and as to amounts, in accordance with GAAP, consistently applied (except
as otherwise specifically required herein).
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<PAGE> 24
1.4 OTHER TERMS. All other terms used in this
Agreement which are not specifically defined herein but which are defined in
the UCC shall have the meanings set forth therein.
1.5 TERMINOLOGY. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the
plural shall include the singular. Titles of Articles and Sections in this
Agreement are for convenience only, and neither limit nor amplify the
provisions of this Agreement, and all references in this Agreement to Articles,
Sections, Subsections, paragraphs, clauses, subclauses, Exhibits or Schedules
shall refer to the corresponding Article, Section, Subsection, paragraph,
clause, subclause of, Exhibit or Schedule attached to, this Agreement, unless
specific reference is made to the articles, sections or other subdivisions of,
Exhibits or Schedules to, another document or instrument. All references to
any instrument, document or agreement shall, unless the context otherwise
requires, refer to such instrument, document or agreement as the same may be,
from time to time, amended, modified, supplemented, renewed, extended, replaced
or restated.
1.6 EXHIBITS. All Exhibits and Schedules attached
hereto are by reference made a part hereof.
2. THE LOANS
2.1 REVOLVING CREDIT LOANS. Subject to the terms and
conditions hereof and provided that there exists no Default or Event of
Default, the Lender agrees to make loans (the "Revolving Credit Loans") to
Borrower, upon Borrower's request therefor made in accordance with the
provisions of Section 2.3 hereof, from time to time on any Business Day during
the period from the date hereof and up to, but not including, the Termination
Date in an aggregate principal amount not to exceed at any one time
outstanding, an amount equal to (a) the lesser of (i) the Commitment and (ii)
the Borrowing Base. The Revolving Credit Loans made by the Lender shall be
evidenced by a promissory note, substantially in the form of Exhibit A attached
hereto, payable to the Lender in the principal face amount of the Commitment
(the "Revolving Credit Note"). Prior to the Termination Date, Revolving Credit
Loans may be borrowed, repaid and reborrowed in accordance with the terms
hereof. All Revolving Credit Loans shall be payable in full on the Termination
Date.
2.2 TERM LOAN.
(a) Subject to the terms and conditions hereof and provided
there exists no Default or Event of Default, the Lender agrees to make on the
Closing Date a loan (the "Term Loan") to Borrower in the principal amount of
Thirteen Million Dollars ($13,000,000). The Term Loan made by the Lender shall
be evidenced by a promissory note, substantially in the form of Exhibit B
attached hereto, payable to the Lender in the original principal amount of
$13,000,000 (the "Term Note").
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<PAGE> 25
(b) The Term Loan shall be repayable in twenty-four
(24) quarterly installments of principal, payable on each Amortization Date,
commencing October 1, 1996, with the first four such installments being in the
amount of Two Hundred and Fifty Thousand Dollars ($250,000) each, the fifth
though eighth such installments being in the amount of $375,000 each, the ninth
though twelfth such installments being in the amount of $500,000 each, the
thirteenth though sixteenth such installments being in the amount of $625,000
each, the seventeenth though twentieth such installments being in the amount of
$687,500 each, the twenty-first though twenty-third such installments being in
the amount of $812,500 each, and the twenty-fourth and final such installment
shall be in an amount equal to the aggregate outstanding principal balance of
the Term Loan. Once repaid, the Term Loan may not be reborrowed.
2.3 BORROWING PROCEDURES. Borrower shall give the
Lender notice of each request for a Loan hereunder in accordance with Section
2.10 hereof. The Lender shall, subject to the terms and conditions of this
Agreement, not later than 2:00 p.m. (New York City, New York time) on the
Business Day specified for such borrowing, make such amount available to
Borrower in same day funds at the office of Creditanstalt-Bankverein in New
York, New York.
2.4 LOAN ACCOUNT; STATEMENTS OF ACCOUNT. The Lender
will maintain one or more loan accounts for Borrower to which the Lender will
charge all amounts advanced to or for the benefit of Borrower hereunder or
under any of the other Loan Documents and to which the Lender will credit all
amounts collected under each such credit facility from or on behalf of the
Borrower. The Lender will account to Borrower periodically with a statement of
charges and payments made pursuant to this Agreement, and each such account
statement shall be deemed final, binding and conclusive unless the Lender is
notified by Borrower in writing to the contrary within thirty (30) days of the
date of each account statement. Any such notice shall only be deemed an
objection to those items specifically objected to therein. The unpaid
principal amount of the Loans, the unpaid interest accrued thereon, the
interest rate or rates applicable to such unpaid principal amount and the
accrued and unpaid fees, premiums and other amounts due hereunder shall at all
times be ascertained from the records of the Lender and such records shall
constitute prima facie evidence of the amounts so due and payable.
2.5 USE OF PROCEEDS. The proceeds of the Loans shall
be used (a) to refinance the existing Indebtedness of Borrower owed to (i)
First Union pursuant to that certain Loan and Security Agreement, dated as of
April 12, 1995, between Borrower, as the successor-by-merger to Integrity
Music, Inc. and Integrity Direct, Inc. and First Union and (ii) Whitney Bank
pursuant to that certain Loan Agreement dated as of September 29, 1995 between
Borrower and Whitney Bank, (b) for Acquisitions permitted by Section 7.5
hereof, (c) for Borrower's general working capital needs, and (d) for other
general corporate purposes. No portion of the proceeds of any Loan may be used
by the Borrower in any manner which would cause such Loan or the application of
the proceeds thereof to violate any of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
2.6 TERM; TERMINATION. This Agreement shall terminate
upon the latest to occur of (a) the Termination Date; and (b) the repayment and
satisfaction of all Obligations.
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<PAGE> 26
2.7 LOANS IN EXCESS OF BORROWING BASE. Borrower
acknowledges that the Lender is not obligated and does not presently intend to
make Loans or make other extensions of credit to Borrower the principal amount
of which, in the aggregate, at any time would exceed the Borrowing Base.
However, it is agreed that, should the Loans or other extensions of credit
incurred hereunder exceed the Borrowing Base, all of the obligations of
Borrower to the Lender with respect to such Loans and extensions of credit
shall nevertheless constitute Obligations under this Agreement and shall be
entitled to the benefit of all Liens granted under this Agreement and all other
Loan Documents. Notwithstanding the foregoing, if any amounts outstanding
hereunder shall exceed any of such limitations, Borrower shall immediately
repay such excess amounts to the Lender.
2.8 PAYMENTS.
(a) Each payment by the Borrower to Lender pursuant to
this Agreement or the Notes shall be made prior to 1:00 p.m. (New York time) on
the date due and shall be made without set-off or counterclaim to the account
of the Lender maintained with Creditanstalt-Bankverein at 245 Park Avenue, New
York, New York or at such other place or places as Lender may designate from
time to time in writing to Borrower. Each such payment shall be in lawful
currency of the United States of America and in immediately available funds.
(b) Each payment made by Borrower hereunder shall
either (i) be exempt from, and be made without reduction by reason of, any Tax
or (ii) to the extent that any such payment shall be subject to any Tax, be
accompanied by an additional payment by Borrower of such amount as may be
necessary so that the net amount received by the Lender (after deducting all
applicable Taxes) is the same as Lender would have received had such payment
not been subject to such Tax. Upon any payment of Tax by Borrower, Borrower
shall promptly (and in any event within 30 days) furnish to the Lender such tax
receipts, certificates and other evidence of such payment as Borrower may have
or the Lender may reasonably request.
(c) If the due date of any payment hereunder or under
either of the Notes would otherwise fall on a day which is not a Business Day,
then such payment shall be due on the next succeeding Business Day and interest
shall be payable on the principal amount of such payment for the period of such
extension. If Lender has not received any payment due hereunder by the close
of business on the date such payment is due, Borrower authorizes the Lender, at
its option, to charge such payment as a Loan.
2.9 PREPAYMENT; COMMITMENT REDUCTION.
(a) Subject to the other terms and conditions hereof,
upon written notice to the Lender in accordance with Section 2.10, Borrower
may, at its option, prepay the Term Loan and/or reduce the Commitment, in whole
or in part, in integral multiples of $1,000,000, on the date specified in such
notice, by paying to the Lender the amount of such prepayment, in the case of a
prepayment of the Term Loan, and/or the accrued amount of the Commitment Fee
applicable to the amount of the Commitment reduction, as the case may be.
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<PAGE> 27
(b) In no event may Borrower reduce the Commitment
below the principal amount of Revolving Credit Loans outstanding hereunder.
(c) The Commitment shall be automatically reduced to
zero on the Maturity Date.
(d) The Commitment, once terminated or reduced, may
not be reinstated or increased. The Term Loan, once repaid, may not be
reborrowed.
(e) All prepayments of the Term Loan shall be applied
to the principal installments thereof in the inverse order of their maturities.
(f) Borrower may not prepay any Loan which is a
Eurodollar Loan prior to the last day of the Interest Period applicable to such
Eurodollar Loan unless Borrower pays to the Lender, concurrently with such
prepayment, all amounts payable to the Lender pursuant to Section 3.8 hereof.
2.10 CERTAIN NOTICES; MINIMUM AMOUNTS.
(a) All notices given by Borrower to the Lender
hereunder of terminations or reductions of the Commitment, or of borrowings,
Conversions, Continuations or prepayments of Loans hereunder shall either be
oral, with prompt written confirmation, which may be by telecopy; or in
writing, with such written confirmation or writing, to be substantially in the
form of Exhibit C attached hereto (a "Notice of Borrowing") shall be
irrevocable; shall be effective only if received by Lender prior to 10:00 a.m.
(New York time) on a Business Day which is: (i) at least fifteen (15) days
prior to such termination or reduction of the Commitment; (ii) not later than
one (1) Business Day prior to the date such Loan is to be made as, Converted to
or Continued as a Base Rate Loan; (iii) at least three (3) Business Days prior
to the date such Loan is to be made as, Converted to or Continued as a
Eurodollar Loan; or (iv) at least five (5) days prior to any such prepayment,
in the case of a prepayment of a Eurodollar Loan; (v) not later than the date
of any such prepayment, in the case of a prepayment of a Base Rate Loan. Each
such notice to reduce the Commitment or to prepay the Loans shall specify the
amount of the Commitment to be reduced or of the Loans to be prepaid and the
date of such reduction or prepayment. Each such notice of borrowing,
Conversion or Continuation shall specify: (1) the amount of such borrowing,
Conversion or Continuation; (2) that the amount of the Loan to be made,
Converted or Continued, when aggregated with all other Loans to be outstanding
following the funding, Conversion or Continuation of such Loan, does not exceed
the Borrowing Base; (3) whether such Loan will be made, Converted or Continued
as a Eurodollar Loan or as a Base Rate Loan; (4) the date such Loan is to be
made, Converted or Continued (which shall be a Business Day and, if such Loan
is to Convert or Continue a Eurodollar Loan then outstanding, shall not be
prior to the last day of the then current Interest Period for such outstanding
Loan); and (5) if such Loan is a Eurodollar Loan, the duration of the Interest
Period with respect thereto. If Borrower fails to specify the duration of the
Interest Period for any Eurodollar Loan, Borrower shall instead be deemed to
have requested that such Loan be made as, Converted to or Continued as a Base
Rate Loan. Each request for a borrowing, Conversion or Continuation of a Loan,
or for any other
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<PAGE> 28
financial accommodation by Borrower pursuant to this Agreement or the other
Loan Documents shall constitute (x) an automatic warranty and representation by
Borrower to Lender that there does not then exist a Default or Event of Default
or any event or condition which, with the making of such Loan, would constitute
a Default or Event of Default and (y) an affirmation that as of the date of
such request all of the representations and warranties of Borrower contained in
this Agreement and the other Loan Documents are true and correct in all
material respects, both before and after giving effect to the making of such
Loan. If on the last day of the Interest Period of any Eurodollar Loan
hereunder, Lender has not received a timely notice hereunder to Convert,
Continue or prepay such Loan, Borrower shall be deemed to have submitted a
notice to Convert such Loan to a Base Rate Loan. All notices required to be
sent to Lender pursuant to this Section 2.10(a) shall be sent to Lender at 245
Park Avenue, New York, New York 10167, Attn: Lisa Bruno, Facsimile No: (212)
851-1234, in addition to the "Address for Notices" specified below Lender's
name on the signature pages hereto.
(b) Except for mandatory prepayments made pursuant to
Section 2.7 hereof and Conversions or prepayments made pursuant to Section 3.6
hereof, each borrowing, Conversion and partial prepayment of principal of Loans
shall be in a minimum principal amount of $100,000, shall be in an integral
multiple of $100,000, and if a Eurodollar Loan, shall be in a minimum principal
amount of $100,000 (borrowings, Conversions or prepayments of or into Loans of
different types or, in the case of Eurodollar Loans, having different Interest
Periods at the same time hereunder to be deemed separate borrowings,
Conversions and prepayments for purposes of the foregoing, one for each type of
Loan or Interest Period).
3. FEES AND INTEREST
3.1 INTEREST.
(a) Subject to modification pursuant to subsection (b)
below or Section 10.1 hereof, the average daily outstanding principal amount of
the Obligations shall bear interest from the date thereof until paid in full at
the following rates:
(i) the outstanding principal amount of
each Eurodollar Loan shall bear interest at a fixed rate of
interest per annum equal to the Quoted Rate for the
then-current Interest Period for such Loan plus three percent
(3%), calculated daily on the basis of a 360-day year and
actual days elapsed; or
(ii) the outstanding principal amount of
each Base Rate Loan and all other sums payable by Borrower
hereunder shall bear interest at a fluctuating rate per annum
equal to the Base Lending Rate plus one and one-half percent
(1-1/2%), calculated daily on the basis of a 360-day year and
actual days elapsed; and
(iii) the amount of any payment of
principal and, to the extent permitted by Applicable Law,
interest or other amount payable hereunder which is
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<PAGE> 29
not paid when due, shall, unless otherwise elected by the
Lender, bear interest at the Default Rate.
(b) If no Default or Event of Default shall have
occurred and be continuing, and if the Borrower's Indebtedness/Cash Flow Ratio
on the last day of any quarter shall fall within any of the respective ranges
set forth below, then, subject to delivery by a senior financial officer of the
Borrower of financial statements for the month and the year-to-date period then
ended as required pursuant to Section 6.2(a) hereof, together with a
certificate of the chief executive officer of Borrower certifying as to the
Borrower's Indebtedness/Cash Flow Ratio, the interest payable on the Loans
shall be adjusted, from the date of Lender's receipt of such financial
statements and certificate until the date on which the monthly financial
statements for the following month are required to be delivered to the Lender,
to the rate, calculated daily on the basis of a 360-day year and actual days
elapsed, for the applicable type of Loan set forth opposite such ranges in the
schedule below.
<TABLE>
<CAPTION>
Maximum
Indebtedness/ Base Rate Eurodollar
Cash Flow Loans Loans
- --------- ----- -----
<S> <C> <C>
2.00 and above Base Lending Rate Quoted Rate Plus
plus 1.50% 3.00%
1.75 to 1.99 Base Lending Rate Quoted Rate plus
plus 1.25% 2.75%
1.25 to 1.74 Base Lending Rate Quoted Rate plus
plus 1.00% 2.25%
Less than 1.25 Base Lending Rate Quoted Rate plus
plus 0.75% 2.00%
</TABLE>
(c) Accrued interest shall be payable (i) in the case
of Base Rate Loans, monthly on the first day of each month hereafter for the
previous month, commencing September 1, 1996; (ii) in the case of a Eurodollar
Loan, on the last day of each Interest Period, provided, however, that if any
Interest Period in respect of a Eurodollar Loan is longer than three (3)
months, such interest prior to maturity shall be paid on the last Business Day
of each three (3) month interval within such Interest Period as well as on the
last day of such Interest Period; (iii) in the case of any Loan, upon the
payment or prepayment thereof; (iv) in the case of any other sum payable
hereunder as set forth elsewhere in this Agreement or, if not so set forth, on
demand; and (v) in the case of interest payable at the Default Rate, on demand.
3.2 INTEREST PERIOD. The Interest Period for any
Eurodollar Loan shall commence on the date such Loan is made, Converted or
Continued as specified in the notice delivered pursuant to Section 2.10 hereof
applicable thereto and shall continue for a period of one (1),
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<PAGE> 30
two (2), three (3) or six (6) months, as specified in such notice for such
Eurodollar Loan. If Borrower fails to specify the duration of the Interest
Period for any Eurodollar Loan in the notice therefor delivered pursuant to
Section 2.10 hereof, such Loan shall instead be made or Converted, as
appropriate, as a Base Rate Loan.
3.3 LIMITATIONS ON INTEREST PERIODS AND LOANS.
Borrower may not select any Interest Period for any Eurodollar Loan which
extends beyond any Amortization Date or the Maturity Date, in the case of the
Term Loan, unless, in the case of Interest Periods extending beyond an
Amortization Date, giving effect to such Interest Period, the aggregate
outstanding principal amount of the Term Loan which consists of Eurodollar
Loans having Interest Periods extending beyond such Amortization Date is not
greater than the aggregate principal amount of the Term Loan scheduled to be
outstanding immediately following such Amortization Date. Notwithstanding any
other provision hereof to the contrary, Borrower shall not have, in the
aggregate for all Loans outstanding, more than three (3) different Loans at any
given time during the term of this Agreement (for which purpose (x) Loans for
Revolving Credit Loans shall be deemed different from Loans for the Term Loan,
even if they are otherwise identical and (y) Base Rate Loans shall be counted
as an Interest Period).
3.4 CONVERSIONS AND CONTINUATIONS. So long as
there then exists no Default or Event of Default hereunder, Borrower shall have
the right, on any Business Day, from time to time, upon written notice in
accordance with Section 2.10 hereof to Convert Loans of one type to Loans of
the other type and to Continue Loans of one type as Loans of the same type;
provided that a Eurodollar Loan may not be Converted to a Base Rate Loan prior
to the end of the Interest Period applicable thereto. Borrower agrees that, if
it shall fail to repay any Loan or portion thereof when due (whether by
acceleration or otherwise) and the Loan at such maturity is being maintained as
a Eurodollar Loan, the Lender, without limiting the rights of the Lender
hereunder or under the Note evidencing such Loan, may at any time and from time
to time after such due date Convert to another type of Loan or Continue such
Loan as a Loan of the same type.
3.5 COMMITMENT FEE. Borrower shall pay to the Lender
a commitment fee (the "Commitment Fee"), calculated on the basis of a 360-day
year and actual days elapsed, equal to one-half of one percent (1/2 of 1%) per
annum of (a) $19,000,000, representing the sum of the Commitment and the
original principal amount of the Term Loan, for the period from June 4, 1996,
to (but not including) the Closing Date, payable on the Closing Date, and (b)
the average daily unused amount of the Commitment, during the period commencing
on the Closing Date to (but not including) the Termination Date, payable on the
first day of each calendar quarter for the previous calendar quarter or portion
thereof (commencing October 1, 1996) and on the Termination Date.
3.6 ILLEGALITY; INABILITY TO DETERMINE THE QUOTED
RATE. Notwithstanding any other provision of this Agreement to the contrary,
in the event that (a) it shall become unlawful for the Lender to obtain funds
in the London interbank market or for the Lender to maintain a Eurodollar Loan;
or (b) by reason of circumstances affecting the London interbank market, the
Lender determines (which determination shall be conclusive) that quotations of
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<PAGE> 31
interest rates for the relevant deposits referred to in the definition of
"Quoted Rate" herein are not being provided in the relevant amounts or for the
relevant maturities for the purpose of determining rates of interest for a
Eurodollar Loan, then the Lender shall promptly notify Borrower thereof
whereupon (i) the right of Borrower to request any Eurodollar Loan shall
thereupon terminate and (ii) Borrower shall, on the earlier of the date
required by law or the last day of the then applicable Interest Period, either
(A) pay each Eurodollar Loan then outstanding in full, or (B) Convert each
Eurodollar Loan then outstanding to a Base Rate Loan.
3.7 INCREASED COSTS AND REDUCED RETURN.
(a) If any event shall occur (whether in the form of a
reserve requirement (not included in the definition of the Quoted Rate),
exchange control regulations, governmental charges, compliance with any
guideline or request from any central bank or other Governmental Authority,
changes in the interbank eurodollar market or the position of the Lender in
such market or otherwise) and the result of any such event is, in the Lender's
reasonable judgment, to increase the costs which the Lender determines are
attributable to its making or maintaining any Eurodollar Loan, or its
obligation to make available any Eurodollar Loan or to reduce the amount of any
sum received or receivable by the Lender under this Agreement or either Note
with respect to any Eurodollar Loan, then, within ten (10) days after demand by
the Lender, Borrower hereby agrees to pay to the Lender such additional amount
or amounts as will compensate the Lender for such increased cost or reduction.
(b) In addition to any amounts payable pursuant to
Section 3.7(a) above, if the Lender shall have determined that the
applicability of any law, rule, regulation or guideline adopted pursuant to or
arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards," or the adoption after the date
hereof of any other law, rule, regulation or guideline regarding capital
adequacy, or any change in any of the foregoing or in the enforcement or
interpretation or administration of any of the foregoing by any court or any
central bank or other Governmental Authority, charged with the enforcement or
interpretation or administration thereof, or compliance by the Lender (or any
lending office of the Lender) or the Lender's holding company with any request
or directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the Lender's capital or on
the capital of the Lender's holding company, if any, as a consequence of its
making or maintaining any Loan, or its incurring any obligations under this
Agreement to a level below that which the Lender or the Lender's holding
company could have achieved but for such applicability, adoption, change or
compliance (taking into consideration the Lender's policies and the policies of
the Lender's holding company with respect to capital adequacy) by an amount
deemed by the Lender to be material, then, upon demand by the Lender, the
Borrower hereby agrees to pay to the Lender from time to time such additional
amount or amounts as will compensate the Lender or the Lender's holding company
for any such reduction suffered.
3.8 INDEMNITY. Borrower hereby indemnifies and
agrees to hold harmless the Lender from and against any and all losses or
expenses which it may sustain or incur as a
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consequence of failure by Borrower to consummate any notice of prepayment,
borrowing, Conversion or Continuation made by Borrower, including, without
limitation, any such loss or expense arising from interest or fees payable by
the Lender to lenders of funds obtained by it in order to maintain any
Eurodollar Loan. Borrower hereby further indemnifies and agrees to hold
harmless the Lender from and against any and all losses or expenses which it
may sustain or incur as a consequence of prepayment of any Eurodollar Loan on
other than the last day of the Interest Period for such Loan (including,
without limitation, any prepayment pursuant to Sections 2.9, 3.6 and 3.10
hereof). Borrower's obligations under this Section shall survive the
termination of this Agreement and the repayment of the Obligations.
3.9 NOTICE OF AMOUNTS PAYABLE TO LENDER. If the
Lender shall seek payment of any amounts from Borrower pursuant to Sections
2.8(b), or 3.8 hereof, it shall notify Borrower of the amount payable by
Borrower to the Lender thereunder. A certificate of the Lender seeking payment
pursuant to Sections 2.8(b), 3.7 or 3.8 hereof, setting forth in reasonable
detail the factual basis for and the computation of the amounts specified,
shall be conclusive and binding on all parties for all purposes, absent
manifest error, as to the amounts owed. Borrower's obligations under this
Section shall survive the termination of this Agreement and the repayment of
the Obligations.
3.10 INTEREST SAVINGS CLAUSE. Nothing contained in
this Agreement or in the Notes or in any of the other Loan Documents shall be
construed to permit the Lender to receive at any time interest, fees or other
charges in excess of the amounts which the Lender is legally entitled to charge
and receive under any law to which such interest, fees or charges are subject.
In no contingency or event whatsoever shall the compensation payable to the
Lender by Borrower, howsoever characterized or computed, hereunder or under
either of the Notes or under any other agreement or instrument evidencing or
relating to the Obligations, exceed the highest rate permissible under any law
to which such compensation is subject. There is no intention that the Lender
shall contract for, charge or receive compensation in excess of the highest
lawful rate, and, in the event it should be determined that any excess has been
charged or received, then, ipso facto, such rate shall be reduced to the
highest lawful rate so that no amounts shall be charged which are in excess
thereof; and the Lender shall apply such excess against the Loans then
outstanding (with such application being made first against the Base Rate
Loans, to the extent thereof, second against the Eurodollar Loans, to the
extent thereof, and then to any other Obligations hereunder) and, to the extent
of any amounts remaining thereafter, refund such excess to Borrower.
4. SECURITY INTEREST - COLLATERAL
4.1 SECURITY INTEREST. As security for the
Obligations, Borrower hereby grants to the Lender, a continuing, first priority
Lien (except for Permitted Liens) on and security interest in and to the
following described property of Borrower, whether now owned or existing or
hereafter acquired or arising or in which Borrower now has or hereafter
acquires any rights and wheresoever located (sometimes herein collectively
referred to as "Collateral"):
(a) Accounts;
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(b) Chattel Paper;
(c) Contracts;
(d) Documents;
(e) Equipment;
(f) General Intangibles;
(g) Instruments;
(h) Inventory;
(i) all monies, residues and property of any kind of
Borrower now or at any time or times hereafter, in the possession or under the
control of the Lender or an Affiliate of Lender or a bailee of the Lender or
such Affiliate;
(j) all books and records (including, without
limitation, customer lists, credit files, computer programs, print-outs and
other computer materials and records) of Borrower pertaining to any of the
foregoing;
(k) all accessions to, substitutions for and all
replacements, products and Proceeds of the foregoing; and
(l) any and all other property of Borrower.
4.2 ADDITIONAL COLLATERAL. As additional security for the
Obligations:
(a) Mortgage. Borrower shall convey a first priority
security title in the Realty to the Lender pursuant to the Mortgage.
(b) Stock Pledge Agreement. Borrower shall execute and
deliver a stock pledge agreement, substantially in the form of Exhibit D
attached hereto (the "Stock Pledge Agreement"), in favor of Lender, pledging to
Lender all of the issued and outstanding shares of Capital Stock of
Subsidiaries (other than the Foreign Subsidiaries) and sixty-five percent (65%)
of the issued and outstanding shares of the Foreign Subsidiaries.
(c) Copyrights. Lender's security interest in
Borrower's Copyrights shall be further evidenced by a separate security
agreement, substantially in the form of Exhibit E attached hereto (the
"Copyright Security Agreement"). Lender's rights granted therein shall be in
addition to, and not at the exclusion of or derogation of, the rights granted
Lender in this Agreement.
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(d) Trademarks. Lender's security interest in
Borrower's Trademarks shall be further evidenced by a separate security
agreement, substantially in the form of Exhibit F attached hereto (the
"Trademark Assignment"). Lender's rights granted therein shall be in addition
to, and not at the exclusion of or derogation of, the rights granted Lender in
this Agreement.
(e) Other Assignments and Documents. Borrower shall
execute such assignments and other documents in connection therewith as Lender
shall reasonably require.
4.3 PERFECTION OF SECURITY INTEREST. Until the termination of
this Agreement and the payment and satisfaction in full of all Obligations,
whichever last occurs, the Lender's Lien in the Collateral, the Realty and all
products and Proceeds thereof, shall continue in full force and effect.
Borrower shall perform any and all steps reasonably requested by the Lender to
perfect, maintain and protect the Lender's Lien in the Collateral and/or the
Realty including, without limitation, executing and filing financing or
continuation statements, or amendments thereof, in form and substance
satisfactory to the Lender; delivering to the Lender upon the Lender's request
therefor all Documents, Instruments or Chattel Paper included in the
Collateral, the possession of which is necessary or appropriate to perfect the
Lender's Liens therein; delivering to the Lender all letters of credit on which
Borrower is named as a beneficiary; and using best efforts to obtain and
deliver such consents and waivers from such landlords, developers or other
Persons as the Lender may request. The Lender may file one or more financing
statements disclosing the Lender's Liens under this Agreement or the Mortgage
without Borrower's signature appearing thereon and Borrower shall pay the costs
of, or incidental to, any recording or filing of any financing statements
concerning the Collateral or the Realty. Borrower agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
4.4 RIGHT TO INSPECT; VERIFICATIONS. The Lender, or any person or
persons designated by it so long as such person or persons executes a
confidentiality agreement with the Borrower, in its sole discretion, shall have
the right to call at any place of business or property location of Borrower or
any of its Subsidiaries at any reasonable time during business hours, and,
without hindrance or delay, to inspect the Collateral and/or the Realty and to
inspect, audit, check and make extracts from the books, records, journals,
orders, receipts and any correspondence and other data of Borrower or any of
its Subsidiaries relating to the Collateral or the Realty, to the use of the
proceeds of the Loans, to the business of such parties hereto or relating to
any other matter required by the Lender and to discuss any of the foregoing
with any of the employees, officers and directors of Borrower or any of its
Subsidiaries and with the independent accountants for Borrower. Additionally,
the Lender may, at any time and from time to time in its sole discretion,
require Borrower to verify the individual Accounts immediately upon its request
therefor.
4.5 COPYRIGHT REGISTRATIONS.
(a) Borrower shall, promptly after the creation of any new Work or
upon the acquisition of any other Work, (i) register its Copyright in such Work
with the Copyright Office or, if Borrower does not own the Copyright in such
Work, cause the Copyright holder to register
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its Copyright in such Work with the Copyright Office and then register with the
Copyright Office Borrower's Copyright license to publish, produce or reproduce
such Work; and (iii) execute and record with the Copyright Office a security
agreement, substantially in the form attached as Exhibit E hereto, granting to
Lender a first priority Lien in the Copyright in such Work and in the Accounts,
Inventory and other collateral arising from such Work.
(b) Borrower hereby irrevocably designates, makes, constitutes and
appoints the Lender (and all Persons designated by the Lender) as Borrower's
true and lawful attorney-in-fact, authorized and empowered to take, in the name
of Lender, the actions described in subsection (a) above upon the failure or
refusal of Borrower to do so.
5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make
Loans hereunder, Borrower hereby makes the following representations and
warranties to the Lender, which shall be true and correct in all material
respects on the date hereof and shall continue to be true and correct in all
material respects at the time of the making of any Loan and until the Loans
have been repaid in full:
5.1 CORPORATE EXISTENCE AND QUALIFICATION. Borrower
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and Borrower is duly qualified as a foreign
corporation in good standing in the State of Alabama. Borrower is duly
qualified as a foreign corporation in good standing in each other state wherein
the conduct of its business or the ownership of its property requires such
qualification except where the failure to maintain such qualification or good
standing could not reasonably be expected to result in a Material Adverse
Effect.
5.2 CORPORATE AUTHORITY; VALID AND BINDING EFFECT.
Borrower has the corporate power and authority to execute, deliver and perform
under this Agreement and the other Loan Documents, and to borrow hereunder, and
has taken all necessary and appropriate corporate action to authorize the
execution, delivery and performance of this Agreement and such other Loan
Documents. This Agreement and the other Loan Documents constitute the valid
and legally binding obligations of Borrower, enforceable against Borrower in
accordance with their respective terms; except that enforceability may be
limited by bankruptcy, insolvency and other laws affecting creditor's rights
generally and except that the availability of certain remedies may be limited
by general principles of equity.
5.3 NO CONFLICT. The execution, delivery and
performance by Borrower of this Agreement and the other Loan Documents (a) are
not in contravention of any provisions of Applicable Law applicable to
Borrower; (b) will not violate or result in a default under any agreement or
indenture to which Borrower is a party or by which Borrower is bound; (c) do
not contravene the Certificate of Incorporation or By-laws of Borrower; and (d)
will not result in or require the creation or imposition of any Lien on any of
the property or assets of Borrower or any
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of its Subsidiaries other than Liens in favor of the Lender created by this
Agreement or the Loan Documents.
5.4 GOVERNMENTAL ACTION. The execution, delivery and
performance of this Agreement and the other Loan Documents by Borrower do not
require any registration with, consent or approval of, or any notice to, or
other action to, with or by any Governmental Authority except (a) filings,
consent or notices which have been obtained and a copy thereof furnished to the
Lender; and (b) filings necessary to perfect the Liens granted by this
Agreement and the Loan Documents.
5.5 NO LITIGATION. Except as set forth on Schedule
5.5 hereto, there are no proceedings pending or threatened against the Borrower
or any of its Subsidiaries before or by any court or administrative agency.
5.6 SOLVENCY. After giving effect to the execution
and delivery of this Agreement, the Loan Documents, the consummation of the
transactions contemplated hereby and thereby and the making of each Loan
hereunder, Borrower is Solvent.
5.7 TAXES. Borrower and each of its Subsidiaries has
filed all federal, state, local and foreign tax returns, reports and estimates
which are required to be filed by it and all taxes (including penalties and
interest, if any) shown on such returns, reports and estimates as being due and
payable or which are otherwise due and payable have been fully paid. Such tax
returns properly and correctly reflect the income and taxes of Borrower or such
Subsidiary for the periods covered thereby. Borrower's federal tax
identification number is set forth on Schedule 5.7 attached hereto.
5.8 FINANCIAL INFORMATION.
(a) The audited consolidated financial statements of Borrower
and its consolidated Subsidiaries for the fiscal years ending December 31, 1994
and December 31, 1995 and the unaudited, interim consolidated financial
statements of Borrower and its consolidated Subsidiaries for the five-month
period ending May 31, 1996, including consolidated balance sheets, consolidated
income statements and consolidated statements of cash flow, copies of which
have been delivered by Borrower to the Lender, are true and correct in all
material respects and contain no material misstatement or omission, and fairly
present the consolidated financial position, assets and liabilities of Borrower
and its consolidated Subsidiaries as of the respective dates thereof and the
consolidated results of operations of Borrower and its consolidated
Subsidiaries for the respective periods then ended, and as of the date thereof
there were no liabilities of Borrower or its consolidated Subsidiaries, fixed
or contingent, which are material that were not reflected in such financial
statements.
(b) Since May 31, 1996, there has been no material adverse
change in the consolidated assets, liabilities, financial position or results
of operations of Borrower and its consolidated Subsidiaries, and neither
Borrower nor any of its Subsidiaries have (i) incurred any obligation or
liability, fixed or contingent, which would materially and adversely affect its
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business, operations, prospects or financial condition; (ii) incurred any
Indebtedness or Capital Lease Obligations other than the Obligations; or (iii)
Guaranteed the obligations of any other Person.
5.9 TITLE TO ASSETS. Borrower has good and
marketable title to and has valid license rights to the Collateral as to which
it is a licensee, leasehold title to the Collateral leased by it and ownership
of the remaining Collateral, the Realty and all of its other assets, in each
case free and clear of any and all Liens whatsoever except for Permitted Liens.
5.10 VIOLATIONS OF LAW. Neither Borrower nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation or
ordinance of any Governmental Authority, the violation of which might have a
Material Adverse Effect.
5.11 ERISA. Except as disclosed on Schedule 5.11
attached hereto and incorporated herein by reference:
(a) Identification of Plans. Neither Borrower nor any
ERISA Affiliate maintains or contributes to, or has maintained or contributed
to, any Plan or Multiemployer Plan that is subject to regulation by Title IV of
ERISA;
(b) Compliance. Each Plan has at all times been
maintained, by its terms and in operation, in accordance with all Applicable
Laws; except for such noncompliance (when taken as a whole) that will not have
a Material Adverse Effect;
(c) Liabilities. Neither Borrower nor any ERISA
Affiliate is currently or, to the best knowledge of Borrower or any ERISA
Affiliate, will become subject to any liability (including withdrawal
liability), tax or penalty whatsoever to any person whomsoever with respect to
any Plan, including, but not limited to, any tax, penalty or liability arising
under Title I or Title IV of ERISA or Chapter 43 of the Code, except such
liabilities (when taken as a whole) as will not have a Material Adverse Effect;
(d) Funding. Each ERISA Affiliate has made full and
timely payment of (i) all amounts required to be contributed under the terms of
each Plan and Applicable Law and (ii) all material amounts required to be paid
as expenses of each Plan. No Plan has any "amount of unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of ERISA); and
(e) Insolvency; Reorganization. No Plan is insolvent
(within the meaning of Section 4245 of ERISA) or in reorganization (within the
meaning of Section 4241 of ERISA).
5.12 ENVIRONMENTAL LAWS.
(a) Borrower and each of its Subsidiaries has obtained
all permits, licenses and other authorizations, if any, which are required
under Environmental Laws for the operation of Borrower's or such Subsidiary's
business and Borrower and each of its Subsidiaries is in compliance with all
terms and conditions of required permits, licenses and authorizations, and is
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also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, notifications, schedules
and timetables contained in the Environmental Laws;
(b) Neither Borrower nor any of its Subsidiaries is
aware of or has received notice of, the disposal or release or presence of
Hazardous Substances on any of its properties, or of any past, present or
future events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent compliance or continued
compliance on the part of Borrower or any such Subsidiary with Environmental
Laws, or may give rise to any common law or legal liability, or otherwise form
the basis of any claim, action, demand, suit, Lien, proceeding, hearing, study
or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, release or threatened release into the environment, of any
Hazardous Substance;
(c) All assets of Borrower and its Subsidiaries are
free from Hazardous Substances except for Hazardous Substances used, maintained
or handled by Borrower or such Subsidiary in the ordinary course of business
and the use and disposal of any and all such Hazardous Substances is effected
by Borrower or such Subsidiary in compliance with all applicable Environmental
Laws; and
(d) There is not pending or threatened against the
Borrower or any of its Subsidiaries and Borrower knows no facts or
circumstances that might give rise to, any civil, criminal or administrative
action, suit, demand, claim, hearing, notice or demand letter, notice of
violation, environmental Lien, investigation, or proceeding relating in any way
to Environmental Laws.
5.13 MARGIN STOCK. Neither Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for buying or carrying Margin Stock, and no
part of the proceeds of any Loan shall be used to purchase or carry Margin
Stock.
5.14 NO DEFAULT. Giving effect to this Agreement and
the initial Loans made hereunder, neither Borrower nor any of its Subsidiaries
is in default with respect to (a) any note, indenture, loan agreement,
mortgage, lease, deed or other similar agreement relating to Indebtedness to
which Borrower or such Subsidiary is a party or by which Borrower or such
Subsidiary is bound or (b) any other instrument, document or agreement to which
Borrower or any of its Subsidiaries is a party or by which Borrower or any of
its Subsidiaries or any of their respective properties are bound, the default
of which would have a Material Adverse Effect.
5.15 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS.
Borrower's and each of its Subsidiaries' principal place of business, chief
executive office and location of its books and records is set forth on Schedule
5.15 attached hereto and neither Borrower, any of its Subsidiaries nor any of
their respective predecessors has had any other chief executive office or
principal place of business except as set forth on Schedule 5.15 during the
five (5) years immediately preceding the date
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hereof. Schedule 5.15 attached hereto and incorporated herein by reference
sets forth a true, correct and complete list of all places of business and all
locations at which any Collateral is located.
5.16 CORPORATE AND TRADE OR FICTITIOUS NAMES. Except
as set forth on Schedule 5.16 hereof, during the five (5) years immediately
preceding the date of this Agreement, neither Borrower, any of its
Subsidiaries, nor any of their respective predecessors has been known as or
used any corporate, trade or fictitious name other than its current corporate
or individual name as such name is set forth in this Agreement.
5.17 ACCOUNTS. With regard to each Account now or
hereafter shown on any schedule or aging of Accounts provided to the Lender
hereunder:
(a) Such Account arises or will arise under a contract
between the Borrower and an Account Debtor in each case providing for the bona
fide sale of goods or performance of services by Borrower in the ordinary
course of its business for or on behalf of the Account Debtor except to the
extent otherwise expressly indicated on such schedule or aging of accounts;
(b) Borrower has made delivery of the goods or has rendered
the services ordered to which such Account relates and the Account Debtor has
accepted such goods and/or services except to the extent otherwise expressly
indicated on such schedule or aging of accounts;
(c) Except to the extent otherwise expressly indicated
on such schedule or aging of accounts, the amount of the face value of such
Accounts is actually and absolutely owing to Borrower, is not contingent for
any bona fide reason known to Borrower, and there are no setoffs,
counterclaims, disputes or deductions existing or asserted with respect thereto
(except to the extent, if any, that such Account Debtor(s) may be entitled to
normal trade discounts, warranties, adjustments, returns and allowances);
(d) Borrower will have preserved and will continue to
preserve any Liens and any rights to Liens available by virtue of the sales
giving rise to such Account;
(e) Such Account is free and clear of all Liens other
than Permitted Liens; and
(f) Borrower has full right, power and authority to
collaterally assign such Account.
5.18 ADEQUACY OF INTANGIBLE ASSETS. Borrower and each
of its Subsidiaries possesses all intellectual property licenses, patents,
patent applications, Copyrights, Trademarks, Trademark Licenses, trademark
applications, and trade names and all governmental registrations and licenses
reasonably necessary to continue to conduct its business as heretofore
conducted by it and all such intellectual property licenses, patents, patent
applications, copyrights, Trademarks, Trademark Licenses, trademark
applications, trade names, licenses and registrations which have been
registered with any Governmental Authority are listed on Schedule 5.18 hereto.
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5.19 EQUIPMENT. The Equipment is and shall remain in
good condition, normal wear and tear excepted, meets all standards imposed by
any Governmental Authority having regulatory authority over such Equipment and
its use and is currently usable in the normal course of Borrower's business.
5.20 INVENTORY. The Inventory is and shall remain in
good condition, meets all standards imposed by any Governmental Authority
having regulatory authority over such goods, their use and/or sale, is either
currently usable or currently saleable in the normal course of Borrower's
business and is not subject to any output contract or similar agreement between
Borrower and any other Person.
5.21 INVESTMENTS. Except as set forth on Schedule 5.21
hereto or permitted by Section 7.5 hereof, Borrower has no Subsidiaries nor any
interest in any partnership or joint venture with or Investment in any Person.
5.22 INDEBTEDNESS. Schedule 5.22 hereto is a complete
and correct list, as of the date of this Agreement, of each credit agreement,
loan agreement, indenture, note purchase agreement, guarantee, Interest Hedge
Agreement or other arrangement providing for or otherwise relating to any
Indebtedness to, or guarantee by, Borrower or any of its Subsidiaries and the
aggregate principal or face amount outstanding as of the date hereof or which
may become outstanding under each such arrangement is correctly described in
said Schedule.
5.23 EXISTING LIENS. Schedule 5.23 hereto is a
complete and correct list, as of the date of this Agreement, of each Lien
existing on the date hereof securing Indebtedness and the aggregate principal
amount of Indebtedness secured by each such Lien is correctly described in such
Schedule 5.23.
5.24 TRADE RELATIONS. There exists no actual nor, to
the best of Borrower's knowledge, threatened limitation of the business
relationship of Borrower or any of its Subsidiaries with any material customer,
supplier, landlord or with any company whose contracts or projected contracts
with Borrower or such Subsidiary could be material to the operations of
Borrower or such Subsidiary; and there exists no condition or state of facts or
circumstances which could have a Material Adverse Effect on Borrower or any of
its Subsidiaries or prevent Borrower or any of its Subsidiaries from conducting
its business after the consummation of the transactions contemplated by this
Agreement as such business is conducted and other information furnished to
Lender by Borrower or such Subsidiary.
5.25 BROKER'S OR FINDER'S FEES. Except as set forth on
Schedule 5.25 no broker's or finder's fees or commissions have been incurred or
will be payable by the Borrower or any of its Subsidiaries to any Person in
connection with the transactions contemplated by this Agreement.
5.26 SECURITY INTEREST. This Agreement creates a valid
Lien on the Collateral securing payment of the Obligations, subject only to
Permitted Liens, and all filings and
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other actions necessary or desirable to perfect and protect such Lien have been
taken, and the Lender has a valid and perfected first priority Lien in the
Collateral subject only to Permitted Liens.
5.27 REGULATORY MATTERS. Neither Borrower nor any of
its Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Federal Power Act, the Interstate Commerce Act or any other federal or
state statute or regulation which limits its ability to incur indebtedness or
its ability to consummate the transactions contemplated hereby.
5.28 DISCLOSURE. Neither this Agreement nor any other
instrument, document, agreement, financial statement or certificate furnished
to the Lender by or on behalf of Borrower or any of its Subsidiaries in
connection herewith contains an untrue statement of a material fact or omits to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading or omits to state
any fact which may in the future have a Material Adverse Effect.
5.29 BURDENSOME RESTRICTIONS. Neither any contract,
lease, indenture, agreement or other instrument, or corporate restriction,
judgment, decree, or order to which Borrower or any of its Subsidiaries is a
party or by which Borrower or any of its Subsidiaries is bound, nor any
provision of Applicable Law, has or can reasonably be expected to have a
Material Adverse Effect.
5.30 INTEGRITY MUSIC. Integrity Music is a shell
company with no assets other than the rights to its name and miscellaneous
corporate records and Integrity Music does not now engage and has not in the
past engaged in any business activity.
6. AFFIRMATIVE COVENANTS
Borrower hereby covenants to the Lender that from and after the date
hereof, and until the termination of this Agreement, the payment and
satisfaction in full of the Obligations, unless the Lender otherwise consents
in writing, Borrower will, and will cause each of its Subsidiaries to:
6.1 RECORDS RESPECTING COLLATERAL; LOCKBOX OR BLOCKED
ACCOUNT ARRANGEMENT. Keep all records with respect to the Collateral and
Realty at the offices set forth on Schedule 5.15 hereof and not remove such
records from such addresses without the prior written consent of the Lender
and, upon request of the Lender after the occurrence of an Event of Default,
enter into such lockbox or blocked account arrangement with respect to
collection of the Accounts and execute and deliver such documents in connection
therewith as the Lender may reasonably require.
6.2 REPORTING REQUIREMENTS. Furnish or cause to be
furnished to the Lender:
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<PAGE> 42
(a) As soon as practicable, and in any event within 30
days after the end of each month, interim unaudited financial statements of
Borrower and its consolidated Subsidiaries, prepared on a consolidated basis
for Borrower and its consolidated Subsidiaries, including a balance sheet,
income statements and statements of cash flow, for the month and year-to-date
period then ended, prepared in accordance with GAAP and certified as to truth
and accuracy thereof by the chief financial officer of Borrower;
(b) As soon as available, and in any event within 90
days after the end of each fiscal year of Borrower, audited consolidated annual
financial statements of Borrower and its consolidated Subsidiaries, including
consolidated balance sheets, consolidated income statements and consolidated
statements of cash flow for the fiscal year then ended, prepared in accordance
with GAAP, in comparative form and accompanied by the unqualified opinion of a
nationally recognized firm of independent certified public accountants retained
by Borrower and acceptable to the Lender;
(c) Together with the annual financial statements
referred to in clause (b) above, a statement from such independent certified
public accountants that, in making their examination of such financial
statements, they obtained no knowledge of any Default or Event of Default or,
in lieu thereof, a statement specifying the nature and period of existence of
any such Default or Event of Default disclosed by their examination;
(d) Together with the annual financial statements
referred to in clause (b) above and within thirty (30) days of the end of each
quarter, a compliance certificate of the chief financial officer of Borrower,
in substantially the forms of Exhibit G hereto (the "Compliance Certificate"),
setting forth the calculations for determining compliance with the financial
covenants set forth in Article 8 hereof and certifying that such calculations
are true and accurate and that, to the best of his knowledge, no Default or
Event of Default has occurred and is continuing or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof
and the action which is proposed to be taken with respect thereto;
(e) As soon as available, and in any event within
twenty (20) days after the end of each month, (i) a borrowing base certificate,
in substantially the form of Exhibit H attached hereto (a "Borrowing Base
Certificate"), updating the Eligible Accounts and Eligible Inventory of
Borrower as of the end of the immediately preceding month and signed by an
officer of Borrower reasonably satisfactory to the Lender; and (ii) an accounts
receivable aging, showing in summary form the aggregate dollar value of the
Accounts and indicating the aggregate value of the Accounts that are past due
and whether such Accounts are thirty (30), sixty (60) or ninety (90) or more
days past due and containing such other information regarding such Accounts as
the Lender may request, all as of the last day of the preceding month;
(f) Not later than February 1 and August 1 of each
year, commencing February 1, 1997, an amendment to the Copyright Security
Agreement containing a true and complete listing of all Works Borrower has
created and/or licensed since the effective date of the last amendment
delivered pursuant to this Subsection 6.2(f) (or, in the case of the initial
such amendment, since the date hereof), substantially in the form of Exhibit A
of Exhibit E attached
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<PAGE> 43
hereto ("Copyright Amendment"), together with evidence showing that Borrower's
and Lender's interest therein has been registered and/or perfected pursuant to
Section 4.5 hereof;
(g) Promptly after the sending or filing thereof, as
the case may be, copies of any definitive proxy statements, financial
statements or reports which Borrower sends to its shareholders and copies of
any regular periodic and special reports or registration statements which
Borrower files with the Securities and Exchange Commission (or any Governmental
Authority substituted therefor), including, but not limited to, all Form 10-K
and Form 10-Q reports, if any, or any report or registration statement which
Borrower files with any national securities exchange;
(h) At least fifteen (15) Business Days prior to the
time any consent by the Lender will be necessary, Borrower shall furnish to the
Lender all pertinent information regarding any proposed Acquisition by Borrower
to which the consent of the Lender is required hereunder which is reasonably
necessary or appropriate to permit the Lender to evaluate such Acquisition in a
manner consistent with prudent banking standards; and
(i) Such other information reasonably available to
Borrower respecting the condition or operations, financial or otherwise, of
Borrower and its Subsidiaries as the Lender may from time to time reasonably
request.
6.3 TAX RETURNS. File all federal, state and local
tax returns and other reports that Borrower or such Subsidiary is required by
law to file, maintain adequate reserves for the payment of all taxes,
assessments, governmental charges and levies imposed upon its income, or its
profits, or upon any property belonging to it, and pay and discharge all such
taxes, assessments, governmental charges and levies prior to the date on which
penalties attach thereto, except where the same may be contested in good faith
by appropriate proceedings and for which adequate reserves have been
established.
6.4 COMPLIANCE WITH LAWS. Comply with all laws,
statutes, rules, regulations and ordinances of any Governmental Authority
applicable to Borrower or any such Subsidiary, including, without limitation,
any such laws, statutes, rules, regulations or ordinances regarding the
collection, payment, and deposit of employees' income, unemployment, and Social
Security taxes and with respect to pension liabilities, the violation of which
might have a Material Adverse Effect.
6.5 ENVIRONMENTAL LAWS. Comply in all material
respects with all Environmental Laws and, in the event of any "release" or
"threatened release" of any Hazardous Substance onto, at or under the property
of any Borrower or any of its Subsidiaries which requires or may require
notification, response, assessment, investigation or remedial action pursuant
to any Environmental Law, notify the Lender and all appropriate Governmental
Authorities thereof, and proceed with due diligence and, at the cost and
expense of Borrower or such Subsidiary, to respond appropriately, in accordance
with all requirements of the Environmental Laws.
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<PAGE> 44
6.6 ERISA. Borrower will, and will cause each ERISA
affiliate to:
(a) At all times make prompt payment of contributions
required to meet the minimum funding standards set forth in Sections 302 and
305 of ERISA with respect to each Plan and otherwise comply with ERISA and all
rules and regulations promulgated thereunder;
(b) Promptly after the occurrence thereof with respect
to any Plan, or any trust established thereunder, notify the Lender of (i) a
"reportable event" described in Section 4043 of ERISA and the regulations
issued from time to time thereunder (other than a "reportable event" not
subject to the provisions for 30-day notice to the PBGC under such
regulations), or (ii) any other event which could subject Borrower or any ERISA
Affiliate to any material tax, penalty or liability under Title I or Title IV
of ERISA or Chapter 43 of the Code;
(c) At the same time and in the same manner as such
notice must be provided to the PBGC, or to a Plan participant, beneficiary or
alternative payee, give the Lender any notice required under Section 101(d),
302(f)(4), 303, 307, 4041(b)(1)(A) or 4041(c)(1)(A) of ERISA or under Section
401(a)(29) or 412 of the Code with respect to any Plan;
(d) Furnish to the Lender, promptly upon the request
of the Lender, (i) true and complete copies of any and all documents,
government reports and determination or opinion letters for any Plan; and (ii)
a current statement of withdrawal liability, if any, for each Multiemployer
Plan; and
(e) Furnish to the Lender, promptly upon the request
of the Lender therefor, such additional information concerning any Plan as may
be reasonably requested.
6.7 BOOKS AND RECORDS. Keep adequate records and
books of account with respect to its business activities in which proper
entries are made in accordance with GAAP reflecting all its financial
transactions.
6.8 NOTIFICATIONS TO THE LENDER. Notify the Lender
immediately by telephone (with each such notice to be confirmed in writing
within three (3) Business Days): (a) upon Borrower's learning thereof, of any
litigation affecting Borrower or any of its Subsidiaries claiming damages of
$100,000 or more, individually or when aggregated with other litigation pending
against Borrower or its Subsidiaries, whether or not covered by insurance, and
of the threat or institution of any suit or administrative proceeding against
Borrower or any of its Subsidiaries which, if adversely determined, might have
a Material Adverse Effect, and establish such reasonable reserves with respect
thereto as the Lender may request in accordance with GAAP; (b) upon occurrence
thereof, of any Default or Event of Default hereunder; (c) upon occurrence
thereof, of any event or condition which could reasonable be expected to have a
Material Adverse Effect; and (d) upon the occurrence thereof, of Borrower's or
any of its Subsidiaries' default under (i) any note, indenture, loan agreement,
mortgage, lease, deed or other similar agreement relating to any indebtedness
of Borrower or such Subsidiary or (ii) any other instrument, document or
agreement to which Borrower or any of its Subsidiaries is a party or by
38
<PAGE> 45
which Borrower or any of its Subsidiaries or any of their respective properties
is bound, the default of which could have a Material Adverse Effect.
6.9 INSURANCE.
(a) Keep all of its property insured by insurance
companies (i) acceptable to the Lender; and (ii) licensed to do business in all
jurisdictions in which the Collateral is located against loss or damage by fire
or other risk usually insured against under extended coverage endorsement and
theft, burglary, and pilferage, together with such other hazards as the Lender
may reasonably from time to time request, in amounts satisfactory to the Lender
and naming Lender as loss payee thereon pursuant to a lender's loss payee
clause satisfactory to the Lender;
(b) Maintain at all times liability insurance coverage
against such risks and in such amounts as are customarily maintained by others
in similar businesses, such insurance to be carried by insurance companies (i)
acceptable to the Lender and (ii) licensed to do business in the State of
Delaware and in other states in which Borrower and its Subsidiaries conduct
business; and
(c) Deliver certificates of insurance for such policy
or policies to the Lender, containing endorsements, in form satisfactory to the
Lender, providing that the insurance shall not be cancelable, except upon
thirty (30) days' prior written notice to the Lender. In the event of any
termination or notice of non-payment by any insurer with respect to any policy
or any lapse in the coverage thereunder, the Borrower shall cause such insurer
to give prompt written notice to Johanna Connor, Senior Vice President,
Creditanstalt Corporate Finance, Inc., 245 Park Avenue, New York, New York
10167 of the occurrence of such termination, nonpayment or lapse.
6.10 MAINTENANCE OF INTELLECTUAL PROPERTY. Keep all
General Intangibles in full force and effect except for immaterial General
Intangibles allowed to lapse by Borrower in the ordinary course of its business
and any other General Intangible for which Borrower has obtained a
substantially similar substitution or the lapse of which, because of such
substitution, will not have a Material Adverse Effect on the business or
operations of Borrower, as the case may be, and maintain all of its other
property necessary or useful in the proper conduct of its business in good
working condition, ordinary wear and tear excepted.
6.11 PRESERVATION OF CORPORATE EXISTENCE. Preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, qualify and remain qualified as a foreign
corporation in the State of Alabama and qualify and remain qualified as a
foreign corporation in each other jurisdiction in which such qualification is
necessary in view of its business and operations or the ownership of its
properties except where the failure to maintain such qualification or good
standing could not reasonably be expected to result in a Material Adverse
Effect.
6.12 EQUIPMENT. Keep and maintain the Equipment in
good operating condition, reasonable wear and tear excepted, repair and make
all necessary replacements,
39
<PAGE> 46
renewals, additions or improvements thereto so that the value and operating
efficiency thereof shall at all times be maintained and preserved and not
permit any item of Equipment to become a fixture to real estate (other than the
Realty) or accession to other personal property unless the Lender has a first
priority Lien on such real estate or other personal property. Borrower shall,
immediately on demand therefor by the Lender, deliver to the Lender any and all
existing evidence of ownership of any of the Equipment (including, without
limitation, certificates of title and applications for title, together with any
necessary applications to have the Lender's Lien noted thereon, in the case of
vehicles).
6.13 OTHER INDEBTEDNESS. Maintain all of its
Indebtedness in whatsoever manner incurred, including, but not limited to,
Indebtedness for borrowed money or for services or goods purchased, in a
current status.
6.14 ADDITIONAL DOCUMENTATION. Promptly upon the
request of Lender, cause Integrity Music to execute and deliver to Lender a
guaranty of the Obligations and a security agreement granting to lender a Lien
on substantially all of its assets as security for the Obligations.
7. NEGATIVE COVENANTS
Borrower hereby covenants with the Lender that from and after the date
hereof and until the termination of this Agreement and the payment and
satisfaction in full of the Obligations, whichever last occurs, it will not,
nor will it permit any of its Subsidiaries to, without the prior written
consent of the Lender:
7.1 LIENS. Create, incur, assume, or suffer to exist
any Lien of any kind in any of the Collateral, the Realty or its other assets
other than Permitted Liens.
7.2 INDEBTEDNESS. Incur, assume, or suffer to exist
any Indebtedness except for (a) the Obligations; (b) Indebtedness listed on
Schedule 5.22; (c) purchase money Indebtedness up to Five Hundred Thousand
Dollars ($500,000) at any time outstanding; (d) Indebtedness of Persons which
become Subsidiaries of the Company after the date hereof up to Five Hundred
Thousand Dollars ($500,000), provided that such Indebtedness is in existence at
the time the respective Persons become Subsidiaries of the Company and was not
incurred or created in anticipation thereof; (e) unsecured Indebtedness up to
Two Hundred and Fifty Thousand Dollars ($250,000) at any time outstanding.
7.3 ASSET SALES. Sell, lease, transfer or otherwise
dispose of any or all of the Collateral, the Realty or any interest therein or
any of their other assets other than (a) the sale of Inventory in the ordinary
course of business; (b) the sale of other assets no longer used or usable in
the business of Borrower or such Subsidiary and which have a value which does
not exceed Two Hundred and Fifty Thousand Dollars ($250,000) in the aggregate
for all such assets so sold; and (c) transfer of assets as a part of any
Investment permitted by Section 7.5(a) hereof.
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<PAGE> 47
7.4 GUARANTIES. Guarantee the obligations of any
other Person except by endorsement of negotiable instruments for deposit or
collection and similar transactions in the ordinary course of business.
7.5 INVESTMENTS AND ACQUISITIONS. Create any
Subsidiaries after the date hereof or make any Investment or Acquisition, or
agreement for Investment or Acquisition in any Person, including, but not
limited to, by way of transfer of property, contributions to capital, purchases
of shares, securities or evidences of indebtedness, acquisitions of businesses
or of a substantial portion of the assets of any business or otherwise, except
for (a) the Investment, in a an aggregate amount not to exceed $850,000, in a
joint venture with Word Incorporated ("Word") to develop a new hymnal (the
"Hymnal JV"); provided that (i) such Investment is made not later than March
31, 1997 and (ii) not later than thirty (30) days after the date of each such
Investment or March 31, 1997, whichever is earlier, Word shall have paid to
Borrower, or the Hymnal JV shall have distributed to Borrower from funds
contributed by Word, an amount equal to fifty percent (50%) of the amount of
such Investment; (b) loans to the Hymnal JV in an aggregate amount not to
exceed $600,000 provided that (i) such loan bears interest at a market interest
rate and (ii) such loans are due and payable in full not later than December
31, 1997; and (c) Acquisitions of the assets of any Person engaged in the
business of Christian music publishing or production or other Christian
lifestyle products for an aggregate purchase price (in cash, stock or other
assets, with stock or assets being valued at the fair market value thereof) not
in excess of One Million Dollars ($1,000,000) for any single Acquisition or
related series of Acquisitions.
7.6 PROHIBITION OF FUNDAMENTAL CHANGES. Enter into
any transaction of merger or consolidation or amalgamation, or liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution) or make any
substantial change in the basic type of business conducted by Borrower or any
Subsidiary of Borrower as of the date hereof except that:
(a) any Subsidiary of Borrower may be merged or
consolidated with or into: (i) Borrower if Borrower shall be the continuing or
surviving corporation or (ii) any other such Subsidiary; provided that if any
such transaction shall be between a Subsidiary and a wholly-owned Subsidiary,
the wholly-owned Subsidiary shall be the continuing or surviving corporation;
(b) any wholly-owned Subsidiary of Borrower may be
dissolved into its parent corporation.
7.7 ISSUANCE OF STOCK. Issue any shares of Capital
Stock or other ownership interests in Borrower or any of its Subsidiaries,
except that Borrower may issue shares of the classes of common stock of
Borrower currently authorized by the Articles of Incorporation of Borrower.
7.8 FISCAL YEAR. Change its fiscal year end from
December 31.
7.9 ERISA. Take, or fail to take, or permit any ERISA
Affiliate to take, or fail to take, any action with respect to a Plan
including, but not limited to, (a) amending any Plan, (b) terminating or
withdrawing from any Plan, or (c) incurring an amount of unfunded benefit
41
<PAGE> 48
liabilities, as defined in Section 4001(a)(18) of ERISA, where such action or
failure could have a Material Adverse Effect, result in a Lien on the property
of Borrower and its Subsidiaries or require Borrower or any of its Subsidiaries
to provide any security.
7.10 RELOCATIONS; USE OF NAME. Relocate its executive
offices, open new places of business or relocate existing places of business;
maintain any Collateral or records with respect to Collateral or the Realty at
any other locations than those locations presently kept or maintained, as set
forth on Schedule 5.15 hereto; or use any corporate name (other than its own)
or any fictitious name except "Integrity Music" and "Integrity Direct", in each
case, except upon thirty (30) days prior written notice to the Lender and
after the delivery to the Lender of financing statements, if required by the
Lender, in form satisfactory to the Lender.
7.11 ARM'S-LENGTH TRANSACTIONS. Enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service or the payment of management or other
service fees, with any Affiliate except in the ordinary course of and pursuant
to the reasonable requirements of such Borrower's or such Subsidiary's business
and upon fair and reasonable terms which are fully disclosed to the Lender in
writing and which are no less favorable to Borrower than those which would
prevail in a comparable arm's-length transaction with a Person not an
Affiliate.
7.12 INTEGRITY MUSIC. Permit Integrity Music to
own or hold any assets other than the assets described in Section 5.30 hereto
or to conduct any business.
8. FINANCIAL COVENANTS
Borrower hereby covenants with the Lender that from and after the date
hereof and until the termination of the Commitment and the payment and
satisfaction in full of the Obligations, whichever last occurs, unless the
Lender otherwise consents in writing:
8.1 NET WORTH. Borrower and its consolidated
Subsidiaries shall maintain at all times during the applicable periods set
forth below, a Net Worth, on a consolidated basis, of not less than the amount
set forth opposite each such applicable period:
<TABLE>
<CAPTION>
APPLICABLE PERIOD AMOUNT
----------------- ------
<S> <C>
07/01/96 - 11/30/96 $11,500,000
12/01/96 - 12/31/96 $12,000,000
01/01/97 - 12/31/97 $13,000,000
01/01/98 - 12/31/98 $15,000,000
01/01/99 - 12/31/99 $17,000,000
01/01/00 - 12/31/00 $19,000,000
At all times thereafter $20,000,000
</TABLE>
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<PAGE> 49
8.2 CASH FLOW. Borrower and its Subsidiaries shall
maintain at all times during the applicable periods set forth below, for such
fiscal quarter, in the case of each fiscal quarter ending on or prior to March
31, 1997, and for the four fiscal quarter period then ended, for each fiscal
quarter thereafter, a Cash Flow of not less than the amount set forth opposite
each such applicable period:
<TABLE>
<CAPTION>
APPLICABLE PERIOD AMOUNT
----------------- ------
<S> <C>
07/01/96 - 03/31/97 $1,000,000
04/01/97 - 06/30/97 $5,250,000
07/01/97 - 12/31/97 $5,500,000
01/01/98 - 06/30/98 $6,000,000
07/01/98 - 12/31/98 $6,500,000
01/01/99 - 12/31/99 $7,000,000
At all times thereafter $7,500,000
</TABLE>
8.3 LEVERAGE RATIO. Borrower and its consolidated
Subsidiaries shall maintain, on a consolidated basis, as of the end of each
fiscal quarter of Borrower during the applicable periods set forth below a
Leverage Ratio for each such quarter of not greater than the ratio set forth
below opposite the applicable period during which such quarter occurs:
<TABLE>
<CAPTION>
APPLICABLE PERIOD RATIO
----------------- -----
<S> <C>
07/01/96 - 12/31/96 1.7:1.0
01/01/97 - 06/30/97 1.5:1.0
07/01/97 - 12/31/97 1.4:1.0
01/01/98 - 06/30/98 1.3:1.0
07/01/98 - 12/31/98 1.2:1.0
01/01/99 - 06/30/99 1.1:1.0
At all times thereafter 1.0:1.0
</TABLE>
8.4 INTEREST COVERAGE RATIO. Borrower and its
consolidated Subsidiaries shall maintain, on a consolidated basis, as of the
end of each fiscal quarter of Borrower during the applicable periods set forth
below, an Interest Coverage Ratio for the four fiscal quarters then ending of
not less than the ratio set forth below opposite each such applicable period:
<TABLE>
<CAPTION>
APPLICABLE PERIOD RATIO
----------------- -----
<S> <C>
07/01/96 - 9/31/96 4.00:1.00
10/01/96 - 12/31/96 3.75:1.00
01/01/97 - 12/31/97 3.50:1.00
At all times thereafter 4.00:1.00
</TABLE>
8.5 FIXED CHARGE COVERAGE RATIO. Borrower and its
consolidated Subsidiaries shall maintain, on a consolidated basis, as of the
end of each fiscal quarter of
43
<PAGE> 50
Borrower during the applicable period set forth below, for such fiscal quarter,
in the case of each fiscal quarter ending on or prior to March 31, 1997, and
for the four fiscal quarter period then ended, as of the end of each fiscal
quarter thereafter, a Fixed Charge Ratio of not less than the ratio set forth
opposite each such applicable period:
<TABLE>
<CAPTION>
APPLICABLE PERIOD RATIO
----------------- -----
<S> <C>
07/01/96 - 09/30/96 0.75:1.00
10/01/96 - 12/31/97 1.00:1.00
01/01/98 - 12/31/99 1.10:1.00
01/01/00 - 12/31/00 1.20:1.00
At all times thereafter 1.25:1.00
</TABLE>
8.6 DIVIDENDS. Neither Borrower nor any of its
Subsidiaries shall declare or pay any dividends on, or make any distribution
with respect to, the shares of any class of their Capital Stock, or purchase,
redeem, acquire, defease or retire any shares of their Capital Stock, or take
any action having an effect equivalent to the foregoing except that any
Subsidiary of Borrower may declare and pay dividends to Borrower or to any
wholly-owned Subsidiary of Borrower.
9. EVENTS OF DEFAULT
The occurrence of any of the following events or conditions shall
constitute an Event of Default hereunder:
9.1 OBLIGATIONS. Borrower shall fail to make (i) any
payments of interest on any Loan or any other Obligation within five days of
the date when the same becomes due and payable or (ii) any payments of
principal on any Loan or any other Obligation when due.
9.2 MISREPRESENTATIONS. Borrower or any of its
Subsidiaries shall make any representation or warranty in this Agreement or any
of the other Loan Documents or in any certificate or statement furnished at any
time hereunder or in connection with this Agreement or any of the other Loan
Documents which proves to have been untrue or misleading when made or furnished
and which continues to be untrue or misleading.
9.3 COVENANTS. Borrower or any of its Subsidiaries
shall default in the observance or performance of any covenant applicable to
Borrower or such Subsidiary under this Agreement or in any of the Loan
Documents.
9.4 OTHER DEBTS. (a) Borrower or any of its
Subsidiaries shall fail to pay any principal of or premium or interest on any
of its Indebtedness when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace or cure period, if any,
44
<PAGE> 51
specified in the agreement, mortgage, indenture or instrument relating to such
Indebtedness; or (b) any other event shall occur or condition shall exist under
any agreement, mortgage, indenture or instrument relating to any such
Indebtedness and shall continue after the applicable grace or cure period, if
any, specified in such agreement, mortgage, indenture or instrument, if the
effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or (c) any such
Indebtedness shall be accelerated or otherwise declared to be due and payable
prior to the stated maturity thereof, or (d) any such Indebtedness shall be
required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such Indebtedness shall be required to be made, in each
case prior to the stated maturity thereof.
9.5 TAX LIEN. A notice of Lien, levy or assessment is
filed of record with respect to all or any assets of Borrower or any of its
Subsidiaries by the United States or any other Governmental Authority,
including, without limitation, the PBGC, which adversely affects the priority
of the Liens granted to the Lender hereunder or under any of the other Loan
Documents except with respect to obligations or liabilities not exceeding One
Hundred Thousand Dollars ($100,000) provided that such Lien, levy or assessment
is released within 60 days of filing.
9.6 ERISA. The occurrence of any of the following
events: (a) the happening of a Reportable Event with respect to any Plan; (b)
the disqualification or involuntary termination of a Plan for any reason; (c)
the voluntary termination of any Plan while such Plan has a funding deficiency
(as determined under Section 412 of the Code); (d) the appointment of a trustee
by an appropriate United States district court to administer any such Plan; (e)
the institution of any proceedings by the PBGC to terminate any such Plan or to
appoint a trustee to administer any such Plan; (f) the failure of Borrower to
notify the Lender promptly upon receipt by Borrower or any of its ERISA
Affiliates of any notice of the institution of any proceeding or other actions
which may result in the termination of any such Plan, in each case giving rise
to liability of Five Hundred Thousand Dollars ($500,000) or greater.
9.7 VOLUNTARY BANKRUPTCY. Borrower or any of its
Subsidiaries shall: (a) file a voluntary petition or assignment in bankruptcy
or a voluntary petition or assignment or answer seeking liquidation,
reorganization, arrangement, readjustment of its debts, or any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether State, Federal, or foreign, now or
hereafter existing; (b) enter into any agreement indicating consent to,
approval of, or acquiescence in, any such petition or proceeding; (c) apply for
or permit the appointment, by consent or acquiescence, of a receiver, custodian
or trustee of itself or themselves or for all or a substantial part of its or
their property; (d) make an assignment for the benefit of creditors; or (e) be
unable or shall fail to pay its or their debts generally as such debts become
due, admit in writing its or their inability or failure to pay its or their
debts generally as such debts become due, or otherwise cease to be Solvent.
9.8 INVOLUNTARY BANKRUPTCY. There occurs (a) a filing
or issuance against Borrower or any of its Subsidiaries an involuntary petition
in bankruptcy or seeking liquidation of Borrower or such Subsidiary,
reorganization, arrangement, readjustment of its or their debts or
45
<PAGE> 52
any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether State, Federal or foreign,
now or hereafter existing; (b) the involuntary appointment of a receiver,
liquidator, custodian or trustee of Borrower or any of its Subsidiaries or for
all or a substantial part of its or their property; or (c) the issuance of a
warrant of attachment, execution or similar process against all or any
substantial part of the property of Borrower or any of its Subsidiaries.
9.9 SUSPENSION OF BUSINESS. The suspension of the
transaction of the usual business of the Borrower or any of its Subsidiaries or
the dissolution of the Borrower.
9.10 JUDGMENTS. Any judgment, decree or order for the
payment of money which, when aggregated with all other judgments, decrees or
orders for the payment of money pending against Borrower or any of its
Subsidiaries exceeds the sum of One Hundred Thousand Dollars ($100,000) at any
one time outstanding, shall be rendered against Borrower or any of its
Subsidiaries and remain unsatisfied and in effect for a period of sixty (60)
consecutive days or more without being vacated, discharged, satisfied or stayed
or bonded pending appeal.
9.11 RICO. Borrower, any of its Subsidiaries, or any
of their respective directors, shareholders or executive officers shall be
indicted under the Racketeer Influenced and Corrupt Organizations Act of 1970
(18 U.S.C. Section 1961 et seq.) or the Lender otherwise reasonably believes
in good faith that all or any portion of Borrower's or any of its Subsidiaries'
assets are subject to forfeiture pursuant to Applicable Law.
9.12 FAILURE OF SECURITY. At any time (a) Liens in
favor of the Lender contemplated by the Loan Documents shall, at any time, for
any reason (except by reason of an affirmative act or omission of the Lender),
be invalidated or otherwise cease to be in full force and effect; (b) such
Liens shall be subordinated or shall not have the priority contemplated by this
Agreement or the other Loan Documents; or (c) Borrower or other obligor under
any such Loan Document seeks to repudiate its or his obligations thereunder.
9.13 GUARANTY. At any time, for any reason other than
with the consent of the Lender, any guaranty of the Obligations ceases to be in
full force and effect in any material respect or guarantor thereunder seeks to
repudiate its obligations thereunder and the Liens intended to be created
thereby or in connection therewith are, or such guarantor seeks to render such
Liens, invalid and unperfected.
9.14 CHANGE OF CONTROL. There occurs a Change of
Control.
9.15 MANAGEMENT. P. Michael Coleman ceases to be the
chief executive officer of Borrower and the vacancy so created is not filled by
another Person reasonably acceptable to Lender.
10. REMEDIES
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Upon the occurrence or existence of any Event of Default, and during
the continuation thereof, without prejudice to the rights of the Lender to
enforce its claims against Borrower for damages for failure by Borrower to
fulfill any of the obligations hereunder, the Lender shall have the following
rights and remedies, in addition to any other rights and remedies available to
the Lender at law, in equity or otherwise:
10.1 DEFAULT RATE. At the election of the Lender,
evidenced by written notice to Borrower, the outstanding principal balance of
the Obligations, and to the extent permitted by Applicable Law, accrued and
unpaid interest thereon, shall bear interest at the Default Rate until paid in
full or such Event of Default has been cured or waived.
10.2 TERMINATION; ACCELERATION OF THE OBLIGATIONS. In
the event of an Event of Default set forth in Sections 9.7 or 9.8 hereof, the
Commitment shall automatically and immediately terminate and in the event of
any other Event of Default, the Lender, at its option, may terminate the
Commitment, whereupon in either case all of the Obligations shall become
immediately due and payable, without presentment, demand, protest, notice of
non-payment or any other notice required by law relative thereto, all of which
are hereby expressly waived by Borrower, anything contained herein to the
contrary notwithstanding.
10.3 SET-OFF. The right of the Lender to set-off,
without notice to Borrower or any of its Subsidiaries, any and all deposits at
any time credited by or due from the Lender to Borrower or such Subsidiary,
whether in a general or special, time or demand, final or provisional account
or any other account or represented by a certificate of deposit and whether or
not unmatured or contingent against any or all of the Obligations of Borrower
or such Subsidiary, now existing or hereafter arising, whether or not the
Lender shall have made any demand under this Agreement or any of the Loan
Documents.
10.4 RIGHTS AND REMEDIES OF A SECURED PARTY. All of
the rights and remedies of a secured party under the UCC or under other
Applicable Law, all of which rights and remedies shall be cumulative, and none
of which shall be exclusive, to the extent permitted by law, in addition to any
other rights and remedies contained in this Agreement, and in any of the other
Loan Documents.
10.5 TAKE POSSESSION OF COLLATERAL. The right of the
Lender to (a) enter upon the premises of Borrower or any of its Subsidiaries,
or any other place or places where the Collateral is located and kept, through
self-help and without judicial process, without first obtaining a final
judgment or giving Borrower or any of its Subsidiaries notice and opportunity
for a hearing on the validity of the Lender's claim and without any obligation
to pay rent to Borrower or any of its Subsidiaries, and remove the Collateral
therefrom to the premises of Lender or any agent of Lender, for such time as
Lender may desire, in order to effectively collect or liquidate the Collateral;
and/or (b) require Borrower to assemble the Collateral and make it available to
Lender at a place to be designated by the Lender, in its sole discretion.
10.6 SALE OF COLLATERAL. The right of the Lender to
sell or to otherwise dispose of all or any of the Collateral, at public or
private sale or sales, with such notice as may
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be required by law, in lots or in bulk, for cash or on credit, all as Lender,
in its sole discretion, may deem advisable. Such sales may be adjourned from
time to time with or without notice. Lender shall have the right to conduct
such sales on the premises of Borrower or any of its Subsidiaries or elsewhere
and shall have the right to use the premises of Borrower or any of its
Subsidiaries, without charge for such sales for such time or times as the
Lender may see fit. The Lender is hereby granted a license or other right to
use, without charge, the labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks and advertising
matter, or any property of a similar nature, whether owned by Borrower or with
respect to which Borrower has rights under license, sublicense or other
agreements, as it pertains to the Collateral, in preparing for sale (including,
without limitation, finishing any unfinished Inventory of Borrower),
advertising for sale and selling any Collateral and the rights of Borrower
under all licenses and all franchise agreements shall inure to the benefit of
the Lender. The Lender 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 the Lender 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 proceeds realized from the sale of any Collateral
shall be applied first to the costs, expenses and attorneys' fees and expenses
incurred by Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to interest due
upon any of the Obligations; and third to the principal of the Obligations.
Any remaining proceeds shall be remitted to Borrower or other Person legally
entitled thereto. If any deficiency shall arise, Borrower shall remain liable
to the Lender therefor.
10.7 JUDICIAL PROCEEDINGS. The right to proceed by an
action or actions at law or in equity to obtain possession of the Collateral,
to recover the Obligations and amounts secured hereunder or to foreclose under
this Agreement and sell the Collateral or any portion thereof, pursuant to a
judgment or decree of a court or courts of competent jurisdiction, all without
the necessity of posting any bond.
10.8 NOTICE. Any notice required to be given by Lender
of a sale, lease, or other disposition of the Collateral or any other intended
action by Lender, given to Borrower in the manner set forth in Section 12.7
below, at least ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to Borrower.
10.9 APPOINTMENT OF LENDER AS BORROWER'S LAWFUL
ATTORNEY. Borrower irrevocably designates, makes, constitutes and appoints the
Lender (and all persons designated by the Lender) as the true and lawful
attorney of Borrower and the Lender or the Lender's agent, may, without notice
to Borrower and at such time or times following an Event of Default as the
Lender or said agent, in its sole discretion, may determine, in the name of
Borrower or in the Lender's name: (a) demand payment of the Accounts; (b)
enforce payment of the Accounts, by legal proceedings or otherwise; (c)
exercise all of the rights and remedies of Borrower with respect to the
collection of the Accounts; (d) settle, adjust, compromise, extend or renew the
Accounts; (e) settle, adjust or compromise any legal proceedings brought to
collect the Accounts; (f) notify the postal authorities to change the address
and delivery of mail addressed to Borrower to such address as the Lender may
designate; (g) if permitted by Applicable Law, sell or assign the
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Accounts upon such terms, for such amounts and at such time or times as the
Lender deems advisable; (h) discharge and release the Accounts; (i) take
control, in any manner, of any item of payment or proceeds on the Accounts; (j)
prepare, file and sign the names of Borrower on a Proof of Claim in Bankruptcy
or similar document against any Account Debtor; (k) prepare, file and sign the
names of Borrower on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Accounts; (l) do all acts and things
necessary, in the Lender's sole discretion, to fulfill the obligations of
Borrower under this Agreement; (m) endorse the name of Borrower upon any of the
items of payment or proceeds on any Account, and deposit the same to the
account of the Lender on account of the Obligations; (n) endorse the name of
Borrower upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document or agreement relating to the Accounts or
Inventory; (o) use the stationery of Borrower and sign the names of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; and (p)
use the information recorded on or contained in any data processing equipment
and computer hardware and software relating to the Accounts and Inventory to
which Borrower has access.
11. CONDITIONS PRECEDENT
11.1 CONDITIONS PRECEDENT TO INITIAL LOAN.
Notwithstanding any other provision of this Agreement, it is understood and
agreed that the Lender shall have no obligation to make the initial Loan
hereunder unless and until the following conditions have been met, to the sole
and complete satisfaction of Lender:
(a) Litigation. No action, suit, litigation,
proceeding, investigation, regulation or legislation, including, but not
limited to, any arising under the Environmental Laws, shall have been
instituted, threatened or proposed before any court, governmental agency or
legislative body which (i) seeks to enjoin, restrain, or prohibit, or to obtain
substantial damages in respect of, or which is related to or arises out of this
Agreement or the making of any Loan hereunder; or (ii) if decided adversely to
Borrower or any of its Subsidiaries may result in a Material Adverse Effect.
(b) Refinancing. First Union and Whitney Bank shall
have agreed to release of record any instruments, documents and agreements
evidencing or perfecting any interests of First Union or Whitney Bank in any of
the assets or stock of Borrower or its Subsidiaries.
(c) Environmental Assessment. The Lender shall have
received, at Borrower's expense, an environmental assessment of the Realty,
prepared by an environmental engineering firm acceptable to the Lender and
having a scope satisfactory to the Lender, ascertaining compliance by Borrower
and its predecessors with all Environmental Laws applicable to Borrower and the
Realty and showing that the Realty and other assets of Borrower are free of
Hazardous Substances. Without limiting the generality of the foregoing, such
assessment shall (i) include soil testing to determine the existence and/or
extent of any leakage of Hazardous Substance from any underground storage tank
located on the Realty; (ii) determine whether each underground storage tank
located on the Realty and still in use has been upgraded and is in
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compliance with all applicable Environmental Laws; and (iii) otherwise be in
form and substance satisfactory to the Lender.
(d) Documentation. The Lender shall have received the
following documents, each dated the Closing Date (unless otherwise specified),
each duly executed and delivered to the Lender, and each to be satisfactory in
form and substance to Lender and its counsel:
(i) this Agreement;
(ii) the Notes;
(iii) the Stock Pledge Agreement granting
Lender a first priority security interest in 100% of the stock of
Borrower's Subsidiaries (other than the Foreign Subsidiaries) and 65%
of the stock of each of Borrower's Foreign Subsidiaries, together with
the original stock certificates, blank stock powers and irrevocable
proxies related thereto.
(iv) the Copyright Security Agreement;
(v) the Conditional Assignment and
Trademark Security Agreement;
(vi) the Mortgage, duly executed and
delivered by Borrower;
(vii) such evidence as the Lender may
reasonably request that the Realty and the uses thereof, comply in all
material respects with all applicable laws, regulations, codes,
orders, ordinances, rules and statutes, including, without limitation,
those relating to zoning and environmental protection;
(viii) assurance from a title insurance
company satisfactory to the Lender (the "Title Company") that such
Title Company is committed to cause the Mortgage to be recorded and,
upon recordation of the Mortgage, to issue its ALTA lender's title
insurance policies in a form acceptable to the Lender and in amounts
satisfactory to the Lender, showing the Lender as the "insured
mortgage" and insuring the validity and priority of the Mortgage as a
first priority Lien upon the Realty;
(ix) an original current survey of the
Realty containing the certification of the surveyor in form and
substance satisfactory to the Lender and showing the perimeter of the
Realty by courses and distances, all easements and rights-of-way, the
boundary lines of the streets abutting the Realty and the width
thereof, any encroachments and the extent thereof in feet and inches,
the relation of the improvements by distances to the perimeter of the
Realty and the proposed building lines all acceptable to the Title
Company to modify the "areas, boundaries and encroachments" exception
to the maximum extent permitted by law;
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(x) a certificate signed by the
President or chief financial officer of Borrower certifying that (A)
the representations and warranties set forth in Article 5 hereof are
true and correct in all respects on and as of such date with the same
effect as though made on and as of such date; (B) Borrower is on such
date in compliance with all the terms and conditions set forth in this
Agreement on its part to be observed and performed, and (C) on the
Closing Date, after giving effect to the making of the initial Loan,
no Default or Event of Default has occurred or is continuing;
(xi) a certificate executed by the
President or chief financial officer of Borrower certifying as to the
Equipment owned by Borrower and the locations at which such Equipment
is maintained;
(xii) a certificate of the Secretary of
Borrower certifying (A) that attached thereto is a true and complete
copy of the Articles of Incorporation of Borrower as in effect on the
date of such certification; (B) that attached thereto is a true and
complete copy of the By-Laws of Borrower, as in effect on the date of
such certification; (C) that attached thereto is a true and complete
copy of Resolutions adopted by the Board of Directors of Borrower,
authorizing the execution, delivery and performance of this Agreement
and the other Loan Documents; and (D) as to the incumbency and
genuineness of the signatures of the officers of Borrower executing
this Agreement or any of the other Loan Documents;
(xiii) a Borrowing Base Certificate;
(xiv) a copy of the Articles of
Incorporation of Borrower, and all restatements thereof or amendments
thereto, certified as of a date close to the Closing Date, by the
Secretary of State of the State of Delaware;
(xv) good standing certificates for
Borrower, certified as of a date close to the Closing Date, and issued
in each case by those secretaries of state of those states set forth
on Schedule 11.1 hereto;
(xvi) such UCC termination statements and
other Lien releases and terminations as the Lender may require;
(xvii) copies of all filing receipts or
acknowledgments issued by any Governmental Authority to evidence any
filing or recordation necessary to terminate any Liens in the
Collateral or the Realty and to perfect the Liens of the Lender in the
Collateral and the Realty and evidence in a form acceptable to the
Lender that such Liens of the Lender constitute valid and perfected
first priority Liens;
(xviii) certified copies of each of the
casualty and liability insurance policies of Borrower having levels of
coverage satisfactory to the Lender, effective as of a date on or
before the Closing Date, together, in the case of such casualty
policies, with
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loss payable and mortgagee endorsements on the Lender's standard form
naming the Lender as loss payee;
(xix) the written opinions of (1) Alston &
Bird, counsel to Borrower, and (2) Balch & Bingham, special Alabama
counsel to the Borrower; in the form attached hereto as Exhibit I-2;
and (3) Manatt, Phelps & Phillips, L.L.P., special intellectual
property counsel to Borrower, in the form attached hereto as Exhibit
I-3, in each case in the form attached hereto as Exhibit I-3, as to
the transactions contemplated by this Agreement;
(xx) all landlord consents and such other
similar waivers, dated as of a date on or before the Closing Date,
with respect to each parcel of real estate leased by Borrower or any
of its Subsidiaries at which is located Inventory which Borrower
desires to be included in the Borrowing Base;
(xxi) copies of all required regulatory
approvals, including, without limitation, any which may be required by
regulatory authorities having jurisdiction over Borrower or any of its
Subsidiaries and any that may be required for any transactions
contemplated by this Agreement or any of the other Loan Documents; and
(xxii) such other documents, instruments
and agreements with respect to the transactions contemplated by this
Agreement, in each case in such form and containing such additional
terms and conditions as may be satisfactory to the Lender, and
containing, without limitation, representations and warranties which
are customary and usual in such documents.
11.2 ALL LOANS. The obligation of the Lender to make
each Loan hereunder (including the initial Loan) shall be subject to
fulfillment of the following conditions:
(a) No Injunction. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any Governmental Authority to enjoin, restrain, or prohibit,
or to obtain substantial damages in respect of, or which is related to or
arises out of this Agreement or such Loan or which in the Lender's sole
discretion, would make it inadvisable to make such Loan;
(b) No Material Adverse Change. Since March 30, 1996,
there shall not have occurred any material adverse change in the assets,
liabilities, business, operations or condition (financial or otherwise) of
Borrower, or any event, condition, or state of facts which would be expected
materially and adversely to affect the prospects of Borrower or any of its
Subsidiaries subsequent to the making of such Loan to Borrower.
(c) Solvency. The Lender shall be satisfied that,
giving effect to the making of such Loan, Borrower will be Solvent.
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(d) No Default or Event of Default. There shall exist
no Default or Event of Default or any event or condition which, with the making
of such Loan would constitute a Default or Event of Default.
(e) Representations and Warranties. All
representations and warranties made by Borrower and its Subsidiaries hereunder
shall be true and correct in all respects as of the date of such Loan with the
same force and effect as if made on and as of such date (except for changes
therein which do not constitute a Default or Event of Default hereunder, which
could not reasonably result in a Material Adverse Effect, and which have, to
the extent required, been disclosed to the Lender pursuant to Section 6.2 or
6.8 hereof).
(f) Regulatory Restrictions. Neither Borrower nor any
of its Subsidiaries shall be subject to any statute, rule, regulation, order,
writ or injunction of any Governmental Authority which would restrict or hinder
the conduct of Borrower's or such Subsidiary's business as conducted or
proposed to be conducted and which could have a Material Adverse Effect. In
addition, the Lender shall have reasonably satisfied itself that Borrower and
each of its Subsidiaries is in compliance with all Applicable Laws of any
Governmental Authority the failure to comply with which, in the opinion of the
Lender, could have a Material Adverse Effect.
(g) Regulatory Approvals. Borrower shall have received
all required regulatory and other approvals or consents with regard to this
Agreement and the Loan Documents, such Loan or in respect of any Collateral or
Realty being pledged in connection with such Loan.
11.3 DELAY IN SATISFACTION OF CONDITIONS PRECEDENT. If
the Lender makes a Loan prior to the fulfillment of any condition precedent set
forth in this Article 11, the making of such Loan shall constitute only an
extension of time for the fulfillment of such condition and not a waiver
thereof. The failure of Borrower, for any reason, to satisfy or cause to be
satisfied any such condition precedent within thirty (30) days after the date
thereof shall constitute an Event of Default for all purposes under this
Agreement and the Loan Documents, unless such failure is waived in writing by
the Lender.
12. MISCELLANEOUS
12.1 WAIVER. Each and every right and remedy granted
to the Lender under this Agreement, the other Loan Documents or any other
document delivered hereunder or in connection herewith or allowed it by law or
in equity, shall be cumulative and may be exercised from time to time. No
failure on the part of the Lender to exercise, and no delay in exercising, any
right or remedy shall operate as a waiver thereof, nor shall any single or
partial exercise by the Lender of any right or remedy preclude any other or
future exercise thereof or the exercise of any other right or remedy. No
waiver by the Lender of any Default or Event of Default shall constitute a
waiver of any subsequent Default or Event of Default.
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12.2 SURVIVAL. All representations, warranties and
covenants made herein shall survive the execution and delivery of all of the
Loan Documents. The terms and provisions of this Agreement shall continue in
full force and effect until all of the Obligations have been paid in full, and
the Commitment has been terminated in writing, whichever last occurs;
provided, further, that Borrower's obligations under Sections 2.8(b), 3.7, 3.8,
12.5 and 12.13 shall survive the repayment of the Obligations and the
termination of this Agreement.
12.3 ASSIGNMENTS; SUCCESSORS AND ASSIGNS.
(a) This Agreement and the Loan Documents shall be
binding upon, and inure to the benefit of, the successors of the Lender, the
permitted successors of Borrower, and the respective assigns, transferees and
endorsees of Lender. No Person shall be deemed to be a third-party beneficiary
of any of the provisions of this Agreement or the Loan Documents or otherwise
have any rights by reason of any provisions of this Agreement or the Loan
Documents.
(b) The Lender may, in accordance with Applicable Law,
at any time sell to one or more banks or other financial institutions
("Participants") participating interests in any Loans owing to such Lender, any
of the Notes held by such Lender, any Commitment held by such Lender hereunder
or any other interests of such Lender hereunder without the consent of the
Borrower. Borrower agrees that each Participant shall be entitled to the
benefits of Section 2.8(b), 3.7, 3.8 and 12.13 with respect to its
participation; provided that (i) the Lender's obligations under this Agreement
shall remain unchanged, (ii) the Lender shall remain solely responsible to the
Borrower for the performance of such obligations, (iii) the Lender shall remain
the holder of any such Note for all purposes of this Agreement, (iv) Borrower
shall continue to deal solely and directly with the Lender in connection with
the Lender's rights and obligations under this Agreement and (v) the Lender
shall not transfer, grant, assign or sell any participation under which the
Participant shall have rights to approve any amendment or waiver of this
Agreement except to the extent such amendment or waiver would (A) extend the
final maturity date or the date for the payments of any installment of fees or
principal or interest of any Loans in which such Participant is participating,
(B) reduce the amount of any installment of principal of the Loans in which
such Participant is participating, (C) reduce the interest rate applicable to
the Loans in which such Participant is participating, or (D) except as
otherwise expressly provided in this Agreement, reduce any fees payable
hereunder.
(c) The Lender may, in accordance with Applicable Law,
at any time assign, pursuant to an assignment substantially in the form of
Exhibit J attached hereto and incorporated herein by reference, with the
Borrower's consent, not to be unreasonably withheld to any Person (the
"Assignee") all or any part of any Loans owing to the Lender, any of the Notes
held by the Lender, the Commitment or any other interest of the Lender
hereunder. Borrower and the Lender agree that to the extent of any assignment
the Assignee shall be deemed to have the same rights and benefits with respect
to Borrower under this Agreement and any of the Notes as it would have had if
it were the "Lender" hereunder on the date hereof and the assigning Lender
shall be released from its Commitment and other obligations hereunder to the
extent of such assignment.
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(d) Borrower authorizes the Lender to disclose to any
Participant or Assignee ("Transferee") and any prospective Transferee any and
all financial information in the Lender's possession concerning Borrower and
its Subsidiaries which has been delivered to the Lender by Borrower or any of
its Subsidiaries pursuant to this Agreement or which has been delivered to the
Lender by Borrower or any of its Subsidiaries in connection with the Lender's
credit evaluation of Borrower prior to entering into this Agreement.
(e) The Lender shall be entitled to have any Notes
held by it subdivided in connection with a permitted assignment of all or any
portion of such Notes and the respective Loans evidenced thereby pursuant to
Section 12.3(c) above. In the case of any such subdivision, the new Note (the
"New Note") issued in exchange for a Note (the "Old Note") previously issued
hereunder (i) shall be dated the date of such assignment, (ii) shall be
otherwise duly completed and (iii) shall bear a legend, to the effect that such
New Note is issued in exchange for such Old Note and that the indebtedness
represented by such Old Note shall not have been extinguished by reason of such
exchange. Upon delivery of the New Note, the Old Note shall be marked
cancelled and returned to Borrower.
(f) If, pursuant to this Section 12.3, any interest in
this Agreement or the Notes is transferred to any Transferee which is organized
under the laws of any jurisdiction other than the United States or any State
thereof, the Lender making such transfer shall cause such Transferee,
concurrently with the effectiveness of such transfer, (i) to represent to the
Borrower and the Lender that under Applicable Law and treaties no taxes will be
required to be withheld by Borrower or such Lender with respect to any payments
to be made to such Transferee hereunder or in respect of the Loans, (ii) to
furnish to such Lender and Borrower either United States Internal Revenue
Service Form 4224 or United States Internal Revenue Service Form 1001 (wherein
such Transferee claims entitlement to complete exemption from United States
federal withholding tax on all payments hereunder) and (iii) to agree (for the
benefit of such Lender and Borrower) to provide such Lender and Borrower a new
Form 4224 or Form 1001 upon the obsolescence of any previously delivered form
and comparable statements in accordance with applicable United States laws and
regulations and amendments duly executed and completed by such Transferee, and
to comply from time to time with all applicable United States laws and
regulations with regard to such withholding tax exemption.
(g) Neither Borrower nor any of its Subsidiaries shall
be permitted to assign its interest in this Agreement or any Loan Document
without the prior written consent of the Lender.
(h) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 12.3, the Lender may
assign and pledge all or any portion of its Loans and its Notes to any Federal
Reserve Lender as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Lender. No such assignment
shall release the Lender from its obligations hereunder.
12.4 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which when fully executed shall be an
original, and all of said counterparts
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taken together shall be deemed to constitute one and the same agreement. Any
signature page to this Agreement may be witnessed by a telecopy or other
facsimile of any original signature page and any signature page of any
counterpart hereof may be appended to any other counterpart hereof to form a
completely executed counterpart hereof.
12.5 EXPENSE REIMBURSEMENT. Borrower agrees to
reimburse the Lender for all of the Lender's expenses incurred in connection
with the negotiation, preparation, execution, delivery, modification, and
enforcement of this Agreement, the Notes, the Mortgage and the other Loan
Documents, including, without limitation, audit costs, appraisal costs, the
cost of searches, filings and filing fees, taxes and the fees and disbursements
of Lender's attorneys, Messrs. Troutman Sanders LLP, and any counsel retained
by them, and all costs and expenses incurred by the Lender (including, without
limitation, attorneys' fees and disbursements actually incurred) to: (a)
commence, defend or intervene in any court proceeding; (b) file a petition,
complaint, answer, motion or other pleading, or to take any other action in or
with respect to any suit or proceeding (bankruptcy or otherwise) relating to
the Collateral or the Realty, or this Agreement, the Notes, the Mortgage or any
of the other Loan Documents; (c) protect, collect, lease, sell, take possession
of, or liquidate any of the Collateral or the Realty; (d) attempt to enforce
any Lien in any of the Collateral or the Realty or to seek any advice with
respect to such enforcement; and (e) enforce any of the Lender's rights to
collect any of the Obligations. Borrower also agrees to pay, and to save
harmless the Lender from any delay in paying, (f) any intangibles, documentary
stamp, recording and other taxes, if any, which may be payable in connection
with the execution and delivery of this Agreement, the Notes, the Mortgage or
any of the other Loan Documents, or the recording of any thereof; and (g) any
tax payable by Lender to the State of Alabama (or any subdivision thereof) as a
condition to, or concurrently with, the qualification of Lender as a foreign
corporation, authorized to transact business in the State of Alabama, to the
extent the calculation of such tax is based on the amount of Loans made or
available hereunder. Additionally, Borrower agrees to pay to the Lender on
demand any and all fees, costs and expenses which the Lender pays to a bank or
other similar institution arising out of or in connection with (i) the
forwarding to Borrower or any other Person, on behalf of Borrower, by the
Lender of proceeds of any Loan and (ii) the depositing for collection by the
Lender of any check or item of payment received by or delivered to the Lender
on account of the Obligations. All fees, costs and expenses provided for in
this Section 12.5 may, at the option of the Lender, be charged as Loans to the
revolving loan account of Borrower with the Lender provided for in Section 2.1
hereof. Borrower's obligations under this Section 12.5 shall survive the
termination of this Agreement and the repayment of the Obligations.
12.6 SEVERABILITY. If any provision of this Agreement
or any of the Loan Documents or the application thereof to any party thereto or
circumstances shall be invalid, illegal or unenforceable to any extent, the
remainder of this Agreement or such Loan Document and the application of such
provisions to any other party thereto or circumstance shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
12.7 NOTICES. Except as otherwise provided herein, all
notices, requests, demands and other communications under this Agreement shall
be in writing and shall be deemed to have been given or made when (a) delivered
by hand, (b) sent by telex or facsimile transmitter
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(with receipt confirmed), provided that a copy is mailed by certified mail,
return receipt requested, or (c) when received by the addressee, if sent by
Express Mail, Federal Express or other overnight delivery service (receipt
requested), in each case to the appropriate addresses, telex numbers, facsimile
numbers designated for a party at the "Address for Notices" specified below its
name on the signature pages hereto or to such other addresses as may be
designated hereafter in writing by the respective parties hereto.
12.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement and
the Loan Documents constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and supersede all prior negotiations,
understandings and agreements between such parties in respect of such subject
matter, including, without limitation, as set forth in that certain commitment
letter dated June 3, 1996 from the Lender. Neither this Agreement nor any
provision hereof may be changed, waived, discharged, modified or terminated
except pursuant to a written instrument signed by Borrower and the Lender.
12.9 TIME OF THE ESSENCE. Time is of the essence in
this Agreement and the other Loan Documents.
12.10 INTERPRETATION. No provision of this Agreement
shall be construed against or interpreted to the disadvantage of any party
hereto by any court or other Governmental Authority by reason of such party
having or being deemed to have structured or dictated such provision.
12.11 LENDER NOT A JOINT VENTURER. Neither this
Agreement, the Loan Documents, any agreements, instruments, documents executed
and delivered pursuant hereto or thereto or in connection herewith or
therewith, nor any of the transactions contemplated hereby or thereby shall in
any respect be interpreted, deemed or construed as making the Lender a partner
or joint venturer with Borrower or any of its Subsidiaries or as creating any
similar relationship or entity, and Borrower agrees that it will not make, and
will not permit any of its Subsidiaries to make, any assertion, contention,
claim or counterclaim to the contrary in any action, suit or other legal
proceeding involving the Lender and Borrower or any of its Subsidiaries.
12.12 CURE OF DEFAULTS BY LENDER. If, hereafter,
Borrower or any of its Subsidiaries defaults in the performance of any duty or
obligation to any third party, the Lender may, at its option, but without
obligation, cure such default and any costs, fees and expenses incurred by the
Lender in connection therewith including, without limitation, for payment on
mortgage or note obligations, for the purchase of insurance, the payment of
taxes and the removal or settlement of Liens and claims, shall be included in
the Obligations and be secured by the Collateral and the Realty.
12.13 INDEMNITY. In addition to any other indemnity
provided for herein, Borrower hereby indemnifies the Lender from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including, without limitation, fees and disbursements of counsel)
which
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<PAGE> 64
may be imposed on, incurred by, or asserted against the Lender in any
litigation, proceeding or investigation instituted or conducted by any
Governmental Authority or any other Person (other than Borrower) with respect
to any aspect of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement or the other Loan Documents, whether or not
the Lender is a party thereto, except to the extent that any of the foregoing
arises out of gross negligence, willful misconduct or a breach of this
Agreement by the Lender, as the case may be. So long as there is no Event of
Default under Section 9.1 hereof, Borrower, at its expense, has the right to
control its defense. Notwithstanding the foregoing, in the event any claim
shall be made or any proceeding (including any governmental investigation)
shall be instituted involving the Lender in respect of which indemnity may be
sought pursuant to this Section, the Lender shall promptly notify the Borrower
in writing of the same, provided that the failure to notify the Borrower shall
not relieve the Borrower from any liability it may have to the Lender otherwise
than under this Section. The Borrower, upon request of the Lender shall retain
counsel reasonably satisfactory to the Lender to represent the Lender in such
proceeding and shall pay the fees and disbursements of such counsel. In any
such proceeding, the Lender shall have the right to retain its own counsel, but
the fees and disbursements of such counsel shall be at the expense of the
Lender unless (i) the Borrower shall have failed to retain counsel for the
Lender as aforesaid, (ii) the Borrower and the Lender shall have mutually
agreed to the retention of such counsel or (iii) representation of the Lender
by the counsel retained by the Borrower would in the reasonable opinion of the
Lender be prejudicial to the Lender and any other party represented by such
counsel in such proceeding, provided that the Borrower shall not be liable for
the fees and disbursements of more than one additional counsel for the Lender.
The Borrower shall not be liable for any settlement of any proceeding effected
without its written consent or if there be a final judgment for plaintiff, the
Borrower agrees to indemnify the Lender from and against any loss or liability
by reason of such settlement or judgment. Additionally, Borrower hereby
indemnifies and holds the Lender harmless from all loss, cost (including,
without limitation, fees and disbursements of counsel), liability and damage
whatsoever incurred by the Lender by reason of any violation of any applicable
Environmental Laws for which Borrower, any of its Subsidiaries or any of their
respective predecessors has any liability or which occurs upon any real estate
owned by or under the control of Borrower or any of its Subsidiaries, or by
reason of the imposition of any governmental Lien for the recovery of
environmental cleanup costs expended by reason of such violation. Borrower's
obligations under this Section shall survive the termination of this Agreement
and the repayment of the Obligations.
12.14 CONSEQUENTIAL DAMAGES. THE LENDER SHALL NOT BE
RESPONSIBLE OR LIABLE TO BORROWER, ANY OF ITS SUBSIDIARIES, OR ANY OTHER PERSON
OR ENTITY FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12.15 ATTORNEY-IN-FACT. Borrower hereby designates,
appoints and empowers the Lender irrevocably as its attorney-in-fact, at
Borrower's cost and expense, to do in the name of Borrower any and all actions
which the Lender may deem necessary or advisable to carry out the terms hereof
upon the failure, refusal or inability of Borrower to do so, and
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Borrower hereby agrees to indemnify and hold the Lender harmless from any
costs, damages, expenses or liabilities arising against or incurred by the
Lender in connection therewith except to the extent that any of such costs,
damages, expenses or liabilities arise out of Lender's gross negligence or
willful misconduct.
12.16 TERMINATION STATEMENTS. Borrower acknowledges and
agrees that it is Borrower's intent that all financing statements filed
hereunder against Borrower or any of its Subsidiaries shall remain in full
force and effect until the Commitment shall have been terminated in accordance
with the provisions hereof, even if, at any time or times prior to such
termination, no loans or Loans shall be outstanding hereunder. Accordingly,
Borrower waives any right which it may have under Section 9-404(1) of the UCC
to demand the filing of termination statements with respect to the Collateral
or the Realty, and agrees that the Lender shall not be required to send such
termination statements to Borrower or any of its Subsidiaries, or to file them
with any filing office, unless and until the Commitment shall have been
terminated in accordance with the terms of this Agreement and all Obligations
paid in full in immediately available funds. Upon such termination and payment
in full, the Lender shall execute appropriate termination statements and
deliver the same to Borrower. Upon any transfer of assets by Borrower
permitted by Section 7.3 hereof, Lender agrees to execute and deliver to
Borrower, at Borrower's request and at Borrower's expense, any UCC partial
release necessary to release of record Lender's Lien in such assets.
12.17 GOVERNING LAW; JURISDICTION. THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. BORROWER HEREBY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND
OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL
LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES, OR
THE OTHER LOAN DOCUMENTS; (B) AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THIS AGREEMENT
AND THE LOAN DOCUMENTS; AND (C) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NOTHING
HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST
BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
12.18 WAIVER OF JURY TRIAL. AFTER REVIEWING THIS
PROVISION SPECIFICALLY WITH ITS RESPECTIVE COUNSEL, BORROWER AND LENDER
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<PAGE> 66
HEREBY KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING BASED ON OR
ARISING OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS AGREEMENT, ANY
OF THE NOTES, ANY OF THE OTHER LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED
HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN), OR ACTIONS OF BORROWER OR THE LENDER. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDER TO MAKE THE LOANS TO BORROWER.
PMC
----------------
Initials
IN WITNESS WHEREOF, Borrower and the Lender have caused their duly
authorized officers to set their hands and seals as of the day and year first
above written.
"BORROWER"
INTEGRITY INCORPORATED
a Delaware Corporation
By: /s/ P. Michael Coleman
-------------------------------------
P. Michael Coleman
Chairman, Chief Executive Officer
and President
Attest: /s/ Alison S. Richardson
---------------------------------
Alison S. Richardson
Secretary
[CORPORATE SEAL]
Address for Notices:
1000 Cody Road
Mobile, Alabama 36695-3425
Attn: President
Facsimile: (334) 633-5202
WITH A COPY TO:
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Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attn: Alexander W. Patterson
Facsimile: (404) 881-7777
[Signatures continued on following page]
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<PAGE> 68
[Signatures continued from previous page]
"LENDER"
CREDITANSTALT CORPORATE FINANCE,
INC., a Delaware corporation
By: /s/ Robert M. Biringer
---------------------------
Robert M. Biringer
Senior Vice President
By: /s/ Scott Kray
---------------------------
Scott Kray
Senior Associate
[CORPORATE SEAL]
Address for Notices:
--------------------
Creditanstalt Corporate Finance, Inc.
Two Greenwich Plaza
Greenwich, CT 06830
Attn: Lisa Bruno
Facsimile No: (203) 851-1234
WITH COPIES TO:
Creditanstalt Corporate Finance, Inc.
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Attn: Robert M. Biringer
Facsimile No: (770) 390-1851
and
Troutman Sanders LLP
600 Peachtree Street, N.W.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: Hazen H. Dempster, Esq.
Facsimile No: (404) 885-3900
62
<PAGE> 1
EXHIBIT 10.2
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement") is made as of August 2,
1996, by INTEGRITY INCORPORATED, a Delaware corporation ("Pledgor"), in favor
of CREDITANSTALT CORPORATE FINANCE, INC. (the "Lender") under the Loan
Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Pledgor has entered into a Loan and Security Agreement, dated
as of the date hereof (as the same may be amended, modified or supplemented
from time to time, the "Loan Agreement"), pursuant to which the Lender has
agreed, subject to the terms and conditions set forth therein, to make certain
loans to Pledgor in the aggregate principal amount of up to $19,000,000; and
WHEREAS, Pledgor owns all of the issued and outstanding shares of
capital stock described ("Shares") of each of the Pledgor's subsidiaries listed
thereon (each, a "Subsidiary" and collectively, the "Subsidiaries"); and
WHEREAS, the obligation of the Lender to make the Loans to Pledgor is
subject to the condition, among others, that Pledgor shall execute and deliver
this Agreement to the Lender;
NOW, THEREFORE, in order to induce the Lender to enter into the Loan
Agreement and, subject to the terms and conditions set forth therein, to make
the Loans pursuant thereto, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Defined Terms. When used herein, the following terms shall
have the following respective meanings:
"Collateral" shall have the meaning given such term in Section
2 hereof.
"Event of Default" shall mean the occurrence of any one or
more of the following events:
(a) the occurrence of any Event of Default under, and as
such term is defined in, the Loan Agreement; or
(b) any of the Collateral shall be attached or levied
upon or seized in any legal proceedings, or held by virtue of any lien
or distress, or any other event or condition shall occur or exist
which shall result in the Lender no longer having a perfected, first
priority security interest in the Collateral, subject only to
Permitted Liens; or
<PAGE> 2
(c) default by the Pledgor in the observance or
performance of any covenant or agreement contained in this Agreement
or any other Loan Document to which Pledgor is a party; or
(d) this Agreement ceases to be in full force and effect
or Pledgor renounces or disputes any of its obligations hereunder.
"Foreign Subsidiaries" shall mean Integrity Music Europe,
Ltd., a U.K. private company, Integrity Music PTY, Ltd., an Australian
proprietary company and Integrity Media Asia Pte, Ltd., a Singapore
corporation.
"Pledged Stock" shall have the meaning given such term in
Section 2 hereof.
"Stock" shall mean all shares, options, interests,
participations or other equivalents (howsoever designated) of or in a
corporation, whether voting or non-voting, including, without
limitation, common stock, warrants, preferred stock, convertible
debentures and all agreements, instruments and documents convertible,
in whole or in part, into any one or more or all of the foregoing.
Except to the extent otherwise defined herein, all other capitalized
terms contained in this Agreement shall have the meanings ascribed to such
terms in the Loan Agreement.
2. Pledge. Pledgor hereby pledges, conveys, hypothecates,
mortgages, assigns, sets over, delivers and grants to the Lender as security
for the payment and performance when due of all the Obligations, a security
interest in, all of Pledgor's right, title and interest in and to the
following, whether now owned or hereafter acquired (collectively, the
"Collateral"): (i) all of the Shares and all additional Stock of each of the
Subsidiaries (other than the Foreign Subsidiaries) from time to time acquired
by Pledgor in any manner from and after the date hereof and (ii) all of the
Shares of the Foreign Subsidiaries set forth on Exhibit A attached hereto and
incorporated herein by reference and all additional Stock of each of the
Foreign Subsidiaries from time to time acquired by Pledgor in any manner from
and after the date hereof; provided, however, that not more than sixty-five
percent (65%) of the issued and outstanding Shares of the Foreign Subsidiaries
shall be subject to the Lien created hereby (the Shares pledged pursuant to
clauses (i) and (ii) above being hereinafter collectively referred to as the
"Pledged Stock"), including, without limitation, all stock rights, rights to
subscribe, stock splits, stock dividends, new securities and certificates,
subscriptions, additions and replacements declared or issued with respect to or
on account of any Pledged Stock, together with all proceeds thereof and all
cash, additional securities and other property at any time and from time to
time
2
<PAGE> 3
receivable or otherwise distributed in respect of or in exchange for any and
all such Pledged Stock.
3. Representations and Warranties of Pledgor. Pledgor hereby
represents and warrants to the Lender as follows:
(a) Corporate Existence and Qualification. Pledgor is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and Pledgor is duly qualified
as a foreign corporation in good standing in the State of Alabama.
Pledgor is duly qualified as a foreign corporation in good standing in
each other state wherein the conduct of its business or the ownership
of its property requires such qualification except where the failure
to maintain such qualification or good standing could not reasonably
be expected to result in a Material Adverse Effect;
(b) Authority; Valid and Binding Effect. Pledgor has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Loan Documents to which it is
a party, and has taken all necessary and appropriate corporate action
to authorize the execution, delivery and performance of this Agreement
and such Loan Documents to which it is a party. This Agreement and
the other Loan Documents to which Pledgor is a party constitute the
valid and legally binding obligations of Pledgor, enforceable against
Pledgor in accordance with their respective terms except that
enforceability may be limited by bankruptcy, insolvency and other laws
affecting creditor's rights generally and except that the availability
of certain remedies may be limited by general principles of equity;
(c) No Conflict. The execution, delivery and performance
by Pledgor of this Agreement (a) are not in contravention of any
provisions of Applicable Law the violation of which might have a
Material Adverse Effect; b) will not violate or result in a default
under any agreement or indenture to which the Pledgor is a party or by
which Pledgor is bound, the violation or default of which might have a
Material Adverse Effect; (c) do not contravene the Certificate of
Incorporation or By-laws of Pledgor; and (d) will not result in or
require the creation or imposition of any Lien on any of the property
or assets of Pledgor other than Liens in favor of the Lender created
by this Agreement;
(d) Governmental Action. The execution, delivery and
performance of this Agreement do not require any registration with,
consent or approval of, or any notice to, or other action to, with or
by any Governmental Authority, the failure of which to obtain might
have a Material Adverse Effect, except for (i) filings, consents or
notices which have been obtained and a copy thereof furnished to
Lender;
3
<PAGE> 4
(ii) filings necessary to perfect the Liens granted by this Agreement;
(e) Security Interest. This Agreement and the pledge of
the Collateral pursuant hereto create a valid and, together with and
upon the physical delivery of certificates evidencing the Pledged
Stock to the Lender, perfected first priority security interest in the
Collateral in favor of the Lender securing the payment of the
Obligations, and all filings and all other actions necessary or
desirable to perfect such security interest have been taken;
(f) Title. Pledgor is the legal and equitable owner of,
and has the complete and unconditional authority to pledge, the
Collateral and holds the same free and clear of any and all liens,
claims, charges, encumbrances and security interests of any nature
whatsoever, except for Permitted Liens; no effective financing
statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording office, except such
as may have been filed in favor of the Lender relating to this
Agreement; Pledgor has not granted or given any proxy, power of
attorney, option or right of first refusal with respect to any of the
Collateral except to the Lender; and Pledgor is not a party to any
agreement which restricts its right to vote, assign, pledge, transfer
or give a proxy or power of attorney with respect to any of the
Collateral or any interest therein;
(g) Shares. Except as specifically set forth on Exhibit
A hereto, the Pledged Stock constitutes one hundred percent (100%) of
the issued and outstanding Shares of the Subsidiaries (other than the
Foreign Subsidiaries) and sixty-five percent (65%) of the issued and
outstanding Shares of the Foreign Subsidiaries, all of which Shares
have been duly authorized, are validly issued in full compliance with
all applicable securities laws and other Applicable Law, and are fully
paid and nonassessable; and there are no existing options, warrants or
commitments of any kind or nature or any outstanding securities or
other instruments convertible into shares of any class of voting stock
of the Subsidiaries, and no stock of the Subsidiaries is held in
treasury of such Subsidiaries; and
(h) No Violation of Securities Laws. Pledgor's execution
and delivery of this Agreement does not directly or indirectly violate
or result in a violation of any securities laws.
4. Covenants and Agreements of Pledgor. Pledgor covenants and
agrees as follows:
(a) Delivery of Certificates. Concurrently with the
execution of this Agreement, Pledgor will deliver to the
4
<PAGE> 5
Lender all certificates evidencing the Collateral, accompanied by
executed stock powers in blank, and by such other instruments or
documents as the Lender or its counsel may reasonably request;
(b) After Acquired Collateral Delivery. Promptly, and in
any event within ten (10) days after Pledgor acquires any additional
Stock or receives or is issued any Stock or other securities or
property in respect of any of the Collateral, whether or not for value
paid for it, Pledgor shall, subject to Section 5(a) hereof, (i)
deliver such Stock or other securities or property (including, but not
limited to, any and all certificates evidencing any such Stock or
securities) to the Lender together with stock powers or other
appropriate instruments of transfer, executed in blank, all to be held
subject to the terms of this Agreement; and (ii) execute and deliver
such pledge agreements, security agreements, financing statements or
other instruments, documents or agreements as may be necessary or
appropriate to confirm, evidence or perfect the security interests
granted hereby; provided, however, that nothing contained in
this Section 4(b) shall require Pledgor to Pledge in excess of
sixty-five percent (65%) of the issued and outstanding Shares of any
Foreign Subsidiary;
(c) No New Stock. Except as permitted by the Loan
Agreement, Pledgor will not, subsequent to the date of this Agreement,
cause or permit the Subsidiaries to issue any Stock or securities
convertible into Stock, unless and except upon first having obtained
the prior written consent of the Lender;
(d) Taxes. Pledgor will pay all taxes, assessments and
charges levied, assessed or imposed upon the Collateral owned by it
prior to the date on which penalties attach thereto, except where the
same may be contested in good faith by appropriate proceedings and for
which adequate reserves have been established;
(e) No Transfer. Other than as permitted under Section
7.3 of the Loan Agreement, Pledgor will not sell, assign, transfer or
otherwise dispose of all or any portion of the Collateral owned by
Pledgor, or any rights therein, without the prior written consent of
the Lender;
(f) Further Assurances. Pledgor agrees at anytime and
from time to time, at Pledgor's expense, to execute and deliver all
further instruments and documents and to perform all acts and do all
things that may be reasonably necessary or desirable or that the
Lender may request, now or hereafter, to evidence, preserve or protect
the creation, attachment or perfection of the security interests
herein granted to the Lender or to enable the Lender to exercise and
enforce its rights and remedies hereunder with respect
5
<PAGE> 6
to the Collateral including, without limitation, all action specified
in Section 6 hereof;
(g) No Amendments. Without the prior written consent of
the Lender, Pledgor will not approve or consent to any changes to the
Certificate or Articles of Incorporation or By-Laws of any Subsidiary
which would in any way impair or diminish the rights of the Lender
hereunder;
(h) Right to Perform. In the event that Pledgor fails or
refuses to perform any of its obligations set forth herein, the Lender
shall have the right, without obligation, to do all things it deems
necessary or advisable to discharge the same, and any sums paid by the
Lender, or the cost thereof, including without limitation, attorneys'
fees, shall constitute Obligations, be secured by the Collateral and
bear interest as provided in the Loan Agreement until paid; and
(i) No Obligation. Pledgor acknowledges and agrees that
nothing contained herein shall obligate the Lender or any Lender or
impose a duty upon the Lender or any Lender to assume any duties or
obligations of Pledgor with respect to any of the Collateral.
5. Distributions; Etc.
(a) Right of Pledgor to Receive Distributions. So long
as no Event of Default exists hereunder or under the Loan Agreement,
or would exist upon the payment of the distribution amounts described
in this Section 5(a), Pledgor shall have the right to receive cash
distributions declared and paid with respect to the Collateral owned
by Pledgor, to the extent such distributions are permitted by the Loan
Agreement. Any and all stock or liquidating distributions, other
distributions in property, return of capital or other distributions
made on or in respect of Collateral, whether resulting from a
subdivision, combination or reclassification of the outstanding
capital stock of any Subsidiary or received in exchange for Collateral
or any part thereof or as a result of any merger, consolidation,
acquisition or other exchange of assets to which any Subsidiary may be
a party or otherwise, shall be and become part of the Collateral
pledged hereunder and, if received by Pledgor, shall be received in
trust, for the benefit of the Lender, shall be segregated from other
funds of Pledgor and shall be forthwith paid over to the Lender as
Collateral in the same form as so received (together with any
necessary endorsements.)
(b) Holding Collateral; Exchanges. The Lender may hold
any of the Collateral, endorsed or assigned in blank, and may deliver
any of the Collateral to Pledgor for the purpose of making
denominational exchanges or registrations
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<PAGE> 7
or transfers or for such other reasonable purpose in furtherance of
this Agreement as the Lender may deem desirable. The Lender shall
have the right, if reasonably necessary or desirable in order to
perfect or maintain the perfection of the Lien created hereby,
without notice to Pledgor, to transfer to or register in the name of
the Lender or any of its nominees, any or all of the Collateral;
provided that notwithstanding the foregoing, until any transfer of
beneficial ownership with respect to the Collateral pursuant to any
exercise of remedies under Section 6 hereof, Pledgor shall continue to
be the beneficial owner of the Collateral. In addition, the Lender
shall have the right at any time to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.
(c) Termination of Pledgor's Right to Receive
Distributions. Upon and after the occurrence of any Event of Default
and during the continuation thereof, all rights of Pledgor to receive
any cash distributions pursuant to Section 5(a) hereof shall cease,
and all such rights shall thereupon become vested in the Lender and
the Lender shall have the sole and exclusive right to receive and
retain the distributions which Pledgor would otherwise be authorized
to receive and retain pursuant to Section 5(a) hereof. In such event,
Pledgor shall pay over to the Lender any distributions received by it
with respect to the Collateral and any and all money and other
property paid over to or received by the Lender pursuant to the
provisions of this Section 5(c) shall be retained by the Lender as
Collateral hereunder and/or shall be applied to the repayment of the
Obligations in accordance with the provisions hereof.
7
<PAGE> 8
6. Remedies. Upon and after an Event of Default, the Lender
shall have the following rights and remedies:
(a) Set-Off. The right of Lender to set-off, without
notice to Pledgor, any and all deposits at any time credited by or due
from Lender to Pledgor whether in a general or special, time or
demand, final or provisional account or any other account or
represented by a certificate of deposit and whether or not matured or
contingent.
(b) Secured Creditor. All of the rights and remedies of
a secured party under the Uniform Commercial Code of the state where
such rights and remedies are asserted, or under other applicable law
all of which rights and remedies shall be cumulative, and none of
which shall be exclusive, to the extent permitted by law, in addition
to any other rights and remedies contained in this Agreement.
(c) Right of Sale. The Lender may, without demand and
without advertisement, notice or legal process of any kind (except as
may be required by law), all of which Pledgor waives, at any time or
times (i) apply any cash distributions received by the Lender pursuant
to Section 5(c) hereof to the Obligations; and (ii) if following such
application there remains outstanding any Obligations, sell the
remaining Collateral, or any part thereof, at public or private sale
or at any broker's board or on any securities exchange, for cash, upon
credit or for future delivery as the Lender shall deem appropriate.
At any such sale, the Collateral, or any portion thereof, to be sold
may be sold in one lot as an entirety or in separate parcels, as the
Lender may (in its sole and absolute discretion) determine. The
Lender shall not be obligated to make any sale of the Collateral if it
shall determine not to do so, regardless of the fact that notice of
the sale of the Collateral may have been given. In case the sale of
all or part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Lender until
the sale price is paid by the purchaser or purchasers thereof, but the
Lender shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again.
At any sale or sales made pursuant to this Section 6, the Lender may,
to the maximum extent permitted by Applicable Law, bid for and
purchase, free from any claim or right of whatever kind, including any
equity of redemption, of Pledgor, any such demand, notice, claim,
right or equity being hereby expressly waived and released, any or all
of the Collateral offered for sale, and may make any payment on the
account thereof by using any claim for moneys then due and payable to
the Lender or any Lender by Pledgor as a credit against the purchase
price; and the Lender, upon compliance with the terms of sale, may
hold, retain and dispose of the
8
<PAGE> 9
Collateral without further accountability therefor to the Pledgor or
any third party. The Lender shall be authorized at any sale (if, on
the advice of counsel, it deems it advisable to do so) to restrict the
prospective bidders or purchasers to Persons who will represent and
agree that they are purchasing the Collateral for their own account
for investment and not with a view to the distribution or resale
thereof, and upon consummation of any sale the Lender shall have the
right to assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each purchaser at any sale shall hold
the property sold absolutely free from any claim or right on the part
of Pledgor, and Pledgor hereby waives (to the extent permitted by law)
all rights of redemption, stay and/or appraisal which Pledgor now has
or may have at any time in the future under any rule of law or statute
now existing or hereafter enacted. The proceeds realized from the
sale of any Collateral shall be applied first to the costs, expenses
and attorneys' fees and expenses actually incurred by Lender for
collection and for acquisition, completion, protection, removal, sale
and delivery of the Collateral; second, to interest due upon any of
the Obligations; and third, to the principal of the Obligations. If
any deficiency shall arise, Pledgor shall remain liable to the Lender
therefor in accordance with the terms of the Loan Agreement. If any
surplus shall remain, the Lender shall pay such surplus to the Person
legally entitled thereto.
(d) Notice. Any notice required to be given by the
Lender of a sale, or other disposition of the Collateral or any other
intended action by the Lender, given to Pledgor in the manner
specified in Section 9(i) at least ten (10) days prior to the date of
such intended action, shall constitute commercially reasonable and
fair notice thereof to Pledgor.
(e) Securities Laws. In view of the position of Pledgor
in relation to the securities now or hereafter included in the
Collateral, or because of other present or future circumstances, a
question may arise under the securities laws with respect to any
disposition of the Collateral permitted hereunder. Pledgor
understands that compliance with the securities laws may very strictly
limit the course of the Lender's conduct if the Lender attempts to
dispose of all or any part of the Collateral and may also limit the
extent to which or the manner in which any subsequent transferee of
any Collateral may dispose of the same. The Pledgor will not attempt
to hold the Lender responsible for selling all or any part of the
Collateral at a price less than that available on any public or
private market, and Pledgor agrees that even if the Lender shall
accept the first offer received or does not approach more than one
possible purchaser such sale shall still be deemed commercially
reasonable. Without limiting the generality of the foregoing, Pledgor
clearly understands and agrees that
9
<PAGE> 10
the Lender shall be entitled to place all or any part of the
Collateral for private placement by an investment banking firm, that
any such investment banking firm may purchase all or any part of the
Collateral for its own account, and that the Lender shall be entitled
to place all or any part of the Collateral privately with a purchaser
or purchasers, notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed
substantially the price at which the Lender sells.
7. Power of Attorney; Proxy.
(a) Appointment of the Lender as Pledgor's
Attorney-In-Fact. Pledgor irrevocably designates, makes, constitutes
and appoints the Lender (and all Persons designated by the Lender), as
its true and lawful attorney (and agent-in-fact) and the Lender, or
the Lender's agent, may, without notice to Pledgor, in the name of
Pledgor or the Lender: (i) at such time or times thereafter as the
Lender or said agent, in its discretion may determine, endorse the
name of Pledgor upon any checks, notes, acceptance, money orders,
certificates, drafts or other forms of payment of security that come
into the Lender's possession; and (ii) after the occurrence of an
Event of Default, (1) transfer the Collateral on the books of Pledgor
with full power of substitution in the premises, and (2) do all acts
and things necessary, in the Lender's discretion, to fulfill the
obligations of Pledgor under this Agreement.
(b) Irrevocable Proxy. Upon the delivery from the Lender
to Pledgor following the occurrence of any Event of Default of notice
affirmatively assuming voting rights with respect to the Stock
included in the Collateral, the Lender, or its nominee, without notice
or demand of any kind to Pledgor, shall have the sole and exclusive
right to exercise all voting powers pertaining to any and all of the
Collateral (and to give written consents in lieu of voting thereon)
and may exercise such power in such manner as the Lender, in its sole
discretion, shall determine. THIS PROXY IS COUPLED WITH AN INTEREST
AND IS IRREVOCABLE. The exercise by the Lender of any of its rights
and remedies under this Section shall not be deemed a disposition of
Collateral under Article 9 of the Uniform Commercial Code nor an
acceptance by the Lender of any of the Collateral in satisfaction of
any of the Obligations.
8. Release and Termination. Pledgor acknowledges and agrees that
this Agreement shall continue in full force and effect unless and until all
Obligations have been fully and irrevocably paid and performed and all
financing arrangements between Pledgor and the Lender have been terminated.
After this Agreement has terminated, the Lender, at Pledgor's expense, shall
return all Collateral then in its possession and control to Pledgor.
10
<PAGE> 11
9. Miscellaneous.
(a) Modification of Agreement; Sale of Interest. This
Agreement may not be modified, altered or amended, except by an
agreement in writing signed by Pledgor and the Lender. Pledgor may
not sell, assign or transfer this Agreement or any portion thereof,
including, without limitation, Pledgor's rights, title, interests,
remedies, powers, and/or duties hereunder. Pledgor hereby consents to
the Lender's assignment and transfer of this Agreement including,
without limitation, the Lender's rights, title, interests, remedies,
powers, and/or duties hereunder upon the appointment of any successor
to the Lender. Pledgor also hereby consents to the assignment or
transfer, at any time or times hereafter, of the beneficial interests
granted under this Agreement or of any portion thereof, upon the
participation, sale, assignment, transfer, or other disposition by the
Lender of Loans made by it, or any portion thereof, in accordance with
the Loan Agreement.
(b) Expenses. Pledgor will upon demand pay to the Lender
the amount of all reasonable expenses, including, without limitation,
the reasonable fees and expenses of its counsel, that the Lender may
actually incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation or sale of or the collection
from, or other realization upon, any of the Collateral, (iii) the
exercise, enforcement of any rights of the Lender hereunder, and/or
(iv) the failure by Pledgor to perform or observe any of the
provisions hereof.
(c) Loan Document. This Agreement shall be construed as
a Loan Document and shall be subject to all of the benefits, terms and
conditions of the Loan Agreement with respect thereto.
(d) Waiver by the Lender. Each and every right and
remedy granted to the Lender under this Agreement, or any other
document delivered hereunder or in connection herewith or allowed it
by law or in equity, shall be cumulative and may be exercised from
time to time. The failure of the Lender, at any time or times
hereafter, to require strict performance of any provision of this
Agreement by Pledgor, shall not waive, affect or diminish any right of
the Lender thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by the Lender of an Event of
Default by Pledgor under this Agreement shall not suspend, waive or
affect any other Event of Default by Pledgor under this Agreement,
whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of Pledgor contained in this
Agreement and no Event of Default hereunder shall be deemed
11
<PAGE> 12
to have been suspended or waived by the Lender, unless such suspension
or waiver is by an instrument in writing signed by a duly authorized
representative of the Lender and directed to such Pledgor specifying
such suspension or waiver.
(e) Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
(f) Parties. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of
Pledgor and the Lender, for the benefit of the Lender. This
provision, however, shall not be deemed to modify Section 9(a) hereof.
(g) Conflict of Terms. Except as otherwise provided in
this Agreement by specific reference to the applicable provision of
the Loan Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in the Loan
Agreement, the provision contained in the Loan Agreement shall govern
and control.
(h) Waivers by Pledgor. Except as otherwise provided for
in this Agreement, Pledgor hereby waives (i) presentment, demand and
protest and notice of presentment, protest, default, non-payment,
maturity, release, compromise, settlement, extension or renewal of any
or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by the
Lender on which Pledgor may in any way be liable and hereby ratifies
and confirms whatever the Lender may do in this regard; (ii) any bond
or security which might be required by any court prior to allowing the
Lender to exercise the Lender's remedies; and (iii) the benefit of all
valuation, appraisement and exemption laws.
(i) Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be
deemed to have been given or made when (i) delivered to Borrower in
the manner set forth in Section 12.7 of the Loan Agreement, in the
case of notices to Pledgor; and (ii) delivered to the Lender in the
manner set forth in Section 12.7 of the Loan Agreement in the case of
notices to the Lender.
(j) Survival. All representations, warranties and
covenants made herein shall survive the execution and delivery of all
of this Agreement and the other Loan
12
<PAGE> 13
Documents. The terms and provisions of this Agreement shall continue
in full force and effect until all of the Obligations have been paid
in full and the Lender and the Lender has terminated the Loan
Agreement in writing, whichever last occurs; provided, further, that
Pledgor's obligations under Section 9(b) shall survive the repayment
of the Obligations and the termination of this Agreement.
(k) Time of the Essence. Time is of the essence in this
Agreement.
(l) Section Titles. The section titles contained in this
Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the
parties hereto.
(m) Reinstatement. This Agreement shall continue to be
effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Obligations is rescinded
or must otherwise be restored or returned by Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization
Pledgor, or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or custodian, trustee or similar officer
for, Pledgor or any part of its respective property, or otherwise, all
as though such payments had not been made.
(n) Counterparts. This Agreement may be executed in two
(2) or more counterparts, each of which when fully executed shall be
an original and all of said counterparts taken together, shall
constitute one and the same agreement. Any signature page to this
Agreement may be witnessed by a telecopy or facsimile of any original
signature page and any signature page of any counterpart hereof may be
appended to any other counterpart hereof to form a completely executed
counterpart hereof.
(o) GOVERNING LAW; JURISDICTION. THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. PLEDGOR HEREBY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE
COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT; (B) AGREES
THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE
STATE OF NEW YORK SHALL APPLY TO THIS AGREEMENT; AND (C) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE REGARDING THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
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<PAGE> 14
(p) WAIVER OF JURY TRIAL. AFTER REVIEWING THIS PROVISION
SPECIFICALLY WITH ITS COUNSEL, PLEDGOR HEREBY KNOWINGLY, INTELLIGENTLY
AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LEGAL PROCEEDING BASED ON OR ARISING OUT OF,
UNDER, IN CONNECTION WITH, OR RELATING TO THIS AGREEMENT, ANY OF THE
OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY, THE TRANSACTIONS
CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF PLEDGOR OR THE
LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER MAKING
THE LOANS TO PLEDGOR.
PMC
----------------
Initials
IN WITNESS WHEREOF, Pledgor has caused its duly authorized officers to
set their respective hands and the seal of the Pledgor as of the date first
above written.
"Pledgor"
INTEGRITY INCORPORATED
a Delaware corporation
By: /s/ P. Michael Coleman
-----------------------------
Name: P. Michael Coleman,
Title: Chairman, Chief Executive Officer
and President
Attest: /s/ Alison S. Richardson
--------------------------
Name: Alison S. Richardson
Title: Secretary
[CORPORATE SEAL]
EXHIBIT A
<TABLE>
<CAPTION>
Percentage of
Number of Class of Certificate Outstanding
Subsidiary Share Shares No. Capital Stock
---------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1. Integrity Music, Inc. 1,000 Common 1 100%
2. Integrity Music Pty, Ltd. 65 Ordinary 8 65%
3. Integrity Music Europe, Ltd. 650 Ordinary 8 65%
4. Integrity Media Asia, PTE, Ltd. 195,000 Common 4 65%
</TABLE>
14
<PAGE> 1
EXHIBIT 10.3
CONDITIONAL ASSIGNMENT AND TRADEMARK SECURITY AGREEMENT
THIS CONDITIONAL ASSIGNMENT AND TRADEMARK SECURITY AGREEMENT (the
"Agreement") is made as of the 2nd day of August, 1996, between INTEGRITY
INCORPORATED, a Delaware corporation (the "Assignor"), and CREDITANSTALT
CORPORATE FINANCE, INC., as lender to the hereafter defined Loan Agreement (the
"Assignee").
WHEREAS, Assignor owns the trademarks, trademark applications, service
marks and service mark applications listed on Schedule A annexed hereto;
WHEREAS, Assignor has agreed to grant to Assignee a first priority
security interest in substantially all of its assets to secure the payment of
all amounts owing under the Loan and Security Agreement dated as of even date
herewith (as amended, supplemented or modified from time to time, the "Loan
Agreement") between Assignor as Borrower and Assignee;
WHEREAS, capitalized terms used and not otherwise defined herein have
the meanings set forth in the Loan Agreement; and
WHEREAS, to secure its Obligations under the Loan Agreement and the
Notes referred to in the Loan Agreement and the other Loan Documents, Assignor
has agreed to (i) grant to Assignee a security interest in and to the
"Trademarks" (as defined below) and (ii) execute and deliver this Agreement in
order to secure the payment and performance by Assignor of the Obligations.
NOW, THEREFORE, in consideration of the premises, the Assignor hereby
agrees with the Assignee as follows:
1. Grant of Security Interest.
To secure the complete and timely payment and performance of all
Secured Obligations, the Assignor hereby grants, assigns and conveys to the
Assignee a security interest in the entire right, title and interest in and to
the United States trademarks and their respective registrations and
applications for registration listed in Schedule A attached hereto and by
reference made a part hereof, together with the goodwill of the business
symbolized by the trademarks, all licenses relating thereto, and all proceeds
thereof (such as, by way of example, license royalties and proceeds of
infringement suits), and the right to sue for past, present and future
infringements (all of which trademarks, trademark registrations, applications
for registration, goodwill, licenses, proceeds, and other rights are
collectively called the "Trademarks").
2. Representations and Warranties.
The Assignor covenants and warrants that:
<PAGE> 2
(a) The Trademarks are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part, in the United States of America
(the "U.S.") or the respective states thereof;
(b) Each of the Trademarks is valid and enforceable in the U.S.
and the respective states thereof and all claims by others to rights in the
Trademarks which the Assignor is aware are noted on Schedule B, attached hereto
and by reference made a part hereof;
(c) Except as noted on Schedule B, the Assignor 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, licenses, and covenants by the
Assignor not to sue third persons;
(d) The Assignor has made all necessary filings and recordations
to protect and maintain its interest in the Trademarks, including, without
limitation, all necessary filings and recordations in the U.S. Patent and
Trademark Office; and
(e) The Assignor has the unqualified right to enter into this
Agreement and to perform its terms.
(f) Until all of the Obligations shall have been satisfied in
full, Assignor will not enter into any agreement which is inconsistent with the
Assignor's obligations under this Agreement, without the Assignee's prior
written consent.
3. Conditional Grant of Additional Trademarks.
If, before the Obligations shall have been satisfied in full, the
Assignor shall have, or obtain ownership of any trademark, including any
registration or application therefor, the provisions of Paragraph 1 shall
automatically apply thereto, and also to any composite marks, or other marks of
Assignor which are confusingly similar to such mark, and the Assignor shall
give to the Assignee prompt written notice thereof. This Paragraph 3 shall not
apply to trademarks which are owned by others and licensed to Assignor. The
Assignor shall perform all acts and execute all documents reasonably requested
by the Assignee at any time and from time to time to evidence, perfect,
maintain, record and enforce the Assignee's security interest in the
Trademarks, including, without limitation, any trademarks falling under this
Paragraph.
4. Modification of Agreement.
The Assignor authorizes the Assignee to modify this Agreement by amending
Schedule A to include any additional trademarks, registrations and applications
for registration thereof which are Trademarks under Paragraph 1 or Paragraph 3
2
<PAGE> 3
hereof, and to have this Agreement, as amended, or any other document
evidencing the security interest granted therein, recorded in the United States
Patent and Trademark Office at the expense of the Assignor.
5. Covenants of Assignor.
(a) The Assignor covenants as follows: (i) that it will maintain
the high standard of quality which has become associated with the Trademarks;
(ii) that the Assignee from time to time and upon request shall have the right
to inspect samples of goods which use any of the Trademarks and the premises at
which such goods are produced; and (iii) if a Default has occured, that the
Assignee shall have the right to prevent use of the Trademarks on goods which
are not of high quality, all so as to preserve the goodwill symbolized by the
Trademarks.
(b) The Assignor further agrees that: (i) unless the Assignor
shall have previously determined that use of one or more of the Trademarks is
no longer desirable in the conduct of the business of the Assignor and that the
loss thereof will not have a Material Adverse Effect (in which event the
Assignor shall notify the Assignee in writing of such determination prior to
abandoning any such Trademark), it will not abandon or permit the expiration of
any registrations of the Trademarks; (ii) the Assignor shall give the Assignee
written notice, and a complete copy, of any sublicense of the Trademarks; and
(iii) all uses of the Trademarks by it or its permitted sublicensees will
include such notices of registration as are required or authorized from time to
time under applicable law.
(c) With respect to each Trademark, Assignor agrees to take all
reasonably necessary steps, including, without limitation, in the U.S. Patent
and Trademark Office or in any court, to (i) maintain each such Trademark, and
(ii) pursue each such application for trademark registration, now or hereafter
included in the Trademarks under this Agreement, including, without
reservation, the filing of responses to office actions issued by the Patent and
Trademark Office, the filing of applications for renewal, the filing of
affidavits under Sections 8 and 15 of the United States Trademark Act, and the
participation in opposition, cancellation and infringement and misappropriation
proceedings, unless the Assignor shall have previously determined that such use
or the pursuit or maintenance thereof is no longer desirable in the conduct of
the business of the Assignor and that the loss thereof will not have a Material
Adverse Effect (in which event the Assignor shall notify the Assignee in
writing of such determination prior to any such action). The Assignor agrees
to take corresponding steps with respect to each new or acquired trademark,
trademark registration, or application therefor covered by Paragraph 3 hereof,
unless the Assignor shall have previously determined that such use or the
pursuit or maintenance thereof is no longer desirable in the conduct of the
business of the Assignor and that the loss thereof will not have a Material
3
<PAGE> 4
Adverse Effect (in which event the Assignor shall notify the Assignee in
writing of such determination prior to any such action). Any expenses incurred
in connection with such activities shall be borne by the Assignor.
6. Remedies Upon Default; Power of Attorney
(a) If any Event of Default under the Loan Agreement shall have
occurred, all right, title and interest in and to the Trademarks shall be
automatically granted, assigned, conveyed and delivered to Assignee or its
designee, and Assignor hereby irrevocably constitutes and appoints Assignee and
any officer, agent or employee 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 Assignor and in the name of Assignor or Assignee's own
name or the name of Assignee's designee, all acts of said attorney being hereby
ratified and confirmed, except to the extent any of the same constitute gross
negligence or wilful misconduct, such power being coupled with an interest is
irrevocable, upon the occurrence of an Event of Default: (i) to complete, date,
execute and file, or cause to be filed, the Assignment attached hereto as
Exhibit A and incorporated hereby by reference (the "Assignment") in the United
States Patent and Trademark Office and in all other applicable offices, and to
execute and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purpose of the Assignment; (ii) to
collect proceeds from the Trademarks (including, by way of example, license
royalties and proceeds of infringement suits); (iii) to convey in any
transaction authorized by the Loan Agreement, any goods covered by the
registrations listed on Schedule A to any purchaser thereof; (iv) to make
payment or to discharge taxes or liens levied or placed upon or threatened
against any goods covered by the registrations listed on Schedule A, the
legality or validity thereof and the amounts necessary to discharge the same to
be determined by Assignee in its sole discretion, and such payments made by
Assignee to become the obligations of Assignor to Assignee, due and payable
immediately without demand. Assignee's authority hereunder shall include,
without limitation, the authority to endorse and negotiate any checks or
instruments constituting proceeds of any Trademarks in the name of Grantor,
execute and give receipt for any certificate of ownership or any document
(constituting Trademarks), sign Assignor's name on all financing statements or
any other documents necessary or appropriate by Assignee to preserve, protect
or perfect the security interest in any Trademarks (to the extent permitted by
Applicable Law) and to file the same, prepare, file and sign Assignor's name on
any notice of Lien, and prepare, file and sign Assignor's name on a proof of
claim in bankruptcy or similar document against any customer of Assignor with
respect to any claim of Assignor comprising part of any Trademarks, and to take
any other actions arising from or incident to the powers granted to Assignee in
the Loan Agreement.
4
<PAGE> 5
(b) Assignor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue of this power of attorney. This
power of attorney is a power coupled with an interest and shall be irrevocable.
(c) In addition to the foregoing, upon the occurrence of an Event
of Default, Assignee shall have all rights and remedies of a secured party
under the UCC and as provided under the Loan Agreement and as otherwise
available under law and equity.
7. Termination of Agreement.
At such time as the Assignor shall completely satisfy all of the
Obligations, the Assignee shall execute and deliver to the Assignor all deeds,
assignments and other instruments as may be necessary or proper to re-vest in
the Assignor unencumbered title to the Trademarks and the goodwill of the
business symbolized by the Trademarks, subject to any disposition thereof which
may have been made by the Assignee pursuant hereto.
8. Limitation of Liability and Indemnification.
The Assignor hereby releases the Assignee from, and agrees to hold the
Assignee free and harmless from and against, any claims arising out of any
action taken or omitted to be taken with respect to the Trademarks (except to
the extent of the Assignee's gross negligence or willful misconduct), and the
Assignor agrees to indemnify the Assignee from and against, any and all claims,
demands, suits, losses, damages or other expenses (including attorneys' fees
actually incurred) arising from or in any way related to the Trademarks, and
any trademark infringement claim.
9. Waiver and Amendment.
(a) No course of dealing between the Assignor and the Assignee nor
any failure to exercise, nor any delay in exercising, on the part of the
Assignee, any right, power or privilege hereunder or thereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege.
(b) This Agreement is subject to modification only by a writing
signed by the parties.
10. Cumulative Rights.
All of the Assignee's rights and remedies with respect to the
Trademarks, whether established hereby or under the Loan Agreement, or by any
other agreements or by law, shall be cumulative and may be exercised singularly
or concurrently.
11. Severability.
5
<PAGE> 6
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.
12. Survival.
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.
13. Counterparts.
This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument and any of
the parties hereto may execute this Agreement by signing any such counterpart.
14. Choice of Law.
The validity, construction and enforcement of this Agreement, and the
determination of the rights and duties of the parties shall be governed by the
laws of the State of New York regardless of any choice of law or other
provision that would result in the application of the laws of any other
jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this Agreement under
seal as of the day and year first above written.
INTEGRITY INCORPORATED
By: /s/ P.Michael Coleman
---------------------------------------
Title: Chairman, Chief Executive Officer
---------------------------------
and President
Attest:
By: /s/ Alison S. Richardson
-----------------------------------------
Title: Secretary
----------------------------------
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
--------------------------------------
6
<PAGE> 7
Title: Senior Vice President
---------------------------------
By: /s/ Scott Kray
----------------------------------------
Title: Senior Associate
---------------------------------
SCHEDULE A
U.S. TRADEMARK REGISTRATIONS
<TABLE>
<CAPTION>
TRADEMARK REGISTRATION REGISTRATION INTERNATIONAL
OR APPLICATION DATE CLASS
NUMBER
<S> <C> <C> <C>
Christian Grown Ministries & Design 1,044,704 7/27/76 9,16
Public Praise 1,785,364 8/3/93 9,16
Interludes 656,604 12/31/57; renewed 41
12/31/77
Glorious Gospel Highway 1,628,678 12/18/90 41
Integrity Music's Scripture Memory 1,867,373 12/13/94 9,16
Songs
Contemporary Music Teaching God's 1,869,040 12/20/94 9
Word
Contemporary Music Teaching God's 1,869,053 12/20/94 16
Word
Songs That Teach, Song That Praise 1,752,270 2/16/93 9
Interludes (Secular) 1,845,510 7/19/94 9
Integrity Communications 1,786,104 8/3/93 9
Integrity Music 1,743,670 12/29/92 41
Reflections 1,758,083 3/16/93 9
Praise Team 1,818,299 1/25/94 9,16
Just For Kids & Design 1,844,347 7/12/94 16
Interludes 1,790,163 8/31/93 9
Hosanna! Music 1,661,665 10/22/91 16
Hosanna! Music and Design 1,656,090 9/10/91 9
Integrity Music 1,742,795 12/29/92 9,16,42
Renewal Music 1,834,363 5/3/94 9
New Songs For Worshipping Churches 1,591,492 4/10/90 9,16
Integrity Music & Design 1,558,871 10/30/89 9,16
Integrity Music (Music Notes Design) 1,589,780 4/3/90 9/16
Alleluia Music 1,637,424 3/12/91 9
IM (Two Stylized Music Notes In A 1,611,930 9/4/90 9,16
Box)
Worship America 1,614,347 9/18/90 41
Quest Tape of the Month 1,554,446 9/5/89 9,16
Brings You Into The Presence of God 1,506,657 9/27/88 42
Alleluia! 1,473,143 1/19/88 16
Integrity Publications 1,169,015 9/15/81 9,16
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
TRADEMARK REGISTRATION REGISTRATION INTERNATIONAL
OR APPLICATION DATE CLASS
NUMBER
<S> <C> <C> <C>
Hosanna! Music 1,544,200 6/20/89 9,16
Integrity Communications 1,224,604 1/18/83 41
Just For Kids and Design 1,891,969 5/2/95 9
Praise! Walk 1,890,943 4/25/95 9
Glorious Music 1,896,061 5/30/95 9
Glorious Music & Design 1,921,678 9/26/95 9
New Songs For Worshipping Churches 1,900,466 6,20.95 9,16
Praise Worship (stylized) 1,564,211 11/07/89 9,16
Integrity Music & Design 1,558,871 10/3/89 9, 16
Praisewalk 1,973,106 5/7/96 9, 16
Integrity Incorporated and Design 74/671663 Filed 5/9/95 9,16,25,42
Integrity Incorporated and Design 74/671662 Filed 5/9/95 16,38,41
Interludes 74/688833 Filed 6/15/95 9
Hosanna! Music 74/688496 Filed 6/15/95 9
Integrity Music 74/688494 Filed 6/15/95 9
Alleluia Worship Bank 74/692948 Filed 6/19/95 9
Songtrax 74/548093 Filed 7/12/94 9
Voices of Praise 74/623938 Filed 1/20/95 9
Voices of Praise 74/581341 Filed 10/03/94 16
Alleluia Music & Design 74/599536 Filed 11/16/94 9, 16
Great Songs of Praise 74/620739 Filed 1/13/95 9
Just For Kids & Design 74/688830 Filed 6/15/95 9
Glorious Music 74/536626 Filed 6/13/94 16
Integrity Music & Design 74/623357 Filed 1/19/95 9,16
Integrity Direct 74/697008 Filed 7/3/95 35,42
</TABLE>
8
<PAGE> 9
SCHEDULE B
LIENS AND CLAIMS OF THIRD PARTIES
NONE
9
<PAGE> 10
EXHIBIT A
ASSIGNMENT OF TRADEMARKS AND GOODWILL
THIS ASSIGNMENT dated the ___ day of ____________, _____, from
INTEGRITY INCORPORATED, a Delaware corporation (the "Assignor"), to
CREDITANSTALT CORPORATE FINANCE, INC., (the "Assignee"), recites and provides:
WHEREAS, Assignor is the owner of certain U. S. trademarks and service
marks and the registrations and applications to register therefor listed in
Schedule A hereto ("Trademarks"); and
WHEREAS, Assignee desires to obtain all of the Assignor's right, title
and interest in all such Trademarks.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Assignor hereby grants, assigns and
conveys to Assignee, its successors and assigns, the entire right, title and
interest of Assignor in and to the Trademarks, including without limitation all
proceeds thereof (such as, by way of example, license royalties and proceeds of
infringement suits), and the right to sue for past, present and future
infringements, together with the goodwill of the business symbolized by the
Trademarks. Assignor acknowledges that it has granted Assignee the right to
secure the assets of the Assignor associated with the business symbolized by
the Trademarks, under separate agreement.
Assignor further agrees to execute such further instruments and
documents and perform such further acts as Assignee may deem necessary to
secure to Assignee the rights herein conveyed.
INTEGRITY INCORPORATED
By:
---------------------------------
Name:
Title:
Attest:
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
COLLATERAL ASSIGNMENT AND AGREEMENT
THIS COLLATERAL ASSIGNMENT AND AGREEMENT (this "Assignment") is dated
as of August 2, 1996, by and between INTEGRITY INCORPORATED, a Delaware
corporation (the "Borrower"), and CREDITANSTALT CORPORATE FINANCE, INC., a
Delaware corporation (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender are parties to that certain Loan
and Security Agreement, dated as of August 2, 1996 (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Loan
Agreement"), pursuant to which the Lender will make available to Borrower
revolving credit loans of up to $6,000,000 (the "Revolving Credit Loans") and a
term loan in the original principal amount of $13,000,000 (the "Term Loan" and,
together with the Revolving Credit Loans, the "Loans"); and
WHEREAS, the Borrower is a party to those certain agreements set forth
on Schedule I attached hereto (collectively, as each has been and may be
amended, extended, renewed and replaced, the "Assigned Agreements"); and
WHEREAS, the Lender has required, as a condition to their entry into
the Loan Agreement and the making of the Loans pursuant to the terms thereof
that the Borrower execute and deliver to the Lender this Assignment to secure
the Obligations of the Borrower under the Loan Agreement;
NOW, THEREFORE, in consideration of the premises, the terms and
conditions herein, and for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, it is hereby agreed as follows:
1. CERTAIN DEFINITIONS. Defined terms used herein (as identified
by the initial capitalization thereof) but not defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.
2. ASSIGNMENT. Subject to the provisions of Section 16 hereof,
the Borrower hereby collaterally assigns, transfers and sets over unto Lender
as collateral security for the due and punctual payment of the Obligations
described in Section 3 hereof, all of the Borrower's now existing and hereafter
arising right, title and interest, powers, options, privileges, remedies and
other benefits (including, without limitation, all management fees) under each
of the Assigned Agreements, including in each case, without limitation, the
right to give all consents, waivers and releases, to take all action upon the
happening of any breach or default giving rise to any right (including rights
to the payment of money, rights of indemnity and setoff, and rights to
<PAGE> 2
defer payment or amounts or to compel specific performance) in the Borrower's
favor under the Assigned Agreements, and to do any and all other things
whatsoever which the Borrower is or may become entitled to do under the
Assigned Agreements.
3. OBLIGATIONS. The collateral assignment contained herein shall
secure the due and punctual payment of the Obligations and any and all other
indebtedness, liabilities and obligations of the Borrower to Lender of every
kind and nature (including, without limitation, interest, charges, expenses,
attorneys' fees and other sums chargeable to the Borrower by Lender and future
advances made to or for the benefit of the Borrower), whether arising under
this Assignment, the Loan Agreement, the other Loan Documents or any financing
arrangement entered into by the Borrower and Lender prior to the date hereof or
after the date hereof, or acquired by Lender from any other source, whether
arising by reason of an extension of credit, opening of a letter of credit,
loan, lease, credit card arrangement, guaranty, indemnification or in any other
manner, direct or indirect, absolute or contingent, primary or secondary, due
or to become due, now existing or hereafter acquired (collectively, the
"Obligations").
4. NO LIABILITY ON LENDER. This Assignment is executed by the
Borrower only as security for the Obligations, and, therefore, the execution
and delivery of this Assignment shall not subject Lender to, or transfer or
pass to Lender, or in any way affect or modify, the liability of the Borrower
under any or all of the Assigned Agreements, it being understood and agreed
that notwithstanding this Assignment or any subsequent assignment, all of the
obligations of the Borrower under each and every one of the Assigned Agreements
shall be and remain enforceable against, but only against, the Borrower, and
not Lender.
5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to Lender as follows:
(a) each of the Assigned Agreements is now valid and
subsisting and in full force and effect;
(b) all the amounts thereby reserved and payable by the
Borrower under any of the Assigned Agreements prior to the date hereof have
been paid; all of the Borrower's covenants and the conditions therein
contained have been observed and performed in all material respects; the
Borrower is not in default under any of the terms of any of the Assigned
Agreements; and, to the best of the Borrower's knowledge, there are no
circumstances which, with the passage of time or the giving of notice or both,
would constitute an event of default thereunder;
(c) the Borrower's interest in each of the Assigned
Agreements is free and clear of all liens and encumbrances thereon other than
Permitted Liens; and
- 2 -
<PAGE> 3
(d) the Borrower has good and lawful authority to assign
and transfer to Lender each of the Assigned Agreements in the manner and form
set forth herein and all consents necessary for such assignments have been
obtained.
6. COVENANTS. To protect the security afforded by this
Assignment, the Borrower covenants to Lender that from and after the date
hereof and until the termination of this Assignment and the payment and
satisfaction in full of the Obligations, it will, unless the Lender shall
otherwise consent in writing:
(a) faithfully abide by, perform and discharge each and
every material obligation, covenant, condition, duty and agreement imposed upon
it by each of the Assigned Agreements;
(b) not amend, modify or otherwise change any Assigned
Agreement, fail to exercise any of its rights, privileges or options
thereunder, release any other party thereto from the performance of such
party's obligations thereunder, or grant any waiver, consent or indulgence
thereunder to any other party thereto except where such amendment,
modification or change would not have an adverse affect upon the Lender's
rights therein;
(c) not terminate any Assigned Agreement prior to the end
of the stated term thereof; and
(d) at its sole cost and expense, enforce compliance with
the terms and provisions of the Assigned Agreements by each other party thereto.
7. DEFAULT. Any of the following events shall constitute an
"Event of Default" hereunder: the occurrence of an Event of Default under the
Loan Agreement (including, but not limited to, Section 9.3 thereof as a result
of any default by Borrower in the due observance or performance of any
covenant, warranty, condition or agreement herein contained or failure by
Borrower to refrain from any act from which this Assignment requires it to
refrain).
8. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of
Default hereunder and during the continuance thereof, Lender may, without
notice to the Borrower, take one or more of the following actions, each of
which shall be cumulative and in addition to any other rights of the Lender in
and to any other property of the Borrower in which Lender has been granted a
security interest as security for the payment of the Obligations:
(a) declare that the collateral assignment contained
herein has become absolute and indefeasible and exercise, at any time or from
time to time, as the Lender determines in its sole and absolute judgement, any
or all of the Borrower's rights under any or all of the Assigned Agreements,
including, but not limited to, the right to give all consents, waivers and
releases, to
- 3 -
<PAGE> 4
receive and retain all payments paid or payable under any Assigned Agreement,
to take all action upon the happening of any breach or default giving rise to
any right in the Borrower's favor under the Assigned Agreements, and to do any
and all other things whatsoever which the Borrower is or may become entitled to
do under the Assigned Agreements;
(b) assign all of the Borrower's right, title and
interest in and to any of the Assigned Agreements to any third party or parties
who shall assume all of the Borrower's obligations under such Assigned
Agreement;
(c) cure any default under any Assigned Agreement
constituting such Event of Default hereunder, but without any obligation to do
so, thereby reinstating such Assigned Agreement, and the sum or sums of money
so paid by Lender for any and all such purposes shall be deemed to be part of
the Obligations hereby secured and shall be immediately due and payable and
collectible with or as part of and in the same manner as the Obligations;
and/or
(d) may, but shall have no obligation to (and shall not
thereby release the Borrower from any obligation hereunder), institute or
prevent the same in such manner and to such extent as Lender may deem necessary
or advisable to protect the security provided hereby, which rights of Lender
shall specifically include, without limiting Lender's general powers herein
granted, the right to institute, appear in and defend any action or proceeding
purporting to affect the security hereof and the rights or powers of Lender
hereunder; and in exercising any such powers, Lender may pay necessary or
advisable costs and expenses, employ counsel and incur and pay actually
incurred attorneys' fees. Such costs, expenses and fees will constitute
additional obligations, and the Borrower will reimburse Lender for such costs,
expenses and fees on demand.
9. APPLICATION OF PROCEEDS. Lender may assign the proceeds or
any realization in respect of the Assigned Agreements received by Lender in its
sole discretion on account of any part or all of the Obligations and in such
order as Lender may deem appropriate; and such application may be changed or
varied from time to time at the discretion of Lender; and Lender before
applying the same as aforesaid may deduct all fees charges and expenses owed to
it.
10. POWER OF ATTORNEY. Upon the occurrence or existence of any
Event of Default, and during the continuation thereof, the Borrower does hereby
constitute Lender its true and lawful attorney, irrevocably, with full power of
substitution, in Lender's name or otherwise to ask, require, demand, receive,
compound and give acquittance for each and every payment due or to become due,
or any such payment or payments, under or arising out of any of the Assigned
Agreements to which the Borrower is or may become entitled, to enforce
compliance with each or any term
- 4 -
<PAGE> 5
or provision of any one (1) or more of the Assigned Agreements by each other
party thereto, to endorse each and every check or other instrument or order in
connection therewith, or any one (1) or more of them, and to file any claim or
claims, take any action or actions or institute any proceeding or proceedings
which Lender may deem to be necessary or advisable. The foregoing power of
attorney is coupled with an interest and shall be irrevocable until the
Obligations have been fully paid and discharged and the Loan Agreement has been
terminated.
11. TERMINATION. Upon the final and indefeasible payment in full
and satisfaction of all of the Obligations and the termination of all financing
arrangements between Lender and the Borrower, this Assignment and all rights
herein assigned to Lender shall terminate, and all right, title and interest of
Lender in and to each and every one of the Assigned Agreements shall revert to
the Borrower.
12. FURTHER ASSURANCES. The Borrower will, from time to time, do
and perform any other act or acts and will execute, acknowledge, deliver and
file, register, record and deposit (and will refile, reregister, rerecord and
redeposit whenever required) any and all further instruments required by law or
reasonably requested by Lender in order to confirm, or further assure, the
interests of Lender hereunder.
13. NOTICES. The Borrower shall cause a copy of each notice or
communication received from each of the other parties to any one or more of the
Assigned Agreements, which notice or communication shall notify the Borrower of
any default, breach or other violation, on the part of the Borrower, under any
one or more of the Assigned Agreements, to be promptly delivered to Lender in
the manner and at the place provided for in the Loan Agreement for the giving
of notices and communications thereunder, or at such other address or in such
other manner as Lender shall designate.
14. SUCCESSORS AND ASSIGNS. This Assignment shall bind and inure
to the benefit of the successors and assigns of the parties hereto.
15. ASSESSMENTS. The Borrower agrees to make no further
assignments of the Assigned Agreements or any interest therein.
16. THE BORROWER'S RIGHT TO ENFORCE AGREEMENTS. Lender hereby
agrees with the Borrower that, so long as no Event of Default (including a
breach by the Borrower of any of its covenants and agreements contained herein)
shall have occurred and be continuing:
(a) The Borrower shall have the right to receive all
amounts paid or payable in connection with each of the Assigned Agreements.
Upon and after the occurrence of any Event of Default and during the
continuation thereof, all rights of the
- 5 -
<PAGE> 6
Borrower to receive any payments under any of the Assigned Agreements shall
cease, and all such rights shall thereupon become vested in the Lender, and the
Lender shall have the sole and exclusive right to receive and retain the
payments which the Borrower would otherwise be authorized to receive and retain
pursuant to this Section. In such event, the Borrower shall pay over to the
Lender any payments received by it under or pursuant to any of the Assigned
Agreements and any and all money and other property paid over to or received by
the Lender pursuant to the provisions of this Section shall be retained by the
Lender as collateral hereunder and/or shall be applied to the repayment of the
Obligations in accordance with the provisions hereof.
(b) The Lender will not exercise or enforce, or seek to
exercise or enforce, or avail itself of, any of the other rights, powers,
privileges, authorizations and benefits assigned and transferred to Lender
pursuant to this Assignment, and that the Borrower, so long as no Event of
Default shall have occurred and be continuing, may exercise or enforce, or seek
to exercise or enforce, such rights, powers, privileges, authorizations and
benefits in conformity with the provisions of this Assignment.
17. COUNTERPARTS. This Assignment may be executed in
counterparts, each of which shall be an original, and all such counterparts
shall constitute but one and the same instrument.
18. TIME IS OF THE ESSENCE. Time is of the essence in this
Assignment.
19. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT, AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. THE BORROWER HEREBY (A) SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT; (B) AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THIS AGREEMENT; AND (C)
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NOTHING HEREIN SHALL LIMIT THE
RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF
ANY OTHER JURISDICTION. THE BORROWER HEREBY IRREVOCABLY APPOINTS THE LENDER AS
ITS AUTHORIZED AGENT AND ATTORNEY-IN-FACT TO RECEIVE ON BEHALF OF THE BORROWER
AND ITS PROPERTY SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER
PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
COURT IN OR OF THE STATE OF NEW YORK. SUCH SERVICE MAY BE MADE BY MAILING OR
DELIVERING A COPY OF SUCH PROCESS TO THE BORROWER, IN CARE OF THE BORROWER, IN
ACCORDANCE
- 6 -
<PAGE> 7
WITH SECTION 7.7 HEREOF AND THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND
DIRECTS THE BORROWER TO ACCEPT SUCH SERVICE ON ITS BEHALF AND AGREES THAT THE
FAILURE OF THE LENDER TO GIVE ANY NOTICE OF ANY SUCH SERVICE TO THE BORROWER
SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF ANY JUDGMENT
RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON.
20. WAIVER OF JURY TRIAL. AFTER REVIEWING THIS PROVISION
SPECIFICALLY WITH ITS RESPECTIVE COUNSEL, THE BORROWER AND THE LENDER HEREBY
KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING BASED ON OR ARISING
OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS ASSIGNMENT, THE
TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE BORROWER OR THE LENDER.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER TO MAKE THE LOANS TO THE
BORROWER.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to set their hands and seals as of the date first above
written.
"Borrower"
INTEGRITY INCORPORATED
By: /s/ P. Michael Coleman
---------------------------------
Name: P.Michael Coleman
Title: Chairman, Chief Executive Officer
and President
Attest: /s/ Alison S. Richardson
-----------------------------
Name: Alison S. Richardson
Title: Secretary
[CORPORATE SEAL]
"Lender"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
---------------------------------
Robert M. Biringer
Senior Vice President
By: /s/ Scott Kray
---------------------------------
Scott Kray
Senior Associate
- 7 -
<PAGE> 8
SCHEDULE I
TO COLLATERAL ASSIGNMENT AND AGREEMENT
1. Product Distribution Agreement, dated as of April 1, 1996, by and
between Borrower and Word, Incorporated.
2. Warehouse and Shipping Agreement, dated as of June 1, 1994, by and
between Borrower and Warren Industries, Inc.
3. Master Vault Storage Agreement, dated as of October 16, 1995, by and
between Borrower and Grelot Mini Storage, Inc.
4. Contract Fulfillment Agreement, dated as of September 1, 1994, by and
between Borrower and Spring Arbor Distribution Agreement.
- 8 -
<PAGE> 1
Exhibit 10.5
COPYRIGHT SECURITY AGREEMENT
This Copyright Security Agreement (this "Agreement"), dated as of
August 2, 1996, is made by INTEGRITY INCORPORATED, a Delaware corporation
("Grantor"), in favor of CREDITANSTALT CORPORATE FINANCE, INC., as lender under
the Loan Agreement (as hereinafter defined) ("Grantee").
RECITALS
WHEREAS, Grantor owns or has been licensed certain rights to
reproduce the works listed on Schedule A attached hereto and incorporated
herein by reference (hereinafter referred to individually as a "Work" and
collectively as the "Works");
WHEREAS, the agreements granting to Grantor the license to
reproduce or record the Works are listed on Schedule B attached hereto and
incorporated herein by reference;
WHEREAS, Grantee is providing financing to Grantor pursuant to
the Loan and Security Agreement dated as of the date hereof between Grantee and
Grantor (as the same may be amended, supplemented or modified from time to
time, the "Loan Agreement"). Pursuant to the Loan Agreement, Grantor has
agreed to grant to Grantee a first priority security interest in substantially
all of Grantor's present and future assets, including without limitation all of
Grantor's present and future general intangibles, and including without
limitation the "Copyrights" (as defined below), to secure all of its present
and future indebtedness, liabilities, guaranties and other obligations to
Grantee;
WHEREAS, capitalized terms used and not otherwise defined
herein have the meanings set forth in the Loan Agreement;
WHEREAS, to secure its Obligations under the Loan Agreement,
the Notes and the other Loan Documents, Grantor has agreed to (i) grant to
Grantee a security interest in and to the "Collateral" (as defined below) and
(ii) execute and deliver this Agreement in order to secure the payment and
performance by Grantor of the obligations; and
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, Grantor and Grantee hereby agree
as follows:
1. Assignment. To secure the complete and timely payment and
performance of all Obligations and without limiting any other security interest
Grantor has granted to Grantee, Grantor hereby hypothecates to Grantee and
grants, assigns, and conveys to Grantee a security interest in Grantor's entire
right, title, and interest in and to all of the following, now owned and
hereafter acquired (collectively, the "Collateral"):
(a) Registered Copyrights and Applications for Copyright
Registrations. All of Grantor's present and future United States registered
copyrights and copyright registrations,
<PAGE> 2
including, without limitation, the Works listed in Schedule A to this Agreement
(and including all of the exclusive rights afforded a copyright registrant in
the United States under 17 U.S.C. Section 106 and any exclusive rights which
may in the future arise by act of Congress or otherwise) and all of Grantor's
present and future applications for copyright registrations (including
applications for copyright registrations of derivative works and compilations)
(collectively, the "Copyrights"), and any and all royalties, payments, and
other amounts payable to Grantor in connection with the Copyrights, together
with all renewals and extensions of the Copyrights, the right to recover for
all past, present, and future infringements of the Copyrights, and all tangible
property embodying or incorporating the Copyrights, and all other rights of
every kind whatsoever accruing thereunder or pertaining thereto.
(b) Licenses. All of Grantor's right, title and interest
in and to any and all present and future license agreements with respect to the
Copyrights, including without limitation the license agreements listed in
Schedule B to this Agreement (the "Licenses").
(c) Accounts. All present and future Accounts and
General Intangibles arising under or from any Work listed on Schedule A
attached hereto.
(d) Inventory. All Inventory of any Work listed on
Schedule A.
(e) All cash and non-cash proceeds of any and all of the
foregoing.
2. Representations. Grantor represents and warrants that:
(a) With respect to each Work listed on Schedule A hereto
each of the Copyrights is valid and enforceable;
(b) Except for the security interest granted hereby and
the non-exclusive licenses granted to Grantor's licensees with respect to the
Copyrights in the ordinary course of business of Grantor, Grantor is (and upon
creation of all future Copyrights, will be) the sole and exclusive owner of the
entire and unencumbered right, title, and interest in and to each of the
Copyrights and other Collateral, free and clear of any liens, charges, or
encumbrances;
(c) There is no pending claim that the use of any of the
Copyrights does or may infringe upon or violate the rights of any third person
nor does Grantor have knowledge of any pending or threatened infringement of
any of the Copyrights by any third person.
(d) Listed on Schedule A are all Copyrights owned by
Grantor, in which Grantor has an interest, or which are used in Grantor's
business.
(e) Listed on Schedule B are all Licenses to which
Grantor is a party.
(f) Each employee, agent and/or independent contractor
who has participated in the creation of the property constituting the
Collateral has either executed an assignment of his or her rights of authorship
to Grantor or is an employee of Grantor acting within the scope of his or her
employment and was such an employee at the time of said creation.
2
<PAGE> 3
(g) All of Grantor's present and future songs, recordings
and other works of authorship subject to United States copyright protection,
the sale, licensing or other disposition of which results in royalties
receivable, license fees receivable, accounts receivable or other sums owing to
Grantor (collectively, "Receivables"), have been and shall be registered with
the United States Copyright Office prior to the date Grantor requests or
accepts any loan from Grantee with respect to such Receivables and prior to the
date Grantor includes any such Receivables in the Borrowing Base Certificate
provided to Grantee, and Grantor shall provide to Grantee copies of all such
registrations promptly upon the receipt of the same.
3. Covenants. Until all of the Obligations have been satisfied
in full and the Loan Agreement has terminated:
(a) Grantor shall not grant a security interest in any of
the Copyrights or other Collateral to any other person and shall not enter into
any agreement or take any action that is inconsistent with Grantor's
obligations hereunder or Grantor's other Obligations or would impair Grantee's
rights, under this Agreement or otherwise, without Grantee's prior written
consent.
(b) Grantor shall ensure that each use of the Copyrights
described in Section 1 of this Agreement carries a complete and accurate
copyright notice.
(c) Grantor shall use its best efforts to preserve and
defend Grantor's rights in the Copyrights unless Grantor, with the concurrence
of Grantee, reasonably determines that a Copyright is not worth preserving or
defending.
(d) Grantor shall undertake all reasonable measures to
cause its employees, agents and independent contractors to assign to Grantor
all rights of authorship to any copyrighted material in which Grantor has or
may subsequently acquire any right or interest.
4. License Rights. Grantor may license or sublicense the
Copyrights only in the ordinary course of business and only on a non-exclusive
basis, and only to the extent of Grantor's rights and subject to Grantee's
security interest and Grantor's obligations under this Agreement.
5. Amendment. Not later than February 1 and August 1 of each
year, Grantee shall provide Grantor an amendment to this Agreement, signed by
the president, controller or secretary of Grantor, containing a true and
complete listing of all Works Borrower has created and/or licensed since the
effective date of the last amendment delivered pursuant to Section 6.2(f) of
the Loan Agreement (or in the case of the initial such certificate, since the
date hereof), substantially in the form of Exhibit A hereof ("Copyright
Amendment"), together with evidence showing that Grantor's and Grantee's
interest therein has been registered and/or perfected pursuant to Section 4.5
of the Loan Agreement. Notwithstanding the foregoing, no failure to so amend
this Agreement shall in any way affect, invalidate or detract from Grantee's
continuing security interest in all Copyrights and Licenses, whether or not
listed on Schedule A, Schedule B or a Copyright Amendment.
3
<PAGE> 4
6. Default. Upon an Event of Default Grantee shall have, in
addition to all of its other rights and remedies under the Loan Agreement, all
rights and remedies of a secured party under the Uniform Commercial Code (as
enacted in any jurisdiction in which the Copyrights or other Collateral are
located or deemed to be located) or other applicable law. Upon occurrence of
an Event of Default, Grantor shall, upon request of Grantee, give written
notice to all parties to the Licenses that all payments thereunder shall be
made to Grantee, and Grantee may itself give such notice.
7. Fees and Expenses. On demand by Grantee, without limiting any
of the terms of the Loan Agreement, Grantor shall pay all fees, costs, and
expenses (including without limitation attorneys' fees and legal expenses)
actually incurred by Grantee in connection with (a) preparing this Agreement
and all other documents relating to this Agreement, (b) consummating this
transaction, (c) filing or recording any documents (including all taxes in
connection therewith) in public offices; and (d) paying or discharging any
taxes, counsel fees, maintenance fees, encumbrances, or other amounts in
connection with protecting, maintaining, or preserving the Copyrights or
defending or prosecuting any actions or proceedings arising out of or related
to the Copyrights.
8. Grantee's Rights. In the event that Grantor fails to use its
best efforts to preserve and defend Grantor's rights in the Copyrights (except
as permitted by paragraph 3(c) hereof) within a reasonable period of time after
learning of the existence of any actual or threatened infringement thereof,
upon twenty (20) days prior written notice to Grantor, Grantee shall have the
right, but shall in no way be obligated to, bring suit or take any other
action, in its own name or in Grantor's name, to enforce or preserve Grantee's
or Grantor's rights in the Copyrights. Grantor shall at the request of Grantee
and at Grantor's expense do any lawful acts and execute any documents requested
by Grantee to assist with such enforcement. In the event Grantor has not taken
action to enforce or preserve Grantee's and Grantor's rights in the Copyrights
and Grantee thereupon takes such action, Grantor, upon demand, shall promptly
reimburse and indemnity Grantee for all costs and expenses incurred in the
exercise of Grantee's or Grantor's rights under this Section 8.
9. No Waiver. No course of dealing between Grantor and Grantee,
nor any failure to exercise nor any delay in exercising, on the part of
Grantee, any right, power, or privilege under this Agreement or under the Loan
Agreement or any other agreement, shall operate as a waiver. No single or
partial exercise of any right, power, or privilege under this Agreement or
under the Loan Agreement or any other agreement by Grantee shall preclude any
other or further exercise of such right, power, or privilege or the exercise of
any other right, power, or privilege by Grantee.
10. Rights Are Cumulative. All of Grantee's rights and remedies
with respect to the Copyrights and other Collateral whether established by this
Agreement, the Loan Agreement, or any other documents or agreements, or by law
shall be cumulative and may be exercised concurrently or in any order.
4
<PAGE> 5
11. Copyright Office. At the request of Grantee, Grantor shall
execute any further documents reasonably necessary or appropriate to create and
perfect Grantee's security interest in the Copyrights, including without
limitation any documents for filing with the United States Copyright Office
and/or any applicable state office. Grantee may record this Agreement, an
abstract thereof, or any other document describing Grantee's interest in the
Copyrights with the United States Copyright Office, at the expense of Grantor.
12. Indemnity. Grantor shall protect, defend, indemnity, and hold
harmless Grantee and Grantee's assigns from all liabilities, losses, and costs
(including without limitation reasonable attorneys' fees) incurred or imposed
on Grantee relating to the matters in this Agreement, including, without
limitation, in connection with Grantee's defense of any infringement action
brought by a third party against Grantee except to the extent that any of the
foregoing arises out of gross negligence, willful misconduct or a breach of
this Agreement by the Grantee, as the case may be.
13. Severability. The provisions of this Agreement are severable.
If any provision of this Agreement is held invalid or unenforceable in whole or
in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such provision or part thereof in any other
jurisdiction, or any other provision of this Agreement in any jurisdiction.
14. Entire Agreement. This Agreement is subject to modification
only by a writing signed by the parties, except as provided in Section 5 of
this Agreement. To the extent that any provision of this Agreement conflicts
with any provision of the Loan Agreement, the provision giving Grantee greater
rights or remedies shall govern, it being understood that the purpose of this
Agreement is to add to, and not detract from, the rights granted to Grantee
under the Loan Agreement. This Agreement, the Loan Agreement, and the
documents relating thereto comprise the entire agreement of the parties with
respect to the matters addressed in this Agreement.
15. Further Assurances. At Grantee's request, Grantor shall
execute and deliver to Grantee any further instruments or documentation, and
perform any acts, that may be reasonably necessary or appropriate to implement
this Agreement, the Loan Agreement or any other agreement, and the documents
relating thereto, including without limitation any instrument or documentation
reasonably necessary or appropriate to create, maintain, perfect, or effectuate
Grantee's security interests in the Copyrights or other Collateral.
16. Release. At such time as Grantor shall completely satisfy all
of the Obligations and the Loan Agreement shall be terminated, Grantee shall
execute and deliver to Grantor all assignments and other instruments as may be
reasonably necessary or proper to terminate Grantee's security interest in the
Copyrights, subject to any disposition of the Copyrights which may have been
made by Grantee pursuant to this Agreement. For the purpose of this Agreement,
the Obligations shall be deemed to continue if Grantee enters into any
bankruptcy or similar proceeding at a time when any amount paid to Grantee
could be ordered to be repaid as a preference or pursuant to a similar theory,
and shall continue until it is finally determined that no such repayment can be
ordered.
5
<PAGE> 6
17. True and Lawful Attorney. Grantor hereby appoints Grantee as
Grantor's true and lawful attorney, with full power of substitution, to do any
or all of the following, in the name, place and stead of Grantor: (a) execute
an abstract of this Agreement or any other document describing Grantee's
interest in the Copyrights, for filing with the United States Copyright Office;
(b) execute any modification of this Agreement pursuant to Section 5 of this
Agreement; and (c) following an Event of Default (as defined in the Loan
Agreement) execute any assignments, notices or transfer documents for purposes
of transferring title or right to receive any of the Copyrights or other
Collateral to any person, including without limitation Grantee.
18. Successors. 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; provided that Grantor may not transfer any of
the Collateral or any rights hereunder, without the prior written consent of
Grantee, except as specifically permitted hereby.
19. 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, excluding its conflict of law rules to the
extent such rules would apply the law of another jurisdiction, and the United
States.
20. WAIVER OF RIGHT TO JURY TRIAL. GRANTEE AND GRANTOR EACH
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GRANTEE AND GRANTOR; OR
(III) ANY CONDUCT, ACTS OR OMISSIONS OF GRANTEE OR GRANTOR OR ANY OF THEIR
DIRECTORS, OWNERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED
WITH GRANTEE OR GRANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
Grantor:
INTEGRITY INCORPORATED
By: /s/ P. Michael Coleman
---------------------------------
Name: P. Michael Coleman
Title: Chairman, Chief Executive Officer
and President
[Corporate Seal]
Accepted:
Grantee:
6
<PAGE> 7
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
---------------------------------------------
Name: Robert M. Biringer
Title: Senior Vice President
By: /s/ Scott Kray
---------------------------------------------
Name: Scott Kray
Title: Senior Associate
7
<PAGE> 8
Schedule A
to
Copyright Security Agreement
INTEGRITY INCORPORATED
COPYRIGHTS
<PAGE> 9
Schedule B
to
Copyright Security Agreement
INTEGRITY INCORPORATED
LICENSE AGREEMENTS
<PAGE> 10
Exhibit A
to
Copyright Security Agreement
AMENDMENT TO COPYRIGHT SECURITY AGREEMENT
THIS AMENDMENT TO COPYRIGHT SECURITY AGREEMENT (the "Amendment") is
made and entered into the ___ day of __________, ____ by and between INTEGRITY
INCORPORATED, a Delaware corporation ("Grantor"), and CREDITANSTALT CORPORATE
FINANCE, INC., ("Grantee").
W I T N E S S E T H :
WHEREAS, Grantor and Grantee are parties to a certain Copyright
Security Agreement, dated as of August 2, 1996 (as the same may be amended,
modified or supplemented from time to time, the "Copyright Security
Agreement"), which grants to Grantee a first priority security interest in all
of Grantor's present and future Copyrights, to secure all of its present and
future indebtedness, liabilities, guaranties and other obligations to Grantee;
WHEREAS, the Grantor and Grantee wish to amend the Copyright Security
Agreement in accordance with Section 5 thereof;
NOW, THEREFORE, for and in consideration of the premises, the terms
and conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms. Capitalized terms defined or used herein and
not defined herein shall have the meanings defined in the Copyright Security
Agreement.
2. Amendment.
(a) The Copyright Security Agreement is hereby amended to
add to Schedule A thereto the Copyrights described on Exhibit A attached hereto
and incorporated herein by reference.
(b) The Copyright Security Agreement is hereby amended to
add to Schedule B thereto the Licenses described on Exhibit B attached hereto
and incorporated herein by reference.
3. Assignment. To confirm the foregoing amendment, and without
limiting any other security interest Grantor has granted Grantee, Grantor
hereby hypothecates to Grantee and grants, assigns, and conveys to Grantee a
security interest in Grantor's entire right, title, and interest in and to all
of the Copyrights listed in Exhibit A attached hereto and all of the Licenses
listed in Exhibit B attached hereto to secure the complete and timely payment
and performance of all of the Obligations.
<PAGE> 11
4. Representations. Grantor hereby represents and warrants
Exhibit A and Exhibit B attached hereto are a true, complete and accurate
listing of all Copyrights and Licenses Borrower has created and/or licensed
since the effective date of the last amendment delivered pursuant to Section
6.2(f) of the Loan Agreement (or, in the case of the initial such amendment,
since August ____, 1996) as of the date set forth above.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first written above.
Grantor:
INTEGRITY INCORPORATED
By:
------------------------------------
Name:
Title:
[Corporate Seal]
Accepted:
Grantee:
CREDITANSTALT CORPORATE FINANCE, INC.
By:
------------------------------------
Robert M. Biringer
Senior Vice President
By:
------------------------------------
Scott Kray
Senior Associate
<PAGE> 12
Exhibit A
to
Amendment to Copyright Security Agreement
COPYRIGHTS
Copyright Owner(1) Work(2) Dated Filed(3) Date Perfected(4)
____________________
(1) List by name each copyright owner.
(2) List each Work created by each copyright owner.
(3) List each date (by copyright owner and Works) on which Lender's
security interest in each Work has been filed with the United States Copyright
Office pursuant to Section 4.5 of the Loan Agreement.
(4) List each date (by copyright owner and Work) on which Borrower has
received acknowledgement copies of any filings accepted by the United States
Copyright Office in each Work pursuant to Section 4.5 of the Loan Agreement.
<PAGE> 13
Exhibit B
to
Amendment to Copyright Security Agreement
LICENSES
Copyright Owner(1) Work(2) Dated Filed(3) Date Perfected(4)
____________________
(1) List by name each copyright owner.
(2) List each Work created by each copyright owner.
(3) List each date (by copyright owner and Works) on which Lender's
security interest in each Work has been filed with the United States Copyright
Office pursuant to Section 4.5 of the Loan Agreement.
(4) List each date (by copyright owner and Work) on which Borrower has
received acknowledgement copies of any filings accepted by the United States
Copyright Office in each Work pursuant to Section 4.5 of the Loan Agreement.
<PAGE> 1
EXHIBIT 10.6
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of August 2, 1996 (amended,
supplemented or modified from time to time, the "Warrant Agreement") between
INTEGRITY INCORPORATED, a Delaware corporation (the "Issuer"), and
CREDITANSTALT CORPORATE FINANCE, INC., having offices at 2 Greenwich Plaza,
Greenwich, Connecticut 06836-1300 ("Lender").
W I T N E S S E T H:
WHEREAS, pursuant to the Loan and Security Agreement dated as of
August 2, 1996 (as the same may be amended, supplemented or otherwise modified
from time to time, the "Loan Agreement") between the Issuer and Lender, Lender
has agreed to make certain loans (the "Loans") to the Issuer upon the terms,
and subject to the conditions, set forth in the Loan Agreement; and
WHEREAS, in order to induce the Lender to structure and to provide the
Loans, the Issuer has agreed to execute and deliver to Lender or an Affiliate
(as hereinafter defined) thereof the Warrants hereinafter described;
NOW, THEREFORE, in consideration of the premises the parties hereto
agree as follows:
Section 1. Definitions.
(a) As used in this Warrant Agreement, unless otherwise defined
herein, terms defined in the Loan Agreement (as in effect on the date hereof,
whether or not the Loan Agreement is thereafter terminated or expires according
to its terms) shall have such defined meanings when used herein and the
following terms shall have the following meanings, unless the context otherwise
requires:
"Affiliate" of any Person shall mean any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such Person. For purposes of this definition, a Person shall be
deemed to control another Person if such first Person possesses directly or
indirectly the power to (i) vote 10% or more of the securities having ordinary
voting power for the selection of directors of such Person or (ii) direct, or
cause the direction of, the management and policies of the second Person,
whether through the ownership of voting securities, by contract or otherwise.
In addition, as to Lender, "Affiliate" shall include any partnership a majority
of the partners of which are officers, directors, employees or Affiliates of
Lender, and as to the Issuer, "Affiliate" shall not include Lender or any
Affiliate of Lender which is a holder of any Warrants.
<PAGE> 2
"Capital Stock" shall mean, as to any Person, any and all shares,
interests, warrants, participants or other equivalents (however designated) of
corporate stock of such Person.
"Change of Control" shall mean the occurrence of any of the following
events: (a) any "person" or "group" (as such terms as used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934), other than Michael Coleman
(or any partnership, trust or other Person controlled by P. Michael Coleman),
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has a right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total Voting
Stock of the Issuer; (b) the Issuer consolidates with, or merges with or into,
another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into the Issuer in any such event pursuant
to a transaction in which the outstanding Voting Stock of the Issuer is
converted into or exchanged for cash, securities or other property; or (c) the
directors of Issuer (or the executive committee thereof) constituting that
percentage necessary to approve corporate action not being current directors of
Issuer or directors designated or approved by such directors. For purposes of
this definition, "Voting Stock" shall mean any class or classes of Capital
Stock pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the
time, stock of any other class or classes shall have, or might have, voting
power by reason of the happening of any contingency).
"Closing Date" shall have the meaning given to such term in the Loan
Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
entity succeeding to any or all of its functions under the Securities Act and
the Exchange Act.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$.01 per share, of the Issuer, and shall include any stock into which such
Class A Common Stock shall have been changed or any stock resulting from any
reclassification of such Class A Common Stock.
"Class B Common Stock" shall mean the Class B Common Stock, par value
$.01 per share, of the Issuer, and shall include any stock into which such
Class B Common Stock shall have been changed or any stock resulting from any
reclassification of such Class B Common Stock.
"Common Stock" shall mean both the Class A Common Stock and the Class
B Common Stock of the Issuer and all other stock of any class or classes
(however designated) of the Issuer the registered holders of which have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference.
2
<PAGE> 3
"Composite Transactions Tape" shall mean a security price reporting
service that includes all transactions in a security on each of the exchanges
and in the over-the-counter market.
"Convertible Preferred Stock" shall mean the Convertible Preferred
Stock, par value $.01 per share, of the Issuer, each share of which is
convertible into four (4) shares of Class A Common Stock of the Issuer, and
shall include any stock into which such Convertible Preferred Stock shall have
been changed or any stock resulting from any reclassification of such
Convertible Preferred Stock.
"Current Market Price Per Share" shall mean, with respect to any
shares of the Class A Common Stock or Class B Common Stock, as of any
particular date of determination:
(i) if such class of Common Stock is then reported on the
Composite Transactions Tape, the average of the daily closing prices
for the 30 consecutive trading days immediately prior to such date as
reported on the Composite Transactions Tape (as adjusted for any stock
dividend, split, combination or reclassification that occurred during
such 30-day period); or
(ii) if such class of Common Stock is not then reported on
the Composite Transaction Tape but is then listed or admitted to
trading on a national securities exchange, the average of the daily
last sale prices regular way of such class of Common Stock, for the 30
consecutive trading days immediately prior to such date (as adjusted
for any stock dividend, split, combination or reclassification that
occurred during such 30-day period), on the principal national
securities exchange on which such class of Common Stock is traded or,
in case no such sale takes place on any such day, the average of the
closing bid and asked prices regular way, in either case on such
national securities exchange; or
(iii) if such class of Common Stock is not then reported on
the Composite Transaction Tape but is then traded in the
over-the-counter market, the average of the daily closing sales
prices, or, if there is no closing sales price, the average of the
closing bid and asked prices, in the over-the-counter market, for the
30 consecutive trading days immediately prior to such date (as
adjusted for any stock dividend, split, combination or
reclassification that occurred during such 30-day period), as reported
by the National Association of Securities Dealers' Automated Quotation
System, or, if not so reported, as reported by the National Quotation
Bureau, Incorporated or any successor thereof, or, if not so reported
the average of the closing bid and asked prices as furnished by any
member of the National Association of Securities Dealers, Inc.
selected from time to time by the Board of Directors of the Issuer for
that purpose; or
(iv) if no such prices are then furnished, the higher of (x)
the Exercise Price and (y) the fair market value of a share of such
class of Common Stock as determined by agreement between the holders
of a majority of the Warrants and the Issuer or, in the absence of
such an agreement, by an independent investment banking firm or an
independent appraiser engaged by the Issuer (in either case the cost
of which engagement
3
<PAGE> 4
will be borne by the Issuer) and reasonably acceptable to the holders
of a majority of the Warrants.
"Equity of the Issuer" shall mean the total shareholders' equity of
the Issuer, determined in accordance with generally accepted accounting
principles. The amount of Equity of the Issuer represented by any Warrant
Shares shall be determined by subtracting from total Equity of the Issuer the
aggregate amount distributable as a preference upon dissolution of the Issuer
to the holders of any then outstanding shares of any class or series of
preferred stock (other than the Convertible Preferred Stock), dividing the
balance obtained by the number of shares of Common Stock then outstanding or
issuable upon conversion of any Convertible Preferred Stock then outstanding,
and multiplying that per share amount by the aggregate number of Warrant
Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute.
"Exchange Right" shall have the meaning given to such term in
subsection 16(d).
"Exempted Securities" shall mean (A) Warrant Shares, (B) shares of the
Issuer's capital stock issued as a stock dividend described in subsection
12(b), (C) shares of Class A Common Stock issued upon conversion of shares of
the Issuer's Class B Common Stock, (D) options granted as of the date hereof to
purchase up to 165,000 shares of Common Stock of the Issuer with an exercise
price of $5.00 or more per share and shares of Common Stock issuable upon
exercise of such options, and (E) any options granted to employees of the
Issuer after the date hereof with an exercise price of at least fair market
value on the date of grant, provided that the aggregate amount issued does not
exceed five percent (5%) of the outstanding Class A Common Stock. The limit in
clauses (D) and (E) shall be proportionately adjusted for dividends and other
distributions payable in and for subdivisions and combinations of shares of
Common Stock.
"Exercise Price" shall mean the exercise price of a Warrant, which
shall be $1.875 per Warrant.
"Expiration Date" shall mean August 2, 2006.
"Non-Attributable Stock" shall mean shares of Class A Common Stock or
Convertible Preferred Stock which have been previously sold, or were issued
pursuant to the exercise of Warrants which were previously sold, either (a) in
a widely dispersed public offering; (b) in a private placement in which no
purchaser, individually or in concert with others, acquired Warrants, Class A
Common Stock, Convertible Preferred Stock or any combination thereof,
representing (upon conversion, in the case of the Convertible Preferred Stock,
and upon exercise for Class A Common Stock, in the case of the Warrants) more
than 2% of the outstanding Class A Common Stock; (c) in compliance with Rule
144 (or any rule which is a successor thereto) of the Securities Act or (d)
into the secondary market in a market transaction executed through a registered
broker-dealer in blocks of no more than 2.0% of the shares of Class A Common
Stock of the Issuer outstanding in any six-month period.
4
<PAGE> 5
"Non-Public Warrant Shares" shall mean Warrant Shares that have not
been sold to the public and bear the legend set forth in subsection 14(b).
"Non-Surviving Combination" shall mean any merger, consolidation or
other business combination by the Issuer with one or more Persons in which the
Issuer is not the survivor, or a sale of all or substantially all of the assets
of the Issuer to one or more such other Persons.
"Person" shall mean and include any individual, sole proprietorship,
partnership, joint venture, limited liability company, trust, unincorporated
organization, association, corporation, institution, entity, party or
government (whether national, federal, state, county, city, municipal, or
otherwise, including, without limitation, any instrumentalities, division,
agency, body or department thereof).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute and the rules and regulations of the Commission
thereunder, all as the same may be in effect from time to time.
"Subsidiary" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Warrant Agreement shall refer to a Subsidiary or Subsidiaries of the
Issuer.
"Warrant Certificate" shall mean a certificate evidencing one or more
Warrants, substantially in the form of Exhibit A attached hereto, with such
changes therein as may be required to reflect any adjustments made pursuant to
Section 12.
"Warrant Holders" shall mean Lender or an Affiliate thereof and such
other Persons to whom Lender or an Affiliate thereof transfers Warrants in
compliance with the terms of this Warrant Agreement, and for purposes of
Section 15 shall include holders of Non-Public Warrant Shares.
"Warrant Office" shall mean the office or agency of the Issuer at
which the Warrant Register shall be maintained and where the Warrants may be
presented for exercise, exchange, substitution and transfer, which office or
agency will be the office of the Issuer at 1000 Cody Road, Mobile, Alabama
36695-3425, which office or agency may be changed by the Issuer pursuant to
notice in writing to the Persons named in the Warrant Register as the holders
of the Warrants.
"Warrant Register" shall mean the register, substantially in the form
of Exhibit B attached hereto, maintained by the Issuer at the Warrant Office.
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"Warrant Shares" shall mean the shares of Class A Common Stock or
Convertible Preferred Stock issued or issuable upon exercise of the Warrants,
or Class A Common Stock issued or issuable upon conversion of the Convertible
Preferred Stock, in each case as the number of such shares may be adjusted from
time to time pursuant to Section 12 and the provisions of the Issuer's Articles
of Incorporation.
"Warrants" shall mean the 805,288 stock purchase warrants issued
pursuant to this Warrant Agreement; individually, a "Warrant." Each Warrant
shall entitle the record holder thereof to purchase from the Issuer at the
Warrant Office one (1) fully paid and nonassessable share of Class A Common
Stock (for an aggregate of 805,288 shares of Class A Common Stock) or
one-fourth (1/4) fully paid and nonassessable share of Convertible Preferred
Stock (for an aggregate of 201,322 shares of Convertible Preferred Stock) (in
the percentages and to the extent provided in subsections 6(e) and 6(f) hereof
and subject in each case to adjustment as provided in Section 12) at the
Exercise Price at any time during the period beginning on the earlier of (i)
the date on which a Change of Control of the Issuer occurs, or (ii) twenty-four
(24) months after the Closing Date, and ending at 5:00 P.M., New York time, on
the Expiration Date.
(b) For all purposes of this Warrant Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(i) "Herein," "hereof" and "hereunder" and other words of
similar import refer to this Warrant Agreement as a whole and not to
any particular Section or other subdivision;
(ii) Any uses of the masculine, feminine or neuter gender
shall also be deemed to include any other gender as appropriate;
(iii) The exhibits and schedules to this Warrant Agreement
shall be deemed an integral part of this Warrant Agreement;
(iv) Except as specifically set forth in such representation,
each of the representations and warranties of the Issuer in Section 3
hereof is separate and is not limited, qualified or modified by the
existence, wording or satisfaction of any other representation of the
Issuer in Section 3 or otherwise;
(v) All references herein (in covenants or otherwise) to any
action(s) which are to be taken (or which are prohibited from being
taken) by any Person, the Issuer or any Subsidiary shall apply to such
Person, the Issuer or such Subsidiary, as the case may be, whether
such action is taken directly or indirectly; and
(vi) All references herein to actions by the Issuer or any
Subsidiary (including, without limitation, actions denoted by terms
such as "create," "sell," "transfer" or "dispose of") mean such action
whether voluntary or involuntary, by operation of law or otherwise.
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Section 2. Issuance of Warrants. The Issuer hereby agrees to
issue and deliver to Lender or, at the option of Lender, an Affiliate thereof,
on the Closing Date, the Warrants and one or more Warrant Certificates
evidencing the Warrants. No payment shall be required from Lender or its
Affiliate in consideration of its receipt of the Warrants.
Section 3. Representations and Warranties. The Issuer hereby
represents and warrants to Lender, for the benefit of Lender and any other
Warrant Holder, as follows:
(a) The Issuer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, has the
corporate power and authority to conduct its business as presently conducted
and as intended to be conducted, has the corporate power and authority to
execute and deliver this Warrant Agreement and the Warrant Certificates, to
issue the Warrants and to perform its obligations under this Warrant Agreement
and the Warrant Certificates, has the corporate power and authority and legal
right to own and lease its properties and is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which it owns or
leases real property or in which the conduct of its business requires such
qualification, except where failure to be so qualified could not be reasonably
expected to have a material adverse effect on the business, properties,
financial condition or results of operations of the Issuer and its Subsidiaries
taken as a whole.
(b) The execution, delivery and performance by the Issuer of this
Warrant Agreement and the Warrant Certificates, the issuance of the Warrants
and the issuance of the Warrant Shares upon the exercise of the Warrants and
the issuance of Class A Common Stock upon conversion of the Convertible
Preferred Stock have been duly authorized by all necessary corporate action and
do not and will not violate, or result in a breach of, or constitute a default
under, or require any consent under, or result in the creation of any lien,
charge or encumbrance upon the assets of the Issuer pursuant to, any law,
statute, ordinance, rule, regulation, order or decree of any court,
governmental body or regulatory authority or administrative agency having
jurisdiction over the Issuer or its Subsidiaries or the Issuer's Certificate of
Incorporation or any contract, mortgage, loan agreement, note, lease or other
instrument binding upon the Issuer or its Subsidiaries or by which their
properties are bound.
(c) This Warrant Agreement has been duly executed and delivered by
the Issuer and constitutes a legal, valid, binding and enforceable obligation
of the Issuer. When the Warrants and Warrant Certificates have been issued as
contemplated hereby, (i) the Warrants and the Warrant Certificates will
constitute legal, valid, binding and enforceable obligations of the Issuer and
(ii) the Warrant Shares, when issued upon exercise of the Warrants in
accordance with the terms hereof, and the Class A Common Stock, when issued
upon conversion of the Convertible Preferred Stock in accordance with the terms
of the Issuer's Certificate of Incorporation relating to the Convertible
Preferred Stock, will be duly authorized, validly issued, fully paid and
nonassessable shares of the Class A Common Stock and Convertible Preferred
Stock, as applicable, with no personal liability attaching to the ownership
thereof.
(d) The Issuer has authorized capital stock consisting of
7,500,000 shares of Class A Common Stock, par value $.01 per share, of which
2,079,000 shares are issued and outstanding,
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10,500,000 shares of Class B Common Stock, par value $.01 per share, of which
3,435,000 shares are issued and outstanding and 500,000 shares of Preferred
Stock, par value $.01 per share, of which 201,322 shares have been designated
as Convertible Preferred Stock and none of which are issued and outstanding.
Except as set forth on SCHEDULE I hereto, there are no outstanding options,
warrants, subscriptions, rights, convertible or exchangeable securities or
other agreements or plans under which the Issuer may be or become obligated to
issue, sell or transfer shares of its capital stock or other securities. The
Convertible Preferred Stock has no voting rights, except as required by law,
and is convertible on the basis of one (1) share of Convertible Preferred Stock
to four (4) shares of Class A Common Stock. To the Issuer's best knowledge,
there are no voting agreements, voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of the Issuer or
any Subsidiary.
(e) No holder of securities of the Issuer has any right to the
registration of such securities under the Securities Act and any applicable
state securities law.
(f) The Issuer has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. The Issuer has
furnished Lender with copies of Issuer's Form 10-Q for the quarter ending March
31, 1996, Issuer's 1995 Annual Report and 1995 Annual Report on Form 10-K, and
Issuer's Proxy Statement dated March 29, 1996 (collectively, the "SEC
Reports"). Each SEC Report was in substantial compliance with the requirements
of its respective form and none of the SEC Reports, nor the financial
statements (and the notes thereto) included in the SEC Reports, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(g) Each of the Subsidiaries of the Issuer is listed on SCHEDULE
II to this Warrant Agreement. All outstanding shares of capital stock of such
Subsidiaries have been duly authorized and validly issued and are fully paid
and nonassessable and are owned beneficially and of record by the Issuer free
and clear of all Liens, options or claims of any kind. There are no
outstanding options, warrants, subscriptions, rights, convertible securities or
other agreements or plans under which any Subsidiary of the Issuer may become
obligated to issue, sell or transfer shares of its capital stock or other
securities.
Section 4. Registration, Transfer and Exchange of Certificates.
(a) The Issuer shall maintain, at the Warrant Office, the Warrant
Register for registration of the Warrants and Warrant Certificates and
transfers thereof. On the Closing Date, the Issuer shall register the Warrants
and Warrant Certificates in the Warrant Register in the name of Lender or an
Affiliate thereof, as the case may be. The Issuer may deem and treat the
registered holders of the Warrant Certificates as the absolute owners thereof
and the Warrants represented thereby (notwithstanding any notation of ownership
or other writing on the Warrant Certificates made by any person) for the
purpose of any exercise thereof or any distribution to the holders thereof, and
for all other purposes, and the Issuer shall not be affected by any notice to
the contrary.
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(b) Subject to Section 14, the Issuer shall register the transfer
of any outstanding Warrants in the Warrant Register upon surrender of the
Warrant Certificates evidencing such Warrants to the Issuer at the Warrant
Office, accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to it, duly executed by the
registered holder or holders thereof or by the duly appointed legal
representative thereof. Upon any such registration of transfer, new Warrant
Certificates evidencing such transferred Warrants shall be issued to the
transferee and the surrendered Warrant Certificates shall be cancelled. If
less than all the Warrants evidenced by Warrant Certificates surrendered for
transfer are to be transferred, new Warrant Certificates shall be issued to the
holder surrendering such Warrant Certificates evidencing such remaining number
of Warrants.
(c) Warrant Certificates may be exchanged at the option of the
holders thereof, when surrendered to the Issuer at the Warrant Office, for
another Warrant Certificate or other Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrants. Warrant Certificates
surrendered for exchange shall be cancelled.
(d) No charge shall be made for any such transfer or exchange
except for any tax or other governmental charge imposed in connection
therewith. Except as provided in subsection 14(b) each Warrant Certificate
issued upon transfer or exchange shall bear the legend set forth in subsection
14(b) if the Warrant Certificate presented for transfer or exchange bore such
legend.
Section 5. Mutilated or Missing Warrant Certificates. If any
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Issuer
shall issue, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Issuer of such loss, theft or destruction of such
Warrant Certificate and, if requested, indemnity satisfactory to it. The
Issuer acknowledges that a written indemnity by Lender or, if an Affiliate of
Lender is the holder of such lost, stolen or destroyed Warrant Certificate, by
Creditanstalt-Bankverein or Creditanstalt American Corporation shall be
satisfactory to the Issuer for such purpose. No service charge shall be made
for any such substitution, but all expenses and reasonable charges associated
with procuring such indemnity and all stamp, tax and other governmental duties
that may be imposed in relation thereto shall be borne by the holder of such
Warrant Certificate. Each Warrant Certificate issued in any such substitution
shall bear the legend set forth in subsection 14(b) if the Warrant Certificate
for which such substitution was made bore such legend.
Section 6. Duration and Exercise of Warrants.
(a) The Warrants evidenced by a Warrant Certificate shall be
exercisable in whole or in part by the registered holder thereof on any
Business Day during the period beginning on the earlier of (i) the date on
which a Change of Control of the Issuer occurs or (ii) twenty-four (24) months
after the Closing Date, and ending at 5:00 P.M., New York time, on the
Expiration Date.
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(b) Subject to the provisions of this Warrant Agreement, the
Warrants evidenced by a Warrant Certificate may be exercised by the registered
holder thereof by the surrender of the Warrant Certificate evidencing the
Warrants to be exercised, with the form of election to purchase on the reverse
thereof or attached thereto duly completed and signed, to the Issuer at the
Warrant Office, and upon payment of the aggregate Exercise Price for the number
of Warrant Shares in respect of which such Warrants are being exercised in
lawful money of the United States of America and/or by surrender to the Issuer
of shares of Common Stock then owned by the Warrant Holder and valued for
purposes hereof at their Current Market Price Per Share at the time of
exercise. In lieu of exercising Warrants pursuant to the immediately preceding
sentence, the Warrant Holder shall have the right to require the Issuer to
convert the Warrants, in whole or in part and at any time or times (the
"Conversion Right"), into Warrant Shares, by surrendering to the Issuer the
Warrant Certificate evidencing the Warrants to be converted, accompanied by the
form of conversion notice on the reverse thereof or attached thereto which has
been duly completed and signed. Upon exercise of the Conversion Right, the
Issuer shall deliver to the Warrant Holder (without payment by the Warrant
Holder of any Exercise Price) that number of Warrant Shares which is equal to
the quotient obtained by dividing (x) the value of the number of Warrants being
converted at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price for all such Warrants immediately
prior to the exercise of the Conversion Right from the aggregate current market
price (determined on the basis of the Current Market Price Per Share) of that
number of Warrant Shares purchasable upon exercise of such Warrants immediately
prior to the exercise of the Conversion Right (taking into account all
applicable adjustments pursuant to Section 12, including without limitation any
adjustments which would be made pursuant to subdivision (7) of subsection 12(c)
upon exercise of the Warrants being converted) by (y) the Current Market Price
Per Share of one share of Class A Common Stock (or the number of shares of
Class A Common Stock into which one share of Convertible Preferred Stock can be
converted if the Warrants are being converted into Convertible Preferred Stock)
immediately prior to the exercise of the Conversion Right. Any references in
this Warrant Agreement to the "exercise" of any Warrants, and the use of the
term "exercise" herein, shall be deemed to include (without limitation) any
exercise of the Conversion Right. Any exercise of a Warrant hereunder may be
made subject to the satisfaction of one or more conditions (including, without
limitation, the consummation of a sale of the capital stock of the Issuer or a
merger or other business combination involving the Issuer) which are set forth
in a writing which is made a part of or is appended to the aforementioned form
of election to purchase or conversion notice (as the case may be) by the
Warrant Holder.
(c) Upon exercise of any Warrants hereunder, the Issuer shall
issue and cause to be delivered to or upon the written order of the registered
holders of such Warrants and in such name or names as such registered holders
may designate, a certificate for the Warrant Share or Warrant Shares issued
upon such exercise of such Warrants. Any Persons so designated to be named
therein shall be deemed to have become holders of record of such Warrant Share
or Warrant Shares as of the date of exercise of such Warrants.
(d) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or
Certificates shall be issued for the remaining number
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of Warrants evidenced by such Warrant Certificate. Each new Warrant
Certificate so issued shall bear the legend set forth in subsection 14(b) if
the Warrant Certificate presented in connection with partial exercise thereof
bore such legend unless the transfer restrictions referred to in such legend
are no longer applicable pursuant to subsection 14(d). All Warrant
Certificates surrendered upon exercise of Warrants shall be cancelled.
(e) At the election of a Warrant Holder made at the time of
exercise, the Warrant Shares to be issued upon such exercise may be either
Class A Common Stock or Convertible Preferred Stock (or a combination thereof),
provided that the Warrant Holder shall not have the right to have issued to it
upon exercise Class A Common Stock which, when aggregated with the shares of
Class A Common Stock (other than shares of Non-Attributable Stock) previously
issued as Warrant Shares or issued in conversion of Convertible Preferred Stock
previously issued as Warrant Shares, will exceed 4.99% of the then outstanding
Class A Common Stock unless such Warrant Holder certifies that such Warrants
have previously been transferred either (i) in a widely dispersed public
offering of the Warrants, or (ii) in a private placement in which no purchaser,
individually or in concert with others, would have acquired more than 2% of the
outstanding Class A Common Stock if the Warrants so transferred had been
exercised for Class A Common Stock, or (iii) in compliance with Rule 144 (or
any rule which is a successor thereto) of the Securities Act, or (iv) into the
secondary market in a market transaction executed through a registered
broker-dealer in blocks of no more than 2.0% of the shares of Class A Common
Stock of the Issuer outstanding in any six-month period; provided further that
if the Warrant Holder is a bank or an Affiliate of a bank subject to the
provisions of the Bank Holding Company Act of 1956, as amended, such Class A
Common Stock, together with all other shares of Common Stock then owned by such
Warrant Holder and its Affiliates, will not exceed 4.99% of the then
outstanding Class A Common Stock. In the event two or more Warrant Holders
attempt to exercise Warrants for Class A Common Stock simultaneously and, if
permitted, such exercises would cause the 4.99% limitation to be exceeded, then
the Issuer shall notify the Warrant Holders who had attempted to exercise
Warrants for Class A Common Stock and each such Warrant Holder shall be
entitled to exercise for Class A Common Stock only such number of Warrants as
shall equal the product of (i) the number of Warrants the Warrant Holder sought
to exercise for Class A Common Stock times (ii) a fraction, the numerator of
which is the maximum number of Warrants which may be exercised for Class A
Common Stock without exceeding the 4.99% limitation and the denominator of
which is the maximum number of Warrants sought to be exercised for Class A
Common Stock by such Warrant Holders.
(f) Notwithstanding the foregoing provisions of this Section 6, in
no event shall any Warrant be exercisable for shares of Class A Common Stock or
Convertible Preferred Stock which, when aggregated with all other Warrant
Shares then held by Lender or its Affiliates, would, upon issuance, represent
in excess of 24.99% of the Equity of the Issuer unless such shares, when
issued, would constitute Non-Attributable Stock.
Section 7. Fractional Shares. The Issuer shall not be required
to issue fractional shares of Class A Common Stock upon exercise of the
Warrants but shall pay an amount in cash equal to the then Current Market Price
Per Share of one share of Class A Common Stock
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multiplied by such fraction. However, the Issuer shall be required to issue
fractional shares of Convertible Preferred Stock upon exercise of the Warrants.
Section 8. Payment of Taxes. The Issuer will pay all taxes
attributable to the initial issuance of Warrant Shares upon the exercise of the
Warrants, provided that the Issuer shall not be required to pay (i) any income
tax incurred by the holder of the Warrant Certificate or the Warrant Shares
upon exercise of the Warrants or the issuance of the Warrant Shares, or (ii)
any tax which may be payable in respect of any transfer involved in the issue
of any Warrant Certificate or any certificate for Warrant Shares in a name
other than that of the registered holder of a Warrant Certificate surrendered
upon the exercise of a Warrant, and the Issuer shall not be required to issue
or deliver such certificate unless or until the person or persons requesting
the issuance thereof shall have paid to the Issuer the amount of such tax or
shall have established to the satisfaction of the Issuer that such tax has been
paid.
Section 9. Stockholder Rights.
(a) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the holders thereof
the right to vote or to consent or to receive notice as a stockholder in
respect of the meetings of stockholders or the election of directors of the
Issuer or any other matter, or any rights whatsoever as a stockholder of the
Issuer.
(b) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as imposing any obligation on the
registered holders thereof to purchase any securities or as imposing any
liabilities on such holders as stockholders of the Issuer, whether such
obligation or liabilities are asserted by the Issuer or by creditors of the
Issuer.
Section 10. Reservation and Issuance of Warrant Shares; Certain
Corporate Actions.
(a) The Issuer will at all times have authorized, and reserve and
keep available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon the exercise of the
Warrants and conversion of the Convertible Preferred Stock, the number of
shares of Class A Common Stock and Convertible Preferred Stock deliverable upon
exercise of all outstanding Warrants and conversion of Convertible Preferred
Stock.
(b) The Issuer covenants that all Warrant Shares will, upon
issuance in accordance with the terms of this Warrant Agreement and the
Issuer's Certificate of Incorporation, be fully paid and nonassessable and free
from all taxes (except as otherwise contemplated in Section 8 hereof) with
respect to the issuance thereof and from all liens, charges and security
interests (other than any created by or on behalf of any Warrant Holder).
(c) So long as any Warrants are outstanding, the Issuer shall make
no amendment of its Certificate of Incorporation which would affect the
authorization, dividend, voting, liquidation, conversion, exchange or notice
rights or additional remedies provisions of the Convertible Preferred Stock
without the written consent of all of the Warrant Holders.
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(d) The Issuer will not, by amendment of its Certificate of
Incorporation or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant Agreement or the Warrant Certificates. Without limiting the
generality of the foregoing, the Issuer (a) will not permit the par value or
the determined or stated value of any shares of the Issuer's Class A Common
Stock or Convertible Preferred Stock receivable upon the exercise of the
Warrants to exceed the amount payable therefor upon such exercise, (b) will
take all such action as may be necessary or appropriate in order that the
Issuer may validly and legally issue fully paid and nonassessable shares of the
Issuer's Class A Common Stock or Convertible Preferred Stock (as the case may
be), upon the exercise of the Warrants from time to time outstanding,
including, without limitation, amending its Certificate of Incorporation to
reduce or eliminate the par value of the Class A Common Stock, (c) will not
take any action which results in an adjustment in the number of Warrant Shares
obtainable upon the exercise of any Warrants if the total number of shares of
the Issuer's Class A Common Stock (or other securities) issuable after such
action upon the exercise of all of the then-outstanding Warrants would exceed
the total number of shares of the Issuer's Class A Common Stock (or other
securities) then authorized by the Issuer's Certificate of Incorporation and
available for purpose of issuance upon such exercise, (d) will not have any
authorized Common Stock other than its existing authorized Common Stock, and
(e) will not amend its Certificate of Incorporation to change any terms of its
Common Stock.
(e) If the Issuer proposes, prior to the Expiration Date, to enter
into a transaction that would constitute a Non-Surviving Combination, if
consummated, the Issuer shall give written notice thereof to each of the
Warrant Holders promptly after an agreement is reached with respect to the
Non-Surviving Combination but in any event no less than thirty (30) days prior
to the consummation thereof. Such notice shall describe the proposed
transaction in reasonable detail and specify the consideration to be received
by the Warrant Holders in respect thereto and/or any adjustment to be made to
the number of Warrant Shares obtainable upon the exercise of the Warrants as a
result of such Non-Surviving Combination. The Issuer shall also furnish to
each Warrant Holder all notices and materials furnished to its stockholders in
connection with such transaction as and when such notices and materials are
furnished to its stockholders. The Issuer agrees that it will not enter into
an agreement providing for a Non-Surviving Combination or effect any such
Non-Surviving Combination unless the party to such transaction that is the
surviving entity thereof or the purchaser or purchasers of substantially all of
the assets of the Issuer (the "Survivor") (i) shall be obligated to distribute
or pay to each Warrant Holder, upon payment of the Exercise Price prior to the
Expiration Date, the number of shares of stock or other securities or other
property (including any cash) of the Survivor that would have been
distributable or payable on account of the Warrant Shares if such Warrant
Holder's Warrants had been exercised immediately prior to such Non-Surviving
Combination (or, if applicable, the record date therefor), as such number of
shares or other securities or other property may thereafter be adjusted
pursuant to Section 12 of this Warrant Agreement and (ii) shall assume by
written instrument all of the obligations of the Issuer under this Warrant
Agreement.
Section 11. Obtaining of Governmental Approvals and Stock
Exchange Listings. Subject, in the case of any registration under the
Securities Act, to the limitations set forth in
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Section 15, the Issuer will, at its own expense, from time to time take all
action which may be necessary to obtain and keep effective any and all permits,
consents and approvals of governmental agencies and authorities which are or
become requisite in connection with the issuance, sale, transfer and delivery
of the Warrant Certificates and the exercise of the Warrants and the issuance,
sale, transfer and delivery of the Warrant Shares and all action which may be
necessary so that such Warrant Shares, immediately upon their issuance upon the
exercise of Warrants and conversion of the Convertible Preferred Stock, will be
listed on each securities exchange, if any, on which the Class A Common Stock
and/or Convertible Preferred Stock is then listed.
Section 12. Adjustment of Number of Warrant Shares Purchasable.
(a) The number of shares of Class A Common Stock or Convertible
Preferred Stock purchasable upon the exercise of each Warrant is subject to
adjustment from time to time upon the occurrence of any of the events
enumerated in this Section 12 at any time or from time to time after the date
hereof and prior to the Expiration Date.
(b) If the Issuer shall (i) declare a dividend on the Common Stock
or Convertible Preferred Stock in shares of its capital stock (whether shares
of Common Stock, Convertible Preferred Stock or of capital stock of any other
class), (ii) split or subdivide the outstanding Common Stock or Convertible
Preferred Stock or (iii) combine the outstanding Common Stock or Convertible
Preferred Stock into a smaller number of shares, each Warrant outstanding at
the time of the record date for such dividend or of the effective date of such
split, subdivision or combination shall thereafter entitle the holder of such
Warrant to receive the aggregate number and kind of shares which, if such
Warrant had been exercised immediately prior to such time, such holder would
have owned or have become entitled to receive by virtue of such dividend,
subdivision or combination. Such adjustment shall be made successively
whenever any event listed above shall occur and, if a dividend which is
declared is not paid, each Warrant outstanding shall again entitle the holder
thereof to receive the number of shares of Common Stock or Convertible
Preferred Stock as would have been the case had such dividend not been
declared. If at any time, as a result of an adjustment made pursuant to this
subsection 12(b), the holder of any Warrant thereafter exercised shall become
entitled to receive any shares of capital stock of the Issuer other than shares
of Common Stock and Convertible Preferred Stock, thereafter the number of such
other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 12, and the provisions of this Warrant Agreement with respect to
the Warrant Shares shall apply on like terms to such other shares.
(c) If the Issuer shall issue any shares of Common Stock without
consideration or at a price per share less than the Current Market Price Per
Share of such class of Common Stock as at the date of such issuance, including
any shares of Common Stock deemed to have been issued pursuant to this
subsection 12(c) but excluding any Exempted Securities, each Warrant
outstanding on the date of such issuance shall thereafter entitle the holder of
such Warrant to receive a number of shares of Class A Common Stock or
Convertible Preferred Stock equal to
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<PAGE> 15
the product of (i) the number of shares of Class A Common Stock or Convertible
Preferred Stock to which the holder of such Warrant was entitled immediately
prior to such issuance and (ii) the quotient that is obtained by dividing:
(X) the total number of shares of Common Stock
outstanding immediately after such issuance
(including any shares of Common Stock deemed to have
been issued pursuant to this subsection 12(c))
by
(Y) the sum of
(i) the number of shares of Common Stock outstanding
immediately prior to such issuance (including any
shares of Common Stock deemed to have been issued
pursuant to this subsection 12(c)) plus
(ii) the number of shares of such class of Common
Stock which the aggregate consideration received (or
deemed to be received) by the Issuer upon such
issuance would purchase at such Current Market Price
Per Share.
For purposes of any adjustment of the number of shares of Class A Common Stock
or Convertible Preferred Stock obtainable upon the exercise of any Warrants
pursuant to this subsection 12(c), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash,
the consideration therefor shall be deemed to be the amount of cash paid
therefor, without deducting therefrom any discounts, commissions or other
expenses allowed, paid or incurred by the Issuer in connection with the
issuance or sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined by agreement between the
holders of a majority of the Warrants outstanding and the Issuer or, in the
absence of such an agreement, by an independent investment banking firm or an
independent appraiser engaged by the Issuer and reasonably acceptable to the
holders of a majority of the Warrants outstanding (in either case the cost of
which engagement will be borne by the Issuer). In the case of any issuance of
Common Stock upon the exercise of any warrants, options or other rights or the
conversion or exchange of any convertible or exchangeable securities, the
aggregate consideration received by the Issuer upon such issuance shall be
deemed to include the consideration, if any, received by the Issuer as
consideration for the issuance of such warrants, options or rights or such
convertible or exchangeable securities (excluding any cash received on account
of accrued interest or accrued dividends) and, in the case of any conversion or
exchange of securities, shall not include any amount attributable to the
converted or exchanged securities. If any warrant, option or right to purchase
or subscribe for any Common Stock or convertible securities is issued in
connection with the issuance or sale of other
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<PAGE> 16
securities by the Issuer, together comprising one integrated transaction in
which no specific consideration is allocated to such warrant, option or right,
such warrant, option or right shall be deemed to have been issued for no
consideration.
(3) If (a) the Issuer shall issue warrants or options to
purchase or rights to subscribe for Common Stock, and (b) the consideration, if
any, received by the Issuer as consideration for the issuance of such warrants,
options or rights plus the minimum aggregate consideration required to be paid
upon exercise of such warrants, options or rights (the amount of such
consideration to be determined in each case as set forth above) shall be less
than the product of the Current Market Price Per Share on the date of such
issuance multiplied by the maximum number of shares of Common Stock deliverable
upon such exercise, then such warrants, options or rights shall be deemed to
have been exercised, and the aggregate maximum number of shares shall be deemed
to have been issued thereunder at the time such warrants, options or rights
were issued, for a consideration equal to such minimum aggregate consideration.
(4) If (a) the Issuer shall issue (i) securities (other
than Exempted Securities or Class B Common Stock) which are by their terms
convertible into or exchangeable for Common Stock or (ii) warrants or options
to purchase or rights to subscribe for any such convertible or exchangeable
securities, and (b) the consideration received by the Issuer for any such
securities or any such warrants, options or rights (excluding any cash received
on account of accrued interest or accrued dividends) plus the minimum aggregate
consideration (not including any amount attributed to the converted or
exchanged securities), if any, to be received by the Issuer upon the conversion
or exchange of such securities or upon the exercise of such warrants, options
or rights and the conversion or exchange of the securities received upon such
exercise, as the case may be (the amount of such consideration to be determined
in each case as set forth above) shall be less than the product of the Current
Market Price Per Share on the date of such issuance multiplied by the maximum
number of shares deliverable upon conversion of or in exchange for such
convertible or exchangeable securities or upon the exercise of any such
warrants, options or rights and subsequent conversion or exchanges thereof,
then such securities, warrants, options or rights shall be deemed to have been
exercised and/or converted or exchanged, and the aggregate maximum number of
shares of Common Stock shall be deemed to have been issued at the time such
securities, warrants, options or rights were issued, for a consideration equal
to such minimum aggregate consideration.
(5) Upon any reduction in the exercise price of Common
Stock deliverable upon exercise of any of such warrants, options or rights as
are referred to in this subsection 12(c) or any reduction in the amount of
consideration required to be paid or the conversion or exchange price or ratio
payable upon conversion or exchange of any of such convertible or exchangeable
securities, in each case other than a change resulting from any antidilution
provisions thereof which are no more favorable in such instance to the holder
thereof than the provisions of this Section 12 are to the Warrant Holders, (i)
if an adjustment shall previously have been made pursuant to this subsection
12(c) in respect of such warrants, options or rights or such securities, the
number of shares of Class A Common Stock or Convertible Preferred Stock
obtainable upon the exercise of the Warrants shall forthwith be readjusted to
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<PAGE> 17
such number of shares as would have obtained had the adjustment made upon the
issuance of such warrants, options, rights or securities as have not been
exercised, converted or exchanged prior to such change (or any prior adjustment
made pursuant to this subdivision (5)) been made upon the basis of such change,
and (ii) if an adjustment has not previously been made pursuant to this
subsection 12(c) in respect of such options or rights or such securities, then
such warrants, options or rights or such securities shall be deemed to have
been granted or issued (as the case may be) for purposes of this subsection
12(c) as of the date of such reduction, and any adjustments required to be made
pursuant to this subsection 12(c) as a result of such deemed grant or issuance
shall forthwith be made effective as of such date.
(6) All grants or issuances of options or other rights to
acquire shares of Common Stock (or securities convertible into or exchangeable
for shares of Common Stock) issued to any officer, director or employee of the
Issuer or of any Subsidiary of the Issuer or to members of the immediate family
of any of them ("Management Options"), and all issuances of shares of Common
Stock (or securities convertible into or exchangeable for shares of Common
Stock) under or pursuant to such Management Options shall, for purposes of
subsection 12(c), be deemed to be granted and issued for no consideration
except to the extent cash or notes are paid therefor.
(7) If and when any Warrants shall be exercised as set
forth herein, (i) if there shall be any outstanding warrants (other than the
Warrants) or options to purchase or rights to subscribe for shares of Common
Stock or any outstanding warrants (other than the Warrants) or options to
purchase or rights to subscribe for or securities which are by their terms
convertible into or exchangeable for Common Stock which in each case would, if
issued on the date of such Warrant exercise, result in an adjustment pursuant
to either of subdivisions (3) or (4) of this subsection 12(c), then such
warrants or options shall be deemed to have been exercised in full immediately
prior to the exercise of such Warrants for a consideration equal to the
consideration, if any, received by the Issuer upon the issuance of such options
or rights plus the minimum aggregate consideration required to be paid upon
exercise of such options or rights (the amount of such consideration to be
determined in each case as set forth above), and (ii) if there shall be any
outstanding securities which are by their terms convertible into or
exchangeable for Common Stock at the time of such warrant exercise or at any
time thereafter which in each case would, if issued on the date of such Warrant
exercise, result in an adjustment pursuant to subdivision (4) of this
subsection, then such securities shall be deemed to have been converted or
exchanged in full immediately prior to the exercise of such Warrants for a
consideration equal to the consideration received by the Issuer for any such
securities plus the minimum aggregate consideration (not including any amount
attributed to the converted or exchanged securities), if any, required to be
paid upon the conversion or exchange of such securities (the amount of such
consideration to be determined in each case as set forth above); provided that
any adjustment made pursuant to this subdivision (7) of subsection 12(c) shall
only be made with respect to such Warrants as are then being exercised.
(8) Shares of Common Stock owned by or held for the
account of the Issuer or any majority-owned Subsidiary shall not be deemed
outstanding for the purpose of any computation made pursuant to this subsection
12(c). Any adjustment required to be made
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<PAGE> 18
pursuant to this subsection 12(c) shall be made successively whenever the date
of issuance or deemed issuance of any such Common Stock or any such options,
rights or convertible or exchangeable securities is fixed (which date of
issuance shall be the record date for such issuance if a record date therefor
is fixed) and, in the event that (A) such shares or options, rights, warrants
or convertible or exchangeable securities are not so issued, or (B) any such
option, right, warrant or convertible or exchangeable security (or the
conversion or exchange right thereunder) expires according to its terms without
having been exercised, converted or exchanged, each Warrant outstanding shall,
as of the date of cancellation of such issuance in the case of clause (A) above
and the date of such expiration in the case of clause (B) above, entitle the
holder thereof to receive the number of shares of Class A Common Stock or
Convertible Preferred Stock as would have been the case had the date of such
issuance of such unissued options, rights, warrants or convertible or
exchangeable securities not been fixed or such expired options, rights,
warrants or convertible or exchangeable securities not been issued, as the case
may be.
(d) In case the Issuer shall make a distribution to all holders of
Class A Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Issuer is the continuing corporation) of
evidences of its indebtedness, cash or other assets, each Warrant outstanding
on the date of such distribution shall thereafter entitle the holder of such
Warrant to receive a number of shares of Class A Common Stock and Convertible
Preferred Stock equal to the product of (i) the number of shares of Class A
Common Stock and Convertible Preferred Stock to which the holder of such
Warrant was entitled immediately prior to such date of distribution and (ii) a
fraction of which the numerator shall be the then Current Market Price Per
Share of Class A Common Stock on such date and of which the denominator shall
be the then Current Market Price Per Share of Class A Common Stock on such date
less the fair market value, as determined by agreement between the holders of a
majority of the Warrants and the Issuer or, in the absence of such an
agreement, by an independent investment banking firm or an independent
appraiser engaged by the Issuer and reasonably acceptable to the holders of a
majority of the Warrants (in either case the cost of which engagement will be
borne by the Issuer) of the portion of the assets or evidences of indebtedness,
or the portion of the cash, so to be distributed applicable to one share of
then-outstanding Class A Common Stock or Class B Common Stock. Such adjustment
shall be made successively whenever a date for such distribution is fixed
(which date of distribution shall be the record date for such distribution if a
record date therefor is fixed) and, if such distribution is not so made, each
Warrant outstanding shall again entitle the holder thereof to receive the
number of shares of Class A Common Stock and Convertible Preferred Stock as
would have been the case had such date of distribution not been fixed.
(e) In the event of any capital reorganization of the Issuer, or
of any reclassification of the Class A Common Stock or Class B Common Stock
(other than a subdivision or combination of outstanding shares of Class A
Common Stock or Class B Common Stock), or in case of the consolidation of the
Issuer with or the merger of the Issuer with or into any other corporation or
of the sale of the properties and assets of the Issuer as, or substantially as,
an entirety to any other corporation, each Warrant shall after such capital
reorganization, reclassification of Common Stock, consolidation, merger or sale
be exercisable upon the terms
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<PAGE> 19
and conditions specified in this Warrant Agreement, for the number of shares of
stock or other securities or assets to which a holder of the number of Warrant
Shares purchasable (at the time of such capital reorganization,
reclassification of Common Stock, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled upon such capital reorganization,
reclassification of Common Stock, consolidation, merger or sale; and in any
such case, if necessary, the provisions set forth in this Section 12 with
respect to the rights thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or assets thereafter deliverable on
the exercise of the Warrants.
(f) If any event occurs, as to which, in the good faith opinion of
the Board of Directors of the Issuer, the other provisions of this Section 12
are not strictly applicable or (if strictly applicable) would not fairly
protect the purchase rights of the Warrants in accordance with the essential
intent and principles of such provisions, then the Board of Directors shall
make an adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as to protect such purchase rights as
aforesaid, but in no event shall any such adjustment have the effect of
decreasing the number of shares of Class A Common Stock or Convertible
Preferred Stock purchasable upon the exercise of each Warrant from that which
would otherwise be determined pursuant to this Section 12.
(g) No adjustment in the number of Warrant Shares purchasable
shall be required unless such adjustment would require an increase or decrease
in the aggregate number of Warrant Shares purchasable of at least 1%, provided
that any adjustments which by reason of this subsection 12(g) are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 12 shall be made to the
nearest cent or to the nearest hundredth of a share, as the case may be.
(h) Irrespective of any adjustments in the number or kind of
shares purchasable upon the exercise of the Warrant, Warrant Certificates
theretofore or thereafter issued may continue to express the same number and
kind of shares as are stated on the Warrant Certificates initially issuable
pursuant to this Warrant Agreement.
(i) If any question shall at any time arise with respect to the
number of Warrant Shares purchasable following any adjustment pursuant to this
Section 12, such question shall be determined by agreement between the holders
of a majority of the Warrants and the Issuer or, in the absence of such an
agreement, by an independent investment banking firm or an independent
appraiser engaged by the Issuer (in either case the cost of which engagement
will be borne by the Issuer) and reasonably acceptable to the Issuer and the
holders of a majority of Warrants and such determination shall be binding upon
the Issuer and the holders of the Warrants.
(j) Anything in this Section 12 to the contrary notwithstanding:
(1) the Issuer shall be entitled to make such increases in
the number of Warrant Shares purchasable upon the exercise of each
Warrant, in addition to those adjustments
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<PAGE> 20
required by this Section 12, as it in its sole discretion shall
determine to be advisable in order that any consolidation or
subdivision of the Common Stock, or any issuance wholly for cash or
any shares of Common Stock at less than the Current Market Price Per
Share, or any issuance wholly for cash or shares of Common Stock or
securities which by their terms are convertible into or exchangeable
for shares of Common Stock or any stock dividend, or any issuance of
rights, options or warrants referred to hereinabove in this Section
12, hereinafter made by the Issuer to the holders of its Common Stock
shall not be taxable to them; and
(2) no adjustment in the number of Warrant Shares
purchasable shall be required in the event the Issuer pays a cash
dividend to holders of Class A Common Stock or Class B Common Stock
and/or Convertible Preferred Stock; provided that the Issuer also pays
a cash dividend to all holders of Warrants which dividend shall be
calculated as if the Warrants had been exercised.
Section 13. Notices to Warrant Holders; Notices of Issuances and
Dividends.
(a) Upon any adjustment of the number of Warrant Shares
purchasable upon exercise of a Warrant pursuant to Section 12, the Issuer shall
promptly but in any event within 20 days thereafter, cause to be given to each
of the registered holders of the Warrants at its address appearing on the
Warrant Register by registered mail, postage prepaid, return receipt requested
a certificate signed by its chairman, president or chief financial officer
setting forth the number of Warrant Shares purchasable upon exercise of a
Warrant as so adjusted and describing in reasonable detail the facts accounting
for such adjustment and the method of calculation used. Where appropriate, such
certificate may be given in advance and included as a part of the notice
required to be mailed under the other provisions of this Section 13.
(b) In the event:
(i) that the Issuer shall authorize the issuance to all
holders of Class A Common Stock or Class B Common Stock or Convertible
Preferred Stock of rights or warrants to subscribe for or purchase
capital stock of the Issuer or of any other subscription rights or
warrants; or
(ii) that the Issuer shall authorize the distribution to all
holders of Class A Common Stock or Class B Common Stock or Convertible
Preferred Stock of evidences of its indebtedness or assets (including,
without limitation cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in Class
A Common Stock or Class B Common Stock or Convertible Preferred
Stock); or
(iii) of any consolidation or merger to which the Issuer is a
party and for which approval of any stockholders of the Issuer is
required, or of the conveyance or transfer of the properties and
assets of the Issuer substantially as an entirety, or of any capital
reorganization or reclassification or change of the Class A Common
Stock or Class B
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<PAGE> 21
Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination); or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Issuer; or
(v) that the Issuer proposes to take any other action which
would require an adjustment in the number of Warrant Shares or other
securities or assets to which each Warrant Holder is entitled pursuant
to Section 12;
then the Issuer shall cause to be given to each of the registered holders of
the Warrants at its address appearing on the Warrant Register at least 20
calendar days prior to the applicable record date, if any, hereinafter
specified, or, if no such record date is specified, 20 calendar days prior to
the taking of any action referred to in clauses (i) through (v) above, by
registered mail, postage prepaid, return receipt requested, a written notice
stating (i) the date as of which the holders of record of Class A Common Stock
or Class B Common Stock or Convertible Preferred Stock to be entitled to
receive any such rights, warrants or distribution are to be determined, or (ii)
the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective, or
(iii) the date on which such other action is to be effected, and the date as of
which it is expected that holders of record of Class A Common Stock or Class B
Common Stock or Convertible Preferred Stock shall be entitled to exchange their
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up or other action. The failure to give the notice
required by this Section 13 or any defect therein shall not affect the legality
or validity of any distribution, right, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up or other action
referred to above, or the vote upon any such action.
(c) Prior to the expiration or exercise of all outstanding
Warrants, the Issuer shall furnish to each Warrant Holder:
(i) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Issuer, either (A) a copy of
the Issuer's Annual Report on Form 10-K (or any successor form) and
any documents incorporated by reference into such form for the prior
fiscal year, as filed with the Commission under the Exchange Act, or
(B) a copy of the consolidated balance sheet of the Issuer and its
consolidated Subsidiaries as at the end of such year and the related
consolidated statement of income and retained earnings and of cash
flow for such year, setting forth in each case in comparative form the
figures for the previous year certified by certified independent
public accountants not unacceptable to Lender, and the consolidated
balance sheet of the Issuer and its consolidated Subsidiaries as at
the end of such fiscal year;
(ii) as soon as available but in any event not later than 45
days after the end of each of the first three quarterly periods of
each fiscal year of the Issuer, either (A) a copy of the Issuer's
Quarterly Report on Form 10-Q (or any successor form) for the
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<PAGE> 22
preceding fiscal quarter, as filed with the Commission under the
Exchange Act, or (B) the unaudited consolidated balance sheet of the
Issuer and its consolidated Subsidiaries as at the end of each such
quarter and the related unaudited consolidated statements of income
and retained earnings and of cash flow of the Issuer and its
consolidated Subsidiaries for such quarter and the portion of the
fiscal year through such date setting forth in each case in
comparative form the figures for the same period of the previous
fiscal year, reviewed by independent certified public accountants and
certified by the chief financial or accounting officer as being fairly
stated in all material respects (subject to normal year-end audit
adjustments); and
(iii) promptly after the sending or filing thereof, as the
case may be, copies of any reports, certificates, budgets, definitive
proxy statements or financial statements which Issuer sends to its
shareholders and copies of any regular periodic and special reports or
registration statements which Issuer files with the Commission (or any
governmental agency substituted therefor), including, but not limited
to, any report or registration statement which Issuer files with any
national securities exchange;
(iv) no later than April 30 of each year, a certificate of
the chairman, president or chief financial officer of the Issuer
setting forth the number of Warrant Shares purchasable upon exercise
of a Warrant as of the end of the preceding fiscal year and a
description in reasonable detail of any adjustments in such number
during the preceding fiscal year;
all such financial statements to be prepared in reasonable detail and in
accordance with generally accepted accounting principles applied consistently
throughout the periods reflected therein (except as approved by such
accountants and officer and disclosed therein). So long as the Loan Agreement
remains in effect, compliance by the Issuer with the provisions of Section
[7.2] thereof shall be deemed to be compliance with subsections 13(c)(i) and
13(c)(ii).
Section 14. Restrictions on Transfer.
(a) Each of Lender and its Affiliates who are issued Warrants
pursuant to this Agreement (i) represents that it is an "Accredited Investor"
as defined in Rule 501(a) under the Securities Act and is acquiring the
Warrants for its own account for investment and not with a view to any
distribution or public offering within the meaning of the Securities Act,
except in any case pursuant to the registration of such Warrants or Warrant
Shares under the Securities Act or pursuant to a valid exemption from such
registration requirement, (ii) acknowledges that the Warrants and the Warrant
Shares issuable upon exercise thereof have not been registered under the
Securities Act and (iii) agrees that it will not sell or otherwise transfer any
of its Warrants or Warrant Shares except upon the terms and conditions
specified herein and that it will cause any transferee thereof to agree to take
and hold the same subject to the terms and conditions specified herein,
provided that the Warrant Holders may sell the Warrants or the Warrant Shares
purchased upon exercise of the Warrants and issued on conversion of the
Convertible Preferred Stock in one or more private transactions pursuant to a
valid exemption from registration under the Securities Act.
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<PAGE> 23
(b) Except as provided in subsection 14(d) hereof each Warrant
Certificate and each certificate for the Warrant Shares issued to Lender or an
Affiliate thereof or to a subsequent transferee thereof pursuant to subsection
14(c) shall include a legend in substantially the following form (with such
changes therein as may be appropriate to reflect whether such legend refers to
Warrants or Warrant Shares), provided that such legend shall not be required if
such transfer is being made in connection with a sale which is exempt from
registration pursuant to Rule 144 under the Securities Act or if the opinion of
counsel referred to in subsection 14(c) is to the further effect that neither
such legend nor the restrictions on transfer in this Section 14 are required in
order to ensure compliance with the Securities Act:
THE WARRANTS AND SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH
ACT OR LAW. SUCH WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER
PROVISIONS OF THE WARRANT AGREEMENT, DATED AS OF AUGUST 2, 1996,
BETWEEN THE ISSUER AND CREDITANSTALT CORPORATE FINANCE, INC., A
COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE ISSUER AND WILL BE FURNISHED TO THE HOLDER
HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
(c) Prior to or promptly after any assignment, transfer or sale of
any Warrant or any Warrant Shares (other than a transfer among Lender and/or
its Affiliates), the holder thereof shall give written notice to the Issuer of
such holder's intention to effect such assignment, transfer or sale, which
notice shall set forth the date of such proposed assignment, transfer or sale
and the identity of the proposed transferee. Each holder wishing to effect
such a transfer of any Warrant or Warrant Shares shall also furnish to the
Issuer an agreement by the transferee thereof that it is taking and holding the
same subject to the terms and conditions specified herein and, unless the
transferee is an Affiliate of such holder, a written opinion of such holder's
counsel, in form reasonably satisfactory to the Issuer, to the effect that the
proposed transfer may be effected without registration under the Securities
Act.
(d) The restrictions set forth in this Section 14 shall terminate
and cease to be effective with respect to any Warrants or Warrant Shares which
are registered under the Securities Act or upon receipt by the Issuer of an
opinion of counsel, in form reasonably satisfactory to the Issuer, to the
effect that compliance with such restrictions is not necessary in order to
comply with the Securities Act with respect to the transfer of the Warrants and
the Warrant Shares; provided, however, that after three (3) years from the date
of issuance of any Warrants, such restrictions will automatically terminate
(without the necessity of any opinion of counsel) as to such Warrants and as to
any Warrant Shares issued in respect of such Warrants upon exercise of the
Conversion Right set forth in subsection 6(b) above. Whenever such
restrictions shall so terminate the holder of such Warrants and/or Warrant
Shares shall be
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<PAGE> 24
entitled to receive from the Issuer, without expense (other than transfer
taxes, if any), Warrant Certificates or certificates for such Warrant Shares
not bearing the legend set forth in subsection 14(b) at which time the Issuer
will rescind any transfer restrictions relating thereto.
(e) With a view to making available to Lender and its Affiliates
and subsequent holders of the Warrant Shares the benefits of certain rules and
regulations of the Securities and Exchange Commission (including, without
limitation, Rules 144 and 144A under the Securities Act) which may permit the
sale of Warrants and Warrant Shares to the public or certain other institutions
without registration, the Issuer agrees to take any and all such actions as may
be required of it to make available to Lender and its Affiliates and such
subsequent holders such benefits, including without limitation, to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act
or any successor provision thereto from and after the date the Issuer
first becomes subject to the provisions of Section 13 or 15(d) of the
Exchange Act;
(ii) file with the Commission in a timely manner all reports
and other documents required of the Issuer under the Securities Act
and the Exchange Act from and after the date the Issuer first becomes
subject to the provisions of Section 13 or 15(d) of the Exchange Act;
and
(iii) so long as Lender or an Affiliate thereof owns any
Warrants or Warrant Shares, furnish to Lender forthwith upon request a
written statement by the Issuer as to its compliance with the
reporting requirements of Rule 144 or any successor provision thereto,
and of the Securities Act and the Exchange Act, (to the extent not
previously furnished to Lender under subsection 13(d)) a copy of the
most recent annual or quarterly report of the Issuer filed with the
Commission, in each case from and after the date the Issuer first
becomes subject to the provisions of Section 13 or 15(d) of the
Exchange Act, and such other reports and documents of the Issuer and
other information in the possession of or reasonably obtainable by the
Issuer as Lender and its Affiliates and subsequent holders of the
Warrants may reasonably request in availing itself of any rule or
regulation of the Commission allowing Lender and its Affiliates and
subsequent holders of the Warrants to sell any such securities without
registration.
Section 15. Registration.
(a) Upon the written demand of any Warrant Holder to the Issuer (a
"Demand") at any time and from time to time on or after August 2, 1998
requesting that the Issuer effect the registration under the Securities Act of
Warrants or Non-Public Warrant Shares of such Warrant Holder, the Issuer will
promptly give written notice (a "Demand Notice") of such Demand to all other
Warrant Holders. Each other Warrant Holder may request that the Issuer effect
the registration under the Securities Act of additional Warrants or Non-Public
Warrant Shares of such Warrant Holder by delivering written notice to the
Issuer specifying such number of Warrants or Non-Public Warrant Shares within
20 days of receipt of the Demand Notice. In the
24
<PAGE> 25
event that the Issuer receives requests within such 20-day period for the
registration under the Securities Act of at least (i) an aggregate of one-third
(1/3) of the Warrants issued pursuant to this Warrant Agreement, or (ii)
Non-Public Warrant Shares obtained or obtainable upon exercise of at least an
aggregate of one-third (1/3) of the Warrants issued pursuant to this Warrant
Agreement (as adjusted pursuant to Section 12 hereof), or (iii) if less than an
aggregate of one-third (1/3) of the Warrants issued pursuant to this Warrant
Agreement or Non-Public Warrant Shares obtained or obtainable upon exercise of
at least an aggregate of one-third (1/3) of the Warrants issued pursuant to
this Warrant Agreement (as adjusted pursuant to Section 12 hereof) are then
outstanding, the remainder of the Warrants or Non-Public Warrant Shares then
outstanding, then the Issuer shall give written notice (a "Registration
Notice") to all Warrant Holders that the Issuer will be filing a registration
statement pursuant to this subsection 15(a) and will thereupon use its
reasonable best efforts promptly to effect the registration under the
Securities Act of (y) the Warrants or Non-Public Warrant Shares which Warrant
Holders have requested to be registered within 20 days of the Demand Notice,
and (z) additional Warrants or Non-Public Warrant Shares which Warrant Holders
have requested to be registered within 10 days of the Registration Notice.
Promptly within 20 days of the Registration Notice, the Issuer will notify all
Warrant Holders whose Warrants or Non-Public Warrant Shares are to be included
in the registration of the number of additional Warrants or Non-Public Warrant
Shares requested to be included therein by the other Warrant Holders. If the
registration of which the Issuer gives notice pursuant to subsection 15(a) is
for an underwritten public offering, only Warrants or Non-Public Warrant
Shares which are to be included in the underwriting may be included in such
registration, and the selling Warrant Holders shall, after reasonable
consultation with the Issuer, have the right to designate the managing
underwriter(s) in any such underwritten public offering with the consent of the
Issuer (which consent shall not be unreasonably withheld). Holders who include
Warrants or Warrant Shares in a registration pursuant to subsection 15(a) shall
bear the cost of any underwriters' discounts and commissions relating to their
Warrants or Warrant Shares which are sold. Notwithstanding the foregoing, upon
written notice to the Warrant Holder requesting that the Issuer affect the
registration under the Securities Act of Warrants or Non-Public Warrant Shares
of such Warrant Holder, the Issuer will be entitled to postpone, for a
reasonable period of time not to exceed ninety (90) days, the filing of a
registration statement if the Board of Directors of the Issuer determines, in
the good faith exercise of its reasonable business judgment, that such
registration and offering would require disclosure of information, the
premature disclosure of which would adversely affect or otherwise be
detrimental to the Issuer. If the Issuer postpones the filing of a
registration statement covering the Warrants or Non-Public Warrant Shares, it
shall promptly notify the demanding Warrant Holder in writing when the events
or circumstances permitting such postponement have ended and shall proceed
immediately with the above-described registration procedure.
(b) The Issuer is obligated to effect any and all demand
registrations under subsection 15(a) and, with respect to each such
registration, the Issuer shall bear all expenses other than underwriting
discounts and commissions, if any, in connection with the first three (3)
demand registrations, filings or qualifications pursuant to subsection 15(a),
including without limitation all registration, filing and qualification fees,
printers' and accounting fees, the fees and disbursements of counsel for the
Issuer and the fees and disbursements of one counsel for the selling Warrant
Holders, provided that (i) a registration will not constitute a demand
registration
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<PAGE> 26
under subsection 15(a) until it has been declared effective under the
Securities Act, (ii) no Person other than holders of Warrants or Non-Public
Warrant Shares shall have any right to have securities included in any
registration under subsection 15(a) without the consent of the holders of a
majority of the Warrants and the outstanding Warrant Shares, voting as a class.
(c) If, at any time after the date hereof, the Issuer proposes to
register any of its securities under the Securities Act (except pursuant to a
registration statement filed on Form S-8 or Form S-4 or such other form as
shall be prescribed under the Act for the same purposes), it will at each such
time give written notice (which notice shall state the intended method of
disposition thereof by the prospective sellers) to all holders of outstanding
Warrants and Non-Public Warrant Shares of its intention to do so and the
proposed minimum offering price per Warrant or Warrant Share and upon the
written request of any holder thereof given within 10 days after the Issuer's
giving of such notice, the Issuer will use its reasonable best efforts to
effect the registration of the Warrants and/or Non-Public Warrant Shares which
it shall have been so requested to register by including the same in such
registration statement all to the extent required to permit the sale or other
disposition thereof in accordance with the intended method of sale or other
disposition given in each such request. If the registration of which the
Issuer gives notice pursuant to this subsection 15(c) is for an underwritten
public offering, only Warrants or Non-Public Warrant Shares which are to be
included in the underwriting may be included in such registration, and the
Issuer shall have the right to designate the managing underwriter(s) in any
such underwritten public offering; provided that (i) the Issuer shall use its
best efforts to cause the managing underwriter(s) to include the Warrants or
Non-Public Warrant Shares requested to be included in the registration in the
underwriting; (ii) if the managing underwriter(s) advises the holders of the
Warrants or Non-Public Warrant Shares in writing that the total amount of
securities which they and the Issuer intend to include in such offering is
sufficiently large to materially and adversely affect the success of such
offering, the amount of securities to be offered for the accounts of all
holders of Warrants and Non-Public Warrant Shares shall be reduced pro rata
(based upon the amount of securities each such Person sought to include in the
offering) to the extent necessary to reduce the total amount of securities to
be included in the offering to the amount recommended by such managing
underwriter(s)) (which amount may be zero, if so recommended by such managing
underwriter(s). Any registration statement filed pursuant to this subsection
15(c) may be withdrawn at any time at the discretion of the Issuer.
(d) If a registration under subsection 15(a) or 15(c) shall be in
connection with an underwritten public offering, each holder of Warrants or
Non-Public Warrant Shares shall be deemed to have agreed by acquisition of such
Warrants or Non-Public Warrant Shares not to effect any sale or distribution,
including any sale pursuant to Rule 144 or Rule 144A, of any Warrants or
Non-Public Warrant Shares, and to use such holder's reasonable best efforts not
to effect any such sale or distribution of any other equity security of the
Issuer or of any security convertible into or exchangeable or exercisable for
any equity security of the Issuer (other than as part of such underwritten
public offering) within seven days before or 90 days after the effective date
of such registration statement (and the Issuer hereby also so agrees and agrees
to cause each holder of any equity security, or of any security convertible
into or exchangeable or
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<PAGE> 27
exercisable for any equity security, of the Issuer purchased from the Issuer at
any time other than in a public offering, so to agree).
(e) As a condition to the inclusion of a holder's Warrants or
Non-Public Warrant Shares in any registration statements, each such holder of
Warrants or Non-Public Warrant Shares requesting registration thereof will
furnish to the Issuer such information with respect to such holder as is
required to be disclosed in the registration statement (and the prospectus
included therein) by the applicable rules, regulations and guidelines of the
Commission. Failure of a holder to furnish such information or agreement shall
not affect the obligation of the Issuer under this Section 15 to the remaining
holders who furnish such information.
(f) If and whenever the Issuer is required under this Section 15
to use its reasonable best efforts to effect the registration of Warrants or
Non-Public Warrant Shares under the Securities Act, the Issuer shall:
(i) as expeditiously as possible and subject to the
limitations set forth in subsection 15(c), prepare and file with the
Commission a registration statement on the appropriate form with
respect to such Warrants or Non-Public Warrant Shares and use its best
efforts to cause such registration statement to become effective as
soon as practicable after such filing;
(ii) as expeditiously as possible, prepare and file with the
Commission such amendments and supplements (including post-effective
amendments and supplements) to the registration statement covering
such Warrants or Non-Public Warrant Shares and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and usable for resale for a period necessary to
complete the distribution of such securities, but in no event in
excess of twelve (12) months plus any period during which the holders
of Warrants or Warrant Shares are obligated to refrain from selling
because the Issuer is required to amend or supplement the prospectus
under subsection 15(f)(iv), and to comply with the provisions of the
Securities Act with respect to the disposition of all Warrants or
Non-Public Warrant Shares covered by such registration statement
during such period in accordance with the intended method of
disposition of the sellers set forth therein;
(iii) as expeditiously as possible, furnish to each seller of
such Warrants or Non-Public Warrant Shares registered, or to be
registered under the Securities Act, and to each underwriter, if any,
of such Warrants or Non-Public Warrant Shares such number of copies of
a prospectus and preliminary prospectus in conformity with the
requirements of the Securities Act, and such other documents as such
seller or underwriter may reasonably request in order to facilitate
the public sale or other disposition of such Warrants or Non-Public
Warrant Shares;
(iv) as expeditiously as possible, notify each seller of such
Warrants or Non-Public Warrant Shares if, at any time when a
prospectus relating to such Warrants or Non-Public Warrant Shares, is
required to be delivered under the Securities Act, any
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<PAGE> 28
event shall have occurred as a result of which the prospectus then in
use with respect to such Warrants or Non-Public Warrant Shares would
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 or for any other reason it shall be
necessary to amend or supplement such prospectus in order to comply
with the Securities Act and prepare and furnish to all sellers as
promptly as possible, and in any event within ninety (90) days of such
notice, a reasonable number of copies of a supplement to or an
amendment of such prospectus which will correct such statement or
omission or effect such compliance;
(v) as expeditiously as possible, use its reasonable best
efforts to register or qualify such Warrants or Non-Public Warrant
Shares under such other securities or blue sky laws of such
jurisdictions as such seller shall reasonably request and do any and
all other acts and things which may be reasonably necessary to enable
such seller to consummate the public sale or other disposition in each
such jurisdiction of the Warrants or Non-Public Warrant Shares owned
by such seller and included in such registration statement, provided
that the Issuer shall not be required to consent to the general
service of process or to qualify to do business in any jurisdiction
where it is not then qualified;
(vi) use its reasonable best efforts to keep the holders of
such Warrants or Non-Public Warrant Shares informed of the Issuer's
best estimate of the earliest date on which such registration
statement or any post-effective amendment or supplement thereto will
become effective and will promptly notify such holders and the
managing underwriters, if any, participating in the distribution
pursuant to such registration statement of the following: (A) when
such registration statement or any post-effective amendment or
supplement thereto becomes effective or is approved; (B) of the
issuance by any competent authority of any stop order suspending the
effectiveness or qualification of such registration statement or the
prospectus then in use or the initiation or threat of any proceeding
for that purpose; and (C) of the suspension of the qualification of
any Warrants or Non-Public Warrant Shares included in such
registration statement for sale in any jurisdiction;
(vii) make available to its security holders, as soon as
practicable, an earnings statement covering a period of at least
twelve months which satisfies the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(viii) cooperate with the sellers of such Warrants or
Non-Public Warrant Shares and the underwriters, if any, of such
Warrants or Non-Public Warrant Shares; give each seller of such
Warrants or Non-Public Warrant Shares, and the underwriters, if any,
of such Warrants or Non-Public Warrant Shares and their respective
counsel and accountants, such access to its books and records and such
opportunities to discuss the business of the Issuer with its officers
and independent public accountants as shall be necessary to enable
them to conduct a reasonable investigation within the meaning of the
Securities Act and, in the event that Warrants or Non-Public Warrant
Shares are to be sold in an underwritten offering, enter into an
underwriting agreement containing
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<PAGE> 29
customary representations and warranties, covenants, conditions and
indemnification provisions, including without limitation the
furnishing to the underwriters of a customary opinion of independent
counsel to the Issuer and a customary "comfort" letter from the
Issuer's independent public accountants;
(ix) provide a CUSIP number for all Warrants and Non-Public
Warrant Shares not later than the effective date of the registration
statement;
(x) as to the first three (3) demand registrations under
subsection 15(a) and all registrations under subsection 15(c), pay all
costs and expenses incident to the performance and compliance by the
Issuer of this Section 15, including without limitation (A) all
registration and filing fees; (B) all printing expenses; (C) all fees
and disbursements of counsel and independent public accountants for
the Issuer; (D) all blue sky fees and expenses (including fees and
expenses of counsel in connection with blue sky surveys); (E) all
transfer taxes; (F) the entire expense of any special audits required
by the rules and regulations of the Commission; (G) the cost of
distributing prospectuses in preliminary and final form as well as any
supplements thereto and (H) the fees and expenses of one counsel for
the holders of the Warrants or Non-Public Warrant Shares being
registered; and
(xi) as to the first registration under subsection 15(a)
which is in respect of an underwritten offering, as expeditiously as
possible, take such actions as the underwriters reasonably request in
order to expedite or facilitate the disposition of the Warrants or
Non-Public Warrant Shares to be included in such offering (including,
without limitation, effecting a stock split, stock dividend or a
combination of shares of any class of Common Stock).
(g)(i) The Issuer will indemnify and hold harmless each
seller of Warrants or Non-Public Warrant Shares, each director,
officer, employee and agent of each seller, and each other person, if
any, who controls such seller within the meaning of the Securities Act
or the Exchange Act from and against any and all losses, claims,
damages, liabilities and legal and other expenses (including costs of
investigation) caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement
under which such Warrants or Non-Public Warrant Shares were registered
under the Securities Act, any prospectus or preliminary prospectus
contained therein or any amendment or supplement thereto, or caused by
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, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any such untrue
statement or omission or alleged untrue statement or omission based
upon information relating to such seller and furnished to the Issuer
in writing by such seller expressly for use therein, and provided that
the Issuer will not be liable to any Person who participates as an
underwriter in the offering or sale of Warrants or Non-Public Warrant
Shares or any other Person, if any, who controls such underwriter
within the meaning of the Securities Act under the indemnity agreement
in this subsection 15(g) with respect to any preliminary prospectus or
the final
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<PAGE> 30
prospectus or the final prospectus as amended or supplemented, as the
case may be, to the extent that any such loss, claim, damage or
liability of such underwriter or controlling Person results from the
sale by such underwriter of Warrants or Non-Public Warrant Shares to a
Person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final prospectus or of the
final prospectus as then amended or supplemented, whichever is most
recent, if the Issuer has previously furnished copies thereof to such
underwriter, or from a sale to a Person in a state where the offering
has not been registered or qualified, if the Issuer has notified the
seller and any underwriter involved in such sale of the states where
the offering has been registered or qualified.
(ii) It shall be a condition to the obligation of the Issuer
to effect a registration of Warrants or Non-Public Warrant Shares
under the Securities Act pursuant hereto that (X) each seller,
severally and not jointly, indemnify and hold harmless the Issuer and
each person, if any, who controls the Issuer within the meaning of the
Securities Act or the Exchange Act to the same extent as the indemnity
from the Issuer in the foregoing paragraph, but only with reference to
any breach by such seller of any agreement between such seller, and
the Issuer with respect to the offering and with reference to
information relating to such seller furnished to the Issuer in writing
by such seller expressly for use in the registration statement, any
prospectus or preliminary prospectus contained therein or any
amendment or supplement thereto and (Y) each seller, in the event that
Warrants or Non-Public Warrant Shares are to be sold in an
underwritten offering, enters into an underwriting agreement
containing customary representations and warranties, covenants,
conditions and indemnification provisions.
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted
involving any indemnified party in respect of which indemnity may be
sought pursuant to this subsection 15(g), such indemnified party shall
promptly notify the indemnifying party in writing of the same,
provided that failure to notify the indemnifying party shall not
relieve it from any liability it may have to an indemnified party
otherwise than under this subsection 15(g). The indemnifying party,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party in such proceeding and shall pay the fees and disbursements of
such counsel. In any such proceeding, any indemnified party shall
have the right to retain its own counsel, but the fees and
disbursements of such counsel shall be at the expense of such
indemnified party unless (A) the indemnifying party shall have failed
to retain counsel for the indemnified party as aforesaid, (B) the
indemnifying party and such indemnified party shall have mutually
agreed to the retention of such counsel or (C) representation of such
indemnified party by the counsel retained by the indemnifying party
would, in the reasonable opinion of the indemnified party, be
inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel
in such proceeding, provided that the Issuer shall not be liable for
the fees and disbursements of more than one additional counsel for all
indemnified parties. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written
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<PAGE> 31
consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
(h) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in subsection 15(g) is
due in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Issuer or the applicable
sellers, as the case may be, shall contribute to the aggregate losses, claims,
damages and liabilities incurred (including legal or other expenses reasonably
incurred in connection with the investigating or defending of same) by the
other and for which such indemnification was sought. In determining the amount
of contribution to which the respective parties are entitled, there shall be
considered the relative benefits received by each party from the offering of
the securities included in the registration statement (taking into account the
portion of the proceeds of the offering realized by each), the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission, and any other equitable considerations appropriate in
the circumstances; provided, however, that (i) in no case shall any seller of
Warrants or Non-Public Warrant Shares be required to contribute any amount in
excess of the total public offering price of the Warrants or Non-Public
Warrant Shares sold by him and (ii) 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. For purposes of this subsection 15(h), each
person who controls any seller of Warrants or Non-Public Warrant Shares or the
Issuer shall have the same rights to contribution as such seller or the Issuer.
Any party entitled to contribution shall, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against the Issuer or the seller of
Warrants or Non-Public Warrant Shares under this subsection 15(h), notify the
Issuer or such seller, as the case may be, but the omission to so notify the
Issuer or such seller, as the case may be, shall not relieve it from any other
obligation it may have hereunder or otherwise.
(i) After the date hereof, the Issuer shall not grant to any
holder of securities of the Issuer any registration rights which have a
priority greater than or equal to those granted to holders of Warrants or
Non-Public Warrant Shares pursuant to this Section 15 without the prior written
consent of the holders of at least a majority of the aggregate outstanding
Warrants and Non-Public Warrant Shares, voting as a single group.
Section 16. Exchange Rights.
(a) Lender and its Affiliates shall have the right, if the
outstanding Class A Common Stock issued upon exercise of the Warrants and held
by Lender and its Affiliates at any time exceeds 4.99% of the aggregate issued
and outstanding shares of Class A Common Stock, upon written notice to Issuer,
to require the Issuer to exchange that portion of such Common Stock for
Convertible Preferred Stock as will reduce the shares of Class A Common Stock
held by Lender and its Affiliates to 4.99% of the aggregate issued and
outstanding shares of Class A Common Stock (such right being called an
"Exchange Right").
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(b) As used in this Section 16, "Warrant Shares" shall include all
shares of Class A Common Stock and/or Convertible Preferred Stock and other
securities of the Issuer or its Affiliates issued to holders of the Issuer's
Common Stock and/or Convertible Preferred Stock in respect of stock dividends,
stock splits and other distributions and any recapitalizations, to the extent
the same were not included in any adjustment of the Warrant Shares issuable
upon exercise of Warrants pursuant to Section 12 hereof.
(c) Except with the approval by vote or written consent of the
holders of at least a majority of the Warrants and outstanding Warrant Shares,
voting together as a class, so long as these Exchange Rights remain in effect,
the Issuer shall not (i) repurchase or redeem any shares of the capital stock
of the Issuer, except Warrant Shares exchanged pursuant to this Section 16 or
(ii) enter into any agreement or otherwise grant any right to any person to
require the Issuer to repurchase or redeem any such stock, rights, options or
warrants if, in each case, such repurchase or redemption would cause the
Warrants and the outstanding Warrant Shares to represent in excess of 24.99% of
the Equity of the Issuer.
(d) The certificates representing the Warrants and the Warrant
Shares shall bear a legend indicating that the Warrants and Warrant Shares are
subject to the provisions of this Section 16.
(e) Notwithstanding any provision of this Warrant Agreement to the
contrary, all Warrants and Warrant Shares which are sold pursuant to an
effective registration statement under the Securities Act shall, upon such
sale, cease to be subject to the provisions of this Section 16.
Section 17. Amendments and Waivers. Any provision of this
Warrant Agreement may be amended, supplemented, waived, discharged or
terminated by a written instrument signed by the Issuer and the holders of not
less than a majority of the outstanding Warrants (or in the case of Sections
14, 15 and 16, the holders of a majority of the aggregate outstanding Warrants
and Non-Public Warrant Shares, voting as a single group), provided that (i)
this Agreement may not be amended, supplemented or waived so as to increase the
Exercise Price, reduce the number of Warrant Shares issuable upon exercise of
any Warrants, alter the period during which any Warrants may be exercised
(except to provide for a later Expiration Date), in each case without the
consent of the holders of all outstanding Warrants, and (ii) this Section 17
may not be amended or supplemented without the consent of the holders of all
outstanding Warrants and Non-Public Warrant Shares, voting as a single group,
and no waiver of the requirements of this Section 17 shall be binding upon any
such holder without its consent.
Section 18. Specific Performance. The parties agree that
irreparable damage will result in the event that the obligations of the Issuer
under this Warrant Agreement are not specifically enforced, and that any
damages available at law for a breach of any such obligations would be
inadequate. Therefore, the holders of the Warrants and/or Non-Public Warrant
Shares shall have the right to specific performance by the Issuer of the
provisions of this Warrant Agreement, and appropriate injunctive relief may be
applied for and granted in connection therewith. The Issuer hereby irrevocably
waives, to the extent that it may do so under applicable law, any defense based
on the adequacy of a remedy at law which may be asserted
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<PAGE> 33
as a bar to the remedy of specific performance in any action brought against
the Issuer for specific performance of this Warrant Agreement by the holders of
the Warrants and/or Non-Public Warrant Shares. Such remedies and all other
remedies provided for in this Warrant Agreement shall, however, be cumulative
and not exclusive and shall be in addition to any other remedies which may be
available under this Warrant Agreement.
Section 19. Notices.
(a) Any notice or demand to be given or made by the Warrant
Holders or the holders of Warrant Shares to or on the Issuer pursuant to this
Warrant Agreement shall be sufficiently given or made if sent by registered
mail, return receipt requested, postage prepaid, addressed to the Issuer at the
Warrant Office.
(b) Any notice to be given by the Issuer to the Warrant Holders or
the holders of Warrant Shares shall be sufficiently given or made if sent by
registered mail, return receipt requested, postage prepaid, addressed to such
holder as such holder's name and address shall appear on the Warrant Register
or the Common Stock or Convertible Preferred Stock registry of the Issuer, as
the case may be.
Section 20. Binding Effect. This Warrant Agreement shall be
binding upon and inure to the sole and exclusive benefit of the Issuer, its
successors and assigns, Lender, Affiliates of Lender and the registered holders
from time to time of the Warrants and the Warrant Shares.
Section 21. Continued Validity. A holder of Warrant Shares shall
continue to be entitled with respect to such Warrant Shares to all rights and
subject to all obligations to which it would have been entitled or subject as a
Warrant Holder under Sections 14 through 24 of this Warrant Agreement. The
Issuer will, at the time of each exercise of any Warrant, in whole or in part,
upon the request of the holder of the Warrant Shares issued upon such exercise
thereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford to such holder all such rights,
provided, however, that if such holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Issuer to afford
to such holder all such rights.
Section 22. Counterparts. This Warrant Agreement may be executed
in one or more separate counterparts and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
Section 23. New York Law. THIS WARRANT AGREEMENT AND EACH
WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Section 24. Benefits of This Warrant Agreement. Nothing in this
Warrant Agreement shall be construed to give to any Person other than the
Issuer and the registered holders of the Warrants and the Warrant Shares any
legal or equitable right, remedy or claim under this Warrant Agreement.
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Section 25. Voting and Consents to be on a Fully Converted Basis.
Wherever this Warrant Agreement calls for the written consent or vote of any
combinations of the holders of the Warrants, any of the Warrant Shares and/or
the Convertible Preferred Stock, voting as a single group, the Warrants shall
be counted as if they had been exercised for Class A Common Stock and shares of
Convertible Preferred Stock shall be counted as if they had been converted to
Class A Common Stock.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF the parties hereto have caused this Warrant
Agreement to be duly executed and delivered by their proper and duly authorized
officers, as of the date and year first above written.
INTEGRITY INCORPORATED
By: /s/ P. Michael Coleman
-------------------------------------
Name: P. Michael Coleman
---------------------------
Title: President
--------------------------
Attest:
/s/ Alison S. Richardson
----------------------------------
Name: Alison S. Richardson
-------------------------
Title: Vice President
------------------------
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
-------------------------------------
Name: Robert M. Biringer
---------------------------
Title: Senior Vice President
--------------------------
Attest: /s/ Scott Kray
----------------------------------
Name: Scott Kray
-------------------------
Title: Senior Associate
------------------------
35
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SCHEDULE I
<PAGE> 37
SCHEDULE II
1. Integrity Music, Inc.
2. Integrity Music PTY, Ltd.
3. Integrity Music Europe, Ltd.
4. Integrity Media Asia, PTE, Ltd.
<PAGE> 38
EXHIBIT A
To Warrant Agreement
FORM OF WARRANT CERTIFICATE
THE WARRANTS AND SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW. SUCH WARRANTS
AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED
IN AND ARE SUBJECT TO OTHER PROVISIONS OF THE WARRANT AGREEMENT, DATED AS OF
AUGUST 2, 1996, BETWEEN THE ISSUER AND CREDITANSTALT CORPORATE FINANCE, INC., A
COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE ISSUER AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN EXCHANGE
RIGHTS MORE FULLY SET FORTH IN THE WARRANT AGREEMENT.
EXERCISABLE ONLY ON OR BEFORE
August 2, 2006
Warrant Certificate
This Warrant Certificate certifies that CREDITANSTALT CORPORATE
FINANCE, INC., or registered assigns, is the registered holder of 805,288
Warrants (the "Warrants") to purchase Class A Common Stock or Convertible
Preferred Stock of INTEGRITY INCORPORATED, a Delaware corporation (the
"Issuer"). Each Warrant entitles the holder, but only subject to the
conditions set forth herein and in the Warrant Agreement referred to below, to
purchase from the Issuer during the period beginning on the earlier of (i) the
date on which a Change of Control (as defined in the Warrant Agreement) of the
Issuer occurs or (ii) twenty-four months after the Closing Date (as defined in
the Warrant Agreement), and ending at 5:00 P.M., New York time, on August 2,
2006 (the "Expiration Date"), one (1) fully paid and nonassessable share of the
Class A Common Stock of the Issuer or one-fourth (1/4) fully paid and
non-assessable share of the Convertible Preferred Stock of the Issuer (the
"Warrant Shares") in the percentages and to the extent set forth in the Warrant
Agreement, at a price (the "Exercise Price") of $1.875 per Warrant payable in
lawful money of the United States of America, upon surrender of this Warrant
Certificate, execution of the annexed Form of Election to Purchase and payment
of the Exercise Price at the office of the Issuer at 2 Greenwich Plaza,
Greenwich, Connecticut, or such other address as the Issuer may specify in
writing to the registered holder of the Warrants evidenced hereby (the
A-1
<PAGE> 39
"Warrant Office"). In lieu of exercising Warrants pursuant to the immediately
preceding sentence, the Warrant holder shall have the right to require the
Issuer to convert the Warrants, in whole or in part and at any time or times,
into Warrant Shares, by surrendering to the Issuer the Warrant Certificate
evidencing the Warrants to be converted, accompanied by the annexed Form of
Notice of Conversion which has been duly completed and signed. The Exercise
Price and number of Warrant Shares purchasable upon exercise of the Warrants
are subject to adjustment prior to the Expiration Date as set forth in the
Warrant Agreement. In no event shall this Warrant be exercisable for shares of
Class A Common Stock or Convertible Preferred Stock which, when aggregated with
all other Warrant Shares (as defined in the Warrant Agreement) previously
issued (other than Non-Attributable Stock (as defined in the Warrant
Agreement)) would, upon issuance, represent in excess of 24.99% of the Equity
of the Issuer (defined in the Warrant Agreement) unless such shares, when
issued, would constitute Non-Attributable Stock (as defined in the Warrant
Agreement).
No Warrant may be exercised after 5:00 P.M., New York time, on the
Expiration Date and (except as otherwise provided in the Warrant Agreement) all
rights of the registered holders of the Warrants shall cease after 5:00 P.M.,
New York time, on the Expiration Date.
The Issuer may deem and treat the registered holders of the Warrants
evidenced hereby as the absolute owners thereof (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof and of any distribution to the holders hereof and for all other
purposes, and the Issuer shall not be affected by any notice to the contrary.
Warrant Certificates, when surrendered at the office of the Issuer at
the above-mentioned address by the registered holder hereof in person or by a
legal representative duly authorized in writing, may be exchanged, in the
manner and subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Issuer at the above-mentioned address, a new
Warrant Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued in exchange for this
Warrant Certificate to the transferee(s) and, if less than all the Warrants
evidenced hereby are to be transferred, to the registered holder hereof,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection
therewith.
This Warrant Certificate is one of the Warrant Certificates referred
to in the Warrant Agreement, dated as of August 2, 1996, between the Issuer and
Creditanstalt Corporate Finance, Inc. Said Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Issuer and the holders.
A-2
<PAGE> 40
IN WITNESS WHEREOF the Issuer has caused this Warrant Certificate to
be signed by its duly authorized officers and has caused its corporate seal to
be affixed hereunto.
INTEGRITY INCORPORATED
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
(CORPORATE SEAL)
ATTEST:
- -------------------------------
Secretary
A-3
<PAGE> 41
ANNEX to Form
of Warrant
Certificate
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___ Warrant Shares* and
herewith tenders payment for such Warrant Shares to the order of the Issuer in
the amount of $_____________________ in accordance with the terms hereof. The
undersigned requests that a certificate for such Warrant Shares be registered
in the name of___________________________ whose address is and that such
certificate be delivered to whose address is ________________________________ .
If said number of Warrant Shares is less than all of the Warrant Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of the Warrant Shares be registered in the
name of whose address is _____________________________ and that such Warrant
Certificate be delivered to _________________________________ whose address is.
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Class A Common Stock
_____ shares of Convertible Preferred Stock
A-4
<PAGE> 42
ANNEX to Form
of Warrant
Certificate
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to convert Warrants represented hereby
into ___ Warrant Shares* in accordance with the terms hereof. The undersigned
requests that a certificate for such Warrant Shares be registered in the name
of __________________________________________________________ whose address is
__________________________________________________________________ and that
such certificate be delivered to ___________________________ whose address is
______________________________________________. If said number of Warrant
Shares is less than all of the Warrant Shares obtainable hereunder, the
undersigned requests that a new Warrant Certificate representing the remaining
balance of the Warrant Shares be registered in the name of___________________
______________________________________whose address is ______________________
___________________________________________ and that such Warrant Certificate
be delivered to _____________________________________________whose address is
_____________________________________________________ .
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Class A Common Stock
_____ shares of Convertible Preferred Stock
A-5
<PAGE> 43
EXHIBIT B to
Warrant Agreement
WARRANT REGISTER
<TABLE>
<CAPTION>
Warrant Original Number Number of Names and
Certificate of Warrants and Warrants Addresses of
Number Warrant Shares Expired Warrant Holders
<S> <C> <C> <C>
</TABLE>
B-1
<PAGE> 1
EXHIBIT 10.7
PRODUCT DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is made as of April 1, 1996 by
and between Integrity Incorporated, 1000 Cody Road, Mobile, Alabama, a Delaware
Corporation ("INTEGRITY") and Word, Inc., 3319 West End Avenue, Nashville,
Tennessee, a Delaware corporation ("WORD").
RECITALS
A. INTEGRITY is engaged in the business of acquiring and
producing audio and video masters and manufacturing phonograph records and
tapes (including but not limited to audio cassettes, compact discs,
accompaniment tracks, video cassettes, and other recorded and music product
derived therefrom.)
B. INTEGRITY desires WORD to distribute throughout the United
States, Guam, Puerto Rico and A.F.E.S. and other military purchasing groups
which serve military bases across the world, ("the Territory") through normal
retail channels and wholesale outlets in the Christian bookstore market ("CBA
Marketplace") and general/secular markets (e.g., record stores and mass
merchandisers) ("General Marketplace") recorded product and consumer print
products related thereto (i.e., Hosanna and Alleluia Songbooks, Hosanna Music
Performance Series, etc. excluding printed choral product and related
accompaniment and split trax) manufactured by or for INTEGRITY.
NOW, THEREFORE, the parties hereto agree as follows;
1. GRANT OF RIGHTS. INTEGRITY hereby authorizes and appoints
WORD to be INTEGRITY's exclusive distributor to normal retail outlets in the
CBA Marketplace and General Marketplace (exclusive of those markets retained by
INTEGRITY pursuant to Paragraph 2 hereunder) during the term hereof in the
Territory of all audio and video recordings (hereinafter "Records") derived
from audio and video masters now or hereafter owned or controlled by INTEGRITY
whether or not on the "INTEGRITY label" ("Integrity Masters"). A schedule of
existing Integrity Masters is attached hereto as Exhibit A. Such distribution
rights shall include the right to distribute to wholesalers which distribute
records to such normal retail outlets in the CBA Marketplace and General
Marketplace. INTEGRITY may not sell, license, or otherwise distribute Records
or manufacturing overruns of Records derived from the Integrity Masters to any
person, firm, association, corporation, or entity other than WORD for sale
through normal retail channels in the CBA Marketplace and General Marketplace
in the Territory during the term of this Agreement.
2. RIGHTS RESERVED BY INTEGRITY. Notwithstanding anything
contained herein to the contrary, WORD hereby acknowledges that INTEGRITY has
specifically reserved its right to distribute Records for sale in remaining
markets of any kind or nature
<PAGE> 2
not specifically granted to WORD hereunder (e.g., mail order, television and
radio promotion, record clubs, budget and mid-price sales, "K-Tel" -type sales,
and non-phonograph record exploitation, such as films or television),
throughout the Territory, as well as all rights whatsoever outside the
Territory, including, but not limited to, all so-called international rights
without limitation, and the right to sell Records directly to churches and
individuals, whether in the Territory or elsewhere throughout the world.
3. TERM. The term ("Term") of this Agreement shall commence on
the date hereof and shall continue for an initial period of four (4) years
beginning April 1, 1996 and ending March 31, 2000. The initial twelve (12)
months of the Term and each consecutive twelve (12) month period thereafter is
referred to herein as a "contract year". There shall be an automatic extension
of an additional one (1) year at the expiration of the initial Term if WORD's
aggregate net sales of INTEGRITY recorded/video product in the CBA Marketplace
and General Marketplace equal or exceed $12,300,000 during the twelve month
period of September 1, 1996 through August 31, 1997.
4. INTEGRITY'S RESPONSIBILITIES. INTEGRITY shall be solely
responsible for, and shall pay all costs in connection with:
a. All activities and costs in connection with the
Integrity Masters, including without limitation all costs arising out of the
creation of, and/or the acquisition of INTEGRITY's rights in, the Integrity
Masters.
b. All activities and costs in connection with the
manufacture of finished Records from the Integrity Masters, including without
limitation, all jackets, sleeves, inserts and other components of the finished
Records, and delivery of finished product to WORD's designated warehouse(s).
c. Obtaining all mechanical licenses and paying all
mechanical license fees; filing copyright registration on all recordings
subject to copyright; obtaining all consents, authorizations and clearance with
respect to the reproduction, use and commercial exploitation of the Integrity
Masters; and obtaining all consents, authorizations and clearances with respect
to the services, names, and likenesses of any person whose performances and/or
services are embodied in any Record distributed hereunder. INTEGRITY shall
hold WORD harmless from its failure to take such actions.
d. INTEGRITY will be solely responsible for and shall
pay any and all artists, royalties, producers, royalties, musicians,
publishers, and/or writers, mechanical and synchronization royalties, and any
and all other royalties or similar payments as may be or become payable in
connection with the Integrity Masters, the Compositions, the Materials, and/or
earnings of WORD, which may be payable by reason of the manufacture, sale, and
distribution of the Records in the Territory. INTEGRITY shall hold WORD
harmless from the obligation to pay such royalties.
- 2 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
<PAGE> 3
e. Subject to the rights reserved by INTEGRITY
hereunder, INTEGRITY agrees that neither INTEGRITY nor any person, firm or
corporation acting for INTEGRITY or with INTEGRITY's authorization or
acquiescence (other than WORD) will distribute Records manufactured from the
Integrity Masters for sale through normal retail channels in the CBA
Marketplace and General Marketplace throughout the Territory except as
otherwise provided herein.
5. INTEGRITY'S WARRANTIES. INTEGRITY represents and warrants to
WORD as follows:
a. INTEGRITY is the sole owner, or the exclusive
licensee of the sole owner, for the Territory of the Integrity Masters, of all
performances embodied therein, all records compact discs, tapes, videos and
reproductions derived therefrom, and all sound recording copyrights therein.
Subject to any rights reserved by INTEGRITY hereunder, no other person, firm or
corporation has any rights in or to the Integrity Masters, the performances
embodied therein or any copy thereof in the Territory.
b. INTEGRITY is duly qualified to do business in the
State of Alabama and has the full right, power and authority to enter into this
Agreement; and INTEGRITY has not done or permitted to be done anything which
may curtail or impair any of the rights given or granted herein.
c. INTEGRITY has and will have the right to record and
reproduce mechanically all musical compositions (the "Compositions") embodied
in the Integrity Masters.
d. None of the Records, the Compositions, the Integrity
Masters, or any other materials or services supplied by INTEGRITY hereunder
including, without limitation, album jackets or other packaging, artwork liner
notes, advertising, promotion and merchandising materials and advertising
marketing services (the "Materials"), violate or infringe, or will violate or
infringe, any statute or law, or any common law or statutory rights of any
person or entity whatsoever, including, without limitation, contractual rights,
copyrights, trademarks, rights of privacy and publicity, and obscenity laws.
e. There is not any claim, demand, or any form of
litigation or other judicial or regulatory proceeding whatsoever pending or
threatened with respect to any of the Records, the Integrity Masters, the
Compositions, or the Materials.
f. All other costs and expenses in connection with the
recording of the Integrity Masters have been and will be paid, and all
necessary licenses, consents or clearances have been and/or will be obtained.
- 3 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
<PAGE> 4
6. PROPRIETARY MATERIALS
(i) Subject to any restrictions in INTEGRITY's agreements
with any individual artist or producer of which INTEGRITY shall notify WORD in
writing no later than the date INTEGRITY delivers the Records containing such
artists' performance, WORD shall have the right to use and publish INTEGRITY's
and each artist's and producer's likeness, name, voice, trademark, trade name,
logo, sound effects and biographical materials provided by INTEGRITY in
connection with WORD's sale, advertisement and distribution of Records
hereunder, or to refrain therefrom.
(ii) Subject to INTEGRITY's prior written consent, WORD may use
INTEGRITY's applicable trademark or logo during the Term hereunder at no
additional cost to WORD. WORD will honor the notice requirement relating to
INTEGRITY's trademarks; provided that any inadvertent failure by WORD to use
INTEGRITY's logo shall not constitute a breach of this Agreement. INTEGRITY
warrants that INTEGRITY has all rights to grant WORD the right to use such
trademarks and logo and shall indemnify and hold WORD harmless with respect
thereto. INTEGRITY's submission of any material which includes INTEGRITY's
and/or any artists' trademarks and/or logos shall be deemed to be instructions
to WORD to use such trademarks and/or logos, as submitted.
7. WORD'S RESPONSIBILITIES. At WORD's expense, WORD will furnish
all "normal distribution services" as that term is generally understood in the
phonograph record industry subject to the specific business practices and
policies of WORD. Such services shall include, but not necessarily be limited
to:
a. Warehousing of finished Records and, if applicable,
finished jackets, sleeves, inserts and other components ("Inventory") at its
designated Distribution Centers.
b. Selling and shipment of finished goods and
merchandising materials supplied by INTEGRITY to WORD's customers within the
Territory (WORD's salesmen are to receive the same compensation or commission
on sales of Records hereunder as they are paid for sales of WORD's Records).
c. Billing for Records delivered to customers and
collection thereof, with weekly reports (including but not limited to movement
reports and weekly sales summaries) to be promptly provided to INTEGRITY,
including the administration of any sales and/or discount programs requested by
INTEGRITY pursuant to Paragraph 13 herein below, and the absorption of any "bad
debts" and cash discounts (both of which are WORD's sole responsibility)
relating to Record sales hereunder to such customers in the same manner as WORD
deals with customers of WORD's Records.
- 4 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
<PAGE> 5
d. After August 31, 1996, processing returns of
INTEGRITY'S records hereunder, specifically including those which were
originally distributed by Spring Arbor ("Spring Arbor Returns"). Credit or
payment for returns shall be governed by the provisions of Paragraph 14
hereunder.
e. Notwithstanding anything to the contrary contained
herein, WORD shall have the right, without liability to INTEGRITY, to decline
to distribute or withdraw from distribution any Record hereunder if such
Record(s) or the materials contained thereon or therein are deemed, in the
opinion of WORD's counsel, libelous, slanderous or defamatory or violative of
the laws of any jurisdiction or infringe upon copyrights or trademarks or
otherwise violate or infringe upon the rights of any party or person.
8. WORD'S WARRANTIES.
a. WORD warrants and agrees that it shall represent
INTEGRITY's Records in a manner consistent with INTEGRITY's mission and the
nature of the product, and further that WORD will promote and sell INTEGRITY's
product with the same level of energy, commitment and professionalism as it
devotes to sales of WORD's own product lines. WORD agrees to exercise all of
its rights under this Agreement in good faith, in accordance with its business
practices and policies. In this regard, WORD agrees to maintain a minimum field
sales force of fifteen (15) persons, and a minimum telemarketing sales force of
nine (9) persons throughout the Term, unless INTEGRITY agrees to a reduced
sales force. WORD further agrees that orders shall be fulfilled out of
inventory on hand within an average of two (2) days after receipt of orders at
WORD's designated Distribution Centers.
b. Provided INTEGRITY shall continue to deliver similar
quantity and quality of Records to WORD for distribution as it has produced
over the last 24 months, if and only if, WORD's total sales of INTEGRITY
product in any contract year fall below net sales of [ ]* dollars
($[ ]*), in that event, INTEGRITY shall have the right to terminate this
Agreement, upon three (3) months' written notice to WORD. In such event, all
other provisions of the Agreement relative to termination shall apply.
9. EXISTING DISTRIBUTION AGREEMENT. The foregoing
notwithstanding, the parties recognize that INTEGRITY is bound by an existing
agreement with Spring Arbor for fulfillment services through the month ending
August 31, 1996. During the five month period of April 1, 1996 through August
31, 1996, WORD will assume responsibility for selling activities only, while
Spring Arbor shall continue to fulfill all trade orders and accept returns.
10. FREIGHT CHARGES. INTEGRITY shall pay the insurance and freight
- 5 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
<PAGE> 6
charges (including charges for air and/or surface shipment) for shipment from
the plants where the Records and merchandising materials are pressed or
fabricated to WORD's designated Distribution Centers (and merchandising
warehouses, if any).
11. SALES AND DISTRIBUTION FEES.
a. With respect to net sales of the Records in the
Territory (i.e., gross sales of the Records less returns, credits and rebates)
by WORD, and except as otherwise provided for in Paragraph 10(b) below, WORD
will pay INTEGRITY [ ]* percent ([ ]*%) of WORD's actual net selling
price to its customers on annual sales from $[ ]* to $[ ]* million and [
]* percent ([ ]*%) for annual sales in excess of $[ ]* million in the
Territory. The applicable percentage payable to INTEGRITY pursuant to this
paragraph shall be determined on a fiscal year basis, April 1 through March 31,
of each year of the Term hereof.
b. During the five month transition period of April 1,
1996 through August 31, 1996, WORD shall provide selling services only and
shall receive a selling fee of [ ]* percent ([ ]*%) of net sales to
be paid to WORD by INTEGRITY within thirty (30) days after INTEGRITY's receipt
of payment from Spring Arbor applicable to such sales (60 days following the
last day of the month of sale.)
c. With respect to sales of INTEGRITY's Records by WORD
through WORD's secular distribution channel, Sony Music, a Group of Sony Music
Entertainment, Inc. ("Distributor"), WORD shall pay INTEGRITY [ ]* percent
([ ]*%) of its net receipts from Distributor, with full account and
payment to be remitted to INTEGRITY within thirty (30) days after WORD's
receipt of payment from Distributor. In the event of any material modification
to WORD's agreement with Distributor, the parties agree to renegotiate in good
faith the terms of this provision 10(c).
d. Upon either party's dissolution or the liquidation of
substantially all its assets, or the filing of a petition in bankruptcy or
insolvency or for an arrangement or reorganization, by, or for either party (or
against such party and not disposed of successfully within sixty (60) days
thereafter), or in the event of the appointment of a receiver or a trustee for
all or a portion of such party's property, or if either party shall make an
assignment for the benefit of creditors, commit any act for, or in, bankruptcy
or become insolvent, or in the event any payment to either party by the other
party under this Agreement becomes subject, in any manner, to anticipation,
alienation, sale, transfer, assignment (except as permitted pursuant to this
agreement), levy, pledge, encumbrance or charge, or to attachment, garnishment
or other legal process, then at any time after the occurrence of any such
event, in addition to any other remedies which may be available, then the other
party shall have the right to retain any funds then in its possession but only
until to the extent such party is entitled to such funds under the terms of
this Agreement.
- 6 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
<PAGE> 7
12. ADVANCE TO INTEGRITY. WORD shall make an advance against
future payments to INTEGRITY in the amount of [ ]* dollars ($[ ]*).
WORD shall recoup such advance through reduction of the net amounts payable to
INTEGRITY each month until fully repaid, on the following schedule:
<TABLE>
<S> <C>
September, 1996 - July, 1999 $[ ]* per month
August, 1999 $[ ]*
</TABLE>
WORD's obligation to pay the advance shall be contingent upon
INTEGRITY executing a security agreement and promissory note in substantially
the form attached hereto (Exhibit B) and a UCC-1 financing statement giving
WORD security in sixty (60) days' collections of account receivables from the
sale of INTEGRITY products. This sixty-day period shall continuously roll
through the advance recoupment term. Additionally, the advance shall be
contingent upon the execution of an intercreditor agreement (Exhibit C) between
WORD and [name of INTEGRITY bank] in substantially the form as attached hereto.
13. ACCOUNTING.
a. WORD shall render accounting statements setting forth
in detail the sales and returns of Records distributed hereunder on a monthly
basis in the form of its "OS-127" report reflecting unit movement and its
"SA-410" report summarizing sales, or a similar report. Said reports shall be
rendered no later than two (2) business days following the last business day
of each month of this Agreement. Further, WORD shall forward to INTEGRITY
copies of such pages of Distributor's monthly sales report to WORD which set
forth sales data of INTEGRITY's secular market sales and royalty reporting as
received by WORD. Notwithstanding the foregoing, all amounts hereunder
collected by WORD and due to INTEGRITY shall be paid sixty (60) days following
the end of each month. Subject at all times to the provisions of Paragraph 25
hereof, amounts owing to INTEGRITY shall be paid as aforesaid. WORD
acknowledges that prompt and timely payment by it is a material condition of
this Agreement, and that if any such payment is not made within five (5) days
of its due date INTEGRITY, in addition to any other remedies which it might
have, INTEGRITY shall be entitled to immediately terminate this Agreement upon
notice to WORD, and WORD shall forthwith return to INTEGRITY all inventory in
its possession. Amounts due INTEGRITY which are not paid within five (5) days
of the due date therefor shall bear interest at the prime rate plus two percent
(2%) per annum. For the purposes of this Agreement, prime shall be the "prime
rate" set by SunTrust Bank in Nashville on the day which the payment was due.
b. In addition to the foregoing accounting statements,
WORD agrees to render to INTEGRITY on a monthly basis no later than five (5)
business days following the last business day of each month of this Agreement
all of WORD's standard reports, which shall include a report listing gross
sales volume, inventory movement (i.e.
- 7 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
<PAGE> 8
units sold, units given away, units returned) and inventory balances. No
later than January 1, 1997, WORD shall supply INTEGRITY with all other reports
requested by INTEGRITY, a current list of which shall be attached hereto as
Exhibit D. Any such reports shall be made available by WORD on-line in ASCII
format for transmission directly to INTEGRITY's database. The format of such
reports are subject to reasonable change in accordance with WORD's then current
practices and policies in effect from time to time, and WORD shall make every
reasonable effort to accommodate INTEGRITY's request for additional detail or
format changes.
c. Provided that INTEGRITY shall have theretofore
notified WORD in writing of its objections to such statement, specifying with
particularity each element of such statement to which objection is made,
INTEGRITY may, at any time within two (2) years after any statement is rendered
to INTEGRITY hereunder, examine the books and records of WORD described below
with respect to such objections. Such examination shall be conducted at
INTEGRITY's sole cost and expense by a certified public accountant selected by
INTEGRITY, provided that such accountant shall be an accredited member of a
"Big Six" accounting firm and not then engaged in an outstanding examination of
WORD's books and records on behalf of a person other than INTEGRITY and who
certifies that: (i) he will conduct such examination in accordance with the
then-current rules and regulations of the applicable society of Certified
Public Accountants; and (ii) such examination shall be made in accordance with
generally accepted accounting principles. Such examination shall be made
during WORD's usual business hours at the place where WORD maintains the books
and records described below, and INTEGRITY's examination shall be limited to
the same. INTEGRITY's sole right to inspect WORD's books and records shall be
as set forth in this Paragraph, and WORD shall have no obligation to produce
such books and records more than once with respect to each statement rendered
to INTEGRITY nor more than once in any calendar year. Without limiting the
generality of the foregoing, INTEGRITY acknowledges and agrees that WORD's
statements of account and inventory summaries will be based on documents
generated in the ordinary course of WORD's business by WORD's computer system
and that said computer-generated documents shall constitute the major source
documents in, and be a substantial factor in, any dispute between the parties
as to the accuracy or completeness of statements and inventories furnished by
WORD hereunder and that such documents shall show sales and gratis distribution
of Records hereunder. Except with respect to objections made by INTEGRITY in
accordance with this Paragraph, each statement rendered to INTEGRITY shall be
final, conclusive and binding on INTEGRITY and shall constitute an account
stated. INTEGRITY shall be foreclosed from maintaining any action, claim or
proceeding against WORD in any forum or tribunal with respect to any statement
of accounting due hereunder unless such action, claim or proceeding is
commenced against WORD in a court of competent jurisdiction within one (1) year
after the date any audit conducted with respect thereto is completed.
14. PROMOTIONAL AND FREE GOODS.
- 8 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
<PAGE> 9
a. No payment shall be due from WORD nor shall a
distribution fee be charged on Records given away or on Records furnished on a
"no charge" basis for promotional purposes to disc jockeys, radio and
television stations or networks ("Promos"), or for sales inducement records
(or discounts in addition to or in lieu thereof) furnished to independent
distributors, subdistributors and dealers, or for displays, or as sales
inducement records to independent distributors, subdistributors and dealers
("Free Goods"). Free Goods shall be distributed only pursuant to sales
programs of limited duration. WORD agrees that Free Goods of INTEGRITY's
product shall not be distributed to induce the sale of any records other than
INTEGRITY's. The foregoing notwithstanding, WORD agrees that the sum of Promos
and Free Goods of any Record distributed hereunder shall not exceed [ ]*
percent ([ ]*%) of the contract-to-date net trade sales (1 free with 10) of
that title reported and paid to INTEGRITY, unless INTEGRITY and WORD shall have
mutually agreed otherwise prior to such distribution.
b. With respect to discount programs of Records
hereunder ("Programs"), INTEGRITY shall instruct WORD in writing of the
particular Records and terms for such Programs that INTEGRITY approves
hereunder. WORD and INTEGRITY shall develop and mutually agree on advertising
programs with the Family Bookstore Chain, Joshua's Chain, and Spring Arbor
Distributors as well as Central South, Riverside, Whitaker House, and New Day
whereby advertising shall be paid for via INTEGRITY Free Goods.
c. With WORD approval, INTEGRITY may furnish prizes or
"spiffs" to WORD salesmen and district managers.
15. RETURNS.
a. WORD shall be entitled to scrap shop-worn Records
returned to WORD upon prior written notice to INTEGRITY and WORD shall report
such scrapping to INTEGRITY. "Shop-worn" Records are those Records, in any
configuration, which by WORD's standards, are deemed to be so damaged as a
result of mishandling when not in WORD's control so as to be unsalable and not
economically salvageable.
b. Upon expiration of Spring Arbor's cancellation period
as set forth in the agreement between Spring Arbor and INTEGRITY, WORD shall
accept all Spring Arbor Returns (as defined in Paragraph 6(d) hereof) processed
by WORD during the Term hereof, and WORD shall be entitled to deduct all such
amounts not so paid to WORD from any amounts due to INTEGRITY hereunder.
c. If INTEGRITY's account has a negative balance at the
time of expiration or termination of this Agreement, or after the expiration of
the Extra Returns Period defined in Paragraph 17 hereunder, for whatever
reason, INTEGRITY at its sole
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confidential treatment.
<PAGE> 10
discretion, shall pay WORD the full amount of INTEGRITY's indebtedness, or,
provided Integrity has shipped or continues to ship to WORD product sufficient
to allow WORD to recoup any such indebtedness, WORD shall have the exclusive
right in the Territory to continue to distribute INTEGRITY's Records hereunder
until such time as WORD has recouped the full amount of such indebtedness out
of INTEGRITY's net proceeds.
16. INVENTORY AND SHRINKAGE. Inventory shall at all times be
INTEGRITY's property. All transfers and removals of Inventory shall be at
INTEGRITY's expense and the quantities of such transferred or removed Inventory
shall be subject to a [ ]* percent ([ ]*%) shrinkage allowance calculated
as of December 31st of each year based on the average monthly inventory ending
balance for the applicable calendar year. WORD will furnish to INTEGRITY the
results of its inventory cycle counts regarding INTEGRITY product kept at
WORD's warehouse(s) for each year of the term hereunder. INTEGRITY shall have
the right, on an annual basis and at its expense, to conduct a physical
inventory of its product upon reasonable notice. At such times as WORD
conducts a physical inventory of INTEGRITY's product, the results of said
physical inventory will be furnished to INTEGRITY also. At the end of the
Term, INTEGRITY shall remove its inventory from WORD's custody within thirty
(30) days after WORD's written request for such removal. The cost of such
removal and storage charges from and after the thirty-first (31st) day
following such written demand shall be paid by INTEGRITY. At the end of the
Term of this Agreement allowance for shrinkage shall be calculated on the same
basis as applied throughout the Term as set forth above.
17. DELETION OF RECORDS.
a. INTEGRITY shall have the right, with WORD's consent
as to the precise timing thereof, to declare specified Records as out-of-print
or remainders and to delete such Records from WORD's catalog ("Deleted
Records") upon two (2) months' written notice to WORD ("Deletion Notice").
Upon receipt of such Deletion Notice, WORD shall advise all of its accounts of
such pending deletion to be effective at the time stated in such notices to its
accounts (the "Deletion Date"). If INTEGRITY wishes to remainder such
Inventory after such Deletion Date, shipment and collection shall be
INTEGRITY's sole responsibility. At any time after INTEGRITY deletes one (1)
or more Records, WORD may, by written notice to INTEGRITY, require INTEGRITY to
remove its Inventory of such Record or Records from WORD's warehouses and
INTEGRITY shall do so within thirty (30) days after such notice. The cost of
such removal and storage charges from and after the thirty-first (31st) day
following such notice shall be paid by INTEGRITY.
b. Upon deletion of a Record or Records from WORD's
catalog, WORD shall continue to accept returns from WORD's customers for a
period not to exceed six (6) months or the expiration of the Term (or other
termination of this Agreement), whichever is shorter. For purposes of this
Paragraph, a return shall be
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confidential treatment.
<PAGE> 11
deemed to have been accepted on the date such return is physically processed by
WORD.
18. RETURNS UPON TERMINATION. Upon expiration of the Term of this
Agreement, WORD shall continue to accept returns (from other than Deleted
Records) for a period of six months (the "Extra Returns Period"). Six (6)
months prior to the expiration of the Term, WORD shall establish a monthly
returns reserve in an amount equal to the monthly INTEGRITY sales times the
"average actual returns percentage." The "average actual returns percentage"
shall be equal to the total actual returns during the twelve (12) month period
beginning eighteen (18) months prior to the expiration of the Term and ending
six (6) months prior to the end of the Term divided by the actual gross
commissionable sales during the same period. This monthly returns reserve
percentage shall reduce the payments due to INTEGRITY each month for the last
six (6) months of the Term. This return reserve shall be treated like any
other return and therefore should be subtracted from gross sales before any
distribution fee is calculated. The cumulative reserve built by this six (6)
month period shall be used during the Extra Returns Periods. WORD will reduce
the returns reserve during the Extra Returns Period by the gross amount of the
credits issued to WORD's customers (i.e., if WORD issues the customer a credit
for $5.80, the reserve balance will be reduced by the same amount.) To the
extent the reserve balance is insufficient to bear such debits against the
reserve (i.e., credits to WORD's customers), INTEGRITY shall promptly pay to
WORD the excess. Following the expiration of the period during which WORD has
agreed to accept returns (i.e., the "Extra Returns Period"), WORD shall release
the remaining reserves, if any, within fourteen (14) days, and subsequently,
INTEGRITY, for the benefit of WORD's customers, shall accept returns of Records
distributed pursuant to this Agreement, and give such customers full credit.
19. INSURANCE. The risk of loss of INTEGRITY's property in WORD's
possession (i.e., finished goods Inventory, finished jackets, inserts, and
other components) shall be borne by WORD, and WORD will procure and pay for an
insurance policy naming INTEGRITY as the primary loss-payee, in an amount equal
to the wholesale price of INTEGRITY's inventory on hand in warehouse. The
proceeds of such policy shall be payable to INTEGRITY in the event of the
destruction or damage to the inventory. Evidence of such insurance shall be
furnished to INTEGRITY upon request.
20. NOTICES.
a. All notices, statements and payments which WORD may
be required or desire to serve upon INTEGRITY shall be served by depositing
same, postage prepaid, in any mail box, chute, or other receptacle authorized
by the United States Post Office Department for mail, addressed to INTEGRITY at
the address below its signature, or at such other address as INTEGRITY may from
time to time designate by written notice to WORD pursuant to Subparagraph 19.b.
The date of service of any notice, statement, or payment so deposited shall be
five (5) business days following the date of
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confidential treatment.
<PAGE> 12
deposit.
b. All notices, statements, and payments which INTEGRITY
may be required or desire to service upon WORD shall be served by depositing
same, postage paid, in any mail box, chute or other receptacle authorized by
the United States Post Office Department for mail, addressed to WORD at the
address below its signature, or at such other address as WORD may from time to
time designate by written notice to INTEGRITY pursuant to Subparagraph 19.a.
The date of service of any notice, statement, or payment so deposited shall be
five (5) business days following the date of deposit.
21. WORD'S SERVICES NON-EXCLUSIVE. Nothing in this Agreement
shall be construed to prevent or restrict WORD from producing, distributing,
promoting and otherwise exploiting records of any kind, including those
produced by itself or other persons, whether or not competitive with any of the
Records distributed hereunder. Nothing in this Agreement shall be construed to
prevent or restrict INTEGRITY from producing records of any kind, including
those which may be deemed competitive with product produced or distributed by
WORD. Subject to the provisions of Paragraph 6.e. herein, WORD agrees to
distribute all Records produced by INTEGRITY.
22. FOREIGN SALES. INTEGRITY agrees to honor its current
agreement with Word UK and shall consider an extension of that agreement in
order to align the term of that agreement with this Agreement with WORD, if
current operational problems which are now of concern to INTEGRITY shall be
resolved prior to the expiration of the agreement now in force. INTEGRITY
agrees to negotiate in good faith with Word Canada regarding Canadian
distribution of its Records when such rights become available on December 31,
1996. Should such agreement be reached with Word Canada, said agreement will
be co-terminous with this Agreement with WORD. The failure of INTEGRITY to
make an agreement with either of WORD's foreign affiliates shall have no impact
and effect on this Agreement.
23. WAIVERS AND CURE OF BREACH. The waiver by either party or any
term or condition of this Agreement or any part hereof shall not be deemed a
waiver by such party of any other term or condition of this Agreement or of any
later breach of this Agreement or of any part thereof. Except for a breach by
WORD pursuant to Paragraph 12, neither WORD nor INTEGRITY shall be deemed to be
in breach of any of their respective obligations hereunder unless and until the
other shall have given specific written notice by certified or registered mail,
return receipt requested, of the nature of such breach and the receiving party
shall have failed to cure such breach within thirty (30) days after receipt of
such written notice, provided such breach is reasonably capable of being fully
remedied within such thirty (30) day period, or if it is not, the receiving
party shall not be deemed to be in breach if such party commences to remedy
such breach within such thirty (30) day period and proceeds with reasonable
diligence to complete the
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confidential treatment.
<PAGE> 13
remedying of such breach.
24. TERMINATION. This Agreement may be terminated only as
follows:
(a) Upon the mutual written agreement of the parties
hereto; or
(b) Upon either party's breach of performance and failure
to cure as set forth herein.
25. NO ASSIGNMENT. Neither party may assign this Agreement, or
any part hereof, or any rights hereunder to any person without the written
consent of the other, except that either party may, without such consent,
assign this Agreement to its shareholder or shareholders, to a parent,
subsidiary or affiliated corporation, or to any person acquiring all or
substantially all of such party's assets. The foregoing notwithstanding, the
parties mutually agree that should the ownership or voting control of either
company change during the Term hereof, either of the parties may, upon four (4)
months' written notice to the other party, terminate this Agreement.
26. GOVERNING LAW. This Agreement shall be governed by laws of
the State of Tennessee, County of Davidson, applicable to contracts made and to
be performed within Tennessee.
27. INDEMNITIES.
(a) WORD and INTEGRITY agree to indemnify one another
against, and hold each other harmless from, any and all claims, liabilities,
causes of action, damages, expenses, costs of defense (including reasonable
attorneys' fees and court costs) and other costs arising out of or in any way
related to any breach of any representation, warranty or agreement contained in
this Agreement; or though not a breach of this Agreement, any act for which
WORD has no responsibility (including without limitation artist claims,
producer claims, union claims, copyright claims, trademark claims, and disputes
as to the ownership of or rights in the Integrity Masters which may not arise
out of or be related to a breach) provided that such act shall result in a
judgment in WORD's or INTEGRITY's favor or a settlement executed with
INTEGRITY's consent, said consent not to be unreasonably withheld.
(b) WORD and INTEGRITY represent and warrant that each
has the right to enter into this Agreement and that each shall perform all of
its material obligations hereunder.
28. ACTIONS. If either party hereto commences a legal action or
proceeding against the other to enforce rights or obligations arising out of
this Agreement, the prevailing party in such action or proceeding shall, in
addition to all other sums, be
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confidential treatment.
<PAGE> 14
entitled to recover its costs and expenses, including reasonable attorneys'
fees.
29. ENTIRE AGREEMENT. The terms set forth in this Agreement
constitute the entire agreement between WORD and INTEGRITY with respect to the
subject matter hereof, all prior negotiations and understandings being merged
herein. INTEGRITY acknowledges and agrees that no person acting or purporting
to act on behalf of WORD has made any promises or representations upon which
INTEGRITY has relied except those expressly found herein. The bold headings
contained in this Agreement are for convenience and reference only, and shall
have no effect upon the purposes or intent of this Agreement. This Agreement
may only be altered by an instrument executed by both INTEGRITY and an
authorized officer of WORD.
INTEGRITY INCORPORATED WORD, INC.
1000 Cody Road 3319 West End Avenue
Mobile, Alabama 36695 Nashville, Tennessee 37203
By: /s/ P. Michael Coleman By: /s/ Roland Lundy
----------------------------- ---------------------------------
Title: President Title: President
-------------------------- ------------------------------
- 14 -
* Indicates information which has been redacted pursuant to a request for
confidential treatment.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,861
<SECURITIES> 0
<RECEIVABLES> 5,721
<ALLOWANCES> 1,435
<INVENTORY> 3,659
<CURRENT-ASSETS> 14,928
<PP&E> 7,554
<DEPRECIATION> 2,570
<TOTAL-ASSETS> 34,094
<CURRENT-LIABILITIES> 21,601
<BONDS> 18,765
0
0
<COMMON> 55
<OTHER-SE> 12,035
<TOTAL-LIABILITY-AND-EQUITY> 34,094
<SALES> 14,026
<TOTAL-REVENUES> 16,194
<CGS> 6,801
<TOTAL-COSTS> 5,306
<OTHER-EXPENSES> 3,865
<LOSS-PROVISION> 3,789
<INTEREST-EXPENSE> (781)
<INCOME-PRETAX> (584)
<INCOME-TAX> (237)
<INCOME-CONTINUING> (347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (347)
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</TABLE>
