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FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 1, 1996
MOVIE GALLERY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of other jurisdiction of incorporation)
0-24548 63-1120122
(Commission File Number) (I.R.S. Employer Identification Number)
739 West Main Street 36301
Dothan, Alabama
(Address of principal executive offices) (Zip Code)
(334) 677-2108
(Registrants telephone number, including area code)
n/a
(Former name or former address, if changed since last report)
Total Number of Pages: 2
Index to Exhibits appears on Page 1
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Item 2. Acquisition or Disposition of Assets
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On July 1, 1996, a subsidiary of Movie Gallery, Inc. (the "Subsidiary") acquired
Home Vision Entertainment, Inc. ("Home Vision") in a transaction that has been
accounted for as a pooling of interests pursuant to an Agreement of Merger dated
June 5, 1996 as amended on June 28, 1996 between Home Vision, Movie Gallery,
Inc. (the "Company"), the Subsidiary and certain shareholders of Home Vision.
Home Vision operates 55 video specialty stores in Maine, New Hampshire and
Massachusetts. The Company issued approximately 731,000 shares of its common
stock to Home Vision shareholders upon consummation of the merger. The purchase
price and the number of shares of common stock issued at closing is subject to
adjustment within 60 days to reflect the actual amount of assumed liabilities
and available cash (currently estimated to be $12,500,000) at the closing. The
operating assets acquired in the merger consist primarily of merchandise
inventory for sale and videocassette rental inventory which were used by Home
Vision in operation of its video specialty stores and which the Company intends
to use for the same purpose.
Item 5. Other Events
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Effective July 10, 1996, the Company entered into a Credit Agreement with First
Union National Bank of North Carolina with respect to a $125,000,000 Reducing
Revolving Credit Facility. The credit facility has a term of four years and
replaces the Company's current line of credit agreement.
Item 7. Financial Statements and Exhibits
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(a) Financial statements of business acquired
(b) Pro forma financial information
It is impractical to file the required financial statements and pro forma
financial statements at this time. The Company will file such statements
no later than 60 days after the filing of this Form 8-K.
(c) Exhibits
1. Agreement of Merger between Home Vision Entertainment, Inc. and Movie
Gallery, Inc. dated June 5, 1996 and Amendment to Agreement of Merger
dated June 28, 1996.
2. Credit Agreement between First Union National Bank of North Carolina
and Movie Gallery, Inc. dated July 10, 1996.
Item 8. Change in Fiscal Year
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On July 1, 1996, Movie Gallery, Inc., currently a calendar year registrant,
adopted a fiscal year which will end on the first Sunday following December 30.
This change will result in the Company having a 52 or 53 week year. The 1996
Form 10-K will reflect a 53 week year ending January 5, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MOVIE GALLERY, INC.
Date: July 15, 1996
By: /s/ J. Steven Roy
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J. Steven Roy
Senior Vice President and
Chief Financial Officer
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AGREEMENT OF MERGER
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THIS AGREEMENT OF MERGER is made and entered into as of the 5th day of
June, 1996, by and among MOVIE GALLERY, INC., a Delaware corporation ("Movie
Gallery"), MOVIE GALLERY OF MAINE, INC., a Delaware corporation ("Subsidiary"),
HOME VISION ENTERTAINMENT, INC., a Delaware corporation ("Home Vision"), and
Martin L. Allen, William G. Guerrette, Jr., William S. Allen, James G. Howard,
Terry Drake, Thomas G. Ellis, Jeffrey Owen, Linda Allen, Robyn Allen, Melanie K.
Guerrette, Suzanne Howard and Debra Owen (the "Executing Shareholders").
RECITALS
A. Home Vision owns and operates fifty four (54) video specialty stores
located in the States of Maine, New Hampshire and Massachusetts (the "Stores").
B. On April 26, 1996, Movie Gallery and Home Vision entered into a letter
of intent setting forth the agreement in principle of the Parties with respect
to Movie Gallery's acquisition of the capital stock of Home Vision.
C. The respective Boards of Directors of Movie Gallery, Subsidiary and
Home Vision have approved Movie Gallery's acquisition of all of the capital
stock of Home Vision by means of a reverse merger (the "Merger") of Subsidiary
with and into Home Vision, with Home Vision to be the surviving corporation, on
the terms and subject to the conditions set forth in this Agreement and the
corresponding Plan of Merger.
D. The Shareholders are the record and beneficial owners of the Home
Vision Shares and are listed on Schedule 2.1.3.1 hereof. The Executing
Shareholders are the record and beneficial owners of 96.80% of the Home Vision
Shares. Martin L. Allen, William G. Guerrette, Jr., William S. Allen, James G.
Howard, Terry Drake, Thomas G. Ellis and Jeffrey Owen are the Directors of Home
Vision and the record and beneficial owners of 84.58% of the Home Vision Shares
(the "Principal Shareholders").
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E. The Executing Shareholders have approved the Merger and agreed to
indemnify Movie Gallery and the Surviving Corporation (hereinafter defined)
against certain contingencies in connection therewith as provided in this
Agreement.
F. Movie Gallery wire transferred One Hundred Thousand and
No/100 Dollars ($100,000.00) to Moncure & Barnicle in anticipation of the
execution of this Agreement, as a deposit which will be held subject to the
terms of this Agreement.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows:
DEFINITIONS
"Accounts Receivable" means (a) all uncollected video distributor credits
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or rights to reimbursement, (b) customer sale receipts due and owing to Home
Vision for any rental period or sale transactions occurring prior to the Closing
Date, that occur in the Ordinary Course of Business, as hereinafter defined, and
(c) any other amounts due and owing to Home Vision as of the Closing Date (as
hereinafter defined).
"Affiliate" means, as to a specified person, a person that directly, or
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indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the person or entity specified.
"Assumed Liabilities" means all Liabilities (as hereinafter defined) of
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Home Vision attributable to the period of operations prior to and including the
Closing Date (as hereinafter defined), as well as all brokerage fees and/or
commissions due to Piper Jaffray, Inc. and all costs and expenses incurred by
Home Vision in connection with this Agreement and the transactions contemplated
hereby.
"Available Cash" means cash on hand, bank deposits, cash equivalents,
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prepaid items and expenses for services, insurance, taxes and licenses, all
security deposits and the like under any contract or lease, the cost of
constructing, building out and supplying inventory and other related costs for
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the new video specialty store located at One South River Road, Bedford, New
Hampshire (of up to, but no more than, $150,000.00), tax refunds (and credits),
amounts due from landlord's for tenant improvements under leases, and video
distributors credit memorandums/returns and studio cooperative advertising
credits accruing and attributable to the period of operations prior to the
Closing Date.
"Confidential Information" means any information concerning the businesses
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and affairs of Home Vision, Movie Gallery or Subsidiary.
"Deposit" means the One Hundred Thousand and No/100 Dollars ($100,000.00)
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delivered or wire transferred by Movie Gallery to Moncure & Barnicle to be held
in a non-interest bearing account, pursuant to the terms of this Agreement.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
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retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Encumbrance" means any mortgage, pledge, lien, encumbrance, charge or
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adverse claim affecting title or ownership of real or personal property, or a
security interest of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes of any jurisdiction).
"GAAP" means generally accepted accounting principles in effect in the
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United States as of the date hereof.
"Home Vision Common Stock" means the $.01 par value common stock which is
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authorized by the Certificate of Incorporation of Home Vision.
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"Home Vision Shares" means all of the issued and outstanding shares of Home
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Vision Common Stock.
"Intellectual Property" means all (a) patents, patent applications, patent
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disclosures, and improvements thereto, (b) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (c) copyrights and registrations and
applications for registration thereof, (d) mask works and registrations and
applications for registration thereof, (e) computer software, data,
documentation, (f) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing, and business data,
pricing and costs information, business and marketing plans, and customer and
supplier lists and information), (g) other proprietary rights, and (h) copies
and tangible embodiments thereof (in whatever form or medium).
"Liabilities" means all the debts, liabilities and obligations of any
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nature (whether absolute, accrued, contingent or otherwise and whether due or to
become due) of Home Vision, as shown on its Financial Statements, as hereinafter
defined.
"Material Adverse Effect" means liabilities which have had, or are
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reasonably likely to have, in the aggregate, a material adverse effect on the
business, operations, financial condition, assets or liabilities of Home Vision,
Movie Gallery or Subsidiary as the case may be.
"Movie Gallery Common Stock" means the $.001 par value common stock which
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is authorized by the Certificate of Incorporation of Movie Gallery.
"Movie Gallery Shares" means the aggregate number of shares of Movie
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Gallery Common Stock to be issued to the Shareholders (as hereinafter defined)
pursuant to the Merger.
"Security Interest" means any mortgage, pledge, security interest,
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encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, and (e) purchase money liens and
liens securing rental payments under capital lease arrangements.
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"Shareholders" means the record and beneficial owners of the Home Vision
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Shares.
"Taxes" means all taxes, charges, fees, levies, penalties or assessments
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imposed by any U.S. federal, state, local or foreign taxing authority,
including, but not limited to any federal, state, local, or foreign income,
gross receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative minimum, estimated,
or other tax, including any interest, penalty, or additions thereto, whether
disputed or not.
MERGER
1.1 Merger. Movie Gallery, Subsidiary and Home Vision will each enter
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into a Plan of Merger, in the form attached hereto as Exhibit 1.1 (the "Plan of
Merger"). When the Plan of Merger has been adopted by the Board of Directors of
each such party, approved by the shareholder(s) of Subsidiary and Home Vision,
and all other conditions herein have been satisfied, Articles of Merger will be
executed and filed with the Secretary of State of Delaware, and the separate
corporate existence of Subsidiary shall cease, and it shall be merged with and
into Home Vision.
1.2 The Effective Date. The Articles of Merger shall be filed with and
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recorded by the Secretary of State of Delaware immediately following (or
concurrently with) the Closing (as hereinafter defined), and the Merger shall be
effective immediately upon the filing of the Articles of Merger. Such date and
time are herein referred to as the "Effective Date".
1.3 Effect of Merger. The Merger shall have the effect set forth under
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Section 259 of the Delaware General Corporation Law. As of the Effective Date,
Subsidiary shall be merged with and into Home Vision. Home Vision shall
continue as the surviving corporation (the "Surviving Corporation") and the
separate existence of Subsidiary shall cease. Home Vision may, at any time
after the Effective Date, take any action (including executing and delivering
any document) in the name and on behalf of Subsidiary in order to carry out and
effectuate the transactions contemplated by this Agreement.
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1.3.1 Certificate of Incorporation. The Certificate of Incorporation
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of the Surviving Corporation shall remain in effect as they are immediately
prior to the Effective Date.
1.3.2 Bylaws. The Bylaws of the Surviving Corporation shall remain
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in effect as they are immediately prior to the Effective Date.
1.3.3 Directors and Officers. The directors and officers of
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Subsidiary shall become the directors and officers of the Surviving Corporation
as of the Effective Date.
1.4 Conversion of Home Vision Shares.
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1.4.1 Each issued and outstanding share of Home Vision Common Stock
shall, by virtue of the Merger and without any action on the part of the
Shareholders, be converted as of the Effective Date into that number of shares
(the "Conversion Ratio") of registered, fully paid, nonassessable, voting Movie
Gallery Common Stock determined pursuant to the Exchange Formula. The Exchange
Formula is defined as (a) the quotient of (i) Thirty One Million Five Hundred
Thousand and No/100 Dollars ($31,500,000.00) minus the Merger Consideration
Adjustment, divided by (ii) the Market Price, divided by (b) the total number of
shares of Home Vision Common Stock outstanding as of the Closing Date. The
Merger Consideration Adjustment is defined as the excess of Assumed Liabilities
over Available Cash at the Closing Date. Solely for purposes of calculating the
Movie Gallery Shares to be issued at Closing, the Merger Consideration
Adjustment is agreed to be Thirteen Million and No/100 Dollars ($13,000,000.00),
as determined pursuant to Schedule 1.4 hereof, or such other amount as Movie
Gallery and the Executing Shareholders may agree upon at Closing, and in
calculating the final Movie Gallery Shares pursuant to Section 1.5 below, the
Merger Consideration Adjustment shall be determined as provided in Section 1.5.
The Market Price is defined as the average of the reported last sale prices of
Movie Gallery Common Stock on the NASDAQ National Market for the fifteen (15)
trading days immediately preceding the Closing Date; provided, however, in the
event that such average price is less than $27.00 per share, then the Market
Price shall be deemed to be $27.00, and in the event that such average
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price is greater than $31.00 per share, then the Market Price shall be deemed to
be $31.00. Fractional shares of Movie Gallery Common Stock shall be rounded to
the nearest whole share. The Movie Gallery Shares equals the Conversion Ratio
times the Home Vision shares, and the Movie Gallery Shares issued at Closing are
referred to as the initial Movie Gallery Shares. The initial Movie Gallery
Shares shall be distributed at Closing as follows: (a) that number of the Movie
Gallery Shares equal in value to Five Hundred Thousand and No/100 Dollars
($500,000.00) based upon the Market Price shall be deposited (the "Deposited
Stock") with SouthTrust Bank of Alabama, N.A. (the "Escrow Agent") to be held
pursuant to the terms of the escrow agreement attached hereto as Exhibit 1.4
(the "Stock Escrow Agreement"), which shall be executed by the Escrow Agent and
the parties hereto at Closing, and (b) the balance of the initial Movie Gallery
Shares shall be distributed to the Shareholders in accordance with their
respective ownership interests in the Home Vision Shares as set forth on
Schedule 2.1.3.1 hereto.
1.4.2 By way of example, but not by way of limitation, the following
is an illustration of the Conversion Ratio and Exchange Formula, assuming a
Merger Consideration Adjustment of $13,000,000.00 and a Market Price of $30.00.
The Conversion Ratio would be .1032, calculated using the Exchange Formula as
follows: $31,500,000.00 - $13,000,000.00 divided by $30.00 with that number
being divided by 5,975,758. Thus each share of Home Vision Common Stock would
be exchanged for .1032 shares of Movie Gallery Common Stock, with the
Shareholders receiving an aggregate of 616,667 shares of Movie Gallery Common
Stock.
1.5 Adjustment of Movie Gallery Shares. As soon as practicable after the
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Effective Date, but not later than sixty (60) days after the Effective Date,
Movie Gallery and the Executing Shareholders shall determine and mutually agree
upon the actual amount of the Merger Consideration Adjustment. If said parties
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cannot reach an agreement within sixty (60) days after the Effective Date, said
parties agree that Movie Gallery's independent auditors and Home Vision's
independent auditors shall determine and mutually agree upon the Merger
Consideration Adjustment, which determination shall be final and binding on
Movie Gallery and the Shareholders. A final Conversion Ratio shall then be
calculated using the Exchange Formula, once the actual amount of the Merger
Consideration Adjustment is calculated under this Section 1.5. The final
Conversion Ratio times the Home Vision Shares equals the final Movie Gallery
Shares. If the final Movie Gallery Shares are less in number than the initial
Movie Gallery Shares, the Deposited Stock shall be reduced by the number of
shares (the "Return Shares") equaling the difference. Upon written notice from
Movie Gallery, the Escrow Agent shall deliver to Movie Gallery that number of
shares of the Deposited Stock equal to the Return Shares. If the difference is
such that the number of shares of Deposited Stock are insufficient, then in
addition to returning all of the shares of Deposited Stock to Movie Gallery, the
Shareholders in proportion to their ownership interest as set forth on Schedule
2.1.3.1 shall reconvey to Movie Gallery such number of shares of Movie Gallery
Common Stock as are necessary to eliminate the difference. If the final Movie
Gallery Shares are greater in number than the initial Movie Gallery Shares,
Movie Gallery shall within five (5) business days issue that number of shares of
Movie Gallery Common Stock equal to the difference to the Shareholders in
accordance with their respective ownership interests set forth on Schedule
2.1.3.1.
1.6 Home Vision Warrants. Movie Gallery agrees that subsequent to the
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Effective Date, the Amended and Restated Common Stock Purchase Warrant dated
September 21, 1995 (the "Warrant") currently held by Ingram Entertainment, Inc.
shall be exercisable into shares of Movie Gallery Common Stock on the following
basis. As of the date of this Agreement, the Warrant is exercisable into Eight
Hundred Fourteen Thousand Eight Hundred Seventy Six (814,876) shares of Home
Vision Common Stock (the "Exercise Shares") at an exercise price of $3.68 per
share. After the Effective Date, the Warrant shall be exercisable into that
number of shares of Movie Gallery Common Stock (the "Movie Gallery Exercise
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Shares") equal to the number of Exercise Shares times that number which is equal
to (i) Thirty One Million Five Hundred Thousand and No/100 Dollars
($31,500,000.00) minus the Merger Consideration Adjustment (as finally
determined pursuant to Section 1.5 above) divided by (ii) the Market Price, and
then divided by (iii) Six Million Seven Hundred Ninety Thousand Six Hundred
Thirty Four (6,790,634) (representing the Home Vision Shares plus the Exercise
Shares), having an exercise price per share of $3,000,000 divided by the number
of Movie Gallery Exercise Shares.
1.7 Exchange of Certificates. After the Effective Date, without further
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action, each holder of a certificate or certificates representing the Home
Vision Shares outstanding immediately prior to the Effective Date upon surrender
thereof to Movie Gallery, shall receive in exchange therefor a certificate or
certificates representing the number of whole shares of Movie Gallery Common
Stock into which such holder's shares of Home Vision Common Stock were converted
in accordance with the formula set forth in Section 1.4 above. Until so
surrendered, such certificate or certificates representing Home Vision Common
Stock outstanding immediately prior to the Merger shall be deemed for all
purposes (other than as provided below with respect to the payment of dividends
or other distributions, if any, in respect of Movie Gallery Common Stock) to
represent the number of whole shares of Movie Gallery Common Stock into which
the shares of Home Vision Common Stock theretofore represented thereby shall
have been converted. Movie Gallery may, at its option, refuse to pay any
dividend or other distribution, if any, payable to the holders of shares of
Movie Gallery Common Stock to the holders of certificates representing Home
Vision Common Stock until such certificates are surrendered for exchange;
provided, however, that, subject to the rights of Movie Gallery under its
Certificate of Incorporation, upon surrender and exchange of such Home Vision
certificates there shall be paid to the record holders of the Movie Gallery
stock certificate or certificates issued in exchange therefor the amount,
without interest, of dividends and other distributions, if any, which have
become payable with respect to the number of whole shares of Movie Gallery
Common Stock into which the shares of Home Vision Common Stock theretofore
represented thereby shall have been converted and which have not previously been
paid.
1.8 Investment Information. The Shareholders acknowledge receipt from
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Movie Gallery of copies of:
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1.8.1 The Prospectus, dated October 25, 1995 (the "Prospectus"), with
respect to the Movie Gallery Shares, which Prospectus was a part of a
Registration Statement on Form S-4 filed with and declared effective by the
Securities and Exchange Commission (the "Commission");
1.8.2 The Annual Report on Form 10-K, as amended, for the year ended
December 31, 1995, filed by Movie Gallery with the Commission;
1.8.3 Each Quarterly Report on Form 10-Q and Current Report on Form
8-K filed by Movie Gallery with the Commission after the date of the Annual
Report furnished pursuant to Section 1.8.2;
1.8.4 The definitive proxy statement filed by Movie Gallery with the
Commission in connection with the solicitation of proxies for its annual meeting
of stockholders to be held June 6, 1996 (all of the above in Sections 1.8.1
through 1.8.4 are collectively, the "SEC Reports").
1.8.5 [Intentionally Left Blank]
1.8.6 [Intentionally Left Blank]
The Shareholders also acknowledge that the appropriate officers of Movie
Gallery have responded to their questions relating to the SEC Reports and the
business and affairs of Movie Gallery.
1.9 Closing. The closing of the Merger (the "Closing") shall take place
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at the offices of Moncure & Barnicle, in Brunswick, Maine, or at such other
location as the parties shall mutually agree, on the later of (i) June 28, 1996,
or (ii) the business day following the satisfaction of the conditions set forth
in Sections 5.1.16 and 5.2.5 hereof, or such other date as the parties shall
mutually agree (the "Closing Date").
1.10 Further Assurances. From time to time, at Movie Gallery's and/or the
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Surviving Corporation's request, and without further consideration, the
Shareholders will execute, acknowledge and deliver all instruments of further
assurance and do all such acts and things as may reasonably be required more
effectively to convey, transfer to and vest in the Surviving Corporation and its
assignees, any property or assets to be conveyed hereunder, provided that
Shareholders shall not be required to assume any liabilities; and, in the case
of contracts and rights, if any, which cannot be transferred effectively without
consent of third parties which cannot be obtained, the Shareholders will use
their best efforts to secure for the Surviving Corporation and its assignees the
benefits thereof.
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1.11 Covenant Not To Compete. As consideration for the Covenant Not To
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Compete to be executed by the Principal Shareholders and delivered to Movie
Gallery at Closing, pursuant to Section 5.1.5 hereof, Movie Gallery shall pay
the Principal Shareholders the sum of Five Hundred Thousand and No/100 Dollars
($500,000.00), (the "Covenant Consideration") payable in cash, certified funds
or by wire transfer at Closing.
1.12 Shareholders' and Home Vision's Deliveries. At Closing and
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thereafter, if requested by Movie Gallery, the Shareholders and/or Home Vision
shall tender (or cause to be tendered) to Movie Gallery the following items:
1.12.1 Properly endorsed stock certificates representing the Home
Vision Shares being exchanged pursuant to the Merger.
1.12.2 Home Vision's minute book, which shall contain the original
Certificate of Incorporation (and all amendments thereto), Bylaws (and all
amendments thereto) and all Corporate Minutes of Home Vision.
1.12.3 A certified copy of the Certificate of Incorporation (and all
amendments thereto) of Home Vision.
1.12.4 A copy certified by the Secretary or the President of Home
Vision of the Bylaws (and all amendments thereto) of Home Vision.
1.12.5 [Intentionally Left Blank]
1.12.6 A Certificate of Good Standing issued by the Secretary of the
State of Delaware pertaining to Home Vision.
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1.12.7 A Certificate of Good Standing issued by the Secretary of the
State of Maine pertaining to Home Vision.
1.12.8 A Certificate of Good Standing issued by the Secretary of the
State of New Hampshire pertaining to Home Vision.
1.12.9 A Certificate of Good Standing issued by the Secretary of the
State of Massachusetts pertaining to Home Vision.
1.12.10 The resignation of all officers and directors of Home Vision,
effective as of the Closing Date.
1.12.11 Landlord Consents. The Principal Shareholders shall use
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their best efforts to obtain a Consent, Release and Guaranty Agreement in the
form attached hereto as Exhibit 1.12.11 executed by Home Vision's landlord and
Home Vision for each of the Stores (if required); provided, however, in the
event that Movie Gallery agrees to consummate the Merger, notwithstanding that
all of the consents have not been executed and delivered, Principal Shareholders
shall use their reasonable best efforts to obtain each landlord's consent to and
approval of the Merger, as soon as practical after the Closing Date.
1.12.12 An opinion of Home Vision's counsel dated at the Closing
Date, in the form attached hereto as Exhibit 5.1.9.
1.12.13 A Rule 145 Affiliate Letter executed and delivered by the
Principal Shareholders, in the form attached hereto as Exhibit 1.12.13.
1.13 Movie Gallery's Deliveries. At Closing, and thereafter, if requested
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by the Shareholders, Movie Gallery shall deliver (or cause to be delivered) the
following items:
1.13.1 A certificate or certificates representing the Movie Gallery
Shares as provided in Section 1.4.
1.13.2 [Intentionally Left Blank]
1.13.3 An opinion of Movie Gallery's counsel, dated as of the Closing
Date, in the form attached hereto as Exhibit 5.2.3.
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REPRESENTATIONS AND WARRANTIES BY SHAREHOLDERS
2.1 The Principal Shareholders represent and warrant to Movie Gallery as
follows:
2.1.1 The Shareholders have good, absolute, and marketable title to the
Home Vision Shares, free and clear of all Liabilities, Encumbrances and Security
Interests. Neither the Shareholders nor any individual, corporation, entity or
person having or claiming any interest in, or with respect to, the Home Vision
Shares will, at or after the Closing Date, have any such claim or interest, or
have any right to claim or receive any other payment or consideration with
respect to the Home Vision Shares from Movie Gallery, Subsidiary or Home Vision
at or after the Closing Date. The Executing Shareholders have the complete and
unrestricted right, power, and authority to execute, deliver and perform this
Agreement, and the Shareholders have the complete and unrestricted right to
consummate the transaction contemplated hereby. The Board of Directors of Home
Vision and the Shareholders have taken all actions required by law, Home
Vision's Certificate of Incorporation and Bylaws, or otherwise, to authorize the
execution and delivery of this Agreement, and the consummation of the
transaction contemplated hereby.
2.1.2 At Closing, Home Vision will be a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted. Home Vision is
duly qualified as a foreign corporation in good standing in each jurisdiction
wherein the nature of its activities or its properties owned or leased makes
such qualification necessary. Home Vision has no subsidiaries, and has no
direct or indirect equity interest in any other firm, corporation, or business
enterprise. Home Vision owns and operates businesses, consisting of tangible
personal property, leasehold improvements and fixtures located at the leased
store spaces listed in Schedule 2.1.2 hereof. None of the real, personal or
intellectual property used in the business is leased by Home Vision, or if
leased, such property will be owned by Home Vision at Closing, except as stated
in Schedule 2.1.2(a) hereof.
2.1.3 Capitalization.
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2.1.3.1 Home Vision is authorized by its Certificate of
Incorporation, as amended, to issue Thirty Five Million (35,000,000) shares of
$.01 par value Common Stock, Five Million Nine Hundred Seventy Five Thousand
Seven Hundred Fifty Eight (5,975,758) shares of which are duly and validly
issued and outstanding, fully paid, and nonassessable, are owned by the
Shareholders and constitute the Home Vision Shares. The names and addresses of,
and the number of shares of the Home Vision Shares owned by the Shareholders are
set forth on Schedule 2.1.3.1 hereof. There are no other shares of capital
stock, or other securities of Home Vision authorized, issued or outstanding.
The issuance of the Home Vision Shares was exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), and all applicable
State securities laws.
2.1.3.2 Except as disclosed on Schedule 2.1.3.2, there are no
outstanding options, contracts, commitments, warrants, agreements or other
rights of any character affecting or relating in any manner to the issuance of
Home Vision's capital stock or other securities, or entitling anyone to acquire
Home Vision's capital stock or other securities. Immediately prior to Closing,
Home Vision will have no options, warrants or convertible securities
outstanding, except for the Common Stock Purchase Warrant originally issued to
Resource Holdings, Inc., dated September 21, 1995, and currently held by Ingram
Entertainment, Inc.
2.1.4 Intellectual Property.
---------------------
2.1.4.1 Home Vision has title to or has the right to use pursuant to
license, sublicense, agreement or permission all Intellectual Property necessary
for the operation of the business of Home Vision as presently conducted and as
presently proposed to be conducted. Each item of Intellectual Property owned or
used by Home Vision immediately prior to the Closing hereunder will be owned or
available for use by the Surviving Corporation on identical terms and conditions
immediately subsequent to the Closing hereunder. Home Vision has taken all
necessary action to protect each item of Intellectual Property that it owns or
uses. No person has a right to receive a royalty or similar payment in respect
of any item of Intellectual Property pursuant to any contractual arrangements
entered into by the Shareholders, Home Vision or otherwise.
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2.1.4.2 Except as disclosed on Schedule 2.1.4 hereto, to the best of
the Principal Shareholders' knowledge, Home Vision has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the directors and
officers of Home Vision has ever received any charge, complaint, claim or notice
alleging any such interference, infringement, misappropriation, or violation.
To the best of the Principal Shareholders' knowledge, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of Home Vision.
2.1.4.3 Schedule 2.1.4 identifies each registration which has been
issued to Home Vision with respect to any of its Intellectual Property,
identifies each pending application for registration which Home Vision has made
with respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which Home Vision has granted to any third party
with respect to any of its Intellectual Property (together with any exceptions).
Home Vision has delivered to Movie Gallery correct and complete copies of all
such registrations, applications, licenses, agreements and permissions (as
amended to date) and has made available to Movie Gallery correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item.
2.1.4.4 Schedule 2.1.4 also identifies each item of Intellectual
Property that any third party owns and that Home Vision uses pursuant to
license, sublicense, agreement or permission. Home Vision has supplied Movie
Gallery with correct and complete copies of all such licenses, sublicense,
agreements and permissions (as amended to date).
2.1.5 Leases. Home Vision has delivered to Movie Gallery correct and
------
complete copies of Home Vision's leases and subleases listed in Schedule 2.1.5
and Schedule 2.1.2(a) (as amended to date) which, together with the property
listed on Schedule 2.1.20, comprises all real property and substantially all
tangible personal property and assets used in or related to the conduct of Home
Vision's business. With respect to each lease and sublease listed in Schedule
2.1.5 and Schedule 2.1.2(a), and subject to applicable bankruptcy laws:
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2.1.5.1 Except as disclosed on Schedule 2.1.5.1, as to the
obligations of Home Vision, the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
2.1.5.2 The lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the Closing, subject to landlord's consent, if required;
2.1.5.3 Except as disclosed on Schedule 2.1.5.1, Home Vision is not
in default and to its knowledge, no other party is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification or acceleration
thereunder;
2.1.5.4 Home Vision and to its knowledge, no other party to the
lease or sublease has repudiated any provision thereof;
2.1.5.5 Except as disclosed on Schedule 2.1.5.1, there are no
disputes, oral agreements or forbearance programs in effect as to the lease or
sublease;
2.1.5.6 Except as disclosed on Schedule 2.1.5.1, Home Vision has not
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any
interest in the leasehold or subleasehold;
2.1.5.7 To the best of the Principal Shareholders' knowledge, all
premises and facilities leased or subleased by Home Vision have received all
approvals of governmental authorities (including licenses and permits) required
in connection with the operation of the business thereon and have been operated
and maintained in accordance with applicable laws, rules and regulations;
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2.1.6 Violations, Suits, Etc. Except as disclosed on Schedule 2.1.6
----------------------
and in all respects material to Home Vision, the Principal Shareholders are not
aware and Home Vision has received no notice of default under, or violation of,
any law or regulation, or any order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality wherever located. Except to the extent set forth on the
Schedule 2.1.6, there are (1) no claims, actions, causes of action, orders,
writs, injunctions, decrees, suits or proceedings instituted or filed and, (2)
there are no claims, actions, causes of action, orders, writs, injunctions,
decrees, suits or proceedings threatened presently or which in the future may be
pending or threatened against or affecting the Shareholders or Home Vision, or
their properties, assets or businesses, at law or in equity, by any person or
entity before or by any federal, state, municipal or other governmental
department, commission, board, court, bureau, agency or instrumentality wherever
located. To the best of the Principal Shareholders' knowledge, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge or other
restriction of any government, governmental agency, or court to which the
Shareholders or Home Vision are subject or any provision of Home Vision's
Certificate of Incorporation or Bylaws or (ii) except with respect to the
requirement for landlord consent referenced in Section 2.1.5.2 above, bank
financing and Ingram Entertainment debt, conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, Encumbrance or other arrangement to which the Shareholders or
Home Vision are a party or by which they are bound or to which any of their
assets are subject. Except as set forth on Schedule 2.1.6(a), neither the
Shareholders nor Home Vision needs to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any third party or any
government or governmental agency in order for the parties to consummate the
transactions contemplated by this Agreement.
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2.1.7 Financial Statements. Attached hereto as Schedule 2.1.7 are the
--------------------
following financial statements (together with the notes thereto, collectively
the "Financial Statements"): (i) audited balance sheet (the "Most Recent Year
End Balance Sheet") and statements of income, changes in equity, and cash flows
(the "Most Recent Year End Financial Statements") as of and for the fiscal year
ended September 30, 1995, (the "Most Recent Fiscal Year End"), for Home Vision;
and (ii) unaudited balance sheet (the "March 31, 1996 Balance Sheet") and
statements of income, changes in equity, and cash flow (the "Most Recent
Financial Statements") as of and for the six (6) months ended March 31, 1996,
(the "Most Recent Fiscal Month End"), for Home Vision. To the best knowledge of
the Principal Shareholders, the Financial Statements have been prepared on a
consistent basis throughout the periods covered thereby, are in all material
respects true, correct and complete and prepared in accordance with G.A.A.P.,
are consistent with the books and records of Home Vision (which books and
records are correct and complete), and fairly and accurately present the
financial and business condition of Home Vision as of the dates thereof and the
results of the operations of Home Vision for the periods covered thereby;
provided, however, that the Most Recent Financial Statements are subject to
normal year-end adjustments (which will not be material in the aggregate). The
Shareholders acknowledge and agree that Movie Gallery has relied upon the
financial information set forth in the Financial Statements in order to
determine the consideration to be paid to the Shareholders with respect to the
Merger and the determination of such consideration was calculated based upon the
revenues, earnings and financial condition of Home Vision.
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2.1.8 Present Status. Since the Most Recent Fiscal Month End and up
--------------
through the Closing, Home Vision has not and will not have: incurred any
obligations or liabilities, absolute, accrued, contingent, or otherwise, except
current liabilities in the ordinary course of business consistent with past
custom and practice of Home Vision (the "Ordinary Course of Business");
discharged or satisfied any lien or encumbrances, or paid any obligations or
liabilities, except current liabilities and current liabilities incurred since
the Most Recent Fiscal Month End, in each case, in the Ordinary Course of
Business; declared or made any shareholder payment, dividend or other
distribution or purchased or redeemed any of its securities or agreed to do so;
mortgaged, pledged or subjected to lien, encumbrance, or charge any of its
assets; canceled any debt or claim; sold or transferred any assets except sales
from inventory in the Ordinary Course of Business; suffered any damage,
destruction, or loss (whether or not covered by insurance) materially affecting
its properties, business or prospects; waived any rights of substantial value;
paid any bonuses to any employee, or agreed to do so; entered into any lease(s);
or entered into any transaction other than in the Ordinary Course of Business,
except as disclosed on Schedule 2.1.8 hereof.
2.1.9 Undisclosed Liabilities. Home Vision has no Liabilities (and
-----------------------
there is no basis known to the Principal Shareholders for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim or
demand against it giving rise to any Liabilities), except for (i) those
contingent liabilities set forth in Schedule 2.1.9, (ii) liabilities set forth
on the face of the March 31, 1996 Balance Sheet (rather than in any notes
thereto) and (iii) liabilities which have arisen after the Most Recent Fiscal
Month End in the Ordinary Course of Business (none of which relates to any
breach of contract, breach of warranty, tort, infringement or violation of law
or arose out of any charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand) and which have not had, and are not reasonably
likely to have, in the aggregate, a Material Adverse Effect upon Home Vision.
2.1.10 Tax Returns and Audits. (a) Home Vision has filed or the
----------------------
Principal Shareholders will duly file all federal, state, and local Tax Returns
required to be filed by it whose due dates fall on or before the Closing Date,
and with respect to which a failure to do so would have a Material Adverse
Effect on Home Vision or result in any liability to Movie Gallery or the
Surviving Corporation or any lien on the assets or properties of the Surviving
Corporation. All such Tax Returns have been, or will be prepared and filed in
accordance with the applicable laws and regulations and such Tax Returns are or
will be true, correct and complete in all material respects. Except as
disclosed on Schedule 2.1.10 hereof, Home Vision has paid or will pay in full or
has made adequate provision on the March 31, 1996 Balance Sheet for the payment
of all federal, state, and local Taxes due and payable by it with respect to
which a failure to do so would have a Material Adverse Effect on Home Vision or
result in any liability to Movie Gallery or the Surviving Corporation or any
lien on the assets or properties of the Surviving Corporation. Home Vision is
not delinquent in the payment of any Tax, assessment, or governmental charge.
There are no liens for Taxes upon the assets of Home Vision, except for
statutory liens for current Taxes not yet due and payable, and except as
disclosed on Schedule 2.1.10 hereof, Home Vision has not had any tax
deficiencies proposed or assessed against it and has not executed any waiver of
the statute of limitations on the assessment or collection of any Tax. Except
as provided in Schedule 2.1.10 hereof, Home Vision's Federal, State and Local
Tax Returns have never been audited.
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(b) To the best of Principal Shareholders' knowledge, the reserves for
Taxes (except for deferred taxes) reflected on the March 31, 1996 Balance Sheet
are sufficient for the payment for all unpaid Taxes with the exception of
deferred taxes, (whether or not currently disputed) accrued through the date
thereof. Since the Most Recent Fiscal Month End, Home Vision has not incurred
any liability for Taxes other than in the Ordinary Course of Business. Home
Vision is registered to do business in the states and localities set forth on
Schedule 2.1.10(b) hereto, and Home Vision files Tax Returns in the states and
localities set forth on Schedule 2.1.10 hereto.
2.1.11 Litigation. Except as disclosed on Schedules 2.1.9 and 2.1.11,
----------
there are no legal actions, suits, arbitrations, or other legal, administrative,
or other governmental proceedings pending against Home Vision, its properties,
assets, or business; and neither the Principal Shareholders nor Home Vision is
aware of any threatened litigation or facts which to the knowledge of either
might result in any such action, suit, arbitration, or other proceeding.
2.1.12 Employee Benefit Plans; ERISA
-----------------------------
2.1.12.1 Schedule 2.1.12.1 contains a complete and accurate list of
each deferred compensation, incentive compensation, stock purchase, stock
option, employment, severance or termination pay, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by Home Vision or by any trade
or business, whether or not incorporated (an "ERISA Affiliate"), that together
with Home Vision would be deemed a "single employer" within the meaning of
section 4001 of the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder ("ERISA"), for the benefit
of any employee or former employee of Home Vision or any ERISA Affiliate (the
"Plans"). Schedule 2.1.12.1 identifies each of the Plans that is an "employee
benefit plan", as that term is defined in Section 3(3) of ERISA (the "ERISA
Plans").
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2.1.12.2 With respect to each Plan, Home Vision has heretofore
delivered to Movie Gallery true and complete copies of each of the following
documents:
(i) a copy of such Plan (including all amendments thereto) or, where
substantially similar arrangements exist , a sample copy (including all
amendments thereto) and a list of all persons participating in such arrangement;
(ii) a copy of the most recent annual report and actuarial report, if
required under ERISA, and the most recent report prepared with respect thereto
in accordance with Statement of Financial Accounting Standards No. 87,
Employer's Accounting for Pensions;
(iii) a copy of the most recent Summary Plan Description required
under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof; and
(v) the most recent determination letter received from the Internal
Revenue Service with respect to each plan intended to qualify under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
2.1.12.3 No liability under Title IV of ERISA has been incurred by
Home Vision or any ERISA Affiliate since the effective date of ERISA that has
not been satisfied in full, and to the best of Shareholders' knowledge, no
condition exists that presents a risk to Home Vision or any ERISA Affiliate of
incurring a liability under such Title. To the extent this representation
applies to section 4064, 4069 or 4204 of Title IV of ERISA, it is made with
respect to each ERISA Plan and with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which Home
Vision or an ERISA Affiliate made, or was required to make, contributions during
the five (5) year period ending on the Closing Date.
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2.1.12.4 With respect to each ERISA Plan which is subject to Title IV
of ERISA, the present value of accrued benefits under such plan, based upon the
actuarial assumptions prepared by such plan's actuary with respect to such plan
did not exceed, as of its latest valuation date, the then current value of the
assets of such plan allocable to such accrued benefits.
2.1.12.5 To the best of the Principal Shareholders' knowledge,
neither Home Vision nor any ERISA Affiliate, nor any trust created thereunder,
nor any trustee or administrator thereof has engaged in a transaction in
connection with which Home Vision or any ERISA Affiliate, any ERISA Plan, any
such trust, or any trustee or administrator thereof, or any party dealing with
any ERISA Plan or any such trust could be subject to either a material civil
penalty assessed pursuant to section 409 or 502(i) of ERISA or a material tax
imposed pursuant to section 4975 or 4976 of the Code.
2.1.12.6 No ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each ERISA Plan ended prior to the Closing Date;
and all contributions required to be made with respect thereto (whether pursuant
to the terms of any ERISA Plan or otherwise) on or prior to the Closing Date
have been timely made.
2.1.12.7 No ERISA Plan is a "multiemployer pension plan", as defined
in section 3(37) of ERISA, nor is any ERISA Plan a plan described in Section
4063(a) of ERISA.
2.1.12.8 Each ERISA Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code.
2.1.12.9 Each ERISA Plan which is intended to be "qualified" within
the meaning of section 401(a) of the Code is so qualified and the trusts
maintained thereunder are exempt from taxation under Section 501(a) of the Code.
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2.1.12.10 Except as set forth in Schedule 2.1.12.10, no Plan provides
benefits, including without limitation, death or medical benefits (whether or
not insured), with respect to current or former employees of Home Vision or any
ERISA Affiliate beyond their retirement or other termination of service (other
than (i) coverage mandated by applicable law, (ii) death benefits or retirement
benefits under any "employee pension benefit plan", as is defined in section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of Home Vision or the ERISA Affiliates or (iv) benefits the full cost
of which is borne by the current or former employee (or his beneficiary)).
2.1.12.11 Except as set forth in Schedule 2.1.12.11, the consummation
of the transactions contemplated by this Agreement will not (i) entitle any
current or former employee or officer of Home Vision or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment or (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due any
such employee or officer. Movie Gallery acknowledges that any employee who is
terminated shall be entitled to claim unemployment compensation under relevant
state laws.
2.1.12.12 To the best of Principal Shareholders' knowledge, there are
no pending, anticipated or threatened claims by or on behalf of any Plan, by any
employee or beneficiary covered under any such Plan, or otherwise involving any
such Plan (other than routine claims for benefits).
2.1.13 Environmental Matters.
---------------------
2.1.13.1 To the best of the Principal Shareholders' knowledge, Home
Vision is in full compliance with all applicable Environmental Laws (as
hereinafter defined) and to the best of the Principal Shareholders' knowledge,
there are no circumstances of any nature which may materially prevent or
interfere with compliance in the future. To the best of the Principal
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Shareholders' knowledge, all of the leased or subleased premises at the Stores
are also in compliance with all applicable Environmental Laws. Except as
disclosed in Schedule 2.1.13, neither the Shareholders nor Home Vision has ever
received a communication (whether written or oral), whether from a governmental
authority, citizen group, employee or otherwise, that alleges that Home Vision
or any of the properties or assets used in its business is not in full
compliance with Environmental Laws. All permits, licenses, registrations and
other governmental authorizations currently held by Home Vision pursuant to
Environmental Laws (collectively, "Permits") are identified in Schedule 2.1.13
and represent all Permits necessary for the conduct of the business of Home
Vision as currently conducted. Neither Shareholders nor Home Vision has been
notified by any governmental authority that any Permit will be modified,
suspended or revoked or cannot be renewed in the Ordinary Course of Business,
and no Permit will be modified, suspended or revoked, or cannot be renewed in
the Ordinary Course of Business.
2.1.13.2 To the best of the Principal Shareholders' knowledge, there
is no Environmental Notice (as defined below) that is (i) pending or threatened
against Shareholders or Home Vision, or (ii) to the best of the Principal
Shareholders' knowledge, pending or threatened against any person or entity
whose liability for such Environmental Notice may have been retained or assumed
by or could reasonably be imputed or attributed by law or otherwise to Home
Vision.
2.1.13.3 To the best of the Principal Shareholders' knowledge, there
are no past or present actions, activities, circumstances, conditions, events or
incidents arising out of, based upon, resulting from or relating to the
operation, ownership or use of any property currently or formerly owned,
operated or used by Home Vision (or any entity currently or formerly an
Affiliate of Home Vision), including, without limitation, the release, emission,
discharge or disposal of any Material (as defined below) into the Environment
(as defined below), that (i) could reasonably be expected to result in the
incurrence of costs under Environmental Laws or (ii) could reasonably be
expected to form the basis of any Environmental Notice against or with respect
to Shareholders or Home Vision or against any person or entity whose liability
for any Environmental Notice may have been retained or assumed by or could be
imputed or attributed by law or otherwise to Shareholders or Home Vision.
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2.1.13.4 To the best of the Principal Shareholders' knowledge, except
as disclosed on Schedule 2.1.13.4, Shareholders have received no notice of: (i)
underground storage tanks located on property owned, leased or used by Home
Vision (or any current or former Affiliate of Home Vision), (ii) asbestos
contained in or forming part of any building, building component, structure or
office space owned, leased or used by Home Vision (or any current or former
Affiliate of Home Vision), (iii) polychlorinated biphenyls (PCBs) used or stored
on any property owned, leased or used by Home Vision (or any current or former
Affiliate of Home Vision) and (iv) there are no locations currently or formerly
owned, leased or used by Home Vision (or any current or former Affiliate of Home
Vision) at which any Material generated, used, owned or controlled by Home
Vision (or any former Affiliate of Home Vision) (or by any previous owner or
operator) may have been disposed of or released into the Environment.
2.1.13.5 For purposes of this Agreement:
(i) "Environment" means any surface water, ground water, drinking
water supply, land surface or subsurface strata, ambient air and including,
without limitation, any indoor location.
(ii) "Environmental Notice" means any notice or claim by any federal,
state or municipal government, agency, board or organization alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental costs, or harm, injuries or damages to any
person, property, natural resources, any fines or penalties) arising out of,
based upon, resulting from, or relating to (a) the emission, discharge,
disposal, release or threatened release in or into the Environment of any
Material or (b) circumstances forming the basis of any violation, or alleged
violation, of any applicable Environmental Law.
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(iii) "Environmental Laws" means all federal, state and local laws,
codes, regulations, requirements, directives, orders, common law, and
administrative or judicial interpretations thereof, all as in effect on the date
hereof and on the Closing Date, that may be enforced by any governmental agency
or court, relating to pollution, the protection of human health, the protection
of the Environment, or the emission, discharge, release or threatened release of
Materials in or into the Environment.
(iv) "Material" or "Materials" means pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes, and including,
without limitation, asbestos, or asbestos containing materials, PCBs, and
petroleum, oil or petroleum or oil products or derivatives.
2.1.14 Labor Relations and Employment.
------------------------------
2.1.14.1
(i) There is no labor strike, dispute, slowdown, stoppage or lockout
pending, affecting or threatened against Home Vision and during the past five
(5) years there has not been any such action;
(ii) no union claims to represent any employees of Home Vision;
(iii) there is no agreement with any labor organization, nor work
rules or practices agreed to with any labor organization or employee
association, applicable to employees of Home Vision nor is Home Vision a party
to or bound by any collective bargaining agreement;
(iv) there is no representation of any employees of Home Vision by
any labor organization and there are no union organizing activities among the
employees of Home Vision, nor does any question concerning representation exist
concerning such employees;
(v) there are no written personnel policies, rules or procedures
applicable to employees of Home Vision, other than those set forth in Schedule
2.1.14, complete and accurate copies of which have heretofore been delivered to
Movie Gallery;
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(vi) neither the Principal Shareholders nor Home Vision has received
any notice or complaint that it has engaged in any unfair labor practices as
defined in the National Labor Relations Act or other applicable law, ordinance
or regulation and, to the best of Shareholders' knowledge, Shareholders and Home
Vision are, and have at all times been in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health, except
where such engagement or noncompliance would not individually or in the
aggregate have, or is reasonably likely to have, a Material Adverse Effect;
(vii) there is no unfair labor practice charge or complaint against
Home Vision (or Shareholders with respect to Home Vision) pending or, to the
best of Principal Shareholders' knowledge, threatened before the National Labor
Relations Board or any similar state or foreign agency;
(viii) there is no grievance arising out of any collective
bargaining agreement or other grievance procedure;
(ix) except as disclosed on Schedule 2.1.14.1, there are no charges
with respect to or relating to Home Vision pending or threatened before the
Equal Employment Opportunity Commission or any other agency responsible for the
prevention of unlawful employment practices;
(x) except as disclosed on Schedule 2.1.14.1, neither the Principal
Shareholders nor Home Vision has received notice of the intent of any federal,
state or local agency responsible for the enforcement of labor or employment
laws to conduct an investigation with respect to or relating to Home Vision and
no such investigation is in progress; and
(xi) except as disclosed on Schedule 2.1.14.1, no complaints, lawsuits
or other proceedings are pending or threatened in any forum by or on behalf of
any present or former employee of Home Vision, any applicant for employment or
classes of the foregoing, alleging breach of any express or implied contract or
employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship.
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2.1.14.2 Since the enactment of the Worker Adjustment and Retraining
Notification Act of 1988 (the "WARN Act"), Home Vision has not effectuated or
experienced (i) a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility used by Home Vision; or (ii) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or facility used by
Home Vision; nor has Home Vision been affected by any transaction or engaged in
layoffs or employment terminations sufficient in number to trigger application
of any similar state or local law. None of Home Vision's employees have
suffered an "employment loss" (as defined in the WARN Act) at any time within
the 90 days preceding the Closing Date.
2.1.15 Health and Safety.
-----------------
2.1.15.1 To the best of Principal Shareholders' knowledge, Home
Vision has complied with all laws (including rules and regulations thereunder)
of federal, state and local governments (and all agencies thereof) concerning
public health and safety, and employee health and safety, and to the best of the
Principal Shareholders' knowledge, no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand or notice has been filed or
commenced against any of them alleging any failure to comply with any such law
or regulation.
2.1.15.2 To the best of Principal Shareholders' knowledge, Home
Vision has no liability (and there is no basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim or demand
against Shareholders giving rise to any liability) under the Occupational Safety
and Health Act, as amended, or any other law (or rule or regulation thereunder)
of any federal, state or local government (or agency thereof) concerning
employee health and safety.
2.1.16 Construction Assurances. To the best of Principal Shareholders'
-----------------------
knowledge, the construction of all of Home Vision's leased spaces is in
compliance with the plans and specifications of any applicable county, state or
federal statutes, ordinances or standards. Home Vision agrees to furnish Movie
Gallery, prior to Closing Date, with a set of plans and specifications for the
facilities at each leased space, where available.
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2.1.17 Brokers' Fees. Neither Shareholders nor Home Vision has or will
-------------
have any liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this Agreement
for which Movie Gallery or the Surviving Corporation could become liable or
obligated, except for fees due to Piper Jaffray, Inc., in an amount not to
exceed Two Hundred Seventy Five Thousand and No/100 ($275,000.00).
2.1.18 Compliance with Laws & Other Instruments. To the best of
----------------------------------------
Principal Shareholders' knowledge, the business and operation of Home Vision has
been and is being conducted in accordance with all applicable laws, rules, and
regulations of all authorities, except those which will not result in a Material
Adverse Effect. Performance of this Agreement will not result in any material
breach of, or constitute a material default under, or result in the imposition
of any lien or encumbrance upon any property of Home Vision under any
arrangement, agreement, or other instrument to which Home Vision or the
Shareholders are a party or by which either is bound or affected, and will not
violate the Certificate of Incorporation, as amended, or the By-Laws of Home
Vision. To the best of the Principal Shareholders' knowledge, Home Vision is
not in violation of its Certificate of Incorporation, as amended, its By-Laws,
or any indebtedness, mortgage, contract, lease or other agreement or commitment,
except as set forth in Schedule 2.1.18 hereof.
2.1.19 Ownership of Assets. Home Vision has and at Closing Home Vision
-------------------
shall have good, absolute, and marketable title to all the properties and assets
it purports to own, including without limitation those reflected on the March
31, 1996 Balance Sheet and those used by Home Vision in its business at its Most
Recent Fiscal Month End, and acquired thereafter (except inventory sold in the
Ordinary Course of Business), free and clear of all Liabilities, Encumbrances
and Security Interests, except those which are disclosed on the March 31, 1996
Balance Sheet, with respect to which no default exists, the Liabilities
disclosed on Schedule 2.1.19 hereof or disclosed in the Schedule of Assets
referred to in Section 2.1.20 hereof, and the normal operating expenses and/or
payables existing, accruing or attributable to the period of operations of Home
Vision from the Most Recent Fiscal Month End to the Closing Date. To the best
of the Principal Shareholders' knowledge, all inventory, equipment and other
personal property owned by Home Vision is in good operating condition and
repair, ordinary wear and tear excepted, and is adequate and sufficient for all
current operations of Home Vision's business.
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2.1.20 Schedule of Assets. Schedule 2.1.20 sets forth the following:
------------------
2.1.20.1 A true and complete legal description of all real
properties owned by Home Vision;
2.1.20.2 A description of each indenture, lease, sublease, or other
instrument under which Home Vision claims or holds such leasehold interest, all
of which leases or sub-leases constitute valid leasehold interests in such
properties, and all such instruments are in effect and enforceable according to
their respective terms;
2.1.20.3 A true and complete list of all Accounts Receivable of Home
Vision at April 30, 1996, together with information as to the aging of each
account; and
2.1.20.4 A true and complete list of the physical inventory and other
tangible personal property of Home Vision at the Store(s).
2.1.21 Contracts. Except as set forth on Schedule 2.1.21 attached
---------
hereto, Home Vision is not a party to, or otherwise bound by, any: written or
oral contract not made in the Ordinary Course of Business or which is material
to the business, properties or assets of Home Vision; employment or consultant
contract not terminable at will without cost or other liability; labor union
contract; bonus, pension, profit sharing, retirement, share purchase, stock
option, hospitalization, group insurance, or similar employee benefits plan;
real or personal property lease, as lessor or lessee; advertising or public
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relations contract; purchase, supply, or service contract in excess of $1,000
each, or which is not terminable without cost or expense on less than thirty
(30) days notice; deed of trust, mortgage, conditional sales contract, security
agreement, pledge agreement, trust receipt, or any other agreement or
arrangement whereby any of the assets or properties of Home Vision are subject
to an Encumbrance; license agreement, whether as licensee or licensor; contract
or agreement involving any expenditure by it of more then $5,000; contract or
agreement which is not terminable by it on more than thirty (30) days notice;
distribution agreement with respect to any of its products; contract which
provides for a redetermination of price or contains a similar provision or
provides for cost reimbursement; contract which restricts Home Vision's ability
to do business in any geographic area or granting any person exclusive or
similar rights in any line of business or in any geographic area; or contract to
be performed in whole or in part more than ninety (90) days from the date
thereof and which is not terminable without cost or liability. To the best of
the Principal Shareholders' knowledge, Home Vision has in all respects performed
all obligations required to be performed to date under the contracts and
agreements set forth on Schedule 2.1.21 (the "Contracts") and is not in material
default in any respect under any of the Contracts. Except as otherwise
disclosed herein, to the best of Principal Shareholders' knowledge, all parties
to any of the Contracts are in material compliance therewith and are not in
material default thereunder. Home Vision has made available to Movie Gallery
complete and accurate copies of the Contracts.
2.1.22 Compensation of Officers and Others. Since the Most Recent
-----------------------------------
Fiscal Year End, there has not been any change in any compensation, commission,
bonus, or other remuneration payable to any officer, director, shareholder,
agent, employee, or consultant of Home Vision, nor has there been any dividend
or other distribution to any officer, director, shareholder, agent, employee, or
consultant of Home Vision, except in the Ordinary Course of Business.
2.1.23 Inventories. The inventories of Home Vision which are reflected
-----------
in the March 31, 1996, Balance Sheet and all inventory items which have been
acquired since the Most Recent Fiscal Month End consist of goods of such quality
and in such quantities as are usable and/or salable in the Ordinary Course of
Business (subject to normal wear and tear) with normal markup at prevailing
market prices and are owned by Home Vision free and clear of any Encumbrance
and/or Security Interest, except as shown on the March 31, 1996 Balance Sheet.
Since the Most Recent Fiscal Month End, Home Vision has continued to replenish
its inventory in a normal and customary manner consistent with prior and prudent
practice prevailing in the business of Home Vision.
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2.1.24 Records. The books of account and minute books of Home Vision,
-------
as previously made available to Movie Gallery, are complete and correct, and
properly reflect all those transactions involving Home Vision's business set
forth therein.
2.1.25 Absence of Certain Changes or Events. Since the Most Recent
------------------------------------
Fiscal Month End, there has not been any change in or any event or condition
(financial or otherwise) affecting the properties, assets, liabilities,
operations or prospects of Home Vision other than changes in the Ordinary Course
of Business, none of which has (either when taken by itself or when taken in
conjunction with all other such changes) had a Material Adverse Effect.
2.1.26 Accounts Receivable. All of the Accounts Receivable of Home
-------------------
Vision which are reflected on the March 31, 1996, Balance Sheet and all Home
Vision's Accounts Receivable which have arisen since the Most Recent Fiscal
Month End (except such Accounts Receivable as have been collected since the
Most Recent Fiscal Month End) are bona fide receivables and represent amounts
due with respect to actual arm's length transactions entered into in the
Ordinary Course of Business, and are to the best of the Principal Shareholders'
knowledge, legal, valid and enforceable obligations of the account obligors. No
account has been assigned or pledged to any other person, firm or corporation
and no defense or set-off to any such account exists or has been asserted by the
account obligor.
2.1.27 Purchase Commitments and Outstanding Bids. Except as disclosed
-----------------------------------------
on Schedule 2.1.20 hereof, no purchase commitments of Home Vision are in excess
of normal, ordinary, and usual requirements of its business, or were made at any
price in excess of the then current market price, or contain terms and
conditions more onerous than those usual and customary in the industry.
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2.1.28 Insurance Policies. Set forth on Schedule 2.1.28 is a complete
------------------
and accurate list of all primary, excess and umbrella policies, bonds and other
forms of insurance currently owned or held by or on behalf of and/or providing
insurance coverage to Home Vision or its businesses, properties and assets (or
any of its directors, officers, salespersons, agents or employees), including
the following information for each such policy: type(s) of insurance coverage
provided; name of insurer; effective dates; policy number; per occurrence and
annual aggregate deductibles or self-insured retentions; per occurrence and
annual aggregate limits of liability and the extent, if any, to which the limits
of liability have been exhausted. To the best of the Principal Shareholders'
knowledge, all policies set forth on Schedule 2.1.28 are in full force and
effect, and with respect to all policies, all premiums currently payable or
previously due have been paid, and no notice of cancellation or termination has
been received with respect to any such policy. All such policies will remain in
full force and effect through the respective dates set forth in Schedule 2.1.28.
Complete and accurate copies of all such policies and related documentation have
previously been provided to Movie Gallery.
2.1.29 [Intentionally Left Blank]
2.1.30 [Intentionally Left Blank]
2.1.31 Disclosure. To the best of the Principal Shareholders'
----------
knowledge, no representation or warranty by the Principal Shareholders in this
Agreement or in any writing furnished or to be furnished by Home Vision
hereunder contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact required to make the statements
herein or therein contained not misleading.
2.1.32 Shareholder Status. Each of the Shareholders have read the
------------------
SEC Reports and have received all of the information he/she has requested from
Movie Gallery, and relying on the completeness and accuracy of such information,
such information is sufficient to make an informed decision with respect to
his/her receipt of the Movie Gallery Shares. Each of the Executing Shareholders
hereby confirms that Movie Gallery has made available to each of them the
opportunity to ask questions of the executive officers and management of Movie
Gallery to acquire additional information about the business and financial
condition of Movie Gallery.
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<PAGE>
REPRESENTATIONS AND WARRANTIES BY MOVIE GALLERY
AND SUBSIDIARY
3.1 Movie Gallery and Subsidiary represent and warrant to Home Vision and
the Shareholders as follows:
3.1.1 Movie Gallery and Subsidiary are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Movie Gallery has full power and authority to carry on its business
as now conducted. As of Closing, Movie Gallery and Subsidiary will have all
requisite power and authority necessary to consummate the Merger, and Movie
Gallery will have all requisite power and authority necessary to own and operate
the Surviving Corporation and its business.
3.1.2 The execution, delivery and performance by Movie Gallery and
Subsidiary of this Agreement and the other agreements contemplated hereby and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by all requisite corporate action. No other
corporate act or proceeding on the part of Movie Gallery or Subsidiary is
necessary to authorize the execution, delivery or performance of this Agreement
or the other agreements contemplated hereby and the consummation of the
transactions hereby or thereby. This Agreement has been duly authorized and
delivered by Movie Gallery and Subsidiary and this Agreement constitutes, and
the other agreements contemplated hereby upon execution and delivery by Movie
Gallery and/or Subsidiary will constitute, a valid and binding obligation of
Movie Gallery and/or Subsidiary, enforceable in accordance with its terms except
to the extent the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, rehabilitation, moratorium, and similar laws now or hereafter in
effect relating to creditor's rights, generally or general equitable principles.
3.1.3 Violations, Approvals, Consents, Etc. Movie Gallery and
------------------------------------
Subsidiary warrant that they are not in default under any law or regulation, or
under any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality wherever
located, which would effect its ability to consummate the transactions
contemplated herein. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge or other restriction of any government, governmental agency, or court to
which Movie Gallery and/or Subsidiary is subject or any provision of its charter
or bylaws. Except for an HSR Notification, Movie Gallery and Subsidiary do not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
parties to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement will not violate any contract,
agreement, indenture, mortgage, loan, lease, etc., to which Movie Gallery or
Subsidiary is a party or by which it is bound or affected.
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<PAGE>
3.1.4 Brokers' Fees. Neither Movie Gallery nor Subsidiary have any
-------------
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement for which
the Shareholders could become liable or obligated; provided, however, Movie
Gallery has agreed to assume and pay the fees due to Piper Jaffray, Inc., with
respect to the transactions contemplated by this Agreement.
3.1.5 Governmental Authorities and Consents. No permit, notice,
-------------------------------------
consent, approval or authorization of, or declaration to or filing with, any
governmental or regulatory authority, or any other party or persons is required
in connection with the execution, delivery or performance of this Agreement by
Movie Gallery and Subsidiary, or the consummation by Movie Gallery and
Subsidiary of the transaction contemplated hereby and thereby, except for a
Current Report on Form 8-K required to be filed by Movie Gallery with the
Commission, in connection with the transactions contemplated by this Agreement
and an HSR Notification (as hereinafter defined) required to be filed by Movie
Gallery with respect to the transactions contemplated by this Agreement.
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<PAGE>
3.1.6 [Intentionally Left Blank]
3.1.7 Litigation. There is no litigation, proceeding, claim, suit or
----------
governmental proceeding or investigation pending or, to the best knowledge of
Movie Gallery and Subsidiary, threatened at law or in equity before any court or
other governmental agency which (i) could have a Material Adverse Effect on
Movie Gallery or Subsidiary or (ii) seeks to prevent, restrain or interfere with
the performance by Movie Gallery or Subsidiary of its obligations under this
Agreement.
3.1.8 Disclosure. To the best of Movie Gallery's knowledge, no
----------
representation or warranty by Movie Gallery or Subsidiary in this Agreement or
in any writing furnished or to be furnished pursuant hereto contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to make the statements herein or therein contained
not misleading.
3.1.9 There are sufficient authorized but unissued shares of Movie
Gallery Common Stock to permit the issuance of the Movie Gallery Shares required
to be issued, in accordance with the terms and conditions of this Agreement.
The Movie Gallery Shares will, upon issuance, be validly issued, registered,
fully paid and non-assessable.
3.1.10 Registered Stock. The Movie Gallery Shares have been
----------------
registered under the Securities Act, and accordingly that the Movie Gallery
Shares constitute "registered securities" as that term is used in Rule 145(d).
The transactions contemplated by this Agreement, when taken together, constitute
a "transaction specified in paragraph (a)" of Rule 145.
3.1.11 The SEC Reports and all other reports required to be filed by
Movie Gallery with the Commission pursuant to Sections 13 and 15(d) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") as of the
date of this Agreement have been duly and timely filed with the Commission and
are in compliance with the Commission's Rules and Regulations. As of their
respective dates, none of the SEC Reports or any other reports filed by Movie
Gallery with the Commission pursuant to the Exchange Act, contain any untrue
statements 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 in which they were made, not misleading.
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<PAGE>
3.1.12 S-1 Information. Movie Gallery acknowledges that it has
---------------
received a copy of the Registration Statement on Form S-1 (the "S-1") filed by
Home Vision with the Commission, has reviewed the S-1 and is familiar with the
information contained therein.
COVENANTS OF THE PARTIES
4.1 From the date hereof through the Closing Date, the Executing
Shareholders hereby covenant and agree as follows:
4.1.1 Operations. Unless Movie Gallery consents in writing to the
----------
contrary, the Principal Shareholders will cause Home Vision to operate only in
the Ordinary Course of Business, without any waste of assets, except for
ordinary wear and tear, to maintain normal levels of inventory and equipment,
and not to enter into any transaction or perform any act which would constitute
a breach of any representations, warranties, or agreements contained herein and
make all reasonable efforts consistent with prior practice to preserve intact
its business organizations and to preserve its relationships with customers,
suppliers, agents, employees and other persons with whom it has business
relations. Without limiting the generality of the foregoing and, except as
otherwise expressly provided in this Agreement or Schedule 4.1.1, from the Most
Recent Fiscal Month End through the Closing Date, without the prior written
consent of Movie Gallery, the Principal Shareholders covenant that Home Vision
will not:
a. (i) create, incur or assume any long-term or short-term
indebtedness not incurred in the Ordinary Course of Business in an amount in
excess of $5,000.00 for each single borrowing or $10,000.00 in the aggregate,
(ii) except with respect to various company owned vehicles,
prepay all or any part of the principal or interest of any existing indebtedness
before the due date thereof, or
(iii) assume, guarantee, endorse or otherwise become liable or
responsible for (whether directly, contingently or otherwise) the obligations of
any other person or entity;
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<PAGE>
b. (i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) whether or not
upon or in respect of any shares of capital stock of Home Vision,
(ii) redeem or otherwise acquire any shares of capital stock of
Home Vision,
(iii) split, combine, reclassify or otherwise similarly change
any shares of capital stock of Home Vision,
(iv) authorize the creation or issuance of or issue or sell any shares
of capital stock of Home Vision or any securities or obligations convertible
into or exchangeable for or giving any person any right to acquire from Home
Vision, any shares of capital stock of Home Vision, or
(v) place any pledge, security interest, lien, charge, encumbrance,
equity, claim, option or limitation of any nature whatsoever on any shares of
capital stock of Home Vision;
c. (i) except as required by applicable law, increase the
compensation of any director, officer, salesperson, agent or employee of Home
Vision,
(ii) grant or announce any general increase in compensation with
respect to all or any substantial number of the employees of Home Vision,
(iii) pay or agree to pay any pension, retirement allowance, severance
or other employee benefit not required by law or by any ERISA Plan to any
director, officer, salesperson, agent or employee of Home Vision,
(iv) commit itself to any additional pension, profit-sharing, bonus,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or to any employment agreement or
consulting agreement with or for the benefit of any person or
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<PAGE>
(v) amend any ERISA Plan, other than as required by, or as
necessary to comply with, applicable law or by any such ERISA Plan;
d. (i) sell, transfer or otherwise dispose of, or agree to sell,
transfer or otherwise dispose of, any properties or assets used by Home Vision
in the conduct of its business (whether real, personal or mixed, tangible or
intangible, other than inventory sold in the Ordinary Course of Business,
including the sales of previously viewed tapes or except as otherwise provided
herein,
(ii) permit any additional Encumbrance on any properties or
assets (whether real, personal or mixed, tangible or intangible) that are used
in the conduct of its business, or
(iii) enter into any merger, consolidation, reorganization or
other business combination or reorganization or any sale of stock or all or
substantially of the assets of Home Vision, or enter into any discussion or
negotiation with any third party with respect to same;
e. cause or permit any insurance (or reinsurance) policies to be
canceled or terminated or any of the coverage thereunder to lapse, unless (i) it
notifies Movie Gallery in writing of such cancellation, termination or lapse and
(ii) simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than coverage remaining under
those canceled, terminated or lapsed from the same or comparable insurers are in
full force and effect;
f. make any payment other than employee compensation to or on behalf
of, or enter into, terminate, amend or waive any rights under any contract,
agreement, understanding or arrangement with or on behalf of, or engage in any
transaction with or on behalf of, any of the Shareholders or any Affiliates of
any of the Shareholders;
g. make any changes to their accounting methods, principles or
practices, except as required by GAAP applied on a consistent basis and then
only after written notice to Movie Gallery;
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<PAGE>
h. make, pay, discharge or otherwise satisfy any claims, liabilities,
obligations or Encumbrances of Home Vision (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction of any debts owing
to Shareholders or the payment, discharge or satisfaction in the Ordinary Course
of Business of liabilities and obligations reflected or reserved against in the
March 31, 1996, Balance Sheet or incurred in the Ordinary Course of Business
since the date of the Most Recent Fiscal Month End, or make any payment in
respect of indebtedness for borrowed money or capital leases, except payments
required by the terms thereof;
i. cancel, waive, relinquish or otherwise dispose of any debts,
obligations or rights of Home Vision in excess of $5,000.00 individually or
$10,000.00 in the aggregate, other than any debts owing to Shareholders, and
except for $136,000.00 due to Home Vision from the Principal Shareholders;
j. terminate, amend or waive any rights or obligations under or
relating to any contract, agreement, understanding, commitment, arrangement or
other obligation;
k. through negotiation or otherwise, make any commitment or incur
any liability or other obligation with respect to any labor organization;
l. make any capital expenditure or commitment for additions to
property, plant, equipment or assets owned by, or used in the business of, Home
Vision in excess of $4,000.00 individually or $10,000.00 in the aggregate;
m. permit any material shortages of materials or supplies necessary
for the conduct of the business of Home Vision as conducted as of the date of
this Agreement;
n. change or amend its Certificate of Incorporation or Bylaws (or
similar governing documents);
o. enter into any other contracts, commitments or transactions
(except contracts, commitments or transactions made in the Ordinary Course of
Business) in an amount not to exceed $1,000.00 individually or $5,000.00 in the
aggregate;
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<PAGE>
p. settle or compromise any claim, suit or cause of action
involving more than $1,000.00; or
q. agree, whether in writing or orally, whether formally or
informally, to engage in any of the actions described in clauses (a) through (q)
of this Section 4.1.1.
4.1.2 Current Information. During the period from the date of this
-------------------
Agreement to the Closing Date, the Principal Shareholders will promptly notify
Movie Gallery in writing of any significant development or changes in the
assets, liabilities, business, financial condition, prospects or results of
operations of Home Vision and of any governmental complaints, investigative
hearing, or the institution, threat or settlement of litigation and relating to
Home Vision, or any other circumstances or events of which they have knowledge,
which could result in a material breach of any representation or warranty of
Home Vision hereunder, and to keep Movie Gallery fully informed in reasonable
detail of such events.
4.1.3 [Intentionally Left Blank]
4.1.4 Reasonable Best Efforts. Subject to the terms and conditions of
-----------------------
this Agreement, each of the parties hereto will use its reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, obtaining all consents and approvals of all
persons and governmental authorities and removing any injunctions or other
impediments or delays, legal or otherwise which are necessary to the
consummation of the transactions contemplated by this Agreement. In case, at
any time after the Closing Date, any further action is necessary to carry out
the purposes of this Agreement, each party to this Agreement will, or will cause
its proper directors, officers or Affiliates, as the case may be, to take all
such necessary action.
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<PAGE>
4.1.5 Filings. Movie Gallery and the Principal Shareholders will cause
-------
Home Vision to use its reasonable best efforts to make or cause to be made all
filings and submissions as may be required under applicable laws and regulations
for the consummation of the transactions contemplated by this Agreement
including, but not limited to, an HSR Notification (as hereinafter defined).
Movie Gallery and Home Vision will coordinate and cooperate with one another in
exchanging such information and provide each other with such assistance as the
other party may reasonably request in connection with the foregoing. Any costs
or expenses, including attorneys fees and accounting fees for the necessary
filings under this section shall be paid for by the Movie Gallery.
4.1.6 Public Announcements. Home Vision, Shareholders and Movie
--------------------
Gallery will not issue or cause the publication of any press release or
otherwise make any public statement with respect to the transactions
contemplated hereby without the consent of the other parties hereto; provided,
that, Movie Gallery may make such announcements without the approval of
Shareholders or Home Vision to the extent required by law, judicial process or
the rules, regulations or interpretations of the Commission.
4.1.7 Books and Records. At the Closing Date, the Principal
-----------------
Shareholders shall deliver to Movie Gallery all Home Vision books and records in
their possession.
4.1.8 Schedules. From time to time prior to the Closing Date, the
---------
Principal Shareholders will cause Home Vision to complete all of the Schedules
referred to in this Agreement and to promptly supplement or amend any Schedules
referred to in this Agreement with respect to any matter which, required to be
set forth or described in a Schedule or which is necessary to correct any
information in a Schedule or in any representation or warranty of the Principal
Shareholders which has been rendered inaccurate thereby.
4.1.9 No Negotiations, etc. For so long as this Agreement is pending
--------------------
and not terminated, Shareholders shall not, and shall cause Home Vision and any
officer, director, agent, employee, representative, trustee or beneficiary of
Home Vision not to, directly or indirectly, (a) make, solicit, initiate or
encourage the submission of any inquiries, proposals or offers from any person
(including any of the directors, officers or employees of Home Vision),
corporation, partnership or other entity or group relating to any
recapitalization, merger, consolidation or other business combination involving
Home Vision, any sale of all or any portion of the assets of Home Vision, or any
sale of the Stock or any other equity interest in Home Vision (any of the
foregoing, an "Acquisition Proposal"); or (b) participate in any discussions or
negotiations regarding, or otherwise cooperate, assist or participate in, any
effort or attempt by any third party to propose or effect any Acquisition
Proposal or furnish any information to or seek any information from any such
third party.
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<PAGE>
4.1.10 Access to Records. The Principal Shareholders will cause Home
-----------------
Vision to afford Movie Gallery and its authorized representatives access, during
normal business hours, to all of Home Vision's business operations, properties,
books, files, and records, will cooperate in Movie Gallery's examination thereof
and will cause Home Vision, its officers and auditors to furnish Movie Gallery
and its authorized representatives with such financial and operating data and
other information with respect to the business and properties of Home Vision
(including auditors' work papers) as Movie Gallery may from time to time request
and at Movie Gallery's request, compile information that has not been compiled
for another purpose and to prepare memorandums, opinions and other documents
that have not been prepared for another purpose. No such examination, however,
shall constitute a waiver or relinquishment by Movie Gallery of its right to
rely upon the Shareholders' covenants, representations, and warranties as made
herein or pursuant hereto. Until the Closing, Movie Gallery will hold in
confidence all information so obtained, and any document or instrument
heretofore or hereafter obtained by Movie Gallery in connection herewith shall
be held on an express trust for and on behalf of the Shareholders and Home
Vision. In the event of the termination of this Agreement for any reason, all
such information and documentation and any copies thereof shall be returned to
Home Vision.
4.1.11 Compliance. The parties will use all reasonable efforts to
----------
cause their officers and employees to comply with all applicable provisions of
this Agreement.
4.1.12 Environmental Matters. Further, the Principal Shareholders and
---------------------
Home Vision agree to provide Movie Gallery with any hazardous or toxic waste
evaluations which have been prepared by a private engineer, business, or a
governmental entity. The Principal Shareholders and Home Vision also agree to
allow Movie Gallery, at Movie Gallery's option and expense, to have any premises
leased by Home Vision evaluated and inspected for hazardous or toxic waste.
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4.1.13 [Intentionally Left Blank]
4.1.14 Securities Act Compliance. The Shareholders will not sell,
-------------------------
transfer, convey or distribute any of the Movie Gallery Shares except in
accordance with the provisions of Rule 145(d) adopted by the Commission under
the Securities Act. In any distribution of the Movie Gallery Shares, the
Shareholders will comply with the prospectus delivery requirements of the
Securities Act.
4.1.15 Holding of the Movie Gallery Shares. The Shareholders agree
-----------------------------------
that they are acquiring the Movie Gallery Shares for their own account for
investment and without any intent or plan to sell, transfer, assign, pledge,
distribute or encumber the Movie Gallery Shares. Except for "de minimis sales",
as defined and allowed by Staff Accounting Bulletin No. 76, and in order to
satisfy the requirements of SEC Accounting Series Release No. 135, the
Shareholders further agree that they will hold the Movie Gallery Shares until
such time after Closing as financial results covering at least thirty (30) days
of post-merger combined operations of Movie Gallery and Home Vision have been
published by the filing of the Current Report on Form 8-K required to be filed
by Movie Gallery pursuant to Section 4.2.4 hereof.
4.1.16 Home Vision shall make or cause to be made, at no cost to it,
any reports or filings that may be required to be made by or on behalf of Home
Vision or any of its affiliates pursuant to the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976 (the "HSR Act"), and other applicable federal and state
laws, rules and regulations, including, but not limited to the filing of a Hart-
Scott-Rodino Notification and Report Form ("HSR Notification"). Home Vision
will provide any and all such information as is required to facilitate
compliance with the HSR Act and other applicable laws, rules and regulations and
if any investigation results therefrom, Home Vision shall fully cooperate with
respect thereto.
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<PAGE>
4.1.17 At or prior to Closing, each of the Principal Shareholders and
Home Vision shall terminate the employment contract between each such Principal
Shareholder and Home Vision.
4.1.18 The Principal Shareholders shall complete all of the Schedules
referred to in this Agreement (required to be completed by Home Vision) within a
reasonable time after the execution hereof.
4.2 Movie Gallery hereby covenants and agrees as follows:
4.2.1 Employment of Corporation's Personnel. Movie Gallery shall use
-------------------------------------
its reasonable best efforts, based upon its business judgment, to continue the
employment of all current employees of Home Vision; provided, however, Movie
Gallery will only offer continued employment to those employees of Home Vision
who meet Movie Gallery's normal employment criteria, and only to the extent that
job openings exist for each such employee after Closing.
4.2.2 Shareholders's Guarantees. Movie Gallery shall use its good
-------------------------
faith best efforts to secure a release of Shareholders' guarantees under any and
all of Home Vision's leases, which best effort shall include substitution of
Movie Gallery's guarantee for that of Shareholders. In any event, Movie Gallery
agrees to warrant, defend, hold harmless and indemnify each Shareholder from any
losses, costs or damages (including reasonable attorneys fees) arising out of
any claim against a Shareholder under any guaranty, or indemnity agreement,
including but not limited to, guarantees of leases and/or financial obligations
which obligation is assumed by Movie Gallery and the claimed breach of which
occurred on or after the Closing Date.
4.2.3 Expenses. Movie Gallery shall assume all of Home Vision's
--------
expenses, brokerage fees, attorney's fees and costs with respect to the
negotiations and consummation of this transaction, all of which shall be
included in the definition of Assumed Liabilities, as hereinabove defined.
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4.2.4 Earnings. Movie Gallery will issue an earnings release or
--------
press release and file a Current Report on Form 8-K with the Commission with
respect to such release, within thirty (30) days after the end of the first full
calendar month subsequent to the Effective Date of the Merger.
4.2.5 Knowledge of Adverse Conditions. Movie Gallery has no
-------------------------------
knowledge of any condition which could have Material Adverse Effect on the value
of its stock and, if such condition becomes known to Movie Gallery it will
immediately notify Home Vision of such condition, which notice must be received
prior to Closing. If such condition could cause a substantial diminution in
value of the Stock of Movie Gallery to a value of less than $27.00 per share,
Home Vision shall have the right to terminate this Agreement, and the parties
obligations shall cease except that Home Vision shall retain the Deposit.
4.2.6 Movie Gallery shall make or cause to be made any reports or
filings that may be required to be made by or on behalf of Movie Gallery or any
of its affiliates pursuant to the HSR Act and other applicable federal and state
laws, rules and regulations, including, but not limited to an HSR Notification.
Movie Gallery will provide any and all such information as is required to
facilitate compliance with the HSR Act and other applicable laws, rules, and
regulations and if any investigation results therefrom, Movie Gallery shall
fully cooperate with respect thereto.
4.2.7 Movie Gallery shall cause the Surviving Corporation to pay all
liabilities of Home Vision, including, but not limited to, all obligations to
Ingram Entertainment, Inc. and Rentrak Corporation, subject to Movie Gallery's
and the Surviving Corporation's right to dispute the validity and amount of any
liability in good faith.
4.2.8 Movie Gallery shall complete all of the Schedules referred to
in this Agreement (required to be completed by it) within a reasonable time
after the execution hereof.
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CONDITIONS TO OBLIGATION TO CLOSE
5.1 Conditions to Obligation of Movie Gallery. The obligation of Movie
-----------------------------------------
Gallery to consummate the transactions to be performed by it pursuant to this
Agreement is subject to satisfaction of the following conditions, any one or
more of which may be waived by Movie Gallery:
5.1.1 The representations and warranties of the Principal Shareholders
set forth hereinabove shall be true and correct in all material respects as of
the date hereof and at and as of the Closing Date as though made at and as of
the Closing Date;
5.1.2 Shareholders and Home Vision shall have performed and complied in
all material respects with the covenants and agreements contained herein and
required to be performed and complied with by them at or prior to the Closing
Date (except as otherwise contemplated by this Agreement) through the Closing.
5.1.3 Home Vision shall have procured all of the third party consents
necessary for the consummation by Movie Gallery of the transactions contemplated
hereby, except to the extent such requirement shall have been waived by Movie
Gallery pursuant to Section 1.11.9 hereof.
5.1.4 The Principal Shareholders shall cause Rentrak Corporation
("Rentrak") to perform an audit (at Movie Gallery's expense) in each of the
Stores, prior to Closing, to determine an accurate inventory of all video
cassette tapes owned by Rentrak, and to determine the amount due to Rentrak as a
result of missing inventory.
5.1.5 The Principal Shareholders shall have delivered to Movie Gallery
an executed Covenant Not To Compete from the Principal Shareholders in the form
attached as Exhibit 5.1.5 (the "Covenant Not To Compete"); provided, however,
the Covenant Not To Compete to be executed by Terry Drake and Jeffrey Owen shall
provide for early termination upon the termination of their employment by the
Surviving Corporation.
5.1.6 [Intentionally Left Blank]
5.1.7 Certificate of Officers and Principal Shareholders. Home Vision
--------------------------------------------------
shall have delivered to Movie Gallery a certificate dated the Closing Date,
executed by its President and Secretary and by the Principal Shareholders,
certifying that the conditions specified in Sections 5.1.1, 5.1.2, 5.1.3 and
5.1.4 have been fulfilled.
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5.1.8 [Intentionally Left Blank]
5.1.9 Opinion of Home Vision's Counsel. The Principal Shareholders
--------------------------------
shall deliver to Movie Gallery an opinion, dated the Closing Date, of Home
Vision's counsel, and in the form attached hereto as Exhibit 5.1.9.
5.1.10 [Intentionally Left Blank]
5.1.11 On the Closing Date, Home Vision shall own a full complement
of rental and sell-through video tapes and games as is customary with Home
Vision's operations (which in no event shall be less than _______________ tapes
and games).
5.1.12 Neither Shareholders nor Home Vision shall be subject to any
order, decree or injunction of a court of competent jurisdiction which in any
material respect prevents or delays any of the transactions contemplated by the
Agreement.
5.1.13 None of the environmental reports referred to in Section 4.1.12,
if any, demonstrate the presence of hazardous or toxic waste or the likelihood
thereof.
5.1.14 Each of the parties shall have received letters, dated as of
the Closing Date, from Ernst & Young, LLP and Coopers & Lybrand, LLP regarding
those firms' concurrence with each of the parties conclusions as to the
appropriateness of Pooling of Interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if closed and consummated in
accordance with this Agreement.
5.1.15 [Intentionally Left Blank]
5.1.16 Any and all applicable waiting periods under the HSR Act with
respect to the transaction contemplated by this Agreement shall have expired or
shall have terminated.
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5.2 Conditions to Obligation of the Shareholders. The obligation of the
--------------------------------------------
Shareholders to consummate the transactions to be performed by each of them in
connection with the Closing is subject to satisfaction of the following
conditions, any one or more of which may be waived by the Shareholders:
5.2.1 The representations and warranties of Movie Gallery set forth
hereinabove shall be true and correct in all material respects at and as of the
Closing Date as though made at and as of the Closing Date;
5.2.2 Movie Gallery shall have performed and complied in all material
respects with the obligations, covenants and agreements contained herein and
required to be performed and complied with by it at or prior to the Closing Date
(except as otherwise contemplated by this Agreement) through the Closing;
5.2.3 Movie Gallery shall deliver to Shareholders at Closing an opinion
of Movie Gallery's counsel, in the form attached hereto as Exhibit 5.2.3.
5.2.4 Movie Gallery shall have procured all of the third-party
consents necessary for the consummation by Home Vision of the transactions
contemplated hereby, except to the extent such requirements shall have been
waived by Home Vision.
5.2.5 Any and all applicable waiting periods under the HSR Act with
respect to the transactions contemplated by this Agreement shall have expired or
shall have been terminated.
5.2.6 Neither Movie Gallery nor Subsidiary shall be subject to any
order, decree or injunction of any court of competent jurisdiction which in any
material respect prevents or delays any of the transactions contemplated by this
Agreement.
5.2.7 Certificate of Officers. Movie Gallery shall have delivered to
-----------------------
Home Vision a certificate dated the Closing Date, executed by its President and
Secretary certifying that the conditions specified in Sections 5.2.1 and 5.2.2
have been fulfilled.
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<PAGE>
5.2.8 Each of the parties shall have received letters, dated as of
the Closing Date, from Ernst & Young, LLP and Coopers & Lybrand, LLP regarding
those firms' concurrence with each of the parties conclusions as to the
appropriateness of Pooling of Interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if closed and consummated in
accordance with this Agreement.
5.2.9 Each of the Principal Shareholders shall have agreed to the
form of the Covenant Not To Compete, the Plan of Merger contemplated by Section
1.1 hereof, the Stock Escrow Agreement contemplated by Section 1.4.1 hereof, the
Rule 145 Affiliate Letter contemplated by Section 1.12.13 hereof, the opinion of
Movie Gallery's counsel contemplated by Section 1.13.3 hereof, and the Schedules
to be provided by Home Vision, provided that a Principal Shareholder may
terminate his obligations under this Agreement by virtue of his dissatisfaction
with the Schedules to be provided by Home Vision, only if his failure to do so
would have a Material Adverse Effect on his legal or economic rights, benefits
and obligations under this Agreement.
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.1 All representations and warranties of the parties shall survive the
Closing for a period of twelve (12) months.
INDEMNIFICATION
7.1 The Shareholders hereby agree to indemnify, defend and hold harmless
Movie Gallery, the Surviving Corporation and their respective officers,
directors, consultants and advisors against and in respect of all Damages (as
hereinafter defined), asserted against or incurred by Movie Gallery or the
Surviving Corporation or any director, officer, consultant or advisor to Movie
Gallery or the Surviving Corporation, or any of their respective successors or
assigns (the "Movie Gallery Group") resulting from a material breach of, or a
materially inaccurate representation, warranty, covenant or agreement made by or
on behalf of Shareholders in this Agreement, or any schedule, exhibit,
certificate, instrument or other document delivered hereby or in connection
herewith. Damages, as used herein, shall include any claim, action, demand,
loss, cost, expense, liability (joint or several), penalty, and other damage,
including without limitation counsel fees and expenses, as incurred, and all
other costs and expenses reasonably incurred in investigating or in attempting
to avoid the same or oppose the imposition thereof or in enforcing this
indemnity. Notwithstanding any disclosure to Movie Gallery herein or pursuant
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<PAGE>
hereto, or the definition of Damages contained in the preceding sentence, or
Movie Gallery's knowledge of any fact or facts at or prior to the Closing, for
purposes of this Agreement, Damages shall also include (to the extent not
included in the Assumed Liabilities), but shall not be limited to, all debts,
liabilities, and obligations of any nature whatsoever (whether absolute,
accrued, contingent, or otherwise and whether due or to become due) of Home
Vision at the Most Recent Fiscal Month End not reflected on the March 31, 1996
Balance Sheet, whether known or unknown by the Shareholders; all claims,
actions, demands, losses, costs, expenses, and liabilities resulting from any
litigation involving Home Vision whether or not disclosed to the Movie Gallery;
all claims, actions, demands, losses, costs, expenses, liabilities, or penalties
resulting from Home Vision's failure in any respect to perform any obligation
required by it to be performed at or prior to Closing Date, or by reason of any
default of Home Vision, at the date hereof or at the Closing Date, under any of
the contracts, agreements, leases, documents, or other commitments to which it
is a party or otherwise bound or affected; and all losses, costs, and expenses
(including without limitation all fees and disbursements of counsel) relating to
Damages. Except as otherwise set forth herein, the Shareholders shall reimburse
Movie Gallery on demand for any payment made by Movie Gallery at any time after
the Closing in respect of any Damages to which the foregoing indemnity relates.
7.2 Movie Gallery hereby agrees to indemnify and hold harmless Shareholders
from and against the entirety of any Damages (hereinafter as defined) or adverse
consequences the Shareholders may suffer resulting from, arising out of,
relating to, in the nature of, or caused by (i) the breach of any of Movie
Gallery's representations, warranties, and covenants contained in this Agreement
or (ii) Movie Gallery's default under or failure to pay any specifically herein
assumed contractual obligation of Home Vision for which Shareholders have
provided a personal guarantee. Damages, as used herein, shall include any
claim, action, demand, loss, cost, expense, liability (joint or several),
penalty, and other damage, including without limitation counsel fees and
expenses, as incurred, and all other costs and expenses reasonably incurred in
investigating or in attempting to avoid the same or oppose the imposition
thereof or in enforcing this indemnity.
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<PAGE>
7.3 Third Party Claims. Except as provided to the contrary in Sections 7.4
------------------
and 7.5, the obligations of Shareholders under Sections 7.1, 7.4 and 7.5, and of
Movie Gallery under Section 7.2 resulting from claims initiated by third parties
(the "Third Party Claims") are subject to the following terms and conditions:
7.3.1 Upon receipt of written notice of any Third Party Claim asserted
against, relating to, imposed upon or incurred by Movie Gallery, the Surviving
Corporation or Shareholders, as the case may be (the "Indemnified Party"), the
party having the indemnity obligation hereunder (the "Indemnifying Party") will
undertake the defense thereof by counsel of its own choosing, which counsel
shall be reasonably satisfactory to the Indemnified Party, provided that if in
the Indemnified Party's reasonable judgment a conflict of interest may exist
between such Indemnified Party and the Indemnifying Party with respect to such
Third Party Claim, such Indemnified Party shall be entitled to select counsel of
its own choosing, in which event the Indemnifying Party shall be obligated to
pay the reasonable fees and expenses of such counsel as incurred. In the event
that the Indemnified Party shall receive notice of any Third Party Claim, the
Indemnified Party shall give the Indemnifying Party prompt written notice
thereof and the Indemnifying Party shall undertake the defense of such claim as
provided above.
7.3.2 If within a reasonable time after written notice of any Third
Party Claim, the Indemnifying Party fails to defend the Indemnified Party
against whom such Third Party Claim has been asserted, the Indemnified Party
will have the right to undertake the defense, compromise or settlement of such
Third Party Claim on behalf of and for the account of the Indemnifying Party and
the Indemnifying Party shall be liable for any such compromise or settlement.
7.3.3 Anything in this Section 7.3 to the contrary notwithstanding, if
there is a reasonable probability in the Indemnified Party's judgment that a
claim may materially and adversely affect the Indemnified Party or any of its
subsidiaries, Affiliates, directors, officers, employees, agents or
representatives against whom a Third Party Claim is asserted (monetarily or
otherwise), (i) the Indemnified Party against whom a Third Party Claim is
asserted will have the right to defend and co-defend and compromise and settle
with the consent of the Indemnifying Party (which consent shall not be
unreasonably withheld) such Third Party Claim and (ii) the Indemnifying Party
will not, without the prior written consent of the Indemnified Party, settle or
compromise any claim or consent to entry of any judgment relating to any such
Third Party Claim, which settlement, compromise or judgment does not include as
an unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party, and its subsidiaries, Affiliates, directors, officers,
employees, agents and representatives, a full, complete and unconditional
release from all liabilities in respect of such Third Party Claim.
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7.3.4 The Indemnifying Party will provide the Indemnified Party access
to all records and documents of the Indemnifying Party relating to any Third
Party Claim. The Indemnified Party will provide the Indemnifying Party with
access to all records and documents of the Indemnified Party relating to any
Third Party Claim.
7.4 Environmental Indemnification.
-----------------------------
7.4.1 Notwithstanding anything in this Agreement to the contrary,
Shareholders shall indemnify, reimburse, defend and hold harmless Movie Gallery
and the Surviving Corporation for, from and against all demands, claims, actions
or causes of action, assessments, losses, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties, reasonable
attorneys' and/or consultants' fees, disbursements and expenses, and economic
losses (including, without limitation, lost profits) (together with
"Environmental Losses"), asserted against, resulting to, imposed on, or incurred
by Movie Gallery or the Surviving Corporation, in connection with, directly or
indirectly, any of the following: (i) the events, circumstances, and conditions
described in Schedule 2.1.13; or (ii) the breach of any representation or
warranty set forth in Section 2.1.13, including the Schedules referred to
therein (or any facts or circumstances constituting such a breach).
7.4.2 Movie Gallery shall promptly give notice in writing to
Shareholders of any claimed Environmental Losses in reasonable detail; provided,
however, that failure to give such notice, or to provide Shareholders with
information as required elsewhere in this Section 7.4.2, shall not affect any of
Movie Gallery's or the Surviving Corporation's rights under this Section 7.4.2.
Promptly upon receiving notice and a description of the claimed Environmental
Losses, Shareholders shall reimburse Movie Gallery or the Surviving Corporation
for all Environmental Losses, as incurred, as provided by this Section 7.4.2.
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Nothing in this Section 7.4.2 shall release or excuse Shareholders from any
obligations with respect to Third Party Claims as set forth in Section 7.3.
However, Movie Gallery or the Surviving Corporation, at its option and without
foregoing any of Movie Gallery's or the Surviving Corporation's rights to
indemnification hereunder or under Section 7.3, may control the defense of any
Third Party Claims and threatened claims, and take any investigatory, removal,
remedial, or other action necessary to respond to any Environmental Losses
("Response Actions"), and Shareholders shall have the right at Shareholders'
expense to participate in the defense of any claims or threatened claims using
attorneys of their own choosing and to monitor any Response Actions using
consultants of their own choosing (other than Response Actions which
Shareholders cannot, as a practical matter, monitor because of legally imposed
time requirements or the need to respond to emergency conditions).
7.5 Tax Indemnification.
-------------------
7.5.1 Notwithstanding anything in this Agreement to the contrary,
Shareholders shall indemnify, reimburse, defend and hold harmless Movie Gallery
and the Surviving Corporation for, from and against all liabilities for Taxes of
Home Vision or Taxes imposed upon or with respect to all Pre-Closing Periods (as
defined), except for deferred Taxes as shown on the Financial Statements or
Taxes (other than penalties and interest) which become due as a result of timing
adjustments and which result in a decrease in Movie Gallery's or the Surviving
Corporation's liability for Taxes in a period after Closing. Movie Gallery and
the Surviving Corporation shall indemnify and reimburse Shareholders for any and
all tax refunds which are due and received by the Surviving Corporation with
respect to all Pre-Closing Periods, except for tax refunds which become due as a
result of timing adjustments and which result in an increase in Movie Gallery's
or the Surviving Corporation's liability for Taxes in a period after Closing.
7.5.2 "Pre-Closing Period" means any taxable year that ends on or
before the Closing Date, and the portion of any Straddle Period (defined below)
beginning on the first day of such Straddle Period and ending on (and including)
the Closing Date. "Straddle Period" means any taxable year beginning on or
before the Closing Date and ending after the Closing Date.
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7.5.3 Notwithstanding anything in this Agreement to the contrary,
Shareholders shall have the right, for any period covered by Section 2.1.10
hereof, to control any audit or determination by any authority, initiate any
claim for refund or amended return, contest, defend against, resolve, and settle
any assessment, notice of deficiency, or other adjustment or proposed adjustment
of Taxes or otherwise resolve any issue pertaining to any Taxes; provided,
however, that with respect to any Pre-Closing Period, Shareholders shall (i)
promptly give notice in writing to Movie Gallery or the Surviving Corporation of
the commencement of any audit or examination by any taxing authority, (ii)
subject to the limitations contained in this Section 7.5.3, permit Movie Gallery
or the Surviving Corporation, at its own expense, to retain counsel of its own
choosing in connection with any such examination, (iii) provide Movie Gallery or
the Surviving Corporation in a timely manner copies of all non-privileged
correspondence, records and documentation or portions thereof concerning Taxes
of Home Vision for all Pre-Closing Periods.
7.6 Limitations on Indemnification. The liability of the Executing
------------------------------
Shareholders for indemnity, under Sections 7.1, 7.4 and 7.5 arising from a
breach of a representation, warranty, covenant or agreement made by or on behalf
of the Principal Shareholders (the "Breaches") shall be subject to the
limitation that the Executing Shareholders shall have no obligation to indemnify
Movie Gallery or Surviving Corporation, unless and until the aggregate amount of
all indemnifiable claims for the Breaches shall exceed $300,000.00 (the
"Indemnity Threshold"); provided, however, the liability for indemnification
with respect to any Breaches as to which any Shareholder had knowledge of the
existence of the Breach at Closing, shall not be limited by the Indemnity
Threshold as set forth above and shall apply from the first dollar of indemnity
liability. In addition, in calculating the liability amount in determining when
the Indemnity Threshold is exceeded, all Breaches shall apply as to the amount
whether or not material, individually or in the aggregate. Notwithstanding the
above, the liability of the Executing Shareholders for indemnification as to
liabilities set forth or disclosed on any Schedule to this Agreement shall be
subject to the limitation that the Executing Shareholders shall have no
obligation to indemnify Movie Gallery or Surviving Corporation, unless and until
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the aggregate amount of all indemnifiable claims with respect to such disclosed
liabilities shall exceed an amount equal to the amount included in the Assumed
Liabilities with respect to such liabilities, plus $50,000.00. The aggregate
amount of liability for indemnification under Sections 7.1, 7.4 and 7.5 shall
not exceed Five Million and No/100 Dollars ($5,000,000.00). Notwithstanding the
above, the Executing Shareholders shall not be required to provide
indemnification pursuant to Section 7.1 for any matter as to which Shareholders
have not received written notice, describing in reasonable detail the matter in
respect of which such indemnity is sought, within thirty (30) days following the
date which is twelve (12) months after the Closing Date. Notwithstanding
anything to the contrary contained herein, the liability of the Executing
Shareholders for indemnity under Sections 7.1, 7.4 and 7.5 shall be pro-rata
(based upon their respective ownership interests of the Home Vision Shares) and
not joint and several.
7.7 The Deposited Stock is intended to secure the Shareholders'
indemnification obligations under this Agreement. Movie Gallery and/or the
Surviving Corporation shall be paid from the Deposited Stock any amount due from
the Shareholders, as indemnification to Movie Gallery and/or the Surviving
Corporation, pursuant to Sections 7.1, 7.4 and 7.5 hereof, as determined
pursuant to Section 7.6 and this Section 7.7, and in accordance with the terms
of the Escrow Agreement. Notwithstanding the above, nothing in this Section 7.7
shall limit the right of Movie Gallery and/or the Surviving Corporation to be
indemnified under this Agreement for any loss, damage, or expense in excess of
the amount distributed pursuant to the Escrow Agreement.
8.1 Termination and Abandonment.
---------------------------
8.1.1 Termination. This Agreement may be terminated at any time prior
-----------
to Closing:
(a) by mutual consent of the parties hereto;
(b) by the Principal Shareholders at any time after the Closing
Date; provided, however, that the right to terminate this Agreement under this
clause (b) shall not be available if the Principal Shareholders' failure to
fulfill any obligation or condition under this Agreement has been the direct
cause of, or resulted in, the failure of the Closing Date to occur on or before
such date, and such failure to fulfill any such obligation or condition is
within the Principal Shareholders' control, and the Principal Shareholders have
not utilized their reasonable best efforts to cause said obligation or condition
to be fulfilled;
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<PAGE>
(c) by Movie Gallery at any time after the Closing Date; provided,
however, that the right to terminate this Agreement under this clause (c) shall
not be available if Movie Gallery's failure to fulfill any obligation or
condition under this Agreement has been the direct cause of, or resulted in, the
failure of the Closing Date to occur on or before such date, and such failure to
fulfill any such obligation or condition is within Movie Gallery's control, and
Movie Gallery has not utilized its reasonable best efforts to cause said
obligation or condition to be fulfilled;
(d) by Movie Gallery if there has been a material violation or breach
by Shareholders of any agreement, representation or warranty contained in this
Agreement and such violation or breach has not been waived in writing by Movie
Gallery; and
(e) by the Principal Shareholders if there has been a material
violation or breach by Movie Gallery of any agreement, representation or
warranty contained in this Agreement and such violation or breach has not been
waived in writing by the Principal Shareholders.
(f) by Movie Gallery if the Schedules referred to herein reveal
facts, circumstances or information that in Movie Gallery's sole opinion has or
would have a Material Adverse Effect on Home Vision.
(g) by the Principal Shareholders if the Schedules referred to herein
reveal facts, circumstances or information that in the Principal Shareholders'
sole opinion has or would have a Material Adverse Effect on Movie Gallery.
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8.1.2 Procedure and Effect of Termination. In the event of termination
-----------------------------------
of this Agreement pursuant to Section 8.1.1 hereof, written notice thereof shall
forthwith be given to the other parties to this Agreement and this Agreement
shall terminate and the transactions contemplated hereby shall be abandoned,
without further action by any of the parties hereto. If this Agreement is
terminated as provided herein, no party hereto shall have any liability or
further obligation under this Agreement to any other party hereto, except (i) to
the extent that such termination occurs under Section 8.1.1(d) or 8.1.1(e), (in
which case, such breaching party shall be liable for all damages allowable at
law (including, but not limited to, attorney fees) and any relief available at
equity, (ii) that Sections 2.1.17, 4.1.6, 8.1.2, 9.8, the last sentence of
Sections 9.13, 9.14 and 10 shall survive any termination of this Agreement.
MISCELLANEOUS PROVISIONS
9.1 Audit Requirements. Shareholders hereby agree that at any time prior
------------------
to Closing, during normal business hours of Home Vision, Movie Gallery, its
employees, agents and financial consultants shall have full access to all
financial records of Home Vision for the current fiscal year and for the prior
three complete fiscal years of Home Vision, for the purpose of conducting and
completing an unqualified audit of Home Vision's business operations.
Shareholders agree to cooperate fully with Movie Gallery in this effort and to
provide all such financial records requested by Movie Gallery at any reasonable
time prior to Closing, at Home Vision's business office. Home Vision shall
allow Movie Gallery access to a work area within such business office and shall
allow the copying of any such records as needed by Movie Gallery to complete
such audit procedures. The Executing Shareholders and Home Vision agree that
Movie Gallery shall be permitted to disclose such financial records of Home
Vision to any interested parties, including but not limited to potential
underwriters and potential investors in a private or public offering of Movie
Gallery's capital stock, debentures, or other securities. In the event any of
the items or entries in the financial statements presented to Movie Gallery by
Home Vision and used by Movie Gallery to determine that it would accept the
Purchase Price set out herein, shall be found by Movie Gallery's independent
certified public accountant auditors, to be erroneously stated by more than 5%
of the stated amount for the Most Recent Fiscal Year End or Most Recent Fiscal
Month End, then in that event Movie Gallery shall be entitled, upon notice to
Shareholders, to terminate this Agreement and neither party shall be liable to
the other thereafter, other than as set forth in Section 8.1.2.
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9.2 Risk of Loss. The risk of loss prior to the Closing Date shall be with
------------
Shareholders. In the event Home Vision or the operations of the Stores shall
have been damaged adversely or affected in any material way as a result of any
strike, accident or other casualty or act of God or the public enemy, or any
judicial, administrative or governmental proceeding at or prior to Closing, then
Movie Gallery shall have the options of either (i) prorating the Purchase Price
to adjust for the loss to Home Vision; or (ii) proceeding to close with an
assignment of any insurance proceeds which may be paid to reflect such loss or
damage.
9.3 Severability and Operations of Law. If any provision of this Agreement
----------------------------------
is prohibited by the laws of any jurisdiction as those laws apply to this
Agreement, that provision is ineffective to the extent of such prohibition
and/or is modified to conform with such laws, without invalidating the remaining
provisions hereto; and any such prohibition in any jurisdiction shall not
invalidate such provision in any other jurisdiction.
9.4 Choice of Law. This Agreement shall be governed by the internal laws
-------------
(and not the law of conflicts) of the State of Delaware.
9.5 Modification. This Agreement may not be changed or modified except in
------------
writing specifically referring to this Agreement and signed by all of the
parties to this Agreement.
9.6 Survival and Binding Agreement. The terms and conditions of this
------------------------------
Agreement shall survive the Closing as set forth in Section 6.1, and shall inure
to the benefit of and be binding upon the parties hereto and their respective
heirs, personal representatives, successors and assigns.
9.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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9.8 Confidentiality; Publicity. Except as may be required by law or as
--------------------------
otherwise permitted herein, no party hereto or their respective affiliates,
employees, agents and representatives shall disclose to any third party the
subject matter or terms of this Agreement without the prior consent of the other
parties; provided, however, that any party hereto may discuss the terms of this
Agreement and the transactions contemplated herein with (a) its lenders and
equity investors and their respective counsel and (b) the landlords under the
leases and their respective representatives. Subject to the foregoing,
disclosure of any financial data provided either party by the other is strictly
prohibited without the other party's prior written consent. Notwithstanding
anything herein to the contrary, the parties acknowledge that Movie Gallery may
pursue a private or public sale of its capital stock or other securities. The
Shareholders and Home Vision agree that Movie Gallery is hereby permitted to
reveal any information provided by Shareholders or Home Vision as is reasonably
required by Movie Gallery, in order to facilitate any such offer and sale of
capital stock or other securities.
9.9 Assignability; Successors. Neither party to this Agreement may assign
-------------------------
any of its rights or delegate any of its responsibilities under this Agreement
except that Movie Gallery may assign this agreement to any entity that succeeds
to all or substantially all of the business of Movie Gallery through a purchase
of assets, merger or otherwise. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective heirs, successors, assigns
and personal representatives.
9.10 Notices. All notices, requests, demands, claims and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid and addressed to the intended recipient or
faxed to the intended recipient, as set forth below:
If to the Shareholders: Copy to:
Mr. Martin Allen John Moncure, Esq.
4 Industrial Parkway MONCURE & BARNICLE
Brunswick, Maine 04011 14 Main Street, Box 636
FAX #: (207) 729-8673 Brunswick, Maine 04011
FAX #: (207) 729-7790
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<PAGE>
If to Movie Gallery: Copy to:
Movie Gallery, Inc. S. Page Todd, Esq.
739 W. Main Street 739 W. Main Street
Dothan, Alabama 36301 Dothan, Alabama 36301
FAX #: (334) 677-1169 FAX #: (334) 702-0509
9.11 [Intentionally Left Blank]
9.12 Headings. Headings contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.13 Integrated Agreement. This Agreement constitutes the entire agreement
--------------------
between the parties hereto, and there are no agreements, understandings,
restrictions, warranties, or representations between the parties other than
those set forth herein or herein provided for.
9.14 THE SHAREHOLDERS COVENANT THAT THEY HAVE HAS DESIGNATED AND APPOINTED
JOHN MONCURE, ESQ., AS THEIR AUTHORIZED AGENT UPON WHOM PROCESS MAY BE SERVED IN
ANY SUIT, PROCEEDING OR OTHER ACTION AGAINST THEM INSTITUTED BY MOVIE GALLERY
AND BASED UPON THIS AGREEMENT. SUCH DESIGNATION AND APPOINTMENT SHALL, TO THE
EXTENT PERMITTED BY LAW, BE IRREVOCABLE, UNLESS AND UNTIL A SUCCESSOR AUTHORIZED
AGENT ACCEPTABLE TO MOVIE GALLERY SHALL HAVE BEEN APPOINTED BY SUCH
SHAREHOLDERS, SUCH SUCCESSOR SHALL HAVE ACCEPTED SUCH APPOINTMENT AND WRITTEN
NOTICE THEREOF SHALL HAVE BEEN GIVEN TO MOVIE GALLERY. THE SHAREHOLDERS FURTHER
AGREE THAT SERVICE OF PROCESS UPON SUCH AUTHORIZED AGENT OR SUCCESSOR SHALL BE
DEEMED IN EVERY RESPECT SERVICE OF PROCESS UPON THEM IN ANY SUCH SUIT,
PROCEEDING OR OTHER ACTION. THE SHAREHOLDERS HEREBY CONSENT TO THE PERSONAL
JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF DELAWARE IN ANY SUCH
SUIT, PROCEEDING OR OTHER ACTION.
THE SHAREHOLDERS FURTHER AGREE TO TAKE ANY AND ALL ACTION, INCLUDING THE
EXECUTION AND FILING OF ALL SUCH INSTRUMENTS AND DOCUMENTS, AS MAY BE NECESSARY
TO CONTINUE SUCH DESIGNATION AND APPOINTMENT OF SUCH SUBSTITUTE DESIGNATION AND
APPOINTMENT IN FULL FORCE AND EFFECT.
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<PAGE>
10. Deposit. Upon execution of this Agreement, Movie Gallery shall
-------
deliver or wire transfer the Deposit to Moncure & Barnicle which shall be held
in a non-interest bearing account by Moncure & Barnicle and applied as follows:
(1) In the event that the Shareholders terminate this Agreement
pursuant to Section 8.1.1(b), the Deposit shall be delivered to Home Vision and
the parties obligations hereunder shall cease; or
(2) In the event that the transaction contemplated by this Agreement
does not close on or before the Closing Date, and the Shareholders shall not
have the right to terminate this Agreement pursuant to Section 8.1.1(b), the
Deposit shall be returned to Movie Gallery.
(3) In the event that the transaction contemplated by this Agreement
closes, the Deposit shall be returned to Movie Gallery at Closing.
(4) In the event that Movie Gallery has the right to terminate this
Agreement pursuant to Sections 8.1.1.(d) or (f), the Deposit shall be returned
to Movie Gallery.
(5) In the event that the Principal Shareholders have the right to
terminate this Agreement pursuant to Sections 8.1.1(e) or (g), the Deposit shall
be delivered to Home Vision.
11. Rental. The Surviving Corporation shall lease Home Vision's existing
------
corporate office building at 4 Industrial Parkway, Brunswick, Maine, pursuant to
the terms of the lease attached hereto as Schedule 11.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above-written.
ATTEST: MOVIE GALLERY, INC.
___________________________ BY:/s/ Joseph T. Malugen
---------------------------
Secretary Its Chief Executive Officer
-----------------------
ATTEST: MOVIE GALLERY OF MAINE, INC.
___________________________ BY:/s/ Joseph T. Malugen
--------------------------
Secretary Its Chief Executive Officer
-----------------------
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<PAGE>
ATTEST: HOME VISION ENTERTAINMENT, INC.
BY:/s/ Martin L. Allen________
- ---------------------------- -------------------
Secretary Its President
SHAREHOLDERS:
/s/ Martin L. Allen
- ---------------------------- ------------------------------------
Witness Martin L. Allen
/s/ William G. Guerrette,Jr.
- ---------------------------- ------------------------------------
Witness William G. Guerrette, Jr.
/s/ William S. Allen
- ---------------------------- -----------------------------------
Witness William S. Allen
/s/ James G.Howard
- ---------------------------- -----------------------------------
Witness James G. Howard
/s/ Terry Drake
- ---------------------------- -----------------------------------
Witness Terry Drake
/s/ Thomas G. Ellis
- --------------------------- -----------------------------------
Witness Thomas G. Ellis
/s/ Jeffrey Owen
- --------------------------- -----------------------------------
Witness Jeffrey Owen
/s/ Linda Allen
- --------------------------- -----------------------------------
Witness Linda Allen
/s/ Robyn Allen
- --------------------------- -----------------------------------
Witness Robyn Allen
/s/ Melanie K. Guerrette
- --------------------------- ----------------------------------
Witness Melanie K. Guerrette
/s/ Suzanne Howard
- --------------------------- -----------------------------------
Witness Suzanne Howard
/s/ Debra Owen
- --------------------------- -----------------------------------
Witness Debra Owen
-63-
<PAGE>
AMENDMENT
---------
TO
--
AGREEMENT OF MERGER
-------------------
WHEREAS, on June 5, 1996 Movie Gallery, Inc., Subsidiary, Home Vision
Entertainment, Inc. and Executing Shareholders entered into an Agreement of
Merger; and,
WHEREAS, the parties desire to amend the Agreement of Merger to
reflect changing circumstances; and,
WHEREAS, the value of Movie Gallery stock decreased to less than
Twenty Seven ($27.00) Dollars per share on June 26, 1996; and
WHEREAS, Section 4.2.5 of the Agreement of Merger grants Home Vision
Entertainment, Inc. the right to terminate the Agreement of Merger; and
WHEREAS, Home Vision Entertainment, Inc. and shareholders have
determined to close on the Agreement of Merger based upon this Amendment to the
Agreement of Merger; and
NOW, THEREFORE, in consideration of the premises and for other good
and valuable considerations the receipt and sufficiency of which is acknowledged
by all parties, the parties agree as follows:
1. For the purposes of Section 1.4.1 of the Agreement of Merger, the
Market Price shall be deemed to be Twenty Six ($26.00) Dollars per share; and,
2. For the purposes of Section 1.4.1 of the Agreement of Merger, and
solely for the purposes of calculating the Movie Gallery shares to be issued at
closing, the Merger Consideration Adjustment is agreed to be Twelve Million Five
Hundred Thousand ($12,500,000.00) Dollars; and,
3. For the purposes of Section 1.9, the closing of the Merger shall
take place at the offices of Moncure and Barnicle in Brunswick, Maine on July 1,
1996 or at such other dates and times as the parties may agree; and,
4. If the market price of Movie Gallery stock drops below Twenty One
($21.00) Dollars, at any time through June 28, 1996, Home Vision Entertainment,
Inc. shall have the right to terminate the contract pursuant to Section 4.2.5.
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<PAGE>
5. For the purposes of Section 1.6 of the Agreement of Merger, the
Movie Gallery Exercise Shares shall be determined by multiplying the number of
Exercise Shares times the number which is determined by the Exchange Formula.
6. If the transaction closes on or before July 1, 1996, then as of
that date, all revenues received and payables dated before July 1, 1996 shall be
for the credit of, and the responsibility of Home Vision Entertainment, Inc.
All revenue received and all payables dated on or after July 1, 1996, shall be
for the credit of and the responsibility of, the merged entity. The effective
date of the merger to be July 1, 1996 notwithstanding any date on an executed
document which pre-dates July 1, 1996; and
7. The parties hereby reaffirm all other provisions and obligations
of the Agreement of Merger dated June 5, 1996.
8. Capitalized terms, unless otherwise defined herein shall have the
same meanings as provided in the Agreement of Merger.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on this 28th day of June, 1996.
ATTEST: MOVIE GALLERY, INC.
By: /s/ Joseph T. Malugen
- ------------------------------ -------------------------------------
Secretary Its Chief Executive Officer
------------------------
ATTEST: MOVIE GALLERY OF MAINE, INC.
By: /s/ Joseph T. Malugen
- ------------------------------- -------------------------------------
Secretary Its Chief Executive Officer
------------------------
ATTEST: HOME VISION ENTERTAINMENT, INC.
By: /s/ Martin L. Allen
- ------------------------------- ------------------------------------
Secretary Its President
SHAREHOLDERS:
/s/ Martin L. Allen
- ------------------------------- ---------------------------------------
Witness Martin L. Allen
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<PAGE>
/s/ William G. Guerrette, Jr.
- ------------------------------- ------------------------------------
Witness William G. Guerrette, Jr.
/s/ William S. Allen
- ------------------------------ ------------------------------------
Witness William S. Allen
/s/ James G. Howard
- ------------------------------ ---------------------------
Witness James G. Howard
/s/ Terry R. Drake
- ------------------------------ ------------------------------
Witness Terry R. Drake
/s/ Thomas G. Ellis
- ------------------------------ ------------------------------
Witness Thomas G. Ellis
/s/ Jeffrey S. Owen
- ------------------------------ ------------------------------
Witness Jeffrey S. Owen
/s/ Linda Allen
- ------------------------------ ------------------------------
Witness Linda Allen
/s/ Robyn Allen
- ------------------------------ ------------------------------
Witness Robyn Allen
/s/ Melanie K. Guerrette
- ------------------------------ ------------------------------
Witness Melanie K. Guerrette
/s/ Suzanne Howard
- ------------------------------ ------------------------------
Witness Suzanne Howard
/s/ Debra Owen
- ------------------------------ ------------------------------
Witness Debra Owen
-66-
<PAGE>
================================================================================
CREDIT AGREEMENT
among
MOVIE GALLERY, INC.,
THE LENDERS NAMED HEREIN,
and
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as Agent, as Issuing Lender and as Swingline Lender
$125,000,000 Reducing Revolving Credit Facility
Arranged by
FIRST UNION CAPITAL MARKETS CORP.
Dated as of July 10, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
RECITALS................................. 1
ARTICLE I
DEFINITIONS
1.1. Defined Terms...................................................... 1
1.2. Accounting Terms................................................... 19
1.3. Other Terms; Construction.......................................... 20
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
2.1. Commitments; Loans................................................. 20
2.2. Borrowings......................................................... 20
2.3. Disbursements; Funding Reliance; Domicile of Loans................. 23
2.4. Notes.............................................................. 24
2.5. Termination and Reduction of Commitments and Swingline Commitment.. 24
2.6. Voluntary and Mandatory Payments and Prepayments................... 25
2.7. Interest........................................................... 27
2.8. Fees............................................................... 28
2.9. Interest Periods................................................... 29
2.10. Conversions and Continuations..................................... 30
2.11. Method of Payments; Computations.................................. 31
2.12. Recovery of Payments.............................................. 32
2.13. Use of Proceeds................................................... 33
2.14. Pro Rata Treatment; Sharing of Payments........................... 33
2.15. Increased Costs; Change in Circumstances; Illegality; etc......... 34
2.16. Taxes............................................................. 35
2.17. Compensation...................................................... 37
ARTICLE III
LETTERS OF CREDIT
3.1. Issuance........................................................... 37
3.2. Notices............................................................ 38
3.3. Participations..................................................... 38
-i-
<PAGE>
3.4. Reimbursement...................................................... 39
3.5. Payment by Revolving Loans......................................... 39
3.6. Payment to Lenders................................................. 40
3.7. Obligations Absolute............................................... 40
3.8. Cash Collateral Account............................................ 41
3.9. Effectiveness...................................................... 42
ARTICLE IV
CONDITIONS OF BORROWING
4.1. Conditions of Initial Borrowing.................................... 42
4.2. Conditions of All Borrowings....................................... 45
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Corporate Organization and Power................................... 46
5.2. Authorization; Enforceability...................................... 46
5.3. No Violation....................................................... 46
5.4. Governmental Authorization; Permits................................ 47
5.5. Litigation......................................................... 47
5.6. Taxes.............................................................. 47
5.7. Subsidiaries....................................................... 47
5.8. Full Disclosure.................................................... 48
5.9. Margin Regulations................................................. 48
5.10. No Material Adverse Change......................................... 48
5.11. Financial Matters.................................................. 48
5.12. Ownership of Properties............................................ 49
5.13. ERISA.............................................................. 49
5.14. Environmental Matters.............................................. 49
5.15. Compliance With Laws............................................... 50
5.16. Regulated Industries............................................... 50
5.17. Insurance.......................................................... 50
5.18. Material Contracts................................................. 50
5.19. Security Documents................................................. 50
ARTICLE VI
AFFIRMATIVE COVENANTS
6.1. Financial Statements............................................... 51
6.2. Other Business and Financial Information........................... 52
6.3. Corporate Existence; Franchises; Maintenance of Properties......... 54
-ii-
<PAGE>
6.4. Compliance with Laws.............................................. 54
6.5. Payment of Obligations............................................ 54
6.6. Insurance......................................................... 54
6.7. Maintenance of Books and Records; Inspection...................... 54
6.8. Interest Rate Protection.......................................... 55
6.9. Permitted Acquisitions............................................ 55
6.10. Creation or Acquisition of Subsidiaries........................... 56
6.11. Liquidating Subsidiaries.......................................... 57
6.12. Movie Time, Inc................................................... 57
6.13. Further Assurances................................................ 57
ARTICLE VII
FINANCIAL COVENANTS
7.1. Leverage Ratio.................................................... 58
7.2. Interest Coverage Ratio........................................... 59
7.3. Fixed Charge Coverage Ratio....................................... 59
7.4. Consolidated Net Worth............................................ 60
7.5. Capital Expenditures.............................................. 60
ARTICLE VIII
NEGATIVE COVENANTS
8.1. Merger; Consolidation............................................. 61
8.2. Indebtedness...................................................... 61
8.3. Liens............................................................. 63
8.4. Disposition of Assets............................................. 64
8.5. Investments....................................................... 64
8.6. Restricted Payments............................................... 65
8.7. Transactions with Affiliates...................................... 66
8.8. Certain Amendments................................................ 66
8.9. Lines of Business................................................. 66
8.10. Limitation on Certain Restrictions................................ 66
8.11. Fiscal Periods.................................................... 67
8.12. Accounting Changes................................................ 67
ARTICLE IX
EVENTS OF DEFAULT
9.1. Events of Default................................................. 67
9.2. Remedies: Termination of Commitments, Acceleration, etc........... 70
-iii-
<PAGE>
ARTICLE X
THE AGENT
10.1. Appointment........................................................ 71
10.2. Nature of Duties................................................... 71
10.3. Exculpatory Provisions............................................. 71
10.4. Reliance by Agent.................................................. 71
10.5. Non-Reliance on Agent and Other Lenders............................ 72
10.6. Notice of Default.................................................. 72
10.7. Indemnification.................................................... 73
10.8. The Agent in its Individual Capacity............................... 73
10.9. Successor Agent.................................................... 73
10.10. Collateral Matters................................................. 74
ARTICLE XI
MISCELLANEOUS
11.1. Fees and Expenses.................................................. 74
11.2. Indemnification.................................................... 75
11.3. Governing Law; Consent to Jurisdiction............................. 75
11.4. Arbitration; Preservation and Limitation of Remedies............... 76
11.5. Notices............................................................ 77
11.6. Amendments, Waivers, etc........................................... 78
11.7. Assignments, Participations........................................ 78
11.8. No Waiver.......................................................... 81
11.9. Successors and Assigns............................................. 81
11.10. Survival........................................................... 81
11.11. Severability....................................................... 81
11.12. Construction....................................................... 82
11.13. Confidentiality.................................................... 82
11.14. Counterparts....................................................... 82
11.15. Entire Agreement................................................... 82
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of the 10th day of July, 1996 (this
"Agreement"), is made among MOVIE GALLERY, INC., a Delaware corporation with its
principal offices in Dothan, Alabama (the "Borrower"), the banks and financial
institutions listed on the signature pages hereof or that become parties hereto
after the date hereof (collectively, the "Lenders"), and FIRST UNION NATIONAL
BANK OF NORTH CAROLINA ("First Union"), as agent for the Lenders (in such
capacity, the "Agent"), as issuer of the Letters of Credit (in such capacity,
the "Issuing Lender"), and as maker of the Swingline Loans (in such capacity,
the "Swingline Lender").
RECITALS
A. The Borrower has requested that the Lenders make available to the
Borrower a reducing revolving credit facility in the aggregate principal amount
of $125,000,000. The Borrower will use the proceeds of this facility to
refinance certain existing indebtedness, to pay or reimburse certain fees and
expenses in connection herewith and therewith, to finance certain acquisitions,
and for working capital and general corporate purposes, all as more fully
described herein.
B. The Lenders are willing to make available to the Borrower the reducing
revolving credit facility described above subject to and on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual provisions, covenants and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
I.1. Defined Terms. For purposes of this Agreement, in addition to the
-------------
terms defined elsewhere herein, the following terms shall have the meanings set
forth below (such meanings to be equally applicable to the singular and plural
forms thereof):
"Account Designation Letter" shall mean a letter from the Borrower to the
Agent, duly completed and signed by an Authorized Officer of the Borrower and in
form and substance satisfactory to the Agent, listing any one or more accounts
to which the Borrower may from time to time request the Agent to forward the
proceeds of any Loans made hereunder.
"Acquisition" shall mean any transaction or series of related transactions,
consummated on or after the Closing Date, by which the Borrower directly, or
indirectly through one or more Subsidiaries, (i) acquires any going business, or
all or substantially all of the assets, of any Person, whether through purchase
of assets, merger or otherwise, or (ii) acquires securities or other ownership
interests of any
<PAGE>
Person having at least a majority of combined voting power of the then
outstanding securities or other ownership interests of such Person.
"Acquisition Amount" shall mean, with respect to any Acquisition, the sum
(without duplication) of (i) the amount of cash paid by the Borrower and its
Subsidiaries in connection with such Acquisition, (ii) the Fair Market Value of
all capital stock of the Borrower issued or given in connection with such
Acquisition, (iii) the amount (determined by using the face amount or the amount
payable at maturity, whichever is greater) of all Indebtedness incurred, assumed
or acquired by the Borrower and its Subsidiaries in connection with such
Acquisition, (iv) all additional purchase price amounts in connection with such
Acquisition in the form of earnouts and other contingent obligations that should
be recorded as a liability on the balance sheet of the Borrower and its
Subsidiaries or expensed, in either event in accordance with Generally Accepted
Accounting Principles, Regulation S-X under the Securities Act of 1933, as
amended, or any other rule or regulation of the Securities and Exchange
Commission, (v) all amounts paid in respect of covenants not to compete,
consulting agreements and other affiliated contracts in connection with such
Acquisition, (vi) the amount of all transaction fees and expenses (including,
without limitation, legal, accounting and finders' fees and expenses) incurred
by the Borrower and its Subsidiaries in connection with such Acquisition and
(vii) the aggregate fair market value of all other consideration given by the
Borrower and its Subsidiaries in connection with such Acquisition.
"Adjusted Base Rate" shall mean, at any time with respect to any Base Rate
Loan, a rate per annum equal to the Base Rate as in effect at such time plus the
applicable Margin Percentage as in effect at such time.
"Adjusted LIBOR Rate" shall mean, at any time with respect to any LIBOR
Loan, a rate per annum equal to the LIBOR Rate as in effect at such time plus
the applicable Margin Percentage as in effect at such time.
"Agent" shall mean First Union, in its capacity as Agent appointed under
ARTICLE X, and its successors and permitted assigns in such capacity.
"Affiliate" shall mean, as to any Person, each other Person that directly,
or indirectly through one or more intermediaries, owns or controls, is
controlled by or under common control with, such Person or is a director or
officer of such Person. For purposes of this definition, with respect to any
Person "control" shall mean (i) the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise, or
(ii) the beneficial ownership of securities or other ownership interests of such
Person having 10% or more of the combined voting power of the then outstanding
securities or other ownership interests of such Person ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors or other governing body of such Person.
"Aggregate Commitments" shall mean, at any time, the sum of the Commitments
at such time.
"Aggregate Unutilized Commitments" shall mean, at any time, (i) the
Aggregate Commitments at such time less (ii) the sum of (x) the aggregate
----
principal amount of Revolving Loans outstanding at such time, (y) the aggregate
-2-
<PAGE>
Letter of Credit Exposure of all Lenders at such time and (z) the aggregate
principal amount of Swingline Loans outstanding at such time (excluding the
aggregate amount of any Swingline Loans to be repaid with proceeds of Revolving
Loans that are determined to be outstanding for purposes of this definition).
"Agreement" shall mean this Credit Agreement, as amended, modified or
supplemented from time to time.
"Allowed Acquisition" shall mean any Acquisition with respect to which all
of the following conditions are satisfied: (i) each business acquired shall be
within the Permitted Lines of Business, (ii) any capital stock or other equity
securities given as consideration in connection therewith shall be stock or
securities of the Borrower, (iii) in the case of an Acquisition involving the
acquisition of control of capital stock or other ownership interests of any
Person, immediately after giving effect to such Acquisition such Person (or the
surviving Person, if the Acquisition is effected through a merger or
consolidation) shall be the Borrower or a Wholly Owned Subsidiary of the
Borrower, and (iv) all of the requirements of SECTIONS 6.9 and 6.10 applicable
to such Acquisition are satisfied.
"Asset Disposition" shall mean any sale, assignment, transfer or other
disposition by the Borrower or any of its Subsidiaries to any other Person of
any of its assets, business units or other properties (including any interests
in property, and including ownership interests in Subsidiaries), excluding (i)
sales of inventory (including rental tapes) in the ordinary course of business
and (ii) the sale or exchange of used or obsolete equipment to the extent (y)
the proceeds of such sale are applied towards, or such equipment is exchanged
for, similar replacement equipment or (z) such equipment is no longer useful for
the operations of the Borrower and its Subsidiaries in the ordinary course of
business.
"Assignee" shall have the meaning given to such term in SECTION 11.7(A).
"Assignment and Acceptance" shall mean an Assignment and Acceptance entered
into between a Lender and an Assignee and accepted by the Agent and the
Borrower, in substantially the form of EXHIBIT C.
"Authorized Officer" shall mean any officer of the Borrower authorized by
resolution of the board of directors of the Borrower to take the action
specified herein with respect to such officer and whose signature and incumbency
shall have been certified to the Agent by the secretary or an assistant
secretary of the Borrower.
"Bankruptcy Code" shall mean 11 U.S.C. (S)(S) 101 et seq., as amended from
-- ---
time to time, and any successor statute.
"Base Rate" shall mean the higher of (i) the per annum interest rate
publicly announced from time to time by First Union in Charlotte, North
Carolina, to be its prime or base rate (which may not necessarily be its best
lending rate), as adjusted to conform to changes as of the opening of business
on the date of any such change in such prime or base rate, or (ii) 0.5% per
annum plus the Federal Funds Rate, as adjusted to conform to changes as of the
opening of business on the date of any such change in the Federal Funds Rate.
-3-
<PAGE>
"Base Rate Loan" shall mean, at any time, any Loan that bears interest at
such time at the Adjusted Base Rate.
"Borrower Margin Stock" shall mean shares of capital stock of the Borrower
that are held by the Borrower or any of its Subsidiaries and that constitute
Margin Stock.
"Borrowing" shall mean the incurrence by the Borrower (including as a
result of conversions and continuations of outstanding Revolving Loans pursuant
to SECTION 2.10) on a single date of a group of Revolving Loans of a single Type
(or a Swingline Loan made by the Swingline Lender) and, in the case of LIBOR
Loans, as to which a single Interest Period is in effect.
"Borrowing Date" shall mean, with respect to any Borrowing, the date upon
which such Borrowing is made.
"Business Day" shall mean (i) any day other than a Saturday or Sunday, a
legal holiday or a day on which commercial banks in Charlotte, North Carolina
are required by law to be closed and (ii) in respect of any determination
relevant to a LIBOR Loan, any such day that is also a day on which tradings are
conducted in the London interbank Eurodollar market.
"Capital Expenditures" shall mean, with respect to the Borrower and its
Subsidiaries for any period, the aggregate amount (whether paid in cash or
accrued as a liability) that would, in accordance with Generally Accepted
Accounting Principles, be included on the consolidated statement of cash flows
of the Borrower and its Subsidiaries for such fiscal year as additions to
equipment, fixed assets, real property or improvements or other capital assets
(including, without limitation, capital lease obligations); provided, however,
-------- -------
that Capital Expenditures shall not include any such expenditures (i) for
replacements and substitutions for capital assets, to the extent made with the
proceeds of insurance, (ii) for the purchase of video tapes, or (iii) made in
connection with Permitted Acquisitions.
"Cash Collateral Account" shall have the meaning given to such term in
SECTION 3.8.
"Cash Equivalents" shall mean (i) securities issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, backed by the full faith and credit of the United States of America and
maturing within 90 days from the date of acquisition, (ii) commercial paper
issued by any Person organized under the laws of the United States of America,
maturing within 90 days from the date of acquisition and, at the time of
acquisition, having a rating of at least A-1 or the equivalent thereof by
Standard & Poor's Ratings Services or at least P-1 or the equivalent thereof by
Moody's Investors Service, Inc., (iii) time deposits (which shall not include
demand deposit accounts) and certificates of deposit maturing within 90 days
from the date of issuance and issued by a bank or trust company organized under
the laws of the United States of America or any state thereof that has combined
capital and surplus of at least $500,000,000 and that has (or is a subsidiary of
a bank holding company that has) a long-term unsecured debt rating of at least A
or the equivalent thereof by Standard & Poor's Ratings Services or at least A2
or the equivalent thereof by Moody's Investors Service, Inc., (iv) repurchase
obligations with a term not exceeding seven (7) days with respect to underlying
securities of the types described in clause (i) above entered into with any bank
or trust company meeting the qualifications specified in clause (iii) above, and
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<PAGE>
(v) money market funds substantially all of whose assets are comprised of
securities of the types described in clauses (i) through (iv) above.
"Casualty Event" shall mean, with respect to any property (including any
interest in property) of the Borrower or any of its Subsidiaries, any loss of,
damage to, or condemnation or other taking of, such property for which the
Borrower or such Subsidiary receives insurance proceeds, proceeds of a
condemnation award or other compensation.
"Closing Date" shall mean the date upon which the initial extensions of
credit are made pursuant to this Agreement.
"Collateral" shall mean all the assets, property and interests in property
that shall from time to time be pledged or be purported to be pledged as direct
or indirect security for the Obligations pursuant to any one or more of the
Security Documents.
"Commitment" shall mean, with respect to any Lender at any time, the amount
set forth opposite such Lender's name on its signature page hereto under the
caption "Commitment" or, if such Lender has entered into one or more Assignment
and Acceptances, the amount set forth for such Lender at such time in the
Register maintained by the Agent pursuant to SECTION 11.7(B) as such Lender's
"Commitment," as such amount may be reduced at or prior to such time pursuant to
the terms hereof.
"Compliance Certificate" shall mean a fully completed and duly executed
certificate in the form of EXHIBIT D.
"Consolidated Funded Debt" shall mean, as of the last day of any fiscal
quarter, the difference between (i) the aggregate (without duplication) of all
Funded Debt of the Borrower and its Subsidiaries as of such date (provided that
--------
any Contingent Obligation of the Borrower and its Subsidiaries shall be included
only in the event that it relates to Indebtedness of any other Person),
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles, minus (ii) the amount by which the aggregate cash
-----
balances and Cash Equivalents of the Borrower and its Subsidiaries as of such
date, determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles, exceed $5,000,000. For purposes of determining
Consolidated Funded Debt as of any date, each Contingent Obligation of the
Borrower and its Subsidiaries required to be included in such determination as
set forth hereinabove shall be valued at the maximum aggregate principal amount
(whether or not drawn or outstanding) of the Indebtedness that is the
corresponding "primary obligation" (as such term is defined in the definition of
Contingent Obligation) as of such date.
"Consolidated Interest Expense" shall mean, for any period, the sum
(without duplication) of (i) total interest expense of the Borrower and its
Subsidiaries for such period in respect of Funded Debt of the Borrower and its
Subsidiaries (including, without limitation, all such interest expense accrued
or capitalized during such period, whether or not actually paid during such
period), determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles, (ii) all net amounts paid or accrued by the
Borrower and its Subsidiaries during such period under or in respect of Hedge
Agreements, and (iii) all commitment fees and other ongoing fees in respect of
Funded Debt (including the commitment fee provided for under SECTION 2.8(B), and
including the fees provided for under the Fee Letter) amortized by the Borrower
-5-
<PAGE>
and its Subsidiaries during such period (if required to be capitalized under
Generally Accepted Accounting Principles) or paid or accrued by the Borrower and
its Subsidiaries during such period (if not required to be capitalized under
Generally Accepted Accounting Principles).
"Consolidated Lease Expense" shall mean, for any period, the aggregate
(without duplication) of total lease and rental expense of the Borrower and its
Subsidiaries for such period (including, without limitation, all such lease and
rental expense accrued or capitalized during such period, whether or not
actually paid during such period, including capital lease obligations),
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles (but excluding, in any event, amounts paid in respect of
taxes, utilities, insurance, common area maintenance and other like charges
associated with the lease and rental of real and personal property).
"Consolidated Net Income" shall mean, for any period, net income (or loss)
for the Borrower and its Subsidiaries for such period, determined on a
consolidated basis in accordance with Generally Accepted Accounting Principles.
"Consolidated Net Worth" shall mean, at any time, the net worth of the
Borrower and its Subsidiaries at such time, determined on a consolidated basis
in accordance with Generally Accepted Accounting Principles but excluding any
preferred stock or other class of equity securities that, by its stated terms
(or by the terms of any class of equity securities issuable upon conversion
thereof or in exchange therefor), or upon the occurrence of any event, matures
or is mandatorily redeemable, or is redeemable at the option of the holders
thereof, in whole or in part, at any time prior to two and one-half years after
the Maturity Date.
"Consolidated Operating Cash Flow" shall mean, for each applicable
Reference Period, the aggregate of (i) Consolidated Net Income for such
Reference Period, plus (ii) the sum of Consolidated Interest Expense, federal,
----
state, local and other income taxes, depreciation, amortization of intangible
assets and rental tapes, and extraordinary losses and other noncash expenses or
charges reducing income for such Reference Period, all to the extent taken into
account in the calculation of Consolidated Net Income for such Reference Period,
minus (iii) the sum of extraordinary gains and other noncash credits increasing
- -----
income for such Reference Period and all amounts paid in respect of purchases of
video tapes that are purchased for rental and capitalized as fixed assets, all
to the extent taken into account in the calculation of Consolidated Net Income
for such Reference Period; provided, however, that:
-------- -------
(a) Solely for purposes of calculating the Leverage Ratio as of
the last day of each fiscal month up to and including the fiscal month
ending January 5, 1997 (except as expressly provided otherwise in SECTION
4.1(G)), the applicable Reference Period shall be the period of six
consecutive fiscal months then ending, and Consolidated Operating Cash Flow
for such Reference Period (i) shall give pro forma effect to the
Acquisitions of Home Vision Entertainment, Inc. and Hollywood Video, Inc.
as if such Acquisitions had been consummated on the first day of such six-
fiscal month period (provided that such Acquisitions are in fact
--------
consummated prior to or concurrently with the making of the initial
Borrowings hereunder), and (ii) shall be multiplied by two (2);
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<PAGE>
(b) Solely for purposes of calculating the Leverage Ratio as of
each fiscal quarter ending date set forth below, the applicable Reference
Period shall be the period set forth below opposite such date, and
Consolidated Operating Cash Flow for such Reference Period shall, where
applicable as set forth below, be multiplied by the annualizing factor set
forth opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending Date Reference Period Annualizing Factor
- ------------------ --------------------------------- --------------------------
<S> <C> <C>
April 6, 1997 Two consecutive fiscal quarters Two (2)
then ending
July 6, 1997 Three consecutive fiscal quarters One and one-third (1-1/3)
October 5, 1997 then ending
January 4, 1998
Thereafter Four consecutive fiscal quarters Not applicable
then ending
</TABLE>
(c) For all purposes of this Agreement, in calculating
Consolidated Operating Cash Flow for any Reference Period that would
include the results of operations of Home Vision Entertainment, Inc. and
Hollywood Video, Inc., there shall be added to Consolidated Net Income for
the relevant Reference Period such amount of the acquisition expenses set
forth on SCHEDULE 1.1 as shall be required under Generally Accepted
Accounting Principles to be amortized, paid or accrued during such period,
as the case may be, it being understood that certain of such expenses as
shown on SCHEDULE 1.1 are estimated as of the date hereof and are subject
to adjustment as and when the same become an amount certain (provided that
--------
any material adjustment to any such expense shall be subject to the
approval of the Required Lenders); and
(d) For all purposes of this Agreement, calculations of
Consolidated Operating Cash Flow shall (i) exclude the results of
operations of any Person or business sold or otherwise disposed of by the
Borrower and its Subsidiaries at any time after the first day of the
relevant Reference Period, and (ii) include, for the entire Reference
Period on a pro forma basis, the results of operations of any Person or
business acquired by the Borrower or any of its Subsidiaries at any time
after the first day of the relevant Reference Period, so long as such
Person or business is acquired in a Permitted Acquisition with respect to
which the Acquisition Amount exceeds $7,500,000 and there have been
furnished unqualified audited financial statements with respect to such
Person or business covering a period of not less than one (1) year prior to
the date of consummation of such Permitted Acquisition (provided that,
--------
without the prior written approval of the Required Lenders, such
calculations shall not give effect to any increase in consolidated
operating cash flow that would otherwise be recognized on a pro forma basis
(except that no approval of any of the Lenders shall be required for the
Borrower to recognize any such pro forma increase in operating cash flow as
a result of the Acquisitions of Home Vision Entertainment, Inc. and
Hollywood Video, Inc.), and provided further that such calculations shall
-------- -------
take into account any decrease in future revenues, income or cash flow of
any such Person or business anticipated by the Borrower, in good faith and
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<PAGE>
at the time such calculations are delivered to the Lenders, to be
recognized as a result of the relevant Acquisition).
"Contingent Obligation" shall mean, with respect to any Person, any
direct or indirect liability of such Person with respect to any Indebtedness,
liability or other obligation (the "primary obligation") of another Person (the
"primary obligor"), whether or not contingent, (a) to purchase, repurchase or
otherwise acquire such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or provide funds (i) for the payment
or discharge of any such primary obligation or (ii) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet item, level of income or financial condition of
the primary obligor, (c) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor in respect thereof to make payment of such
primary obligation or (d) otherwise to assure or hold harmless the owner of any
such primary obligation against loss or failure or inability to perform in
respect thereof; provided, however, that, with respect to the Borrower and its
-------- -------
Subsidiaries, the term Contingent Obligation shall not include endorsements for
collection or deposit in the ordinary course of business.
"Covenant Compliance Worksheet" shall mean a fully completed worksheet
in the form of Attachment A to EXHIBIT D.
"Credit Documents" shall mean this Agreement, the Notes, the Guaranty,
the Security Documents, the Fee Letter, any Hedge Agreement to which the
Borrower and any Lender are parties, and all other agreements, instruments,
documents and certificates now or hereafter executed and delivered to the Agent
or any Lender by or on behalf of the Borrower or any of its Subsidiaries with
respect to this Agreement and the transactions contemplated hereby, in each case
as amended, modified, supplemented or restated from time to time.
"Default" shall mean any event or condition that, with the passage of
time or giving of notice, or both, would constitute an Event of Default.
"Dollars" or "$" shall mean dollars of the United States of America.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"ERISA Affiliate" shall mean any Person (including any trade or
business, whether or not incorporated) that would be deemed to be under "common
control" with, or a member of the same "controlled group" as, the Borrower or
any of its Subsidiaries, within the meaning of Sections 414(b), (c), (m) or (o)
of the Internal Revenue Code or Section 4001 of ERISA.
"ERISA Event" shall mean any of the following with respect to a Plan
or Multiemployer Plan, as applicable: (i) a Reportable Event with respect to a
Plan or a Multiemployer Plan, (ii) a complete or partial withdrawal by the
Borrower or any ERISA Affiliate from a Multiemployer Plan that results in
liability under Section 4201 or 4204 of ERISA, or the receipt by the Borrower or
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<PAGE>
any ERISA Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that
it intends to terminate or has terminated under Section 4041A of ERISA, (iii)
the distribution by the Borrower or any ERISA Affiliate under Section 4041 or
4041A of ERISA of a notice of intent to terminate any Plan or the taking of any
action to terminate any Plan, (iv) the commencement of proceedings by the PBGC
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from any Multiemployer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan, (v) the institution
of a proceeding by any fiduciary of any Multiemployer Plan against the Borrower
or any ERISA Affiliate to enforce Section 515 of ERISA, which is not dismissed
within thirty (30) days, (vi) the imposition upon the Borrower or any ERISA
Affiliate of any liability under Title IV of ERISA, other than for PBGC premiums
due but not delinquent under Section 4007 of ERISA, or the imposition or
threatened imposition of any Lien upon any assets of the Borrower or any ERISA
Affiliate as a result of any alleged failure to comply with the Internal Revenue
Code or ERISA in respect of any Plan, (vii) the engaging in or otherwise
becoming liable for a nonexempt Prohibited Transaction by the Borrower or any
ERISA Affiliate, (viii) a violation of the applicable requirements of Section
404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the
Internal Revenue Code by any fiduciary of any Plan for which the Borrower or any
of its ERISA Affiliates may be directly or indirectly liable or (ix) the
adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the
Internal Revenue Code or Section 307 of ERISA, would result in the loss of tax-
exempt status of the trust of which such Plan is a part if the Borrower or an
ERISA Affiliate fails to timely provide security to such Plan in accordance with
the provisions of such sections.
"Eligible Assignee" shall mean (i) a commercial bank organized under
the laws of the United States or any state thereof and having total assets in
excess of $1,000,000,000, (ii) a commercial bank organized under the laws of any
other country that is a member of the Organization for Economic Cooperation and
Development or any successor thereto (the "OECD") or a political subdivision of
any such country and having total assets in excess of $1,000,000,000, provided
--------
that such bank or other financial institution is acting through a branch or
agency located in the United States, in the country under the laws of which it
is organized or in another country that is also a member of the OECD, (iii) the
central bank of any country that is a member of the OECD, (iv) a finance
company, insurance company or other financial institution or fund that is
engaged in making, purchasing or otherwise investing in loans in the ordinary
course of its business and having total assets in excess of $500,000,000, (v)
any Affiliate of an existing Lender or (vi) any other Person approved by the
Required Lenders, which approval shall not be unreasonably withheld.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations (other than internal
reports prepared by any Person in the ordinary course of its business and not in
response to any third party action or request of any kind) or proceedings
relating in any way to any Environmental Law or any permit issued, or any
approval given, under any such Environmental Law (collectively, "Claims"),
including, without limitation, (i) any and all Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Substances or arising from alleged injury or threat of injury to human health or
the environment.
-9-
<PAGE>
"Environmental Laws" shall mean any and all federal, state and local
laws, statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations, rules of common law and orders of courts or Governmental
Authorities, relating to the protection of human health or occupational safety
or the environment, now or hereafter in effect and in each case as amended from
time to time, including, without limitation, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Substances.
"Equity/Debt Issuance" shall mean (i) the issuance, sale or other
disposition by the Borrower or any of its Subsidiaries of its capital stock, any
rights, warrants or options to purchase or acquire any shares of its capital
stock, or any other security or instrument representing, convertible into or
exchangeable for an equity interest in the Borrower or any of its Subsidiaries,
(ii) the issuance or sale by the Borrower or any of its Subsidiaries of any
Subordinated Indebtedness, and (iii) the receipt by the Borrower or any of its
Subsidiaries of any capital contribution (whether or not evidenced by any
security or instrument); provided, however, that the term Equity/Debt Issuance
-------- -------
shall not include (x) any rights, warrants or options issued to directors,
officers or employees of the Borrower or any of its Subsidiaries pursuant to
bona fide employee benefit plans established in the ordinary course of business
and any capital stock issued upon the exercise thereof, (y) any capital
contribution to any Subsidiary, to the extent made directly or indirectly by the
Borrower, or (z) any capital stock or other equity securities issued or sold in
connection with any Permitted Acquisition and constituting all or a portion of
the applicable purchase price.
"Event of Default" shall have the meaning given to such term in
SECTION 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"Fair Market Value" shall mean, with respect to any capital stock of
the Borrower given in connection with an Acquisition, the value given to such
capital stock for purposes of such Acquisition by the parties thereto, as
determined in good faith pursuant to the relevant acquisition agreement or
otherwise in connection with such Acquisition.
"Federal Funds Rate" shall mean, for any period, a fluctuating per
annum interest rate (rounded upwards, if necessary, to the nearest 1/100 of one
percentage point) equal for each day during such period to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by the Agent.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System or any successor thereto.
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<PAGE>
"Fee Letter" shall mean the letter from First Union to the Borrower,
dated June 21, 1996, relating to certain fees payable by the Borrower in respect
of the transactions contemplated by this Agreement, as amended, modified or
supplemented from time to time.
"Fixed Charge Coverage Ratio" shall mean, as of the last day of any fiscal
month up to and including the fiscal month ending January 5, 1997, and as of the
last day of any fiscal quarter, beginning with the fiscal quarter ending April
6, 1997, the ratio of:
(i) the sum of (y) Consolidated Operating Cash Flow for the
applicable Reference Period then ending and (z) Consolidated Lease Expense
for the applicable Reference Period then ending; to
(ii) the aggregate (without duplication) of the following, all
determined on a consolidated basis for the Borrower and its Subsidiaries in
accordance with Generally Accepted Accounting Principles for the applicable
Reference Period then ending: (a) Consolidated Interest Expense for such
Reference Period, (b) federal, state, local and other income taxes (but
only to the extent actually paid during such Reference Period), (c)
Consolidated Lease Expense for such Reference Period, and (d) the aggregate
(without duplication) of all principal payments in respect of Funded Debt
scheduled or otherwise required to have been made by the Borrower and its
Subsidiaries during such Reference Period.
"Funded Debt" shall mean any Indebtedness other than (i) Indebtedness
arising under Hedge Agreements and (ii) accrued expenses, current trade or other
accounts payable and other current liabilities arising in the ordinary course of
business and not incurred through the borrowing of money.
"Generally Accepted Accounting Principles" shall mean generally accepted
accounting principles, as set forth in the statements, opinions and
pronouncements of the Accounting Principles Board, the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board (or,
to the extent not so set forth in such statements, opinions and pronouncements,
as generally followed by entities similar in size to the Borrower and engaged in
generally similar lines of business), consistently applied and maintained and in
conformity with those used in the preparation of the most recent financial
statements of the Borrower referred to in SECTION 5.11(A).
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any central bank thereof, any municipal,
local, city or county government, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guaranty" shall mean a guaranty agreement made by the Subsidiaries of the
Borrower (other than Immaterial Subsidiaries or Liquidating Subsidiaries), in
substantially the form of EXHIBIT F, as amended, modified or supplemented from
time to time.
"Hazardous Substances" shall mean any substances or materials (i) that are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) that are
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<PAGE>
defined by any Environmental Law as toxic, explosive, corrosive, ignitable,
infectious, radioactive, mutagenic or otherwise hazardous, (iii) the presence of
which require investigation or response under any Environmental Law, (iv) that
constitute a nuisance, trespass or health or safety hazard to Persons or
neighboring properties, (v) that consist of underground or aboveground storage
tanks, whether empty, filled or partially filled with any substance or (vi) that
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedge Agreement" shall mean any interest or foreign currency rate swap,
cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Immaterial Subsidiary" shall mean any Subsidiary of the Borrower that (i)
does not conduct any active trade or business and (ii) either (a) has assets
with a gross fair market value of less than $100,000 and gross revenues
(determined for the most recently ended period of twelve consecutive fiscal
months) of less than $100,000 or (b) has been organized by the Borrower as an
acquisition vehicle solely for the purpose of merging with another Person in
connection with a Permitted Acquisition; provided that Movie Time shall be
--------
deemed an Immaterial Subsidiary notwithstanding the foregoing conditions, but
only for so long as it engages in no trade or business, and has no assets, other
than its licensing arrangements in effect as of the Closing Date.
"Indebtedness" shall mean, with respect to any Person (without
duplication), (i) all indebtedness of such Person for borrowed money or in
respect of loans or advances, (ii) all obligations of such Person evidenced by
notes, bonds, debentures or similar instruments, (iii) all reimbursement
obligations of such Person with respect to surety bonds, letters of credit and
bankers' acceptances (in each case, whether or not drawn or matured and in the
stated amount thereof), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, (v) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person, (vi) all obligations of such Person as lessee
under leases that are or should be, in accordance with Generally Accepted
Accounting Principles, recorded as capital leases, to the extent such
obligations are required to be so recorded, (vii) all obligations of such Person
to purchase, redeem, retire, defease or otherwise make any payment in respect of
any capital stock or other equity securities that, by their stated terms (or by
the terms of any equity securities issuable upon conversion thereof or in
exchange therefor), or upon the occurrence of any event, mature or are
mandatorily redeemable, or are redeemable at the option of the holder thereof,
in whole or in part, at any time prior to the Maturity Date, (viii) the net
termination obligations of such Person under any Hedge Agreements, calculated as
of any date as if such agreement or arrangement were terminated as of such date,
(ix) all Contingent Obligations of such Person and (x) all indebtedness referred
to in clauses (i) through (ix) above secured by any Lien on any property or
asset owned or held by such Person regardless of whether the indebtedness
secured thereby shall have been assumed by such Person or is nonrecourse to the
credit of such Person.
"Interest Coverage Ratio" shall mean, as of the last day of any fiscal
month up to and including the fiscal month ending January 5, 1997, and as of the
last day of any fiscal quarter, beginning with the fiscal quarter ending April
6, 1997, the ratio of (i) Consolidated Operating Cash Flow for the applicable
Reference Period then ending to (ii) Consolidated Interest Expense for the
applicable Reference Period then ending.
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<PAGE>
"Interest Period" shall have the meaning given to such term in SECTION 2.9.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"Issuing Lender" shall mean First Union in its capacity as issuer of the
Letters of Credit, and its successors in such capacity.
"LIBOR Loan" shall mean, at any time, any Revolving Loan that bears
interest at such time at the Adjusted LIBOR Rate.
"LIBOR Rate" shall mean, with respect to each LIBOR Loan comprising part of
the same Borrowing for any Interest Period, an interest rate per annum obtained
by dividing (i) (y) the rate of interest appearing on Telerate Page 3750 (or any
successor page) or (z) if no such rate is readily ascertainable, the rate of
interest determined by the Agent to be the rate or the arithmetic mean of rates
(rounded upward, if necessary, to the nearest 1/16 of one percentage point) at
which Dollar deposits in immediately available funds are offered by First Union
to first-tier banks in the London interbank Eurodollar market, in each case
under (y) and (z) above at approximately 11:00 a.m., London time, two (2)
Business Days prior to the first day of such Interest Period for a period
substantially equal to such Interest Period and in an amount substantially equal
to the amount of First Union's LIBOR Loan comprising part of such Borrowing, by
(ii) the amount equal to 1.00 minus the Reserve Requirement (expressed as a
decimal) for such Interest Period.
"Lender" shall mean each financial institution signatory hereto and each
other financial institution that becomes a "Lender" hereunder pursuant to
SECTION 11.7, and their respective successors and assigns.
"Lending Office" shall mean, with respect to any Lender, the office of such
Lender designated as its "Lending Office" on its signature page hereto or in an
Assignment and Acceptance, or such other office as may be otherwise designated
in writing from time to time by such Lender to the Borrower and the Agent. A
Lender may designate separate Lending Offices as provided in the foregoing
sentence for the purposes of making or maintaining different Types of Loans,
and, with respect to LIBOR Loans, such office may be a domestic or foreign
branch or Affiliate of such Lender.
"Letter of Credit Exposure" shall mean, with respect to any Lender at any
time, such Lender's ratable share (based on the proportion that its Commitment
bears to the Aggregate Commitments at such time) of the sum of (i) the aggregate
Stated Amount of all Letters of Credit outstanding at such time and (ii) the
aggregate amount of all Reimbursement Obligations outstanding at such time.
"Letter of Credit Notice" shall have the meaning given to such term in
SECTION 3.2.
"Letters of Credit" shall have the meaning given to such term in SECTION
3.1.
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<PAGE>
"Leverage Ratio" shall mean, as of the last day of any fiscal month up to
and including the fiscal month ending January 5, 1997, and as of the last day of
any fiscal quarter, beginning with the fiscal quarter ending April 6, 1997, the
ratio of (i) Consolidated Funded Debt as of such date to (ii) Consolidated
Operating Cash Flow for the applicable Reference Period then ending.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, security
interest, lien (statutory or otherwise), preference, priority, charge or other
encumbrance of any nature, whether voluntary or involuntary, including, without
limitation, the interest of any vendor or lessor under any conditional sale
agreement, title retention agreement, capital lease or any other lease or
arrangement having substantially the same effect as any of the foregoing.
"Liquidating Subsidiaries" shall have the meaning given to such term in
SECTION 6.11.
"Loans" shall mean the Revolving Loans and the Swingline Loans.
"M.G.A." shall mean M.G.A., Inc., an Alabama corporation and a Wholly Owned
Subsidiary of the Borrower.
"Margin Percentage" shall mean, at any time (except as provided in the last
sentence of this definition), the applicable percentage (a) to be added to the
Base Rate pursuant to SECTION 2.7 for purposes of determining the Adjusted Base
Rate, (b) to be added to the LIBOR Rate pursuant to SECTION 2.7 for purposes of
determining the Adjusted LIBOR Rate, and (c) to be used in calculating the
commitment fee payable pursuant to SECTION 2.8(B), in each case as determined
under the following matrix with reference to the Leverage Ratio:
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin Applicable Margin
Percentage for Percentage for Percentage for
Leverage Ratio Base Rate Loans LIBOR Loans Commitment Fee
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Greater than or equal to 3.0 to 1.0 1.0% 2.0% 0.375%
Greater than or equal to 2.75 to 1.0
but less than 3.0 to 1.0 0.75% 1.75% 0.375%
Greater than or equal to 2.25 to 1.0
but less than 2.75 to 1.0 0.5% 1.5% 0.375%
Greater than or equal to 1.5 to 1.0
but less than 2.25 to 1.0 0.25% 1.25% 0.25%
Less than 1.5 to 1.0 0.0% 1.0% 0.25%
</TABLE>
The Margin Percentages shall be reset from time to time in accordance with the
above matrix on the tenth (10th) day (or, if such day is not a Business Day, on
the next succeeding Business Day) after delivery by the Borrower in accordance
with SECTIONS 6.1(A), 6.1(B) and 6.1(C) of financial statements together with a
Compliance Certificate attaching a Covenant Compliance Worksheet (reflecting the
computation of the Leverage Ratio as of the last day of the preceding fiscal
month or fiscal quarter, as applicable, beginning with the fiscal month ended
June 30, 1996) that provides for a change in any of the Margin Percentages from
that then in effect. Until the first effective date of any change in any of the
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Margin Percentages under the matrix as provided above, the Margin Percentages
shall be determined by reference to the Leverage Ratio determined as of June 30,
1996 and as reflected in the certificate of the Borrower described in SECTION
4.1(G).
"Margin Stock" shall have the meaning given to such term in Regulation U.
"Material Adverse Change" shall mean a material adverse change in the
condition (financial or otherwise), operations, business, properties or
financial prospects of the Borrower or the Borrower and its Subsidiaries, taken
as a whole.
"Material Adverse Effect" shall mean a material adverse effect upon (i) the
condition (financial or otherwise), operations, business, properties or
financial prospects of the Borrower or the Borrower and its Subsidiaries, taken
as a whole, (ii) the ability of the Borrower or any Subsidiary to perform its
obligations under this Agreement or any of the other Credit Documents or (iii)
the legality, validity or enforceability of this Agreement or any of the other
Credit Documents or the rights and remedies of the Agent and the Lenders
hereunder and thereunder.
"Material Contract" shall mean any contract or agreement to which the
Borrower or any of its Subsidiaries is a party, by which any of them or their
respective properties is bound or to which any of them is subject and that is
required to be filed as an exhibit to the Borrower's registration statements or
periodic reports (including on Forms 10-Q and 10-K) submitted to the Securities
and Exchange Commission under the Securities Act of 1933, as amended, and the
rules and regulations from time to time promulgated thereunder, or under the
Exchange Act.
"Maturity Date" shall mean June 30, 2000.
"Movie Time" shall mean Movie Time, Inc., a Virginia corporation and a
Wholly Owned Subsidiary of the Borrower.
"Multiemployer Plan" shall mean any "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate
makes, is making or is obligated to make contributions or has made or been
obligated to make contributions.
"Net Cash Proceeds" shall mean (i) in the case of any Equity/Debt Issuance,
the aggregate cash payments received by the Borrower and its Subsidiaries less
reasonable fees and expenses incurred by the Borrower and its Subsidiaries in
connection therewith, (ii) in the case of any Casualty Event, the aggregate cash
proceeds of insurance, condemnation awards and other compensation received by
the Borrower and its Subsidiaries in respect of such Casualty Event less (y)
reasonable fees and expenses incurred by the Borrower and its Subsidiaries in
connection therewith and (z) contractually required repayments of Indebtedness
to the extent secured by Liens on the property subject to such Casualty Event
and any income or transfer taxes paid or reasonably estimated by the Borrower to
be payable by the Borrower and its Subsidiaries as a result of such Casualty
Event, and (iii) in the case of any Asset Disposition, the aggregate amount of
all cash payments and the fair market value of any noncash consideration
received by the Borrower and its Subsidiaries in connection with such Asset
Disposition less (x) reasonable fees and expenses incurred by the Borrower and
its Subsidiaries in connection therewith, (y) Indebtedness to the extent the
amount thereof is secured by a Lien on the property that is the subject of such
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Asset Disposition and the transferee of (or holder of the Lien on) such Property
requires that such Indebtedness be repaid as a condition to such Asset
Disposition, and (z) any income or transfer taxes paid or reasonably estimated
by the Borrower to be payable by the Borrower and its Subsidiaries as a result
of such Asset Disposition.
"Notes" shall mean the Revolving Credit Notes and the Swingline Note.
"Notice of Borrowing" shall mean a Notice of Revolving Borrowing or a Notice
of Swingline Borrowing, as the context may require.
"Notice of Conversion/Continuation" shall have the meaning given to such term
in SECTION 2.10(B).
"Notice of Revolving Borrowing" shall have the meaning given to such term in
SECTION 2.2(B).
"Notice of Swingline Borrowing" shall have the meaning given to such term in
SECTION 2.2(C).
"Obligations" shall mean all principal of and interest (including, to the
greatest extent permitted by law, post-petition interest) on the Loans, all
Reimbursement Obligations and all fees, expenses, indemnities and other
obligations owing, due or payable at any time by the Borrower to the Agent, any
Lender, the Issuing Lender or any other Person entitled thereto, under this
Agreement or any of the other Credit Documents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any successor
thereto.
"Participant" shall have the meaning given to such term in SECTION 11.7(D).
"Permitted Acquisition" shall mean (i) any Allowed Acquisition or (ii) any
Acquisition to which the Required Lenders have consented pursuant to SECTION
6.9(B) and with respect to which all of the other requirements of SECTION 6.9
applicable to such Acquisition are satisfied or otherwise waived in writing by
the Required Lenders.
"Permitted Liens" shall have the meaning given to such term in SECTION 8.3.
"Permitted Lines of Business" shall mean the business of video tape rental and
sales and the rental or sale of products and services reasonably ancillary
thereto.
"Person" shall mean any corporation, association, joint venture, partnership,
limited liability company, organization, business, individual, trust, government
or agency or political subdivision thereof or any other legal entity.
"Plan" shall mean any "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA that is subject to the provisions of Title IV of ERISA
(other than a Multiemployer Plan) and to which the Borrower or any ERISA
Affiliate may have any liability.
"Pledge Agreement" shall mean a pledge agreement made by the Borrower in favor
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of the Agent, in substantially the form of EXHIBIT E, as amended, modified or
supplemented from time to time.
"Prohibited Transaction" shall mean any transaction described in (i) Section
406 of ERISA that is not exempt by reason of Section 408 of ERISA or by reason
of a Department of Labor prohibited transaction individual or class exemption or
(ii) Section 4975(c) of the Internal Revenue Code that is not exempt by reason
of Section 4975(c)(2) or 4975(d) of the Internal Revenue Code.
"Reference Period" shall mean, with respect to any date:
(i) in calculating Consolidated Operating Cash Flow for purposes
of determining the Leverage Ratio as of such date, the applicable periods
ending on such date as set forth in the proviso contained in the definition
of Consolidated Operating Cash Flow;
(ii) except as specifically provided in clause (i) above, in
calculating any item for purposes of any determination of compliance with
the limitations set forth in clauses (ii) and (iii) of SECTION 6.9 and the
financial covenants set forth in SECTIONS 7.2 through 7.5 as of the last
day of any fiscal month up to and including the fiscal month ending January
5, 1997 (including the calculation of Consolidated Operating Cash Flow for
purposes of determining the Fixed Charge Coverage Ratio and the Interest
Coverage Ratio as of the last day of any such fiscal month), the period of
twelve consecutive fiscal months ending on such date; and
(iii) except as specifically provided in clause (i) above, in
calculating any item for purposes of any determination of compliance with
the limitations set forth in clauses (ii) and (iii) of SECTION 6.9 and the
financial covenants set forth in SECTIONS 7.2 through 7.5 as of the last
day of any fiscal quarter, beginning with the fiscal quarter ending April
6, 1997 (including the calculation of Consolidated Operating Cash Flow for
purposes of determining the Fixed Charge Coverage Ratio and the Interest
Coverage Ratio as of the last day of any such fiscal quarter), the period
of four consecutive fiscal quarters ending on such date.
"Refunded Swingline Loans" shall have the meaning given to such term in
SECTION 2.2(D).
"Register" shall have the meaning given to such term in SECTION 11.7(B).
"Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and X,
respectively, of the Federal Reserve Board, and any successor regulations.
"Reimbursement Obligation" shall have the meaning given to such term in
SECTION 3.4.
"Reportable Event" shall mean (i) any "reportable event" within the meaning
of Section 4043(c) of ERISA for which the 30-day notice under Section 4043(a) of
ERISA has not been waived by the PBGC (including any failure to meet the minimum
funding standard of, or timely make any required installment under, Section 412
of the Internal Revenue Code or Section 302 of ERISA, regardless of the issuance
of any waivers in accordance with Section 412(d) of the Internal Revenue Code),
(ii) any such "reportable event" subject to advance notice to the PBGC under
Section 4043(b)(3) of ERISA, (iii) any application for a funding waiver or an
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extension of any amortization period pursuant to Section 412 of the Internal
Revenue Code, and (iv) a cessation of operations described in Section 4062(e) of
ERISA.
"Required Lenders" shall mean (i) at any time prior to the Termination
Date, the Lenders having more than sixty-six and two-thirds percent (66-2/3%) of
the Aggregate Commitments at such time, and (ii) on and after the Termination
Date, the Lenders having more than sixty-six and two-thirds percent (66-2/3%) of
the sum of the aggregate principal amount of the Loans outstanding at such time
and the aggregate Letter of Credit Exposure of all Lenders at such time (or, if
at any time on or after the Termination Date at which no Loans or Letters of
Credit are outstanding, the Lenders having more than sixty-six and two-thirds
percent (66-2/3%) of the Aggregate Commitments immediately prior to the
termination of the Commitments).
"Requirement of Law" shall mean, with respect to any Person, the charter,
articles or certificate of organization or incorporation and bylaws or other
organizational or governing documents of such Person, and any statute, law,
treaty, rule, regulation, order, decree, writ, injunction or determination of
any arbitrator or court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject or otherwise pertaining to any or all of the
transactions contemplated by this Agreement and the other Credit Documents.
"Reserve Requirement" shall mean, with respect to any Interest Period, the
reserve percentage (expressed as a decimal) in effect from time to time during
such Interest Period, as provided by the Federal Reserve Board, applied for
determining the maximum reserve requirements (including, without limitation,
basic, supplemental, marginal and emergency reserves) applicable to First Union
under Regulation D with respect to "Eurocurrency liabilities" within the meaning
of Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding.
"Responsible Officer" shall mean, with respect to the Borrower, any of the
chief executive officer, the president, the chief financial officer, any
executive vice president or any senior vice president of the Borrower.
"Revolving Credit Notes" shall mean the promissory notes of the Borrower in
substantially the form of EXHIBIT A-1, together with any amendments,
modifications and supplements thereto, substitutions therefor and restatements
thereof.
"Revolving Loans" shall have the meaning given to such term in SECTION
2.1(A).
"Security Documents" shall mean the Pledge Agreement and all other pledge
or security agreements or instruments executed and delivered by the Borrower or
any of its Subsidiaries pursuant to SECTION 6.10 or otherwise in connection with
the transactions contemplated hereby, in each case as amended, modified or
supplemented from time to time.
"Stated Amount" shall mean, with respect to any Letter of Credit at any
time, the aggregate amount available to be drawn thereunder at such time
(regardless of whether any conditions for drawing could then be met).
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"Subordinated Indebtedness" shall have the meaning given to such term in
SECTION 8.2.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other Person of which more than fifty percent (50%) of the outstanding capital
stock having ordinary voting power to elect a majority of the board of
directors, in the case of a corporation, or of the ownership or beneficial
interests, in the case of a Person not a corporation, is at the time, directly
or indirectly, owned or controlled by such Person and one or more of its other
Subsidiaries or a combination thereof (irrespective of whether, at the time,
securities of any other class or classes of any such corporation or other Person
shall or might have voting power by reason of the happening of any contingency).
When used without reference to a parent entity, the term "Subsidiary" shall be
deemed to refer to a Subsidiary of the Borrower.
"Swingline Commitment" shall mean $3,000,000 or, if less, the Aggregate
Commitments at the time of determination, as such amount may be reduced at or
prior to such time pursuant to the terms hereof.
"Swingline Lender" shall mean First Union in its capacity as maker of
Swingline Loans, and its successors in such capacity.
"Swingline Loans" shall have the meaning given to such term in SECTION
2.1(B).
"Swingline Maturity Date" shall mean the date that is five (5) Business
Days prior to the Maturity Date.
"Swingline Note" shall mean the promissory note of the Borrower in
substantially the form of EXHIBIT A-2, together with any amendments,
modifications and supplements thereto, substitutions therefor and restatements
thereof.
"Terminating Senior Indebtedness" shall mean all indebtedness and other
monetary obligations of the Borrower and its Subsidiaries under (i) the Loan
Agreement, dated as of December 21, 1994, between the Borrower and certain of
its Subsidiaries, as borrowers, and SouthTrust Bank of Alabama, N.A., as lender,
and (ii) all loan agreements, promissory notes and similar agreements or
instruments evidencing indebtedness for money borrowed and to which Home Vision
Entertainment, Inc. or Hollywood Video, Inc. is a party; provided, however, that
-------- -------
the term "Terminating Senior Indebtedness" shall not include any such
indebtedness or other obligations permitted under SECTION 8.2 to remain, and
that in fact remains, outstanding at any time from and after the Closing Date.
"Termination Date" shall mean the Maturity Date or such earlier date of
termination of the Commitments pursuant to SECTION 2.5 or SECTION 9.2.
"Type" shall have the meaning given to such term in SECTION 2.2(A).
"Unfunded Pension Liability" shall mean, with respect to any Plan or
Multiemployer Plan, the excess of its benefit liabilities under Section
4001(a)(16) of ERISA over the current value of its assets, determined in
accordance with the applicable assumptions used for funding under Section 412 of
the Code for the applicable plan year.
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"Unutilized Commitment" shall mean, with respect to any Lender at any time,
such Lender's Commitment at such time less the sum of (i) the aggregate
----
principal amount of all Loans made by such Lender that are outstanding at such
time and (ii) such Lender's Letter of Credit Exposure at such time.
"Unutilized Swingline Commitment" shall mean, with respect to the Swingline
Lender at any time, the Swingline Commitment at such time less the aggregate
----
principal amount of all Swingline Loans that are outstanding at such time.
"Wholly Owned" shall mean, with respect to any Subsidiary of any Person,
that 100% of the outstanding capital stock or other ownership interests of such
Subsidiary is owned, directly or indirectly, by such Person.
.1. Accounting Terms. Except as specifically provided otherwise in
----------------
this Agreement, all accounting terms used herein that are not specifically
defined shall have the meanings customarily given them, and all financial
computations hereunder shall be made, in accordance with Generally Accepted
Accounting Principles. Notwithstanding the foregoing, in the event that any
changes in Generally Accepted Accounting Principles after the date hereof are
required to be applied to the transactions described herein and would affect the
computation of the financial covenants contained in SECTIONS 7.1 through 7.5, as
applicable, such changes shall be followed only from and after the date this
Agreement shall have been amended to take into account any such changes.
.2. Other Terms; Construction. Unless otherwise specified or unless the
context otherwise requires, all references herein to sections, annexes,
schedules and exhibits are references to sections, annexes, schedules and
exhibits in and to this Agreement, and all terms defined in this Agreement shall
have the defined meanings when used in any other Credit Document or any
certificate or other document made or delivered pursuant hereto. All references
herein to the Lenders or any of them shall be deemed to include the Issuing
Lender and the Swingline Lender unless specifically provided otherwise or unless
the context otherwise requires.
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ARTICLE I
AMOUNT AND TERMS OF THE LOANS
I.1. Commitments; Loans. (a) Each Lender severally agrees, subject to and
------------------
on the terms and conditions of this Agreement, to make loans (each, a "Revolving
Loan," and collectively, the "Revolving Loans") to the Borrower, from time to
time on any Business Day during the period from and including the Closing Date
to but not including the Termination Date, in an aggregate principal amount at
any time outstanding not greater than the excess, if any, of its Commitment at
such time over its Letter of Credit Exposure at such time, provided that no
--------
Borrowing of Revolving Loans shall be made if, immediately after giving effect
thereto, the sum of (x) the aggregate principal amount of Revolving Loans
outstanding at such time, (y) the aggregate Letter of Credit Exposure of all
Lenders at such time and (z) the aggregate principal amount of Swingline Loans
outstanding at such time (excluding the aggregate amount of any Swingline Loans
to be repaid with proceeds of Revolving Loans made pursuant to such Borrowing)
would exceed the Aggregate Commitments at such time. Subject to and on the
terms and conditions of this Agreement, the Borrower may borrow, repay and
reborrow Revolving Loans.
(b) The Swingline Lender agrees, subject to and on the terms and conditions
of this Agreement, to make loans (each, a "Swingline Loan," and collectively,
the "Swingline Loans") to the Borrower, from time to time on any Business Day
during the period from the Closing Date to but not including the Swingline
Maturity Date (or, if earlier, the Termination Date), in an aggregate principal
amount not exceeding the Swingline Commitment, notwithstanding that the
aggregate principal amount of Swingline Loans outstanding at any time, when
added to the aggregate principal amount of the Revolving Loans made by the
Swingline Lender in its capacity as a Lender outstanding at such time, may
exceed its Commitment at such time, but provided that no Borrowing of Swingline
--------
Loans shall be made if, immediately after giving effect thereto, the sum of (x)
the aggregate principal amount of Revolving Loans outstanding at such time, (y)
the aggregate Letter of Credit Exposure of all Lenders at such time and (z) the
aggregate principal amount of Swingline Loans outstanding at such time would
exceed the Aggregate Commitments at such time. Subject to and on the terms and
conditions of this Agreement, the Borrower may borrow, repay (including by means
of a Borrowing of Revolving Loans pursuant to SECTION 2.2(D)) and reborrow
Swingline Loans.
I.2. Borrowings. (a) The Revolving Loans shall, at the option of the
----------
Borrower and subject to the terms and conditions of this Agreement, be either
Base Rate Loans or LIBOR Loans (each, a "Type" of Revolving Loan), provided that
--------
(i) all Revolving Loans comprising the same Borrowing shall, unless otherwise
specifically provided herein, be of the same Type and (ii) notwithstanding any
other provision of this Agreement, no LIBOR Loans having an Interest Period of
longer than one month may be borrowed at any time prior to the earlier of the
60th day after the Closing Date and the date upon which the Agent determines in
its sole discretion, and notifies the Borrower, that the primary syndication of
the credit facility provided for hereunder has been completed (the earlier of
such dates, the "Syndication Completion Date"). The Swingline Loans shall be
Base Rate Loans at all times.
(b) In order to make a Borrowing of Revolving Loans (other than Borrowings
for the purpose of repaying Refunded Swingline Loans, which shall be made
pursuant to SECTION 2.2(D), and other than Borrowings involving continuations or
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conversions of outstanding Revolving Loans, which shall be made pursuant to
SECTION 2.10), the Borrower will give the Agent written notice not later than
11:00 a.m., Charlotte time, three (3) Business Days prior to each Borrowing to
be comprised of LIBOR Loans and one (1) Business Day prior to each Borrowing to
be comprised of Base Rate Loans; provided, however, that a request for a
-------- -------
Borrowing to be made on the Closing Date may, at the discretion of the Agent, be
given later than the time specified therefor as set forth hereinabove. Each
such notice (each, a "Notice of Revolving Borrowing") shall be irrevocable,
shall be given in the form of EXHIBIT B-1 and shall specify (x) the aggregate
principal amount and initial Type of the Revolving Loans to be made pursuant to
such Borrowing, (y) in the case of a Borrowing of LIBOR Loans, the initial
Interest Period to be applicable thereto, and (z) the requested Borrowing Date,
which shall be a Business Day. Notwithstanding anything to the contrary
contained herein:
(i) the aggregate principal amount of each Borrowing comprised of
Base Rate Loans shall not be less than $1,000,000 or, if greater, an
integral multiple of $500,000 in excess thereof (or, if less, in the amount
of the Aggregate Unutilized Commitments), and the aggregate principal
amount of each Borrowing comprised of LIBOR Loans shall not be less than
$2,000,000 or, if greater, an integral multiple of $1,000,000 in excess
thereof;
(ii) if the Borrower shall have failed to designate the Type of
Revolving Loans comprising a Borrowing, the Borrower shall be deemed to
have requested a Borrowing comprised of Base Rate Loans; and
(iii) if the Borrower shall have failed to select the
duration of the Interest Period to be applicable to any Borrowing of LIBOR
Loans, then the Borrower shall be deemed to have selected an Interest
Period with a duration of one month.
Upon its receipt of a Notice of Revolving Borrowing, the Agent will promptly
notify each Lender of the proposed Borrowing. Not later than 1:00 p.m.,
Charlotte time, on the requested Borrowing Date, each Lender will make available
to the Agent at its office referred to in SECTION 11.5 (or at such other
location as the Agent may designate) an amount, in Dollars and in immediately
available funds, equal to the amount of the Revolving Loan to be made by such
Lender. To the extent the Lenders have made such amounts available to the Agent
as provided hereinabove, the Agent will make the aggregate of such amounts
available to the Borrower in accordance with SECTION 2.3(A) and in like funds as
received by the Agent.
(c) In order to make a Borrowing of a Swingline Loan, the Borrower will
give the Agent and the Swingline Lender written notice (or oral notice promptly
confirmed in writing) not later than 12:00 noon, Charlotte time, on the Business
Day of such Borrowing. Each such notice (each, a "Notice of Swingline
Borrowing") shall be irrevocable, shall be given in the form of EXHIBIT B-2 (or,
if oral notice is given, shall be promptly followed with a writing in the form
of EXHIBIT B-2) and shall specify (i) the principal amount of the Swingline Loan
to be made pursuant to such Borrowing (which shall not be less than $50,000 and,
if greater, shall be in an integral multiple of $10,000 in excess thereof (or,
if less, in the amount of the Unutilized Swingline Commitment)) and (ii) the
requested Borrowing Date, which shall be a Business Day. Not later than 1:00
p.m., Charlotte time, on the requested Borrowing Date, the Swingline Lender will
make available to the Agent at its office referred to in SECTION 11.5 (or at
such other location as the Agent may designate) an amount, in Dollars and in
immediately available funds, equal to the amount of the requested Swingline
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Loan. To the extent the Swingline Lender has made such amount available to the
Agent as provided hereinabove, the Agent will make such amount available to the
Borrower in accordance with SECTION 2.3(A) and in like funds as received by the
Agent.
(d) With respect to any outstanding Swingline Loans, the Swingline Lender
may at any time (without regard to whether an Event of Default has occurred and
is continuing) in its sole and absolute discretion, and is hereby authorized and
empowered by the Borrower to, cause a Borrowing of Revolving Loans to be made
for the purpose of repaying such Swingline Loans by delivering to the Agent and
each other Lender (on behalf of, and with a copy to, the Borrower), not later
than 11:00 a.m., Charlotte time, one (1) Business Day prior to the proposed
Borrowing Date therefor, a notice (which shall be deemed to be a Notice of
Revolving Borrowing given by the Borrower) requesting the Lenders to make
Revolving Loans (which shall be made initially as Base Rate Loans) on such
Borrowing Date in an aggregate amount equal to the amount of such Swingline
Loans (the "Refunded Swingline Loans") outstanding on the date such notice is
given that the Swingline Lender requests to be repaid. Not later than 1:00
p.m., Charlotte time, on the requested Borrowing Date, each Lender (other than
the Swingline Lender) will make available to the Agent at its office referred to
in SECTION 11.5 (or at such other location as the Agent may designate) an
amount, in Dollars and in immediately available funds, equal to the amount of
the Revolving Loan to be made by such Lender. To the extent the Lenders have
made such amounts available to the Agent as provided hereinabove, the Agent will
make the aggregate of such amounts available to the Swingline Lender in like
funds as received by the Agent, which shall apply such amounts in repayment of
the Refunded Swingline Loans. Notwithstanding any provision of this Agreement
to the contrary, on the relevant Borrowing Date, the Refunded Swingline Loans
(including the Swingline Lender's ratable share thereof, in its capacity as a
Lender) shall be deemed to be repaid with the proceeds of the Revolving Loans
made as provided above (including a Revolving Loan deemed to have been made by
the Swingline Lender), and such Refunded Swingline Loans deemed to be so repaid
shall no longer be outstanding as Swingline Loans but shall be outstanding as
Revolving Loans. If any portion of any such amount repaid (or deemed to be
repaid) to the Swingline Lender shall be recovered by or on behalf of the
Borrower from the Swingline Lender in any bankruptcy, insolvency or similar
proceeding or otherwise, the loss of the amount so recovered shall be shared
ratably among all the Lenders in the manner contemplated by SECTION 2.14(B).
(e) If, as a result of any bankruptcy, insolvency or similar proceeding
with respect to the Borrower, Revolving Loans are not made pursuant to
subsection (d) above in an amount sufficient to repay any amounts owed to the
Swingline Lender in respect of any outstanding Swingline Loans, or if the
Swingline Lender is otherwise precluded for any reason from giving a notice on
behalf of the Borrower as provided for hereinabove, the Swingline Lender shall
be deemed to have sold without recourse, representation or warranty, and each
Lender shall be deemed to have purchased and hereby agrees to purchase, a
participation in such outstanding Swingline Loans in an amount equal to its
ratable share (based on the proportion that its Commitment bears to the
Aggregate Commitments at such time) of the unpaid amount thereof together with
accrued interest thereon. Upon one (1) Business Day's prior notice from the
Swingline Lender, each Lender (other than the Swingline Lender) will make
available to the Agent at its office referred to in SECTION 11.5 (or at such
other location as the Agent may designate) an amount, in Dollars and in
immediately available funds, equal to its respective participation. To the
extent the Lenders have made such amounts available to the Agent as provided
hereinabove, the Agent will make the aggregate of such amounts available to the
Swingline Lender in like funds as received by the Agent. In the event any such
Lender fails to make available to the Agent the amount of such Lender's
participation as provided in this subsection (e), the Swingline Lender shall be
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entitled to recover such amount on demand from such Lender, together with
interest thereon for each day from the date such amount is required to be made
available for the account of the Swingline Lender until the date such amount is
made available to the Swingline Lender at the Federal Funds Rate for the first
three (3) Business Days and thereafter at the Adjusted Base Rate. Promptly
following its receipt of any payment by or on behalf of the Borrower in respect
of a Swingline Loan, the Swingline Lender will pay to each Lender that has
acquired a participation therein such Lender's ratable share of such payment.
(f) Notwithstanding any provision of this Agreement to the contrary, the
obligation of each Lender (other than the Swingline Lender) to make Revolving
Loans for the purpose of repaying any Refunded Swingline Loans pursuant to
subsection (d) above and each such Lender's obligation to purchase a
participation in any unpaid Swingline Loans pursuant to subsection (e) above
shall be absolute and unconditional and shall not be affected by any
circumstance or event whatsoever, including, without limitation, (i) any set-
off, counterclaim, recoupment, defense or other right that such Lender may have
against the Swingline Lender, the Agent, the Borrower or any other Person for
any reason whatsoever, (ii) the occurrence or continuance of any Default or
Event of Default, (iii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of the
Borrower or any of its Subsidiaries, or (iv) any breach of this Agreement by any
party hereto; provided, however, that no Lender shall have any obligation to
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make a Revolving Loan for the purpose of repaying, or to purchase any
participation in, any Swingline Loan if, at the time of making such Swingline
Loan, the Swingline Lender had actual knowledge that the conditions to making
such Swingline Loan set forth herein were not satisfied or waived.
I.3. Disbursements; Funding Reliance; Domicile of Loans. (a) The
--------------------------------------------------
Borrower hereby authorizes the Agent to disburse the proceeds of each Borrowing
in accordance with the terms of any written instructions from any of the
Authorized Officers, provided that the Agent shall not be obligated under any
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circumstances to forward amounts to any account not listed in an Account
Designation Letter. The Borrower may at any time deliver to the Agent an
Account Designation Letter listing any additional accounts or deleting any
accounts listed in a previous Account Designation Letter.
(b) Unless the Agent has received, prior to 1:00 p.m., Charlotte time, on
the relevant Borrowing Date, written notice from a Lender that such Lender will
not make available to the Agent such Lender's ratable portion, if any, of the
relevant Borrowing, the Agent may assume that such Lender has made such portion
available to the Agent in immediately available funds on such Borrowing Date in
accordance with the applicable provisions of SECTION 2.2, and the Agent may, in
reliance upon such assumption, but shall not be obligated to, make a
corresponding amount available to the Borrower on such Borrowing Date. If and
to the extent that such Lender shall not have made such portion available to the
Agent, and the Agent shall have made such corresponding amount available to the
Borrower, such Lender, on the one hand, and the Borrower, on the other,
severally agree to pay to the Agent forthwith on demand such corresponding
amount, together with interest thereon for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the
Agent, (i) in the case of such Lender, at the Federal Funds Rate, and (ii) in
the case of the Borrower, at the rate of interest applicable at such time to
Loans comprising such Borrowing, as determined under the provisions of SECTION
2.7. If such Lender shall repay to the Agent such corresponding amount, such
amount shall constitute such Lender's Revolving Loan as part of such Borrowing
for purposes of this Agreement. The failure of any Lender to make any Revolving
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<PAGE>
Loan required to be made by it as part of any Borrowing shall not relieve any
other Lender of its obligation, if any, hereunder to make its Revolving Loan as
part of such Borrowing, but no Lender shall be responsible for the failure of
any other Lender to make the Revolving Loan to be made by such other Lender as
part of any Borrowing.
(c) Each Lender may, at its option, make and maintain any Loan at, to or
for the account of any of its Lending Offices, provided that any exercise of
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such option shall not affect the obligation of the Borrower to repay such Loan
to or for the account of such Lender in accordance with the terms of this
Agreement.
I.4. Notes. (a) The Revolving Loans made by each Lender shall be
-----
evidenced by a Revolving Credit Note appropriately completed in substantially
the form of EXHIBIT A-1. Each Revolving Credit Note issued to a Lender shall (i)
be executed by the Borrower, (ii) be payable to the order of such Lender, (iii)
be dated as of the Closing Date, (iv) be in a stated principal amount equal to
such Lender's Commitment, (v) bear interest in accordance with the provisions of
SECTION 2.7, as the same may be applicable to the Revolving Loans made by such
Lender from time to time, and (vi) be entitled to all of the benefits of this
Agreement and the other Credit Documents and subject to the provisions hereof
and thereof.
(b) The Swingline Loans made by the Swingline Lender shall be evidenced by
a Swingline Note appropriately completed in substantially the form of EXHIBIT A-
2. The Swingline Note shall (i) be executed by the Borrower, (ii) be payable to
the order of the Swingline Lender, (iii) be dated as of the Closing Date, (iv)
be in a stated principal amount equal to the Swingline Commitment, (v) bear
interest in accordance with the provisions of SECTION 2.7, as the same may be
applicable to the Swingline Loans made from time to time, and (vi) be entitled
to all of the benefits of this Agreement and the other Credit Documents and
subject to the provisions hereof and thereof.
(c) Each Lender will record on its internal records the amount of each Loan
made by it and each payment received by it in respect thereof and will, in the
event of any transfer of any of its Notes, either endorse on the reverse side
thereof or on a schedule attached thereto (or any continuation thereof) the
outstanding principal amount of the Loans evidenced thereby as of the date of
transfer or provide such information on a schedule to the Assignment and
Acceptance relating to such transfer; provided, however, that the failure of any
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Lender to make any such recordation or provide any such information, or any
error therein, shall not affect the Borrower's obligations under this Agreement
or the Notes.
I.5. Termination and Reduction of Commitments and Swingline Commitment.
-----------------------------------------------------------------
(a) The Commitments shall be automatically and permanently terminated on the
Maturity Date, and the Swingline Commitment shall be automatically and
permanently terminated on the Swingline Maturity Date, in each case unless
sooner terminated pursuant to subsections (b), (c) or (d) below or SECTION 9.2.
(b) On each date set forth below, the Aggregate Commitments shall
automatically be permanently reduced by the amount set forth below opposite such
date (such amounts being subject to reduction as set forth in subsection (e)
below):
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<PAGE>
Amount of Reduction in
Date Aggregate Commitments
---- ------------------------
March 31, 1998 $ 9,375,000
June 30, 1998 9,375,000
September 30, 1998 9,375,000
December 31, 1998 9,375,000
March 31, 1999 14,062,500
June 30, 1999 14,062,500
September 30, 1999 14,062,500
December 31, 1999 14,062,500
March 31, 2000 15,625,000
June 30, 2000 15,625,000
(c) At any time and from time to time after the date hereof, upon not less
than five (5) Business Days' prior written notice to the Agent (and, in the case
of a termination or reduction of the Unutilized Swingline Commitment, the
Swingline Lender), the Borrower may terminate in whole or reduce in part the
Aggregate Unutilized Commitments or the Unutilized Swingline Commitment,
provided that any such partial reduction shall be in an aggregate amount of not
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less than $5,000,000 ($1,000,000 in the case of the Unutilized Swingline
Commitment) or, if greater, an integral multiple thereof. The amount of any
termination or reduction made under this subsection (c) may not thereafter be
reinstated.
(d) The Aggregate Commitments shall, on each date upon which a prepayment of
the Loans is required under SECTIONS 2.6(D) through 2.6(F), be automatically and
permanently reduced by an amount equal to the amount of such required
prepayment.
(e) Each reduction of the Commitments pursuant to this SECTION 2.5 shall be
applied ratably among the Lenders according to their respective Commitments and
shall be applied to reduce the scheduled reduction amounts set forth in the
table in subsection (b) above ratably in accordance with their respective dollar
amounts. Notwithstanding any provision of this Agreement to the contrary, any
reduction of the Commitments pursuant to this SECTION 2.5 that has the effect of
reducing the Aggregate Commitments to an amount less than the amount of the
Swingline Commitment at such time shall result in an automatic corresponding
reduction of the Swingline Commitment to the amount of the Aggregate Commitments
(as so reduced), without any further action on the part of the Borrower or the
Swingline Lender.
I.6. Voluntary and Mandatory Payments and Prepayments. (a) At any
------------------------------------------------
time and from time to time, the Borrower shall have the right to prepay the
Revolving Loans, in whole or in part, without premium or penalty (except as
provided in clause (iii) below), upon written notice to the Agent given not
later than 11:00 a.m., Charlotte time, three (3) Business Days prior to each
intended prepayment of LIBOR Loans and one (1) Business Day prior to each
intended prepayment of Base Rate Loans, provided that (i) each partial
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prepayment of Revolving Loans shall be in an aggregate principal amount of not
less than $1,000,000 or, if greater, an integral multiple of $500,000 in excess
thereof, (ii) no partial prepayment of LIBOR Loans made pursuant to any single
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<PAGE>
Borrowing shall reduce the aggregate outstanding principal amount of the
remaining LIBOR Loans under such Borrowing to less than $2,000,000 or to any
greater amount not an integral multiple of $1,000,000 in excess thereof, and
(iii) unless made together with all amounts required under SECTION 2.17 to be
paid as a consequence of such prepayment, a prepayment of a LIBOR Loan may be
made only on the last day of the Interest Period applicable thereto. Each such
notice shall specify the proposed date of such prepayment and the aggregate
principal amount and the Types of the Revolving Loans to be prepaid (and, in the
case of LIBOR Loans, the Interest Period of the Borrowing pursuant to which
made) and shall be irrevocable and shall bind the Borrower to make such
prepayment on the terms specified therein. The Borrower may prepay the
Swingline Loans at any time and from time to time after the date hereof, in
whole or in part, without notice, premium or penalty, provided that each partial
--------
prepayment of Swingline Loans shall be in an aggregate principal amount of not
less than $50,000 or, if greater, an integral multiple of $10,000 in excess
thereof. Amounts prepaid pursuant to this subsection (a) may be reborrowed,
subject to the terms and conditions of this Agreement.
(b) Except to the extent due or made sooner pursuant to the provisions of
this Agreement, the Borrower will repay the aggregate outstanding principal
amount of the Revolving Loans in full on the Maturity Date and will repay the
aggregate outstanding principal amount of the Swingline Loans in full on the
Swingline Maturity Date.
(c) In the event that, at any time (including on any date set forth in the
table in SECTION 2.5(B)), the sum of (x) the aggregate principal amount of
Revolving Loans outstanding at such time, (y) the aggregate Letter of Credit
Exposure of all Lenders at such time and (z) the aggregate principal amount of
Swingline Loans outstanding at such time (excluding the aggregate amount of any
Swingline Loans to be repaid with proceeds of Revolving Loans made on the date
of determination) shall exceed the Aggregate Commitments at such time (after
giving effect to any concurrent termination or reduction thereof), the Borrower
will immediately prepay the outstanding principal amount of the Loans in the
amount of such excess; provided that, to the extent such excess amount is
--------
greater than the aggregate principal amount of Loans outstanding immediately
prior to the application of such prepayment, the amount so prepaid shall be
retained by the Agent and held in the Cash Collateral Account as cover for the
Letter of Credit Exposure of the Lenders, as more particularly described in
SECTION 3.8, and thereupon such cash shall be deemed to reduce the aggregate
Letter of Credit Exposure by an equivalent amount.
(d) Promptly upon (and in any event not later than two (2) Business Days
after) its receipt thereof, the Borrower will prepay the outstanding principal
amount of the Loans in an amount equal to 20% of the Net Cash Proceeds from any
Equity/Debt Issuance and will deliver to the Agent, concurrently with such
prepayment, a certificate signed by its chief financial officer in form and
substance satisfactory to the Agent and setting forth the calculation of such
Net Cash Proceeds.
(e) Not later than 180 days after its receipt of any proceeds of insurance,
condemnation award or other compensation in respect of any Casualty Event (and
in any event upon its determination not to repair or replace any property
subject to such Casualty Event), the Borrower will prepay the outstanding
principal amount of the Loans in an amount equal to 100% of the Net Cash
Proceeds from such Casualty Event (less any amounts theretofore applied to the
repair or replacement of property subject to such Casualty Event) and will
deliver to the Agent, concurrently with such prepayment, a certificate signed by
its chief financial officer in form and substance satisfactory to the Agent and
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<PAGE>
setting forth the calculation of such Net Cash Proceeds; provided, however, that
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no such prepayment shall be required until the aggregate amount of Net Cash
Proceeds from any Casualty Event (less any amounts theretofore applied to the
repair or replacement of affected property) exceeds $500,000, but at such time
the cumulative aggregate amount of such Net Cash Proceeds not theretofore
subject to prepayment under this subsection (e) shall become subject to
prepayment.
(f) Not later than 120 days after its receipt thereof, the Borrower will
prepay the outstanding principal amount of the Loans in an amount equal to 100%
of the Net Cash Proceeds from any Asset Disposition (less any amounts
theretofore expended to acquire assets or properties or otherwise reinvested in
its businesses) and will deliver to the Agent, concurrently with such
prepayment, a certificate signed by its chief financial officer in form and
substance satisfactory to the Agent and setting forth the calculation of such
Net Cash Proceeds; provided, however, that no such prepayment shall be required
-------- -------
until the aggregate amount of Net Cash Proceeds from any Asset Disposition (less
any amounts theretofore expended to acquire assets or properties or otherwise
reinvested) exceeds $500,000, but at such time the cumulative aggregate amount
of such Net Cash Proceeds not theretofore subject to prepayment under this
subsection (f) shall become subject to prepayment. Notwithstanding the
foregoing, nothing in this subsection (f) shall be deemed to permit any Asset
Disposition not expressly permitted under SECTION 8.4.
(g) Each prepayment of the Loans made pursuant to subsections (c) through (f)
above shall be applied ratably among the Lenders holding Loans in proportion to
the principal amount held by each, and in the case of prepayments made pursuant
to subsections (d) through (f) above, with a corresponding reduction to the
Commitments as provided in SECTION 2.5(D). Each prepayment made pursuant to
subsections (c) through (f) above shall be applied to prepay all Swingline Loans
(together with all accrued interest thereon) before any Revolving Loans are
prepaid and, as among Revolving Loans, shall be applied to prepay all Base Rate
Loans before any LIBOR Loans are prepaid.
(h) Each payment or prepayment of a LIBOR Loan made pursuant to the
provisions of this SECTION 2.6 on a day other than the last day of the Interest
Period applicable thereto shall be made together with all amounts required under
SECTION 2.17 to be paid as a consequence thereof.
I.7. Interest. (a) The Borrower will pay interest in respect of the unpaid
--------
principal amount of each Loan, from the date of Borrowing thereof until such
principal amount shall be paid in full, (i) at the Adjusted Base Rate, as in
effect from time to time during such periods as such Loan is a Base Rate Loan,
and (ii) at the Adjusted LIBOR Rate, as in effect from time to time during such
periods as such Loan is a LIBOR Loan.
(b) Upon the occurrence and during the continuance of an Event of Default
under SECTION 9.1(A) or SECTION 9.1(B), and (at the election of the Required
Lenders) upon the occurrence and during the continuance of any other Event of
Default, all outstanding principal amounts of the Loans and, to the greatest
extent permitted by law, all interest accrued on the Loans and all other accrued
and outstanding fees and amounts hereunder, shall bear interest at a rate per
annum equal to the interest rate applicable from time to time thereafter to such
Loans (whether the Adjusted Base Rate or the Adjusted LIBOR Rate) plus 2% (or,
in the case of fees and other amounts, at the Adjusted Base Rate plus 2%), and,
in each case, such default interest shall be payable on demand. To the greatest
extent permitted by law, interest shall continue to accrue after the filing by
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<PAGE>
or against the Borrower of any petition seeking any relief in bankruptcy or
under any law pertaining to insolvency or debtor relief.
(c) Accrued (and theretofore unpaid) interest shall be payable as follows:
(i) in respect of each Base Rate Loan (including any Base Rate
Loan or portion thereof paid or prepaid pursuant to the provisions of
SECTION 2.6, except as provided hereinbelow), in arrears on the last
Business Day of each calendar quarter, beginning with the first such day to
occur after the Closing Date; provided, that in the event the Loans are
--------
repaid or prepaid in full and the Commitments have been terminated, then
accrued interest in respect of all Base Rate Loans shall be payable
together with such repayment or prepayment on the date thereof;
(ii) in respect of each LIBOR Loan (including any LIBOR Loan or
portion thereof paid or prepaid pursuant to the provisions of SECTION 2.6,
except as provided hereinbelow), in arrears (y) on the last Business Day of
the Interest Period applicable thereto (subject to the provisions of clause
(iv) in SECTION 2.9) and (z) in addition, in the case of a LIBOR Loan with
an Interest Period having a duration of six months, on the date three
months after the first day of such Interest Period; provided, that in the
--------
event all LIBOR Loans made pursuant to a single Borrowing are repaid or
prepaid in full, then accrued interest in respect of such LIBOR Loans shall
be payable together with such repayment or prepayment on the date thereof;
and
(iii) in respect of any Loan, at maturity (whether pursuant to
acceleration or otherwise) and, after maturity, on demand.
(d) Nothing contained in this Agreement or in any other Credit Document
shall be deemed to establish or require the payment of interest to any Lender at
a rate in excess of the maximum rate permitted by applicable law. If the amount
of interest payable for the account of any Lender on any interest payment date
would exceed the maximum amount permitted by applicable law to be charged by
such Lender, the amount of interest payable for its account on such interest
payment date shall be automatically reduced to such maximum permissible amount.
In the event of any such reduction affecting any Lender, if from time to time
thereafter the amount of interest payable for the account of such Lender on any
interest payment date would be less than the maximum amount permitted by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent interest payment date shall be automatically
increased to such maximum permissible amount, provided that at no time shall the
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aggregate amount by which interest paid for the account of any Lender has been
increased pursuant to this sentence exceed the aggregate amount by which
interest paid for its account has theretofore been reduced pursuant to the
previous sentence.
(e) The Agent shall promptly notify the Borrower and the Lenders upon
determining the interest rate for each Borrowing of LIBOR Loans after its
receipt of the relevant Notice of Revolving Borrowing or Notice of
Conversion/Continuation; provided, however, that the failure of the Agent to
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provide the Borrower or the Lenders with any such notice shall neither affect
any obligations of the Borrower or the Lenders hereunder nor result in any
liability on the part of the Agent to the Borrower or any Lender. Each such
determination (including each determination of the Reserve Requirement) shall,
absent manifest error, be conclusive and binding on all parties hereto.
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<PAGE>
I.8. Fees. The Borrower agrees to pay:
----
(a) To First Union, for its own account, the fees described in paragraph
(i) of the Fee Letter, in the amounts and at the times set forth therein and to
the extent not theretofore paid to First Union;
(b) To the Agent, for the account of each Lender, a commitment fee for the
period from the date of this Agreement to the Termination Date, at a per annum
rate equal to the applicable Margin Percentage on such Lender's ratable share
(based on the proportion that its Commitment bears to the Aggregate Commitments)
of the average daily Aggregate Unutilized Commitments, payable in arrears (i) on
the last Business Day of each calendar quarter, beginning with the first such
day to occur after the Closing Date, and (ii) on the Termination Date;
(c) To the Agent, for the account of each Lender, a letter of credit fee
for each calendar quarter in respect of all Letters of Credit outstanding during
such quarter, at a per annum rate equal to the applicable Margin Percentage for
LIBOR Loans in effect from time to time during such quarter on such Lender's
ratable share (based on the proportion that its Commitment bears to the
Aggregate Commitments) of the daily average aggregate Stated Amount of such
Letters of Credit, payable in arrears (i) on the last Business Day of each
calendar quarter, beginning with the first such day to occur after the Closing
Date, and (ii) on the later of the Termination Date and the date of termination
of the last outstanding Letter of Credit;
(d) To the Issuing Lender, for its own account, a facing fee for each
calendar quarter in respect of all Letters of Credit outstanding during such
quarter, at a per annum rate of 0.125% on the daily average aggregate Stated
Amount of such Letters of Credit (provided, however, that, notwithstanding the
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foregoing, the amount of such fee with regard to any single Letter of Credit
shall not be less than $500), payable in arrears (i) on the last Business Day of
each calendar quarter, beginning with the first such day to occur after the
Closing Date, and (ii) on the later of the Termination Date and the date of
termination of the last outstanding Letter of Credit; and
(e) To the Agent, for its own account, the annual administrative fee
described in paragraph (ii) of the Fee Letter, on the terms, in the amount and
at the times set forth therein.
I.9. Interest Periods. Concurrently with the giving of a Notice of Revolving
----------------
Borrowing or Notice of Conversion/Continuation in respect of any Borrowing
comprised of LIBOR Loans, the Borrower shall have the right to elect, pursuant
to such notice, the interest period (each, an "Interest Period") to be
applicable to such LIBOR Loans, which Interest Period shall, at the option of
the Borrower, be a one, three or six-month period; provided, however, that:
(i) all LIBOR Loans comprising a single Borrowing shall at all
times have the same Interest Period;
(ii) the initial Interest Period for any LIBOR Loan shall
commence on the date of the Borrowing of such LIBOR Loan (including the
date of any continuation of, or conversion into, such LIBOR Loan), and each
successive Interest Period applicable to such LIBOR Loan shall commence on
the day on which the next preceding Interest Period applicable thereto
expires;
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(iii) LIBOR Loans may not be outstanding under more than
seven (7) separate Interest Periods at any one time (for which purpose
Interest Periods shall be deemed to be separate even if they are
coterminous);
(iv) if any Interest Period otherwise would expire on a day that
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day unless such next succeeding Business Day falls in
another calendar month, in which case such Interest Period shall expire on
the next preceding Business Day;
(v) the Borrower may not select any Interest Period that begins
prior to the Closing Date or that expires after the Maturity Date;
(vi) the Borrower may not select any Interest Period having a
duration longer than one month at any time prior to the Syndication
Completion Date;
(vii) no Interest Period may be selected that would end after
a scheduled date for repayment of principal of the Revolving Loans
(including any date of a scheduled mandatory reduction of the Aggregate
Commitments) occurring on or after the first day of such Interest Period
unless, immediately after giving effect to such selection, the sum of (y)
the aggregate principal amount of Revolving Loans that are Base Rate Loans
or that have Interest Periods expiring on or before such principal
repayment date plus (z) the Aggregate Unutilized Commitments as of such
----
date, equals or exceeds the principal amount required to be paid on such
principal repayment date;
(viii) if any Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month during which such
Interest Period would otherwise expire, such Interest Period shall expire
on the last Business Day of such calendar month; and
(ix) if, upon the expiration of any Interest Period applicable to
a Borrowing of LIBOR Loans, the Borrower shall have failed to elect a new
Interest Period to be applicable to such LIBOR Loans, then the Borrower
shall be deemed to have elected to convert such LIBOR Loans into Base Rate
Loans as of the expiration of the then current Interest Period applicable
thereto.
I.10. Conversions and Continuations. (a) The Borrower shall have the
-----------------------------
right, on any Business Day occurring on or after the Closing Date, to elect (i)
to convert all or a portion of the outstanding principal amount of any Base Rate
Loans into LIBOR Loans, or to convert any LIBOR Loans the Interest Periods for
which end on the same day into Base Rate Loans, or (ii) to continue all or a
portion of the outstanding principal amount of any LIBOR Loans the Interest
Periods for which end on the same day for an additional Interest Period,
provided that (w) any such conversion of LIBOR Loans into Base Rate Loans shall
- --------
involve an aggregate principal amount of not less than $1,000,000 or, if
greater, an integral multiple of $500,000 in excess thereof; any such conversion
of Base Rate Loans into, or continuation of, LIBOR Loans shall involve an
aggregate principal amount of not less than $2,000,000 or, if greater, an
integral multiple of $1,000,000 in excess thereof; and no partial conversion of
LIBOR Loans made
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<PAGE>
pursuant to a single Borrowing shall reduce the outstanding principal amount of
such LIBOR Loans to less than $2,000,000 or to any greater amount not an
integral multiple of $1,000,000 in excess thereof, (x) except as otherwise
provided in SECTION 2.15(D), LIBOR Loans may be converted into Base Rate Loans
only on the last day of the Interest Period applicable thereto (and, in any
event, if a LIBOR Loan is converted into a Base Rate Loan on any day other than
the last day of the Interest Period applicable thereto, the Borrower will pay,
upon such conversion, all amounts required under SECTION 2.17 to be paid as a
consequence thereof), (y) no such conversion or continuation shall be permitted
with regard to any Base Rate Loans that are Swingline Loans, and (z) no
conversion of Base Rate Loans into LIBOR Loans or continuation of LIBOR Loans
shall be permitted during the continuance of a Default or Event of Default.
(b) The Borrower shall make each such election by giving the Agent written
notice not later than 11:00 a.m., Charlotte time, three (3) Business Days prior
to the intended effective date of any conversion of Base Rate Loans into, or
continuation of, LIBOR Loans and one (1) Business Day prior to the intended
effective date of any conversion of LIBOR Loans into Base Rate Loans. Each such
notice (each, a "Notice of Conversion/Continuation") shall be irrevocable, shall
be given in the form of EXHIBIT B-3 and shall specify (x) the date of such
conversion or continuation (which shall be a Business Day), (y) in the case of a
conversion into, or a continuation of, LIBOR Loans, the Interest Period to be
applicable thereto, and (z) the aggregate amount and Type of the Revolving Loans
being converted or continued. Upon the receipt of a Notice of
Conversion/Continuation, the Agent will promptly notify each Lender of the
proposed conversion or continuation. In the event that the Borrower shall fail
to deliver a Notice of Conversion/Continuation as provided herein with respect
to any outstanding LIBOR Loans, such LIBOR Loans shall automatically be
converted to Base Rate Loans upon the expiration of the then current Interest
Period applicable thereto (unless repaid pursuant to the terms hereof).
I.11. Method of Payments; Computations. (a) All payments by the
--------------------------------
Borrower hereunder shall be made without setoff, counterclaim or other defense,
in Dollars and in immediately available funds to the Agent, for the account of
the Lenders or the Swingline Lender, as applicable (except as otherwise
expressly provided herein as to payments required to be made directly to the
Issuing Lender and the Lenders) at its office referred to in SECTION 11.5, prior
to 12:00 noon, Charlotte time, on the date payment is due. Any payment made as
required hereinabove, but after 12:00 noon, Charlotte time, shall be deemed to
have been made on the next succeeding Business Day. If any payment falls due on
a day that is not a Business Day, then such due date shall be extended to the
next succeeding Business Day (except that in the case of LIBOR Loans to which
the proviso of clause (iv) in SECTION 2.9 is applicable, such due date shall be
the next preceding Business Day), and such extension of time shall then be
included in the computation of payment of interest, fees or other applicable
amounts.
(b) The Agent will distribute to the Lenders like amounts relating to
payments made to the Agent for the account of the Lenders as follows: (i) if the
payment is received by 12:00 noon, Charlotte time, in immediately available
funds, the Agent will make available to each relevant Lender on the same date,
by wire transfer of immediately available funds, such Lender's ratable share of
such payment (based on the percentage that the amount of the relevant payment
owing to such Lender bears to the total amount of such payment owing to all of
the relevant Lenders), and (ii) if such payment is received after 12:00 noon,
Charlotte time, or in other than immediately available funds, the Agent will
make available to each such Lender its ratable share of such payment by wire
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transfer of immediately available funds on the next succeeding Business Day (or
in the case of uncollected funds, as soon as practicable after collected). If
the Agent shall not have made a required distribution to the appropriate Lenders
as required hereinabove after receiving a payment for the account of such
Lenders, the Agent will pay to each such Lender, on demand, its ratable share of
such payment with interest thereon at the Federal Funds Rate for each day from
the date such amount was required to be disbursed by the Agent until the date
repaid to such Lender. The Agent will distribute to the Issuing Lender like
amounts relating to payments made to the Agent for the account of the Issuing
Lender in the same manner, and subject to the same terms and conditions, as set
forth hereinabove with respect to distributions of amounts to the Lenders.
(c) Unless the Agent shall have received written notice from the Borrower
prior to the date on which any payment is due to any Lender hereunder that such
payment will not be made in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date, and the Agent may, in
reliance on such assumption, but shall not be obligated to, cause to be
distributed to such Lender on such due date an amount equal to the amount then
due to such Lender. If and to the extent the Borrower shall not have so made
such payment in full to the Agent, and without limiting the obligation of the
Borrower to make such payment in accordance with the terms hereof, such Lender
shall repay to the Agent forthwith on demand such amount so distributed to such
Lender, together with interest thereon for each day from the date such amount is
so distributed to such Lender until the date repaid to the Agent, at the Federal
Funds Rate.
(d) Each Lender for whose account any payment is to be made hereunder may, but
shall not be obligated to, debit the amount of any such payment not made as and
when required hereunder to any ordinary deposit account of the Borrower with
such Lender (with prompt notice to the Agent and the Borrower); provided,
--------
however, that the failure to give such notice shall not affect the validity of
- -------
such debit by such Lender.
(e) With respect to each payment hereunder, except as specifically provided
otherwise herein or in any of the other Credit Documents, the Borrower may
designate by written notice to the Agent prior to or concurrently with such
payment the specific Loans or other Obligations that are to be paid, repaid or
prepaid, provided that (i) unless made together with all amounts required under
--------
SECTION 2.17 to be paid as a consequence thereof, a prepayment of a LIBOR Loan
may be made only on the last day of the Interest Period applicable thereto, and
(ii) each payment on account of any Obligations to or for the account of any one
or more Lenders shall be apportioned ratably among such Lenders in proportion to
the amounts of such Obligations owed to them respectively. In the absence of
any such designation by the Borrower, or if an Event of Default has occurred and
is continuing, the Agent shall make such designation in its sole discretion or
as the Required Lenders may direct, subject to the foregoing and to the other
provisions of this Agreement and provided that, notwithstanding the foregoing,
--------
any payments received by the Agent under any circumstances described in this
sentence shall be applied first to repay all outstanding Swingline Loans
together with all accrued interest thereon.
(f) All computations of interest and fees hereunder (including computations of
the Reserve Requirement) shall be made on the basis of a year consisting of 365
or 366 days, as the case may be (in the case of interest on Base Rate Loans), or
360 days (in all other instances), and the actual number of days (including the
first day, but excluding the last day) elapsed.
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I.12. Recovery of Payments. (a) The Borrower agrees that to the extent
--------------------
the Borrower makes a payment or payments to or for the account of the Agent, the
Issuing Lender or any Lender, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or similar state or federal law, common law or equitable
cause, then, to the extent of such payment or repayment, the Obligation intended
to be satisfied shall be revived and continued in full force and effect as if
such payment had not been received.
(b) If any amounts distributed by the Agent to any Lender are subsequently
returned or repaid by the Agent to the Borrower or its representative or
successor in interest, whether by court order or by settlement approved by the
Lender in question, such Lender will, promptly upon receipt of notice thereof
from the Agent, pay the Agent such amount. If any such amounts are recovered by
the Agent from the Borrower or its representative or successor in interest, the
Agent will redistribute such amounts to the Lenders on the same basis as such
amounts were originally distributed.
I.13. Use of Proceeds. The proceeds of the Loans shall be used solely
---------------
(i) to repay the Terminating Senior Indebtedness in full, (ii) to pay or
reimburse reasonable transaction fees and expenses in connection with the
transactions described in clause (i) above and the consummation of the
transactions contemplated hereby, and (iii) for working capital and general
corporate purposes and to finance Permitted Acquisitions in accordance with the
terms and provisions of this Agreement, including, without limitation, the
provisions set forth in SECTION 6.9.
I.14. Pro Rata Treatment; Sharing of Payments. (a) All fundings,
---------------------------------------
continuations and conversions of Revolving Loans shall be made by the Lenders
pro rata on the basis of their respective Commitments (in the case of the
initial funding of any Revolving Loans pursuant to SECTIONS 2.2(B), 2.2(D) or
2.2(E)) or Revolving Loans (in the case of continuations and conversions of
outstanding Revolving Loans pursuant to SECTION 2.10), as applicable from time
to time.
(b) Each Lender agrees that if it shall receive any amount hereunder (whether
by voluntary payment, realization upon security, exercise of the right of setoff
or banker's lien, counterclaim or cross action, or otherwise, other than
pursuant to SECTION 11.7) applicable to the payment of any of the Obligations
that exceeds its ratable share (according to the proportion of (i) the amount of
such Obligations due and payable to such Lender at such time to (ii) the
aggregate amount of such Obligations due and payable to all Lenders at such
time) of payments on account of such Obligations then or therewith obtained by
all the Lenders to which such payments are required to have been made, such
Lender shall forthwith purchase from the other Lenders such participations in
such Obligations as shall be necessary to cause such purchasing Lender to share
the excess payment or other recovery ratably with each of them; provided,
--------
however, that if all or any portion of such excess payment is thereafter
- -------
recovered from such purchasing Lender, such purchase from each such other Lender
shall be rescinded and each such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery, together with an
amount equal to such other Lender's ratable share (according to the proportion
of (i) the amount of such other Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
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from another Lender pursuant to the provisions of this subsection may, to the
fullest extent permitted by law, exercise any and all rights of payment
(including, without limitation, setoff, banker's lien or counterclaim) with
respect to such participation as fully as if such participant were a direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or similar law, any Lender receives a secured
claim in lieu of a setoff to which this subsection applies, such Lender shall,
to the extent practicable, exercise its rights in respect of such secured claim
in a manner consistent with the rights of the Lenders entitled under this
subsection to share in the benefits of any recovery on such secured claim.
I.15. Increased Costs; Change in Circumstances; Illegality; etc. (a) If,
---------------------------------------------------------
at any time after the date hereof and from time to time, the introduction of or
any change in any applicable law, rule or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender with any
guideline or request from any such Governmental Authority (whether or not having
the force of law), shall (i) subject such Lender to any tax or other charge, or
change the basis of taxation of payments to such Lender, in respect of any of
its LIBOR Loans or any other amounts payable hereunder or its obligation to
make, fund or maintain any LIBOR Loans (other than any change in the rate or
basis of tax on the overall net income of such Lender or its applicable Lending
Office), (ii) impose, modify or deem applicable any reserve, special deposit or
similar requirement (other than as a result of any change in the Reserve
Requirement) against assets of, deposits with or for the account of, or credit
extended by, such Lender or its applicable Lending Office, or (iii) impose on
such Lender or its applicable Lending Office any other condition affecting its
LIBOR Loans, and the result of any of the foregoing shall be to increase the
cost to such Lender of making or maintaining any LIBOR Loans or to reduce the
amount of any sum received or receivable by such Lender hereunder (including
with respect to Letters of Credit), the Borrower will, promptly upon demand
therefor by such Lender (which demand shall be accompanied by a written
explanation in reasonable detail, showing the basis for such demand), pay to
such Lender such additional amounts as shall compensate such Lender for such
increase in costs or reduction in return.
(b) If, at any time after the date hereof and from time to time, any Lender
shall have reasonably determined that the introduction of or any change in any
applicable law, rule or regulation regarding capital adequacy or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by such Lender
with any guideline or request from any such Governmental Authority (whether or
not having the force of law), has or would have the effect, as a consequence of
such Lender's Commitment, Loans or participations in Letters of Credit
hereunder, of reducing the rate of return on the capital of such Lender or any
Person controlling such Lender to a level below that which such Lender or
controlling Person could have achieved but for such introduction, change or
compliance (taking into account such Lender's or controlling Person's policies
with respect to capital adequacy), the Borrower will, promptly upon demand
therefor by such Lender therefor (which demand shall be accompanied by a written
explanation in reasonable detail, showing the basis for such demand), pay to
such Lender such additional amounts as will compensate such Lender or
controlling Person for such reduction in return.
(c) If, on or prior to the first day of any Interest Period, (y) the Agent
shall have determined that adequate and reasonable means do not exist for
ascertaining the applicable LIBOR Rate for such Interest Period or (z) the Agent
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shall have received written notice from the Required Lenders of their
determination that the rate of interest referred to in the definition of "LIBOR
Rate" upon the basis of which the Adjusted LIBOR Rate for LIBOR Loans for such
Interest Period is to be determined will not adequately and fairly reflect the
cost to such Lenders of making or maintaining LIBOR Loans during such Interest
Period, the Agent will forthwith so notify the Borrower and the Lenders. Upon
such notice, (i) all then outstanding LIBOR Loans shall automatically, on the
expiration date of the respective Interest Periods applicable thereto (unless
then repaid in full), be converted into Base Rate Loans, (ii) the obligation of
the Lenders to make, to convert Base Rate Loans into, or to continue, LIBOR
Loans shall be suspended (including pursuant to the Borrowing to which such
Interest Period applies), and (iii) any Notice of Revolving Borrowing or Notice
of Conversion/Continuation given at any time thereafter with respect to LIBOR
Loans shall be deemed to be a request for Base Rate Loans, in each case until
the Agent or the Required Lenders, as the case may be, shall have determined
that the circumstances giving rise to such suspension no longer exist (and the
Required Lenders, if making such determination, shall have so notified the
Agent), and the Agent shall have so notified the Borrower and the Lenders.
(d) Notwithstanding any other provision in this Agreement, if, at any time
after the date hereof and from time to time, any Lender shall have determined in
good faith that the introduction of or any change in any applicable law, rule or
regulation or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance with any guideline or request from any such Governmental
Authority (whether or not having the force of law), has or would have the effect
of making it unlawful for such Lender to make or to continue to make or maintain
LIBOR Loans, such Lender will forthwith so notify the Agent and the Borrower.
Upon such notice, (i) each of such Lender's then outstanding LIBOR Loans shall
automatically, on the expiration date of the respective Interest Period
applicable thereto (or, to the extent any such LIBOR Loan may not lawfully be
maintained as a LIBOR Loan until such expiration date, upon such notice), be
converted into a Base Rate Loan, (ii) the obligation of such Lender to make, to
convert Base Rate Loans into, or to continue, LIBOR Loans shall be suspended
(including pursuant to any Borrowing for which the Agent has received a Notice
of Revolving Borrowing but for which the Borrowing Date has not arrived), and
(iii) any Notice of Revolving Borrowing or Notice of Conversion/Continuation
given at any time thereafter with respect to LIBOR Loans shall, as to such
Lender, be deemed to be a request for a Base Rate Loan, in each case until such
Lender shall have determined that the circumstances giving rise to such
suspension no longer exist and shall have so notified the Agent, and the Agent
shall have so notified the Borrower.
(e) Determinations by the Agent or any Lender for purposes of this SECTION
2.15 of any increased costs, reduction in return, market contingencies,
illegality or any other matter shall, absent manifest error, be conclusive,
provided that such determinations are made in good faith. No failure by the
- --------
Agent or any Lender at any time to demand payment of any amounts payable under
this SECTION 2.15 shall constitute a waiver of its right to demand payment of
any additional amounts arising at any subsequent time. Nothing in this SECTION
2.15 shall require or be construed to require the Borrower to pay any interest,
fees, costs or other amounts in excess of that permitted by applicable law.
I.16. Taxes. (a) Any and all payments by the Borrower hereunder or under
-----
any Note shall be made, in accordance with the terms hereof and thereof, free
and clear of and without
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deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, other than
net income and franchise taxes imposed on the Agent or any Lender by the United
States or by the jurisdiction under the laws of which the Agent or such Lender,
as the case may be, is organized or in which its principal office or (in the
case of a Lender) its applicable Lending Office is located, or any political
subdivision or taxing authority thereof (all such nonexcluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Note to the
Agent or any Lender, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this SECTION 2.16), the Agent or such Lender, as
the case may be, receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower will make such deductions, (iii)
the Borrower will pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower will deliver to the Agent or such Lender, as the case may be, evidence
of such payment.
(b) The Borrower will indemnify the Agent and each Lender for the full amount
of Taxes (including, without limitation, any Taxes imposed by any jurisdiction
on amounts payable under this SECTION 2.16) paid by the Agent or such Lender, as
the case may be, and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes were
correctly or legally asserted. This indemnification shall be made within 30
days from the date the Agent or such Lender, as the case may be, makes written
demand therefor.
(c) Each of the Agent and the Lenders agrees that if it subsequently recovers,
or receives a permanent net tax benefit with respect to, any amount of Taxes (i)
previously paid by it and as to which it has been indemnified by or on behalf of
the Borrower or (ii) previously deducted by the Borrower (including, without
limitation, any Taxes deducted from any additional sums payable under clause (i)
of subsection (a) above), the Agent or such Lender, as the case may be, shall
reimburse the Borrower to the extent of the amount of any such recovery or
permanent net tax benefit (but only to the extent of indemnity payments made, or
additional amounts paid, by or on behalf of the Borrower under this SECTION 2.16
with respect to the Taxes giving rise to such recovery or tax benefit);
provided, however, that the Borrower, upon the request of the Agent or such
- -------- -------
Lender, agrees to repay to the Agent or such Lender, as the case may be, the
amount paid over to the Borrower (together with any penalties, interest or other
charges), in the event the Agent or such Lender is required to repay such amount
to the relevant taxing authority or other Governmental Authority. The
determination by the Agent or any Lender of the amount of any such recovery or
permanent net tax benefit shall, in the absence of manifest error, be conclusive
and binding.
(d) If any Lender is a "foreign corporation, partnership or trust" within the
meaning of the Internal Revenue Code, and such Lender claims exemption from
United States withholding tax under Section 1441 or 1442 of the Internal Revenue
Code, such Lender will deliver to each of the Agent and the Borrower, on or
prior to the date of any payment by the Borrower to such Lender under this
Agreement or the Notes, a properly completed Internal Revenue Service Form 4224
or 1001, as applicable (or successor forms), certifying that such Lender is
entitled to an exemption from or a reduction of withholding or deduction for or
on account of United States federal income taxes in connection with payments
under this Agreement or any of the Notes, together with a properly completed
Internal Revenue Service Form W-8 or W-9, as applicable (or successor forms).
Each such Lender further agrees to deliver to each of the Agent and the Borrower
an additional copy of each such relevant form on or before the date that such
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form expires (currently, three successive calendar years for Form 1001 and one
calendar year for Form 4224) or becomes obsolete or after the occurrence of any
event requiring a change in the most recent forms so delivered by it, in each
case certifying that such Lender is entitled to an exemption from or a reduction
of withholding or deduction for or on account of United States federal income
taxes in connection with payments under this Agreement or any of the Notes,
unless an event (including, without limitation, any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required, which event renders all such forms inapplicable or the
exemption to which such forms relate unavailable and such Lender notifies the
Agent and the Borrower that it is not entitled to receive payments without
deduction or withholding of United States federal income taxes. Each such
Lender will promptly notify the Agent and the Borrower of any changes in
circumstances that would modify or render invalid any claimed exemption or
reduction.
(e) If any Lender is entitled to a reduction in (and not a complete exemption
from) the applicable withholding tax, the Borrower and the Agent may withhold
from any interest payment to such Lender an amount equivalent to the applicable
withholding tax after taking into account such reduction. If any of the forms
or other documentation required under subsection (d) above are not delivered to
the Agent as therein required, then the Borrower and the Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
I.17. Compensation. The Borrower will compensate each Lender upon demand
------------
(which demand shall be accompanied by a written explanation in reasonable
detail, showing the basis for such demand) for all losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Lender to fund or maintain LIBOR Loans) that such Lender may
incur or sustain (i) if for any reason (other than a default by such Lender) a
borrowing or continuation of, or conversion into, a LIBOR Loan does not occur on
a date specified therefor in a Notice of Revolving Borrowing or Notice of
Conversion/Continuation, (ii) if any repayment, prepayment or conversion of any
LIBOR Loan occurs on a date other than the last day of an Interest Period
applicable thereto (including as a consequence of acceleration of the maturity
of the Loans pursuant to SECTION 9.2), (iii) if any prepayment of any LIBOR Loan
is not made on any date specified in a notice of prepayment given by the
Borrower or (iv) as a consequence of any other failure by the Borrower to make
any payments with respect to any LIBOR Loan when due hereunder. Calculation of
all amounts payable to a Lender under this SECTION 2.17 shall be made as though
such Lender had actually funded its relevant LIBOR Loan through the purchase of
a Eurodollar deposit bearing interest at the LIBOR Rate in an amount equal to
the amount of such LIBOR Loan, having a maturity comparable to the relevant
Interest Period; provided, however, that each Lender may fund its LIBOR Loans in
-------- -------
any manner it sees fit and the foregoing assumption shall be utilized only for
the calculation of amounts payable under this SECTION 2.17. Determinations by
any Lender for purposes of this SECTION 2.17 of any such losses, expenses or
liabilities shall, absent manifest error, be conclusive, provided that such
--------
determinations are made in good faith.
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ARTICLE II
LETTERS OF CREDIT
II.1. Issuance. Subject to and upon the terms and conditions herein set
--------
forth, so long as no Default or Event of Default has occurred and is continuing,
the Issuing Lender will, at any time and from time to time on and after the
Closing Date and prior to the earlier of (i) the seventh day prior to the
Maturity Date and (ii) the Termination Date, and upon request by the Borrower in
accordance with the provisions of SECTION 3.2, issue for the account of the
Borrower one or more irrevocable standby letters of credit denominated in
Dollars and in a form customarily used or otherwise approved by the Issuing
Lender (together with all amendments, modifications and supplements thereto,
substitutions therefor and renewals and restatements thereof, collectively, the
"Letters of Credit"). The Stated Amount of each Letter of Credit shall not be
less than such amount as may be acceptable to the Issuing Lender.
Notwithstanding the foregoing:
(a) No Letter of Credit shall be issued the Stated Amount of which, upon
issuance, (i) when added to the aggregate Letter of Credit Exposure of the
Lenders at such time, would exceed $10,000,000 or (ii) when added to the sum of
(x) the aggregate Letter of Credit Exposure of all Lenders at such time, (y) the
aggregate principal amount of all Revolving Loans then outstanding and (z) the
aggregate principal amount of all Swingline Loans then outstanding, would exceed
the Aggregate Commitments at such time;
(b) Unless the Issuing Lender otherwise agrees, there shall not be more than
four (4) Letters of Credit issued and outstanding at any time;
(c) No Letter of Credit shall be issued that by its terms expires later than
the seventh day prior to the Maturity Date or, in any event, more than one (1)
year after its date of issuance; provided, however, that a Letter of Credit may,
-------- -------
if requested by the Borrower, provide by its terms, and on terms acceptable to
the Issuing Lender, for renewal for successive periods of one year or less (but
not beyond the seventh day prior to the Maturity Date), unless and until the
Issuing Lender shall have delivered a notice of nonrenewal to the beneficiary of
such Letter of Credit; and
(d) The Issuing Lender shall be under no obligation to issue any Letter of
Credit if, at the time of such proposed issuance, (i) any order, judgment or
decree of any Governmental Authority or arbitrator shall purport by its terms to
enjoin or restrain the Issuing Lender from issuing such Letter of Credit, or any
Requirement of Law applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority with
jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing
Lender refrain from, the issuance of letters of credit generally or such Letter
of Credit in particular or shall impose upon the Issuing Lender with respect to
such Letter of Credit any restriction or reserve or capital requirement (for
which the Issuing Lender is not otherwise compensated) not in effect on the
Closing Date, or any unreimbursed loss, cost or expense that was not applicable,
in effect or known to the Issuing Lender as of the Closing Date and that the
Issuing Lender in good faith deems material to it, or (ii) the Issuing Lender
shall have actual knowledge, or shall have received notice from any Lender,
prior to the issuance of such Letter of Credit that one or more of the
conditions specified in SECTION 4.2 are not then satisfied or that the issuance
of such Letter of Credit would violate the provisions of subsection (a) above.
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II.2. Notices. Whenever the Borrower desires the issuance of a Letter of
-------
Credit, the Borrower will give the Issuing Lender written notice (with a copy to
the Agent) not later than 11:00 a.m., Charlotte time, three (3) Business Days
(or such shorter period as is acceptable to the Issuing Lender in any given
case) prior to the requested date of issuance thereof. Each such notice (each, a
"Letter of Credit Notice") shall be irrevocable, shall be given in the form of
EXHIBIT B-4 and shall specify (i) the requested date of issuance, which shall be
a Business Day, (ii) the requested Stated Amount and expiry date of the Letter
of Credit, and (iii) the name and address of the requested beneficiary or
beneficiaries of the Letter of Credit. The Borrower will also complete any
application procedures and documents required by the Issuing Lender in
connection with the issuance of any Letter of Credit. Upon its issuance of any
Letter of Credit, the Issuing Lender will promptly notify the Agent of such
issuance, and the Agent will give prompt notice thereof to each Lender.
II.3. Participations. Immediately upon the issuance of any Letter of
--------------
Credit, the Issuing Lender shall be deemed to have sold and transferred to each
Lender, and each Lender shall be deemed irrevocably and unconditionally to have
purchased and received from the Issuing Lender, without recourse or warranty, an
undivided interest and participation, pro rata (based on the percentage of the
Aggregate Commitments represented by such Lender's Commitment), in such Letter
of Credit, each drawing made thereunder and the obligations of the Borrower
under this Agreement with respect thereto and any Collateral or other security
therefor or guaranty pertaining thereto; provided, however, that the fee
-------- -------
relating to Letters of Credit described in SECTION 2.8(D) shall be payable
directly to the Issuing Lender as provided therein, and the Lenders shall have
no right to receive any portion thereof. Upon any change in the Commitments of
any of the Lenders pursuant to SECTION 11.7(A), with respect to all outstanding
Letters of Credit and Reimbursement Obligations there shall be an automatic
adjustment to the participations pursuant to this Section to reflect the new pro
rata shares of the assigning Lender and the Assignee.
II.4. Reimbursement. The Borrower hereby agrees to reimburse the Issuing
-------------
Lender by making payment to the Agent, for the account of the Issuing Lender, in
immediately available funds, for any payment made by the Issuing Lender under
any Letter of Credit (each such amount so paid until reimbursed, together with
interest thereon payable as provided hereinbelow, a "Reimbursement Obligation")
immediately after, and in any event within one (1) Business Day after its
receipt of notice of, such payment, together with interest on the amount so paid
by the Issuing Lender, to the extent not reimbursed prior to 1:00 p.m.,
Charlotte time, on the date of such payment or disbursement, for the period from
the date of the respective payment to the date the Reimbursement Obligation
created thereby is satisfied, the Adjusted Base Rate as in effect from time to
time during such period, such interest also to be payable on demand. The Issuing
Lender will provide the Agent and the Borrower with prompt notice of any payment
or disbursement made under any Letter of Credit, although the failure to give,
or any delay in giving, any such notice shall not release, diminish or otherwise
affect the Borrower's obligations under this Section or any other provision of
this Agreement. The Agent will promptly pay to the Issuing Lender any such
amounts received by it under this Section.
II.5. Payment by Revolving Loans. In the event that the Issuing Lender
--------------------------
makes any payment under any Letter of Credit and the Borrower shall not have
timely satisfied in full its Reimbursement Obligation to the Issuing Lender
pursuant to SECTION 3.4, and to the extent that any amounts then held in the
Cash Collateral
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Account established pursuant to SECTION 3.8 shall be insufficient to satisfy
such Reimbursement Obligation in full, the Issuing Lender will promptly notify
the Agent, and the Agent will promptly notify each Lender, of such failure. If
the Agent gives such notice prior to 11:00 a.m., Charlotte time, on any Business
Day, each Lender will make available to the Agent, for the account of the
Issuing Lender, its pro rata share (based on the percentage of the Aggregate
Commitments represented by such Lender's Commitment) of the amount of such
payment on such Business Day in immediately available funds. If the Agent gives
such notice after 11:00 a.m., Charlotte time, on any Business Day, each Lender
shall make its pro rata share of such amount available to the Agent on the next
succeeding Business Day. If and to the extent any Lender shall not have so made
its pro rata share of the amount of such payment available to the Agent, such
Lender agrees to pay to the Agent, for the account of the Issuing Lender,
forthwith on demand such amount, together with interest thereon at the Federal
Funds Rate for each day from such date until the date such amount is paid to the
Agent. The failure of any Lender to make available to the Agent its pro rata
share of any payment under any Letter of Credit shall not relieve any other
Lender of its obligation hereunder to make available to the Agent its pro rata
share of any payment under any Letter of Credit on the date required, as
specified above, but no Lender shall be responsible for the failure of any other
Lender to make available to the Agent such other Lender's pro rata share of any
such payment. Each such payment by a Lender under this SECTION 3.5 of its pro
rata share of an amount paid by the Issuing Lender shall constitute a Revolving
Loan by such Lender (the Borrower being deemed to have given a timely Notice of
Revolving Borrowing therefor) and shall be treated as such for all purposes of
this Agreement; provided that for purposes of determining the Aggregate
--------
Unutilized Commitments immediately prior to giving effect to the application of
the proceeds of such Revolving Loans, the Reimbursement Obligation being
satisfied thereby shall be deemed not to be outstanding at such time.
II.6. Payment to Lenders. Whenever the Issuing Lender receives a
------------------
payment in respect of a Reimbursement Obligation as to which the Agent has
received, for the account of the Issuing Lender, any payments from the Lenders
pursuant to SECTION 3.5, the Issuing Lender will promptly pay to the Agent, and
the Agent will promptly pay to each Lender that has paid its pro rata share
thereof, in immediately available funds, an amount equal to such Lender's
ratable share (based on the proportionate amount funded by such Lender to the
aggregate amount funded by all Lenders) of such Reimbursement Obligation.
II.7. Obligations Absolute. The Reimbursement Obligations of the
--------------------
Borrower, and the obligations of the Lenders under SECTION 3.5 to make payments
to the Agent, for the account of the Issuing Lender, with respect to Letters of
Credit, shall be irrevocable, shall remain in effect until the Issuing Lender
shall have no further obligations to make any payments or disbursements under
any circumstances with respect to any Letter of Credit, and, except to the
extent resulting from any gross negligence or willful misconduct on the part of
the Issuing Lender, shall be absolute and unconditional, shall not be subject to
counterclaim, setoff or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(a) Any lack of validity or enforceability of this Agreement, any of the
other Credit Documents or any documents or instruments relating to any Letter of
Credit;
(b) Any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations in respect of any Letter of Credit or any
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other amendment, modification or waiver of or any consent to departure from any
Letter of Credit or any documents or instruments relating thereto, in each case
whether or not the Borrower has notice or knowledge thereof;
(c) The existence of any claim, setoff, defense or other right that the
Borrower may have at any time against a beneficiary named in a Letter of Credit,
any transferee of any Letter of Credit (or any Person for whom any such
transferee may be acting), the Agent, the Issuing Lender, any Lender or other
Person, whether in connection with this Agreement, any Letter of Credit, the
transactions contemplated hereby or any unrelated transactions (including any
underlying transaction between the Borrower and the beneficiary named in any
such Letter of Credit);
(d) Any draft, certificate or any other document presented under the Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect, any
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, telecopier or otherwise, or any errors in translation or in
interpretation of technical terms;
(e) Any defense based upon the failure of any drawing under a Letter of
Credit to conform to the terms of the Letter of Credit, any nonapplication or
misapplication by the beneficiary or any transferee of the proceeds of such
drawing or any other act or omission of such beneficiary or transferee in
connection with such Letter of Credit;
(f) The exchange, release, surrender or impairment of any Collateral or
other security for the Obligations;
(g) The occurrence of any Default or Event of Default; or
(h) Any other circumstance or event whatsoever, including, without
limitation, any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Borrower or a guarantor.
Any action taken or omitted to be taken by the Issuing Lender under or in
connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall be binding upon the Borrower and
each Lender and shall not create or result in any liability of the Issuing
Lender to the Borrower or any Lender. It is expressly understood and agreed
that, for purposes of determining whether a wrongful payment under a Letter of
Credit resulted from the Issuing Lender's gross negligence or willful
misconduct, (i) the Issuing Lender's acceptance of documents that appear on
their face to comply with the terms of such Letter of Credit, without
responsibility for further investigation, regardless of any notice or
information to the contrary, (ii) the Issuing Lender's exclusive reliance on the
documents presented to it under such Letter of Credit as to any and all matters
set forth therein, including the amount of any draft presented under such Letter
of Credit, whether or not the amount due to the beneficiary thereunder equals
the amount of such draft and whether or not any document presented pursuant to
such Letter of Credit proves to be insufficient in any respect (so long as such
document appears on its face to comply with the terms of such Letter of Credit),
and whether or not any other statement or any other document presented pursuant
to such Letter of Credit proves to be forged or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever, and (iii) any
noncompliance in any immaterial respect of the documents presented under such
Letter of Credit with the terms thereof shall, in each case, be deemed not to
constitute gross negligence or willful misconduct of the Issuing Lender.
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II.8. Cash Collateral Account. At any time and from time to time (i)
after the occurrence and during the continuance of an Event of Default, the
Agent, at the direction, or with the consent, of the Required Lenders, may
require the Borrower to deliver to the Agent such additional amount of cash as
is equal to the aggregate Stated Amount of all Letters of Credit at any time
outstanding (whether or not any beneficiary under any Letter of Credit shall
have drawn or be entitled at such time to draw thereunder) and (ii) in the event
of a prepayment under SECTION 2.6(C), the Agent will retain such amount as may
then be required to be retained under the proviso in SECTION 2.6(C), such
amounts in each case under clauses (i) and (ii) above to be held by the Agent in
a cash collateral account (the "Cash Collateral Account") as security for Letter
of Credit Exposure, and for application to the Borrower's Reimbursement
Obligations as and when the same shall arise. The Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over such
account. Other than any interest on the investment of such amounts in Cash
Equivalents, which investments shall be made at the direction of the Borrower
(unless a Default or Event of Default shall have occurred and be continuing, in
which case the determination as to investments shall be made at the option and
in the discretion of the Agent), amounts in the Cash Collateral Account shall
not bear interest. Interest and profits, if any, on such investments shall
accumulate in such account. In the event of a drawing, and subsequent payment by
the Issuing Lender, under any Letter of Credit at any time during which any
amounts are held in the Cash Collateral Account, the Agent will deliver to the
Issuing Lender an amount equal to the Reimbursement Obligation created as a
result of such payment (or, if the amounts so held are less than such
Reimbursement Obligation, all of such amounts) to reimburse the Issuing Lender
therefor. Any amounts remaining in the Cash Collateral Account after the
expiration of all Letters of Credit and reimbursement in full of the Issuing
Lender for all of its obligations thereunder shall be held by the Agent, for the
benefit of the Borrower, to be applied against the Obligations in such order and
manner as the Agent may direct. If the Borrower is required to provide cash
collateral pursuant to SECTION 2.6(C), such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower on demand, provided that after
giving effect to such return (i) the sum of (x) the aggregate principal amount
of all Revolving Loans outstanding at such time, (y) the aggregate principal
amount of all Swingline Loans outstanding at such time and (z) the aggregate
Letter of Credit Exposure of all Lenders at such time would not exceed the
Aggregate Commitments at such time and (ii) no Default or Event of Default shall
have occurred and be continuing at such time. If the Borrower is required to
provide cash collateral as a result of an Event of Default, such amount (to the
extent not applied as aforesaid) shall be returned to the Borrower within three
(3) Business Days after all Events of Default have been cured or waived.
II.9. Effectiveness. Notwithstanding any termination of the Commitments or
-------------
repayment of the Loans, or both, the obligations of the Borrower under this
ARTICLE III shall remain in full force and effect until the Issuing Lender and
the Lenders shall have no further obligations to make any payments or
disbursements under any circumstances with respect to any Letter of Credit.
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ARTICLE III
CONDITIONS OF BORROWING
III.1. Conditions of Initial Borrowing. The obligation of each
-------------------------------
Lender to make Loans in connection with the initial Borrowing hereunder, and the
obligation of the Issuing Lender to issue Letters of Credit hereunder, is
subject to the satisfaction of the following conditions precedent:
(a) The Agent shall have received the following, each dated as of the
Closing Date (unless otherwise specified) and, except for the Notes and the
certificates and instruments required to be delivered under the Pledge
Agreement, in sufficient copies for each Lender:
(i) a Revolving Credit Note for each Lender that is a party
hereto as of the Closing Date, in the amount of such Lender's Commitment,
and a Swingline Note for the Swingline Lender, in the amount of the
Swingline Commitment, each duly completed and executed by the Borrower;
(ii) the Pledge Agreement, duly completed and executed by the
Borrower, together with all certificates evidencing the capital stock being
pledged thereunder and undated stock powers for each such certificate, duly
executed in blank, and any promissory notes being pledged thereunder, duly
endorsed in blank;
(iii) the Guaranty, duly completed and executed by the
Subsidiaries of the Borrower (other than Immaterial Subsidiaries and
Liquidating Subsidiaries);
(iv) a certificate, signed by the chief executive officer or
chief financial officer of the Borrower, in form and substance satisfactory
to the Agent, certifying that (A) all representations and warranties of the
Borrower contained in this Agreement and the other Credit Documents are
true and correct as of the Closing Date, both immediately before and after
giving effect to the initial Loans hereunder and the application of the
proceeds thereof, (B) no Default or Event of Default has occurred and is
continuing, both immediately before and after giving effect to the initial
Loans hereunder and the application of the proceeds thereof, and (C) both
immediately before and after giving effect to the consummation of the
transactions contemplated by this Agreement, no Material Adverse Change has
occurred since December 31, 1995, and there exists no event, condition or
state of facts that could reasonably be expected to result in a Material
Adverse Change;
(v) a certificate of the secretary or an assistant secretary of
each of the Borrower and its Subsidiaries (other than Immaterial
Subsidiaries and Liquidating Subsidiaries), in form and substance
satisfactory to the Agent, certifying (A) that attached thereto is a true
and complete copy of the articles or certificate of incorporation and all
amendments thereto of the Borrower or such Subsidiary, as the case may be,
certified as of a recent date by the Secretary of State (or comparable
Governmental Authority) of its jurisdiction of organization, and that the
same has not been amended since the date of such certification, (B) as to
the Borrower only, that attached thereto is a true and complete copy of the
bylaws of the Borrower, as then in effect and as in effect at all times
from the date on which the resolutions referred to in clause (C) below were
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adopted to and including the date of such certificate, and (C) as to the
Borrower only, that attached thereto is a true and complete copy of
resolutions adopted by the board of directors of the Borrower authorizing
the execution, delivery and performance of this Agreement and the other
Credit Documents to which it is a party, and as to the incumbency and
genuineness of the signature of each officer of the Borrower executing this
Agreement or any of the other Credit Documents, and attaching all such
copies of the documents described above; and
(vi) the favorable opinions of (i) S. Page Todd, general counsel
to the Borrower, addressed to the Agent and the Lenders, and (ii) Maynard,
Cooper & Gale, P.C., special counsel to the Borrower, addressed to the
Agent and the Lenders, in each case in form and substance satisfactory to
the Agent and the Lenders.
(b) The Agent shall have received (i) a certificate as of a recent date of
the good standing of each of the Borrower and its Subsidiaries (other than
Immaterial Subsidiaries and Liquidating Subsidiaries) under the laws of its
jurisdiction of organization, from the Secretary of State (or comparable
Governmental Authority) of such jurisdiction, (ii) a certificate as of a recent
date of the qualification of the Borrower to conduct business as a foreign
corporation, from the Secretary of State of Alabama, and (iii) a certificate as
of a recent date of the good standing of each of the Borrower and M.G.A. from
the Department of Revenue of the State of Alabama.
(c) All legal matters, documentation and corporate or other proceedings
incident to the transactions contemplated hereby shall be reasonably acceptable
to the Agent; all approvals, permits and consents of any Governmental
Authorities or other Persons required in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby shall have been obtained (without the imposition of conditions that are
not reasonably acceptable to the Agent), and all related filings, if any, shall
have been made, and all such approvals, permits, consents and filings shall be
in full force and effect and the Agent shall have received such copies thereof
as it shall have requested; all applicable waiting periods shall have expired
without any adverse action being taken by any Governmental Authority having
jurisdiction; and no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before, and no
order, injunction or decree shall have been entered by, any court or other
Governmental Authority, in each case to enjoin, restrain or prohibit, to obtain
substantial damages in respect of, or that is otherwise related to or arises out
of, this Agreement or the consummation of the transactions contemplated hereby,
or that, in the opinion of the Agent, would otherwise be reasonably likely to
have a Material Adverse Effect.
(d) Since December 31, 1995, both immediately before and after giving
effect to the consummation of the transactions contemplated by this Agreement,
there shall not have occurred any Material Adverse Change or any event,
condition or state of facts that could reasonably be expected to result in a
Material Adverse Change.
(e) The Borrower shall have paid (i) to First Union, the unpaid balance of
the fees described in paragraph (i) of the Fee Letter, (ii) to the Agent, the
initial payment of the annual administrative fee described in paragraph (ii) of
the Fee Letter, and (iii) all other fees and expenses of the Agent and the
Lenders required hereunder or under any other Credit Document to be paid on or
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prior to the Closing Date (including fees and expenses of counsel) in connection
with this Agreement and the transactions contemplated hereby.
(f) The Agent shall have received the results of Lien searches in the names
of the Borrower and its Subsidiaries in jurisdictions designated by the Agent,
and such results shall indicate to the satisfaction of the Agent the absence of
any Liens upon the assets or properties of the Borrower and its Subsidiaries
other than Permitted Liens.
(g) The Agent shall have received a certificate of the Borrower, in form
satisfactory to the Agent, reflecting the calculation of the Leverage Ratio as
of June 30, 1996. For purposes of this subsection (g), (i) Consolidated Funded
Debt as of such date shall be determined pursuant to the good faith estimate of
the Borrower's chief financial officer and shall give pro forma effect to the
initial Borrowings made hereunder on the Closing Date as if made on June 30,
1996, and (ii) Consolidated Operating Cash Flow for the period of six
consecutive fiscal months ended June 30, 1996 shall, to the extent not based
upon previously released financial statements of the Borrower and its
Subsidiaries, be determined pursuant to the good faith estimate of the
Borrower's chief financial officer, and shall give pro forma effect to the
Acquisitions of Home Vision Entertainment, Inc. and Hollywood Video, Inc. as if
such Acquisitions had been consummated on the first day of such six-fiscal month
period (provided that such Acquisitions are in fact consummated prior to or
--------
concurrently with the making of the initial Borrowings hereunder); and the
result of such determination shall be multiplied by two (2).
(h) The Agent shall have completed its due diligence review of the Borrower
and its Subsidiaries, including, without limitation, inspection of facilities,
books and records, and material contracts and agreements, and any other
investigations that the Agent shall have deemed necessary in connection
therewith, and the results thereof shall be satisfactory to the Agent.
(i) The Agent shall have received evidence satisfactory to it that,
concurrently with the making of the initial Loans hereunder, (i) all principal,
interest and other amounts outstanding with respect to the Terminating Senior
Indebtedness shall be repaid and satisfied in full, (ii) all commitments to
extend credit under the agreements and instruments relating thereto shall be
terminated, and (iii) any Liens securing any Terminating Senior Indebtedness
shall be released and any related filings terminated of record (or arrangements
satisfactory to the Agent made therefor). Additionally, the Agent or the
Borrower shall have received all UCC-1 financing statements and other
instruments that have been previously executed by the Borrower or any of its
Subsidiaries in connection with the Terminating Senior Indebtedness in favor of,
and that have been held for subsequent filing or recordation by, SouthTrust Bank
of Alabama, N.A.
(j) The Agent shall have received evidence satisfactory to it that the
product of (y) Consolidated Operating Cash Flow for the period of six
consecutive fiscal months ended June 30, 1996 and (z) two (2), is not less than
$21,500,000. For purposes of this subsection (j), such calculation shall, to
the extent not based upon previously released financial statements of the
Borrower and its Subsidiaries, be determined pursuant to the good faith estimate
of the Borrower's chief financial officer, and shall give pro forma effect to
the Acquisitions of Home Vision Entertainment, Inc. and Hollywood Video, Inc. as
if such Acquisitions had been consummated on the first day of such six-fiscal
month period (provided that such Acquisitions are in fact consummated prior to
--------
or concurrently with the making of the initial Borrowings hereunder).
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(k) The Agent shall have received an Account Designation Letter, together
with written instructions from an Authorized Officer of the Borrower, including
wire transfer information, directing the payment of the proceeds of the initial
Loans to be made hereunder.
(l) The Agent and each Lender shall have received such other documents,
certificates, opinions and instruments as it shall have reasonably requested.
III.2. Conditions of All Borrowings. The obligation of each Lender to
----------------------------
make any Loans hereunder, including the initial Loans (but excluding Revolving
Loans made for the purpose of repaying Refunded Swingline Loans pursuant to
SECTION 2.2(D)), and the obligation of the Issuing Lender to issue any Letters
of Credit hereunder, is subject to the satisfaction of the following conditions
precedent on the relevant Borrowing Date or date of issuance:
(a) The Agent shall have received a Notice of Revolving Borrowing in
accordance with SECTION 2.2(B), or (together with the Swingline Lender) a Notice
of Swingline Borrowing in accordance with SECTION 2.2(C), or (together with the
Issuing Lender) a Letter of Credit Notice in accordance with SECTION 3.2, as
applicable;
(b) Each of the representations and warranties contained in ARTICLE V and
in the other Credit Documents shall be true and correct on and as of such
Borrowing Date (including the Closing Date, in the case of the initial Loans
made hereunder) or date of issuance with the same effect as if made on and as of
such date, both immediately before and after giving effect to the Loans to be
made or Letter of Credit to be issued on such date (except to the extent any
such representation or warranty is expressly stated to have been made as of a
specific date, in which case such representation or warranty shall be true and
correct as of such date); and
(c) No Default or Event of Default shall have occurred and be continuing on
such date, both immediately before and after giving effect to the Loans to be
made or Letter of Credit to be issued on such date.
Each giving of a Notice of Borrowing or a Letter of Credit Notice, and the
consummation of each Borrowing or issuance of a Letter of Credit, shall be
deemed to constitute a representation by the Borrower that the statements
contained in subsections (b) and (c) above are true, both as of the date of such
notice or request and as of the relevant Borrowing Date or date of issuance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and to
induce the Lenders to extend the credit contemplated hereby, the Borrower
represents and warrants to the Agent and the Lenders as follows:
IV.1. Corporate Organization and Power. Each of the Borrower and its
--------------------------------
Subsidiaries
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<PAGE>
(other than any Liquidating Subsidiaries) (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has the full corporate power and authority to execute,
deliver and perform the Credit Documents to which it is or will be a party, to
own and hold its property and to engage in its business as presently conducted,
and (iii) is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the nature of its business or the
ownership of its properties requires it to be so qualified, except where the
failure to be so qualified would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect. The Borrower is duly
qualified to do business as a foreign corporation and is in good standing in the
State of Alabama.
IV.2. Authorization; Enforceability. Each of the Borrower and its
-----------------------------
Subsidiaries has taken, or on the Closing Date will have taken, all necessary
corporate action to execute, deliver and perform each of the Credit Documents to
which it is or will be a party, and has, or on the Closing Date (or any later
date of execution and delivery) will have, validly executed and delivered each
of the Credit Documents to which it is or will be a party. This Agreement
constitutes, and each of the other Credit Documents upon execution and delivery
will constitute, the legal, valid and binding obligation of each of the Borrower
and its Subsidiaries that is a party hereto or thereto, enforceable against it
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general equitable principles.
IV.3. No Violation. The execution, delivery and performance by each of the
------------
Borrower and its Subsidiaries of this Agreement and each of the other Credit
Documents to which it is or will be a party, and compliance by it with the terms
hereof and thereof, do not and will not (i) violate any provision of its
certificate of incorporation or bylaws or contravene any other Requirement of
Law applicable to it, (ii) conflict with, result in a breach of or constitute
(with notice, lapse of time or both) a default under any Material Contract to
which it is a party, by which it or any of its properties is bound or to which
it is subject, or (iii) result in or require the creation or imposition of any
Lien upon any of its properties or assets. No Subsidiary is subject to any
restriction or encumbrance on its ability to make dividend payments or other
distributions in respect of its capital stock, to make loans or advances to the
Borrower or any other Subsidiary, or to transfer any of its assets or properties
to the Borrower or any other Subsidiary, in each case other than such
restrictions or encumbrances existing under or by reason of the Credit Documents
or applicable Requirements of Law.
IV.4. Governmental Authorization; Permits. (a) No consent,
-----------------------------------
approval, authorization or other action by, notice to, or registration or filing
with, any Governmental Authority or other Person is or will be required as a
condition to or otherwise in connection with the due execution, delivery and
performance by each of the Borrower and its Subsidiaries of this Agreement or
any of the other Credit Documents to which it is or will be a party or the
legality, validity or enforceability hereof or thereof.
(b) Each of the Borrower and its Subsidiaries has, and is in good standing
with respect to, all governmental approvals, licenses, permits and
authorizations necessary to conduct its business as presently conducted and to
own or lease and operate its properties, except for those the failure to obtain
which would not be reasonably likely, individually or in the aggregate, to have
a Material Adverse Effect.
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IV.5. Litigation. There are no actions, investigations, suits or
----------
proceedings pending or, to the knowledge of the Borrower, threatened, at law, in
equity or in arbitration, before any court, other Governmental Authority or
other Person, (i) against or affecting the Borrower, any of its Subsidiaries or
any of their respective properties that would, if adversely determined, be
reasonably likely to have a Material Adverse Effect, or (ii) with respect to
this Agreement or any of the other Credit Documents.
IV.6. Taxes. Each of the Borrower and its Subsidiaries has timely filed
-----
all federal, state and local tax returns and reports required to be filed by it
(other than such local tax returns and reports the failure to file which would
not be reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect) and has paid all taxes, assessments, fees and other charges
levied upon it or upon its properties that are shown thereon as due and payable,
other than those that are being contested in good faith and by proper
proceedings and for which adequate reserves have been established in accordance
with Generally Accepted Accounting Principles. Such returns accurately reflect
in all material respects all liability for taxes of the Borrower and its
Subsidiaries for the periods covered thereby. Except as described in SCHEDULE
5.6, there is no ongoing audit or examination or, to the knowledge of the
Borrower, other investigation by any Governmental Authority of the tax liability
of the Borrower or any of its Subsidiaries, and there is no unresolved claim by
any Governmental Authority concerning the tax liability of the Borrower or any
of its Subsidiaries for any period for which tax returns have been or were
required to have been filed, other than claims for which adequate reserves have
been established in accordance with Generally Accepted Accounting Principles.
Neither the Borrower nor any of its Subsidiaries has waived or extended or has
been requested to waive or extend the statute of limitations relating to the
payment of any taxes.
IV.7. Subsidiaries. SCHEDULE 5.7 sets forth a list, as of the Closing
------------
Date, of all of the Subsidiaries of the Borrower and, as to each such
Subsidiary, the percentage ownership (direct and indirect) of the Borrower in
each class of its capital stock and each direct owner thereof (and such list
indicates which Subsidiaries are Immaterial Subsidiaries). Except for the shares
of capital stock expressly indicated on SCHEDULE 5.7, there are no shares of
capital stock or warrants, rights, options or other equity securities of any
Subsidiary of the Borrower outstanding or reserved for any purpose. All
outstanding shares of capital stock of each Subsidiary of the Borrower are duly
and validly issued, fully paid and nonassessable. The Borrower is the sole
legal, record and beneficial owner of, and has good and valid title to, all such
capital stock, free and clear of all Liens other than the Liens created pursuant
to the Pledge Agreement.
IV.8. Full Disclosure. All factual information heretofore or
---------------
contemporaneously furnished to the Agent or any Lender in writing by or on
behalf of the Borrower or any of its Subsidiaries for purposes of or in
connection with this Agreement and the transactions contemplated hereby is, and
all other such factual information hereafter furnished to the Agent or any
Lender in writing by or on behalf of the Borrower or any of its Subsidiaries
will be, true and accurate in all material respects on the date as of which such
information is dated or certified (or, if such information has been amended or
supplemented, on the date as of which any such amendment or supplement is dated
or certified) and not made incomplete by omitting to state a material fact
necessary to make the statements contained therein, in light of the
circumstances under which such information was provided, not misleading.
IV.9. Margin Regulations. Neither the Borrower nor any of its
------------------
Subsidiaries is engaged
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principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying Margin Stock. No proceeds of
the Loans will be used, directly or indirectly, to purchase or carry any Margin
Stock (except for purchases by the Borrower of outstanding shares of its capital
stock permitted by SECTION 8.6 and made in compliance with the applicable
provisions of Regulations G, T, U and X), to extend credit for such purpose or
for any other purpose that would violate or be inconsistent with Regulations G,
T, U or X or any provision of the Exchange Act.
IV.10. No Material Adverse Change. There has been no Material Adverse
--------------------------
Change since December 31, 1995, and there exists no event, condition or state of
facts that could reasonably be expected to result in a Material Adverse Change.
IV.11. Financial Matters. (a) The Borrower has heretofore furnished to
-----------------
the Agent copies of (i) the audited consolidated balance sheets of the Borrower
and its Subsidiaries as of December 31, 1995, 1994, and 1993, and the related
statements of income and cash flows for the fiscal years ended December 31, 1995
and 1994 and the nine-month period ended December 31, 1993, together with the
opinion of Ernst & Young thereon, and (ii) the unaudited consolidated balance
sheet of the Borrower and its Subsidiaries as of March 31, 1996, and the related
statements of income and cash flows for the three-month period then ended. Such
financial statements have been prepared in accordance with Generally Accepted
Accounting Principles (subject, with respect to the unaudited financial
statements, to the absence of notes required by Generally Accepted Accounting
Principles and to normal year-end audit adjustments) and present fairly the
financial condition of the Borrower and its Subsidiaries on a consolidated basis
as of the respective dates thereof and the consolidated results of operations of
the Borrower and its Subsidiaries for the respective periods then ended. Except
as fully reflected in the most recent financial statements referred to above and
the notes thereto, there are no material liabilities or obligations with respect
to the Borrower or any of its Subsidiaries of any nature whatsoever (whether
absolute, contingent or otherwise and whether or not due).
(b) Each of the Borrower and its Subsidiaries, after giving effect to the
consummation of the transactions contemplated hereby, (i) will have capital
sufficient to carry on its businesses as conducted and as proposed to be
conducted, (ii) will have assets with a fair saleable value, determined on a
going concern basis, (y) not less than the amount required to pay the probable
liability on its existing debts as they become absolute and matured and (z)
greater than the total amount of its liabilities (including identified
contingent liabilities, valued at the amount that can reasonably be expected to
become absolute and matured), and (iii) will not intend to, and will not believe
that it will, incur debts or liabilities beyond its ability to pay such debts
and liabilities as they mature.
IV.12. Ownership of Properties. Each of the Borrower and its Subsidiaries
-----------------------
(i) has good and marketable title to all real property owned by it, (ii) holds
interests as lessee under valid leases in full force and effect with respect to
all material leased real and personal property used in connection with its
business, (iii) possesses or has rights to use licenses, patents, copyrights,
trademarks, service marks, trade names and other assets sufficient to enable it
to continue to conduct its business substantially as heretofore conducted and
without any material conflict with the rights of others, and (iv) has good title
to all of its other properties and assets reflected in the most recent financial
statements referred to in SECTION 5.11(A) (except as sold or otherwise disposed
of since the date thereof in the ordinary course of business), in each case
under (i), (ii), (iii) and (iv) above free and clear of all Liens other than
Permitted Liens.
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IV.13. ERISA. Each Plan is and has been administered in compliance in
-----
all material respects with all applicable Requirements of Law, including,
without limitation, the applicable provisions of ERISA and the Internal Revenue
Code. No ERISA Event has occurred and is continuing or, to the knowledge of the
Borrower, is reasonably expected to occur with respect to any Plan, in either
case that would be reasonably likely, individually or in the aggregate, to have
a Material Adverse Effect. No Plan has any Unfunded Pension Liability, and
neither the Borrower nor any ERISA Affiliate has engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA, in either instance where
the same would be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect. Neither the Borrower nor any ERISA Affiliate is
required to contribute to or has, or has at any time had, any liability to a
Multiemployer Plan.
IV.14. Environmental Matters. (a) Except as described in SCHEDULE 5.14,
---------------------
no Hazardous Substances are or have been generated, used, located, released,
treated, disposed of or stored by the Borrower or any of its Subsidiaries or, to
the knowledge of the Borrower, by any other Person or otherwise, in, on or under
any portion of any real property, leased or owned, of the Borrower or any of its
Subsidiaries, except in material compliance with all applicable Environmental
Laws, and no portion of any such real property or, to the knowledge of the
Borrower, any other real property at any time leased, owned or operated by the
Borrower or any of its Subsidiaries, has been contaminated by any Hazardous
Substance; and no portion of any real property, leased or owned, of the Borrower
or any of its Subsidiaries has been or, to the knowledge of the Borrower, is
presently the subject of an environmental audit, assessment or remedial action.
(b) To the knowledge of the Borrower, except as described in SCHEDULE 5.14,
(i) no portion of any real property, leased or owned, of the Borrower or any of
its Subsidiaries has been used as or for a mine, a landfill, a dump or other
disposal facility, a gasoline service station, or (other than for petroleum
substances stored in the ordinary course of business) a petroleum products
storage facility, (ii) no portion of such real property or any other real
property at any time leased, owned or operated by the Borrower or any of its
Subsidiaries has, pursuant to any Environmental Law, been placed on the
"National Priorities List" or "CERCLIS List" (or any similar federal, state or
local list) of sites subject to possible environmental problems, and (iii) there
are not and have never been any underground storage tanks situated on any real
property, leased or owned, of the Borrower or any of its Subsidiaries.
(c) All activities and operations of the Borrower and its Subsidiaries are
in compliance with the requirements of all applicable Environmental Laws, except
to the extent the failure so to comply, individually or in the aggregate, would
not be reasonably likely to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries is involved in any suit, action or proceeding, or
has received any notice, complaint or other request for information from any
Governmental Authority or other Person, with respect to any actual or alleged
Environmental Claims that, if adversely determined, would be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect; and, to the
knowledge of the Borrower, there are no threatened actions, suits, proceedings
or investigations with respect to any such Environmental Claims, nor any basis
therefor.
IV.15. Compliance With Laws. Each of the Borrower and its Subsidiaries
--------------------
has timely filed all material reports, documents and other materials required to
be filed by it under
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all applicable Requirements of Law with any Governmental Authority, has retained
all material records and documents required to be retained by it under all
applicable Requirements of Law, and is otherwise in compliance with all
applicable Requirements of Law in respect of the conduct of its business and the
ownership and operation of its properties, except for such Requirements of Law
the failure to comply with which, individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
IV.16. Regulated Industries. Neither the Borrower nor any of its
--------------------
Subsidiaries is (i) an "investment company," a company "controlled" by an
"investment company," or an "investment advisor," within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a "holding company," a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
IV.17. Insurance. SCHEDULE 5.17 sets forth a true and complete summary of
---------
all insurance policies or arrangements carried or maintained by the Borrower and
its Subsidiaries. The assets, properties and business of the Borrower and its
Subsidiaries are insured against such hazards and liabilities, under such
coverages and in such amounts, as are customarily maintained by prudent
companies similarly situated and under policies issued by insurers of recognized
responsibility.
IV.18. Material Contracts. Each Material Contract existing as of the
------------------
Closing Date is (and each Material Contract entered into after the Closing Date,
upon execution and delivery, will be) in full force and effect, and neither the
Borrower nor any of its Subsidiaries or, to the knowledge of the Borrower, any
other party thereto, is in material default under any such Material Contract.
IV.19. Security Documents. The provisions of each of the Security
------------------
Documents (whether executed and delivered prior to or on the Closing Date or
thereafter) are and will be effective to create in favor of the Agent, for the
benefit of the Lenders, upon the initial extension of credit hereunder and the
possession by the Agent of certificates evidencing the securities pledged
thereby, a valid and enforceable first priority perfected security interest in
and Lien upon all right, title and interest of the Borrower and its
Subsidiaries, as applicable, in the Collateral described therein, subject only
to Permitted Liens.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments and all Letters of Credit and the payment in full of all principal
and interest with respect to the Loans and all Reimbursement Obligations
together with all other amounts then due and owing hereunder:
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V.1. Financial Statements. The Borrower will deliver to each Lender:
--------------------
(a) As soon as available and in any event within forty-five (45) days after
the end of each fiscal month, beginning with the fiscal month ended June 30,
1996 and continuing up to and including the fiscal month ending January 5, 1997,
an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as
of the end of such month and unaudited consolidated statements of income and
cash flows for the Borrower and its Subsidiaries for the month then ended and
for that portion of the fiscal year then ended, all prepared in accordance with
Generally Accepted Accounting Principles (subject to the absence of notes
required by Generally Accepted Accounting Principles and subject to normal year-
end audit adjustments) applied on a basis consistent with that of the preceding
month or containing disclosure of the effect on the financial condition or
results of operations of any change in the application of accounting principles
and practices during such month;
(b) As soon as available and in any event within forty-five (45) days after
the end of each of the first three fiscal quarters of each fiscal year,
beginning with the fiscal quarter ended June 30, 1996, an unaudited consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal
quarter and unaudited consolidated statements of income and cash flows for the
Borrower and its Subsidiaries for the fiscal quarter then ended and for that
portion of the fiscal year then ended, in each case setting forth comparative
consolidated figures as of the end of and for the corresponding period in the
preceding fiscal year, all prepared in accordance with Generally Accepted
Accounting Principles (subject to the absence of notes required by Generally
Accepted Accounting Principles and subject to normal year-end audit adjustments)
applied on a basis consistent with that of the preceding quarter or containing
disclosure of the effect on the financial condition or results of operations of
any change in the application of accounting principles and practices during such
quarter; and
(c) As soon as available and in any event within ninety (90) days after the
end of each fiscal year, beginning with the fiscal year ending January 5, 1997,
(i) an audited consolidated balance sheet of the Borrower and its Subsidiaries
as of the end of such fiscal year and audited consolidated statements of income
and cash flows for the Borrower and its Subsidiaries for the fiscal year then
ended, including the applicable notes, in each case setting forth comparative
figures as of the end of and for the preceding fiscal year, certified by the
independent certified public accounting firm regularly retained by the Borrower
or another independent certified public accounting firm of recognized national
standing reasonably acceptable to the Required Lenders, together with (y) a
report thereon by such accountants that is not qualified as to going concern or
scope of audit and to the effect that such financial statements present fairly
the consolidated financial condition and results of operations of the Borrower
and its Subsidiaries as of the dates and for the periods indicated in accordance
with generally accepted accounting principles applied on a basis consistent with
that of the preceding year or containing disclosure of the effect on the
financial position or results of operations of any change in the application of
accounting principles and practices during such year, and (z) a report by such
accountants to the effect that, based on and in connection with their
examination of the financial statements of the Borrower and its Subsidiaries,
they obtained no knowledge of the occurrence or existence of any Default or
Event of Default relating to accounting or financial reporting matters, or a
statement specifying the nature and period of existence of any such Default or
Event of Default disclosed by their audit; provided, however, that such
-------- -------
accountants shall not be liable by reason of the failure to obtain knowledge of
any Default or Event of Default that would not be disclosed or revealed in the
course of their audit examination, and (ii) an unaudited consolidating balance
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sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and
unaudited consolidating statements of income and cash flows for the Borrower and
its Subsidiaries for the fiscal year then ended, all in reasonable detail.
V.2. Other Business and Financial Information. The Borrower will deliver to
each Lender:
(a) Concurrently with each delivery of the financial statements described
in SECTION 6.1, a Compliance Certificate in the form of EXHIBIT D with respect
to the period covered by the financial statements then being delivered, executed
by the chief financial officer of the Borrower, together with a Covenant
Compliance Worksheet reflecting the computation of the Acquisition covenants set
forth in clauses (ii) and (iii) of SECTION 6.9(A) and the financial covenants
set forth in SECTIONS 7.1 through 7.5 as of the last day of the period covered
by such financial statements;
(b) As soon as available and in any event within thirty (30) days prior to
the end of each fiscal year, beginning with the fiscal year ending January 5,
1997, a consolidated operating budget for the Borrower and its Subsidiaries for
the succeeding fiscal year (prepared on a quarterly basis), consisting of a
consolidated balance sheet and consolidated statements of income and cash flows,
together with a certificate of the chief financial officer of the Borrower to
the effect that such budgets have been prepared in good faith and are reasonable
estimates of the financial position and results of operations of the Borrower
and its Subsidiaries for the period covered thereby;
(c) Promptly upon receipt thereof, copies of any "management letter"
submitted to the Borrower or any of its Subsidiaries by its certified public
accountants in connection with each annual, interim or special audit, and
promptly upon completion thereof, any response reports from the Borrower or any
such Subsidiary in respect thereof;
(d) Promptly upon the sending, filing or receipt thereof, copies of (i) all
financial statements, reports, notices and proxy statements that the Borrower or
any of its Subsidiaries shall send or make available generally to its
shareholders, and (ii) all regular, periodic and special reports, registration
statements and prospectuses (other than on Form S-8) that the Borrower or any of
its Subsidiaries shall render to or file with the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. or any national
securities exchange;
(e) Promptly upon (and in any event within ten (10) Business Days after) any
Responsible Officer of the Borrower obtaining knowledge thereof, written notice
of any of the following:
(i) the occurrence of any Default or Event of Default, together
with a written statement of the chief executive officer or chief financial
officer of the Borrower specifying the nature of such Default or Event of
Default, the period of existence thereof and the action that the Borrower
has taken and proposes to take with respect thereto;
(ii) the institution or threatened institution of any action,
suit, investigation or proceeding against or affecting the Borrower or any
of its Subsidiaries, including any such investigation or proceeding by any
Governmental Authority (other than routine periodic inquiries,
investigations or reviews), that would, if adversely determined, be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect, and any material development in any litigation or other
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proceeding previously reported pursuant to SECTION 5.5 or this SECTION
6.3(E)(II);
(iii) the receipt by the Borrower or any of its Subsidiaries
from any Governmental Authority of (i) any notice asserting any failure by
the Borrower or any of its Subsidiaries to be in compliance with applicable
Requirements of Law or that threatens the taking of any action against the
Borrower or such Subsidiary or sets forth circumstances that, if taken or
adversely determined, would be reasonably likely to have a Material Adverse
Effect, or (ii) any notice of any actual or threatened suspension,
limitation or revocation of, failure to renew, or imposition of any
restraining order, escrow or impoundment of funds in connection with, any
license, permit, accreditation or authorization of the Borrower or any of
its Subsidiaries, where such action would be reasonably likely to have a
Material Adverse Effect;
(iv) the occurrence of any ERISA Event, together with (i) a
written statement of the chief executive officer or chief financial officer
of the Borrower specifying the details of such ERISA Event and the action
that the Borrower has taken and proposes to take with respect thereto, (ii)
a copy of any notice with respect to such ERISA Event that may be required
to be filed with the PBGC and (iii) a copy of any notice delivered by the
PBGC to the Borrower or such ERISA Affiliate with respect to such ERISA
Event;
(v) the occurrence of any material default under, or any proposed
or threatened termination or cancellation of, any Material Contract to
which the Borrower or any of its Subsidiaries is a party, the termination
or cancellation of which would be reasonably likely to have a Material
Adverse Effect;
(vi) the occurrence of any of the following: (i) the assertion of
any Environmental Claim against or affecting the Borrower, any of its
Subsidiaries or any of their respective real property, leased or owned;
(ii) the receipt by the Borrower or any of its Subsidiaries of notice of
any alleged violation of or noncompliance with any Environmental Laws; or
(iii) the taking of any remedial action by the Borrower, any of its
Subsidiaries or any other Person in response to the actual or alleged
generation, storage, release, disposal or discharge of any Hazardous
Substances on, to, upon or from any real property leased or owned by the
Borrower or any of its Subsidiaries; but in each case under clauses (i),
(ii) and (iii) above, only to the extent the same would be reasonably
likely to have a Material Adverse Effect; and
(vii) any other matter or event that has, or would be
reasonably likely to have, a Material Adverse Effect, together with a
written statement of the chief executive officer or chief financial officer
of the Borrower setting forth the nature and period of existence thereof
and the action that the Borrower has taken and proposes to take with
respect thereto; and
(f) As promptly as reasonably possible, such other information about the
business, condition (financial or otherwise), operations or properties of the
Borrower or any of its Subsidiaries (including any Plan and any information
required to be filed under ERISA, and including any statements, audits or other
reports submitted by or on behalf of the Borrower or any of its Subsidiaries to
any state Governmental Authority) as the Agent or any Lender may from time to
time reasonably request.
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V.3. Corporate Existence; Franchises; Maintenance of Properties.
----------------------------------------------------------
The Borrower will, and will cause each of its Subsidiaries (other than
Immaterial Subsidiaries) to, (i) maintain and preserve in full force and effect
its corporate existence, except as expressly permitted otherwise by SECTION 8.1,
(ii) obtain, maintain and preserve in full force and effect all other rights,
franchises, licenses, permits, certifications, approvals and authorizations
required by Governmental Authorities and necessary to the ownership, occupation
or use of its properties or the conduct of its business, except to the extent
the failure to do so would not be reasonably likely to have a Material Adverse
Effect, and (iii) keep all material properties in good working order and
condition (normal wear and tear excepted) and from time to time make all
necessary repairs to and renewals and replacements of such properties, except to
the extent that any of such properties are obsolete or are being replaced.
V.4. Compliance with Laws. The Borrower will, and will cause each of its
--------------------
Subsidiaries to, comply in all respects with all Requirements of Law applicable
in respect of the conduct of its business and the ownership and operation of its
properties, except to the extent the failure so to comply would not be
reasonably likely to have a Material Adverse Effect.
V.5. Payment of Obligations. The Borrower will, and will cause each of its
----------------------
Subsidiaries to, (i) pay all liabilities and obligations as and when due
(subject to any applicable subordination provisions), except to the extent
failure to do so would not be reasonably likely to have a Material Adverse
Effect, and (ii) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it, upon its income or profits or upon any of its
properties, prior to the date on which penalties would attach thereto, and all
lawful claims that, if unpaid, might become a Lien upon any of the properties of
the Borrower or any of its Subsidiaries; provided, however, that neither the
-------- -------
Borrower nor any of its Subsidiaries shall be required to pay any such tax,
assessment, charge, levy or claim that is being contested in good faith and by
proper proceedings and as to which the Borrower or such Subsidiary is
maintaining adequate reserves with respect thereto in accordance with Generally
Accepted Accounting Principles.
V.6. Insurance. The Borrower will, and will cause each of its Subsidiaries
---------
to, maintain with financially sound and reputable insurance companies insurance
with respect to its assets, properties and business, against such hazards and
liabilities, of such types and in such amounts, as is customarily maintained by
companies in the same or similar businesses similarly situated.
V.7. Maintenance of Books and Records; Inspection. The Borrower will,
--------------------------------------------
and will cause each of its Subsidiaries to, (i) maintain adequate books,
accounts and records, in which full, true and correct entries shall be made of
all financial transactions in relation to its business and properties, and
prepare all financial statements required under this Agreement, in each case in
accordance with Generally Accepted Accounting Principles and in compliance with
the requirements of any Governmental Authority having jurisdiction over it, and
(ii) permit employees or agents of the Agent or any Lender to inspect its
properties and examine or audit its books, records, working papers and accounts
and make copies and memoranda of them, and to discuss its affairs, finances and
accounts with its officers and employees and, upon notice to the Borrower, the
independent public accountants of the Borrower and its Subsidiaries (and by this
provision the Borrower authorizes such accountants to discuss the finances and
affairs of the Borrower and its Subsidiaries), all at such times and from time
to time, upon reasonable notice and during business hours, as may be reasonably
requested.
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V.8. Interest Rate Protection. At March 31, 1997, the Borrower shall have
------------------------
entered into or obtained, and the Borrower will thereafter maintain in full
force and effect, Hedge Agreements in form and substance reasonably satisfactory
to the Agent the effect of which shall be to fix or limit interest rates payable
by the Borrower as to at least fifty percent (50%) of all principal amounts
outstanding at such date under all Funded Debt of the Borrower and its
Subsidiaries for a period of not less than three (3) years after such date. The
Borrower will deliver to the Agent, promptly upon receipt thereof, copies of
such Hedge Agreements (and any supplements or amendments thereto), and promptly
upon request therefor, any other information reasonably requested by the Agent
to evidence its compliance with the provisions of this Section.
V.9. Permitted Acquisitions. (a) Subject to the provisions of subsection
----------------------
(c) below and the requirements contained in the definition of Allowed
Acquisition, and subject to the other terms and conditions of this Agreement,
the Borrower may from time to time on or after the Closing Date effect Allowed
Acquisitions, provided that, with respect to each Allowed Acquisition:
--------
(i) no Default or Event of Default shall have occurred and be
continuing at the time of the consummation of such Allowed Acquisition or
would exist immediately after giving effect thereto;
(ii) To the extent payable in cash, the Acquisition Amount with
respect thereto, together with the aggregate of the Acquisition Amounts (to
the extent paid or payable in cash) for all other Allowed Acquisitions
consummated during the same Reference Period, shall not exceed $75,000,000;
and
(iii) the Acquisition Amount with respect thereto (regardless
of the form of consideration) (y) shall not exceed $15,000,000, and (z)
together with the aggregate of the Acquisition Amounts (regardless of the
form of consideration) for all other Allowed Acquisitions consummated
during the same Reference Period, shall not exceed $95,000,000;
and provided further that, for purposes of determining compliance with the
-------- -------
limitations set forth in clauses (ii) and (iii) above, the Acquisitions of Home
Vision Entertainment, Inc. and Hollywood Video, Inc. (together with any other
Acquisitions consummated prior to the Closing Date) shall be excluded.
(b) Subject to the terms and conditions of this Agreement and any
additional terms and conditions that may be specified by the Agent or the
Required Lenders, the Borrower may from time to time after the Closing Date
effect Acquisitions that are not Allowed Acquisitions, but in each instance only
with the prior written consent of the Required Lenders.
(c) Not less than five (5) Business Days after the consummation of any
Allowed Acquisition with respect to which the Acquisition Amount exceeds
$5,000,000, the Borrower shall have delivered to the Agent and each Lender a
summary description of the material terms of such Allowed Acquisition
(including, without limitation, the purchase price and method and structure of
payment) and of each Person or business that is the subject of such Allowed
Acquisition, together with summary financial information (including statements
of revenues and cash flows) with respect to each such acquired Person or
business.
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(d) The consummation of each Permitted Acquisition shall be deemed to be a
representation and warranty by the Borrower that (except as shall have been
approved in writing by the Required Lenders) all conditions thereto set forth in
this SECTION 6.9 and in the description furnished under subsection (c) above
have been satisfied and that the same is permitted in accordance with the terms
of this Agreement, which representation and warranty shall be deemed to be a
representation and warranty as of the date thereof for all purposes hereunder,
including, without limitation, for purposes of SECTIONS 4.2 and 9.1.
(e) The Borrower will furnish to the Agent and the Lenders such other
information regarding any Allowed Acquisition and the assets, business or
Persons that are the subject thereof as the Agent or any Lender may from time to
time reasonably request (it being understood that the provisions of this
subsection (e) shall not be deemed to limit or restrict the ability of the
Borrower to consummate Allowed Acquisitions subject to the other provisions of
this SECTION 6.9 and subject to the other terms and conditions of this
Agreement).
V.10. Creation or Acquisition of Subsidiaries. Subject to the provisions of
---------------------------------------
SECTION 8.5, the Borrower may from time to time create or acquire new Wholly
Owned Subsidiaries in connection with Permitted Acquisitions or otherwise,
and the Wholly Owned Subsidiaries of the Borrower may create or
acquire new Wholly Owned Subsidiaries, provided that neither the aggregate fair
--------
market value at any time of the assets of all Subsidiaries that are Immaterial
Subsidiaries at such time, nor the aggregate gross revenues (determined for the
most recently ended period of twelve consecutive fiscal months) of all
Subsidiaries that are Immaterial Subsidiaries at such time, shall exceed
$1,000,000, and provided further that:
-------- -------
(a) Promptly (and in any event within fifteen (15) Business Days) after the
creation or direct or indirect acquisition by the Borrower of any such new
Wholly Owned Subsidiary (or, if such new Subsidiary is an Immaterial Subsidiary
when so created or acquired, promptly (and in any event within fifteen (15)
Business Days) after such new Subsidiary ceases to be an Immaterial Subsidiary),
such new Subsidiary will execute and deliver to the Agent a supplement or
joinder to the Guaranty, pursuant to which such new Subsidiary shall become a
guarantor thereunder;
(b) Promptly (and in any event within fifteen (15) Business Days) after the
creation or acquisition of any new Wholly Owned Subsidiary the capital stock or
other ownership interests of which are directly owned by the Borrower (or, if
such new Subsidiary is an Immaterial Subsidiary when so created or acquired,
promptly (and in any event within fifteen (15) Business Days) after such new
Subsidiary ceases to be an Immaterial Subsidiary), the Borrower will execute and
deliver to the Agent an amendment or supplement to the Pledge Agreement pursuant
to which all of the capital stock or other ownership interests of such new
Subsidiary and any promissory notes from such new Subsidiary to the Borrower
shall be pledged to the Agent, together with the certificates, if any,
evidencing such capital stock or other ownership interests and undated stock
powers duly executed in blank and any such promissory notes duly endorsed in
blank; and concurrently with the creation or acquisition of any new Wholly Owned
Subsidiary the capital stock or other ownership interests of which are directly
owned by another Wholly Owned Subsidiary (the "Parent Subsidiary") of the
Borrower (or, if such new Subsidiary is an Immaterial Subsidiary when so created
or acquired, promptly (and in any event within fifteen (15) Business Days) after
such new Subsidiary ceases to be an Immaterial Subsidiary), the Parent
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Subsidiary will execute and deliver to the Agent a pledge agreement, in form and
substance substantially identical to the Pledge Agreement, pursuant to which all
of the capital stock or other ownership interests of such new Subsidiary and any
promissory notes from such new Subsidiary to the Parent Subsidiary shall be
pledged to the Agent, together with the certificates, if any, evidencing such
capital stock or other ownership interests and undated stock powers duly
executed in blank and any such promissory notes duly endorsed in blank; and
(c) As promptly as reasonably possible, the Borrower and its Subsidiaries
will deliver any such other documents, certificates and opinions (including
opinions of local counsel in the jurisdiction of organization of each such new
Subsidiary), in form and substance reasonably satisfactory to the Agent, as the
Agent may reasonably request in connection therewith and will take such other
action as the Agent may reasonably request to create in favor of the Agent a
perfected security interest therein.
V.11. Liquidating Subsidiaries. The Borrower will, within thirty (30) days
------------------------
after the Closing Date, cause each of the Subsidiaries listed on SCHEDULE 6.11
(collectively, the "Liquidating Subsidiaries") to be merged with and into
M.G.A., or alternatively to be dissolved and liquidated with its assets
distributed to M.G.A., in accordance with applicable Requirements of Law, and
will promptly deliver to the Agent appropriate evidence thereof (including
copies of all filed articles of merger or dissolution, bills of sale and other
instruments effecting the foregoing). Without limitation of the foregoing, in
the event that any such Liquidating Subsidiary is not so merged or dissolved and
liquidated within thirty (30) days after the Closing Date (provided that such
--------
Liquidating Subsidiary is not an Immaterial Subsidiary), the Borrower (i) will
promptly cause such Liquidating Subsidiary to execute and deliver to the Agent a
supplement or joinder to the Guaranty, pursuant to which such Liquidating
Subsidiary shall become a guarantor thereunder, (ii) will, or will cause the
applicable Parent Subsidiary to, execute and deliver to the Agent an amendment
or supplement to the Pledge Agreement or a new pledge agreement, as applicable,
pursuant to which all of the capital stock or other ownership interests of such
Liquidating Subsidiary and any promissory notes from such Liquidating Subsidiary
to the Borrower or such Parent Subsidiary, as applicable, shall be pledged to
the Agent, together with the certificates, if any, evidencing such capital stock
or other ownership interests and undated stock powers duly executed in blank and
any such promissory notes duly endorsed in blank, and (iii) will, and will cause
such Liquidating Subsidiary to, deliver any such other documents, certificates
and opinions (including opinions of local counsel in the jurisdiction of
organization of each such Liquidating Subsidiary), in form and substance
reasonably satisfactory to the Agent, as the Agent may reasonably request in
connection therewith.
V.12. Movie Time, Inc. Within six (6) months after the Closing Date, and
---------------
at all times thereafter, the aggregate amount payable to Movie Time under its
licensing agreements and arrangements or otherwise during any succeeding twelve-
fiscal month period shall not exceed $100,000; and at all times from and after
the Closing Date, the Borrower shall not cause or permit Movie Time to engage in
any business or take any action other than as shall be necessary to maintain and
wind down its existing licensing arrangements .
V.13. Further Assurances. The Borrower will, and will cause each of its
------------------
Subsidiaries to, make, execute, endorse, acknowledge and deliver any amendments,
modifications or supplements hereto and restatements hereof and any other
agreements, instruments or documents, and take any and all such other actions,
as may from time to time be reasonably requested by the Agent or the Required
Lenders to perfect and maintain the validity and priority of the Liens granted
pursuant to the Security
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Documents and to effect, confirm or further assure or protect and preserve the
interests, rights and remedies of the Agent and the Lenders under this Agreement
and the other Credit Documents.
ARTICLE VI
FINANCIAL COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments and all Letters of Credit and the payment in full of all principal
and interest with respect to the Loans and all Reimbursement Obligations
together with all other amounts then due and owing hereunder:
VI.1. Leverage Ratio. (a) The Borrower will not permit the Leverage Ratio
--------------
as of the last day of any fiscal month during the periods set forth below to be
greater than the ratio set forth below opposite such period:
Date Leverage Ratio
- ---- --------------
June 30, 1996 through
August 4, 1996 3.6 : 1.0
August 5, 1996 through
September 1, 1996 3.55 : 1.0
September 2, 1996 through
September 29, 1996 3.45 : 1.0
September 30, 1996 through
November 3, 1996 3.25 : 1.0
November 4, 1996 through
December 1, 1996 3.15 : 1.0
December 2, 1996 through
January 5, 1997 3.1 : 1.0
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(b) The Borrower will not permit the Leverage Ratio as of the last day of any
fiscal quarter during the periods set forth below to be greater than the ratio
set forth below opposite such period:
<TABLE>
<CAPTION>
Date Leverage Ratio
---- --------------
<S> <C>
January 6, 1997 through
April 6, 1997 3.05 : 1.0
April 7, 1997 through
October 5, 1997 2.85 : 1.0
October 6, 1997 through
July 5, 1998 2.65 : 1.0
July 6, 1998 through
October 4, 1998 2.45 : 1.0
October 5, 1998 through
April 4, 1999 2.2 : 1.0
Thereafter 1.8 : 1.0
</TABLE>
VI.2. Interest Coverage Ratio. (a) The Borrower will not permit the
-----------------------
Interest Coverage Ratio as of the last day of any fiscal month, beginning with
the fiscal month ended June 30, 1996 and continuing up to and including the
fiscal month ending January 5, 1997, to be less than 2.5 : 1.0.
(b) The Borrower will not permit the Interest Coverage Ratio as of the last
day of any fiscal quarter during the periods set forth below to be less than the
ratio set forth below opposite such period:
Date Interest Coverage Ratio
---- -----------------------
April 6, 1997 through
October 5, 1997 2.5 : 1.0
Thereafter 3.0 : 1.0
VI.3. Fixed Charge Coverage Ratio. (a) The Borrower will not permit
---------------------------
the Fixed Charge Coverage Ratio as of the last day of any fiscal month,
beginning with the fiscal month ended June 30, 1996 and continuing up to and
including the fiscal month ending January 5, 1997, to be less than 1.125 : 1.0.
(b) The Borrower will not permit the Fixed Charge Coverage Ratio as of the
last day of any fiscal quarter during the periods set forth below to be less
than the ratio set forth below opposite such period:
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<PAGE>
Date Fixed Charge Coverage Ratio
---- ---------------------------
April 6, 1997 through
July 6, 1997 1.125 : 1.0
Thereafter 1.2 : 1.0
VI.4. Consolidated Net Worth. The Borrower will not permit Consolidated Net
----------------------
Worth:
(i) As of the last day of any fiscal month, up to and including
the fiscal month ending January 5, 1997, to be less than the sum of (i)
$130,000,000, plus (ii) 75% of the aggregate of Consolidated Net Income for
----
each fiscal month ending after March 31, 1996 (provided that Consolidated
--------
Net Income for any such fiscal month shall be taken into account for
purposes of this calculation only if positive), plus (iii) 100% of the
----
aggregate amount of all increases in the stated capital and additional
paid-in capital accounts of the Borrower and its Subsidiaries, as
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles, resulting from the issuance of equity securities
(including pursuant to the exercise of options, rights or warrants or
pursuant to the conversion of convertible securities) or other capital
investments after March 31, 1996; and
(ii) As of the last day of any fiscal quarter, beginning with the
fiscal quarter ending April 6, 1997, to be less than the sum of (i)
$130,000,000, plus (ii) 75% of the aggregate of Consolidated Net Income for
----
each fiscal quarter ending after March 31, 1996 (provided that Consolidated
--------
Net Income for any such fiscal quarter shall be taken into account for
purposes of this calculation only if positive), plus (iii) 100% of the
----
aggregate amount of all increases in the stated capital and additional
paid-in capital accounts of the Borrower and its Subsidiaries, as
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles, resulting from the issuance of equity securities
(including pursuant to the exercise of options, rights or warrants or
pursuant to the conversion of convertible securities) or other capital
investments after March 31, 1996.
VI.5. Capital Expenditures. (a) The Borrower will not permit Capital
--------------------
Expenditures during the Reference Period ending on the last day of any fiscal
month, beginning with the fiscal month ended June 30, 1996 and continuing up to
and including the fiscal month ending January 5, 1997, to be greater than
$22,500,000.
(b) The Borrower will not permit Capital Expenditures during the Reference
Period ending on the last day of any fiscal quarter during the periods set forth
below to be greater than the sum of (i) the amount set forth below opposite such
period plus (ii) fifty percent (50%) of the excess, if any, of the amount set
----
forth below applicable to the immediately preceding Reference Period (without
giving effect to any carryover from any prior Reference Period) over the actual
amount of Capital Expenditures for such immediately preceding Reference Period:
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<PAGE>
<TABLE>
<CAPTION>
Period Amount
------ -------
<S> <C>
January 6, 1997 through
January 4, 1998 $23,500,000
January 5, 1998 through
January 3, 1999 $32,000,000
January 4, 1999 through
January 2, 2000 $41,000,000
January 3, 2000 through
July 2, 2000 $49,000,000
</TABLE>
ARTICLE VII
NEGATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the
Commitments and all Letters of Credit and the payment in full of all principal
and interest with respect to the Loans and all Reimbursement Obligations
together with all other amounts then due and owing hereunder:
VII.1. Merger; Consolidation. The Borrower will not, and will not permit
---------------------
or cause any of its Subsidiaries to, liquidate, wind up or dissolve, or enter
into any consolidation, merger or other combination, or agree to do any of the
foregoing; provided, however, that:
(i) the Borrower shall cause the Liquidating Subsidiaries to be
liquidated and wound up or merged in accordance with the provisions of
SECTION 6.11;
(ii) the Borrower may merge or consolidate with another Person so
long as (x) the Borrower is the surviving corporation, (y) if such merger
or consolidation is in connection with a Permitted Acquisition, the
applicable conditions of SECTION 6.9 shall be satisfied and (z) immediately
after giving effect thereto, no Default or Event of Default would exist;
and
(iii) any Subsidiary may merge or consolidate with another
Person so long as (x) the surviving corporation is the Borrower or a Wholly
Owned Subsidiary, (y) if such merger or consolidation is in connection with
a Permitted Acquisition, the applicable conditions of SECTIONS 6.9 and 6.10
shall be satisfied and (z) immediately after giving effect thereto, no
Default or Event of Default would exist.
VII.2. Indebtedness. The Borrower will not, and will not permit or cause
------------
any of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness other than:
(i) Indebtedness incurred under this Agreement;
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(ii) Indebtedness existing on the Closing Date and described on
SCHEDULE 8.2;
(iii) unsecured Indebtedness of the Borrower and its
Subsidiaries that is expressly subordinated and made junior to the payment
and performance in full of the Obligations, that is evidenced by one or
more written agreements or instruments the terms, conditions and provisions
(including, without limitation, subordination provisions) of which are
satisfactory in form and substance to the Required Lenders in their sole
discretion, and that, at a minimum and without limitation, (1) bears a
stated maturity date not less than two and one-half years after the
Maturity Date, (2) does not by its terms provide for any scheduled payments
of principal, and does not otherwise require any payments of principal
under any circumstances (other than pursuant to acceleration upon default),
to be made at any time prior to one year after the Maturity Date, and (3)
is evidenced by agreements and instruments that, in the aggregate for each
transaction creating such Indebtedness, impose upon the Borrower and its
Subsidiaries covenants and undertakings that are, in the judgment of the
Required Lenders, materially less restrictive than those set forth in this
Agreement (the Indebtedness described in this clause (iii), "Subordinated
Indebtedness"), provided that, prior to the incurrence of any Subordinated
--------
Indebtedness, (y) all agreements and instruments evidencing such
Subordinated Indebtedness shall have been approved in writing by the
Required Lenders (or the Agent with their approval and on their behalf),
and (z) the Borrower shall have delivered to each Lender a certificate,
signed by its chief financial officer, satisfactory in form and substance
to the Required Lenders and to the effect that, after giving effect to the
incurrence of such Subordinated Indebtedness, the Borrower is in compliance
with the financial covenants set forth in SECTIONS 7.1 through 7.5, such
compliance determined with regard to calculations made on a pro forma basis
in accordance with Generally Accepted Accounting Principles as of the last
day of the fiscal quarter then most recently ended and as if such
Subordinated Indebtedness had been incurred on the first day of the period
applicable to such covenants (such calculations to be attached to such
certificate);
(iv) Indebtedness of the Borrower under Hedge Agreements required
pursuant to SECTION 6.8;
(v) accrued expenses, current trade or other accounts payable and
other current liabilities arising in the ordinary course of business and
not incurred through the borrowing of money, provided that the same shall
be paid when due except to the extent being contested in good faith and by
appropriate proceedings;
(vi) Indebtedness under letters of credit (other than Letters of
Credit issued pursuant to ARTICLE III) issued for the benefit of the
Borrower and its Subsidiaries incurred in the ordinary course of business,
in an aggregate amount (whether drawn or available to be drawn thereunder)
not exceeding $1,000,000 at any time outstanding; and
(vii) Indebtedness (other than Indebtedness specified in
clauses (i) through (vi) above) that shall not at any time, when combined
with the aggregate amount of all Indebtedness incurred under clause (vi)
above outstanding at such time, exceed $15,000,000 in aggregate principal
amount outstanding at such time (which Indebtedness under this clause (vi)
shall include, without limitation, any Indebtedness of the Borrower and its
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Subsidiaries of the type described in, and secured by Liens of the types
described in, clause (vi) of SECTION 8.3).
VII.3. Liens. The Borrower will not, and will not permit or cause any
-----
of its Subsidiaries to, directly or indirectly, make, create, incur, assume or
suffer to exist, or enter into or suffer to exist any agreement or restriction
that prohibits or conditions the creation, incurrence or assumption of, any Lien
upon or with respect to any part of its property or assets, whether now owned or
hereafter acquired, or agree to do any of the foregoing, other than the
following (collectively, "Permitted Liens"):
(i) Liens created under the Security Documents;
(ii) Liens in existence on the Closing Date and set forth on
SCHEDULE 8.3;
(iii) Liens imposed by law, such as Liens of carriers,
warehousemen, mechanics, materialmen and landlords, and other similar Liens
incurred in the ordinary course of business for sums not constituting
borrowed money that are not overdue for a period of more than thirty (30)
days or that are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with
Generally Accepted Accounting Principles;
(iv) Liens (other than any Lien imposed by ERISA, the creation or
incurrence of which would result in an Event of Default under SECTION
9.1(J)) incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure the performance of letters
of credit, bids, tenders, statutory obligations, surety and appeal bonds,
leases, government contracts and other similar obligations (other than
obligations for borrowed money) entered into in the ordinary course of
business;
(v) Liens for taxes, assessments or other governmental charges or
statutory obligations that are not delinquent or remain payable without any
penalty or that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established in
accordance with Generally Accepted Accounting Principles;
(vi) Purchase money Liens upon property used by the Borrower or
any of its Subsidiaries in the ordinary course of its business, securing
Indebtedness incurred solely to pay all or a portion of the purchase price
thereof (including in connection with capital leases), provided that the
--------
aggregate principal amount at any time outstanding of all Indebtedness
secured by such Liens, when taken together with all other Indebtedness of
the Borrower and its Subsidiaries incurred subject to the limitation set
forth in clause (vii) of SECTION 8.2, does not exceed the dollar amount set
forth in such clause, and provided further that any such Lien (i) shall
-------- -------
attach to such property concurrently with or within ten (10) days after the
acquisition thereof by the Borrower or such Subsidiary, (ii) shall not
exceed the lesser of (y) the fair market value of such property or (z) the
cost thereof to the Borrower or such Subsidiary and (iii) shall not
encumber any other property of the Borrower or any of its Subsidiaries;
(vii) Liens on Borrower Margin Stock, to the extent the fair
market value thereof exceeds 25% of the fair market value of the assets of
the Borrower and its Subsidiaries (including Borrower Margin Stock);
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<PAGE>
(viii) With respect to any real property occupied by the
Borrower or any of its Subsidiaries, all easements, rights of way, licenses
and similar encumbrances on title that do not materially impair the use of
such property for its intended purposes; and
(ix) Liens in favor of the trustee or agent under any agreement
or indenture relating to Subordinated Indebtedness of the Borrower and its
Subsidiaries permitted under this Agreement, covering sums required to be
deposited with such trustee or agent thereunder.
VII.4. Disposition of Assets. The Borrower will not, and will not permit or
---------------------
cause any of its Subsidiaries to, sell, assign, lease, convey, transfer or
otherwise dispose of (whether in one or a series of transactions) all or any
portion of its assets, business or properties, or enter into any arrangement
with any Person providing for the lease by the Borrower or any Subsidiary as
lessee of any asset that has been sold or transferred by the Borrower or such
Subsidiary to such Person, or agree to do any of the foregoing, except for:
(i) sales of inventory (including rental tapes) in the ordinary
course of business;
(ii) the sale or exchange of used or obsolete equipment to the
extent (y) the proceeds of such sale are applied towards, or such equipment
is exchanged for, similar replacement equipment or (z) such equipment is no
longer necessary for the operations of the Borrower or its applicable
Subsidiary in the ordinary course of business;
(iii) the sale or other disposition by the Borrower and its
Subsidiaries of any Borrower Margin Stock to the extent the fair market
value thereof exceeds 25% of the fair market value of the assets of the
Borrower and its Subsidiaries (including Borrower Margin Stock), provided
--------
that fair value is received in exchange therefor;
(iv) the sale, lease or other disposition of assets by a
Subsidiary of the Borrower to the Borrower or to another Wholly Owned
Subsidiary if, immediately after giving effect thereto, no Default or Event
of Default would exist; and
(v) the sale or disposition of assets outside the ordinary course
of business for cash, provided that (w) the Net Cash Proceeds from such
--------
sales or dispositions do not exceed $5,000,000 in the aggregate for the
Borrower and its Subsidiaries during any fiscal year, (x) to the extent not
theretofore expended to acquire assets or properties or otherwise
reinvested in its businesses of the Borrower, such Net Cash Proceeds are
delivered to the Agent within ninety (90) days after receipt thereof for
application in prepayment of the Loans in accordance with the provisions of
SECTION 2.6(F), (y) in no event shall the Borrower or any of its
Subsidiaries sell or otherwise dispose of any of the capital stock or other
ownership interests of any Subsidiary (other than the Liquidating
Subsidiaries in accordance with SECTION 6.11, and other than Immaterial
Subsidiaries), and (z) immediately after giving effect thereto, no Default
or Event of Default would exist.
VII.5. Investments. The Borrower will not, and will not permit or cause
-----------
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<PAGE>
any of its Subsidiaries to, directly or indirectly, purchase, own, invest in or
otherwise acquire any capital stock, evidence of indebtedness or other
obligation or security or any interest whatsoever in any other Person, or make
or permit to exist any loans, advances or extensions of credit to, or any
investment in cash or by delivery of property in, any other Person, or purchase
or otherwise acquire (whether in one or a series of related transactions) any
portion of the assets, business or properties of another Person (including
pursuant to an Acquisition), or become a partner or joint venturer in any
partnership or joint venture (collectively, "Investments"), or make a commitment
or otherwise agree to do any of the foregoing, other than:
(i) Cash Equivalents;
(ii) purchases and acquisitions of inventory, supplies, materials
and equipment in the ordinary course of business;
(iii) Investments consisting of loans and advances to
employees for reasonable travel, relocation and business expenses in the
ordinary course of business or prepaid expenses incurred in the ordinary
course of business;
(iv) Without duplication, Investments consisting of Indebtedness
permitted under SECTION 8.2;
(v) Investments existing on the Closing Date and described in
SCHEDULE 8.5;
(vi) Investments in connection with Permitted Acquisitions with
respect to which the conditions and requirements of SECTION 6.9 have been
satisfied;
(vii) Investments in existing Subsidiaries and in newly
created or acquired Subsidiaries with respect to which the applicable
conditions and requirements of SECTIONS 6.9 and 6.10 have been satisfied;
(viii) Investments (other than Investments specified in
clauses (i) through (vii) above) in an aggregate amount that, when combined
with the aggregate amount of all stock acquisitions made by the Borrower
pursuant to clause (iii) of SECTION 8.6, shall not exceed $5,000,000 for
all such Investments and acquisitions from and after the Closing Date; and
(ix) any other Investments that may be approved in writing by the
Required Lenders from time to time.
VII.6. Restricted Payments. (a) The Borrower will not, and will not permit
-------------------
or cause any of its Subsidiaries to, directly or indirectly, declare or make any
dividend payment, or make any other distribution of cash, property or assets, in
respect of any of its capital stock or any warrants, rights or options to
acquire its capital stock, or purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or any warrants, rights or options to
acquire its capital stock, or set aside funds for any of the foregoing, except
that:
(i) the Borrower may declare and make dividend payments or other
distributions payable solely in its common stock;
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(ii) each Wholly Owned Subsidiary of the Borrower may declare and
make dividend payments or other distributions to the Borrower or another
Wholly Owned Subsidiary of the Borrower, to the extent not prohibited under
applicable Requirements of Law; and
(iii) the Borrower may purchase, redeem, retire or otherwise
acquire shares of its capital stock in an aggregate amount that, when
combined with the aggregate amount of all Investments made by the Borrower
and its Subsidiaries pursuant to clause (viii) of SECTION 8.5, shall not
exceed $5,000,000 for all such Investments and acquisitions from and after
the Closing Date.
(b) The Borrower will not, and will not permit or cause any of its
Subsidiaries to, make (or give any notice in respect of) any voluntary or
optional payment or prepayment of principal on any Subordinated Indebtedness or,
directly or indirectly, make any redemption (including pursuant to any change of
control provision), retirement, defeasance or other acquisition for value of any
Subordinated Indebtedness, or make any deposit or otherwise set aside funds for
any of the foregoing purposes.
VII.7. Transactions with Affiliates. The Borrower will not, and will not
----------------------------
permit or cause any of its Subsidiaries to, enter into any transaction with any
officer, director, stockholder or other Affiliate of the Borrower or any
Subsidiary, except in the ordinary course of its business and upon fair and
reasonable terms that are no less favorable to it than would obtain in a
comparable arm's length transaction with a Person other than an Affiliate of the
Borrower or such Subsidiary; provided, however, that nothing contained in this
--------
Section shall prohibit:
(i) transactions described on SCHEDULE 8.7 or otherwise expressly
permitted hereunder, provided that the terms of any agreement or
--------
arrangement relating to any of the transactions described on SCHEDULE 8.7
are not, at any time from and after the Closing Date, materially less
favorable to the Borrower and its Subsidiaries than the terms of such
agreement or arrangement as in effect during the period with regard to
which such agreement or arrangement is described on SCHEDULE 8.7; and
(ii) the payment by the Borrower of reasonable and customary fees
to members of its board of directors.
VII.8. Certain Amendments. The Borrower will not, and will not permit or
------------------
cause any of its Subsidiaries to, amend, modify or waive, or permit the
amendment, modification or waiver of, any provision of any agreement or
instrument evidencing or governing any Subordinated Indebtedness, or breach or
otherwise violate any of the subordination provisions applicable thereto,
including, without limitation, restrictions against payment of principal and
interest thereon.
VII.9. Lines of Business. The Borrower will not, and will not permit or
-----------------
cause any of its Subsidiaries to, engage in any business other than the
Permitted Lines of Business.
VII.10. Limitation on Certain Restrictions. The Borrower will not, and will
----------------------------------
not permit or cause any of its Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any restriction or
encumbrance on
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(i) the ability of the Borrower and its Subsidiaries to perform and comply with
their respective obligations under the Credit Documents or (ii) the ability of
any Subsidiary of the Borrower to make any dividend payments or other
distributions in respect of its capital stock, to make loans or advances to the
Borrower or any other Subsidiary, or to transfer any of its assets or properties
to the Borrower or any other Subsidiary, in each case other than such
restrictions or encumbrances existing under or by reason of the Credit Documents
or applicable Requirements of Law.
VII.11. Fiscal Periods. The Borrower will not, and will not permit or cause
--------------
any of its Subsidiaries to, change any of the ending dates of its fiscal
quarters and fiscal years through and including the fiscal quarter ending July
2, 2000 from those set forth on SCHEDULE 8.11, unless (i) the Borrower shall
have given the Lenders written notice of its intention to change any such ending
dates at least sixty (60) days prior to the effective date thereof and (ii)
prior to such effective date this Agreement shall have been amended to make any
changes in the financial covenants and other terms and conditions to the extent
necessary, in the reasonable determination of the Required Lenders, solely to
reflect such new ending dates.
VII.12. Accounting Changes. The Borrower will not, and will not permit or
------------------
cause any of its Subsidiaries to, make or permit any material change in its
accounting policies or reporting practices, except as may be required by
Generally Accepted Accounting Principles, and except for changes that would
shorten amortization periods for rental video tapes, which changes are not
prohibited by Regulation S-X under the Securities Act of 1933, as amended, or by
any rulings or announcements by the Securities and Exchange Commission.
ARTICLE VIII
EVENTS OF DEFAULT
VIII.1. Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an "Event of Default" :
(a) The Borrower shall fail to pay any principal of any Loan when due;
(b) The Borrower shall fail to pay any interest on any Loan, any
Reimbursement Obligation, any fee or any other Obligation when due, and such
failure shall continue unremedied for one (1) Business Day;
(c) The Borrower shall fail to observe, perform or comply with any
condition, covenant or agreement contained in any of SECTIONS 2.13, 6.2(E)(I),
6.3(I), 6.9, 6.10, 6.11, ARTICLE VII or ARTICLE VIII;
(d) The Borrower or any of its Subsidiaries shall fail to observe, perform
or comply with any condition, covenant or agreement contained in this Agreement
or any of the other Credit Documents other than those enumerated in subsections
(a), (b) and (c) above, and such failure shall continue unremedied for any grace
period specifically applicable thereto or, if no such grace period is
applicable, for a period of thirty (30) days after the earlier of the date on
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which a Responsible Officer of the Borrower acquires knowledge thereof or the
date of delivery of notice thereof by the Agent;
(e) Any representation or warranty made or deemed made by or on behalf of
the Borrower or any of its Subsidiaries in this Agreement, any of the other
Credit Documents or in any certificate, instrument, report or other document
furnished in connection herewith or therewith or in connection with the
transactions contemplated hereby or thereby shall prove to have been false or
misleading in any material respect as of the time made, deemed made or
furnished;
(f) The Borrower or any of its Subsidiaries shall (i) fail to pay when due
(whether by scheduled maturity, acceleration or otherwise and after giving
effect to any applicable grace period) any principal of or interest on any
Indebtedness (other than the Indebtedness incurred pursuant to this Agreement)
having an aggregate principal amount of at least $500,000; or (ii) fail to
observe, perform or comply with any condition, covenant or agreement contained
in any agreement or instrument evidencing or relating to any such Indebtedness,
or any other event shall occur or condition exist in respect thereof, and the
effect of such failure, event or condition is to cause, or permit the holder or
holders of such Indebtedness (or a trustee or agent on its or their behalf) to
cause (with the giving of notice, lapse of time, or both, and after giving
effect to any applicable grace period), such Indebtedness to become due, or to
be prepaid, redeemed, purchased or defeased, prior to its stated maturity;
(g) The Borrower or any of its Subsidiaries shall (i) file a voluntary
petition or commence a voluntary case seeking liquidation, winding-up,
reorganization, dissolution, arrangement, readjustment of debts or any other
relief under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate manner, any
petition or case of the type described in subsection (h) below, (iii) apply for
or consent to the appointment of or taking possession by a custodian, trustee,
receiver or similar official for or of itself or all or a substantial part of
its properties or assets, (iv) fail generally, or admit in writing its
inability, to pay its debts generally as they become due, (v) make a general
assignment for the benefit of creditors or (vi) take any corporate action to
authorize or approve any of the foregoing;
(h) Any involuntary petition or case shall be filed or commenced against
the Borrower or any of its Subsidiaries seeking liquidation, winding-up,
reorganization, dissolution, arrangement, readjustment of debts, the appointment
of a custodian, trustee, receiver or similar official for it or all or a
substantial part of its properties or any other relief under the Bankruptcy Code
or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, and such petition or case shall continue undismissed and
unstayed for a period of sixty (60) days; or an order, judgment or decree
approving or ordering any of the foregoing shall be entered in any such
proceeding;
(i) Any one or more money judgments, writs or warrants of attachment,
executions or similar processes involving an aggregate amount (exclusive of
amounts fully bonded or covered by insurance as to which the surety or insurer,
as the case may be, has acknowledged its liability in writing) in excess of
$500,000 shall be entered or filed against the Borrower or any of its
Subsidiaries or any of their respective properties and the same shall not be
dismissed, stayed or discharged for a period of thirty (30) days;
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(j) Any ERISA Event shall occur or exist with respect to any Plan or
Multiemployer Plan and, as a result thereof, together with all other ERISA
Events then existing, there shall exist a reasonable likelihood of liability to
any one or more Plans or Multiemployer Plans or to the PBGC (or to any
combination thereof) in excess of $500,000 with respect to the Borrower or any
ERISA Affiliate;
(k) Any one or more licenses, permits, accreditations or authorizations of
the Borrower or any of its Subsidiaries shall be suspended, limited or
terminated or shall not be renewed, or any other action shall be taken, by any
Governmental Authority in response to any alleged failure by the Borrower or any
of its Subsidiaries to be in compliance with applicable Requirements of Law, and
such action, individually or in the aggregate, would be reasonably likely to
have a Material Adverse Effect;
(l) Any Material Contract to which the Borrower or any of its Subsidiaries
is a party shall be terminated or shall, for any other reason, fail to be in
full force and effect and enforceable in accordance with its terms, and such
event or condition, together with all other such events or conditions, if any,
would be reasonably likely to have a Material Adverse Effect;
(m) There shall occur any uninsured damage to, or loss, theft or
destruction of, any assets or properties of the Borrower and its Subsidiaries
that would be reasonably likely to have a Material Adverse Effect;
(n) Any Security Document to which the Borrower or any of its Subsidiaries
is now or hereafter a party shall for any reason cease to be in full force and
effect or cease to be effective to give the Agent a valid and perfected security
interest in and Lien upon the Collateral purported to be covered thereby,
subject to no Liens other than Permitted Liens, in each case unless any such
cessation occurs in accordance with the terms thereof or is due to any act or
failure to act on the part of the Agent or any Lender; or the Borrower or any
such Subsidiary shall assert any of the foregoing; or any Subsidiary or any
Person acting on its behalf shall deny or disaffirm such Subsidiary's
obligations under the Guaranty;
(o) Either (i) Joe Thomas Malugen shall have ceased to be the chief
executive officer of the Borrower or to continue to perform his current duties
as chief executive officer, or (ii) Charles J. Wyse shall have ceased to be the
chief operating officer of the Borrower or to continue to perform his current
duties as chief operating officer, and in either case under (i) or (ii) above
the Borrower shall have failed to hire or appoint a replacement reasonably
satisfactory to the Required Lenders within 120 days thereafter; or
(p) Any of the following shall occur: (i) any Person or group of Persons
acting in concert as a partnership or other group shall, as a result of a tender
or exchange offer, open market purchases, privately negotiated purchases or
otherwise, have become, after the date hereof, the "beneficial owner" (within
the meaning of such term under Rule 13d-3 under the Exchange Act) of securities
of the Borrower representing a percentage of the combined voting power of the
then outstanding securities of the Borrower ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors equal to the lower of (y) 20% or (z) the percentage of beneficial
ownership of the Borrower's common stock that would, upon the lapse of time or
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the occurrence of certain events, permit the Borrower's stockholders (other than
the acquiring Person or group) to exercise stock purchase rights pursuant to any
stockholder rights plan then in effect; (ii) the Board of Directors of the
Borrower shall cease to consist of a majority of the individuals who constituted
the Board of Directors of the Borrower as of the date hereof or who shall have
become a member thereof subsequent to the date hereof after having been
nominated, or otherwise approved in writing, by at least a majority of
individuals who constituted the Board of Directors of the Borrower as of the
date hereof (or their replacements approved as herein required); or (iii) either
Joe Thomas Malugen or H. Harrison Parrish shall cease to be the beneficial owner
of the number of shares of the Borrower's common stock that constitutes 75% of
the number of shares of such common stock (as such number may be adjusted from
time to time after the date hereof to give effect to any stock splits, stock
dividends, or subdivisions, combinations, reclassifications or reorganizations
with regard to such common stock) that such individual beneficially owns as of
the date hereof.
VIII.2. Remedies: Termination of Commitments, Acceleration, etc. Upon and
-------------------------------------------------------
at any time after the occurrence and during any Event of Default, the Agent
shall at the direction, or may with the consent, of the Required Lenders, take
any or all of the following actions at the same or different times:
(a) Declare the Commitments, the Swingline Commitment, and the Issuing
Lender's obligation to issue Letters of Credit to be terminated, whereupon the
same shall terminate (provided that, upon the occurrence of an Event of Default
--------
pursuant to SECTION 9.1(G) or SECTION 9.1(H), the Commitments, the Swingline
Commitment and the Issuing Lender's obligation to issue Letters of Credit shall
automatically be terminated);
(b) Declare all or any part of the outstanding principal amount of the
Loans to be immediately due and payable, whereupon the principal amount so
declared to be immediately due and payable, together with all interest accrued
thereon and all other amounts payable under this Agreement, the Notes and the
other Credit Documents, shall become immediately due and payable without
presentment, demand, protest, notice of intent to accelerate or other notice or
legal process of any kind, all of which are hereby knowingly and expressly
waived by the Borrower (provided that, upon the occurrence of an Event of
--------
Default pursuant to SECTION 9.1(G) or SECTION 9.1(H), all of the outstanding
principal amount of the Loans and all other amounts described in this subsection
(b) shall automatically become immediately due and payable without presentment,
demand, protest, notice of intent to accelerate or other notice or legal process
of any kind, all of which are hereby knowingly and expressly waived by the
Borrower);
(c) Direct the Borrower to deposit (and the Borrower hereby agrees,
forthwith upon receipt of notice of such direction from the Agent, to deposit)
with the Agent from time to time such additional amount of cash as is equal to
the aggregate Stated Amount of all Letters of Credit then outstanding (whether
or not any beneficiary under any Letter of Credit shall have drawn or be
entitled at such time to draw thereunder), such amount to be held by the Agent
in the Cash Collateral Account as security for the Letter of Credit Exposure as
described in SECTION 3.8; and
(d) Exercise all rights and remedies available to it under this Agreement,
the other Credit Documents and applicable law.
VIII.3. Remedies: Set-Off. In addition to all other rights and remedies
-----------------
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available under the Credit Documents or applicable law or otherwise, upon and at
any time after the occurrence and during the continuance of any Event of
Default, each Lender may, and each is hereby authorized by the Borrower, at any
such time and from time to time, to the fullest extent permitted by applicable
law, without presentment, demand, protest or other notice of any kind, all of
which are hereby knowingly and expressly waived by the Borrower, to set off and
to apply any and all deposits (general or special, time or demand, provisional
or final) and any other property at any time held (including at any branches or
agencies, wherever located), and any other indebtedness at any time owing, by
such Lender to or for the credit or the account of the Borrower against any or
all of the Obligations to such Lender now or hereafter existing, whether or not
such Obligations may be contingent or unmatured, the Borrower hereby granting to
each Lender a continuing security interest in and Lien upon all such deposits
and other property as security for such Obligations. Each Lender agrees to
notify the Borrower promptly after any such set-off and application; provided,
--------
however, that the failure to give such notice shall not affect the validity of
- -------
such set-off and application.
ARTICLE IX
THE AGENT
IX.1. Appointment. Each Lender hereby irrevocably appoints and
-----------
authorizes First Union to act as Agent hereunder and under the other Credit
Documents and to take such actions as agent on its behalf hereunder and under
the other Credit Documents, and to exercise such powers and to perform such
duties, as are specifically delegated to the Agent by the terms hereof or
thereof, together with such other powers and duties as are reasonably incidental
thereto.
IX.2. Nature of Duties. The Agent shall have no duties or
----------------
responsibilities other than those expressly set forth in this Agreement and the
other Credit Documents. The Agent shall not have, by reason of this Agreement or
any other Credit Document, a fiduciary relationship in respect of any Lender;
and nothing in this Agreement or any other Credit Document, express or implied,
is intended to or shall be so construed as to impose upon the Agent any
obligations or liabilities in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein. The Agent may execute
any of its duties under this Agreement or any other Credit Document by or
through agents or attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact that it selects with
reasonable care. The Agent shall be entitled to consult with legal counsel,
independent public accountants and other experts selected by it with respect to
all matters pertaining to this Agreement and the other Credit Documents and its
duties hereunder and thereunder and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts. The Lenders hereby acknowledge that the Agent
shall not be under any duty to take any discretionary action permitted to be
taken by it pursuant to the provisions of this Agreement or any other Credit
Document unless it shall be requested in writing to do so by the Required
Lenders (or, where a higher percentage of the Lenders is expressly required
hereunder, such Lenders).
IX.3. Exculpatory Provisions. Neither the Agent nor any of its officers,
----------------------
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action taken or omitted to be taken by it or such Person under or
in connection with the
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Credit Documents, except for its or such Person's own gross negligence or
willful misconduct, (ii) responsible in any manner to any Lender for any
recitals, statements, information, representations or warranties herein or in
any other Credit Document or in any document, instrument, certificate, report or
other writing delivered in connection herewith or therewith, for the execution,
effectiveness, genuineness, validity, enforceability or sufficiency of this
Agreement or any other Credit Document, or for the financial condition of the
Borrower, its Subsidiaries or any other Person, or (iii) required to ascertain
or make any inquiry concerning the performance or observance of any of the
terms, provisions or conditions of this Agreement or any other Credit Document
or the existence or possible existence of any Default or Event of Default, or to
inspect the properties, books or records of the Borrower or any of its
Subsidiaries.
IX.4. Reliance by Agent. The Agent shall be entitled to rely, and shall
-----------------
be fully protected in relying, upon any notice, statement, consent or other
communication (including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it in good faith to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons. The Agent may deem and treat each Lender as the owner of its interest
hereunder for all purposes hereof unless and until a written notice of the
assignment, negotiation or transfer thereof shall have been given to the Agent
in accordance with the provisions of this Agreement. The Agent shall be entitled
to refrain from taking or omitting to take any action in connection with this
Agreement or any other Credit Document (i) if such action or omission would, in
the reasonable opinion of the Agent, violate any applicable law or any provision
of this Agreement or any other Credit Document or (ii) unless and until it shall
have received such advice or concurrence of the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first have been indemnified to its
satisfaction by the Lenders against any and all liability and expense (other
than liability and expense arising from its own gross negligence or willful
misconduct) that may be incurred by it by reason of taking, continuing to take
or omitting to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Agent as a result of the
Agent's acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Lenders (or, where
a higher percentage of the Lenders is expressly required hereunder, such
Lenders), and such instructions and any action taken or failure to act pursuant
thereto shall be binding upon all of the Lenders (including all subsequent
Lenders).
IX.5. Non-Reliance on Agent and Other Lenders. Each Lender expressly
---------------------------------------
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representation
or warranty to it and that no act by the Agent or any such Person hereafter
taken, including any review of the affairs of the Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that (i) it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries
and made its own decision to enter into this Agreement and extend credit to the
Borrower hereunder, and (ii) it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action hereunder and under the
other Credit Documents and to make such investigation as it deems necessary to
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inform itself as to the business, prospects, operations, properties, financial
and other condition and creditworthiness of the Borrower and its Subsidiaries.
Except as expressly provided in this Agreement and the other Credit Documents,
the Agent shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
concerning the business, prospects, operations, properties, financial or other
condition or creditworthiness of the Borrower, its Subsidiaries or any other
Person that may at any time come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
IX.6. Notice of Default. The Agent shall not be deemed to have knowledge or
-----------------
notice of the occurrence of any Default or Event of Default unless the Agent
shall have received written notice from the Borrower or a Lender referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that the Agent receives such
a notice, the Agent will give notice thereof to the Lenders as soon as
reasonably practicable; provided, however, that if any such notice has also been
-------- -------
furnished to the Lenders, the Agent shall have no obligation to notify the
Lenders with respect thereto. The Agent shall (subject to SECTIONS 10.4 and
11.6) take such action with respect to such Default or Event of Default as shall
reasonably be directed by the Required Lenders; provided that, unless and until
--------
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
IX.7. Indemnification. To the extent the Agent is not reimbursed by or on
---------------
behalf of the Borrower, and without limiting the obligation of the Borrower to
do so, the Lenders agree (i) to indemnify the Agent and its officers, directors,
employees, agents, attorneys-in-fact and Affiliates, ratably in proportion to
their respective percentages as used in determining the Required Lenders as of
the date of determination, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, attorneys' fees and expenses) or
disbursements of any kind or nature whatsoever that may at any time (including
at any time following the repayment in full of the Loans and the termination of
the Commitments) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of this Agreement or any other Credit Document or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing, and (ii) to reimburse the Agent upon
demand, ratably in proportion to their respective percentages as used in
determining the Required Lenders as of the date of determination, for any
expenses incurred by the Agent in connection with the preparation, negotiation,
execution, delivery, administration, amendment, modification, waiver or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
or any of the other Credit Documents (including, without limitation, reasonable
attorneys' fees and expenses and compensation of agents and employees paid for
services rendered on behalf of the Lenders); provided, however, that no Lender
-------- -------
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
to the extent resulting from the gross negligence or willful misconduct of the
party to be indemnified.
IX.8. The Agent in its Individual Capacity. With respect to its
------------------------------------
Commitment, the Loans made by it, the Letters of Credit issued by it and the
Note or Notes issued to it, the Agent in its individual capacity and not as
Agent shall have the same rights and powers under the Credit Documents as any
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other Lender and may exercise the same as though it were not performing the
agency duties specified herein; and the terms "Lenders," "Required Lenders,"
"holders of Notes" and any similar terms shall, unless the context clearly
otherwise indicates, include the Agent in its individual capacity. The Agent
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of banking, trust, financial advisory or other business with the
Borrower, any of its Subsidiaries or any of their respective Affiliates as if
the Agent were not performing the agency duties specified herein, and may accept
fees and other consideration from any of them for services in connection with
this Agreement and otherwise without having to account for the same to the
Lenders.
IX.9. Successor Agent. The Agent may resign at any time by giving
---------------
thirty (30) days' prior written notice to the Borrower and the Lenders. Upon any
such notice of resignation, the Required Lenders will, with the prior written
consent of the Borrower (which consent shall not be unreasonably withheld),
appoint from among the Lenders a successor to the Agent (provided that the
--------
Borrower's consent shall not be required in the event a Default or Event of
Default shall have occurred and be continuing). If no successor to the Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within such thirty-day period, then the retiring Agent may, on
behalf of the Lenders and after consulting with the Lenders and the Borrower,
appoint a successor Agent from among the Lenders. Upon the acceptance of any
appointment as Agent by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder and under the other Credit Documents. After any
retiring Agent's resignation as Agent, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent. If no successor to the Agent has accepted appointment as Agent by
the thirtieth (30th) day following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective, and
the Lenders shall thereafter perform all of the duties of the Agent hereunder
and under the other Credit Documents until such time, if any, as the Required
Lenders appoint a successor Agent as provided for hereinabove.
IX.10. Collateral Matters. (a) The Agent is hereby authorized on behalf of
------------------
the Lenders, without the necessity of any notice to or further consent from the
Lenders, from time to time (but without any obligation) to take any action with
respect to the Collateral and the Security Documents that may be necessary to
perfect and maintain perfected the Liens upon the Collateral granted pursuant to
the Security Documents.
(b) The Lenders hereby irrevocably authorize the Agent, at its option and in
its discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all of
the Obligations, (ii) constituting property sold or to be sold or disposed of as
part of or in connection with any disposition that may be expressly permitted
hereunder or under any other Credit Document or (iii) otherwise pursuant to and
in accordance with the provisions of any applicable Credit Document. Upon
request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release Collateral pursuant to this subsection (b).
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ARTICLE X
MISCELLANEOUS
X.1. Fees and Expenses. The Borrower agrees (i) whether or not the
-----------------
transactions contemplated by this Agreement shall be consummated, to pay upon
demand all reasonable out-of-pocket costs and expenses of the Agent (including,
without limitation, the reasonable fees and expenses of counsel to the Agent,
including local counsel to the Agent in Alabama, and including the allocated
costs of internal counsel, but subject in any event to the provisions of the
commitment letter from First Union to the Borrower dated June 21, 1996) in
connection with the preparation, negotiation, execution, delivery and
syndication of this Agreement and the other Credit Documents, and any amendment,
modification or waiver hereof or thereof or consent with respect hereto or
thereto, (ii) to pay upon demand all reasonable out-of-pocket costs and expenses
of the Agent and each Lender (including, without limitation, the reasonable fees
and expenses of counsel to the Agent or any Lender, including the allocated
costs of internal counsel) in connection with (y) after the occurrence and
during the continuance of an Event of Default, any refinancing or restructuring
of the credit arrangement provided under this Agreement, whether in the nature
of a "work-out," in any insolvency or bankruptcy proceeding or otherwise and
whether or not consummated, and (z) the enforcement, attempted enforcement or
preservation of any rights or remedies under this Agreement or any of the other
Credit Documents, whether in any action, suit or proceeding (including any
bankruptcy or insolvency proceeding) or otherwise, and (iii) to pay and hold
harmless the Agent and each Lender from and against all liability for any
intangibles, documentary, stamp or other similar taxes, fees and excises, if
any, including any interest and penalties, and any finder's or brokerage fees,
commissions and expenses (other than any fees, commissions or expenses of
finders or brokers engaged by the Agent or any Lender), that may be payable in
connection with the transactions contemplated by this Agreement and the other
Credit Documents (other than any transfer, stamp or similar taxes that may be
payable in connection with the transfer of any Loans or Notes pursuant to an
Assignment and Acceptance).
X.2. Indemnification. The Borrower agrees, whether or not the
---------------
transactions contemplated by this Agreement shall be consummated, to indemnify
and hold harmless the Agent and each Lender and each of their respective
directors, officers, employees, agents and Affiliates (each, an "Indemnified
Person") from and against any and all claims, losses, damages, obligations,
liabilities, penalties, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) of any kind or nature whatsoever,
whether direct, indirect or consequential (collectively, "Indemnified Costs"),
that may at any time be imposed on, incurred by or asserted against any such
Indemnified Person as a result of, arising from or in any way relating to the
preparation, execution, performance or enforcement of this Agreement or any of
the other Credit Documents, any of the transactions contemplated herein or
therein or any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loans or Letters of Credit, or
any action, suit or proceeding (including any inquiry or investigation) by any
Person, whether threatened or initiated, related to any of the foregoing, and in
any case whether or not such Indemnified Person is a party to any such action,
proceeding or suit or a subject of any such inquiry or investigation; provided,
--------
however, that no Indemnified Person shall have the right to be indemnified
- -------
hereunder for any Indemnified Costs to the extent resulting from the gross
negligence or willful misconduct of such Indemnified Person. All of the
foregoing Indemnified Costs of any Indemnified Person shall be paid or
reimbursed by the Borrower, as and when incurred and upon demand.
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X.3. Governing Law; Consent to Jurisdiction. THIS AGREEMENT AND THE
--------------------------------------
OTHER CREDIT DOCUMENTS HAVE BEEN EXECUTED, DELIVERED AND ACCEPTED IN, AND SHALL
BE DEEMED TO HAVE BEEN MADE IN, NORTH CAROLINA AND SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF); PROVIDED
--------
THAT EACH LETTER OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT OR, IF NO
SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR
DOCUMENTARY CREDITS, INTERNATIONAL CHAMBER OF COMMERCE, AS IN EFFECT FROM TIME
TO TIME (THE "UNIFORM CUSTOMS"), AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM
CUSTOMS, THE LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT REGARD TO THE
CONFLICTS OF LAW PROVISIONS THEREOF). THE BORROWER HEREBY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF ANY STATE COURT WITHIN MECKLENBURG COUNTY, NORTH
CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE WESTERN DISTRICT OF THE STATE
OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED HEREUNDER OR UNDER ANY OF THE
OTHER CREDIT DOCUMENTS, OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OF THE OTHER CREDIT DOCUMENTS, OR ANY PROCEEDING TO WHICH THE AGENT OR
ANY LENDER OR THE BORROWER IS A PARTY, INCLUDING ANY ACTIONS BASED UPON, ARISING
OUT OF, OR IN CONNECTION WITH, ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT OR ANY LENDER OR THE
BORROWER. THE BORROWER IRREVOCABLY AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE
RIGHT OF APPEAL) BY ANY JUDGMENT RENDERED OR RELIEF GRANTED THEREBY AND FURTHER
WAIVES ANY OBJECTION THAT IT MAY HAVE BASED ON LACK OF JURISDICTION OR IMPROPER
VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING. THE
--------------------
BORROWER CONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY REGISTERED OR CERTIFIED
MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH HEREINBELOW, AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID
AND PROPERLY ADDRESSED. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY
PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY IN THE COURTS OF
ANY OTHER JURISDICTION.
The parties hereto agree that this Agreement and the other Credit Documents
have been and will be made and entered into within the State of North Carolina
and that the Loans and the other transactions contemplated hereby and thereby
have been and will be made and consummated in the State of North Carolina.
Furthermore, the parties hereto believe that, inasmuch as this Agreement and the
transactions contemplated hereby have been and will be entered into and
consummated outside the State of Alabama, such transactions constitute
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transactions in interstate commerce, so that neither the Agent nor any Lender is
or will be required, solely by entering into this Agreement and consummating the
transactions contemplated hereby and holding any Note, to qualify to do business
as a foreign corporation within the State of Alabama. Notwithstanding the
foregoing, however, the Borrower hereby irrevocably waives all rights that it
may have to raise, in any action brought by the Agent or any Lender to enforce
its rights hereunder, under the Notes or under any of the other Credit
Documents, any defense that is based upon the failure of the Agent or any Lender
to qualify to do business as a foreign corporation in the State of Alabama,
including, but not limited to, any defenses based upon (S) 232 of the Alabama
Constitution of 1901, (S) 10-2B-15.02 of the Code of Alabama (1975) or (S) 40-
14-4 of the Code of Alabama (1975), or any successor provisions thereof. The
foregoing waiver is made knowingly and voluntarily and is a material inducement
for the Agent and the Lenders to enter into this Agreement and to consummate the
transactions contemplated hereby.
X.4. Arbitration; Preservation and Limitation of Remedies. (a) Upon
----------------------------------------------------
demand of any party hereto, whether made before or after institution of any
judicial proceeding, any dispute, claim or controversy arising out of, connected
with or relating to this Agreement or any other Credit Document ("Disputes")
between or among the Borrower, the Agent and the Lenders, or any of them, shall
be resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, claims brought as class actions, claims arising from documents
executed in the future, or claims arising out of or connected with the
transactions contemplated by this Agreement and the other Credit Documents.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA"), as in effect from time to time, and Title 9 of the U.S.
Code, as amended. All arbitration hearings shall be conducted in the city in
which the principal office of the Agent is located. The expedited procedures set
forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to
-- ---
claims of less than $1,000,000. All applicable statutes of limitation shall
apply to any Dispute. A judgment upon the award may be entered in any court
having jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted. Notwithstanding the foregoing, this arbitration provision does not
apply to Disputes under or related to Hedge Agreements.
(b) Notwithstanding the preceding binding arbitration provisions, the parties
hereto agree to preserve, without diminution, certain remedies that any party
hereto may employ or exercise freely, either alone, in conjunction with or
during a Dispute. Any party hereto shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any Collateral by
exercising a power of sale granted pursuant to any of the Credit Documents or
under applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale; (ii) all rights of self-help, including peaceful occupation
of real property and collection of rents, set-off, and peaceful possession of
personal property; (iii) obtaining provisional or ancillary remedies, including
injunctive relief, sequestration, garnishment, attachment, appointment of a
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment. Preservation of these
remedies does not limit the power of an arbitrator to grant similar remedies
that may be requested by a party in a Dispute. The parties hereto agree that no
party shall have a remedy of punitive or exemplary damages against any other
party in any Dispute, and each party hereby waives any right or claim to
punitive or exemplary damages that it has now or that may arise in the future in
connection with any Dispute, whether such Dispute is resolved by arbitration or
judicially.
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X.5. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex, facsimile
transmission or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered to the party to be notified at the following
addresse s:
(a) if to the Borrower, to Movie Gallery, Inc., 739 West Main
Street, Dothan, Alabama 36301, Attention: J. Steven Roy, Telecopy No. (334)
677-2140, with a copy to Movie Gallery, Inc., 739 West Main Street, Dothan,
Alabama 36301, Attention: S. Page Todd, Telecopy No. (334) 702-0509;
(b) if to the Agent, to First Union National Bank of North
Carolina, One First Union Center, TW-10, 301 South College Street,
Charlotte, North Carolina 28288-0608, Attention: Syndication Agency
Services, Telecopy No. (704) 383-0288; and
(c) if to any Lender, to it at the address for notices set forth
on its signature page hereto (or if to any Lender not a party hereto as of
the date hereof, at the address for notices set forth in its Assignment and
Acceptance);
or in each case, to such other address as any party may designate for itself by
like notice to all other parties hereto. All such notices and communications
shall be deemed to have been given (i) if mailed as provided above by any method
other than overnight delivery service, on the third Business Day after deposit
in the mails, (ii) if mailed by overnight delivery service, telegraphed,
telexed, telecopied or cabled, when delivered for overnight delivery, delivered
to the telegraph company, confirmed by telex answerback, transmitted by
telecopier or delivered to the cable company, respectively, or (iii) if
delivered by hand, upon delivery; provided that notices and communications to
--------
the Agent shall not be effective until received by the Agent.
X.6. Amendments, Waivers, etc. No amendment, modification, waiver or
------------------------
discharge or termination of, or consent to any departure by the Borrower from,
any provision of this Agreement or any other Credit Document, shall be effective
unless in a writing signed by the Required Lenders (or by the Agent at the
direction or with the consent of the Required Lenders), and then the same shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such amendment, modification, waiver,
-------- -------
discharge, termination or consent shall:
(a) unless agreed to by each Lender holding or owed Obligations directly
affected thereby, (i) reduce or forgive the principal amount of, or rate of
interest on, any Loan, or reduce or forgive any fees or other Obligations (other
than fees payable to the Agent for its own account), or (ii) extend any date
(including the Maturity Date) fixed for the payment of any principal of or
interest on any Loan (other than additional interest payable under SECTION
2.7(B) during the continuance of an Event of Default), any fees (other than fees
payable to the Agent for its own account) or any other Obligations;
(b) unless agreed to by all of the Lenders, (i) increase or extend the
Commitment of any Lender (it being understood that a waiver of any Event of
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Default, if agreed to by the requisite Lenders hereunder, shall not constitute
such an increase or extension), (ii) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Loans, or the number or
percentage of Lenders, that shall be required for the Lenders or any of them to
take or approve, or direct the Agent to take or approve, any action hereunder
(including as set forth in the definition of "Required Lenders"), (iii) except
as may be otherwise specifically provided in this Agreement or in any other
Credit Document, release all or substantially all of the Collateral, or (iv)
change any provision of SECTION 2.14 or this SECTION 11.6; and
(c) unless agreed to by the Issuing Lender, the Swingline Lender or the
Agent in addition to the Lenders required as provided hereinabove to take such
action, affect the respective rights or obligations of the Issuing Lender, the
Swingline Lender or the Agent, as applicable, hereunder or under any of the
other Credit Documents;
and provided further that the Fee Letter and any Hedge Agreement to which any
-------- -------
Lender is a party may be amended or modified, and any rights thereunder waived,
in a writing signed by the parties thereto.
X.7. Assignments, Participations. (a) Each Lender may assign to one or
---------------------------
more other Eligible Assignees (each, an "Assignee") all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the outstanding Loans made by it, the Note or
Notes held by it and its participations in Letters of Credit); provided,
--------
however, that (i) any such assignment (other than an assignment to a Lender or
- -------
an Affiliate of a Lender) shall not be made without the prior written consent of
the Agent, the Issuing Lender and the Borrower (to be evidenced by their
counterexecution of the relevant Assignment and Acceptance), which consent shall
not be unreasonably withheld, (ii) each such assignment by a Lender shall be
made in such manner so that the same portion of its Commitment, Loans, Note or
Notes and participations in Letters of Credit is assigned to the relevant
Assignee (provided that the Swingline Lender may assign all (but not less than
--------
all) of the Swingline Commitment, the Swingline Loans and the Swingline Note
without the necessity of assigning a corresponding portion of its Commitment,
Revolving Loans and Revolving Credit Note), (iii) except in the case of an
assignment to a Lender or an Affiliate of a Lender, the amount of the Commitment
of the assigning Lender being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to each
such assignment) shall in no event be less than the lesser of (y) the entire
Commitment of such Lender immediately prior to such assignment or (z)
$5,000,000, and, in the case of the Swingline Lender, shall not be less than the
entire Swingline Commitment, and (iv) the parties to each such assignment will
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Note or Notes subject
to such assignment, and will pay a nonrefundable processing fee of $3,000 to the
Agent for its own account. Upon such execution, delivery, acceptance and
recording of the Assignment and Acceptance, from and after the effective date
specified therein, which effective date shall be at least five Business Days
after the execution thereof (unless the Agent shall otherwise agree), (A) the
Assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of the assigning Lender
hereunder with respect thereto and (B) the assigning Lender shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (other than rights under the
provisions of this Agreement and the other Credit Documents relating to
indemnification or payment of fees, costs and expenses, to the extent such
rights relate to the time prior to the effective
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date of such Assignment and Acceptance) and be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of such assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto). The terms
and provisions of each Assignment and Acceptance shall, upon the effectiveness
thereof, be incorporated into and made a part of this Agreement, and the
covenants, agreements and obligations of each Lender set forth therein shall be
deemed made to and for the benefit of the Agent and the other parties hereto as
if set forth at length herein.
(b) The Agent will maintain at its address for notices referred to herein a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the Agent
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and each Lender at any reasonable time
and from time to time upon reasonable prior notice.
(c) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an Assignee and counterexecuted by the Borrower (if
required) and the Issuing Lender, together with any Note or Notes subject to
such assignment and the processing fee referred to in subsection (a) above, the
Agent will (i) accept such Assignment and Acceptance, (ii) on the effective date
thereof, record the information contained therein in the Register and (iii) give
notice thereof to the Borrower and the Lenders. Within five (5) Business Days
after its receipt of such notice, the Borrower will execute and deliver to the
Agent in exchange for the surrendered Note or Notes a new Note or Notes to the
order of such Assignee in an aggregate principal amount equal to the principal
amount of the Commitment (or, if the Commitments have been terminated, the
principal amount of the Loans) assumed by it pursuant to such Assignment and
Acceptance and, to the extent the assigning Lender has retained its Loans and/or
Commitment hereunder, a new Note or Notes to the order of the assigning Lender
in an aggregate principal amount equal to the principal amount of the Commitment
(or, if the Commitments have been terminated, the principal amount of the Loans)
retained by it hereunder. Such new Note or Notes shall be dated the date of the
replaced Note or Notes and shall otherwise be in substantially the form of
EXHIBIT A-1 or EXHIBIT A-2, as applicable. The Agent will return cancelled
Notes to the Borrower.
(d) Each Lender may, without the consent of the Borrower, the Agent or any
other Lender, sell to one or more other Persons (each, a "Participant")
participations in any portion comprising less than all of its rights and
obligations under this Agreement (including, without limitation, a portion of
its Commitment, the outstanding Loans made by it, the Note or Notes held by it
and its participations in Letters of Credit); provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement shall remain unchanged and such Lender
shall remain solely responsible for the performance of such obligations, (ii) no
Lender shall sell any participation that, when taken together with all other
participations, if any, sold by such Lender, covers all of such Lender's rights
and obligations under this Agreement, (iii) the Borrower, the Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, and
no Lender shall permit any Participant to have any voting rights or any right to
control the vote of such Lender with respect to any amendment, modification,
waiver, consent or other action hereunder or under any other Credit Document
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(except as to actions that would (x) reduce or forgive the principal amount of,
or rate of interest on, any Loan, or reduce or forgive any fees or other
Obligations, (y) extend any date (including the Maturity Date and any scheduled
date for the mandatory reduction of the Commitments) fixed for the payment of
any principal of or interest on any Loan, any fees or any other Obligations, or
(z) increase any Commitment of any Lender), and (iv) no Participant shall have
any rights under this Agreement or any of the other Credit Documents, each
Participant's rights against the granting Lender in respect of any participation
to be those set forth in the participation agreement, and all amounts payable by
the Borrower hereunder shall be determined as if such Lender had not granted
such participation. Notwithstanding the foregoing, each Participant shall have
the rights of a Lender for purposes of SECTIONS 2.15(A), 2.15(B), 2.16, 2.17 and
9.3, and shall be entitled to the benefits thereto, to the extent that the
Lender granting such participation would be entitled to such benefits if the
participation had not been made, provided that no Participant shall be entitled
--------
to receive any greater amount pursuant to any of such Sections than the Lender
granting such participation would have been entitled to receive in respect of
the amount of the participation made by such Lender to such Participant had such
participation not been made.
(e) Nothing in this Agreement shall be construed to prohibit any Lender
from pledging or assigning all or any portion of its rights and interest
hereunder or under any Note to any Federal Reserve Bank as security for
borrowings therefrom; provided, however, that no such pledge or assignment shall
-------- -------
release a Lender from any of its obligations hereunder.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section, disclose to the
Assignee or Participant or proposed Assignee or Participant any information
relating to the Borrower and its Subsidiaries furnished to it by or on behalf of
any other party hereto, provided that such Assignee or Participant or proposed
--------
Assignee or Participant agrees in writing to keep such information confidential
to the same extent required of the Lenders under SECTION 11.13.
(g) As used in this SECTION 11.7, the terms "Commitments" and "Commitment"
shall include the Swingline Commitment in the case of the Swingline Lender.
X.8. No Waiver. The rights and remedies of the Agent and the Lenders
---------
expressly set forth in this Agreement and the other Credit Documents are
cumulative and in addition to, and not exclusive of, all other rights and
remedies available at law, in equity or otherwise. No failure or delay on the
part of the Agent or any Lender in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege or be construed
to be a waiver of any Default or Event of Default. No course of dealing between
any of the Borrower and the Agent or the Lenders or their agents or employees
shall be effective to amend, modify or discharge any provision of this Agreement
or any other Credit Document or to constitute a waiver of any Default or Event
of Default. No notice to or demand upon the Borrower in any case shall entitle
the Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of the Agent or any Lender to
exercise any right or remedy or take any other or further action in any
circumstances without notice or demand.
X.9. Successors and Assigns. This Agreement shall be binding upon, inure
----------------------
to the benefit of and
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be enforceable by the respective successors and assigns of the parties hereto,
and all references herein to any party shall be deemed to include its successors
and assigns; provided, however, that (i) the Borrower shall not sell, assign or
-------- -------
transfer any of its rights, interests, duties or obligations under this
Agreement or any other Credit Document without the prior written consent of all
of the Lenders and (ii) any Assignees shall have such rights and obligations
with respect to this Agreement and the other Credit Documents as are provided
for under and pursuant to the provisions of SECTION 11.7.
X.10. Survival. All representations, warranties and agreements made by or
--------
on behalf of the Borrower or any of its Subsidiaries in this Agreement and in
the other Credit Documents shall survive the execution and delivery hereof or
thereof, the making and repayment of the Loans and the issuance and repayment of
the Letters of Credit. In addition, notwithstanding anything herein or under
applicable law to the contrary, the provisions of this Agreement and the other
Credit Documents relating to indemnification or payment of fees, costs and
expenses, including, without limitation, the provisions of SECTIONS 2.15(A),
2.15(B), 2.16, 2.17, 10.7, 11.1 and 11.2, shall survive the payment in full of
all Loans and Letters of Credit, the termination of the Commitments and all
Letters of Credit, and any termination of this Agreement or any of the other
Credit Documents.
X.11. Severability. To the extent any provision of this Agreement is
------------
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
X.12. Construction. The headings of the various articles, sections and
------------
subsections of this Agreement have been inserted for convenience only and shall
not in any way affect the meaning or construction of any of the provisions
hereof. Except as otherwise expressly provided herein and in the other Credit
Documents, in the event of any inconsistency or conflict between any provision
of this Agreement and any provision of any of the other Credit Documents, the
provision of this Agreement shall control.
X.13. Confidentiality. Each Lender agrees to keep confidential, pursuant
---------------
to its customary procedures for handling confidential information of a
similar nature and in accordance with safe and sound banking practices, all
nonpublic information provided to it by or on behalf of the Borrower
or any of its Subsidiaries in connection with this Agreement or any other Credit
Document; provided, however, that any Lender may disclose such information (i)
-------- -------
to its directors, employees and agents and to its auditors, counsel and other
professional advisors, (ii) at the demand or request of any bank regulatory
authority, court or other Governmental Authority having or asserting
jurisdiction over such Lender, as may be required pursuant to subpoena or other
legal process, or otherwise in order to comply with any applicable Requirement
of Law, (iii) in connection with any proceeding to enforce its rights hereunder
or under any other Credit Document or any other litigation or proceeding related
hereto or to which it is a party, (iv) to the Agent or any other Lender, (v) to
the extent the same has become publicly available other than as a result of a
breach of this Agreement and (vi) pursuant to and in accordance with the
provisions of SECTION 11.7(F).
X.14. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties
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hereto on separate counterparts, each of which when so executed and delivered
shall be an original, but all of which shall together constitute one and the
same instrument. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by the Agent and
the Borrower of written or telephonic notification of such execution and
authorization of delivery thereof.
X.15. Entire Agreement. THIS AGREEMENT AND THE OTHER DOCUMENTS AND
----------------
INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH (A) EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND THERETO RELATING TO
THE SUBJECT MATTER HEREOF AND THEREOF, (B) SUPERSEDE ANY AND ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF, INCLUDING THE COMMITMENT LETTER FROM FIRST
UNION TO THE BORROWER DATED JUNE 21, 1996 (EXCEPT AS SPECIFICALLY OTHERWISE
PROVIDED THEREIN AS TO CERTAIN PROVISIONS THAT SHALL SURVIVE THE EXECUTION OF
THIS AGREEMENT), BUT SPECIFICALLY EXCLUDING THE FEE LETTER, AND (C) MAY NOT BE
AMENDED, SUPPLEMENTED, CONTRADICTED OR OTHERWISE MODIFIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
MOVIE GALLERY, INC.
By: /s/ J. Steven Roy
------------------------------------
Title: Chief Financial Officer
---------------------------------
(signatures continued)
<PAGE>
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Agent, as
Issuing Lender, as Swingline Lender
and as a Lender
Commitment: By: /s/ Jim F. Redman
$125,000,000 ------------------------------------
Title: Senior Vice President
-----------------------------------
Instructions for wire transfers to
the Agent:
First Union National Bank of
North Carolina
ABA Routing No. 053000219
Charlotte, North Carolina
General Ledger No. 465906, RC No. 5007
Attention: Syndication Agency Services
Re: Movie Gallery, Inc.
Address for notices (as Issuing Lender,
as Swingline Lender and as a Lender):
First Union National Bank of
North Carolina
One First Union Center, TW-19
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: James W. Wood
Telephone: (704) 374-3242
Telecopy: (704) 374-4092
Lending Office:
First Union National Bank of
North Carolina
One First Union Center, TW-19
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: James W. Wood
Telephone: (704) 374-3242
Telecopy: (704) 374-4092
