<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 0-26526
MOOVIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-1012733
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 BROOKFIELD PARKWAY, SUITE 200
GREENVILLE, SOUTH CAROLINA 29607
(Address of principal executive offices)
(Zip code)
(864) 213-1700
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
The number of shares of common stock, par value $0.001 per share, outstanding at
May 13, 1997 is 12,359,800.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MOOVIES, INC.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1997 1996
------ ---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,889 $ 4,196
Receivables 919 927
Merchandise inventory 7,260 8,265
Deferred income tax benefit 1,518 1,517
Other 3,758 2,276
-------- --------
Total current assets 15,344 17,181
Videocassette rental inventory, net 29,262 24,885
Furnishings and equipment, net 36,392 30,903
Goodwill 47,545 39,718
Deposits and other assets 3,547 1,099
-------- --------
$132,090 $113,786
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Line of credit $ 7,000 $ 19,000
Notes payable 2,600
Current portion of long-term debt 2,094 168
Accounts payable 18,596 18,864
Accrued liabilities 2,260 3,165
-------- --------
Total current liabilities 29,950 43,797
Long-term debt, less current portion 28,750 101
Deferred income tax payable 7,658 7,677
-------- --------
66,358 51,575
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares
authorized; no shares issued and outstanding
Common stock, $.001 par value; 25,000,000 shares
authorized; issued and outstanding 12,354,800
shares at March 31, 1997 and 11,926,620 shares
at December 31, 1996 12 12
Additional paid-in capital 61,885 58,336
Retained earnings 3,835 3,863
-------- --------
Total stockholders' equity 65,732 62,211
-------- --------
$132,090 $113,786
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
MOOVIES, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Revenues:
Rental revenues $ 22,650 $ 16,957
Product sales 3,940 2,359
-------- --------
26,590 19,316
Operating costs and expenses:
Operating expenses 19,482 13,729
Cost of product sales 3,152 1,537
Selling, general and administrative 2,613 2,329
Amortization of goodwill 518 361
-------- --------
25,765 17,956
-------- --------
Operating income 825 1,360
Interest expense, net (471) (301)
Other, net (19) (21)
-------- --------
Income before income taxes and extraordinary item 335 1,038
Income tax expense 134 415
-------- --------
Income before extraordinary item 201 623
Extraordinary item - loss on early extinguishment of debt 229 --
-------- --------
Net income (loss) $ (28) $ 623
======== ========
Net income per share:
Income before extraordinary item $ .02 $ .07
Extraordinary item - loss on early extinguishment of debt (.02) --
-------- --------
Net income $ -- $ .07
======== ========
Weighted average shares outstanding 12,192 8,976
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
MOOVIES, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Operating activities:
Net income $ (28) $ 623
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,336 5,271
Extraordinary item - loss on early extinguishment of debt 229 --
Changes in operating assets and liabilities:
Receivables 8 1,297
Merchandise inventory 1,068 227
Other current assets (1,482) (643)
Deposits and other assets (2,779) (294)
Accounts payable (307) (2,237)
Accrued liabilities (1,405) 272
Deferred income taxes (20) 415
-------- --------
Net cash provided by operating activities 1,620 4,931
-------- --------
Investing activities:
Purchases of videocassette rental inventory, net (7,788) (5,869)
Purchases of furnishings and equipment, net (6,360) (1,484)
Proceeds from the sale of the grocery division -- 746
Business acquisitions (5,004) (2,434)
-------- --------
Net cash used in investing activities (19,152) (9,041)
-------- --------
Financing activities:
Proceeds from line of credit borrowings 7,000 16,796
Proceeds from issuance of long-term debt 30,000 2,000
Principal payments on line of credit borrowings (19,000) (6,500)
Principal payments on long-term debt (2,775) (6,180)
-------- --------
Net cash provided by financing activities 15,225 6,116
-------- --------
Increase (decrease) in cash and cash equivalents (2,307) 2,006
Cash and cash equivalents at beginning of period 4,196 3,564
-------- --------
Cash and cash equivalents at end of period $ 1,889 $ 5,570
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 594 $ 58
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
MOOVIES, INC.
NOTES TO CONDENSED FINANCIAL INFORMATION
(1) Basis of Presentation
Moovies, Inc. (the "Company") currently operates 262 video specialty
superstores located in Georgia, South Carolina, North Carolina,
Tennessee, Virginia, Pennsylvania, New Jersey, New York, Connecticut,
Ohio, Iowa, Colorado, Minnesota, Wisconsin, South Dakota, Nebraska and
Michigan. In addition, the Company operates 43 franchised stores in
Florida, Texas, Louisiana and Kentucky. Moovies' superstores rent and
sell a wide range of videos and video games, rent video players and
video game equipment, and sell video accessories such as blank
cassettes, cleaning equipment and a variety of confectionery items.
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"), although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. This financial information should
be read in conjunction with the consolidated financial statements and
related notes contained in the Company's Annual Report on Form 10-K
which was previously filed with the SEC. Other than as indicated
herein, there have been no significant changes from the financial data
published in that report. In the opinion of management, such unaudited
information reflects all adjustments, consisting only of normal
recurring accruals and other adjustments as disclosed herein, necessary
for a fair presentation of the unaudited information. The results of
operations for interim periods are not necessarily indicative of the
results expected for the full year.
(2) Line of Credit
In March 1997, the Company signed a new senior credit facility (the
"Senior Facility") for up to $75.0 million. The Senior Facility
consists of (i) a five year $30.0 million long-term note with quarterly
repayments beginning on September 30, 1997; (ii) a $41.0 million
capital facilities line and (iii) a $4.0 million revolver. The Senior
Facility replaced the Company's existing credit facility. The Company
may borrow amounts under the capital facilities line until March 31,
1999 at which time it will begin repaying any amount outstanding
quarterly over the next three years. The interest rate of the Senior
Facility is variable based on LIBOR and the Company may repay the
Senior Facility at any time without penalty. At March 31, 1997, the
Company had outstanding borrowings of $37.0 million under the Senior
Facility which consisted of a $30.0 million long-term note and $7.0
million under the capital facilities line.
In connection with the Senior Facility, the syndication agent received
a warrant to purchase up to 500,000 shares of common stock of the
Company at an exercise price of $6.35 which is the average stock price
over the 30 days prior to signing the commitment. The warrant was
valued at $1,250,000 and is included in additional paid-in-capital,
with the resulting original issue discount (OID) on the loan being
amortized using a method which approximates the interest method over
the term of the note.
(3) Extraordinary item
In connection with the repayment and replacement of its existing credit
facility, the Company wrote off the remaining unamortized capitalized
costs associated with the previous credit facility. Accordingly, the
Company recorded an extraordinary item of approximately $229,000, net
of income taxes.
<PAGE> 6
(4) Acquisition
Concurrently with the closing of the Senior Facility, the Company
acquired certain assets and business of Movie Warehouse, Inc. and
affiliates ("Movie Warehouse") in an asset purchase transaction. The
Company acquired 21 video specialty stores and the franchiser's
interest with respect to an additional 43 video specialty stores which
will continue to operate under the Movie Warehouse name. The aggregate
consideration for the acquisition was approximately $9.6 million,
consisting of $5.0 million in cash, $2.0 million in promissory notes
due in March 1999 and $2.6 million in common stock (427,672 shares).
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The results of operations for the three months ended March 31, 1997 and 1996
reflect the operations of the Company and include the results of various
acquisitions from and after their acquisition date.
Revenues. Revenues increased $7,274,000, or 37.7%, for the three months ended
March 31, 1997 to $26,590,000 compared to revenues of $19,316,000 for the same
period in 1996. The increased revenues were primarily a result of the additional
59 stores opened and 25 stores acquired subsequent to March 31, 1996. Product
sales as a percentage of total revenues increased to 14.8% for 1997 compared to
12.2% for 1996. This increase is the result of several special sell-through
promotions conducted by the Company during the first quarter of 1997. Same store
sales decreased by approximately 6.6% principally due to a weaker selection of
new video product released during the quarter coupled with the unseasonably mild
weather experienced in the Company's markets.
Operating Costs and Expenses. Operating expenses increased $5,753,000 to
$19,482,000 for the three months ended March 31,1997 compared to $13,729,000 for
1996. Operating expenses as a percentage of total revenues were 73.3% for 1997
compared to 71.1% for 1996. The 1996 operating expenses include $860,000 related
to the adoption of a new accounting method for tape amortization. The increase
was primarily the result of the revenue shortfalls and the same store sales
decreases in the first quarter, as well as the impact of the new stores opened
during the quarter, which have not yet reached mature store revenue levels, and
the increased depreciation expense from store renovations, new signs and
computers installed during the latter part of 1996 to standardize and conform
store operations under the Moovies format.
Cost of product sales increased $1,615,000 to $3,152,000 for 1997 compared to
$1,537,000 for 1996. This increase is directly related to the increase in
product sales. Cost of product sales as a percentage of product sales was 80.0%
for the three months ended March 31, 1997 compared to 65.2% for 1996. The
percentage increase is due to the lower margins accepted by the Company on the
sell-through promotions and sales of previously viewed tapes conducted during
the quarter.
General and administrative expenses increased $284,000 to $2,613,000 for 1997
compared to $2,329,000 for 1996. General and administrative expenses as a
percentage of total revenues were 9.8% for 1997 compared to 12.1% for 1996. The
percentage decrease reflects the effect of leveraging these expenses over
significantly greater revenues.
Interest Expense. Interest expense increased $170,000 to $471,000 for 1997 from
$301,000 for 1996. The increase related primarily to the increased borrowings
under the Company's credit facility which were used for acquisitions and to fund
the new store development and conversion of acquired stores during 1996 and the
first quarter of 1997. The Company expects its effective interest rate to
increase slightly in conjunction with the new Senior Facility.
Income Tax Expense. Income tax expense was approximately $134,000 and $415,000
for the three months ended March 31, 1997 and 1996, respectively. The Company's
effective income tax rate of approximately 40% was consistent during both
periods.
Extraordinary Item. In March 1997, the Company repaid all outstanding borrowings
on its existing credit facility with borrowings under its new Senior Facility.
In conjunction with that repayment, the Company recorded an extraordinary
item-loss on early extinguishment of debt, net of income taxes, of $229,000.
<PAGE> 8
Liquidity and Capital Resources
The Company's primary long-term capital needs are for opening and acquiring new
stores. The Company expects to fund such needs through cash flows from
operations, borrowing under credit facilities, operating equipment leases and
the net proceeds from the sale of debt and equity securities.
In March 1997, the Company signed a new senior credit facility (the "Senior
Facility") for up to $75.0 million. The Senior Facility consists of (i) a five
year $30.0 million long-term note with quarterly repayments beginning on
September 30, 1997; (ii) a $41.0 million capital facilities line and (iii) a
$4.0 million Revolver and replaced the Company's existing credit facility. The
Company may borrow amounts under the capital facilities line until March 31,
1999 at which time it will begin repaying any amount outstanding quarterly over
the next three years. The interest rate of the Senior Facility is variable based
on LIBOR and the Company may repay the Senior Facility at any time without
penalty. At March 31, 1997, the Company had outstanding borrowings of $37.0
million under the Senior Facility which consisted of the $30.0 million long-term
note and $7.0 million under the capital facilities line.
Concurrently with the closing of the Senior Facility, the Company acquired
certain assets and business of Movie Warehouse, Inc. and affiliates ("Movie
Warehouse") in an asset purchase transaction, including 21 video specialty
stores and the franchiser's interest with respect to an additional 43 specialty
stores which will continue to operate under the Movie Warehouse name. The
aggregate consideration for the acquisition was approximately $9.6 million,
consisting of $5.0 million in cash, $2.0 million in promissory notes due in
March 1999, and $2.55 million in common stock (427,672 shares).
The Company funds its short-term working capital needs, including the
acquisition of videos and other inventory, primarily through cash from
operations. The Company expects that cash from operations will be sufficient to
fund future video and other inventory purchases and other working capital needs.
Under generally accepted accounting principles, rental inventories are treated
as non-current assets because they are not assets that are reasonably expected
to be completely realized in cash or sold in the normal business cycle. Although
the rental of this inventory generates a substantial portion of the Company's
revenue, the classification of these assets as noncurrent excludes them from the
computation of working capital. The cost of video inventory purchases, however,
is reported as a current liability until paid, and accordingly, is included in
the computation of working capital. Consequently, the Company believes working
capital is not an appropriate measure of its liquidity and it anticipates that
it will operate with a working capital deficit during 1997.
The Company's capital expenditures during the remainder of 1997 will focus on
opening new stores and relocating certain existing stores. The Company has
reassessed its new store development program and accordingly, intends to open
approximately 50 new stores during 1997, including 17 stores opened during the
first quarter. In connection with the reduction in growth plans, the Company
will also make immediate reductions in general and administrative expenses. The
cost of implementing these reductions will result in a one-time charge to be
recorded in the second quarter of approximately $1.5 million or $0.07 per share.
The Company estimates that the net cash required to open a new Moovies
superstore, including store fixtures and equipment, leasehold improvements and
rental and sale inventory, typically ranges from $275,000 to $325,000 per
superstore.
The Company believes that cash from operations and borrowing availability under
its new credit facility will be sufficient to fund its existing operations
through December 31, 1997. To the extent that acquisitions or certain new store
openings cannot be financed with borrowings under the Company's credit facility,
other financing will be required. There can be no assurance that any such
financing will be available or, if available, that it will be on terms and
conditions satisfactory or favorable to the Company.
<PAGE> 9
Note regarding Private Securities Litigation Reform Act: Statements made by the
Company which are not historical facts are forward looking statements that
involve risks and uncertainties. Actual results could differ materially from
those expressed or implied in forward looking statements. All such forward
looking statements are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. Important factors that could cause
financial performance to differ materially from past results and from those
expressed or implied in this document include, without limitation, the risks of
acquisition of businesses (including limited knowledge of the businesses
acquired and misrepresentations by sellers), changes in business strategy or
development plans, new store openings, availability of financing, competition,
management, ability to manage growth, loss of customers, the availability of
products, the difficulty of managing leased inventory, and a variety of other
factors. For further information on these and other risks, see the "Risk
Factors" section of Item 1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, as well as the Company's other filings with the
Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 10
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
(a) None
(b) None
(c) Recent Sales of Unregistered Securities
The following information relates to securities of Moovies, Inc.
issued or sold during the quarter ended March 31, 1997 which were not
registered under the Securities Act in 1933, as amended (the
"Securities Act"):
(a) In March 1996 the Company granted to Banque Paribas a
warrant to acquire 500,000 shares of Common Stock at
$6.35 per share in connection with the Company's new
loan facility. The Company believes that this
issuance was exempt from registration under the
Securities Act by virtue of Section 4(2) as a
transaction not involving a public offering.
(b) From January 1997 through March 1997, the Company
issued an aggregate of 1,050 shares of Common Stock
pursuant to the Moovies, Inc. 401(k) Plan. The
Company believes that these issuances were exempt
from registration under the Securities Act by virtue
of Section 4(2) as transactions not involving a
public offering.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
(a) None
(b) None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) See the Index to Exhibits.
(b) None
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized on May 15, 1997.
MOOVIES, INC.
By: /s/ John L. Taylor
---------------------------------------
John L. Taylor
President and Chief Executive Officer
(principal executive officer)
By: /s/ F. Andrew Mitchell
---------------------------------------
F. Andrew Mitchell
Chief Financial Officer and Director
(principal financial officer)
<PAGE> 12
EXHIBIT INDEX
(a) The following exhibits, which are furnished with this Form 10-Q, are filed
as part of this Form 10-Q:
<TABLE>
<CAPTION>
SEQUENTIAL
----------
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
<S> <C>
2.1** --Asset Purchase Agreement dated March 14, 1997 among Moovies,
Inc., Movie Warehouse, Inc. and certain of its subsidiaries and
Hani Mansour, as amended by Amendment Agreement dated March 14,
1997.
3.1* --Restated Certificate of Incorporation of Moovies, Inc.
3.2 --Restated Bylaws of Moovies, Inc. (Incorporated by reference to
Exhibit 3.2 in the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996).
3.3** --Certificate of Designation, Preferences and Rights of
Participating Preferred Stock.
10.1** --Credit Agreement dated March 14, 1997 among Moovies, Inc.,
various banks party thereto from time to time, and Banque Paribas
as agent.
11.1** --Statement Re Computation of Per Share Earnings
27.1** --Financial Data Schedule
</TABLE>
* Incorporated by reference to the same Exhibit number in the Registrant's
Registration Statement on Form S-1 (No. 33-93562).
** Filed herewith.
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of January 7,
1997 by and among Moovies, Inc., a Delaware corporation, Movie Warehouse
Franchise Systems, Inc., a Delaware corporation (the "Subsidiary"), (Moovies,
Inc. and the Subsidiary being hereinafter collectively referred to as
"Moovies"), Movie Warehouse, Inc., a Michigan corporation ("MW"), Movie
Warehouse Cambridge Park, Inc., a Michigan corporation ("Cambridge"), and Movie
Warehouse Franchise Systems, Inc., a Michigan corporation ("Franchise"),
(individually, MW, Cambridge and Franchise being a "Company" and collectively,
MW, Cambridge and Franchise being the "Companies"), and Hani Mansour, the sole
stockholder of MW, Cambridge and Franchise ("Stockholder").
W I T N E S S E T H:
WHEREAS, Moovies is in the business of owning, operating, developing and
acquiring video specialty stores for the (a) rental and sale of videos and
video games, (b) rental of video cassette players and video game equipment; and
(c) sale of video accessories, video cleaning equipment and confectionery items
in connection with the conduct of the business described in (a) and (b) above;
WHEREAS, Franchise is in the business of granting franchises for the
operation of video rental stores engaged in the rental and sale of videos,
video games and related operations under the name "Movie Warehouse" primarily
in Kentucky, Texas, Florida and Louisiana (the "Franchise Business");
WHEREAS, MW and Cambridge are in the business of owning and operating
video rental stores engaged in the rental and sale of videos, video games and
related operations (collectively, the "Rental Business") (the Franchise
Business and the Rental Business being collectively referred to as the
"Business");
WHEREAS, subject to certain conditions contained herein, MW and Cambridge
shall sell, and Moovies, Inc. shall acquire, all the assets of MW and Cambridge
(other than those set forth on Schedule 1.2 attached) and MW and Cambridge
shall transfer and assign, and Moovies, Inc. shall assume, certain obligations
of MW and Cambridge as set forth herein;
WHEREAS, subject to certain conditions contained herein, Franchise shall
sell, and the Subsidiary shall acquire, all the assets of Franchise (other than
those set forth on Schedule 1.2, attached) and Franchise shall transfer and
assign, and the Subsidiary shall assume, certain of the obligations of
Franchise as set forth herein;
<PAGE> 2
WHEREAS, because transactions contemplated hereby cannot be effected
through mergers with a "pooling of interest", Moovies no longer is required to
acquire as part of this transaction, and does not want to acquire, the business
or assets of Movie Warehouse of Port Huron, Inc. or Man Sel Video, Inc., which
are partially owned by Stockholder and would have had to have been acquired had
this transaction qualified for a "pooling of interest";
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to
consummation of the sale and purchase of assets and certain additional
agreements relating to the sale and purchase of assets;
NOW, THEREFORE, in consideration of $10.00 paid by Moovies to the
Companies and Stockholder, the mutual representations, warranties and covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1
THE ASSET PURCHASES
1.1 PURCHASED ASSETS. Subject to and upon the terms and
conditions set forth herein and except for those assets described in Section
1.2 hereof, (a) MW and Cambridge agree to sell to Moovies, Inc. and Moovies,
Inc. agrees to purchase from MW and Cambridge at the Closing (as hereinafter
defined) all right, title and interest of MW and Cambridge in an to the
tangible and intangible assets of MW and Cambridge (collectively, the
"MW/Cambridge Purchased Assets"), and (b) Franchise agrees to sell to
Subsidiary and Subsidiary agrees to purchase from Franchise at the Closing, all
right, title and interest of Franchise in and to the tangible and intangible
assets of Franchise (the "Franchise Purchased Assets"; the MW/Cambridge
Purchased Assets and the Franchise Purchased Assets being hereinafter
collectively referred to as the "Purchased Assets"); including without
limitation the following:
(a) All Inventory of the Companies as of the Closing
located at the Stores (as such Stores are listed on Schedule 4.19) or at
warehouses of the Companies, including without limitation, video cassettes,
video games, video game hardware and software, and video cassette players held
at such Stores for rental and sale (the "Inventory");
(b) All of the Companies' right, title and interest in
and to all other tangible personal property and relating to the Stores and the
Business conducted thereat;
(c) All of the Companies' machinery, appliances,
equipment, including the Companies' computer hardware and operating software to
the extent assignable with consent, vehicles
<PAGE> 3
(identified on Schedule 4.13), tools, supplies, leasehold improvements,
construction in progress, furniture and fixtures used or held for use by the
Companies in connection with the Business as of the Closing, including those
items listed on Schedule 4.13 attached hereto (the "Fixed Assets and
Vehicles");
(d) All Intellectual Property (as defined in Section 4.15
below) of the Companies;
(e) All of the Companies' right, title and interest under
those Leases (as defined in Section 4.19 below) and Contracts (as defined in
Section 4.16 hereof) (collectively the "Assigned Leases and Contracts");
(f) All of the Companies' right, title and interest in
and to the telephone numbers for the Business and the directory advertising for
such telephone numbers, to the extent assignable;
(g) All claims, security and other deposits, refunds,
prepaid expenses, causes of action, choses in action, rights of recovery,
warranty rights, rights of set off in respect of the Business and the Purchased
Assets, Reimbursable Cooperative Expenses (as defined in Section 3.16 hereof)
including without limitation, those items listed on Schedule 4.10 attached
hereto (collectively, the "Deposits"), except that if and to the extent the
Companies are able to obtain a landlord's consent to the return of the security
deposit prior to the Closing without the necessity of Moovies substituting a
security deposit therefor (or otherwise providing any additional economic
benefit to such landlord), the Companies may retain such returned Store
security deposit as an Excluded Asset (as defined in Section 1.2 below);
(h) All of the Companies' licenses, consents, permits,
variances, certifications and approvals of governmental agencies used or held
for use in connection with the Business to the extent transferable;
(i) $500 per Store (as defined in Section 3.3(a) hereof),
which $500 per Store will be left by the Companies in the cash register or safe
of each Store at Closing for the benefit of Moovies;
(j) All accounts receivable of the Companies relating to
the Business as of Closing ("Accounts Receivable"); and
(k) Ordered Items (as defined in Section 2.6(b) hereof)
or, if the Ordered Items have not been received by the Companies prior to the
Closing Date, the purchase orders and Reimbursable Cooperative Expenses, if
any, in respect thereof.
1.2 EXCLUDED ASSETS. Anything to the contrary in Section 1.1
hereof notwithstanding, the Purchased Assets shall exclude the assets of the
Companies expressly set forth on Schedule 1.2
-3-
<PAGE> 4
attached ("Excluded Assets").
1.3 NO LIENS OR ENCUMBRANCES. Except to the extent otherwise set
forth in Section 4.3 below, the Purchased Assets will be transferred and sold
to Moovies free and clear of all claims, liens, encumbrances, security
interests, and similar interests of any kind or nature whatsoever.
ARTICLE 2
ASSET PURCHASE PRICE; ASSUMPTION OF LIABILITIES
2.1 PURCHASE PRICE FOR PURCHASED ASSETS. The purchase price for
the Purchased Assets shall be as follows:
(a) Subject to the adjustments set forth in Section 2.6
below, the consideration to be delivered to MW for the purchase of assets of MW
(the "MW Purchase Price") shall be $7,500,000;
(b) Subject to the adjustments set forth in Section 2.6
below, the consideration to be delivered to Cambridge for the purchase of
assets of Cambridge (the "Cambridge Purchase Price") shall be $54,400; and
(c) Subject to the adjustments set forth in Section 2.6
below, the consideration to be delivered to Franchise for the purchase of
assets of Franchise (the "Franchise Purchase Price") shall be $2,000,000.
2.2 PAYMENT OF PURCHASE PRICE FOR PURCHASED ASSETS. Subject to
the adjustments and rights of offset provided for herein, the MW Purchase
Price, the Cambridge Purchase Price and the Franchise Purchase Price (the
"Aggregate Purchase Price") shall be paid to each of the Companies in cash,
subordinated promissory notes and shares of Common Stock of Moovies, Inc. as
provided on Schedule 2.2; provided that the following terms and provisions
shall apply:
(a) Cash Payments. At the Closing, the cash portion of
the Aggregate Purchase Price payable by Moovies shall be not less than
$5,004,400 and, notwithstanding any term or provision contained in this
Agreement to the contrary, (i) payment of such cash may be made by Moovies at
the Closing by making payment, on behalf of MW and Cambridge or Franchise, to
the lenders or creditors of MW, Cambridge or Franchise with respect to any
indebtedness, obligations or trade payables payable by MW, Cambridge or
Franchise, respectively with respect to the operation of MW, Cambridge or
Franchise or their respective ownership or sale of the Purchased Assets to the
extent set forth on Schedules 4.11(a), (c), and (ii) a portion of such cash
payment shall be withheld as follows: At the Closing, Moovies shall withhold
from the cash payment of the MW Purchase Price an aggregate amount equal to the
then outstanding amount then owed to Michigan Countertop, Acme Sign and Stone,
Biber & O'Toole to permit MW up to 60 days following the Closing Date to settle
and pay these accounts. If
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prior to the expiration of such 60 day period MW delivers to Moovies reasonable
evidence of full satisfaction of the indebtedness of any such accounts, then as
to such account or accounts, Moovies shall promptly pay to MW the amount of the
MW Purchase Price withheld with respect to such account or accounts. If and
to the extent such 60 day period expires without Moovies having received from
MW evidence of such settlement and payment on any such account, Moovies shall
make payment directly to such account or accounts the amount withheld with
respect to such account or accounts, with such payment being made on behalf of
MW and as payment of such portion of the MW Purchase Price. The entire
Cambridge Purchase Price shall be paid in cash.
(b) Subordinated Promissory Note. At the Closing, the
portion of the Aggregate Purchase Price payable to MW in the form of the
Subordinated Promissory Note (the "Subordinated Promissory Note")
attached hereto as Exhibit 2.2(b) shall be not less than $1,800,000 and not
more than $2,000,000. The actual amount within such range shall be determined
by Moovies at its sole discretion.
(c) Registered Shares of Moovies Common Stock. The
balance of the MW Purchase Price and the Franchise Purchase Price shall be paid
to MW and Franchise, respectively, in that number of shares of Common Stock of
Moovies, Inc. determined by dividing the respective balances of the MW Purchase
Price and the Franchise Purchase Price by the Market Price; provided, however,
that (i) in lieu of delivering fractional shares, Moovies, Inc. shall deliver
an amount in cash based on the Market Price. For the purposes hereof, "Market
Price" shall mean the average per share closing price (as reported by The Wall
Street Journal) of Moovies, Inc. Common Stock for the five trading days ending
two trading days immediately preceding the Closing. Notwithstanding the
foregoing, for the purpose of calculating the Market Price in this Section
2.2(c), the "Market Price" shall be deemed to be $5.75 per share if the Market
Price otherwise calculated based on The Wall Street Journal is lower than
$5.75.
2.3 ASSUMED LIABILITIES.
(a) At the Closing, (i) Moovies, Inc. agrees to assume
only the following: all of the duties, rights and obligations of MW,
Cambridge and Florida as lessees and as parties under the Assigned Leases and
Contracts set forth on Schedules 4.16 and 4.19 to which MW, Cambridge or
Florida is a party arising from and after the Closing Date, and (ii) the
Subsidiary agrees to assume only the following: all of the duties, rights and
obligations of Franchise as a party under the Assigned Leases and Contracts to
which Franchise is a party arising from and after the Closing Date
(collectively, the "Assumed Liabilities").
(b) Except for the Assumed Liabilities set forth in
Section 2.3(a) above, it is expressly understood and agreed that Moovies will
not be liable for any of the Companies' or any
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Stockholder's obligations, liabilities, contracts, debts, claims, costs,
expenses, agreements or understandings, of any kind or nature whatsoever at any
time existing or asserted, whether or not accrued, whether fixed,
contingent or otherwise, whether known or unknown, whether arising prior to,
on or after the Closing Date and whether or not relating to the Companies'
operation of the Business or the Companies' ownership or use of the Purchased
Assets (collectively, the "Excluded Liabilities"), including, without
limitation, notwithstanding anything to the contrary contained herein, (i) any
debts or liabilities (including, without limitation, any trade payables, early
termination payments under any contract or other agreement, promissory notes,
or other indebtedness) of the Companies, (ii) any liability or other obligation
of the Companies or the Stockholder in respect of the Business for federal,
state or local taxes, interest, penalties or other charges in connection
therewith for any period of time, (iii) any liability of the Companies for
other expenses, debts or obligations incurred within or outside the ordinary
course of business, and (iv) any liability or other obligation of the Companies
or Stockholder arising from the franchise arrangement with Port Huron, Inc. and
Man Sel, Inc., which franchise arrangement has not been assumed by Moovies.
(c) The Companies shall fully and timely perform, pay and
discharge when due all of the Excluded Liabilities. All trade payables of the
Companies shall be paid in full by the Companies not later than 90 days
following the Closing Date.
(d) Anything to the contrary contained herein
notwithstanding, Moovies shall not assume or have any obligations or
liabilities whatsoever in respect of (i) severance, WARN Act (as hereinafter
defined), income tax withholding, payroll and/or unemployment tax, workers'
compensation, pension, profit-sharing, health insurance, COBRA (as hereinafter
defined) or any other employee or other benefit liabilities in respect of any
Business Employees (as hereinafter defined) or in respect of any Employee
Benefit Plans (as hereinafter defined), including, without limitation any
contribution, tax, lien, penalty, cost, interest, claim, loss, action, suit,
damage, cost assessment, withdrawal liability, liability to the Pension Benefit
Guaranty Corporation (the "PBGC"), liability under Section 412 of the Internal
Revenue Code of 1986, as amended (the "Code") or Section 302(a)(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or other
similar liability or expense of the Companies or any ERISA Affiliate (as
hereinafter defined), all of the foregoing obligations and liabilities being
retained by the Company, and Moovies shall not become a party to any Employee
Benefit Plan as a result of any of the transactions contemplated by this
Agreement.
2.4 ALLOCATION OF PURCHASE PRICE AMONG THE COMPANIES' PURCHASED
ASSETS. The Purchase Price shall be allocated, for tax purposes, among each
item or class of the Purchased Assets and among the Companies and among the
Stores, by Store, as set forth
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on Schedule 2.4 attached hereto. The Companies and Moovies agree that they
will prepare and file any notice or other filings required pursuant to Section
1060 of the Code, and that any such notices or filings will be prepared based
on such tax allocation of the Purchase Price. Moovies agrees to send to the
Companies a completed copy of its Form 8594 ("Asset Acquisition Statement under
Section 1060") with respect to this transaction prior to filing such form with
the Internal Revenue Service.
2.5 CLOSING. The closing of the transactions contemplated herein
(the "Closing") shall take place on or before January 29, 1997 or on such other
business day as is mutually agreed to by the parties hereto (the "Closing
Date"), at the Atlanta, Georgia offices of Arnall Golden & Gregory, counsel
for Moovies, or by mail, courier, telecopy and wire transfer to the extent
mutually acceptable to the parties hereto. All computations, adjustments, and
transfers for the purposes hereof shall be effective as of 12:01 a.m. on the
Closing Date.
2.6 POST CLOSING PURCHASE PRICE ADJUSTMENTS.
(a) Proration of Receipts and Operational Expenses.
Except as otherwise specifically provided herein, any receipts of the Business
in respect of the Purchased Assets and operational expenses of the Business in
respect of the Assumed Liabilities including but not limited to rents
(including a credit for the prepayment of any rents), utilities, maintenance
expenses, real property taxes, etc. and personal property taxes, shall be
prorated as of the Closing Date (or, to the extent not known on the Closing
Date, estimates shall be made in respect thereof as of the Closing Date,
subject to adjustment thereafter upon the receipt of invoices or other
verifying information) and the appropriate adjustments made between the parties
hereto as a result of such prorations. The prorations of expenses shall
include, as amounts for which the Companies are responsible, amounts due under
the various leases of the Stores for common area maintenance expenses and real
estate taxes for the period prior to the Closing Date, even though such amounts
are not determined until after the Closing Date in accordance with the
provisions of the leases. The prorations in respect of the Purchased Assets
and Assumed Liabilities shall be made to reflect the intent of the parties
hereto that the Companies shall be responsible for all expenses in respect of
the Assumed Liabilities and shall have all receipts (including credit for
prepaid expenses) in respect of the Purchased Assets allocated or accrued to
the period ending at 12:01 a.m. on the Closing Date, and that Moovies shall be
responsible for all expenses in respect of the Assumed Liabilities and shall
have receipts in respect of the Purchased Assets all allocated to the period
commencing at 12:01 a.m. on the Closing Date. Notwithstanding the foregoing,
the Companies shall be solely responsible for all expenses, whether accrued,
arising or allocated before or after the Closing Date, in respect of the
Excluded Liabilities or associated with the Excluded Assets.
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(b) Ordered Items of Inventory. In respect of all items
of new release videos and video games ordered by the Companies from its
suppliers in the ordinary course of business for the Stores in accordance with
the terms of this Agreement between the date hereof and Closing ("Ordered
Items"), (1) all such Ordered Items received by the Companies prior to Closing
(or if such Ordered Items have not been received by the Companies prior to the
Closing, the purchase orders in respect thereof) shall become part of the
Purchased Assets and transferred to Moovies at Closing pursuant to the terms
below, (2) the Companies shall remain liable for the payment to its suppliers
therefor, and (3) except as provided in (A) and (B) below, there shall be no
reimbursement by Moovies to the Companies in respect of the cost thereof.
(A) If the Ordered Items have not been received
by the Companies on or prior to the Closing Date, but are received in the
ordinary course of business by Moovies after the Closing, then Moovies agrees
to reimburse the Companies (promptly upon written proof of payment by the
Companies satisfactory to Moovies) for the Companies' payment to its suppliers
therefor.
(B) If the Ordered Items have been received by
the Companies on or prior to the Closing Date and have a street release date
after the last Friday immediately preceding the Closing, Moovies shall
reimburse the Companies (promptly upon written proof of payment by the
Companies satisfactory to Moovies) for the Companies' payment to its suppliers
therefor. On the Closing Date (or within 14 days thereafter as of the Closing
Date), the Companies shall furnish Moovies with a list of purchase orders,
invoice numbers and amounts owing and/or paid to its suppliers with respect to
the Ordered Items.
(C) the Companies agree to cooperate and provide
reasonable assistance to Moovies in obtaining reimbursement in respect of
reimbursable cooperative expenses relating to the Ordered Items.
(c) "Peel a Deal" and Gift Certificate Liability. The
Companies or Stockholder shall reimburse Moovies in cash for the cost to
Moovies of "peel a deal"and gift certificate liabilities promptly upon written
evidence of such costs incurred by Moovies reasonably satisfactory to the
Companies, if and to the extent the aggregate amount of "peel a deal"
redemptions exceeds $30,000 during only the first 45 days following the Closing
at a stipulated cost to Moovies of $2.00 per movie, and if and to the extent
the aggregate amount of gift certificate redemptions exceeds $10,000 during
only the first 45 days following the Closing; provided, however, that for the
foregoing to apply Moovies must elect to discontinue the "peel a deal" and gift
certificate programs at the Closing and so notify the Companies in writing at
the Closing. In the event of such election, the existing, unused printed
materials will be promptly destroyed jointly by Moovies and Stockholder.
Stockholder will have reasonable access to the books and records
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pertaining to peel a deal and gift certificate redemptions made during such
45-day period if claims are made by Moovies hereunder with respect to such
redemptions. The Companies have no early return bonuses outstanding.
(d) Closing Audit and Dispute Resolution.
(i) In order to confirm prorations and
adjustments under this Section 2.6, within sixty (60) days after the Closing
Date, Moovies will cause to be delivered to the Companies an audit or other
accounting, at Moovies' sole expense, of the adjustments and prorations to the
Aggregate Purchase Price made under this Section 2.6, identifying such
adjustments and prorations on a Company by Company basis ("Closing Audit").
The Companies and the Stockholder will have sixty (60) days to review and
present in writing to Moovies all objections it may have to the Closing Audit,
which objections shall be set forth in reasonable detail. If no objections are
raised within such 60-day period, the Closing Audit shall be deemed accepted
and approved by the Companies and the Stockholder and any payments to be made
in respect thereto, plus interest accrued thereon from the Closing Date until
paid at a rate of 6.25% per annum, shall be promptly made in cash, or, if
payable to Moovies, shall be deducted from the Subordinated Promissory Notes.
(ii) On a date which is within 48 hours before the
Closing Date, Seller shall conduct, and representatives of Moovies or its
designee shall have the right to be present at, a physical count of Inventory
of each Company at each Store. Each Company shall also provide to Moovies
within 7 days after the Closing Date, a summary data file on computer disk
containing a list, as of the Closing Date, of all Inventory at the Stores (the
"Closing Count"). By delivery thereof, each Company shall represent that the
Closing Count is a true, correct and complete list as of the Inventory as of
the date thereof.
(iii) If items on the Closing Audit are disputed,
Moovies and the Companies will attempt in good faith to resolve such dispute,
and if resolved, any payments to be made in respect thereto, plus interest
accrued thereon from the Closing Date until paid at a rate of 6.25% per annum
shall be promptly made in cash, or, if payable to Moovies shall be deducted
from the Subordinated Promissory Notes.
(iv) If the parties are unable to resolve the
dispute within 20 days after notice is given to the other party, the dispute
will be resolved by arbitration in Detroit, Michigan in accordance with the
rules of the American Arbitration Association by a mutually acceptable "Big
Six" accounting firm, which firm shall make a final and binding determination
as to such matters in dispute. Upon such resolution, Moovies or the Companies,
as the case may be, will promptly pay the amount due, if any, in cash, as
determined by the accounting firm, to the other
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party, plus interest accrued thereon from the Closing Date at a rate of
6.25% per annum or, if such payment is payable to Moovies, Moovies shall
deduct such amount from the Subordinated Promissory Notes. The fees and
expenses of the accounting firm shall be paid by the party against whom such
award is made.
(v) Moovies, the Companies and the Stockholder
agree to cooperate in good faith with each other, each other's authorized
representatives, and any accounting firm selected pursuant hereto to resolve
any and all matters in dispute as soon as practicable.
ARTICLE 3
ADDITIONAL COVENANTS
3.1 EMPLOYEE MATTERS.
(a) Moovies may, but shall be under no obligation to,
offer employment to employees of each Company. As to any employees of the
Company hired by Moovies, Moovies shall not assume any of either Company's
employment liabilities that have accrued on or before the Closing, including
but not limited to, unpaid FICA, FUTA, unemployment tax, pension or
profit-sharing plan contributions, employee fringe benefits, bonuses or
incentive programs of any type, nor shall Moovies acquire any interest or
obligation under any pension, profit sharing, retirement or other similar plan
of either Company. Each Company shall retain all severance obligations to
their respective employees.
(b) Each Company shall be solely responsible for
terminating the employment of, and providing all notices required by applicable
law, in respect of all employees of the Companies. Without limiting the
generality of the foregoing, Seller shall be responsible for providing all
notices and other communications to employees which may be required under the
Worker Adjustment and Retraining Act (the "WARN Act") other than those required
solely due to actions of Moovies.
(c) Each Company shall provide "Continuation Coverage"
((within the meaning of Section 4980B of the Internal Revenue Code of 1986, as
amended (the "Code") and Part 6 of Subtitle B of Title I of ERISA) (such
statutory provisions are referred to herein collectively as "COBRA")), to all
Business Employees (as hereinafter defined) who either (A) have experienced a
"Qualifying Event" (within the meaning of COBRA) prior to the Closing Date and
for whom the period of Continuation Coverage required by COBRA has not, as of
the Closing Date, expired (such persons are hereinafter referred to as
"Pre-Closing Qualified Beneficiaries"), and (B) are employees of either Company
as of the Closing. In addition, each Company shall provide group health
coverage to employees of each Company (and their eligible dependents) who
are, as of the Closing Date, on a leave of absence governed by the Family and
Medical Leave Act of 1993, as amended ("FMLA"), in accordance with the
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requirements of FMLA and COBRA. Seller shall provide, or cause to be
provided by an ERISA Affiliate, all applicable notifications of any conversion
rights or privileges available under any Employee Benefit Plan which is an
"employee pension benefit plan" or an "employee welfare benefit plan" (as that
term is defined in Section 3 of ERISA) which arise as a result of the
transactions contemplated by this Agreement.
(d) As of the Closing Date and except as otherwise
provided in Sections 3.1(c) and (e) hereof, participation of Business Employees
in each Company's Employee Benefit Plans shall terminate and each Company shall
satisfy all rights to their vested benefits as provided under the terms of such
Employee Benefit Plans. Each Company shall provide all Business Employees on a
timely basis with all notices of termination as required under the terms of the
such Employee Benefit Plans and applicable law.
3.2 CONSENTS. Prior to the Closing, the Companies and Stockholder
will promptly apply for or otherwise seek, and shall obtain, all consents and
approvals required with respect to each Company and/or the Stockholder for
consummation of the transactions contemplated hereby, including without
limitation, those consents listed in Schedule 4.4 hereof (including consents
(to the extent required) and estoppels from the lessors under the Leases listed
on Schedule 4.19 to Moovies in substantially the form of Exhibit 3.2(i)
attached hereto or in such other form as mutually agreed to by the parties
hereto and those consents in respect of those Contracts listed in Schedule 4.16
attached hereto) and the addenda to Leases with the lessors under the Leases in
substantially the form of Exhibit 3.2(ii) attached hereto or in such other form
as mutually agreed to by the parties hereto. Any charges imposed by the
lessors or the other parties to the Contracts for such estoppels and consents
shall be borne by the Stockholder, and the Stockholder shall indemnify Moovies
against any loss or liability incurred by Moovies resulting from the
Stockholder's failure to pay such charges; provided, however, Moovies agree
that it will pay for supplemental security deposits (not to exceed one month's
base rent under the lease in respect thereof) in respect of not more than three
leases for Stores under this Agreement if requested to do so by the lessors
thereof.
3.3 BUSINESS INFORMATION.
(a) Each of the Companies currently conducts its Business
at the respective stores listed for each on Schedule 4.19 attached hereto
(collectively, the "Stores"). Prior to the execution and delivery hereof, the
Companies shall have delivered to Moovies all such Schedules and true, correct
and complete copies of all documents, together with all amendments thereto
through the date of execution hereof, contemplated by this Agreement and
required by the terms hereof to be listed on the Exhibits or Schedules attached
hereto, including without limitation any Leases (as defined in Section 4.19
below and listed on Schedule 4.19
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attached hereto), Contracts (as defined in Section 4.16 below), the Unaudited
Historical Financials (as defined in Section 4.8 below) of the Companies and
the Companies' tax returns (pursuant to Section 4.12 hereof). Each Company,
its employees, agents and representatives shall provide to Moovies, its
employees, agents, counsel, accountants, financial consultants and other
representatives full access during normal business hours to all information
regarding such Company's assets and Business, and shall fully cooperate with
Moovies in order to verify the accuracy of the information delivered by such
Company. Each Company shall afford Moovies, its employees, agents, counsel,
accountants and financial consultants, full access, during normal business
hours and any reasonably necessary hours thereafter, to the offices,
properties, records, files and other documents and information of or relating
to such Company's Business and assets as Moovies, its employees, agents,
counsel, accountants or financial consultants may reasonably request. Each
Company shall allow Moovies, its employees, agents, counsel, accountants and
financial consultants access during normal business hours, at such party's sole
expense to a work area within its business office and shall allow the copying
of any such records as requested by such party.
(b) Without limiting the generality of the foregoing, the
Companies hereby agree to permit KPMG Peat Marwick (the "Accountants"), to
conduct an audit (the "Audit"), at Moovies' expense, of the Companies'
financial operations for the three years ended December 31, 1995, for the
interim periods ending on March 31, 1996, March 31, 1995, March 31, 1994, June
30, 1996, June 30, 1995, June 30, 1994, September 30, 1996, September 30,
1995, September 30, 1994 and for the interim period ending on a date in 1996
prior to or on the Closing Date as determined by the Accountants. As soon as
is reasonably practicable after the execution of this Agreement, the Companies
and the Stockholder agree to provide the Accountants, at Stockholder's expense,
with (i) Unaudited Historical Financials (as such term is defined in Section
4.8(a) below) for the year ended December 31, 1996, and (ii) accounts payable
ledgers as described in Section 4.11 hereof, fixed asset ledgers as described
in Section 4.13 hereof, perpetual inventory listings as described in Section
4.14 hereof, a cooperative receivables listing as described in Section 4.10
hereof, a reconciliation of all bank accounts of each Company through the last
day of the calendar month immediately preceding the Closing as described in
Section 4.26 hereof (collectively, the "Source Documents for the Audit"). Each
Company agrees to cooperate fully with the Accountants in providing all such
financial records requested by the Accountants and, after the Closing, the
Stockholder agrees to cooperate fully with the Accountants in providing all
such financial records requested by the Accountants.
(c) Through the Closing, Moovies shall, and shall cause
its employees, agents, counsel, accountants, financial consultants and other
representatives to, hold in strict confidence any and all
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information obtained from the Companies or the Stockholder and to not disclose
any such information (unless such information is or becomes ascertainable from
public sources or public disclosure of such information is in the good faith
judgment of Moovies required by law); provided, however, that nothing contained
herein shall limit the right of any such persons to disclose any such
information to Moovies, its employees, agents, representatives, counsel,
accountants, financial advisors, underwriters and sources of financing (and
their counsel and accountants) or persons from whom consent is required in
connection with the transactions contemplated herein. Moovies agrees not to
initiate contact with the Companies' lessors or employees without the prior
consent of the Companies. In the event the parties terminate this Agreement,
then, upon written request, each party agrees to return to the other party all
written documents and tangible items containing any confidential information
not in the public domain which has been furnished or supplied to such party by
the other party or which has been copied or summarized by the receiving party,
and agrees for a period of three years after the termination of this Agreement,
not to use any such information for any purpose or disclose any such
information to any party.
(d) Moovies' due diligence review and any inspections
pursuant thereto shall not waive or release the Companies or the Stockholder
from any of their representations or warranties under this Agreement.
3.4 NONCOMPETITION AGREEMENT. Concurrently with the Closing, the
Stockholder and each of the Companies shall enter into a Noncompetition
Agreement with Moovies, in the form of Exhibit 3.4, attached hereto and made a
part hereof.
3.5 INTENTIONALLY OMITTED.
3.6 CONDUCT OF BUSINESS BY THE COMPANIES PENDING CLOSING. The
Companies and the Stockholder covenant and agree that, unless Moovies shall
otherwise consent in writing, between the date hereof and the Closing, the
Business of the Companies shall be conducted only in, and the Companies shall
not take any action except in the ordinary course of business and in a manner
consistent with past practice; and each Company will use its best efforts to
preserve substantially intact the business organization of such Company, to
keep available the services of the present officers, employees and consultants
of each Company and to preserve the present relationships of such Company with
customers, suppliers and other persons with which such Company has significant
business relations. The Companies and Stockholder acknowledge and agree that
the Aggregate Purchase Price is based upon the assumption that, and the
obligation of Moovies to close is conditioned in part upon the assumption that,
neither the Companies nor the Stockholder shall breach or permit the breach of
any of the covenants contained in this Section 3.6. By way of amplification
and not limitation, except as expressly provided for in this Agreement or with
the
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prior written consent of Moovies, each Company and Stockholder shall not do
any of the following, directly or indirectly, between the date hereof and the
Closing:
(a) (i) except in the ordinary course of business and in
a manner consistent with past practices, sell, pledge, dispose of, or encumber
or authorize or propose the sale, pledge, disposition or encumbrance of any
assets of such Company; (ii) engage in any bulk sales, "tent" sales or sales of
rental or other merchandise inventory to used tape brokers, wholesalers,
distributors or others other than in the ordinary course of business consistent
with past practices; (iii) enter into any material contract, lease or
agreement, except in the ordinary course of business; (iv) authorize any single
capital expenditure in excess of $10,000 or capital expenditures in the
aggregate in excess of $15,000; or (v) enter into or amend any contract,
agreement, commitment or arrangement with respect to any of the matters set
forth in this Section 3.6(a);
(b) take any action other than in the ordinary course of
business and in a manner consistent with past practice (none of which actions
shall be unreasonable or unusual) with respect to increasing the compensation
of any officer, director, stockholder or employee of such Company (other than
the Stockholder) or with respect to the grant of any severance or termination
pay (otherwise than pursuant to policies of such Company in effect on the date
hereof and fully disclosed to Moovies in writing prior to the date hereof) or
with respect to any increase of benefits payable under its severance or
termination pay policies in effect on the date hereof;
(c) make any payments except in the ordinary course of
business and in amounts and in a manner consistent with past practice (none of
which payments shall be unreasonable or unusual), under any Employee Benefit
Plan or otherwise to any employee of, or independent contractor or consultant
to, such Company, enter into any Employee Benefit Plan, any employment or
consulting agreement, grant or establish any new awards under any existing
Employee Benefit Plan or agreement, or adopt or otherwise amend any of the
foregoing;
(d) except with respect to the Major Video Concepts
("MVC") account for which MVC has granted the Company the right to defer until
the Closing an aggregate payment of approximately $182,957 as of the date
hereof with respect to one month until the Closing (the "MVC One Month Deferral
Payment"), take any action except in the ordinary course of business and in a
manner consistent with past practice with respect to, or make any change in,
its methods of management, purchasing, distribution, marketing, accounting or
operating (or practices relating to payment of trade accounts or to other
payments), including, without limitation, rejecting deliveries of videos, video
games and other Inventory except rejections in the ordinary course of business
consistent
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with the Companies' past practices;
(e) except in the ordinary course of business or as
specifically permitted herein in respect of stores the Companies are currently
constructing, take any action to incur or increase prior to Closing any
indebtedness for borrowed money from banks or other financial institutions or
cancel, without payment in full, any notes, loans or other receivables except
in the ordinary course of business, or permit to exist any negative cash
balances at the Stores or in the Companies bank accounts;
(f) loan or advance monies to any person under any
circumstance whatsoever except travel advances, advances in connection with
vacations, or other reasonable expense advances to employees of the Company
made in the ordinary course of business (consistent with past practices);
(g) take any action such that MW and Cambridge have less
than 21 video rental stores open and operational, and an additional Florida
Store under lease, at the Closing and Franchise shall have not less than 43
franchised stores (unless and to the extent such 43 franchised stores is
reduced by up to 5 stores as a result of litigation currently pending between
the original franchisor and such franchisees with respect to such 5 franchised
stores (the "Five Franchised Stores");
(h) do any act or omit to do any act, other than as
specifically set forth on Schedule 3.6 attached hereto, which would cause a
breach of any contract, commitment or obligation of such Company; or
(i) permit any of the Companies to suffer any material
adverse change in their respective businesses or financial condition; fail to
maintain the quantity and quality of the inventory of any of the Companies'
stores; fail to pay any debts or obligations when due; permit to exist any
negative cash balances; or become subject to any lawsuits or proceedings which
would materially adversely affect the transactions contemplated hereby, the
assets of the Companies or the operation of the businesses of the Companies.
From and after the date hereof the Companies shall review with Moovies'
Purchasing Department returns and bulk sale transactions made in respect of the
Business.
3.7 REMOVAL OF LIENS AND ENCUMBRANCES.
(a) The Companies and the Stockholder hereby agree to
obtain and file releases and termination statements for all recorded liens,
encumbrances, judgments and similar filings which in any way relate to or
affect the Purchased Assets, which such liens are listed on Schedule 3.7
attached hereto (the "Recorded Liens") as and when provided herein. In respect
of any such
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Recorded Liens that reflect underlying obligations of the Companies
that have previously been satisfied, the Companies shall obtain and file
releases and termination statements in respect thereof on or prior to the
Closing Date. In respect of any Recorded Liens that reflect underlying
obligations that will be paid by the Companies or Moovies at Closing (with a
portion of the Purchase Price), the Companies shall, on or prior to the Closing
Date, prepare termination statements and releases in respect of such Recorded
Liens and cause them to be executed by the secured party in respect thereof and
filed promptly after the Closing (and in any event within 10 days after the
Closing) upon confirmation by such secured party of receipt of funds satisfying
such underlying obligation of the Companies. The Companies and the Stockholder
hereby, jointly and severally, covenant and agree to indemnify and hold Moovies
harmless from and against any and all losses or liabilities incurred by Moovies
resulting from or arising out of the Companies' failure to remove any Recorded
Liens.
(b) Prior to the Closing, the Companies and Stockholder
shall have delivered to Moovies and Subsidiary true, correct and complete
copies of all liens, suits, judgments and proceedings of public record against
either of the Companies or their respective assets. Copies of such filings
shall include, without limitation, the Recorded Liens referenced on Schedule
3.7 attached.
3.8 REGISTERED SHARES.
(a) At the Closing, the shares of Common Stock of
Moovies, Inc. issued to the Stockholder will be registered securities
("Registered Shares") under Form S-4. Stockholder, MW and Franchise each
acknowledge receipt and review of (i) the Prospectus dated October 24, 1996
relating to such registration prior to execution of this Agreement, as amended
by first amendment dated December 31, 1996, (ii) the registration statement
("Registration Statement") and the exhibits relating to the Prospectus as filed
with the Securities and Exchange Commission, and (iii) all press releases
issued by Moovies, Inc. since the October 24, 1996 of the Prospectus through
the date hereof, (iv) a copy of any filings made by the Companies with the
Securities and Exchange Commission since from October 24, 1996 through the date
hereof.
(b) Moovies, Inc. and Stockholder acknowledge and agree
that under securities laws as presently in effect, the terms of Stockholder's
employment by Moovies, Inc. following the Closing shall not cause Stockholder
to be deemed to be an "affiliate" of Moovies, Inc. within the meaning of the
Securities Act of 1933. In addition, Moovies, Inc. and Stockholder acknowledge
and agree that Stockholder will not be an executive officer, director or, under
securities laws as presently in effect, an affiliate of Moovies, Inc. solely by
virtue of employment under the terms of the Employment Agreement. As an
employee of Moovies, Inc., Stockholder shall comply with the Insider Trading
Policy of Moovies, Inc., a
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copy of which policy is attached to the form of Employment Agreement attached
as Exhibit 3.12. The number of Registered Shares to be delivered by Moovies,
Inc. at the Closing shall not, solely with respect to such number of shares so
delivered, cause Stockholder to be deemed an "affiliate" of Moovies, Inc. under
securities laws as presently in effect.
(c) At the Closing, Moovies, Inc. shall issue
certificates evidencing the Registered as Shares in the form of the specimen
stock certificate attached as Exhibit 3.8(c), which certificate shall not
contain any legend and shall be delivered in blocks of 50,000 shares, plus
certificates representing the balances, if any, in the name of MW and
Franchise, respectively, to a nationally recognized, registered broker-dealer
reasonably acceptable to Moovies, Inc. ("National Broker"), upon receipt by
Moovies, Inc. of a letter from the National Broker executed by an authorized
officer in form reasonably satisfactory to Moovies, Inc., (the "National Broker
Rule 145 Letter"), representing, warranting and covenanting that (i) such
shares shall be sold by the National Broker upon the direction of the record
holder only in accordance with the rules and requirements of Rule 145 and (ii)
if the National Broker ever releases the certificates evidencing the Registered
Shares without first having sold them to pursuant to a Rule 145 transaction,
then the certificates evidencing the Registered Shares shall first be returned
to Moovies, Inc. for placement of the following legend on such certificates and
return of such certificates to the record holder thereof:
"The shares represented by this certificate have been issued
to the registered holder as a result of a transaction to which Rule 145
under the Securities Act of 1933, as amended (the "Act"), applies. The
shares represented by this certificate may not be sold, transferred or
assigned, and the issuer shall not be required to give effect to any
attempted sale, transfer or assignment, except pursuant to (i) a
registration statement then in effect under the Act with respect to the
resale of such Shares, (ii) a transaction permitted by Rule 145 as to
which the issuer has received evidence of compliance with the provisions
of Rule 145 reasonably satisfactory to it, or (iii) a transaction which,
in the opinion of counsel or as described in a 'no action' or
interpretive letter from the staff of the Securities and Exchange
Commission, in each case satisfactory in form and substance to the
issuer, is exempt from the registration requirements of the Act."
(d) Following the Closing, in the event the Registered
Shares cannot be resold in Rule 145 transactions as contemplated above,
Moovies, Inc. covenants and agrees to use its reasonable best efforts to amend
the Registration Statement to so permit the resale of such Registered Shares
under Rule 145.
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3.9 NOTIFICATION OF CERTAIN MATTERS.
(a) From the date hereof until the Closing, each Company
shall give prompt notice to Moovies of the following:
(i) The occurrence or nonoccurrence of any event
whose occurrence or nonoccurrence would be likely to cause either (A) any
representation or warranty of any Company or the Stockholder contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Closing, or (B) directly or indirectly, any Material
Adverse Effect. The term "Material Adverse Effect" means any change in or
effect on the Business of any Company that is or will be materially adverse to
the Business, operations, properties (including intangible properties),
condition (financial or otherwise), assets, liabilities or regulatory status of
such Company.
(ii) Any material failure of any Company, the
Stockholder, any officer, director, employee or agent of any Company or the
Stockholders, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder.
(b) From the date hereof until the Closing, Moovies shall
give prompt notice to the Companies and the Stockholder of the following:
(i) the occurrence or nonoccurrence of any event
whose occurrence or nonoccurrence would be likely to cause either (A) any
representation or warranty of Moovies contained in this Agreement to be untrue
or inaccurate in any material respect at any time from the date hereof to the
Closing, or (B) directly or indirectly, any change in or effect on the business
of Moovies that is or will be materially adverse to the business, operations,
properties (including intangible properties), condition (financial or
otherwise), assets, liabilities or regulatory status of Moovies taken as a
whole;
(ii) any material failure of Moovies, or any
officer, director, employee or agent of Moovies, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; or
(iii) any event of default under Moovies, Inc.'s
Senior Indebtedness (as such term is defined in the Subordinated Promissory
Note) which, if not cured, would prohibit Moovies, Inc. from meeting its
obligations under the Subordinated Promissory Note;
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(c) Notwithstanding the foregoing, the delivery of any
notice pursuant to this Section 3.9 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
3.10 PRESS RELEASES. (a) The Companies and Stockholder shall
obtain the prior written consent of Moovies before issuing any press release,
except as may be in the good faith belief of the party issuing such press
release required by law. Moovies' obligations regarding Moovies' public
announcements are set forth in Section 3.3(c) above.
(b) No provision contained in this Agreement shall
prevent Moovies, Inc. from issuing any press releases or making any filings
with government authorities that it deems necessary or desirable with respect
to the execution of this Agreement or the consummation of the transactions
contemplated herein; provided, however, that (i) press releases shall not
disclose the value of the consideration delivered by Moovies upon consummation
of the Closing and (ii) unless otherwise required by law, no press releases
shall be issued by Moovies until Moovies has obtained the consent of its lender
to the transactions contemplated hereby.
3.11 SENIOR INDEBTEDNESS. Moovies covenants and agrees that from
the date hereof until full payment of the Subordinated Promissory Note Moovies
will not modify any existing Senior Indebtedness or enter into any additional
Senior Indebtedness to contain terms which would prohibit Moovies from making
timely payments of principal and interest under the Subordinated Promissory
Note, unless such prohibition arises from an "event of default", as "event of
default" is or shall be defined under such Senior Indebtedness.
3.12 EMPLOYMENT AGREEMENT. Concurrently with the Closing, the
Stockholder and Moovies shall enter into an employment agreement (the
"Employment Agreement") in the form of Exhibit 3.12 attached hereto and made a
part hereof.
3.13 NO NEGOTIATIONS. The Stockholder and the Companies covenant
that, subject to the termination provisions contained herein, from and after
the date hereof until Closing, neither any Company nor its respective officers
or directors nor anyone acting on behalf of any Company or such persons, nor
the Stockholder, shall, directly or indirectly, solicit, engage in discussions
or negotiations with, or provide any information to, any person, firm or other
entity or group (other than Moovies or its representatives) concerning any
merger, sale of substantial assets, purchase or sale of shares of capital stock
or similar transaction involving either Company. In addition, the provisions
of Sections 11.1 and 11.2 of that certain letter of intent dated July 16, 1996
between Moovies, MW, Franchise and Stockholder as amended (the "Letter of
Intent"), are hereby expressly incorporated herein by reference and applicable
from the date hereof.
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3.14 INTENTIONALLY OMITTED.
3.15 INTENTIONALLY OMITTED.
3.16 COOPERATIVE EXPENSES. The Companies have incurred certain
advertising expenses, a portion of which have been submitted to various
distributors for reimbursement pursuant to certain agreements between members
of the Companies and such distributors with respect to cooperative advertising,
a true, correct and complete description of which for each Company is contained
as a separate disclosure on Schedule 3.16 (the "Reimbursable Cooperative
Expenses"). To the extent the distributors fail to reimburse Moovies for such
Reimbursable Cooperative Expenses, which would be due in the normal course of
business, Moovies will notify Stockholder in writing of such failure, and
Stockholder will have the right to assist Moovies in obtaining such
Reimbursable Cooperative Expenses. If Moovies is unable to obtain
reimbursement within 120 days following the date Stockholder received written
notice of such failure, Moovies shall have a right of set-off under the
Subordinated Promissory Notes equal to the amount of such unreimbursed
Reimbursable Cooperative Expenses.
3.17 LEASES FOR AFFILIATED STORES. (a) In respect of any of the
Stores located in premises which are owned directly or indirectly by
Stockholder or any affiliate of any of the Companies, which Stores are listed
on Schedule 3.17(a) attached (the "Affiliated Stores"), each Company and
Stockholder agrees that such Company and Stockholder shall, or shall cause such
owner, to enter into an amended and restated lease containing a fair market
rental and such other terms and conditions satisfactory to Moovies in
substantially the form of Exhibit 3.17(a) attached hereto (the "Affiliated
Store Lease"). Schedule 3.17(a) also sets forth with respect to each
Affiliated Store Lease the rents, CAM charges, taxes and other costs payable
from the date hereof through December 31, 2001.
(b) Notwithstanding the terms and provisions contained in
Section 3.17(a) above, with respect to Affiliated Store No. 4 at the Closing,
Stockholder and Moovies, Inc. will enter into an Sublease Agreement in form
reasonably acceptable to Stockholder and to Moovies, Inc. which includes the
terms summarized in Schedule 3.17(b) attached (the "Affiliated Store
Sublease"). Stockholder agrees to act in good faith and cooperate with
Moovies, Inc. to assist Moovies, Inc. in substituting for the Affiliated Store
Sublease a direct lease with the master landlord for such premises on terms on
which the gross rental payment and cost thereunder are no greater to Moovies,
Inc. than those set forth in the Affiliated Store Sublease. In agreeing to act
in good faith and cooperate with Moovies, Inc., Stockholder agrees to similarly
enter into a substitute lease with such landlord with respect to the "Pizza
Hut" space retained by Stockholder as sublessor and situated adjacent to such
video rental store leased premises if the
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landlord so agrees to enter into a substitute lease without additional cost to
Stockholder. So long as the Affiliated Store Sublease remains in effect,
Stockholder agrees not to breach any term or provision contained in
Stockholder's lease with the master landlord and not to take any action, or
fail to take any action, under the master lease which would breach any rights
of Moovies, Inc. as lessee.
3.18 PERSONAL ASSETS. The parties acknowledge and agree that those
assets set forth on Schedule 1.2 attached hereto are owned personally by
Stockholder and not by any of the Companies ("Personal Property") and shall be
retained by Stockholder and removed from the Stores within 120 days after the
Closing. All risk of loss of such Personal Property will remain with
Stockholder, before and after its removal.
3.19 CASH AT STORES. The Companies agree that $500 will be left in
the cash register or safe of each Store at Closing for the benefit of Moovies.
3.20 INTENTIONALLY OMITTED.
3.21 COVENANT RE: TAX MATTERS.
(a) Payment of Taxes. The Companies and the Stockholder
shall be solely responsible for payment of (i) any and all federal, state,
local, foreign, and other taxes, assessments or other governmental charges,
including, without limitation, income, estimated income, business, occupation,
franchise, property, sales, gross receipt, employment, or withholding taxes,
including interest, penalties and additions in connection therewith for which
any of the Companies or Stockholder is or may be liable, arising from the
operation of any of the Companies or the Business, or the Companies' use of the
Purchased Assets, prior to Closing (regardless of whether the filing of any
return with respect thereto or payment of any amount in respect thereof is
filed, paid or due prior to, on or after the Closing Date), and (ii) any sales,
stamp, use, transfer, recording or similar tax liability with respect to the
sale of the Purchased Assets to Moovies by the Companies (collectively, "Taxes"
and individually a "Tax"). Notwithstanding the foregoing, Moovies shall be
solely responsible for payment of any and all recording costs for recording any
lease assignments.
(b) Allocations. The parties agree that in the case of
any Tax period that begins before and ends after the Closing Date, the Tax for
the pre-Closing portion of such period shall be determined by allocating items
of income, deduction, credits and allowances between the pre-Closing portion
and the post-Closing portion in accordance with the provisions of Treasury
Regulations Section 1.1502-76(b)(2), and by calculating the Tax for such
pre-Closing portion as if such portion were a separate Tax year.
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(c) Filing of Tax Returns. Unless otherwise agreed to
by Moovies and the Companies, the Companies and the Stockholder shall be
responsible for, and shall pay all costs incurred in connection with, preparing
and filing all Tax returns for all Tax periods in respect of the Companies and
the Business ending on, before and after the Closing Date which have not been
previously filed; provided that not less than ten (10) days prior to the filing
of such returns, such returns shall be submitted to Moovies for its review.
Moovies shall pay to the Companies any and all amounts received by Moovies at
any time after the Closing to the extent such amounts are attributable to
recovery, refund or other return of Taxes for any Tax period in respect of the
Companies and the Business ending on or before the Closing Date the payment of
which has been received by Moovies.
(d) Cooperation. Except as otherwise provided in this
Agreement, the parties hereby agree that each of them shall cooperate with the
other in executing or causing to be executed any required document and by
making available to the other all work papers, records and notes of any kind at
all reasonable times for the purpose of allowing the appropriate party to
complete Tax returns, participate in a proceeding, obtain refunds, make any
determination required under this Agreement or defend or prosecute Tax claims.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
THE COMPANIES AND THE STOCKHOLDER
In order to induce Moovies to enter into this Agreement and consummate
the transactions contemplated hereby, each Company and the Stockholder jointly
and severally represent and warrant to Moovies as follows, each of which
warranties and representations is material to and relied upon by Moovies.
4.1 ORGANIZATION AND AUTHORITY OF THE COMPANIES. Each Company is
a corporation duly organized and validly existing under the laws of the State
of Michigan. Each Company is duly qualified as a foreign corporation in all
jurisdictions in which the conduct of its business or the ownership of its
properties requires such qualification and Schedule 4.1 lists all the states
where such Company is so qualified. Each Company has all necessary corporate
power and authority to own, lease and operate its properties and conduct its
business as it is currently being conducted. None of the Companies owns,
directly or indirectly, any equity interest in any corporation, partnership,
joint venture, or other entity nor does it have any subsidiaries, which for
purposes of this Agreement means any corporation or other legal entity of which
any Company (either alone or through or together with any other affiliate of
such Company) owns, directly or indirectly, more than 50% of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
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4.2 CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. Each
Company has full corporate power and authority, and the Stockholder has full
power and authority, to execute and deliver this Agreement and each of the
Transaction Documents to which any Company or the Stockholder is or will be a
party and to consummate the transactions contemplated hereby. "Transaction
Documents" means each of the agreements, documents and instruments referenced
in this Agreement to be executed and delivered by any Company and/or the
Stockholder. The directors and the Stockholder of each Company have duly
approved and authorized the execution and delivery of this Agreement and each
of the Transaction Documents to which such Company is or will be a party and
the consummation of the transactions contemplated hereby and thereby, and no
other corporate proceedings are necessary. Assuming that this Agreement and
each of the Transaction Documents which are also Moovies' Transaction Documents
(as defined herein) constitutes a valid and binding agreement of Moovies, as
applicable, this Agreement and each of the Transaction Documents constitutes,
or will constitute when executed and delivered, a valid and binding agreement
of such Company and/or the Stockholder, as the case may be, in each case
enforceable in accordance with its terms, subject to laws of general
application in effect affecting creditors' rights and subject to the exercise
of judicial discretion in accordance with general equitable principles.
4.3 TITLE TO ASSETS. Except as disclosed on Schedule 4.3 attached
hereto, each Company has good and valid title to all of its assets (and a valid
and enforceable leasehold interest in all of its assets subject to Leases),
free and clear of any liens, pledges, encumbrances, claims or similar rights of
third parties except for (i) any liens for taxes not yet due and payable and
(ii) liens that, individually and in the aggregate, are immaterial in
character, amount and extent, and which do not detract from the value or
interfere with the present or proposed use of the assets they affect. At the
Closing, the Companies will transfer to Moovies, Inc. and the Subsidiary,
respectively, good and valid title to all of the respective Companies' assets
(and valid and enforceable leasehold interests in all assets subject to
Leases), free and clear of any liens, pledges, charges, encumbrances, claims or
similar rights of third parties, except for (i) any liens for taxes not yet due
and payable; (ii) liens that, individually and in the aggregate are immaterial
in character, amount and extent, and which do not detract from the value or
interfere with the present or proposed use of the Companies' assets they
affect; (iii) those liens and encumbrances set forth on Schedule 4.3 attached
hereto; and (iv) those liens and encumbrances for which Moovies shall receive
secured lender and secured creditor payoff letters at the Closing pursuant to
Section 7.4(m) below.
4.4 NO CONFLICT; REQUIRED CONSENTS. Assuming all consents,
approvals, authorizations and other actions listed on Schedule 4.4 hereto have
been obtained or taken prior to Closing, the execution and delivery by each
Company and the Stockholder of this Agreement
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and the Transaction Documents, and the consummation by each Company and the
Stockholder of the transactions contemplated hereby and thereby do not and will
not (a) require the consent, approval or action of, or any filing with or
notice to, any corporation, firm, person or other entity or any public,
governmental or judicial authority; (b) violate the terms of any instrument,
document or agreement to which any Company or the Stockholder is a party, or by
which any Company or the Stockholder or the property of any Company or the
Stockholder is bound, or be in conflict with, result in a breach of or
constitute (upon the giving of notice or lapse of time or both) a default under
any such instrument, document or agreement, or result in the creation of any
lien upon any of the property or assets of any Company or the Stockholder; (c)
violate any Company's Articles of Incorporation or Bylaws; or (d) violate any
order, writ, injunction, decree, judgment, ruling, law, rule or regulation of
any federal, state, county, municipal, or foreign court or governmental
authority applicable to any Company or the Stockholder, or the Business or
assets of any Company. Neither any Company nor the Stockholder is subject to,
or is a party to, any mortgage, lien, lease, agreement, contract, instrument,
order, judgment or decree or any other restriction of any kind or character
which would prevent or hinder the continued operation of the Business of any
Company after the Closing on substantially the same basis as theretofore
operated.
4.5 STOCKHOLDER OF THE COMPANIES. Stockholder is the sole
stockholder of each of the Companies.
4.6 COMPLIANCE WITH LAWS. Each of the Companies is in compliance
with all applicable laws, orders, rules and regulations of all governmental
bodies and agencies, except where, in the Companies' or the Stockholder's
reasonable good faith belief, such noncompliance has and will have,
individually or in the aggregate, no Material Adverse Effect on the Business or
assets of such Company. Neither the Company nor the Stockholder has received
written notice of any noncompliance with the foregoing.
4.7 LICENSES AND PERMITS. Each of the Companies holds and is in
compliance with all licenses, permits, concessions, grants, franchises,
approvals and authorizations listed on Schedule 4.7 attached hereto, and such
list constitutes all of the licenses, permits, concessions, grants, franchises,
approvals and authorizations necessary or required for the use or ownership of
such Companies' assets and the operation of such Company's Business. Neither
any Company nor the Stockholder has received written notice of any violations
in respect of any such licenses, permits, concessions, grants, franchises,
approvals or authorizations. No proceeding is pending or, to the knowledge of
any Company or the Stockholder, is threatened, which seeks revocation or
limitation of any such licenses, permits, concessions, grants, franchises,
approvals or authorizations.
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4.8 FINANCIAL INFORMATION.
(a) Attached as Schedule 4.8(a) are true, correct and
complete copies of the combined unaudited balance sheets of the Companies as of
December 31, 1995, December 31, 1994, and December 31, 1993, and as of
September 30, 1996 and September 30, 1995 and combined unaudited income
statements for the fiscal years and interim periods then ended (such interim
periods being the "Unaudited Interim Statements"; collectively the interim
periods and fiscal years being the "Unaudited Financial Statements"). Except
with respect to any amounts paid to the Companies by Stockholder, or paid by
Stockholder to the Companies, or due or owing to or from the Stockholder and
any of the Companies, respectively, for which no representation or warranty is
made (other than the representation and warranty in Section 4.8(b) below), (i)
all such Unaudited Historical Financials (including any related notes and
schedules) have been prepared on an income tax basis and fairly present the
combined financial condition of the Companies at the respective dates thereof
and the results of their combined operations for the periods then ended and
(ii) the Unaudited Historical Financials (including any related notes and
schedules for the fiscal year ended December 31, 1996 to be delivered to
Moovies under Section 3.3(b) above will have been prepared on an income tax
basis and will fairly present the combined financial conditions at December 31,
1996 and the results of their combined operations for the period ended December
31, 1996.
(b) None of the Companies is, nor has any Company been
during the 12 months immediately preceding the execution of this Agreement,
insolvent within the meaning of 11 U.S.C. Section 101(31). Except as set forth
on Schedule 4.8(b) attached hereto, each Company has and is paying its debts as
they become due.
4.9 SUFFICIENCY OF ASSETS. The Purchased Assets constitute all
the material tangible and intangible assets of any nature with which each
Company has conducted its business for the 12 month period prior to the Closing
Date, subject only to additions and deletions of Inventory in the ordinary
course of business and the Excluded Assets. All material assets and rights
relating to each Company's Business are held solely by each Company, and all
agreements, obligations, expenses and transactions related to each Company's
Business have been entered into, incurred and conducted only by such Company,
and no affiliate of such Company owns or has any rights in or to any of the
Purchased Assets, properties or rights used by either Company in the operation
of its Business. All material assets and rights relating to each Company's
Business are held solely by, and all agreements, obligations, expenses and
transactions related to each Company's Business have been entered into,
incurred and conducted solely by, such respective Company.
4.10 DEPOSITS. Attached as Schedule 4.10 is a true, correct and
complete in all material respects list of all security and
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other deposits, prepayments and prepaid expenses and Reimbursable Cooperative
Expenses of each Company setting forth the amount of each Deposit. Certain
Security Deposits may be Excluded Assets to the extent set forth in Section
1.1(g) above.
4.11 TRADE PAYABLES; ACCRUED EXPENSES; OTHER DEBT.
(a) Schedule 4.11(a) is a true, correct and complete list
of the trade payables and accrued expenses of each Company outstanding as of
the date set forth on such schedule. Except as specifically set forth on
Schedule 4.11(a) and except with respect to the MVC One Month Deferred Payment,
all such trade payables and accrued expenses have been incurred in the ordinary
course of business. Schedule 4.11(a) designates which of the trade payables of
the Companies are over 60 days old. Such lists shall be updated by the
Companies every 30 business days until the Closing.
(b) Within ten business days following the Closing Date,
the Companies shall deliver to Moovies an updated list of trade payables and
accrued expenses in all material respects of each Company (the "Closing Trade
Payables and Accrued Expenses List") listing all trade payables and accrued
expenses of the Companies as of the Closing Date. The Closing Trade Payables
and Accrued Expenses Lists will be true, correct and complete in all material
respects and shall designate (i) those trade payables and accrued expenses that
were incurred other than in the ordinary course of business or (ii) are, at the
Closing, over 60 days old.
(c) Schedule 4.11(c) is a true and correct list of all
obligations for all indebtedness of each Company as of the date hereof (other
than trade payables) and all obligations of such Company as of the date hereof
incurred other than in the ordinary course of business, stating the origin of
the obligation, the security therefor, the amount owed and the terms of
payment.
(d) Following the Closing, any trade payables, accrued
expenses, obligations and indebtedness of the Companies outstanding as of the
Closing and not paid in full at the Closing will be promptly paid by the
Companies when due.
4.12 TAX RETURNS AND PAYMENTS.
(a) The Companies have correctly and timely filed all Tax
Returns required by law to be filed on or before the date of this Agreement and
shall correctly and timely file all Tax Returns required by law to be filed on
or prior to the Closing Date. All such Tax Returns are true, correct and
complete in all respects, and all amounts shown as owing thereon have been
paid. Except as disclosed on Schedule 4.12, no penalties, interest or other
charges are or will be due with respect to the late filing of any such Tax
Returns. Except as disclosed on Schedule 4.12 attached hereto, the
Companies have made all estimated Tax payments required to be made under the
Code. Taxes for all Pre-Closing Tax Periods and all
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Pre-Closing Portions were fully paid or will be included in the Tax Reserve.
Neither the Companies nor any of their stockholders has received a claim of
Taxes due or notice of any issues raised by any Tax Authority with respect
to the Companies. There are no pending or threatened audits, investigations or
claims by any Tax Authority for or relating to any liability in respect of
Taxes. No state, federal or local tax liens exist with respect to the
Companies or their stockholders or any of the Companies' assets. Neither
Companies nor any of their stockholders has entered into any agreements or
waivers extending the time for the assessment of any Tax. Prior to the
execution of this Agreement, the Companies have provided to Moovies true,
correct and complete copies of the Companies' federal and state income tax
returns filed for 1995, 1994 and 1993, which returns were properly signed by
the Companies and timely filed with the Internal Revenue Service and
appropriate state tax authorities. All state tax clearance letters requested
by Moovies shall have been obtained by the Companies on or prior to the Closing
Date.
(b) Each Company is a corporation described in Section
280G(b)(5)(A)(i) of the Code, and, therefore, none of the payments to be made
by Moovies pursuant to this Agreement will be subject to the excise tax
described in Section 4999 of the Code.
4.13 FIXED ASSETS AND VEHICLES. The Fixed Assets and Vehicles
include all of the furniture, fixtures and equipment, trailers and vehicles
owned and used by such Company in the operation of its Business and Vehicles.
Except as specifically set forth on Schedule 4.13 attached hereto, each of the
Fixed Assets and Vehicles is in good operating condition and repair, normal
wear and tear excepted. A true, correct and complete list of the Fixed Assets
and Vehicles and the location thereof is attached as Schedule 4.13.
4.14 INVENTORY. Each Company's Inventory consists, and as of the
close of business on the last business day preceding the Closing Date will
consist, primarily of videos and video games for sale and rental, recorders and
video game equipment for rental and video accessories, cleaning equipment and
confectionery items for sale which, except as specifically set forth on
Schedule 4.14 attached hereto, are undamaged, good and merchantable and of a
quality and quantity usable, rentable and/or saleable, as appropriate, in the
ordinary course of business. At the Closing, there will be on hand, at each
Store and at the Companies' warehouse(s), Inventory levels in amounts and of a
quality consistent with such Company's past practices in the ordinary course of
business and at levels sufficient for Moovies to operate the Company's Business
in the ordinary course consistent with the Company's past practices. After the
date hereof and prior to the Closing, all Inventory shall be purchased or sold
only in the ordinary course of business, consistent with the Companies' prior
practices. Schedule 4.14 attached hereto, to the best of the Companies' and
Stockholder's knowledge, lists the total number of
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videos and video games located at the Stores. Within five days after the
Closing Date, the Stockholder shall provide a true, correct and complete list
as of the Closing Date (which may be written or may be on computer disk)
of all rental and sale Inventory of the Companies immediately before the
effectiveness of the Closing, designating the location at the Closing of such
Inventory at the Stores or at any warehouse of the Company or at any other
location.
4.15 INTELLECTUAL PROPERTY. Schedule 4.15 hereto lists all
trademarks, service marks, trade names, copyrights, and other intangible assets
of the Companies (collectively, the "Intellectual Property") used by such
Company in the operation of its Business and, to the knowledge of the Companies
and the Stockholder, such Company owns and/or has the sole and exclusive right
to use all of the Intellectual Property. Upon the consummation of the
transactions contemplated hereby and compliance with applicable laws as to the
assignment of such Intellectual Property, to the knowledge of the Companies and
the Stockholder, the Subsidiary will have the sole and exclusive right to own
and use the Intellectual Property. No claims have been asserted and no claims
are pending or, to any Company's or the Stockholder's knowledge, threatened by
any person or entity, as to the use of any such Intellectual Property or
challenging or questioning the validity or effectiveness of any state or
federal registration of the Intellectual Property and neither any Company nor
the Stockholder knows of any valid basis for such claim. To the best knowledge
of the Companies and the Stockholder, each Company's use of the Intellectual
Property, and the Subsidiary's continued use of the Intellectual Property
following the Closing in the same manner as heretofore used by such Company,
does not and will not infringe on the rights of any person or entity. Within
20 business days following the Closing, MW, Franchise and Cambridge shall file
in their states of incorporation and states of foreign qualification documents
to remove "Movie Warehouse" from their corporate names.
4.16 CONTRACTS.
(a) Schedule 4.16 sets forth a true and complete list of
all written or oral contracts, agreements and other instruments (other than the
Leases described in Section 4.19 hereof) to which any Company is a party or to
which any Company's assets are subject or bound, including, without limitation,
agreements with distributors, vendors, suppliers, independent contractors and
franchisees ("Franchise Agreements") in the operation of any Company's
Business, and any contract, agreement or understanding involving an aggregate
annual expenditure of less than $5,000 (collectively, the "Contracts").
Notwithstanding the foregoing, none of the Contracts includes any contracts,
agreements or obligations between any of the Companies and either Movie
Warehouse of Port Huron, Inc. ("Port Huron") or Man Sel Video, Inc. ("Man
Sel"), Michigan corporations. Except as expressly identified on Schedule 3.17
attached, neither Stockholder nor any of the
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Companies has any direct or indirect ownership in or financial arrangement with
any of the parties which have entered into the Contracts with any of the
Companies. Prior to execution of this Agreement, the Companies and the
Stockholder have provided to Moovies true, correct and complete copies of the
Contracts, including any and all amendments and waivers thereto. Assuming the
Contracts constitute the valid and binding agreements of the parties thereto
other than the Company, such Contracts are valid, legally binding and
enforceable against the parties thereto subject to laws of general application
in effect affecting creditors' rights and subject to the exercise of judicial
discretion in accordance with general equitable principles. Neither any
Company, or, to the best knowledge of the Companies and the Stockholder, any
other party to any of the Contracts, is in breach of, or in default under, any
of the Contracts, and no event has occurred which, with the notice or lapse of
time, or both, would constitute a default by any Company, to the best knowledge
of the Companies and the Stockholder, any other party to any of the Contracts.
Except as specifically set forth on Schedule 4.16 attached hereto, the
assignment of any of the Contracts to the Subsidiary in accordance with this
Agreement will not constitute a breach or violation of such Contract. None of
the Companies is a party to any continuing contract for the future purchase of
inventory, materials, supplies or equipment in excess of the requirements for
its Business as now being conducted.
(b) In granting the franchises under the Franchise
Agreements, and in the operation of the franchises, Franchise has complied with
all state and federal franchise, business opportunity and similar laws and
regulations governing the franchise and license thereunder. Except as set
forth on Schedule 4.18 attached (i) there have been and there are no disputes,
oral agreements or forbearances in effect as to the Franchise Agreements.
Except as set forth on Schedule 4.18 attached, to Franchise's and Stockholder's
knowledge, each franchisee is operating its franchise within the one mile
protective radius of the franchise location as provided in Item 12 of
Franchise's Uniform Franchise Offering Circular, (ii) all royalties and other
sums due and owing under the Franchise Agreements have been paid in full, and
(iii) there are no pending or threatened lawsuits or claims from a franchisee
or any notice from any franchisee under the Franchise Agreements. There are no
"franchise brokers" or others who are entitled to seek commissions for the sale
of franchises. There are no Location Deposit Agreements (as defined in
Franchise's Uniform Franchise Offering Circulars). There is currently no state
or national advertising fund in respect of the franchisees under the Franchise
Agreements. The expiration date of the term of each Franchise Agreement is set
forth in such agreements. All "Earnings Claims" made by MW or Franchise
pursuant to Item 19 of Franchise's Uniform Franchise Circulars were, when made,
accurate and not misleading.
(c) At the Closing, Subsidiary will enter into a License
Agreement with Port Huron and Man Sel (the "Limited License
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Agreements") in the form of Exhibit 4.16(c) attached granting Port Huron and
Man Sel the right to use the name "Movie Warehouse" subject to the terms and
conditions set forth therein. No royalty or franchise fees shall be payable by
Port Huron or Man Sel for such use of the mark "Movie Warehouse". Neither
Moovies, Inc. nor Subsidiary is or shall be a franchise of Port Huron and Man
Sel. Port Huron and Man Sel are franchisees of MW.
(d) At Closing, Mansour Computer Software, Inc. (a/k/a
Microlan) ("Microlan") shall enter into a Software License Agreement (the
"Microlan Software Agreement") in the form of Exhibit 4.16(d).
4.17 HAZARDOUS SUBSTANCE. For purposes of this paragraph,
"hazardous substance" means any matter giving rise to liability under the
Resources Conservation Recovery Act, 42 U.S.C. Section 6901 et. seq., the
Comprehensive Environment Response Compensation and Liability Act, 42 U.S.C.
Sections 9601 et. seq., the Clean Water Act, 33 U.S.C. Sections 1251 et. seq.
or generally any contaminant, asbestos, oil, radioactive or other material, the
removal of which is required or the maintenance of which is regulated or
prohibited or penalized by any local, state or federal agency, authority or
governmental unit. There are no material violations of federal, state and
local laws relating to health, safety or the environment relating to the
operations of any Company's Business or the current or former state of any
Company's assets. To the best knowledge of the Companies and the Stockholder,
no asbestos has ever been used in the construction, repair or maintenance of
any improvement located on or at the Stores, any Company's assets or in the
operation of any Company's Business and there has been no discharge, release or
disposal of any hazardous substance at, on or from the Stores or any Company's
assets or in the operation of any Company's Business which could create any
liability upon any Company, Moovies or the Subsidiary. Neither any Company nor
the Stockholder has received any written notice of any pending or threatened
claim or litigation in which any person or entity alleges the presence,
release, threat of release, placement on or at the Stores or any Company's
assets, or the generation, transportation, storage, treatment, or disposal on,
at or from the Stores or any Company's assets, of any hazardous substance, or
in which any person alleges a violation of any law governing or imposing
liability arising out of any matter relating to health, safety or the
environment. Neither any Company nor the Stockholder has knowledge of or
received written notice of the presence, release, threat of release, placement
on, at or from the Stores or any Company's assets, or the generation,
transportation, storage, treatment, or disposal on, at or from the Stores or
any Company's assets of any hazardous substance.
4.18 LITIGATION; JUDGMENTS. Except as set forth on Schedule 4.18
attached hereto, there is no action, proceeding or investigation pending or, to
any Company's or the Stockholder's knowledge, threatened against or involving
any Company, or the
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Stockholder relating to any Company's assets or the operation of any Company's
Business, nor is there any action or proceeding pending or, to the knowledge of
any of the Companies or the Stockholder, threatened before any court,
tribunal or governmental body seeking to restrain or prohibit or to obtain
damages or other relief in connection with the consummation of the transactions
contemplated by this Agreement, or which might adversely affect any Company's
Business or any Company's assets, or any Company's or the Stockholder's ability
to consummate the transactions contemplated by this Agreement and the
Transaction Documents to which any Company or the Stockholder is a party.
Neither any Company nor the Stockholder is subject to any judgment, order or
decree entered in any lawsuit or proceeding relating to any Company's assets or
the operation of any Company's Business.
4.19 STORE AND EQUIPMENT LEASES. The Companies have delivered to
Moovies true, correct and complete copies of the store and equipment leases
listed in Schedule 4.19, together with all amendments, addenda and supplements
thereto. Schedule 4.19 is a true, correct and complete list of all written and
oral leases to which the any of the Companies is a party, including without
limitation all real property and equipment leases, except any lease involving
an aggregate annual expenditure of less than $5,000 (collectively, the
"Leases"). With respect to each Lease listed in Schedule 4.19:
(a) The Lease is legal, valid, binding, enforceable
against the Company and, to the Company's and Stockholder's best knowledge,
enforceable against the lessor thereunder, and in full force and effect,
subject to laws of general application in effect affecting creditors' rights
and subject to the exercise of judicial discretion in accordance with general
equitable principles.
(b) Subject to obtaining any necessary consent in respect
of the transactions contemplated hereunder, the Lease will continue to be
legal, valid, binding, enforceable against the Company and, to the Company
and Stockholder's best knowledge, enforceable against the lessor thereunder,
and in full force and effect on identical terms following the Closing.
(c) Neither the Company, nor, to any of the Companies'
and the Stockholder's knowledge, any other party to the Lease is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default by the Company, as appropriate, or permit
termination, modification or acceleration thereunder by any other party
thereto;
(d) Neither the Company, nor, to any of the Companies' or
the Stockholder's knowledge, any other party to the Lease has repudiated in
writing any provision thereof;
(e) Except as set forth on Schedule 4.19, there have been
and there are no disputes, oral agreements or forbearances in
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effect as to the Lease;
(f) Except as set forth on Schedule 4.19, the Company has
good title to the leasehold interest under such Lease;
(g) Except as set forth on Schedule 4.19, the Company has
not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in the leasehold and neither the Company nor the Stockholder is
aware of any such assignment, transfer, conveyance, mortgage, deed in trust or
encumbrance of any interest in the leasehold; and
(h) To each of the Companies' and the Stockholder's
knowledge, all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including licenses and permits) required
in connection with the operation thereof and have been operated and maintained
in accordance with applicable laws, rules and regulations.
4.20 INSURANCE. Each Company maintains property, fire, casualty,
workman's compensation, general liability insurance and other forms of
insurance relating to its assets and the operation of its Business against
risks of the kind customarily insured against and in amounts customarily
insured (and, where appropriate, in amounts not less than the replacement cost
of such Company's assets). Each Company will maintain such insurance policies
in full force and effect through the Closing Date. Schedule 4.20 lists all of
the insurance policies maintained by each Company, which schedule includes the
name of the insurance company, the policy number, a description of the type of
insurance covered by such policy, the dollar limit of the policy, and the
annual premiums for such policy.
4.21 UNION; LABOR. None of the Companies is a party to any
collective bargaining agreement or any other contract, written or oral, with
any trade or labor union, employees' association or similar organization.
There are no strikes or labor disputes pending or threatened, or to any
Company's or the Stockholder's knowledge, any attempts at union organization of
the employees of any Company. All salaries and wages paid and withheld by any
Company are and have been in compliance with all applicable federal, state and
local laws.
4.22 BENEFIT PLANS AND ERISA.
(a) Schedule 4.22 sets forth a true and complete list of
each "employee benefit plan" (as defined by Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), and any other
bonus, profit sharing, pension, compensation, deferred compensation, stock
option, stock purchase, fringe benefit, severance, post-retirement,
scholarship, disability, sick leave, vacation, individual employment,
commission, bonus, payroll practice, retention, or other plan,
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agreement, policy, trust fund or arrangement (each such plan, agreement,
policy, trust fund or arrangement is referred to herein as an "Employee Benefit
Plan", and collectively, the "Employee Benefit Plans") that is currently
in effect, was maintained since December 31, 1975 or which has been approved
before the date hereof but is not yet effective, for the benefit of current or
former directors or employees of any Company or any other persons currently or
formerly performing services for any Company, and/or beneficiaries of any such
persons (collectively, "Business Employees") or with respect to which any
Company or any "ERISA Affiliate" (hereby defined to include any trade or
business, whether or not incorporated, other than any Company, which has
employees who are or have been at any date of determination occurring within
the preceding six (6) years, treated pursuant to Section 4001(a)(14) of ERISA
and/or Section 414 of the Code as employees of a single employer which includes
each Company) has or has had any obligation on behalf of any Business Employee.
Except as disclosed on Schedule 4.22 attached hereto, there are no other
benefits to which any Business Employee is entitled or for which any Company
has any obligation.
(b) Each Company has delivered to Moovies, with respect
to each Employee Benefit Plan, true and complete copies of (i) the documents
embodying and relating to the plan, including, without limitation, the current
plan documents and documents creating any trust maintained pursuant thereto,
all amendments, investment management agreements, administrative service
contracts, group annuity contracts, insurance contracts, collective bargaining
agreements, the most recent summary plan description with each summary of
material modification, if any, and employee handbooks, (ii) annual reports
including but not limited to Forms 5500, 990 and 1041 for the last three (3)
years for the plan and any related trust, (iii) actuarial valuation reports and
financial statements for the last three years, and (iv) each communication
involving the plan or any related trust to or from the Internal Revenue Service
("IRS"), Department of Labor ("DOL"), Pension Benefit Guaranty Corporation
("PBGC") or any other governmental authority including, without limitation, the
most recent determination letter received from the IRS pertaining to any
Employee Benefit Plan intended to qualify under Sections 401(a) or 501(c)(9) of
the Code.
(c) No Company has any obligation to contribute to or
provide benefits pursuant to, and has no other liability of any kind with
respect to, (i) a "multiple employer welfare arrangement" (within the meaning
of Section 3(40) of ERISA), or (ii) a "plan maintained by more than one
employer" (within the meaning of Section 413(c) of the Code).
(d) Except as otherwise set forth on Schedule 4.22
attached hereto, no Company is liable for, and neither Moovies, Subsidiary nor
any Company will be liable for, any contribution, tax, lien, penalty, cost,
interest, claim, loss, action, suit, damage, cost, assessment or other similar
type of liability or
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expense of any ERISA Affiliate (including predecessors thereof) with regard to
any Employee Benefit Plan maintained, sponsored or contributed to by an ERISA
Affiliate (if a like definition of Employee Benefit Plan were applicable to the
ERISA Affiliate in the same manner as it applies to each Company), including,
without limitation, withdrawal liability arising under Title IV, Subtitle E,
Part 1 of ERISA, liabilities to the PBGC, or liabilities under Section 412 of
the Code or Section 302(a)(2) of ERISA.
(e) Each Company, each ERISA Affiliate, each Employee
Benefit Plan and each Employee Benefit Plan "sponsor" or "administrator"
(within the meaning of Section 3(16) of ERISA) has complied in all respects
with the applicable requirements of Section 4980B of the Code and Section 601
et seq. of ERISA (such statutory provisions and predecessors thereof are
referred to herein collectively as "COBRA"). Schedule 4.22 lists the name of
each Business Employee who has experienced a "Qualifying Event" (as defined in
COBRA) with respect to an Employee Benefit Plan who is eligible for
"Continuation Coverage" (as defined in COBRA) and whose maximum period for
Continuation Coverage required by COBRA has not expired. Included in such list
are the current address for each such individual, the date and type of each
Qualifying Event, whether the individual has already elected Continuation
Coverage and, for any individual who has not yet elected Continuation Coverage,
the date on which such individual was notified of his or her rights to elect
Continuation Coverage. Schedule 4.22 also lists the name of each Business
Employee who is on a leave of absence (whether or not pursuant to the Family
and Medical Leave Act of 1993, as amended ("FAMLA") and is receiving or
entitled to receive health coverage under an Employee Benefit Plan, whether
pursuant to FAMLA, COBRA or otherwise.
(f) With respect to each Employee Benefit Plan and except
as otherwise set forth on Schedule 4.22 attached hereto:
(i) all payments required by the Employee Benefit
Plan, any collective bargaining agreement or by law (including all
contributions, insurance premiums, premiums due the PBGC or intercompany
charges) with respect to all periods through the date hereof have been made;
(ii) there are no violations of or failures to
comply with ERISA and the Code with respect to the filing of applicable
reports, documents, and notices regarding the Employee Benefit Plan with the
DOL, the IRS, the PBGC or any other governmental authority, or any of the
assets of the Employee Benefit Plan or any related trust;
(iii) no claim, lawsuit, arbitration or other
action has been asserted or instituted or threatened in writing against the
Employee Benefit Plan, any trustee or fiduciaries thereof, any Company or any
ERISA Affiliate, any director, officer or employee thereof, or any of the
assets of the Employee Benefit
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Plan or any related trust;
(iv) all amendments required to bring the Employee
Benefit Plan into conformity with applicable law, including, without
limitation, ERISA and the Code, have been timely adopted;
(v) the Employee Benefit Plan complies with and
has been maintained and operated in accordance with its respective terms and
the terms and the provisions of applicable law, including, without limitation,
ERISA and the Code (including rules and regulations thereunder);
(vi) no "prohibited transaction" (within the
meaning of Section 4975 of the Code and Section 406 of ERISA) has occurred or
is expected to occur with respect to the Employee Benefit Plan (and the
transactions contemplated by this Agreement will not constitute or directly or
indirectly result in such a "prohibited transaction") which has subjected or
could subject any Company, any ERISA Affiliate, Moovies, the Subsidiary or any
officer, director or employee of any Company, any ERISA Affiliate, Moovies, the
Subsidiary or the Employee Benefit Plan trustee, administrator or other
fiduciary, to a tax or penalty on prohibited transactions imposed by either
Section 502 of ERISA or Section 4975 of the Code or any other liability with
respect thereto;
(vii) the Employee Benefit Plan is not under audit
or investigation by the IRS or the DOL or any other governmental authority and
no such completed audit, if any, has resulted in the imposition of any tax,
interest or penalty;
(viii) if the Employee Benefit Plan purports to
provide benefits which qualify for tax-favored treatment under Sections 79,
105, 106, 117, 120, 125, 127, 129 or 132 of the Code, the Employee Benefit Plan
satisfies the requirements of said Section(s); and
(ix) the Employee Benefit Plan may be unilaterally
amended or terminated on no more than 90 days notice.
(g) None of the Companies is subject to any liens, and
excise or other taxes under ERISA, the Code or other applicable law relating to
any Employee Benefit Plan; has not ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of ERISA; has not withdrawn
as a substantial employer so as to become subject to the provisions of Section
4063 of ERISA; and has not ceased making contributions to any Employee Benefit
Plan subject to 4064(a) of ERISA to which any Company or any ERISA Affiliate
made contributions at any time during the six (6) years prior to the date
hereof.
(h) The consummation of the transactions contemplated by
this Agreement will not give rise to any liability for any employee benefits,
including, without limitation, liability for severance
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pay, unemployment compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the amount of
compensation or benefits due to any Business Employee.
(i) Except as set forth on Schedule 4.22, no Employee
Benefit Plan in any way provides for any benefits of any kind whatsoever (other
than under COBRA, the Federal Social Security Act or any Employee Benefit Plan
qualified under Section 401(a) of the Code) to any Business Employee who, at
the time the benefit is to be provided, is a former director or employee of, or
other provider of services to, any Company or an ERISA Affiliate (or a
beneficiary of any such person), or any other Business Employee, nor have any
representations, agreements, covenants or commitments been made to provide such
benefits.
(j) Since December 31, 1995 and through the date hereof,
except as set forth on Schedule 4.22, neither any Company nor any ERISA
Affiliate has, nor will it, (i) institute or agree to institute any new
employee benefit plan or practice, (ii) make or agree to make any change in any
Employee Benefit Plan, (iii) make or agree to make any increase in the
compensation payable or to become payable by any Company or any ERISA Affiliate
to any Business Employee, or (iv) except pursuant to this Agreement and except
for contributions required to provide benefits pursuant to the provisions of
the Employee Benefit Plans, pay or accrue or agree to pay or accrue any bonus,
percentage of compensation, or other like benefit to, or for the credit of, any
Business Employee.
(k) Any contribution, insurance premium, excise tax,
interest charge or other liability or charge imposed or required with respect
to any Employee Benefit Plan which is attributable to any period or any portion
of any period prior to the Closing shall be reflected as a liability on the
Historical Financials, Audited Financials or Interim Financials, as
appropriate.
(l) Attached hereto as a part of Schedule 4.22 is a true,
correct and complete list by employee of the number of days and amount of
accrued unpaid vacation and sick pay for each employee of the Companies
("Accrued Vacation Obligations").
4.23 IMMIGRATION MATTERS.
(a) With respect to all employees (as defined in Section
274a.1(g) of Title 8, Code of Federal Regulations) of each Company, such
Company has complied with the Immigration Reform and Control Act of 1986 and
all regulations promulgated thereunder ("IRCA") with respect to the completion,
maintenance and other documentary requirements of Forms I-9 (Employment
Eligibility Verification Forms) for all current and former employees and the
reverification of the employment status of any and all employees whose
employment authorization documents indicated a limited period of employment
authorization.
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(b) Schedule 4.23 attached hereto contains a true and
complete list of all employees of each Company who are not citizens of the
United States of America and who are not permanent residents of the United
States of America, together with a true and complete list of the visa status
and visa expiration dates of each such employee.
(c) Each Company has only employed individuals authorized
to work in the United States. None of the Companies has received any written
notice of any inspection or investigation relating to its alleged
noncompliance with or violation of IRCA, nor has it been warned, fined or
otherwise penalized by reason of any failure to comply with IRCA.
(d) The consummation of the transactions contemplated by
this Agreement will not (i) give rise to any liability for the failure to
properly complete and update Forms I-9, (ii) give rise to any liability for the
employment of individuals not authorized to work in the United States and (iii)
cause any current employee to become unauthorized to work in the United States.
4.24 BROKER'S FEES. Neither any Company, nor the Stockholder has
retained or utilized the services of any broker, finder or intermediary, or
paid or agreed to pay any fee or commission to any other person or entity for
or on account of the transactions contemplated hereby, or had any
communications with any person or entity with respect thereto, which would
obligate Moovies or the Subsidiary to pay any such fees or commissions.
4.25 ABSENCE OF MATERIAL CHANGES. Except as set forth in Schedule
4.25 attached hereto, from December 31, 1995 to the date of this Agreement:
(a) there has not been any Material Adverse Effect in the
condition (financial or otherwise) of the Business, the liabilities or the
assets of any Company;
(b) there has been no Material Adverse Effect in any
Company's relations with, nor has any Company lost (or received written notice
that it is about to lose) any distributors or suppliers with which any Company
has significant business relations;
(c) each Company has operated its Business in the
ordinary course and has not sold, assigned, or transferred any of its assets
except in the ordinary course of business consistent with past practice;
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(d) neither any Company, nor the Stockholder has
mortgaged, pledged or subjected to any lien, pledge, mortgage, security
interest, conditional sales contract, or other encumbrance of any nature
whatsoever, any of any Company's assets or affected the Stockholder's ownership
of any Company's issued and outstanding equity securities;
(e) there has been no amendment, termination, or waiver
of any right of any Company under any contract, governmental license or permit
that may materially adversely affect its assets, its Business or the
Stockholder's ownership of such Company's issued and outstanding equity
securities;
(f) None of the Companies has:
(i) paid any judgment resulting from any suit,
proceeding, arbitration, claim or counterclaim in respect of its assets or
Business in excess of $10,000 (provided that all such excluded payments do not
aggregate to more than $50,000);
(ii) made any such payment to any party in
settlement of any such suit, proceeding, arbitration, claim or counterclaim in
excess of $10,000 (provided that all such excluded payments do not aggregate to
more than $50,000);
(iii) except in the ordinary course of business,
made any material changes in the customary methods of operation of such
Company's Business, including practices and policies relating to purchasing,
marketing, selling, accounting (except in respect of changes required by
Moovies and the accountants) or payment of trade creditors;
(iv) (except in respect of ordinary trade
payables) incurred any indebtedness or guaranteed any indebtedness, except for
borrowings under existing loans or lines of credit in the ordinary course of
business consistent with past practice;
(v) issued or sold any of its stock, notes, bonds
or other securities, or any option, warrant or other rights to purchase the
same;
(vi) taken any action other than in the ordinary
course of business and in a manner consistent with past practices (none of
which actions has been unreasonable or unusual) with respect to increasing the
compensation of any officer, director, stockholder or employee of such Company
or with respect to the grant of any severance or termination pay (otherwise
than pursuant to policies of such Company in effect on the date hereof fully
disclosed to Moovies in writing prior to the date hereof) or with respect to
any increase of benefits payable under its severance or termination pay
policies in effect on the date hereof;
(vii) declared, set aside or paid any dividend
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or distribution payable in cash, stock, property or otherwise with respect to
any Company's capital stock (other than quarterly distributions to such
stockholders which are intended to enable the such stockholders to pay federal
and state income taxes generated by such Company's operations (based on the
maximum tax rates applicable to a Michigan resident) consistent with the
Company's past practices; or
(viii) agreed, whether in writing or otherwise, to
take any of the actions specified in this Section 4.25.
4.26 BANK ACCOUNTS AND RECONCILIATIONS. Schedule 4.26 contains a
true, complete and correct list showing the name and location of each bank or
other financial institution in which each Company has any deposit account of
safe deposit box, together with a listing of account numbers and names of all
persons authorized to draw thereon or have access thereto. Schedule 4.26 also
contains a true, correct and complete copy of the reconciliation of all bank
accounts of each Company through September 30, 1996 and a reconciliation of
each Company's accounts payable detail to the financial institution account
balances of each Company through September 30, 1996 and as completed.
4.27 ACCOUNTS RECEIVABLE OF FRANCHISE. The Accounts Receivable of
Franchise listed on Schedule 4.27 are valid receivables subject to no set-offs
or counter claims, are current and not less than 95% of the aggregate amount
thereof solely relating to the royalties will be collectible in accordance with
their terms at their recorded amounts. Schedule 4.27 will be updated on the
Closing Date through the Closing Date. Neither the Companies nor Stockholder
makes any representations or warranties as to the collectibility of "late fees"
of MW.
4.28 INTENTIONALLY OMITTED.
4.29 FULL DISCLOSURE. The statements, representations and
warranties made by the Companies and the Stockholder in this Agreement and in
the Schedules and Exhibits attached hereto do not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
4.30 INTENTIONALLY OMITTED.
4.31 INTENTIONALLY OMITTED.
4.32 INTENTIONALLY OMITTED.
4.33 NO OWNERSHIP OF MOOVIES, INC. COMMON STOCK. Except for 5,000
shares of Moovies, Inc. Common Stock owned by Stockholder, neither the
Stockholder nor any of the Companies currently owns or has previously owned any
of the Common Stock of Moovies, Inc.
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whether beneficially or of record, and do not contemplate acquisition of
such Common Stock other than as contemplated by this Agreement.
4.34 NO OTHER INTEREST IN VIDEO INDUSTRY. Except in respect of
Stockholder's ownership of all of the outstanding stock of a majority of the
outstanding stock of Port Huron and Man-Sel, neither Stockholder nor any of the
Companies has any direct or indirect ownership or control of any person or
entity engaged in the sale or rental of videos or video games whatsoever, other
than Stockholder's interest in the Companies.
4.35 INTENTIONALLY OMITTED.
4.36 INVESTMENT INTENT REGARDING SUBORDINATED PROMISSORY NOTE.
(a) Stockholder and each of the Companies acknowledges,
represents and warrants that he/it has received and reviewed a copy of the
Moovies Prospectus dated October 24, 1996, as amended December 31, 1996, with
respect to the Registered Shares of Common Stock of Moovies; that he/it has
such knowledge and experience in financial and business matters that he/it is
capable of evaluating the merits and risks of his/its investment in the
Subordinated Promissory Note of Moovies; that he/it has had a reasonable
opportunity to ask questions of and receive answers from Moovies' officers and
directors and to obtain any additional information, documents or instruments
available from Moovies or the Securities and Exchange Commission; and that no
oral information furnished to him/it is inconsistent with this Agreement or any
such disclosure documents of Moovies.
(b) Stockholder and each Company further covenants,
warrants, represents and agrees that the Subordinated Promissory Note to be
acquired at the Closing are being acquired solely for his/its own account for
investment purposes and not with a view to or in connection with any sale,
distribution or other distribution thereof within the meaning of the Securities
Act of 1933, as amended (the "Act"), and that the Subordinated Promissory Note
may not be transferred or sold except under an effective registration statement
under the Act or pursuant to an exemption under the Act. Notwithstanding the
foregoing, the parties hereto acknowledge and agree that the Maker of the
Subordinated Promissory Note may pledge such Note at any time after issuance of
the Note, provided, however, that the pledgee acknowledges in writing to
Moovies, Inc. that such Note is subordinated, and is subject to a right of
set-off as set forth therein.
(c) Stockholder and MW each further covenants, represents
warrants to Moovies that:
(i) the Subordinated Promissory Note is to be
issued and sold without registration and in reliance upon certain exemptions
under the Act, and in reliance upon certain exemptions
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from registration requirements under applicable state securities laws;
(ii) Except as otherwise set forth in Section
4.36(b) above, the holder of the Subordinated Promissory Note will make no
offer, sale, transfer, assignment, mortgage, pledge or other disposition of the
Subordinated Promissory Notes except in compliance with the Act and any other
applicable securities laws;
(iii) Stockholder and MW is each aware that no
federal or state agency has made any recommendation or endorsement of the
Subordinated Promissory Note or any finding or determination as to the fairness
of the investment in such Subordinated Promissory Note;
(iv) Moovies has made available and agrees to
continue to make available any additional information which Stockholder or MW
may wish to obtain to the extent Moovies possesses such information or can
acquire it without unreasonable effort or expense necessary to verify the
accuracy of any information contained in the disclosure documents described
above;
(v) Stockholder and MW each acknowledges that the
Subordinated Promissory Note is a speculative investment and can bear the
economic risks of such an investment;
(vi) Stockholder and MW each has knowledge and
experience in financial and business matters, and particularly the retail video
rental business conducted by Moovies, and is capable of evaluating the risks of
investment in the Subordinated Promissory Notes; and
(vii) Stockholder and MW each has consulted with
his/its own legal, tax and financial advisors with respect to the tax
consequences of acquiring the Subordinated Promissory Note and to no extent has
relied upon Moovies or its representatives as to such matters. Stockholder and
MW, and their respective legal, tax and financial advisors, have taken into
account the effects of federal, state and local tax laws on the investment in
and acquisition of the Subordinated Promissory Note under this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
MOOVIES, INC. AND THE SUBSIDIARY
In order to induce the Companies and the Stockholder to enter into this
Agreement and consummate the transactions contemplated hereby, Moovies, Inc.
and the Subsidiary, jointly and severally, represent and warrant to the
Companies and the Stockholder as follows, each of which representations and
warranties is material to and relied upon by the Companies and the Stockholder:
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5.1 ORGANIZATION OF MOOVIES AND THE SUBSIDIARY. Each of Moovies,
Inc. and the Subsidiary is a corporation duly organized and validly existing
under the laws of the State of Delaware and has the corporate power and
authority to own its property and to carry on its business as now being
conducted by it. Subsidiary is, or prior to Closing will be, duly qualified to
transact business as a foreign corporation in Michigan.
5.2 AUTHORIZED CAPITAL STOCK. As of the date hereof, the
authorized capital stock of Moovies, Inc. consists of 25,000,000 shares of
Common Stock, par value $.001 per share, and 1,000,000 shares of preferred
stock, par value $.001 per share. As of September 30, 1996, 11,926,620 shares
of Common Stock of Moovies, Inc. were issued and outstanding; options to
purchase an aggregate of 942,100 shares of Common Stock pursuant to Moovies'
1995 Stock Plan were outstanding; and warrants to purchase an aggregate of
approximately 529,957 shares of Common Stock were outstanding; and no shares of
preferred stock were outstanding.
5.3 CORPORATE POWER AND AUTHORITY; DUE AUTHORIZATION. Each of
Moovies, Inc. and the Subsidiary has full corporate power and authority to
execute and deliver this Agreement and each of the other agreements, documents
and instruments referenced in this Agreement to which Moovies, Inc. or the
Subsidiary is or will be a party (the "Moovies' Transaction Documents") and to
consummate the transactions contemplated hereby and thereby. The Board of
Directors of Moovies, Inc. and the Board of Directors of the Subsidiary have
duly approved and authorized the execution and delivery of this Agreement and
each of the Moovies' Transaction Documents and the consummation of the
transactions contemplated hereby and thereby, and no other corporate
proceedings on the part of Moovies, Inc. or the Subsidiary are necessary to
approve and authorize the execution and delivery of this Agreement and such
Moovies' Transaction Documents and the consummation of the transactions
contemplated hereby and thereby. Assuming that this Agreement and each of the
Moovies' Transaction Documents constitutes a valid and binding agreement of the
Companies and/or the Stockholder, as the case may be, this Agreement and each
of the Moovies' Transaction Documents constitutes, or will constitute when
executed and delivered, a valid and binding agreement of Moovies, Inc. and/or
the Subsidiary, as the case may be, in each case enforceable against Moovies,
Inc. and/or the Subsidiary in accordance with its terms, subject to laws of
general application in effect affecting creditors' rights and subject to the
exercise of judicial discretion in accordance with general equitable
principles.
5.4 NO CONFLICT; CONSENTS. Except as set forth on Schedule 5.4
attached, the execution and delivery by each of Moovies, Inc. and the
Subsidiary of this Agreement, the Moovies' Transaction Documents and the
consummation by Moovies, Inc. and the Subsidiary of the transactions
contemplated hereby and thereby do not and will not (a) require the consent,
approval or action of, or any filing
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or notice to, any corporation, firm, person or other entity or any public,
governmental or judicial authority; (b) violate the terms of any instrument,
document or agreement to which Moovies, Inc. or the Subsidiary is a party, or
by which Moovies or the Subsidiary or the property of Moovies, Inc. or the
Subsidiary is bound, or be in conflict with, result in a breach of or
constitute (upon the giving of notice or lapse of time, or both) a default
under any such instrument, document or agreement; (c) violate Moovies, Inc.'s
or the Subsidiary's Certificate of Incorporation or Bylaws; or (d) violate any
order, writ, injunction, decree, judgment, ruling, law or regulation of any
federal, state, county, municipal, or foreign court or governmental authority
applicable to Moovies or the Subsidiary, or the business or assets of Moovies,
Inc. or the Subsidiary, and relating to the transactions contemplated hereby.
5.5 SHARES TO BE DELIVERED. The Registered Shares, when issued
and delivered to the Stockholder pursuant to this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock of Moovies.
5.6 BROKERS FEES AND EXPENSES. Neither Moovies nor the Subsidiary
has retained or utilized the services of any broker, finder, or intermediary,
or paid or agreed to pay any fee or commission to any other person or entity
for or on account of the transactions contemplated hereby, or had any
communications with any person or entity which would obligate any Company or
the Stockholder to pay any such fees or commissions.
5.7 NO WAIVER RESULTING FROM DUE DILIGENCE. The Companies' and
Stockholder's due diligence review and inspections pursuant thereto shall not
waive or release Moovies or Subsidiary from any of their representations or
warranties under this Agreement.
5.8 CERTAIN SEC FILINGS AND PRESS RELEASES. Prior to the
execution of this Agreement, Moovies, Inc. has delivered to each of the
Companies (by delivery of the same to the Companies' legal counsel) (a) the
Prospectus dated October 24, 1996 relating to the Registered Shares, as amended
December 31, 1996, (b) the Registration Statement and the exhibits relating to
the Prospectus as filed with the Securities and Exchange commission, (c) all
press releases issued by the Company from October 24, 1996 to the date hereof,
and (d) a copy of all filings with the Securities and the Exchange Commission
made by the Company from October 24, 1996 through the date of this Agreement.
Schedule 5.8 attached contains a complete list of such documents and press
releases. Stockholder and each of the Companies acknowledges receipt and
review of each of such documents and press releases prior to the execution of
this Agreement.
5.9 NO ACTUAL KNOWLEDGE OF CERTAIN MATTERS. Moovies represents
and warrants that it has no actual knowledge of any information regarding the
Companies that would be a basis for Moovies exercising its right of set-off
under Section 6.5 below for
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breach of the representations and warranties of the Companies and Stockholder
set forth in Section 4.8 above.
5.10 FULL DISCLOSURE. The statements, representations and
warranties made by Moovies in this Agreement and in the Schedules and Exhibits
attached hereto do not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANIES AND THE STOCKHOLDER. In
addition to all other indemnification obligations of the Companies and the
Stockholder contained herein, the procedure for which will be governed by the
terms of this Article 6, each of the Companies and the Stockholder hereby
jointly and severally agree to indemnify Moovies and its agents, employees,
officers, directors, successors or assigns and hold them harmless from and
against all claims, liabilities, damages, losses, costs and expenses (including
reasonable attorneys' fees) incurred or suffered by any of them and arising out
of:
(a) any breach of any agreement or covenant of any of the
Companies or of the Stockholder or any inaccurate or erroneous warranty or
representation of any of the Companies or the Stockholder contained herein or
in any Exhibit or Schedule hereto or any instrument or document entered into
pursuant hereto;
(b) any action, claim, suit or proceeding now or
hereafter pending or threatened by any third party arising out of actual or
alleged acts or omissions of any of the Companies, the Stockholder or any
officers, employees or agents thereof, in connection with the Companies, the
Business or operation thereof or otherwise occurring on or prior to the Closing
Date, including, without limitation, any action, claim, suit or proceeding
based on any failure or alleged failure of any party to comply with any
applicable state U.C.C. or tax bulk transfer statute or any claim against
Moovies arising under such statute or based upon any failure to comply with any
such statute;
(c) any actual or alleged obligation, debt or liability
of Companies or the Stockholder whatsoever other than Assumed Liabilities
regardless of whether the existence or assertion of such obligation, debt,
claim or liability would constitute a breach of any warranty, representation or
covenant of the Companies or the Stockholder contained in this Agreement
including, without limitation:
(i) Excluded Liabilities (whether arising before
or after the Closing Date);
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(ii) liabilities of the Companies or the
Stockholder relating to any income, franchise, property or other Tax, or any
interest or penalty relating thereto, payable to any federal, state, local or
county taxing authority (including without limitation all Tax, interest,
penalties and other charges in respect of any estimated Tax payments the
Companies has not made in respect of any periods prior to Closing), or any
performance bond liability, with respect to the Business or the Companies' use
of the Purchased Assets for any period, whether before or after the Closing
Date (regardless of when the filing is due or made), or arising as a result of
the transactions contemplated by this Agreement;
(iii) except as specifically provided herein in
respect of the Ordered Items, any liability for trade payables arising out of
the Business prior to Closing;
(iv) (1) any liability or obligation in respect of
labor relations or practices, employment contracts, consulting agreements,
indemnification agreements, severance agreements or any other agreements
relating to employment, or any pension, retirement, profit-sharing, incentive
compensation, bonus, option or other benefit plans in respect of the Business
or any obligation under ERISA, COBRA, the Code or otherwise with respect
thereto, (2) any lien or other obligation which arises under ERISA, COBRA, the
Code or otherwise, or (3) any liability or obligation in respect of workers'
compensation, vacation pay, payroll, sick pay or employee medical claims
incurred or accrued prior to Closing; and
(v) any liability of the Companies or the
Stockholder in respect of immigration matters including, without limitation,
any failure to comply with IRCA in respect of any periods prior to and
including the Closing Date;
(d) Any cost, expense, liability or claim arising with
respect to any of the Five Franchised Stores in connection with the litigation
currently pending with respect to the Five Franchised Stores between the
original franchisor and the franchisees of such stores, except that the parties
hereto acknowledge and agree that such indemnification shall not apply to the
termination or cancellation of the franchise agreements relating to any of the
Five Franchised Stores as a result of such pending litigation;
(e) any cost or expense which may be incurred by Moovies
or any affiliate thereof in curing any breach of covenant, warranty or
representation by the Companies or the Stockholder contained in this Agreement
or made pursuant hereto together with all costs and expenses incurred by
Moovies in defending any suit or action which may be brought against it
alleging such breach, including reasonable attorneys' fees (collectively, with
all other indemnification obligations of the Companies and the Stockholder
under any other provisions hereof or pursuant hereto, the "Section 6.1
Indemnified Claims").
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(f) If any garnishment, levy, attachment, execution, or
other lien reaches, garnishes, encumbers or attaches to any of the assets,
property or business of Moovies by virtue of such suit, or as a part of such
suit, then, and in any and each such event, the Companies and the Stockholder
shall be obligated immediately to post whatever bond is required and do
whatever else is required expeditiously to release the property, assets and
business of Moovies from any such levy, attachment, execution, lien,
garnishment or encumbrance, all at the sole expense of the Companies and the
Stockholder.
(g) Without limiting the foregoing in this Section 6.1,
it is the intent of the parties that each of the Companies and the Stockholder
is jointly and severally agreeing to provide such indemnification for any and
all Section 6.1 Indemnified Claims on a cross-default basis.
6.2 INDEMNIFICATION BY MOOVIES. In addition to all other
indemnification obligations of Moovies contained herein, the procedure for
which will be governed by the terms of this Article 6, Moovies hereby agrees to
indemnify the Companies and the Stockholder, their agents, employees, officers,
directors, successors and assigns and holds them harmless from and against all
claims, liabilities, damages, losses, costs and expenses (including reasonable
attorneys' fees) incurred or suffered by any of them and arising out of:
(a) any breach of any agreement or covenant of Moovies or
any inaccurate or erroneous warranty or representation of Moovies contained
herein or in any Exhibit or any instrument or document entered into pursuant
hereto;
(b) any action, claim, suit or proceeding now or
hereafter pending or threatened by any third party against the Companies or the
Stockholder arising out of actual or alleged acts or omissions of Moovies in
connection with Moovies' business or operations conducted after the Closing
Date with respect to the Purchased Assets or of any of its officers, employees
or agents occurring after the Closing Date;
(c) any Assumed Liabilities (from and after the Closing
date);
(d) any cost or expense which may be incurred by the
Companies, the Stockholder or any affiliate thereof in curing any breach of
covenant or warranty by Moovies contained in this Agreement together with all
costs and expenses incurred by the Companies or the Stockholder in defending
any action which may be brought against it alleging such breach, including
reasonable attorneys' fees.
6.3 PROVISIONS REGARDING INDEMNIFICATION. The indemnified party
(or parties) shall promptly notify the indemnifying party (or
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parties) of any claim, demand, action or proceeding for which indemnification
will or may be sought under Section 6.1 or 6.2 of this Agreement and, if such
claim, demand, action or proceeding is a third party claim, demand, action or
proceeding, the indemnifying party will have the right, at its expense, to
assume the defense thereof using counsel reasonably acceptable to the
indemnified party. The indemnified party shall have the right to participate
in at its own expense, but not control, the defense of any such third party
claim, demand, action or proceeding. In connection with any such third party
claim, demand, action or proceeding, the Companies, each Stockholder and
Moovies shall cooperate with each other. No such third party claim, demand,
action or proceeding shall be settled without the prior written consent of the
indemnified party provided, however, that if a firm, written offer is made to
settle any such third party claim, demand, action or proceeding and the
indemnifying party proposes to accept such settlement and the indemnified party
refuses to consent to such settlement, then: (i) the indemnifying party shall
be excused from, and the indemnified party shall be solely responsible for, all
further defense of such third party claim, demand, action or proceeding; and
(ii) the maximum liability of the indemnifying party relating to such third
party claim, demand, action or proceeding shall be the amount of the proposed
settlement if the amount thereafter recovered from the indemnified party on
such third party claim, demand, action or proceeding is greater than the amount
of the proposed settlement.
6.4 SURVIVAL. The representations and warranties contained in
this Agreement and in the Transaction Documents and in the Transaction
Documents delivered at the Closing shall survive the Closing and shall expire
on the second (2nd) anniversary of the Closing Date and shall thereafter cease
to be of any force and effect, except for (a) claims as to which notice has
been given in accordance with Section 6.3 hereof prior to such date and which
are pending on such date and (b) representations and warranties relating to:
(i) title to the Purchased Assets (Section 4.3 hereof), (ii) ownership of stock
of the Companies by Stockholder (Sections 4.2 and 4.5 hereof), (iii) Taxes
(Sections 3.21, 4.12 and 6.1 hereof); (iv) financial information (Sections 3.3
and 4.8 hereof); (v) compliance with bulk transfer laws (Section 3.14 hereof)
and (vi) employee benefits (Sections 2.4, 3.1 and 4.22), each of which shall
survive until the end of the statute of limitations applicable to the
underlying claim for which indemnification is sought. Neither such survival
nor the liability of any party with respect to the party's representations and
warranties shall be reduced by any investigation made at any time by or on
behalf of any party. All indemnification obligations herein shall survive the
Closing.
6.5 RIGHT OF SET-OFF. For a period of up to 225 days following
the Closing Date, Moovies shall have the right to set-off against the
Subordinated Promissory Note any amounts otherwise payable to Moovies pursuant
to the indemnification provisions in
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this Article 6, including without limitation, any claims by Moovies in respect
of breaches by or arising from actions of MW, Cambridge, Franchise or
Stockholder by giving written notice thereof to Stockholder within the first
180 days of the 225 day period. Stockholder shall have a period of 45 days
following the date of such notice to cure the Indemnified Claim, if curable.
If and to the extent the Indemnified Claim is not cured within such 45 day
period then Moovies shall have the right to set-off against the Subordinated
Promissory Note as of the date of the Notice. If the Indemnified Claim is not
curable, then the set-off shall be automatically effective upon the date of
such notice. The right of set-off shall not be exclusive of any other right or
remedy Moovies may have with respect to the Section 6.1 Indemnified claims,
whether under this Agreement, the Transaction Documents, at law or in equity.
Neither Stockholder nor either Company waives its right to challenge any
set-off under the Subordinated Promissory Note.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF
MOOVIES, INC. AND THE SUBSIDIARY TO CLOSE
Each and every obligation of Moovies, Inc. and the Subsidiary under this
Agreement to be performed on or prior to the Closing shall be subject to the
fulfillment, on or prior to the Closing, of each of the following conditions
unless and to the extent any such condition is expressly waived in writing by
Moovies, Inc. and the Subsidiary:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by each Company and the Stockholder in or
pursuant to this Agreement or given on their behalf hereunder shall be deemed
to have been made again at and as of the Closing Date, and shall, as of the
Closing Date, be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made or given on and as of the Closing Date.
7.2 OBLIGATIONS PERFORMED. Each Company and the Stockholder shall
have performed and complied in all material respects with all agreements,
conditions and obligations required by this Agreement to be performed or
complied with by it prior to or at the Closing.
7.3 CONSENTS. Each Company shall have obtained and delivered to
Moovies written consents of all persons or entities whose consent is required
to consummate the transactions contemplated herein, if any, and all of such
consents shall remain in full force and effect at and as of the Closing.
Written consents of all persons or entities, including lenders, whose consent
is required for Moovies to consummate the transactions contemplated herein, and
any financing required in connection therewith, shall have been received by
Moovies prior to the Closing and shall remain in full force and effect at and
as of the Closing.
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7.4 CLOSING DELIVERIES OF COMPANIES AND STOCKHOLDER. The
Companies and Stockholder shall have delivered to Moovies each of the
following, together with any additional items which Moovies may reasonably
request to effect the transactions contemplated herein:
(a) possession of the Purchased Assets;
(b) a Bill of Sale, in substantially the same form as
attached hereto as Exhibit 7.4(b)(i), an Assignment and Assumption Agreement,
in substantially the same form as attached hereto as Exhibit 7.4(b)(ii), and
such additional instruments of sale, transfer, conveyance, and assignment duly
executed by the Companies as of the Closing Date as counsel to Moovies and the
Companies shall mutually deem necessary or appropriate;
(c) a certified copy of the corporate resolutions of the
Board of Directors of each of the Companies and of the Stockholder authorizing
the transactions contemplated hereby and the execution, delivery and
performance by the Companies of this Agreement and the Transaction Documents
and an incumbency certificate with respect to officers of the Companies
executing documents or instruments on behalf of the Companies;
(d) a Certificate of the President of each of the
Companies certifying as to the matters set forth in Sections 7.1 and 7.2 hereof
and as to the satisfaction of all other conditions set forth in this Article 7;
(e) the Noncompetition Agreements referred to in Section
3.4 hereof duly executed by each of the Companies and Stockholder,
respectively;
(f) an opinion of counsel to the Companies and
Stockholder substantially in the form of Exhibit 7.4(f) attached hereto and
made a part hereof;
(g) written consents from all parties to all Leases and
Assigned Contracts whose consent to the transactions contemplated hereby is
required and estoppel letters or agreements as contemplated hereunder;
(h) assignments of Intellectual Property in form
reasonably satisfactory to Moovies sufficient for filing with the U. S. Patent
and Trademark Offices;
(i) a list of the Companies' obligations pursuant to
Section 4.11(c) updated through the Closing Date;
(j) a Limited Release and Acknowledgement executed by
Stockholder in the form of Exhibit 7.4(j) attached;
(k) the Microlan Software Agreement in the form of
Exhibit 4.16(d) executed by Mansour Computer Software, Inc.;
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(l) the Limited License Agreements in the form of Exhibit
4.6(c) attached executed by Port Huron and Man Sel;
(m) payoff letters executed by each of the secured
lenders and secured creditors of the Companies in form reasonably acceptable to
Moovies setting forth (x) with reasonable specificity the amount that will be
outstanding at the Closing Date and (y) a covenant to promptly deliver to
Moovies UCC releases and termination statements for filing in the applicable
jurisdictions to remove the security interests and liens of public records with
respect to the Purchased Assets;
(n) the National Broker Rule 145 Letter;
(o) the updated Schedule 4.27 list of Accounts Receivable
of Franchise; and
(p) any other documents or agreements contemplated hereby
and/or necessary or appropriate to consummate the transactions contemplated
hereby;
7.5 NO CHALLENGE. There shall not be pending or threatened any
action, proceeding or investigation before any court or administrative agency
by any government agency or any pending action by any other person,
challenging, or seeking material damages in connection with, the consummation
of the transactions contemplated hereby or the ability of Moovies, Inc. the
Subsidiary or any of their affiliates to own and operate each Company or
otherwise materially adversely affecting the Business, assets, prospects,
financial condition or results of operations of any Company.
7.6 NO INVESTIGATIONS OF THE COMPANIES OR BUSINESS. As of the
Closing Date there shall be no, and neither any Company nor the Stockholder
shall have any knowledge of or reason to know of any, pending or threatened
investigation by any municipal, state or federal government agency or
regulatory body with respect to any Company, any Company's assets or any
Company's Business.
7.7 NO MATERIAL ADVERSE EFFECT. Since December 31, 1995, there
shall have been no Material Adverse Effect in the business, financial
condition, results of operations and/or assets (without giving effect to the
consequences of the transactions contemplated by this Agreement) of any
Company, whether reflected in financial statements, the Schedules attached
hereto or otherwise.
7.8 SECURITIES LAWS. The parties shall have complied with all
federal and state securities laws applicable to the transactions contemplated
by this Agreement. All Blue Sky permits or approvals required to carry out the
transactions contemplated hereby shall have been received.
7.9 APPROVAL. Moovies shall have received at Closing copies
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of minutes of meetings of the Stockholder and the Board of Directors of each
Company, certified by the corporate secretary of such Company, unanimously
approving and authorizing this Agreement and the transactions contemplated by
this Agreement. The consummation of the transactions contemplated herein shall
have been approved by the Board of Directors of Moovies or authorized committee
thereof.
7.10 REVISED SCHEDULES. The Companies and the Stockholder shall
have provided Moovies with revised Schedules dated as of the Closing Date (the
"Revised Schedules"), with all material changes through such date duly noted
thereon, and the Revised Schedules will not contain any disclosures which (i)
should have been but were not disclosed on the Schedules attached hereto or
(ii) set forth material changes which in the reasonable opinion of Moovies,
individually or in the aggregate, materially and adversely affect, or may
materially and adversely affect, any Company and/or its operations, unless such
disclosures are approved in writing by Moovies.
7.11 LEGALITY. No federal or state statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which is in
effect and has the effect of making the transactions contemplated hereby
illegal or otherwise prohibiting the consummation of the transactions
contemplated hereby.
7.12 REGULATORY MATTERS. All filings shall have been made and all
approvals shall have been obtained as may be legally required pursuant to
federal and state laws prior to the consummation of the transactions
contemplated by this Agreement and all actions by or in respect of, or filings
with, any governmental body, agency or official or any other person required to
permit the consummation of the transactions contemplated hereby so that Moovies
or the Subsidiary shall be able to continue to carry on the business of each
Company substantially in the manner now conducted by such Company shall have
been taken or made.
ARTICLE 8
CONDITIONS TO THE COMPANIES'
AND THE STOCKHOLDER'S OBLIGATIONS
Each and every obligation of the Companies and the Stockholder under this
Agreement to be performed on or prior to the Closing, shall be subject to the
fulfillment, on or prior to the Closing, of each of the following conditions
unless and to the extent any such condition is specifically waived in writing
by the Companies and the Stockholder:
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by Moovies and the Subsidiary in or
pursuant to this Agreement or given on their behalf hereunder shall be deemed
to have been made again at and as of the Closing
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<PAGE> 52
Date, and shall, as of the Closing Date, be true and correct in all material
respects, on and as of the Closing Date with the same effect as though
such representations and warranties had been made or given on and as of the
Closing Date.
8.2 OBLIGATIONS PERFORMED. Each of Moovies and the Subsidiary
shall have performed and complied in all material respects with all agreements,
conditions and obligations required by this Agreement to be performed or
complied with by it prior to or at the Closing.
8.3 CLOSING DELIVERIES OF MOOVIES, INC. AND SUBSIDIARY. Moovies,
Inc. and the Subsidiary, respectively, shall have delivered to the Companies,
each of the following, together with any additional items which the Companies
may reasonably request to effect the transactions contemplated herein:
(a) the cash portion of the Purchase Price by wire
transfer to the respective Companies on the Closing Date;
(b) the Subordinated Promissory Note due MW executed by
Moovies, Inc.;
(c) the Registered Shares of Common Stock of Moovies,
Inc. deliverable directly to the National Broker in the names of MW and
Franchise, respectively, in increments of 50,000 shares, plus the lesser
balances, if any;
(d) certified copies of the corporate resolutions of the
Board of Directors or Executive Committee of Moovies, Inc. and the Subsidiary
authorizing the execution, delivery and performance of this Agreement and the
Moovies' Transaction Documents by Moovies, Inc. and the Subsidiary together
with an incumbency certificate with respect to the officers of Moovies, Inc.
and the Subsidiary executing the documents or instruments on behalf of Moovies,
Inc. and the Subsidiary;
(e) certificates of the President, Chief Financial
Officer or Senior Vice President of Moovies, Inc. and the Subsidiary certifying
as to the matter set forth in Sections 8.1 and 8.2 hereof and as to the
satisfaction of all other conditions set forth in this Article 8;
(f) the Bill of Sale, the Assignment and Assumption
Agreement duly executed by Moovies, Inc. and the Subsidiary, respectively, and
such additional instruments as counsel to Moovies, Inc. and counsel to the
Companies shall mutually deem necessary or appropriate;
(g) an opinion of counsel to Moovies, Inc. substantially
in the form of Exhibit 8.3(h) attached hereto, given by Ross Miller, Esq.,
General Counsel of Moovies;
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<PAGE> 53
(h) the Limited License Agreements executed by Subsidiary
in favor of Port Huron and Man Sel;
(i) the Microlan Software Agreement executed by Moovies,
Inc.;
(j) a copy of the consent of the holder of Moovies,
Inc.'s Senior Indebtedness consenting to the consummation of the transactions
contemplated hereby, including without limitation the execution and delivery of
the Subordinated Promissory Note;
(k) if applicable, the notice under Section 2.6(c) above
discontinuing the "peel a deal" and gift certificate programs; and
(l) any other documents or agreements contemplated hereby
and/or necessary or appropriate to consummate the transactions contemplated
hereby.
8.4 NO CHALLENGE. There shall not be pending or threatened any
action, proceeding or investigation before any court or administrative agency
by any government agency or any pending action by any other person, challenging
or seeking material damages in connection with, the transactions contemplated
hereby or the ability of Moovies, Inc. the Subsidiary or any of their
affiliates to own and operate each Company or otherwise materially adversely
affecting the Business, assets, prospects, financial condition or results of
operations of any Company.
8.5 NO INVESTIGATIONS OF MOOVIES, INC. OR THE SUBSIDIARY. As of
the Closing Date there shall be no pending or threatened investigation by any
municipal, state or federal government agency or regulatory body with respect
to Moovies, Inc. or the Subsidiary, Moovies, Inc.'s or the Subsidiary's assets
or Moovies, Inc.'s or the Subsidiary's business.
8.6 SECURITIES LAWS. The parties shall have complied with all
federal and state securities laws applicable to the transactions contemplated
by this Agreement.
8.7 LEGALITY. No federal or state statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which is in
effect and has the effect of making the transactions contemplated hereby
illegal otherwise prohibiting the consummation of the transactions contemplated
hereby.
8.8 MINIMUM MARKET PRICE FOR SHARES OF MOOVIES, INC. COMMON STOCK
AT CLOSING. The Market Price of Moovies, Inc. Common Stock shall be not less
than $5.25 per share. For the purposes hereof, "Market Price" shall mean the
average per share closing price (as reported by The Wall Street Journal) of
Moovies, Inc. Common Stock for the five trading days ending two trading days
immediately preceding the Closing.
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<PAGE> 54
8.9 SENIOR INDEBTEDNESS. At the Closing, no event of default
under Moovies, Inc.'s Senior Indebtedness shall exist which would prohibit
Moovies from meeting its obligations under the Subordinated Promissory Note.
ARTICLE 9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time
before the Closing Date:
(a) by mutual written consent of Moovies, Inc., the
Subsidiary, the Companies and the Stockholder;
(b) by Moovies, Inc. if there occurs in respect of any
Company a Material Adverse Effect (as defined in Section 3.9(a)(i); or
(c) by the nonbreaching party hereto (for the purpose of
this Section 9.1(c), Moovies, Inc. and the Subsidiary being one party and the
Companies and Stockholder being the other party) if there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of any nonterminating party hereto.
9.2 EFFECTS OF TERMINATION. In the event this Agreement is
terminated pursuant to Section 9.1(a) above, no party shall have any
obligations to the others hereunder except for those obligations in respect to
confidentiality and the return of confidential information set forth in Section
3.3 hereof. If this Agreement is terminated pursuant to Section 9.1(b) or
9.1(c), the obligations in respect to confidentiality and the return of
confidential information set forth in Section 3.3 hereof shall remain in effect
and each party hereto may exercise all remedies available to it under this
Agreement, at law or in equity.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 RISK OF LOSS. The risk of loss prior to the Closing Date
shall be with the Companies. In the event that a Material Adverse Effect
occurs between the date hereof and the Closing in respect of any Company, then
Moovies shall have the options of either (a) proceeding to close this Agreement
with an assignment of any insurance proceeds which may be paid to reflect such
loss or damage or (b) terminating this Agreement without further liability to
the Companies.
10.2 SEVERABILITY. If any provision of this Agreement is
prohibited by the laws of any jurisdiction as those laws apply to this
Agreement, that provision shall be ineffective to the extent of such
prohibition and/or shall be modified to conform with such laws, without
invalidating the remaining provisions hereto.
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<PAGE> 55
10.3 MODIFICATION. This Agreement may not be changed or modified
except in writing specifically referring to this Agreement and signed by each
of the parties hereto.
10.4 ASSIGNMENT, SURVIVAL AND BINDING AGREEMENT. This Agreement
and the Transaction Documents and the Moovies' Transaction Documents may not be
assigned by Moovies or the Subsidiary, except to an affiliate of Moovies, and
may not be assigned by any Company or the Stockholder, without the prior
written consent of Moovies. The terms and conditions hereof shall survive the
Closing as provided herein and shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
10.5 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.
10.6 NOTICES. All notices, requests, demands, claims or other
communications hereunder will be in writing and shall be deemed duly given if
personally delivered, sent by telefax, sent by a recognized overnight delivery
service which guarantees next day delivery ("Overnight Delivery") or mailed by
registered or certified mail, return receipt requested, postage prepaid and
addressed to the intended recipient as set forth below:
If to either Company or the Stockholder: Mr. Hani Mansour
3830 Columbia Drive
Bloomfield Hills, Michigan 48302
with a copy to: Hardy, Lewis & Page, P.C.
401 S. Woodard Avenue, Suite 400
Birmingham, Michigan 48009
Attention: Peter J. Sarkesian,
Esq.
Telefax: (810) 645-2602
If to Moovies or the Subsidiary: Moovies, Inc.
201 Brookfield Parkway, Suite 200
Greenville, South Carolina 29607
Attention: Ross Miller,
Esq., Senior Vice
President and General Counsel
Telefax: (864) 213-1702
with a copy to: Arnall Golden & Gregory
2800 One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3400
Attention: Jonathan Golden, Esq.
Telefax: (404) 873-8701
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<PAGE> 56
or at such other address as any party hereto notifies the other parties hereof
in writing. The parties hereto agree that notices or other communications that
are sent in accordance herewith (i) by personal delivery or telefax, will be
deemed received on the day sent or on the first business day thereafter if not
sent on a business day, (ii) by Overnight Delivery, will be deemed received on
the first business day immediately following the date sent, and (iii) by U.S.
mail, will be deemed received three (3) business days immediately following the
date sent. For purposes of this Agreement, a "business day" is a day on which
Moovies is open for business and shall not include a Saturday or Sunday or
legal holiday. Notwithstanding anything to the contrary in this Agreement, no
action shall be required of the parties hereto except on a business day and in
the event an action is required on a day which is not a business day, such
action shall be required to be performed on the next succeeding day which is a
business day.
10.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. Except for
Sections 11.1 and 11.2 of that certain Letter of Intent dated July 16, 1996, as
amended, which remain in full force and effect from the date hereof in
accordance with the terms thereof, this Agreement, together with the Exhibits
and Schedules attached hereto, constitutes the entire agreement and supersedes
any and all other prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
and, except as otherwise expressly provided herein, is not intended to confer
upon any person other than Moovies, the Companies, the Subsidiary and, after
the Closing Date, the Stockholder, any rights or remedies hereunder.
10.8 FURTHER ASSURANCES. The parties to this Agreement agree to
execute and deliver, both before and after the Closing, any additional
information, documents or agreements contemplated hereby and/or necessary or
appropriate to effect and consummate the transactions contemplated hereby. The
Stockholder and the Companies agree to provide to Moovies, both before and
after the Closing, such information as Moovies may reasonably request in order
to consummate the transactions contemplated hereby and to effect an orderly
transition of the Business following Closing.
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<PAGE> 57
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MOOVIES:
MOOVIES, INC.
By:
----------------------------------
Title:
-------------------------------
SUBSIDIARY:
MOVIE WAREHOUSE FRANCHISE SYSTEMS, INC.
By:
----------------------------------
Title:
-------------------------------
COMPANIES:
MOVIE WAREHOUSE, INC.,
MOVIE WAREHOUSE CAMBRIDGE PARK, INC.
MOVIE WAREHOUSE FRANCHISE SYSTEMS, INC.
By:
----------------------------------
Hani Mansour, President
STOCKHOLDER:
-------------------------------------
Hani Mansour
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<PAGE> 58
<TABLE>
<CAPTION>
LIST OF SCHEDULES AND EXHIBITS
------------------------------
<S> <C>
Schedule 1.2 Excluded Assets
Schedule 2.2 Purchase Price Payments
Schedule 2.4 Allocations of Purchase Price
Schedule 3.6 Exceptions to Ordinary Conduct of Business
Schedule 3.7 Recorded Liens
Schedule 3.16 Reimbursable Cooperative Expenses
Schedule 3.17(a) Affiliated Stores; Five Year Payments
Schedule 3.17(b) Affiliated Store Sublease Summary
Schedule 4.1 States in which each Company is Qualified to do business
Schedule 4.3 Exceptions to Title
Schedule 4.4 Consents for the Companies
Schedule 4.7 Licenses and Permits
Schedule 4.8(a) Unaudited Historical Financial Statements
Schedule 4.8(b) Exceptions to Payments of Debts When Due
Schedule 4.10 List of Deposits
Schedule 4.11(a) Trade Payables as of Date of Agreement
Schedule 4.11(c) Obligations for Indebtedness as of Date of Agreement
Schedule 4.12 Tax Matters
Schedule 4.13 Fixed Assets and Vehicles
Schedule 4.14 Inventory
Schedule 4.15 Intellectual Property
Schedule 4.16 Contracts; Identification of Related Party Contracts
Schedule 4.18 Litigation
Schedule 4.19 List of Store and Equipment Leases; List of Stores
Schedule 4.20 Insurance
Schedule 4.22 Benefit Plans and List of Accrued Vacation Obligations
Schedule 4.23 Immigration Matters
Schedule 4.25 Material Changes
Schedule 4.26 Bank Accounts and Reconciliations
Schedule 4.27 Accounts Receivable of Franchise
Schedule 5.4 Consents for Moovies
Schedule 5.8 Certain SEC Filings and Press Releases
Exhibit 2.2(b) Form of Subordinated Promissory Note
Exhibit 3.2(i) Form of Landlord Estoppel and Consent to Assignment of Lease
Exhibit 3.2(ii) Form of Addendum to Lease
Exhibit 3.4 Form of Noncompetition Agreement with Companies and with Stockholder
Exhibit 3.8(c) Specimen Stock Certificate of Moovies, Inc.
Exhibit 3.12 Form of Employment Agreement and Insider Trading Policy
Exhibit 3.17(a) Affiliated Store Lease
Exhibit 4.16(c) Limited License Agreement
Exhibit 4.16(d) Microlan Software Agreement
Exhibit 7.4(b)(i) Bill of Sale
Exhibit 7.4(b)(ii) Assignment and Assumption Agreement
Exhibit 7.4(f) Form of Opinion of Companies' and Stockholders' Counsel
Exhibit 7.4(j) Limited Release and Acknowledgement
Exhibit 8.3(g) Form of Opinion of Moovies' Counsel
</TABLE>
* The Schedules and Exhibits listed above have been omitted in accordance with
Item 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish to
the Commission a copy of any omitted Schedule or Exhibit listed above
supplementally upon request.
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AMENDMENT AGREEMENT
This Amendment Agreement ("Amendment Agreement") entered into as of the
14th day of March, 1997, by and among Moovies, Inc., a Delaware corporation,
Movie Warehouse Franchise Systems, Inc., a Delaware corporation ("Subsidiary")
(Moovies, Inc. and Subsidiary being hereinafter collectively referred to as
"Moovies"), Movie Warehouse, Inc., a Michigan corporation ("MW"), Movie
Warehouse Cambridge Park, Inc., a Michigan corporation ("Cambridge") and Movie
Warehouse Franchise Systems, Inc., a Michigan corporation ("Franchise")
(individually, MW, Cambridge and Franchise being a "Company" and collectively,
the "Companies") and Hani Mansour, the sole stockholder of MW, Cambridge and
Franchise ("Stockholder").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into that certain Asset
Purchase Agreement, dated as of January 7, 1997 ("Purchase Agreement") pursuant
to which Moovies and Subsidiary have agreed to purchase, and the Companies have
agreed to sell, certain assets of the Companies;
WHEREAS, the parties hereto mutually desire that the Purchase Agreement
be amended in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements herein contained and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties hereto hereby agree as follows:
1. Section 2.3(a)(i) of the Purchase Agreement is hereby amended
to delete the references to "Florida" in lines 2 and 4 thereof and insert in
lieu thereof "Franchise".
2. Section 3.17(a) of the Purchase Agreement is hereby amended by
adding the following language at the end thereof:
"Stockholder agrees that within fifteen (15) days after Closing,
Stockholder will review the form of Affiliate Store Lease prepared for
the premises located at 29090 and 29098 North Campbell Road, Madison
Heights, Michigan (collectively, the "Madison Heights Subleases") and,
after making any changes necessary in order (i) to appropriately take
into account the terms of that existing Lease dated February 28, 1995,
by and between Campbell Associates, Ltd. and Mansour Land Development,
Inc. ("MLD") and (ii) to assure that MLD would not be directly and
adversely affected from an economic perspective, cause MLD to execute
and deliver to Moovies, Inc. the Madison Heights Subleases, as so
revised.
3. Section 3.17(b) of the Purchase Agreement is hereby deleted
and replaced by a new Section 3.17(b) in the form set forth hereinbelow:
(b) Stockholder agrees to act in good faith and cooperate with
Moovies, Inc. in order to cause MLD to enter into a sublease (the "New
Pizza
<PAGE> 60
Hut Sublease") with Moovies, Inc. for the approximately 1680 square
feet of premises located at 43169 Van Dyke, Sterling Heights, Michigan
that are presently occupied by Pizza Hut of Detroit, Inc. (the "Pizza
Hut Space"). The New Pizza Hut Sublease shall be on commercially
reasonable terms satisfactory to Moovies, Inc. and MLD negotiating in
good faith; provided, however that: (i) the New Pizza Hut Sublease
shall be subject to prior consent by Kinney Shoe Corporation
("Kinney"); (ii) MLD shall not have any obligation for the payment of
minimum rent to Moovies, Inc. and shall not otherwise be directly and
adversely affected from an economic perspective, provided that MLD
shall pay to Moovies, Inc. its proportionate share of any operating
expenses or additional rent applicable to the Pizza Hut Space and for
which Moovies, Inc. will be obligated to third parties; (iii) the New
Pizza Hut Sublease will be subordinate to and subject in all respects
to the terms and conditions of that certain Sublease Agreement dated
December 21, 1992, by and between Kinney and Movie Warehouse of
Sterling Heights, Inc. (the "Sterling Heights Lease"); (iv) MLD will
indemnify Moovies, Inc. and its agents, employees, officers, directors,
successors or assigns and hold them harmless from and against all
claims, liabilities, damages, losses, costs and expenses (including
reasonable attorneys' fees) incurred or suffered by any of them and
arising out of the Pizza Hut Space, except for the actions or omissions
of Moovies, Inc. or its agents; and (v) MLD will have the right to
further sublet the Pizza Hut Space to Pizza Hut of Detroit, Inc. for
the duration of the term, as may be renewed, of the Sterling Heights
Lease subject to prior approval by Kinney, and provided that MLD
carries property and liability insurance in amounts commercially
reasonable for the use of the Pizza Hut Space. Until the New Pizza Hut
Sublease has been executed and delivered, Stockholder (x) agrees not to
take any action or fail to take any action that would breach or cause a
breach of any term or provision contained in the Sterling Heights
Lease; and (y) hereby indemnifies Moovies, Inc. and its agents,
employees, officers, directors, successors or assigns and holds them
harmless from and against all claims, liabilities, damages, losses,
costs and expenses (including reasonable attorneys' fees) incurred or
suffered by any of them and arising out of the Pizza Hut Space, except
for the actions or omissions of Moovies, Inc. or its agents.
4. Section 6.1(c) of the Purchase Agreement is hereby amended by
adding a new subsection (vi) at the end thereof, as follows: "(vi) any
obligation, debt or liability in respect of any Assigned Lease and Contract
arising prior to or on the Closing Date.
5. The parties hereto hereby agree that the Companies will pay
payroll for all persons employed by the Companies immediately prior to the
Closing ("Former Company Employees"), and thereafter will also pay Moovies
payroll obligation in respect of Former Company Employees for March 14, 15 and
16, 1997 and Moovies will reimburse the Companies in respect of such payroll
obligation in respect of Former Company Employees for March 14, 15 and 16, 1997
in accordance with Section 2.6(d) of the Agreement.
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6. Schedule 5.4 is hereby deleted and replaced by a new Schedule 5.4
in the form attached hereto.
7. Schedule 1.2 is hereby deleted and replaced by a new Schedule 1.2
in the form attached hereto.
8. Schedule 2.2 is hereby deleted and replaced by a new Schedule 2.2
in the form attached hereto.
9. Schedule 2.4 is hereby deleted and replaced by a new Schedule 2.4
in the form attached hereto.
10. Schedule 3.7 is hereby deleted and replaced by a new Schedule 3.7
in the form attached hereto.
11. Schedule 3.16 is hereby deleted and replaced by a new Schedule 3.16
in the form attached hereto.
12. Attachment to Schedule 3.16-1 is hereby deleted and replaced by a
new Attachment to Schedule 3.16-1 in the form attached hereto.
13. Attachment to Schedule 3.16-2 is hereby deleted and replaced by a
new Attachment to Schedule 3.16-2 in the form attached hereto.
14. Attachment to Schedule 3.16-3 is hereby deleted and replaced by a
new Attachment to Schedule 3.16-3 in the form attached hereto.
15. Schedule 4.3 is hereby deleted and replaced by a new Schedule 4.3
in the form attached hereto.
16. Schedule 4.8(b) is hereby deleted and replaced by a new Schedule
4.8(b) in the form attached hereto.
17. Schedule 4.10 is hereby deleted and replaced by a new Schedule 4.10
in the form attached hereto.
18. Attachment to Schedule 4.11(a)-1 is hereby deleted and replaced by
a new Attachment to Schedule 4.11(a)-1 in the form attached hereto.
19. Schedule 4.11(c) is hereby deleted and replaced by a new Schedule
4.11(c) in the form attached hereto.
20. Attachment to Schedule 4.13-3 is hereby deleted and replaced by a
new Attachment to Schedule 4.13-3 in the form attached hereto.
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<PAGE> 62
21. Schedule 4.16 is hereby deleted and replaced by a new Schedule 4.16
in the form attached hereto.
22. Attachment to Schedule 4.26-3 is hereby deleted and replaced by a
new Attachment to Schedule 4.26-3 in the form attached hereto.
23. Exhibit 7.4(j) is hereby deleted and replaced by a new Exhibit
7.4(j) in the form attached hereto.
24. The parties agree that notwithstanding the agreement by Moovies,
Inc. to be responsible, vis-a-vis Major Video Concepts, Inc., ("MVC") in respect
of the Companies invoices with MVC for account 2144 dated on or after March 5,
1997 up through April 15, 1997, as between Moovies and the Companies, Moovies
will be responsible for approximately $47,594 in respect of the Ordered Items
defined in Section 2.6(b)(B) (true, correct and complete copies of invoices in
respect of which are attached hereto as Attachment A) and approximately $60,674
in respect of Ordered Items from MVC to be received by the Companies in respect
of the Stores on or before March 14, 1997 with a street release date after March
7, 1997, and the Companies will be responsible for all other amounts due MVC.
25. The parties hereto agree that, notwithstanding anything in the
Purchase Agreement, any Exhibit or Schedule thereto, to the contrary, Moovies
will not assume MW's lease for the Store located at the Wabash Shopping Center,
2021 George Jenkins Blvd., Lakeland, Florida (the "Lakeland Store"). There shall
be no reduction in the Aggregate Purchase Price in respect of the Lakeland
Store. MW will retain, and not transfer or assign to Moovies pursuant to the
Purchase Agreement, approximately 6,400 items of "pulled down" basic stock
inventory which the parties have designated at MW's Madison Heights warehouse
(the "Pulled Down Inventory"). MW will not be permitted to use the name "Movie
Warehouse" or any trademark, service mark or goodwill related thereto at the
Lakeland Store, but may only use a name that is not confusing or similar to
"Movie Warehouse" or "Moovies".
(a) The parties hereto agree that MW may engage the services of
Calvin Freeman for a period of up to 3 months following the Closing to provide
software support, maintenance and related services in connection with the
opening of the Lakeland Store, provided that such services do not interfere with
any employment related duties as to Moovies, and in any event do not exceed
eight hours per week during normal business hours.
(b) Moovies agrees to assist MW in demographic assessments, upon
reasonable notice and during normal business hours, in Florida during the period
beginning on the Closing Date and ending on the earlier to occur of the
assignment, sublease or other transfer of its leasehold interest under the
current lease for the Lakeland Store or the second anniversary of the Closing
Date.
(c) Moovies, Inc. agrees to provide the services of its real estate
manager, Rosemary Beck, to provide broker contacts in Florida during the period
beginning on the Closing Date and ending on the earlier to occur of the
assignment, sublease or other transfer of
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its leasehold interest under the current lease for the Lakeland Store or the
second anniversary of the Closing Date.
(d) If MW assigns, subleases or otherwise transfers its leasehold
interest under the current lease for the Lakeland Store to Publix Supermarkets
("Publix") or any other person or entity not related to, or affiliated with, MW
and which is not engaged in the video rental business ("Non-Video Use Tenant"),
during the period beginning on the Closing Date and ending on the earlier to
occur of (i) the assignment, sublease or other transfer of its leasehold
interest under the current lease for the Lakeland Store to Publix or such other
Non-Video Use Tenant, (ii) the opening of the Lakeland Store by MW, or any other
person or entity related to, or affiliated with, MW or (iii) the expiration or
other termination of the current term of the current lease of the Lakeland
Store, (A) Moovies shall reimburse MW, dollar for dollar, for the amount MW is
required to reimburse Publix or such other Non-Video Use Tenant for MW's (or its
landlord's) build-out costs up to a maximum of $54,400 and (B) MW shall,
contemporaneously with the transfer of MW's leasehold interest under the current
lease for the Lakeland Store, transfer, assign and deliver all of the "Pulled
Down Inventory" to Moovies, without cost to Moovies. If MW, or any other person
or entity related to, or affiliated with, MW, opens the Lakeland Store or if MW
assigns, subleases or otherwise transfers its leasehold interest under the
current lease for the Lakeland Store to any person or entity whether or not
related to, or affiliated with, MW and which is engaged in the video rental
business ("Video Use Tenant"), during the period beginning on the Closing Date
and ending on the expiration or other termination of the current term of the
current lease of the Lakeland Store, (A) Moovies shall have no obligation to
reimburse MW for MW's or its landlord's build-out costs and (B) MW shall have no
obligation to transfer and assign the "Pulled Down Inventory" to Moovies.
26. Except as expressly provided herein, the Purchase Agreement remains
in full force and effect unaffected hereby. The parties hereby agree that all
references to the "Asset Purchase Agreement dated January 7, 1997" in the Asset
Purchase Agreement and in all documents and instruments contemplated therein
shall be deemed to mean the Purchase Agreement as amended hereby.
[Signatures continued on next page]
-5-
<PAGE> 64
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
Agreement as of the 14th day of March, 1997.
MOOVIES, INC.:
By:
--------------------------------------------
Ross Miller, Senior Vice President
MOVIE WAREHOUSE FRANCHISE SYSTEMS, INC.
By:
--------------------------------------------
Ross Miller, Vice President
MOVIE WAREHOUSE, INC.:
MOVIE WAREHOUSE CAMBRIDGE PARK, INC.
MOVIE WAREHOUSE FRANCHISE SYSTEMS, INC.
By:
--------------------------------------------
Hani Mansour, President
STOCKHOLDER:
-----------------------------------------------
Hani Mansour
The undersigned, Mansour Land Development, Inc., hereby executes this
Amendment in order to acknowledge and agree to the provisions of Paragraph 2 and
3 hereof and to agree to execute the Madison Heights Subleases and the New Pizza
Hut Sublease in the form agreed to by Stockholder.
MANSOUR LAND DEVELOPMENT, INC.
By:
--------------------------------------------
Hani Mansour, President
-6-
<PAGE> 65
<TABLE>
<CAPTION>
LIST OF SCHEDULES AND EXHIBITS
------------------------------
<S> <C>
Schedule 1.2 Excluded Assets
Schedule 2.2 Purchase Price Payments
Schedule 2.4 Allocations of Purchase Price
Schedule 3.7 Recorded Liens
Schedule 3.16 Reimbursable Cooperative Expenses
Schedule 4.3 Exceptions to Title
Schedule 4.8(b) Exceptions to Payments of Debts When Due
Schedule 4.10 List of Deposits
Schedule 4.11(a) Trade Payables as of Date of Agreement
Schedule 4.11(c) Obligations for Indebtedness as of Date of Agreement
Schedule 4.16 Contracts; Identification of Related Party Contracts
Schedule 4.26 Bank Accounts and Reconciliations
Schedule 5.4 Consents for Moovies
Exhibit 7.4(j) Limited Release and Acknowledgement
Attachment A Copies of Invoices
</TABLE>
* The Schedules and Exhibits listed above have been omitted in accordance with
Item 601(b)(2) of Regulation S-K. The Registrant hereby agrees to furnish to
the Commission a copy of any omitted Schedule or Exhibit listed above
supplementally upon request.
-i-
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
PARTICIPATING PREFERRED STOCK
of
MOOVIES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Moovies, Inc.
2. The Restated Certificate of Incorporation of the Corporation
authorizes the issuance of shares of Preferred Stock and expressly vests in the
Board of Directors of the Corporation the authority provided therein to issue
any or all of said shares at any time and from time to time, in one or more
series, and to fix or alter the designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions, of said shares of Preferred Stock.
3. Pursuant to the authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation as aforesaid, the Board of Directors
on December 20, 1996, adopted a resolution creating a series of 150,000 shares
of Preferred Stock designated as "Participating Preferred Stock," and no shares
of the Participating Preferred Stock have been issued.
4. Pursuant to the authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation and Section 151(g) of the General
Corporation Law of the State of Delaware, the Board of Directors on December 20,
1996 adopted the following resolutions setting forth the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions, of the shares of Participating
Preferred Stock:
"RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the provisions of its
Restated Certificate of Incorporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $.001 per share, of the Corporation and
hereby states the designation and number of shares and fixes the relative
rights, preferences and limitations thereof as follows:
1. The distinctive serial designation of this series shall be
"Participating Preferred Stock" (hereinafter called "this Series").
Each share of this Series shall be identical in all respects with the
other shares of this Series except as to the dates from and after which
dividends thereon shall be cumulative.
<PAGE> 2
2. The number of shares in this Series shall initially be
150,000 which number may from time to time be increased or decreased
(but not below the number then outstanding) by the Board of Directors.
Shares of this Series purchased by the Corporation shall be canceled
and shall revert to authorized but unissued shares of Preferred Stock
undesignated as to series. Shares of this Series may be issued in
fractional shares, which fractional shares shall entitle the holder, in
proportion to such holder's fractional share, to all rights of a holder
of a whole share of this Series.
3. The holders of full or fractional shares of this Series
shall be entitled to receive, when and as declared by the Board of
Directors, but only out of funds legally available therefor, dividends,
on each date that dividends or other distributions (other than
dividends or distributions payable in Common Stock of the Corporation)
are payable on or in respect of Common Stock comprising part of the
Reference Package (as defined below), in an amount per whole share of
this Series equal to the aggregate amount of dividends or other
distributions (other than dividends or distributions payable in Common
Stock of the Corporation) that would be payable on such date to a
holder of the Reference Package. Each such dividend shall be paid to
the holders of record of shares of this Series on the date, not
exceeding sixty days preceding such dividend or distribution payment
date, fixed for the purpose by the Board of Directors in advance of
payment of each particular dividend or distribution. Dividends on each
full and each fractional share of this Series shall be cumulative from
the date such full or fractional share is originally issued provided
that any such full or fractional share originally issued after a
dividend record date and on or prior to the dividend payment date to
which such record date relates shall not be entitled to receive the
dividend payable on such dividend payment date or any amount in respect
of the period from such original issuance to such dividend payment
date.
The term "Reference Package" shall initially mean 100 shares
of Common Stock of the Corporation. In the event the Corporation shall
at any time after the close of business on December 31, 1996 (A)
declare or pay a dividend on any Common Stock payable in Common Stock,
(B) subdivide any Common Stock, or (C) combine any Common Stock into a
smaller number of shares, then and in each such case the Reference
Package after such event shall be the Common Stock that a holder of the
Reference Package immediately prior to such event would hold thereafter
as a result thereof.
Holders of shares of this Series shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of
full cumulative dividends, as herein provided on this Series.
So long as any shares of this Series are outstanding, no
dividend (other than a dividend in Common Stock or in any other stock
ranking junior to this Series as to dividends and upon liquidation)
shall be declared or paid or set aside for payment or other
distribution declared or made upon the Common Stock or upon any other
stock
<PAGE> 3
ranking junior to this Series as to dividends or upon liquidation, nor
shall any Common Stock nor any other stock of the Corporation ranking
junior to or on a parity with this Series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any monies to be paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the
Corporation (except by conversion into or exchange for stock of the
Corporation ranking junior to this Series as to dividends and upon
liquidation), unless, in each case, the full cumulative dividends
(including the dividend to be due upon payment of such dividend,
distribution, redemption, purchase or other acquisition), if any, on
all outstanding shares of this Series shall have been, or shall
contemporaneously be, paid.
4. In the event of any merger, consolidation, reclassification
or other transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of this Series shall at the
same time be similarly exchanged or changed in an amount per whole
share equal to the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, that a holder
of the Reference Package would be entitled to receive as a result of
such transaction.
5. In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary,
the holders of full and fractional shares of this Series shall be
entitled, before any distribution or payment is made on any date to the
holders of the Common Stock or any other stock of the Corporation
ranking junior to this Series upon liquidation, to be paid in full an
amount per whole share of this Series equal to the aggregate amount
distributed prior to such date or to be distributed in connection with
such liquidation, dissolution or winding up to a holder of the
Reference Package, together with accrued dividends to such distribution
or payment date, whether or not earned or declared. If such payment
shall have been made in full to all holders of shares of this Series,
the holders of shares of this Series as such shall have no right or
claim to any of the remaining assets of the Corporation.
In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to the first
paragraph of this Section 5, no such distribution shall be made on
account of any shares of any other class or series of Preferred Stock
ranking on a parity with the shares of this Series upon such
liquidation, dissolution or winding up unless proportionate
distributive amounts shall be paid on account of the shares of this
Series, ratably in proportion to the full distributable amounts for
which holders of all such parity shares are respectively entitled upon
such liquidation, dissolution or winding up.
Upon the liquidation, dissolution or winding up of the
Corporation, the holders of shares of this Series then outstanding
shall be entitled to be paid out of assets of the
<PAGE> 4
Corporation available for distribution to its shareholders all amounts
to which such holders are entitled pursuant to the first paragraph of
this Section 5 before any payment shall be made to the holders of
Common Stock or any other stock of the Corporation ranking junior upon
liquidation to this Series.
For purposes of this Section 5, the consolidation or merger
of, or binding share exchange by, the Corporation with any other
corporation shall not be deemed to constitute a liquidation,
dissolution or winding up of the Corporation.
6. The shares of this Series shall not be redeemable without
the consent of the holder of such shares.
7. In addition to any other vote or consent of shareholders
required by law or by the Articles of Incorporation, as amended, of the
Corporation, each whole share of this Series shall, on any matter, vote
as a class with any other capital stock comprising part of the
Reference Package and voting on such matter and shall have the number
of votes thereon that a holder of the Reference Package would have.
8. The shares of this Series shall rank junior to all other
series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such
series shall provide otherwise.
RESOLVED, that the statements contained in the foregoing resolutions
creating and designating the said series of Participating Preferred Stock and
fixing the designations, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof
shall, upon the effective date of said series, be deemed to be included in and
be a part of the Restated Certificate of Incorporation of the Corporation
pursuant to the provisions of Sections 104 and 151 of the General Corporation
Law of the State of Delaware."
5. The effective time and date of the series herein certified
shall be the filing date of this Certificate of Designation with the Secretary
of State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and Chief Executive Officer and, such authorized officer
hereby declares, under penalty of perjury under the laws of the State of
Delaware, that he signed this Certificate in the official capacity set forth
beneath his signature and that the statements set forth in this Certificate are
true and correct of his own knowledge this ___ day of December, 1996.
-----------------------------------
John L. Taylor
President, Chief Executive Officer
<PAGE> 1
EXHIBIT 10.1
================================================================================
$75,000,000
CREDIT AGREEMENT
among
MOOVIES, INC.,
VARIOUS BANKS
and
BANQUE PARIBAS,
as Agent
---------------------------------
Dated as of March 14, 1997
---------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Section 1. Amount and Terms of Credit............................................................... 1
1.01 The Commitments....................................................................... 1
1.02 Minimum Amount of Each Borrowing...................................................... 2
1.03 Notice of Borrowing................................................................... 2
1.04 Disbursement of Funds................................................................. 3
1.05 Notes ............................................................................... 4
1.06 Conversions........................................................................... 5
1.07 Pro Rata Borrowings................................................................... 6
1.08 Interest.............................................................................. 6
1.09 Interest Periods...................................................................... 7
1.10 Increased Costs, Illegality, etc...................................................... 8
1.11 Compensation.......................................................................... 10
1.12 Replacement of Banks.................................................................. 11
Section 2. Letters of Credit........................................................................ 13
2.01 Letters of Credit..................................................................... 13
2.02 Minimum Stated Amount................................................................. 14
2.03 Letter of Credit Requests............................................................. 14
2.04 Letter of Credit Participations....................................................... 14
2.05 Agreement to Repay Letter of Credit Drawings.......................................... 16
2.06 Increased Costs....................................................................... 17
Section 3. Commitment Commission; Fees; Reductions of Commitments................................... 18
3.01 Fees ............................................................................... 18
3.02 Voluntary Termination of Unutilized Commitments....................................... 19
3.03 Mandatory Reduction of Commitments.................................................... 20
Section 4. Prepayments; Payments; Taxes............................................................. 21
4.01 Voluntary Prepayments................................................................. 21
4.02 Mandatory Repayments and Commitment Reductions........................................ 23
4.03 Method and Place of Payment........................................................... 28
4.04 Net Payments.......................................................................... 28
Section 5. Conditions Precedent to Loans on the Initial Borrowing Date.............................. 30
5.01 Execution of Agreement; Notes......................................................... 30
5.02 Officer's Certificate................................................................. 30
5.03 Opinions of Counsel................................................................... 31
5.04 Corporate Documents; Proceedings...................................................... 31
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
5.05 Employee Benefit Plans; Shareholders' Agreements; Management
Agreements; Employment Agreements; Collective Bargaining
Agreements; Debt Agreements; Affiliate Contracts; Tax Sharing
Agreements and Material Contracts.............................................. 31
5.06 Consummation of the Acquisition....................................................... 33
5.07 Pledge Agreement...................................................................... 34
5.08 Security Agreement.................................................................... 34
5.09 Subsidiaries Guaranty................................................................. 35
5.10 Material Adverse Change, etc.......................................................... 35
5.11 Litigation............................................................................ 35
5.12 Fees, etc............................................................................. 36
5.13 Solvency Certificate; Insurance Analyses.............................................. 36
5.14 Approvals............................................................................. 36
5.15 Financial Statements; Projections; Management Letter Reports.......................... 36
5.16 Refinancing........................................................................... 37
5.17 Consent Letter........................................................................ 38
Section 6. Conditions Precedent to All Credit Events................................................ 38
6.01 No Default; Representations and Warranties............................................ 38
6.02 Notice of Borrowing; Letter of Credit Request......................................... 39
6.03 Adverse Change, etc................................................................... 39
6.04 Litigation............................................................................ 39
6.05 Subsequent Legal Opinions............................................................. 39
6.06 Permitted Transactions................................................................ 40
Section 7. Representations, Warranties and Agreements............................................... 40
7.01 Corporate Status...................................................................... 40
7.02 Corporate Power and Authority......................................................... 41
7.03 No Violation.......................................................................... 41
7.04 Governmental Approvals................................................................ 41
7.05 Financial Statements; Financial Condition; Undisclosed Liabilities;
Projections; etc............................................................... 41
7.06 Litigation............................................................................ 43
7.07 True and Complete Disclosure.......................................................... 43
7.08 Use of Proceeds; Margin Regulations................................................... 43
7.09 Tax Returns and Payments.............................................................. 44
7.10 Compliance with ERISA................................................................. 44
7.11 Security Documents.................................................................... 45
7.12 Representations and Warranties in Documents........................................... 46
7.13 Properties............................................................................ 46
7.14 Capitalization........................................................................ 46
7.15 Subsidiaries.......................................................................... 47
7.16 Compliance with Statutes, etc......................................................... 47
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
7.17 Investment Company Act................................................................ 47
7.18 Public Utility Holding Company Act.................................................... 47
7.19 Environmental Matters................................................................. 47
7.20 Labor Relations....................................................................... 48
7.21 Patents, Licenses, Franchises and Formulas............................................ 49
7.22 Indebtedness.......................................................................... 49
7.23 Restrictions on or Relating to Subsidiaries........................................... 49
7.24 The Transaction....................................................................... 50
7.25 Concentration Account................................................................. 50
7.26 Material Contracts.................................................................... 50
Section 8. Affirmative Covenants.................................................................... 50
8.01 Information Covenants................................................................. 50
8.02 Books, Records and Inspections........................................................ 54
8.03 Maintenance of Property, Insurance.................................................... 54
8.04 Corporate Franchises.................................................................. 55
8.05 Compliance with Statutes, etc......................................................... 55
8.06 Compliance with Environmental Laws.................................................... 56
8.07 ERISA ............................................................................... 56
8.08 End of Fiscal Years; Fiscal Quarters.................................................. 58
8.09 Performance of Obligations............................................................ 58
8.10 Payment of Taxes...................................................................... 58
8.11 Interest Rate Protection.............................................................. 58
8.12 Use of Proceeds....................................................................... 58
8.13 UCC Searches.......................................................................... 58
8.14 Intellectual Property Rights.......................................................... 58
8.15 Permitted Acquisitions................................................................ 59
8.16 Registry.............................................................................. 63
8.17 Further Actions....................................................................... 64
8.18 Concentration Account................................................................. 65
8.19 Ownership of Subsidiaries............................................................. 65
Section 9. Negative Covenants....................................................................... 65
9.01 Liens ............................................................................... 66
9.03 Dividends............................................................................. 69
9.04 Concentration Account................................................................. 69
9.05 Indebtedness.......................................................................... 70
9.06 Advances, Investments and Loans....................................................... 70
9.07 Transactions with Affiliates.......................................................... 72
9.08 Capital Expenditures.................................................................. 73
9.09 Fixed Charge Coverage Ratio........................................................... 74
9.10 Free Cash Flow Coverage Ratio......................................................... 74
9.11 Consolidated Indebtedness to Consolidated Free Cash Flow.............................. 75
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
9.12 Minimum Consolidated Net Worth........................................................ 76
9.13 Minimum Consolidated EBITDA........................................................... 76
9.14 Minimum Consolidated Free Cash Flow................................................... 77
9.15 Limitation on Voluntary Payments and Modification of Existing
Indebtedness; Limitation on Modifications of Certificate of
Incorporation, By-Laws and Certain Other Agreements; etc....................... 78
9.16 Limitation on Certain Restrictions on Subsidiaries.................................... 79
9.17 Limitation on Issuance of Capital Stock............................................... 79
9.18 Business.............................................................................. 80
9.19 Limitation on Creation of Subsidiaries................................................ 80
Section 10. Events of Default....................................................................... 80
10.01 Payments............................................................................. 80
10.02 Representations, etc................................................................. 80
10.03 Covenants............................................................................ 81
10.04 Default Under Other Agreements....................................................... 81
10.05 Bankruptcy, etc...................................................................... 81
10.06 ERISA ............................................................................... 82
10.07 Security Documents................................................................... 82
10.08 Guaranties........................................................................... 83
10.09 Judgments............................................................................ 83
10.10 Change in Control.................................................................... 83
Section 11. Definitions and Accounting Terms........................................................ 84
11.01 Defined Terms........................................................................ 84
Section 12. The Agent...............................................................................111
12.01 Appointment..........................................................................111
12.02 Nature of Duties.....................................................................111
12.03 Lack of Reliance on the Agent........................................................112
12.04 Certain Rights of the Agent..........................................................112
12.05 Reliance.............................................................................112
12.06 Indemnification......................................................................113
12.07 The Agent in Its Individual Capacity.................................................113
12.08 Holders..............................................................................113
12.09 Resignation by the Agent.............................................................114
Section 13. Miscellaneous...........................................................................114
13.01 Payment of Expenses, etc.............................................................114
13.02 Right of Setoff......................................................................115
13.03 Notices..............................................................................116
13.04 Benefit of Agreement.................................................................116
13.05 No Waiver; Remedies Cumulative.......................................................117
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
13.06 Payments Pro Rata....................................................................118
13.07 Calculations; Computations...........................................................118
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE; WAIVER OF JURY TRIAL....................................................119
13.09 Counterparts.........................................................................120
13.10 Effectiveness........................................................................120
13.11 Headings Descriptive.................................................................120
13.12 Amendment or Waiver..................................................................120
13.13 Survival.............................................................................122
13.14 Domicile of Loans....................................................................122
13.15 Confidentiality......................................................................122
13.16 Post-Closing Obligations.............................................................123
</TABLE>
SCHEDULE I Commitments
SCHEDULE II Insurance
SCHEDULE III Real Property
SCHEDULE IV Bank Deposit Accounts/Concentration Account
SCHEDULE V Tax Matters
SCHEDULE VI ERISA
SCHEDULE VII Capitalization
SCHEDULE VIII Subsidiaries
SCHEDULE IX Existing Indebtedness
SCHEDULE X Material Contracts
SCHEDULE XI Existing Liens
EXHIBIT A-1 Notice of Borrowing
EXHIBIT A-2 Notice of Conversion
EXHIBIT A-3 Letter of Credit Request
EXHIBIT B-1 Term Note
EXHIBIT B-2 Capital Expenditure Note
EXHIBIT B-3 Revolving Note
EXHIBIT C Section 4.04(b)(ii) Certificate
EXHIBIT D Form of Opinion of Arnall, Golden & Gregory, LLP
EXHIBIT E Officers' Certificate of Credit Parties
EXHIBIT F Pledge Agreement
EXHIBIT G Security Agreement
EXHIBIT H Subsidiaries Guaranty
EXHIBIT I Solvency Certificate
EXHIBIT J Consent Letter
EXHIBIT K Assignment and Assumption Agreement
EXHIBIT L Seller Note
EXHIBIT M Intercompany Note
(v)
<PAGE> 7
CREDIT AGREEMENT, dated as of March 14, 1997, among MOOVIES,
INC., a corporation organized and existing under the laws of the State of
Delaware (the "Borrower"), the Banks party hereto from time to time and BANQUE
PARIBAS, as agent (the "Agent"). Unless otherwise defined herein, all
capitalized terms used herein and defined in Section 11 are used herein as
therein defined.
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Banks are willing to make available to the Borrower the respective
credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
Section 1. Amount and Terms of Credit.
1.01 The Commitments. (a) Subject to and upon the terms and
conditions set forth herein, each Bank with a Term Loan Commitment severally
agrees to make, on the Initial Borrowing Date, a term loan (each, a "Term Loan"
and, collectively, the "Term Loans") to the Borrower, which Term Loans (i) shall
be made and initially maintained as a single Borrowing of Base Rate Loans
(subject to the option to convert such Base Rate Loans pursuant to Section 1.06)
and (ii) shall not exceed for any Bank, in initial aggregate principal amount,
that amount which equals the Term Loan Commitment of such Bank on such date
(before giving effect to any reductions thereto on such date pursuant to Section
3.03(b)(i) but after giving effect to any reductions thereto on or prior to such
date pursuant to Section 3.03(b)(ii)). Once repaid, Term Loans incurred
hereunder may not be reborrowed.
(b) Subject to and upon the terms and conditions set forth
herein, each Bank with Capital Expenditure Loan Commitment severally agrees to
make, at any time and from time to time on or after the Initial Borrowing Date
and prior to the Capital Expenditure Loan Conversion Date, a loan or loans
(each, a "Capital Expenditure Loan" and, collectively, the "Capital Expenditure
Loans") to the Borrower, which Capital Expenditure Loans (i) shall, at the
option of the Borrower, be Base Rate Loans or Eurodollar Loans; provided that
(x) except as otherwise specifically provided in Section 1.10(b), all Capital
Expenditure Loans comprising the same Borrowing shall at all times be of the
same Type and (y) no Eurodollar Loans may be incurred prior to the Syndication
Termination Date and (ii) shall
<PAGE> 8
not exceed for any Bank at any time outstanding that aggregate principal amount
which equals the Capital Expenditure Loan Commitment of such Bank at such time
(before giving effect to any reductions thereto on such date pursuant to Section
3.03(c)(i) but after giving effect to any reductions thereto on or prior to such
date pursuant to Section 3.03(c)(ii)). Once repaid, Capital Expenditure Loans
incurred may be reborrowed prior to the Capital Expenditure Loan Conversion Date
in accordance with the provisions hereof.
(c) Subject to and upon the terms and conditions set forth
herein, each Bank with a Revolving Loan Commitment severally agrees at any time
and from time to time after the Initial Borrowing Date and prior to the Final
Maturity Date, to make a loan or loans (each, a "Revolving Loan" and,
collectively, the "Revolving Loans") to the Borrower, which Revolving Loans (i)
shall, at the option of the Borrower, be Base Rate Loans or Eurodollar Loans;
provided that (x) except as otherwise specifically provided in Section 1.10(b),
all Revolving Loans comprising the same Borrowing shall at all times be of the
same Type and (y) no Eurodollar Loans may be incurred prior to the Syndication
Termination Date, (ii) may be repaid and reborrowed in accordance with the
provisions hereof, and (iii) shall not exceed for any Bank at any time
outstanding that aggregate principal amount which, when added to the product of
(x) such Bank's Percentage and (y) the sum of the aggregate amount of all Letter
of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans), equals the Revolving Loan Commitment of such
Bank at such time.
1.02 Minimum Amount of Each Borrowing. The aggregate principal
amount of each Borrowing hereunder shall not be less than the Minimum Borrowing
Amount and, if greater, shall be in integral multiples of $500,000, except in
the case of Borrowings of Revolving Loans which shall be in integral multiples
of $100,000. More than one Borrowing may occur on the same date, but at no time
shall there be outstanding more than five Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
make a Borrowing hereunder, it shall give the Agent at its Notice Office, prior
to 10:00 A.M. (New York time) at least one Business Day's prior written notice
(or telephonic notice promptly confirmed in writing) of each Borrowing of Base
Rate Loans and at least three Business Days' prior written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans.
Each such notice (each, a "Notice of Borrowing"), except as otherwise expressly
provided in Section 1.10, shall be irrevocable and shall be given by the
Borrower in the form of Exhibit A-1, appropriately completed to specify (i) the
aggregate principal amount of the Loans to be made pursuant to such Borrowing,
(ii) the date of such Borrowing (which shall be a Business Day), (iii) whether
the Loans being made pursuant to such Borrowing shall constitute Term Loans,
Revolving Loans or Capital Expenditure Loans and (iv) whether the Loans being
made pursuant to
-2-
<PAGE> 9
such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar
Loans and, if Eurodollar Loans, the initial Interest Period to be applicable
thereto. Any notice received after 10:00 A.M. (New York time) shall be deemed to
be received on the next succeeding Business Day. The Agent shall promptly give
each Bank which is required to make Loans of the Tranche specified in the
respective Notice of Borrowing notice of such proposed Borrowing, of such Bank's
proportionate share thereof and of the other matters specified in the Notice of
Borrowing.
(b) Without in any way limiting the obligation of a Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Agent or the respective Issuing Bank (in the case of Letters of Credit) may,
prior to receipt of written confirmation, act without liability upon the basis
of telephonic notice believed by the Agent or the respective Issuing Bank (in
the case of Letters of Credit) in good faith to be from the president, the chief
executive officer, chief financial officer or controller of the Borrower. In
each such case, the Agent's or such Issuing Bank's record of the terms of such
telephonic notice shall be conclusive absent manifest error.
1.04 Disbursement of Funds. No later than 12:00 Noon (New York
time) on the date specified in each Notice of Borrowing, each Bank with a
Commitment of the respective Tranche will make available its pro rata portion
(determined in accordance with Section 1.07) of each such Borrowing requested to
be made on such date. All such amounts shall be made available in Dollars and in
immediately available funds at the Payment Office, and the Agent will make
available to the Borrower at the Payment Office the aggregate of the amounts so
made available by the Banks. Unless the Agent shall have been notified in
writing by any Bank prior to the date of Borrowing that such Bank does not
intend to make available to the Agent such Bank's portion of any Borrowing to be
made on such date, the Agent may assume that such Bank has made such amount
available to the Agent on such date of Borrowing and the Agent may, in reliance
upon such assumption, make available to the Borrower a corresponding amount. If
such corresponding amount is not in fact made available to the Agent by such
Bank, the Agent shall be entitled to recover such corresponding amount on demand
from such Bank. If such Bank does not pay such corresponding amount forthwith
upon the Agent's demand therefor, the Agent shall promptly notify the Borrower,
and the Borrower shall immediately pay such corresponding amount to the Agent.
The Agent shall also be entitled to recover on demand from such Bank or the
Borrower, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Agent to the Borrower, until the date such corresponding amount is recovered by
the Agent, at a rate per annum equal to (i) if recovered from such Bank, the
cost to the Agent of acquiring overnight federal funds and (ii) if recovered
from the Borrower, the rate of interest applicable to the respective Borrowing,
as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be
deemed to relieve any Bank from its obligation to make Loans here-
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under or to prejudice any rights which the Borrower may have against any Bank as
a result of any failure by such Bank to make Loans hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal
of, and interest on, the Loans made by each Bank shall be evidenced (i) if Term
Loans, by a promissory note duly executed and delivered by the Borrower
substantially in the form of Exhibit B-1 with blanks appropriately completed in
conformity herewith (each, a "Term Note" and, collectively, the "Term Notes"),
(ii) if Capital Expenditure Loans, by a promissory note duly executed and
delivered by the Borrower substantially in the form of Exhibit B-2, with blanks
appropriately completed in conformity herewith (each, a "Capital Expenditure
Note" and, collectively, the "Capital Expenditure Notes") and (iii) if Revolving
Loans, by a promissory note duly executed and delivered by the Borrower
substantially in the form of Exhibit B-3, with blanks appropriately completed in
conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving
Notes").
(b) The Term Note issued to each Bank with a Term Loan Commitment
shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank
and be dated the Initial Borrowing Date, (iii) be in a stated principal amount
equal to the Term Loan made by such Bank on the Initial Borrowing Date and be
payable in the principal amount of the Term Loan evidenced thereby, (iv) mature
on the Final Maturity Date, (v) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans,
as the case may be, evidenced thereby, (vi) be subject to voluntary repayment as
provided in Section 4.01 and mandatory repayment as provided in Section 4.02 and
(vii) be entitled to the benefits of this Agreement and the Guaranties and be
secured by the Security Documents.
(c) The Capital Expenditure Note issued to each Bank with a
Capital Expenditure Loan Commitment shall (i) be executed by the Borrower, (ii)
be payable to the order of such Bank and be dated the Initial Borrowing Date,
(iii) be in a stated principal amount equal to the Capital Expenditure Loan
Commitment of such Bank and be payable in the principal amount of the Capital
Expenditure Loans evidenced thereby, (iv) mature on the Final Maturity Date, (v)
bear interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced
thereby, (vi) be subject to voluntary repayment as provided in Section 4.01 and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the Guaranties and be secured by the Security
Documents.
(d) The Revolving Note issued to each Bank with a Revolving Loan
Commitment shall (i) be executed by the Borrower, (ii) be payable to the order
of such Bank and be dated the Initial Borrowing Date, (iii) be in a stated
principal amount equal to the Revolving Loan Commitment of such Bank and be
payable in the principal amount of the Revolving Loans evidenced thereby, (iv)
mature on the Final Maturity Date, (v) bear
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<PAGE> 11
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby,
(vi) be subject to voluntary repayment as provided in Section 4.01 and mandatory
repayment as provided in Section 4.02 and (vii) be entitled to the benefits of
this Agreement and the Guaranties and be secured by the Security Documents.
(e) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or the making of an incorrect notation shall not affect the Borrower's
obligations in respect of such Loans.
1.06 Conversions. The Borrower shall have the option to convert,
on any Business Day, all or a portion at least equal to the Minimum Borrowing
Amount of the outstanding principal amount of the Loans made pursuant to one or
more Borrowings (so long as of the same Tranche) of one Type of Loan into a
Borrowing or Borrowings (of the same Tranche) of the other Type of Loan;
provided that:
(i) except as otherwise provided in Section 1.10(b), Eurodollar
Loans may be converted into Base Rate Loans only on the last day of an
Interest Period applicable to the Loans being converted and no such
partial conversion of Eurodollar Loans shall reduce the outstanding
principal amount of such Eurodollar Loans made pursuant to a single
Borrowing to less than the Minimum Borrowing Amount applicable thereto;
(ii) Base Rate Loans may only be converted into Eurodollar Loans
if no Default or Event of Default is in existence on the date of the
conversion;
(iii) no conversion pursuant to this Section 1.06 shall result in
a greater number of Borrowings than is permitted under Section 1.02; and
(iv) prior to the Syndication Termination Date, no Loan may be
converted into Eurodollar Loans.
Each such conversion shall be effected by the Borrower by giving the Agent at
its Notice Office prior to 12:00 Noon (New York time) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
(each, a "Notice of Conversion"), which notice shall be in the form of Exhibit
A-2, appropriately completed to specify the Loans to be so converted, the
Borrowing(s) pursuant to which such Loans were made and, if to be converted into
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Agent shall give each Bank prompt notice of any such proposed conversion
affecting any of its Loans.
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1.07 Pro Rata Borrowings. All Borrowings of Loans under this
Agreement shall be incurred from the Banks pro rata on the basis of their
respective Term Loan Commitments, Capital Expenditure Loan Commitments or
Revolving Loan Commitments, as the case may be. It is understood that no Bank
shall be responsible for any default by any other Bank of its obligation to make
Loans hereunder and that each Bank shall be obligated to make the Loans provided
to be made by it hereunder regardless of the failure of any other Bank to make
its Loans hereunder.
1.08 Interest. (a) The Borrower agrees to pay interest in respect
of the unpaid principal amount of each Base Rate Loan made to it from the date
of the Borrowing thereof until the earlier of (i) the maturity thereof (whether
by acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of
such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per
annum which shall at all times be equal to the sum of the Applicable Margin plus
the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan made to it from the date of the
Borrowing thereof until the earlier of (i) the maturity thereof (whether by
acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of
such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or
1.10(b), as applicable, at a rate per annum which shall, during each Interest
Period applicable thereto, be equal to the sum of the Applicable Margin plus the
Quoted Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to the
greater of (x) 2% per annum in excess of the rate otherwise applicable to Base
Rate Loans of the respective Tranche of Loans from time to time and (y) the rate
which is 2% in excess of the rate borne by such Loans. Interest which accrues
under this Section 1.08(c) shall be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable
(i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly
Payment Date, (ii) in respect of each Eurodollar Loan on (x) the date of any
prepayment or repayment thereof (on the amount prepaid or repaid), (y) the date
of any conversion into a Base Rate Loan pursuant to Section 1.06, 1.09 or
1.10(b), as applicable (on the amount converted) and (z) on the last day of each
Interest Period applicable thereto and, in the case of an Interest Period in
excess of three months, on each date occurring at three month intervals after
the first day of such Interest Period and (iii) in respect of each Loan, at
maturity (whether by acceleration or otherwise) and, after such maturity, on
demand.
(e) Upon each Interest Determination Date, the Agent shall
determine the Quoted Rate for the Interest Period applicable to Eurodollar Loans
and shall promptly
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<PAGE> 13
notify the Borrower and the Banks thereof. Each such determination shall, absent
manifest error, be final and conclusive and binding on all parties hereto.
(f) All computations of interest hereunder shall be made in
accordance with Section 13.07(b).
1.09 Interest Periods. At the time it gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or prior to 10:00 A.M. (New York time) on the third Business Day prior
to the expiration of an Interest Period applicable to such Eurodollar Loan (in
the case of any subsequent Interest Period), the Borrower shall have the right
to elect, by giving the Agent notice thereof, the interest period (each, an
"Interest Period") applicable to such Eurodollar Loan, which Interest Period
shall, at the option of the Borrower, be a one, three or six-month period;
provided that:
(i) all Eurodollar Loans comprising a single Borrowing shall at
all times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the
date of any conversion thereto from a Borrowing of Base Rate Loans) and
each Interest Period occurring thereafter in respect of such Eurodollar
Loan shall commence on the day on which the next preceding Interest
Period applicable thereto expires;
(iii) if any Interest Period relating to a Euro- dollar Loan
begins on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, however, that if any Interest Period
for a Eurodollar Loan would otherwise expire on a day which is not a
Business Day but is a day of the month after which no further Business
Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(v) no Interest Period for a Borrowing under any Tranche shall
be selected which extends beyond the Final Maturity Date;
(vi) no Interest Period may be selected at any time when any
Default or Event of Default is then in existence;
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<PAGE> 14
(vii) no Interest Period in respect of any Borrowing of Term
Loans or Capital Expenditure Loans, as the case may be, shall be selected
which extends beyond any date upon which a mandatory repayment of such
Term Loans or Capital Expenditure Loans will be required to be made under
Section 4.02(A)(b) or (c), as the case may be, if, after giving effect to
the selection of such Interest Period, the aggregate principal amount of
such Term Loans or Capital Expenditure Loans, as the case may be,
maintained as Eurodollar Loans which have Interest Periods expiring after
such date will be in excess of the aggregate principal amount of such
Term Loans or Capital Expenditure Loans, as the case may be, then
outstanding less the aggregate amount of such required prepayment; and
(viii) no Interest Period may be selected prior to the Syndication
Termination Date.
If upon the expiration of any Interest Period applicable to a Borrowing of
Eurodollar Loans the Borrower has failed to elect a new Interest Period to be
applicable to such Eurodollar Loans as provided above or a Default or Event of
Default then exists, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any
Bank shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition
of Quoted Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect
to any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, order, guideline or
request, such as, for example, but not limited to: (A) a change in the
basis of taxation of payments to any Bank of the principal of or interest
on the Notes or any other amounts payable hereunder (except for changes
in the rate of tax on, or determined by reference to, the net income or
profits of such Bank imposed by the jurisdiction in which its principal
office or applicable lending office is located) or (B) a change in
official reserve requirements (but, in all events, exclud-
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<PAGE> 15
ing reserves required under Regulation D to the extent included in the
computation of the Quoted Rate) and/or (y) other circumstances since the
date of this Agreement affecting such Bank or the interbank Euro- dollar
market or the position of such Bank in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental
rule, regulation or order, (y) impossible by compliance by any Bank in
good faith with any governmental request (whether or not having the force
of law) or (z) impracticable as a result of a contingency occurring after
the date of this Agreement which materially and adversely affects the
interbank Eurodollar market;
then, and in any such event, such Bank (or the Agent, in the case of clause (i)
above) shall promptly give notice (if by telephone, promptly confirmed in
writing) to the Borrower, and, except in the case of clause (i) above, to the
Agent of such determination (which notice the Agent shall promptly transmit to
each of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the Agent
notifies the Borrower and the Banks that the circumstances giving rise to such
notice by the Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have not
yet been incurred (including by way of conversion) shall be deemed rescinded by
the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to
such Bank, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest or
otherwise as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to the additional
amounts owed to such Bank, showing in reasonable detail the basis for the
calculation thereof, submitted to the Borrower by such Bank shall, absent
manifest error, be final and conclusive and binding on all the parties hereto)
and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section 1.10(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (i) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, by giving the Agent telephonic
notice (confirmed in writing) on the same date that the Borrower was notified by
the affected Bank or the Agent pursuant to Section 1.10(a)(ii) or (iii), cancel
the respective Borrowing or conversion, or (ii) if the affected Eurodollar Loan
is then outstanding, upon at least three Business Days' written notice to the
Agent, require the affected Bank to convert such Eurodollar Loan into a Base
Rate Loan; provided that if more than
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<PAGE> 16
one Bank is affected at any time, then all affected Banks must be treated the
same pursuant to this Section 1.10(b).
(c) If at any time after the date hereof, any Bank determines
that the introduction of or any change in applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the force of law)
concerning capital adequacy, or any change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency, will
have the effect of increasing the amount of capital required or expected to be
maintained by such Bank or any corporation controlling such Bank based on the
existence of such Bank's Commitments hereunder or its obligations hereunder,
then the Borrower shall pay to such Bank, upon its written demand therefor, such
additional amounts as shall be required to compensate such Bank for the
increased cost to such Bank or such other corporation or the reduction in the
rate of return to such Bank or such other corporation as a result of such
increase of capital. In determining such additional amounts, each Bank will act
reasonably and in good faith and will use averaging and attribution methods
which are reasonable; provided that such Bank's determination of compensation
owing under this Section 1.10(c) shall, absent manifest error, be final and
conclusive and binding on all the parties hereto. Each Bank, upon determining
that any additional amounts will be payable pursuant to this Section 1.10(c),
will give prompt written notice thereof to the Borrower, which notice shall show
in reasonable detail the basis for calculation of such additional amounts,
although the failure to give any such notice shall not release or diminish any
of the Borrower's obligations to pay additional amounts pursuant to this Section
1.10(c).
1.11 Compensation. The Borrower shall compensate each Bank, upon
its written request (which request shall set forth in reasonable detail the
basis for requesting such compensation), 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 Bank to fund its Eurodollar Loans) which such Bank may sustain:
(i) if for any reason (other than a default by such Bank or the Agent) a
Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a
date specified therefor in a Notice of Borrowing or Notice of Conversion
(whether or not withdrawn by the Borrower or deemed withdrawn pursuant to
Section 1.10(a)); (ii) if any repayment (including any repayment made pursuant
to Section 4.02 or as a result of an acceleration of the Loans pursuant to
Section 10) or conversion of any of its Eurodollar Loans occurs on a date which
is not the last day of an Interest Period with respect thereto; (iii) if any
prepayment of any of its Eurodollar Loans is not made on any date specified in a
notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any
other default by the Borrower to repay its Loans when required by the terms of
this Agreement or any Note held by such Bank or (y) any election made pursuant
to Section 1.10(b). A Bank's basis for requesting compensation pursuant to this
Section, and a Bank's calculations
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of the amount thereof, shall, absent manifest error, be final and conclusive and
binding on all the parties hereto.
1.12 Replacement of Banks. (x) If any Bank becomes a Defaulting
Bank or (y) if any Bank (other than the Agent) refuses to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in Section
13.12(b), then the Borrower shall have the right, if no Default or Event of
Default then exists, to replace such Bank (the "Replaced Bank") with any other
Bank or with one or more Eligible Transferee or Eligible Transferees, none of
whom shall constitute a Defaulting Bank at the time of such replacement
(collectively, the "Replacement Bank") reasonably acceptable to the Agent or, at
the option of the Borrower, to replace only (a) the Revolving Loan Commitment
(and Revolving Loans outstanding pursuant thereto) of the Replaced Bank with an
identical Revolving Loan Commitment (and Revolving Loans outstanding pursuant
thereto) provided by the Replacement Bank or (b) in the case of a replacement as
provided Section 13.12(b) when a consent of the respective Bank is required with
respect to less than all Tranches of its Loans or Commitments, the Commitments
and/or outstanding Loans of such Bank in respect of each Tranche when a consent
of such Bank would otherwise be individually required, with identical
Commitments and/or Loans of the respective Tranche provided by the Replacement
Bank; provided that:
(i) at the time of any replacement pursuant to this Section
1.12, the Replacement Bank shall enter into one or more assignment
agreements pursuant to Section 13.04(b) (and with all fees payable
pursuant to said Section 13.04(b) to be paid by the Replacement Bank)
pursuant to which the Replacement Bank shall acquire all of the
Commitments and outstanding Loans of (or, in the case of the replacement
of only (a) the Revolving Loan Commitment, the Revolving Loan Commitment
and outstanding Revolving Loans and participations in Letter of Credit
Outstandings, (b) the Capital Expenditure Loan Commitment, prior to the
Capital Expenditure Loan Conversion Date, the Capital Expenditure Loan
Commitment and outstanding Capital Expenditure Loans and thereafter, the
outstanding Capital Expenditure Loans and/or (c) outstanding Term Loans,
the outstanding Term Loans) the Replaced Bank and in each case (except
for replacement of only the outstanding Term Loans or Capital
Expenditure Loans of the respective Bank) participations in Letters of
Credit by the Replaced Bank and in connection therewith, shall pay to
(x) the Replaced Bank in respect thereof an amount equal to the sum of
(A) an amount equal to the principal of, and all accrued interest on,
all outstanding Loans (or, in the case of the replacement of only (I)
the Revolving Loan Commitment, the outstanding Revolving Loans of the
Replaced Bank, (II) the Capital Expenditure Loan Commitment prior to the
Capital Expenditure Loan Conversion Date, the
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<PAGE> 18
outstanding Capital Expenditure Loans of the Replaced Bank, (III) Capital
Expenditure Loans after the Capital Expenditure Loan Conversion Date, the
outstanding Capital Expenditure Loans of the Replaced Banks or (IV) Term
Loans, the outstanding Term Loans of the Replaced Bank), and (B) except
in the case of the replacement of only the outstanding Term Loans, the
Capital Expenditure Loan Commitment and/or the outstanding Capital
Expenditure Loans of the Replaced Bank, an amount equal to such Replaced
Bank's Percentage of all Unpaid Drawings that have been funded by (and
not reimbursed to) such Replaced Bank, together with all then unpaid
interest with respect thereto at such time and (C) an amount equal to all
accrued, but theretofore unpaid, Fees owing to the Replaced Bank but only
with respect to the relevant Tranche, in the case of the replacement of
less than all the Tranches of Loans then held by the respective Replaced
Bank) pursuant to Section 3.01 hereof and (y) except in the case of the
replacement of only the outstanding Term Loans, the Capital Expenditure
Loan Commitment and/or the outstanding Capital Expenditure Loans of the
Replaced Bank, the Issuing Bank or Banks, an amount equal to such
Replaced Bank's Percentage of any Unpaid Drawing (which at such time
remains an Unpaid Drawing) with respect to a Letter of Credit issued by
such Issuing Bank to the extent such amount was not theretofore funded by
such Replaced Bank; and
(ii) all obligations of the Borrower owing to the Replaced Bank
(other than those (a) specifically described in clause (i) above in
respect of which the assignment purchase price has been, or is
concurrently being, paid or (b) relating to any Tranche of Loans and/or
Commitments of the respective Replaced Bank which will remain outstanding
after giving effect to the respective replacement) shall be paid in full
by the Borrower to such Replaced Bank concurrently with such replacement.
Upon the execution of the respective assignment documentation, the payment of
amounts referred to in clauses (i) and (ii) above, recordation of the assignment
on the Register by the Agent pursuant to Section 8.16 and, if so requested by
the Replacement Bank, delivery to the Replacement Bank of the appropriate Note
or Notes, executed by the Borrower, (x) the Replacement Bank shall become a Bank
hereunder and (y) unless the respective Replaced Bank continues to have
outstanding Term Loans, a Capital Expenditure Loan Commitment, outstanding
Capital Expenditure Loans or a Revolving Loan Commitment hereunder, the Replaced
Bank shall cease to constitute a Bank hereunder with respect to the Loans and
Commitments so transferred, except with respect to indemnification provisions
under this Agreement, which shall survive as to such Replaced Bank, and the
Percentages and Capital Expenditure Commitment Percentages of the Banks shall be
automatically adjusted at such time to give effect to such replacement.
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Section 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request any Issuing Bank at any
time and from time to time on and after the Initial Borrowing Date and prior to
the third Business Day immediately preceding the Final Maturity Date to issue,
for the account of the Borrower and for the benefit of any holder (or any
trustee, agent or other similar representative for any such holders) of L/C
Supportable Indebtedness, an irrevocable standby letter of credit in a form
customarily used by such Issuing Bank or in such other form as has been approved
by such Issuing Bank in support of said L/C Supportable Indebtedness (each such
letter of credit, a "Letter of Credit" and, collectively, the "Letters of
Credit"). All Letters of Credit shall be denominated in Dollars.
(b) Each Issuing Bank (other than Banque Paribas) may agree in its
sole discretion and Banque Paribas hereby agrees that it will (subject to the
terms and conditions contained herein), at any time and from time to time after
the Initial Borrowing Date and prior to the Final Maturity Date, following its
receipt of the respective Letter of Credit Request, issue for the account of the
Borrower one or more Letters of Credit in support of such L/C Supportable
Indebtedness as is permitted to remain outstanding without giving rise to a
Default or Event of Default hereunder; provided that the respective Issuing Bank
shall be under no obligation to issue any Letter of Credit if at the time of
such issuance:
(i) any order, judgment or decree of any governmental authority
or arbitrator shall purport by its terms to enjoin or restrain such
Issuing Bank from issuing such Letter of Credit or any requirement of law
applicable to such Issuing Bank or any request or directive (whether or
not having the force of law) from any governmental authority with
jurisdiction over such Issuing Bank shall prohibit, or request that such
Issuing Bank refrain from, the issuance of letters of credit generally or
such Letter of Credit in particular or shall impose upon such Issuing
Bank with respect to such Letter of Credit any restriction or reserve or
capital requirement (for which such Issuing Bank is not otherwise
compensated) not in effect on the date hereof, or any unreimbursed loss,
cost or expense which was not applicable, in effect or known to such
Issuing Bank as of the date hereof and which such Issuing Bank in good
faith deems material to it;
(ii) such Issuing Bank shall have received a notice of the type
described in the second sentence of Section 2.03(b) from any Bank prior
to the issuance of such Letter of Credit; or
(iii) a Bank Default exists, unless such Issuing Bank has entered
into arrangements satisfactory to it and the Borrower to eliminate such
Issuing Bank's
-13-
<PAGE> 20
risk with respect to the Bank which is the subject of the
Bank Default, including by cash collateralizing such Bank's Percentage of
the Letter of Credit Outstandings.
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall
be issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of,
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed (x) $1,500,000 or (y) when added to the aggregate principal amount of all
Revolving Loans then outstanding, an amount equal to the Total Revolving Loan
Commitment then in effect (after giving effect to any reductions to the Total
Revolving Loan Commitment on such date) and (ii) each Letter of Credit shall by
its terms terminate on or before the earlier of (x) the date which occurs 12
months after the date of the issuance thereof (although any such Letter of
Credit may be renewable for successive periods of up to 12 months, but not
beyond the Final Maturity Date, on terms acceptable to the Issuing Bank) and (y)
the third Business Day immediately preceding the Final Maturity Date.
2.02 Minimum Stated Amount. The Stated Amount of each Letter of
Credit shall be not less than $250,000 or such lesser amount as is acceptable to
the Issuing Bank but in no event shall there be more than four Letters of Credit
outstanding at any one time.
2.03 Letter of Credit Requests. (a) Whenever the Borrower desires
that a Letter of Credit be issued for its account, the Borrower shall give the
Agent and the respective Issuing Bank at least 7 Business Days' (or such shorter
period as is acceptable to the respective Issuing Bank in any given case)
written notice prior to the proposed date of issuance (which shall be a Business
Day). Each notice shall be in the form of Exhibit A-3 (each, a "Letter of Credit
Request").
(b) The making of each Letter of Credit Request shall be deemed to
be a representation and warranty by the Borrower that such Letter of Credit may
be issued in accordance with, and will not violate the requirements of, Section
2.01(c). Unless the Issuing Bank has received notice from any Bank before it
issues a Letter of Credit that one or more of the conditions specified in
Section 5 or 6, as the case may be, are not then satisfied, or that the issuance
of such Letter of Credit would violate Section 2.01(c), then such Issuing Bank
may issue the requested Letter of Credit for the account of the Borrower in
accordance with the Issuing Bank's usual and customary practices.
2.04 Letter of Credit Participations. (a) Immediately upon the
issuance by the respective Issuing Bank of any Letter of Credit, such Issuing
Bank shall be deemed to have sold and transferred to each Bank with a Revolving
Loan Commitment, other than such Issuing Bank (each such Bank, in its capacity
under this Section 2.04, a "Participant"), and each such Participant shall be
deemed irrevocably and unconditionally to have purchased and received from such
Issuing Bank, without recourse or warranty, an undivided
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<PAGE> 21
interest and participation, to the extent of such Participant's Percentage in
such Letter of Credit, each substitute letter of credit, each drawing made
thereunder and the obligations of the Borrower under this Agreement with respect
thereto, and any security therefor or guaranty pertaining thereto. Upon any
change in the Revolving Loan Commitments of the Banks pursuant to Section 13.04,
it is hereby agreed that, with respect to all outstanding Letters of Credit and
Unpaid Drawings, there shall be an automatic adjustment to the participations
pursuant to this Section 2.04 to reflect the new Percentages of the assignor and
assignee Bank or of all Banks with Revolving Loan Commitments, as the case may
be.
(b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall not have any obligation relative to the other Banks other
than to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by any Issuing Bank under or in connection with any Letter of Credit
if taken or omitted in the absence of gross negligence or willful misconduct,
shall not create for such Issuing Bank any resulting liability to the Borrower
or any Bank.
(c) In the event that any Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to the Issuing Bank pursuant to Section 2.05(a), such Issuing Bank shall
promptly notify the Agent, which shall promptly notify each Participant of such
failure, and each Participant shall promptly and unconditionally pay to the
Agent for the account of such Issuing Bank the amount of such Participant's
Percentage of such unreimbursed payment in Dollars and in same day funds. If the
Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any
Participant required to fund a payment under a Letter of Credit, such
Participant shall make available to the Agent at the Payment Office for the
account of such Issuing Bank in Dollars such Participant's Percentage of the
amount of such payment on such Business Day in same day funds. If and to the
extent such Participant shall not have so made its Percentage of the amount of
such payment available to the Agent for the account of such Issuing Bank, such
Participant agrees to pay to the Agent for the account of such Issuing Bank,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Agent for the account
of such Issuing Bank at the overnight Federal Funds Rate. The failure of any
Participant to make available to the Agent for the account of such Issuing Bank
its Percentage of any payment under any Letter of Credit shall not relieve any
other Participant of its obligation hereunder to make available to the Agent for
the account of such Issuing Bank its Percentage of any Letter of Credit on the
date required, as specified above, but no Participant shall be responsible for
the failure of any other Participant to make available to the Agent for the
account of such Issuing Bank such other Participant's Percentage of any such
payment.
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<PAGE> 22
(d) Whenever any Issuing Bank receives a payment of a
reimbursement obligation as to which the Agent has received for the account of
such Issuing Bank any payments from the Participants pursuant to clause (c)
above, such Issuing Bank shall pay to the Agent and the Agent shall promptly pay
each Participant which has paid its Percentage thereof, in Dollars and in same
day funds, an amount equal to such Participant's share (based on the
proportionate aggregate amount funded by such Participant to the aggregate
amount funded by all Participants) of the principal amount of such reimbursement
obligation and interest thereon accruing after the purchase of the respective
participations.
(e) The obligations of the Participants to make payments to the
Agent for the account of each Issuing Bank with respect to Letters of Credit
issued shall be irrevocable and not subject to any 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:
(i) any lack of validity or enforceability of this Agreement or
any of the Credit Documents;
(ii) the existence of any claim, setoff, defense or other right
which 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, any Participant,
or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Borrower
and the beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.05 Agreement to Repay Letter of Credit Drawings. (a) The
Borrower hereby agrees to reimburse the respective Issuing Bank, by making
payment to the Agent in immediately available funds at the Payment Office (or by
making the payment directly to such Issuing Bank at such location as may
otherwise have been agreed upon by the Borrower and such Issuing Bank), for any
payment or disbursement made by such Issuing Bank under any Letter of Credit
(each such amount so paid until reimbursed, an "Unpaid Drawing"), immediately
after, and in any event on the date of, such payment or disbursement, with
interest on the amount so paid or disbursed by such Issuing Bank, to the extent
not reimbursed prior to 12:00 Noon (New York time) on the date of such payment
or disburse-
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<PAGE> 23
ment, from and including the date paid or disbursed to but excluding the date
such Issuing Bank is reimbursed by the Borrower therefor at a rate per annum
which shall be the Base Rate in effect from time to time plus 3.75%, in each
case with such interest to be payable on demand.
(b) The obligations of the Borrower under this Section 2.05 to
reimburse the respective Issuing Bank with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against any Bank
(including in its capacity as Issuing Bank or as Participant), including,
without limitation, any defense based upon the failure of any drawing under a
Letter of Credit (each, a "Drawing") to conform to the terms of the Letter of
Credit or any non- application or misapplication by the beneficiary of the
proceeds of such Drawing; provided, however, that the Borrower shall not be
obligated to reimburse any Issuing Bank for any wrongful payment made by such
Issuing Bank under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of such Issuing
Bank.
2.06 Increased Costs. If at any time after the date hereof any
Issuing Bank or any Participant determines that the introduction of or any
change in any applicable law, rule, regulation, order, guideline or request or
in the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by such
Issuing Bank or any Participant, or any corporation controlling such Person,
with any request or directive by any such authority (whether or not having the
force of law), shall either (i) impose, modify or make applicable any reserve,
deposit, capital adequacy or similar requirement against letters of credit
issued by such Issuing Bank or participated in by any Participant, or (ii)
impose on such Issuing Bank or any Participant, or any corporation controlling
such Person, any other conditions relating, directly or indirectly, to this
Agreement or any Letter of Credit; and the result of any of the foregoing is to
increase the cost to such Issuing Bank or any Participant of issuing,
maintaining or participating in any Letter of Credit, or reduce the amount of
any sum received or receivable by such Issuing Bank or any Participant hereunder
or reduce the rate of return on its capital with respect to Letters of Credit,
then, upon demand to the Borrower by such Issuing Bank or any Participant (a
copy of which demand shall be sent by such Issuing Bank or such Participant to
the Agent), the Borrower shall pay to such Issuing Bank or such Participant such
additional amount or amounts as will compensate such Bank for such increased
cost or reduction in the amount receivable or reduction on the rate of return on
its capital. Such Issuing Bank or any Participant, upon determining that any
additional amounts will be payable pursuant to this Section 2.06, will give
prompt written notice thereof to the Borrower, which notice shall include a
certificate submitted to the Borrower by such Issuing Bank or
-17-
<PAGE> 24
such Participant (a copy of which certificate shall be sent by such Issuing Bank
or such Participant to the Agent), setting forth in reasonable detail the basis
for the calculation of such additional amount or amounts necessary to compensate
such Issuing Bank or such Participant, although failure to give any such notice
shall not release or diminish the Borrower's obligations to pay additional
amounts pursuant to this Section 2.06. The certificate required to be delivered
pursuant to this Section 2.06 shall, absent manifest error, be final, conclusive
and binding on the Borrower.
Section 3. Commitment Commission; Fees; Reductions of Commitments.
3.01 Fees. (a) The Borrower agrees to pay to the Agent for
distribution to each Bank with a Revolving Loan Commitment or a Capital
Expenditure Loan Commitment a commitment commission (the "Commitment
Commission") for the period from and including the Initial Borrowing Date to and
excluding the Final Maturity Date (or such earlier date as the Total Commitment
shall have been terminated) computed at a rate for each day equal to 1/2 of 1%
per annum on the daily Aggregate Unutilized Commitment of such Bank. Accrued
Commitment Commission shall be due and payable quarterly in arrears on each
Quarterly Payment Date and on the later of the Capital Expenditure Loan
Conversion Date and the Final Maturity Date or such earlier date upon which the
Total Commitment is terminated.
(b) The Borrower agrees to pay to each Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued by such Issuing
Bank hereunder (the "Facing Fee"), for the period from and including the date of
issuance of such Letter of Credit to and including the date of termination of
such Letter of Credit, equal to 1/4 of 1% per annum of the daily Stated Amount
of such Letter of Credit; provided that in no event shall the annual Facing Fee
with respect to each Letter of Credit be less than $500. Accrued Facing Fees
shall be due and payable in arrears to the Issuing Bank in respect of each
Letter of Credit issued by it on each Quarterly Payment Date and on the date of
the termination of the Total Revolving Loan Commitment on which no Letters of
Credit remain outstanding.
(c) The Borrower agrees to pay to the Agent for distribution to
each Bank with a Revolving Loan Commitment a fee in respect of each Letter of
Credit issued hereunder (the "Letter of Credit Fee"), for the period from and
including the date of issuance of such Letter of Credit to and including the
date of termination of such Letter of Credit, computed at a rate per annum equal
to the product of (x) 2.75% and (y) the daily Stated Amount of such Letter of
Credit. Letter of Credit Fees shall be distributed by the Agent to the Banks on
the basis of the respective Percentages as in effect from time to time. Accrued
Letter of Credit Fees shall be due and payable quarterly in arrears on each
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<PAGE> 25
Quarterly Payment Date and on the date of the termination of the Total Revolving
Loan Commitment on which no Letters of Credit remain outstanding.
(d) The Borrower hereby agrees to pay in immediately available
funds directly to the Issuing Bank upon each issuance of, drawing under, and/or
amendment of, a Letter of Credit issued by the Issuing Bank such amount as shall
at the time of such issuance, drawing or amendment be the administrative charge
which the Issuing Bank is customarily charging for issuances of, drawings under
(including wire charges) or amendments of, letters of credit issued by it or
such alternative amounts as may have been agreed upon in writing by the Borrower
and the Issuing Bank.
(e) The Borrower shall pay to the Agent, for its account, such
other fees and other consideration as have been agreed to in writing by the
Borrower or any of its Subsidiaries and the Agent.
3.02 Voluntary Termination of Unutilized Commitments. (a) Upon at
least three Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) to the Agent at its Notice Office (which notice the Agent
shall promptly transmit to each of the Banks), the Borrower shall have the
right, without premium or penalty, to terminate the Total Unutilized Revolving
Loan Commitment and/or the Total Unutilized Capital Expenditure Loan Commitment,
in whole or in part; provided that (i) each such reduction shall apply
proportionately to reduce the Revolving Loan Commitment or the Capital
Expenditure Loan Commitment, as the case may be, of each Bank with such a
Commitment and (ii) any partial reduction pursuant to this Section 3.02 shall be
in integral multiples of at least $100,000.
(b) In the event of certain refusals by a Bank to consent to
certain proposed changes, waivers, discharges or terminations with respect to
this Agreement which have been approved by the Required Banks as provided in
Section 13.12(b), the Borrower shall have the right, upon five Business Days'
prior written notice to the Agent at its Notice Office (which notice the Agent
shall promptly transmit to each of the Banks), to terminate all of the Capital
Expenditure Loan Commitment and/or the Revolving Loan Commitment of such Bank,
so long as all Loans, together with accrued and unpaid interest, Fees and all
other amounts, owing to such Bank (other than amounts owing in respect of Term
Loans or Capital Expenditure Loans maintained by such Bank, if such Term Loans
or Capital Expenditure Loans are not being repaid pursuant to Section 13.12(b))
are repaid concurrently with the effectiveness of such termination pursuant to
Section 4.01(b) and the Borrower shall pay to the Agent at such time an amount
in cash and/or Cash Equivalents equal to such Bank's Percentage of the
outstanding Letters of Credit, if any (which cash and/or Cash Equivalents shall
be held by the Agent as security for the obligations of the Borrower hereunder
in respect of the outstanding Letters of Credit pursuant to a cash collateral
agreement to be entered into in form and substance reasonably satisfactory to
the
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<PAGE> 26
Agent (at which time Schedule I shall be deemed modified to reflect such changed
amounts)), and at such time, unless the respective Bank continues to act as a
Bank with respect to Term Loans or Capital Expenditure Loans or has a Revolving
Loan Commitment or Capital Expenditure Loan Commitment hereunder, such Bank
shall no longer constitute a "Bank" for purposes of this Agreement, except with
respect to indemnifications and similar provisions under this Agreement, which
shall survive as to such repaid Bank.
3.03 Mandatory Reduction of Commitments. (a) The Total Commitment
(and the Term Loan Commitment, the Revolving Loan Commitment and the Capital
Expenditure Loan Commitment of each Bank with such a Commitment) shall terminate
on March 28, 1997 unless the Initial Borrowing Date has occurred on or before
such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Term Loan Commitment (and the Term Loan
Commitment of each Bank with such a Commitment) shall (i) terminate in its
entirety on the Initial Borrowing Date (after giving effect to the making of the
Term Loans on such date) and (ii) prior to the termination of the Total Term
Loan Commitment as provided in clause (i) above, be reduced from time to time to
the extent required by Section 4.02.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Capital Expenditure Loan Commitment
(and the Capital Expenditure Loan Commitment of each Bank with such a
Commitment) shall (i) terminate in its entirety on the Capital Expenditure Loan
Conversion Date (after giving effect to the making of Capital Expenditure Loans
on such date) and (ii) prior to the termination of the Total Capital Expenditure
Loan Commitment as provided in clause (i) above, be reduced from time to time to
the extent required by Section 4.02.
(d) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank with such a Commitment) shall terminate
on the Final Maturity Date.
(e) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank with such a Commitment) shall be reduced
at the time any payment is required to be made on the principal amount of
Revolving Loans (or would be required to be made if Revolving Loans were then
outstanding) pursuant to Section 4.02(B)(a), by an amount equal to the maximum
amount of Revolving Loans that would be required to be repaid pursuant to
Section 4.02(B)(a) assuming that Revolving Loans were outstanding in an
aggregate principal amount equal to the Total Revolving Loan Commitment.
(f) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Capital Expenditure Loan Commitment
(and the Capital
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<PAGE> 27
Expenditure Loan Commitment of each Bank with such a Commitment) shall be
reduced at the time any payment is required to be made on the principal amount
of Capital Expenditure Loans (or would be required to be made if Capital
Expenditure Loans were then outstanding) pursuant to Section 4.02(B)(a), by an
amount equal to the maximum amount of Capital Expenditure Loans that would be
required to be repaid pursuant to Section 4.02(B)(a) assuming that Capital
Expenditure Loans were outstanding in an aggregate principal amount equal to the
Total Capital Expenditure Loan Commitment.
(g) Each reduction to the Total Term Loan Commitment, the Total
Capital Expenditure Loan Commitment and the Total Revolving Loan Commitment,
pursuant to this Section 3.03 shall be applied proportionately to reduce the
Term Loan Commitment, the Capital Expenditure Loan Commitment or the Revolving
Loan Commitment, as the case may be, of each Bank with such a Commitment.
Section 4. Prepayments; Payments; Taxes.
4.01 Voluntary Prepayments. (a) The Borrower shall have the right
to prepay Loans, without premium or penalty, in whole or in part from time to
time on the following terms and conditions:
(i) the Borrower shall give the Agent prior to 10:00 A.M. (New
York time) at its Notice Office at least three Business Days' prior
written notice in the case of Eurodollar Loans and one Business Day's
prior written notice in the case of Base Rate Loans of its intent to
prepay the Loans, whether Term Loans, Capital Expenditure Loans or
Revolving Loans shall be prepaid, the amount of such prepayment and the
Types of Loans to be prepaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings pursuant to which made, which notice the
Agent shall promptly transmit to each of the Banks;
(ii) in the case of prepayments of less than all of the
outstanding Loans of a Tranche, each prepayment shall be in an aggregate
principal amount equal to at least the Minimum Borrowing Amount
applicable thereto and, if greater, in integral multiples of $500,000 (or
$100,000, in the case of Revolving Loans); provided that no partial
prepayment of Eurodollar Loans made pursuant to any Borrowing shall
reduce the outstanding Loans made pursuant to such Borrowing to an amount
less than the Minimum Borrowing Amount;
(iii) no prepayment of Eurodollar Loans made pursuant to this
Section 4.01 may be made on a day other than the last day of an Interest
Period applicable thereto unless concurrently with such prepayment the
Borrower pays all amounts owing pursuant to Section 1.11 as a result of
such prepayment;
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<PAGE> 28
(iv) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans;
(v) each prepayment of Term Loans or Capital Expenditure Loans
pursuant to this Section 4.01 must consist of a prepayment of Term Loans
(in an amount equal to the Term TL Percentage of such prepayment) and
Capital Expenditure Loans (in an amount equal to the CapEx TL Percentage
of such prepayment); provided, however, that prior to the Capital
Expenditure Loan Conversion Date a prepayment of Capital Expenditure
Loans shall not be required to be accompanied by a prepayment of Term
Loans and a prepayment of Term Loans shall not be required to be
accompanied by a prepayment of Capital Expenditure Loans; and
(vi) each prepayment of Capital Expenditure Loans after the
Capital Expenditure Loan Conversion Date and each prepayment of Term
Loans pursuant to this Section 4.01 shall be applied to reduce the then
remaining Scheduled Repayments of the respective Tranche being repaid on
a pro rata basis (based upon the then remaining principal amount of each
such Scheduled Repayment).
(b) In the event of certain refusals by a Bank to consent to
certain proposed changes, waivers, discharges or terminations with respect to
this Agreement which have been approved by the Required Banks as provided in
Section 13.12(b), the Borrower shall have the right, upon five Business Days'
prior written notice to the Agent at its Notice Office (which notice the Agent
shall promptly transmit to each of the Banks) to repay all Loans, together with
accrued and unpaid interest, Fees and all other amounts owing to such Bank (or
owing to such Bank with respect to each Tranche which gave rise to the need to
obtain such Bank's individual consent) in accordance with said Section 13.12(b)
so long as (A) in the case of the repayment of Revolving Loans of any Bank with
a Revolving Loan Commitment or Capital Expenditure Loans of any Bank with a
Capital Expenditure Loan Commitment pursuant to this clause (b), the Revolving
Loan Commitment or Capital Expenditure Loan Commitment, as the case may be, of
such Bank is terminated concurrently with such repayment pursuant to Section
3.02(b) (at which time Schedule I shall be deemed modified to reflect the
changed Revolving Loan Commitments or Capital Expenditure Loan Commitments, as
the case may be), and (B) in the case of the repayment of Loans of any Bank, the
consents required by Section 13.12(b) in connection with the repayment pursuant
to this clause (b) shall have been obtained.
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<PAGE> 29
4.02 Mandatory Repayments and Commitment Reductions.
(A) Requirements:
(a) On any day on which the sum of the aggregate outstanding
principal amount of the Revolving Loans and Letter of Credit Outstandings at
such time exceeds the Total Revolving Loan Commitment as then in effect, the
Borrower shall prepay the principal of Revolving Loans in an amount equal to
such excess. If, after giving effect to the prepayment of all outstanding
Revolving Loans, the aggregate amount of the Letter of Credit Outstandings
exceeds the Total Revolving Loan Commitment as then in effect, the Borrower
shall pay to the Agent at its Payment Office on such date an amount of cash
and/or Cash Equivalents equal to the amount of such excess, such cash and/or
Cash Equivalents to be held as security for all Obligations of the Borrower
hereunder in a manner satisfactory to the Agent. On any day on or prior to the
Capital Expenditure Loan Conversion Date on which the aggregate outstanding
principal amount of Capital Expenditure Loans exceeds the Total Capital
Expenditure Loan Commitment, the Borrower shall repay the principal of Capital
Expenditure Loans in the amount equal to such excess.
(b) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), the Borrower shall be required to
repay on each date set forth below the principal amount of Term Loans, to the
extent then outstanding, set forth below opposite such date (each such repayment
as the same may be reduced as provided in Sections 4.01 and 4.02(B), a
"Scheduled Term Loan Repayment"):
<TABLE>
<CAPTION>
Scheduled Term Loan Repayment Date Amount
---------------------------------- ------
<S> <C>
September 30, 1997 $1,000,000
December 31, 1997 $1,000,000
March 31, 1998 $1,000,000
June 30, 1998 $1,500,000
September 30, 1998 $1,500,000
December 31, 1998 $1,500,000
March 31, 1999 $1,500,000
June 30, 1999 $1,625,000
September 30, 1999 $1,625,000
December 31, 1999 $1,625,000
March 31, 2000 $1,625,000
June 30, 2000 $1,750,000
September 30, 2000 $1,750,000
December 31, 2000 $1,750,000
March 31, 2001 $1,750,000
June 30, 2001 $1,875,000
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C>
September 30, 2001 $1,875,000
December 31, 2001 $1,875,000
Final Maturity Date $1,875,000
</TABLE>
(c) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), the Borrower shall be required to
repay on each date set forth below a principal amount of Capital Expenditure
Loans, to the extent then outstanding, equal to (i) the aggregate principal
amount of Capital Expenditure Loans outstanding on the Capital Expenditure Loan
Conversion Date (after giving effect to any Capital Expenditure Loans made on
such date) multiplied by (ii) the percentage set forth below opposite such date
(each such repayment as the same may be reduced as provided in Sections 4.01 and
4.02(B), a "Scheduled Capital Expenditure Loan Repayment", together with the
Scheduled Term Loan Repayments, collectively referred to as the "Scheduled
Repayments"):
<TABLE>
<CAPTION>
Scheduled Capital Expenditure Loan Repayment Date Percentage
- ------------------------------------------------- ----------
<S> <C>
Last Business Day of June, 1999 5.0%
Last Business Day of September, 1999 5.0%
Last Business Day of December, 1999 5.0%
Last Business Day of March, 2000 5.0%
Last Business Day of June, 2000 7.5%
Last Business Day of September, 2000 7.5%
Last Business Day of December, 2000 7.5%
Last Business Day of March, 2001 7.5%
Last Business Day of June, 2001 12.5%
Last Business Day of September, 2001 12.5%
Last Business Day of December, 2001 12.5%
Final Maturity Date 12.5%
</TABLE>
(d) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on the date of the receipt thereof by
the Borrower or any of its Subsidiaries, an amount equal to:
(i) 50% of the cash proceeds (net of underwriting discounts and
commissions and all other reasonable costs associated with such
transaction) from any sale or issuance after the Effective Date of equity
of the Borrower or any Subsidiary of the Borrower (other than Permitted
Equity Issuances); provided that proceeds of equity sold or issued to (x)
officers or employees of the Borrower or (y)
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<PAGE> 31
underwriters pursuant to the exercise of stock options issued prior to
the Effective Date ("Employee/Underwriter Stock Proceeds") shall not be
required to be paid on the date of the receipt thereof (unless such date
of receipt is also a date specified below) but instead shall be required
to be paid on each date on which the aggregate amount of such
Employee/Underwriter Stock Proceeds received during the period commencing
on the later of (x) the Effective Date and (y) the immediately preceding
date on which a mandatory repayment or commitment reduction was made
pursuant to this Section 4.02(A)(d) as a result of the receipt of
Employee/Underwriter Stock Proceeds and ending on the date of
determination (the "Employee/Underwriter Stock Proceeds Payment Period"),
equals or exceeds $1,000,000 with the amount of the repayments or
commitment reductions required on each such date to equal 50% of the
aggregate amount of such Employee/Underwriter Stock Proceeds in excess of
$1,000,000; and
(ii) 50% of the cash proceeds (net of underwriting discounts and
commissions, loan fees and all other reasonable costs associated with
such transaction) from any incurrence of any Indebtedness by the Borrower
or any Subsidiary of the Borrower (other than Indebtedness permitted by
Section 9.05 as said Section is in effect on the Effective Date),
shall be applied as provided in Section 4.02(B).
(e) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, no later than 90 days after the last
day of each fiscal year of the Borrower ending after the Capital Expenditure
Loan Conversion Date, an amount equal to 50% of Excess Cash Flow of the Borrower
and its Subsidiaries for the relevant Excess Cash Flow Payment Period shall be
applied as provided in Section 4.02(B).
(f) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date after the Effective Date
on which the Borrower or any Subsidiary of the Borrower receives cash proceeds
from any sale of assets (including capital stock and securities other than
capital stock the proceeds from the sale of which is recaptured under Section
4.02(A)(d) but excluding Permitted Asset Sales effected prior to the Capital
Expenditure Loan Conversion Date), an amount equal to 100% of the Net Sale
Proceeds thereof shall be applied as provided in Section 4.02(B).
(g) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date after the Effective Date
of the receipt thereof by the Borrower or any Subsidiary of the Borrower, an
amount equal to 100% of the cash proceeds of any Recovery Event (net of
reasonable costs incurred in connection with such Recovery Event (including the
estimated marginal increase in income taxes which will be payable as a result of
such Recovery Event by the Borrower or any Subsidiary of
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the Borrower)) shall be applied as provided in Section 4.02(B); provided that
proceeds from Recovery Events not in excess of $1,000,000 in the aggregate for
all Recovery Events occurring during one fiscal year of the Borrower shall not
be required to be so applied on such date to the extent that the Borrower
delivers a certificate to the Agent on or prior to such date stating that such
proceeds shall be used to replace or restore any properties or assets in respect
of which such proceeds were paid within a period specified in such certificate
not to exceed 180 days after the date of receipt of such proceeds (which
certificate shall set forth estimates of the proceeds to be so expended); and
provided further, that if all or any portion of such proceeds not so applied
pursuant to Section 4.02(B) are not so used within the period specified in the
immediately preceding proviso, such remaining portion shall be applied on the
last day of such specified period as provided in Section 4.02(B).
(h) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), on each date upon which the
Borrower or any of its Subsidiaries receives cash proceeds pursuant to the
Acquisition Agreement or any other agreement or understanding relating to the
Acquisition or any Permitted Transaction, including, without limitation,
indemnification or similar payments and post-closing adjustments, but excluding
in each case (x) post-closing working capital adjustments, so long as the
aggregate amount of post-closing working capital adjustments excluded on and
after the Effective Date pursuant to this clause (x) does not exceed $500,000
and (y) reimbursement of out-of-pocket costs and expenses, an amount equal to
100% of such proceeds (net of reasonable expenses incurred in connection with
obtaining such proceeds and the estimated marginal increase in income taxes
payable in respect thereof) shall be applied as provided in Section 4.02(B).
(i) On any date, beginning eleven months after the Initial
Borrowing Date, if a Clean-Down Period shall not have occurred during the
immediately preceding eleven months, the Borrower shall repay all outstanding
Revolving Loans (which repayments shall be made in accordance with preceding
Section 4.02(A)(a)) so as to cause there to be no outstanding Revolving Loans
for an entire Clean-Down Period which shall begin (or continue in existence, as
the case may be) on or from such date and shall continue until a Clean-Down
Period has occurred.
(j) Notwithstanding anything to the contrary contained elsewhere
in this Agreement, all then outstanding Loans of each Tranche shall be repaid in
full on the Final Maturity Date.
(B) Application:
(a) Each mandatory repayment of Loans pursuant to Section
4.02(A)(d) through (h), inclusive, shall be applied:
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(i) first, (A) prior to the Capital Expenditure Loan Conversion
Date, to prepay the principal of outstanding Term Loans (or, if the
Initial Borrowing Date has not yet occurred, as a mandatory reduction to
the Total Term Loan Commitment), which prepayments of Term Loans (or
mandatory reductions to the Total Term Loan Commitment) shall be applied
to reduce the then remaining Scheduled Term Loan Repayments on a pro rata
basis (based on the then remaining amounts of such Scheduled Term Loan
Repayments) (it being understood and agreed that the amount of any
reduction to the Total Term Loan Commitment should be deemed to be an
application of proceeds for purposes of this Section 4.02(B) even though
cash is not actually applied) and (B) after the Capital Expenditure Loan
Conversion Date, to prepay the principal of outstanding Term Loans and
Capital Expenditure Loans on a pro rata basis, with the Term Loan
Facility to receive the Term TL Percentage and the Capital Expenditure
Loan Facility to receive the CapEx TL Percentage, in each case of the
total amount to be applied as a mandatory repayment of Term Loans and
Capital Expenditure Loans pursuant to this Section 4.02(B), and which
prepayments of such Term Loans and Capital Expenditure Loans shall be
applied to reduce the then remaining Scheduled Repayments of the
respective Tranche on a pro rata basis (based on the then remaining
amounts of such Scheduled Repayments);
(ii) second, prior to the Capital Expenditure Loan Conversion
Date, to prepay the principal of outstanding Capital Expenditure Loans
(with a corresponding reduction to the Total Capital Expenditure Loan
Commitment);
(iii) third, prior to the Capital Expenditure Loan Conversion
Date, to reduce the Total Capital Expenditure Loan Commitment (with a
corresponding reduction to the Total Capital Expenditure Loan Commitment
of each Bank)(it being understood and agreed that the amount of such
reduction shall be deemed to be an application of proceeds for purposes
of this Section 4.02(B)(a)(iii) even though cash is not actually
applied);
(iv) fourth, to prepay the principal of outstanding Revolving
Loans (with a corresponding reduction to the Total Revolving Loan
Commitment);
(v) fifth, to cash collateralize Letter of Credit Outstandings
by depositing cash in a letter of credit cash collateral account on terms
satisfactory to the Agent in an amount equal to such Letter of Credit
Outstandings (it being understood that the Total Revolving Loan
Commitment shall be reduced by the amount of cash collateral required to
be deposited by this clause (v)); and
(vi) sixth, to reduce the remaining (i.e., after giving effect
to all prior reductions thereto, including, without limitation, to the
reductions theretofore
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effected pursuant to the preceding clauses (iv) and (v)), Total Revolving
Loan Commitment (it being understood and agreed that the amount of such
reduction shall be deemed to be an application of proceeds for purposes
of this Section 4.02(B)(a)(vi) even though cash is not actually applied).
(b) With respect to each repayment of Loans required by this
Section 4.02, the Borrower may designate the Types of Loans which are to be
repaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings of the respective Tranche pursuant to which made; provided that: (i)
repayments of Eurodollar Loans pursuant to this Section 4.02 may only be made on
the last day of an Interest Period applicable thereto unless all Eurodollar
Loans of the respective Tranche with Interest Periods ending on such date of
required repayment and all Base Rate Loans of the respective Tranche have been
paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to
such Borrowing to an amount less than the applicable Minimum Borrowing Amount,
such Borrowing shall immediately be converted into Base Rate Loans; and (iii)
each repayment of any Loans made pursuant to a single Borrowing shall be applied
pro rata among such Loans. In the absence of a designation by such Borrower as
described in the preceding sentence, the Agent shall, subject to the above, make
such designation in its sole discretion.
4.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made to
the Agent for the account of the Bank or Banks entitled thereto not later than
12:00 Noon (New York time) on the date when due and shall be made in Dollars in
immediately available funds at the Payment Office. Whenever any payment to be
made hereunder or under any Note shall be stated to be due on a day which is not
a Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
4.04 Net Payments. (a) All payments made by the Borrower hereunder
or under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 4.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax,
including a franchise tax, imposed on or measured by the net income of a Bank
pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or applicable lending office of such
Bank is located or any political subdivision or taxing authority thereof or
therein) and all interest, penalties or similar liabilities with respect to such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
(all such non-excluded taxes, levies, imposts, duties, fees, assessments or
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other charges being referred to collectively as "Taxes"). If any Taxes are so
levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and
such additional amounts as may be necessary so that every payment of all amounts
due hereunder or under any Note, after withholding or deduction for or on
account of any Taxes, will not be less than the amount provided for herein or in
such Note. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Borrower agrees to reimburse each Bank, upon the written
request of such Bank, for taxes imposed on or measured by the net income or net
profits of such Bank pursuant to the laws of the jurisdiction or any political
subdivision or taxing authority thereof or therein in which such Bank is
organized or in which the principal office or applicable lending office of such
Bank is located and for any withholding of income or similar taxes as such Bank
shall determine are payable by, or withheld from, such Bank in respect of such
amounts so paid to or on behalf of such Bank pursuant to the preceding sentence
and in respect of any amounts paid to or on behalf of such Bank pursuant to this
sentence. The Borrower will furnish to the Agent within 45 days after the date
of the payment of any Taxes due pursuant to applicable law certified copies of
tax receipts evidencing such payment by the Borrower. The Borrower agrees to
indemnify and hold harmless each Bank, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Agent on or prior to the Effective Date, or in the case of a Bank that
is an assignee or transferee of an interest under this Agreement pursuant to
Section 13.04 (unless the respective Bank was already a Bank hereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Bank, (i) two accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note, or (ii) if the Bank is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit C (any such certificate, a "Section
4.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Bank's entitlement to a complete exemption from United States withholding
tax with respect to payments of interest to be made under this Agreement and
under any Note. In addition, each Bank agrees that from time to time after the
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to the Borrower and the Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a
Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may
be required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agree-
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ment and any Note, or it shall immediately notify the Borrower and the Agent of
its inability to deliver any such Form or Certificate, in which case such Bank
shall not be required to deliver any such form of certificate pursuant to this
Section 4.04(b). Notwithstanding anything to the contrary contained in Section
4.04(a), but subject to the immediately succeeding sentence, (x) the Borrower
shall be entitled, to the extent it is required to do so by law, to deduct or
withhold income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Bank which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
U.S. Federal income tax purposes to the extent that such Bank has not provided
to the Borrower U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) the Borrower shall not be
obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to
a Bank in respect of income or similar taxes imposed by the United States if (I)
such Bank has not provided the Borrower the Internal Revenue Service Forms
required to be provided the Borrower pursuant to this Section 4.04(b) or (II) in
the case of a payment, other than interest, to a Bank described in clause (ii)
above, to the extent that such forms do not establish a complete exemption from
withholding of such taxes. Notwithstanding anything to the contrary contained in
the preceding sentence or elsewhere in this Section 4.04, the Borrower agrees to
pay additional amounts and to indemnify each Bank in the manner set forth in
Section 4.04(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any amounts deducted or withheld by
it as described in the immediately preceding sentence as a result of any changes
after the Effective Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of income or similar Taxes.
Section 5. Conditions Precedent to Loans on the Initial Borrowing
Date. The obligation of each Bank to make Loans on the Initial Borrowing Date is
subject at the time of such Loan to the satisfaction of the following
conditions:
5.01 Execution of Agreement; Notes. On or prior to the Initial
Borrowing Date (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Agent for the account of each of the Banks the
appropriate Term Note, Capital Expenditure Note or Revolving Note executed by
the Borrower, in each case in the amount, maturity and as otherwise provided
herein.
5.02 Officer's Certificate. On the Initial Borrowing Date, the
Agent shall have received a certificate dated the Initial Borrowing Date signed
on behalf of the Borrower by the chief financial officer, the president, any
executive or senior vice president or any vice president of the Borrower stating
that all of the conditions in Sections 5.06, 5.10, 5.11, 5.14, 5.16, 6.01, 6.03
and 6.04 have been satisfied on such date; provided the
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certificate shall not be required to certify as to the acceptability of any
items to the Agent and/or the Banks or as to whether the Agent and/or the Banks
are satisfied with any of the matters described in said Sections.
5.03 Opinions of Counsel. On the Initial Borrowing Date, the Agent
shall have received from (i) Arnall, Golden & Gregory, LLP, counsel to the
Borrower and its Subsidiaries, an opinion addressed to the Agent, the Collateral
Agent and each of the Banks and dated the Initial Borrowing Date covering the
matters set forth in Exhibit D and (ii) counsel rendering such opinions,
reliance letters addressed to the Agent, the Collateral Agent and each of the
Banks dated the Initial Borrowing Date with respect to all legal opinions
delivered in connection with the Acquisition, which legal opinions and reliance
letters shall be in form and substance satisfactory to the Agent and the
Required Banks.
5.04 Corporate Documents; Proceedings. (a) On the Initial
Borrowing Date, the Agent shall have received a certificate, dated the Initial
Borrowing Date, signed by the president or any vice president of each Credit
Party, and attested to by the secretary or any assistant secretary of such
Credit Party, in the form of Exhibit E with appropriate insertions, together
with copies of the Certificate of Incorporation and By-Laws of such Credit Party
and the resolutions of such Credit Party referred to in such certificate, and
the foregoing shall be acceptable to the Agent and the Required Banks in their
sole discretion.
(b) All corporate and legal proceedings and all instruments and
agreements relating to the transactions contemplated by this Agreement and the
other Documents shall be satisfactory in form and substance to the Agent and the
Required Banks, and the Agent shall have received all information and copies of
all documents and papers, including records of corporate proceedings,
governmental approvals, good standing certificates and bring-down telegrams, if
any, which the Agent or the Required Banks may have requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or governmental authorities.
5.05 Employee Benefit Plans; Shareholders' Agreements; Management
Agreements; Employment Agreements; Collective Bargaining Agreements; Debt
Agreements; Affiliate Contracts; Tax Sharing Agreements and Material Contracts.
On or prior to the Initial Borrowing Date, there shall have been delivered to
the Banks true and correct copies, certified as true and complete by an
appropriate officer of the Borrower of:
(i) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of the
most recent such report (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information), and for each Plan
that is a "single-employer plan," as defined in Section 4001(a)(15) of
ERISA, the most recently prepared actuarial valuation there-
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for) and any other "employee benefit plans," as defined in Section 3(3)
of ERISA, and any other material agreements, plans or arrangements, with
or for the benefit of current or former employees of the Borrower or any
of its Subsidiaries or any ERISA Affiliate (provided that the foregoing
shall apply in the case of any multiemployer plan, as defined in
4001(a)(3) of ERISA, only to the extent that any document described
therein is in the possession of the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate or reasonably available thereto from the
sponsor or trustee of any such plan) (collectively, the "Employee Benefit
Plans");
(ii) all agreements entered into by the Borrower or any
Subsidiary of the Borrower governing the terms and relative rights of its
capital stock and any agreements entered into by shareholders relating to
any such entity with respect to their capital stock (collectively, the
"Shareholders' Agreements");
(iii) all agreements with members of, or with respect to,
management of the Borrower or any Subsidiary of the Borrower other than
Employment Agreements (collectively, the "Management Agreements");
(iv) any employment agreements entered into by the Borrower or
any Subsidiary of the Borrower (collectively, the "Employment
Agreements");
(v) all collective bargaining agreements apply- ing or relating
to any employee of the Borrower or any Subsidiary of the Borrower
(collectively, the "Collective Bargaining Agreements");
(vi) all agreements evidencing or relating to Indebtedness of
the Borrower or any Subsidiary of the Borrower whether or not such
agreement is to remain outstanding after giving effect to the incurrence
of Loans on the Initial Borrowing Date (collectively, the "Debt
Agreements");
(vii) all tax sharing, tax allocation and other similar
agreements entered into by the Borrower or any Subsidiary of the Borrower
(collectively, the "Tax Sharing Agreements");
(viii) all material contracts, agreements or understandings
entered into between the Borrower or any of its Subsidiaries on the one
hand, and any of its Affiliates, on the other hand (collectively, the
"Affiliate Contracts"); and
(ix) all material contracts and licenses of the Borrower or any
of its Subsidiaries that are to remain in effect after giving effect to
the consummation of the Transaction (collectively, the "Material
Contracts");
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all of which Plans, Shareholders' Agreements, Management Agreements, Employment
Agreements, Collective Bargaining Agreements, Debt Agreements, Tax Sharing
Agreements, Affiliate Contracts and Material Contracts shall be in form and
substance satisfactory to the Agent and the Required Banks and shall be in full
force and effect on the Initial Borrowing Date.
5.06 Consummation of the Acquisition. (a) On or prior to the
Initial Borrowing Date, there shall have been delivered to the Banks true and
correct copies of all Acquisition Documents, certified as such by an appropriate
officer of the Borrower, and all terms and provisions of such Acquisition
Documents shall be in form and substance satisfactory to the Agent and the
Required Banks and shall not have been amended (except for extensions) without
the consent of the Agent and the Required Banks. The Acquisition, including
all of the terms and conditions thereof, shall have been duly approved by the
board of directors and (if required by applicable law) the shareholders of the
parties thereto, and all Acquisition Documents shall have been duly executed and
delivered by the parties thereto and shall be in full force and effect. The
representations and warranties set forth in the Acquisition Documents shall be
true and correct in all material respects as if made on and as of the Initial
Borrowing Date. Each of the conditions precedent to the Borrower's obligations
to consummate the Acquisition as set forth in the Acquisition Documents shall
have been satisfied to the satisfaction of the Agent and the Required Banks or
waived with the consent of the Agent and the Required Banks, and the Acquisition
shall have been consummated in accordance with all applicable law and the
Acquisition Documents. The consideration payable in connection with the
Acquisition shall not exceed $9.55 million (approximately $5.0 million of which
will be in the form of cash, $2.0 million of which will be in the form of the
Seller Note and approximately $2.55 million of which will be in the form of
Borrower Common Stock), subject to adjustments as provided in the Acquisition
Documents, and all other aspects thereof (including financial, accounting and
tax aspects) shall be satisfactory to the Required Banks.
(b) On or prior to the Initial Borrowing Date, (i) the Borrower
shall have issued the Seller Note to the Seller in an aggregate principal amount
equal to $2.0 million as partial consideration for the purchase price in
connection with the Acquisition and (ii) the Agent shall have received true and
correct copies of the Seller Note Documents, certified as such by an appropriate
officer of the Borrower, each of which shall have been duly authorized, executed
and delivered by all parties thereto and shall be in full force and effect and
in form and substance satisfactory to the Agent and the Required Banks. The
terms and conditions of the Seller Note (including, without limitation,
amortization, maturities, interest rates, limitation on cash interest payment,
guarantee provisions, security therefor, covenants, defaults, remedies,
redemption provisions and subordination provisions), shall be in as set forth in
Exhibit L.
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(c) On or prior to the Initial Borrowing Date, the Agent shall
have received an officer's certificate from the president or chief financial
officer of the Borrower, certifying that the Loans and all other Obligations
under the Credit Agreement and the other Credit Documents (including, without
limitation, the Guaranties) and any Interest Rate Protection or Other Hedging
Agreement with any Other Creditor (as defined in the relevant Security Document
or Guaranty) constitute "Senior Indebtedness" under the Seller Note.
(d) On the Initial Borrowing Date after giving effect to the
Transaction, the ownership and capital structure (including, without limitation,
the terms of any capital stock, options, warrants or other securities issued or
to be issued by the Borrower or any of its Subsidiaries) and management of the
Borrower and its Subsidiaries shall be in form and substance satisfactory to the
Agent and the Required Banks.
5.07 Pledge Agreement. On the Initial Borrowing Date, each Credit
Party shall have duly authorized, executed and delivered a Pledge Agreement
substantially in the form of Exhibit F (as modified, supplemented or amended
from time to time, the "Pledge Agreement") and shall have delivered to the
Collateral Agent, as Pledgee thereunder, all of the Pledged Securities referred
to therein then owned by such Credit Party (x) endorsed in blank in the case of
promissory notes constituting Pledged Securities and (y) together with executed
and undated irrevocable stock powers, in the case of capital stock constituting
Pledged Securities.
5.08 Security Agreement. On the Initial Borrowing Date, each
Credit Party shall have duly authorized, executed and delivered a Security
Agreement in the form of Exhibit G (as modified, supplemented or amended from
time to time, the "Security Agreement") covering all of such Credit Party's
present and future Security Agreement Collateral, together with:
(i) proper financing statements (Form UCC-1 or such other
financing statements or similar notices as shall be required by local
law) fully executed for filing under the UCC or other appropriate filing
offices of each jurisdiction as may be necessary or, in the opinion of
the Collateral Agent, desirable to perfect the security interests
purported to be created by the Security Agreement;
(ii) certified copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, listing all judgment liens, tax
liens or effective financing statements that name the Borrower or any of
its Subsidiaries, or a division or other operating unit of any such
Person, as debtor and that are filed in the jurisdictions referred to in
said clause (i), together with copies of such other financing statements
(none of which shall cover the Collateral except to the extent evidencing
Permitted Liens or for which the Collateral Agent shall receive
termination statements (Form
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UCC-3 or such other termination statements as shall be required by local
law) fully executed for filing);
(iii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be
necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests intended to be created by such Security
Agreement; and
(iv) evidence that all other actions necessary or, in the
opinion of the Collateral Agent, desirable to perfect and protect the
security interests purported to be created by the Security Agreement have
been taken.
5.09 Subsidiaries Guaranty. On the Initial Borrowing Date, each
Subsidiary of the Borrower shall have duly authorized, executed and delivered a
Guaranty in the form of Exhibit H (as modified, supplemented or amended from
time to time, the "Subsidiaries Guaranty").
5.11 Material Adverse Change, etc. Since February 7, 1997, nothing
shall have occurred (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agent or the Required Banks shall
determine (a) could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks or the Agent, or on the ability of the
Borrower or any of its Subsidiaries to perform their obligations to the Agent
and the Banks under this Agreement or any other Credit Document, (b) could
reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole, (c) indicates the inaccuracy in any material
respect of the information previously provided to the Agent or the Banks (taken
as a whole) in connection with their analysis of the transactions contemplated
hereby or indicates that the information previously provided (taken as a whole)
omitted to disclose any material information or (d) could reasonably be expected
to have a materially adverse effect on the financial, banking, or capital
markets for the market for senior syndicated debt financings for leveraged
transactions generally.
5.11 Litigation. On the Initial Borrowing Date, no litigation by
any entity (private or governmental) shall be pending or threatened with respect
to this Agreement, any other Document or any documentation executed in
connection herewith or with respect to the Transaction or the other transactions
contemplated hereby or thereby, or which the Agent or Required Banks shall
determine could reasonably be expected to have a materially adverse effect on
the Transaction or on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole (after giving
effect to the Transaction).
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5.12 Fees, etc. On the Initial Borrowing Date, the Borrower shall
have paid in full to the Agent and the Banks all costs, fees and expenses
(including, without limitation, all legal fees and expenses) payable to the
Agent and the Banks to the extent then due pursuant hereto or as otherwise
agreed between the Borrower and the Agent.
5.13 Solvency Certificate; Insurance Analyses. On the Initial
Borrowing Date, the Borrower shall cause to be delivered to the Agent and the
Banks: (i) a certificate from the chief financial officer of the Borrower, in
the form of Exhibit I hereto, supporting the conclusions that, after giving
effect to the Transaction and the incurrence of all financings contemplated
herein, that each Credit Party (on a stand-alone basis), and all Credit Parties
taken as a whole, as the case may be, are not insolvent and will not be rendered
insolvent by the Indebtedness incurred in connection therewith, will not be left
with unreasonably small capital with which to engage in Credit Party businesses
and will not have incurred debts beyond their ability to pay such debts as they
mature and (ii) evidence (including, without limitation, certificates with
respect to each insurance policy listed on Schedule II) of insurance, with
respect to the business and properties of the Borrower and its Subsidiaries, in
scope, form and substance satisfactory to the Agent and the Required Banks and
naming each of the Collateral Agent, the Agent and the Banks as an additional
insured and the Collateral Agent as loss payee and stating that such insurance
shall not be cancelled or revised without 30 days' prior written notice by the
insurer to the Collateral Agent.
5.14 Approvals. All necessary governmental and third party
approvals in connection with the Transaction and the transactions contemplated
by the Documents and otherwise referred to herein or therein (including, but not
limited to, those approvals required in respect of existing permits, landlord
consents and transfers of contract rights) shall have been obtained and remain
in effect, and all applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents or
imposes, in the reasonable judgment of the Agent or the Required Banks, adverse
conditions upon the consummation of the Transaction or the other transactions
contemplated by the Documents and otherwise referred to herein or therein.
Additionally, there shall not exist any judgment, order, injunction or other
restraint issued or filed or a hearing seeking injunction relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon the consummation of the Transaction, the transactions
contemplated by the Documents, the making of the Loans or the issuance of
Letters of Credit.
5.15 Financial Statements; Projections; Management Letter Reports.
(a) On or prior to the Initial Borrowing Date, the Banks shall have received:
(i) the consolidated balance sheets of the Borrower as at
December 31, 1995 and December 31, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows of the
Borrower for the fiscal years ended as
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of said dates, which financial statements have been examined by KPMG Peat
Marwick LLP, independent certified public accountants who delivered
unqualified opinions with respect thereto;
(ii) the consolidated balance sheets of Warehouse as at December
31, 1996 and the related statements of income of Warehouse for the fiscal
period ended as of said date; and
(iii) the pro forma (after giving effect to the Transaction and
the related financing thereof) consolidated balance sheet of the Borrower
as at the Initial Borrowing Date;
all of which financial statements referred to in clause (i), (ii) and (iii)
shall be prepared in accordance with generally accepted accounting principles
(except as provided in the notes provided thereto and except for the absence of
footnotes and for year-end audit adjustments in the case of year-to-date
statements and the pro forma statements) consistent with past practices and
shall be in form and substance satisfactory to the Agent and the Required Banks.
(b) On the Initial Borrowing Date, the Banks shall have received
detailed consolidated financial projections, certified by the chief financial
officer of the Borrower, for the Borrower and its Subsidiaries, which include
the projected consolidated results of the Borrower (including the Acquired
Business), after giving effect to the Transaction and the other transactions
contemplated herein, for the period commencing on January 1, 1997 and ending on
December 31, 2002 (the "Projections"), which Projections, and the supporting
assumptions and explanations thereto, and the accounting practices and
procedures to be utilized by the Borrower following the Initial Borrowing Date,
shall be satisfactory in form and substance to the Agent and the Required Banks.
(c) On or prior to the Initial Borrowing Date, the Agent shall
have received a copy of any "management letter" received by the Borrower or any
of its Subsidiaries or Warehouse from their respective certified public
accountants on or after December 31, 1993.
5.16 Refinancing. (a) On the Initial Borrowing Date and after
giving effect to the Loans incurred on the Initial Borrowing Date, the
Acquisition and the other transactions contemplated hereby, neither the Borrower
nor any of its Subsidiaries (including, without limitation, the Acquired
Business) shall have any Indebtedness or preferred stock outstanding except for
the Loans, the Seller Note and the Existing Indebtedness, which Existing
Indebtedness shall not exceed $100,000. All of the Existing Indebtedness shall
remain outstanding after the consummation of the Transaction and the other
transactions contemplated hereby without any defaults or events of default
existing thereunder or arising
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as a result of the Transaction or the transactions contemplated hereby. None of
the Existing Indebtedness shall have been incurred in anticipation of the
Transaction or the other transactions contemplated hereby.
(b) The Agent and the Required Banks shall be satisfied with the
amount of and the terms and conditions of (i) all Existing Indebtedness and (ii)
the repayment of, and termination of all commitments and documentation relating
to, all Indebtedness repaid in connection with the transactions contemplated
hereby (collectively, the "Refinanced Indebtedness") and the amount of all
accrued interest, premiums, fees, commissions and expenses owing in connection
with the repayment of such Refinanced Indebtedness. In no event shall the
aggregate amount paid pursuant to the preceding sentence exceed $26,200,000. All
Liens arising in connection with such Refinanced Indebtedness shall have been
terminated (and all appropriate releases, termination statements or other
instruments of assignment with respect thereto shall have been obtained), in
each case to the satisfaction of the Agent and the Required Banks.
(c) The Agent shall have received copies, certified as true and
complete by an appropriate officer of the Borrower, of all documents executed in
connection with the repayment and termination of the Refinanced Indebtedness and
the release of the Liens thereunder (the "Debt Termination Documents") all of
which shall be in form and substance satisfactory to the Agent and the Required
Banks.
5.17 Consent Letter. The Agent shall have received a letter from
CT Corporation System, with offices on the date hereof at 1633 Broadway, New
York, NY 10019, substantially in the form of Exhibit J hereto, indicating its
consent to its appointment by the Borrower and its Material Subsidiaries as
their agent to receive service of process as specified in Section 13.08 of this
Agreement or Section 21 of the Subsidiaries Guaranty, as the case may be.
Section 6. Conditions Precedent to All Credit Events. The
obligation of each Bank to make Loans (including Loans made on the Initial
Borrowing Date) and the obligation of an Issuing Bank to issue any Letter of
Credit is subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:
6.01 No Default; Representations and Warranties. At the time of
each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of the making of such Credit
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Event (except to the extent such representations specifically relate to earlier
dates, in which case such representations shall be correct in all material
respects on and as of such dates).
6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to
the making of each Loan, the Agent shall have received a Notice of Borrowing
meeting the requirements of Section 1.03.
(b) Prior to the issuance of each Letter of Credit, the Issuing
Bank shall have received a Letter of Credit Request meeting the requirements of
Section 2.03.
6.03 Adverse Change, etc. Nothing shall have occurred (and the
Banks shall have become aware of no facts or conditions not previously known)
which the Agent or the Required Banks shall determine (i) could reasonably be
expected to have a material adverse effect on the rights or remedies of the
Banks, the Agent or the Collateral Agent, or on the ability of the Borrower or
any of its Subsidiaries to perform its obligations under this Agreement or any
other Credit Document, (ii) which could reasonably be expected to have a
materially adverse effect on the performance, business, assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole or (iii) indicates the
inaccuracy, at the time provided, of the information previously provided to the
Agent or the Banks (taken as whole) or indicates that the information previously
provided, at the time provided, (taken as a whole) omitted to disclose any
material information.
6.04 Litigation. At the time of each such Credit Event and also
after giving effect thereto, no litigation by any entity (private or
governmental) shall be pending or threatened with respect to this Agreement or
any other Document or the transactions contemplated hereby or which the Required
Banks shall determine could reasonably be expected to have a material adverse
effect on the performance, business, assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole.
6.05 Subsequent Legal Opinions. If, at the time of any Credit
Event subsequent to the Initial Borrowing Date, the Agent or the Required Banks
shall have (i) reasonably determined that any facts, circumstances or
conditions exist which could materially and adversely affect the perfection or
priority of the security interests created (or to be created) pursuant to the
Security Documents, and (ii) requested same, the Agent shall have received from
counsel (who shall be satisfactory to the Agent and the Required Banks) for any
Credit Party, an opinion in form and substance satisfactory to the Required
Banks, addressed to the Banks, and dated the date of such Credit Event,
covering the perfection and priority of such security interests.
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6.06 Permitted Transactions. Prior to the making of each Capital
Expenditure Loan in connection with a Permitted Transaction, (x) in the case of
a Permitted Acquisition, all conditions to such Permitted Acquisition set forth
in Section 8.15 and in the definition thereof and (y) in the case of a Permitted
Capital Expenditure Transaction, all conditions to such Permitted Capital
Expenditure Transaction set forth in Section 9.08 and in the definition thereof,
shall have been satisfied and the president or any other senior executive
officer of the Borrower shall have delivered an officer's certificate,
certifying that the applicable conditions have been met.
The acceptance of the benefits of each Credit Event shall
constitute a representation and warranty by the Borrower to each of the Banks
that all the conditions specified in Section 5 and in this Section 6 and
applicable to such Credit Event exist as of that time. All of the Notes,
certificates, legal opinions and other documents and papers referred to in
Section 5 and in this Section 6, unless otherwise specified, shall be delivered
to the Agent at the Notice Office for the account of each of the Banks and,
except for the Notes, in sufficient counterparts for each of the Banks and,
unless otherwise specified, shall be in form and substance satisfactory to the
Banks.
Section 7. Representations, Warranties and Agreements. In order to
induce the Banks to enter into this Agreement and to make the Loans, and issue
(or participate in) the Letters of Credit as provided herein, the Borrower makes
the following representations, warran- ties and agreements as to itself and as
to each of its Subsidiaries (to the extent applicable), as of the Initial
Borrowing Date (both before and after giving effect to the Credit Events
occurring on such date, the Transaction and the other transactions contemplated
by the Documents, and all references to the Borrower herein and elsewhere in
this Agreement, shall, unless otherwise specifically indicated, be references to
the Borrower after giving effect to the Transaction) and as of the date of each
subsequent Credit Event which representations, warranties and agreements shall
survive the execution and delivery of this Agreement and the Notes and any
subsequent Credit Event, with the occurrence of each Credit Event on or after
the Initial Borrowing Date being deemed to constitute a representation and
warranty that the matters specified in this Section 7 are true and correct on
and as of the Initial Borrowing Date and on the date of each such Credit Event
(except to the extent such representations specifically relate to earlier dates,
in which case such representations shall be correct in all material respects on
and as of such earlier dates):
7.01 Corporate Status. Each of the Borrower and its Subsidiaries
(i) is a duly organized and validly existing corporation in good standing under
the laws of the jurisdiction of its organization, (ii) has the power and
authority to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage and (iii) is duly qualified and
is authorized to do business and is in good standing in each jurisdiction where
the ownership, leasing or operation of property or the conduct of its
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business requires such qualifications except for failures to be so qualified
which, in the aggregate, could not reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole.
7.02 Corporate Power and Authority. Each of the Borrower and its
Subsidiaries has the corporate power to execute, deliver and perform the terms
and provisions of each of the Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of each of such Documents. Each of the Borrower and its Subsidiaries has
duly executed and delivered each of the Documents to which it is party, and each
of such Documents constitutes its legal, valid and binding obligation
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally or by general equitable
principles (regardless of whether the issue of enforceability is considered in a
proceeding in equity or at law).
7.03 No Violation. Neither the execution, delivery or performance
by the Borrower or any of its Subsidiaries of the Documents to which it is a
party, nor compliance by it with the terms and provisions thereof, (i) will
contravene any provision of any applicable law, statute, rule or regulation or
any order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien (except pursuant to the Security Documents) upon any of the property or
assets of the Borrower or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement or loan agreement, or any
other agreement, contract or instrument to which the Borrower or its
Subsidiaries is a party or by which it or any of its property or assets is bound
or to which it may be subject or (iii) will violate any provision of the
Certificate of Incorporation or By-Laws of the Borrower or any of its
Subsidiaries.
7.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made on or prior to the Initial Borrowing Date
and are in full force and effect), or exemption by, any governmental or public
body or authority, or any subdivision thereof, is required to authorize, or is
required in connection with, (i) the Transaction, (ii) the execution, delivery
and performance of any Document or (ii) the legality, validity, binding effect
or enforceability of any such Document.
7.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc. (a) (i) The consolidated balance sheets of the
Borrower as at December 31, 1995 and December 31, 1996 and the related
statements of operations, stockholders' equity and cash flows of the Borrower
for the fiscal periods ended as of said dates, (ii) the
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consolidated balance sheets of Warehouse as at December 31, 1996 and the related
statements of income of Warehouse for the fiscal period ended as of said date
and (iii) the pro forma (after giving effect to the Transaction and the related
financing thereof) consolidated balance sheet of the Borrower as at the Initial
Borrowing Date, copies of all of which financial statements referred to in the
preceding clauses (i), (ii) and (iii) have heretofore been furnished to each
Bank, present fairly the financial position of the respective entities at the
dates of said statements and the results of operations for the period covered
thereby (or, in the case of the pro forma balance sheet, present a good faith
estimate of the pro forma financial condition of the Borrower and its
Subsidiaries (after giving effect to the Transaction) on a consolidated basis at
the date thereof). The annual financial statements of the Borrower have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, who
delivered unqualified opinions with respect thereto. All such financial
statements have been prepared in accordance with generally accepted accounting
principles and practices consistently applied except to the extent provided in
the notes to said financial statements and with respect to interim financial
statements, subject to normal year-end adjustments. Since December 31, 1996,
there has been no material adverse change in the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries as a whole.
(b) On and as of the Initial Borrowing Date, on a pro forma basis
after giving effect to the Transaction and all other transactions contemplated
by the Documents and to all Indebtedness (including the Loans) being incurred in
connection with the Transaction, and Liens created, and to be created, by each
Credit Party in connection therewith: (a) the sum of the assets (including all
intangible assets), at a fair valuation, of each Credit Party will exceed its
debts; (b) no Credit Party has incurred or intends to, or believes that it will,
incur debts beyond its ability to pay such debts as such debts mature; and (c)
each Credit Party will have sufficient capital with which to conduct its
business. For purposes of this Section 7.05(b) "debt" means any liability on a
claim, and "claim" means (i) right to payment, whether or not such a right is
reduced to judgment, liquidated, un- liquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(c) Except as fully reflected in the financial statements and the
notes related thereto described in Section 7.05(a), there were as of the Initial
Borrowing Date (and after giving effect to the Transaction and the other
transactions contemplated hereby and by the Documents) no liabilities or
obligations with respect to the Borrower or any of its Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in aggregate, could reasonably
be expected to be material to the Borrower and its Subsidiaries taken as a
whole. As of the
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Initial Borrowing Date, neither the Borrower nor any of its Subsidiaries knows
of any basis for the assertion against the Borrower or any of its Subsidiaries
of any liability or obligation of any nature whatsoever that is not fully
reflected in the financial statements and the notes related thereto described in
Section 7.05(a) which, either individually or in the aggregate, could reasonably
be expected to be material to the Borrower and its Subsidiaries taken as a
whole. As of the Initial Borrowing Date (and after giving effect to the
Transaction), none of the Borrower or any of its Subsidiaries will have any
outstanding Indebtedness or preferred stock other than (i) the Loans, (ii) the
Seller Note and (iii) the Existing Indebtedness.
(d) On and as of the Initial Borrowing Date, the Projections have
been prepared in good faith by the Borrower and there are no statements or
conclusions in any of the Projections which are based upon or include
information known to the Borrower to be misleading or which fail to take into
account material information regarding the matters reported therein. On the
Initial Borrowing Date, the Borrower believes on the basis of its good faith
estimates and assumptions that the Projections were reasonable and attainable
(although actual results may differ from the Projections and no representation
is made that the Projections will in fact be attained).
7.06 Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Borrower, threatened (i) with respect
to any Document or the Transaction, or (ii) that are reasonably likely to
materially and adversely affect the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole.
7.07 True and Complete Disclosure. All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrower or any Subsidiary of the Borrower in writing to any Bank (including,
without limitation, all information contained in the Documents) for purposes of
or in connection with this Agreement or any transaction contemplated herein is,
and all other such factual information (taken as a whole with all information
previously furnished) hereafter furnished by or on behalf of the Borrower or any
Subsidiary of the Borrower in writing to any Bank will be, true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact.
7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the
Term Loans incurred by the Borrower on the Initial Borrowing Date shall be used
to (i) finance the cash purchase price of the Acquisition, (ii) to repay the
Refinanced Indebtedness and (iii) to pay Transaction Fees and Expenses not to
exceed $3.0 million.
(b) All proceeds of Revolving Loans incurred after the Initial
Borrowing Date shall be used by the Borrower for general corporate and working
capital purposes of the Borrower but shall not be permitted to be used to effect
Permitted Transactions.
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(c) All proceeds of Capital Expenditure Loans shall be used by the
Borrower only to effect Permitted Transactions; provided, that up to $3.5
million of Capital Expenditure Loans may be utilized for the purposes permitted
in clause (a) above.
(d) No part of the proceeds of any Loan will be used to purchase
or carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
7.09 Tax Returns and Payments. Except as set forth on Schedule V,
each of the Borrower and its Subsidiaries has timely filed or caused to be
timely filed (including pursuant to any valid extensions of time for filing)
with the appropriate taxing authority, all returns, statements, forms and
reports for taxes (the "Returns") required to be filed by or with respect to the
income, properties or operations of the Borrower and/or any of its Subsidiaries.
The Returns accurately reflect in all material respects all liability for taxes
of the Borrower and its Subsidiaries for the periods covered thereby. Each of
the Borrower and each of its Subsidiaries have paid all material taxes
(including, without limitation, all federal payroll withholding taxes) payable
by them which have become due other than those contested in good faith and for
which adequate reserves have been established in accordance with generally
accepted accounting principles. There is no material action, suit, proceeding,
investigation, audit, or claim now pending or, to the best knowledge of the
Borrower or any of its Subsidiaries, threatened by any authority regarding any
taxes relating to the Borrower or any of its Subsidiaries. Except as set forth
on Schedule V, as of the Initial Borrowing Date, neither the Borrower nor any of
its Subsidiaries has entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations relating
to the payment or collection of a material amount of taxes of the Borrower or
any of its Subsidiaries, or is aware of any circumstances that would cause the
taxable years or other taxable periods of the Borrower or any of its
Subsidiaries not to be subject to the normally applicable statute of
limitations. Neither the Borrower nor any of its Subsidiaries has provided, with
respect to themselves or property held by them, any consent under Section 341 of
the Code. None of the Borrower or any of its Subsidiaries has incurred, or will
incur, any material tax liability in connection with the Transaction or any
other transactions contemplated hereby.
7.10 Compliance with ERISA. Schedule VI sets forth each Plan; each
Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including, without
limitation, ERISA and the Code; each Plan (and each related trust, if any) which
is intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable
Event has occurred; no Plan which is a multiemployer plan (as defined in Sec-
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<PAGE> 51
tion 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an
Unfunded Current Liability; no Plan which is subject to Section 412 of the Code
or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; all contributions required to be made with respect to a Plan have been
timely made unless the failure to make such a contribution would not result in a
material liability; neither the Borrower nor any Subsidiary of the Borrower nor
any ERISA Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any
such liability under any of the foregoing sections with respect to any Plan; no
condition exists which presents a material risk to the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate of incurring a liability to or
on account of a Plan pursuant to the foregoing provisions of ERISA and the Code;
no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; no action, suit,
proceeding, hearing, audit or investigation with respect to the administration,
operation or the investment of assets of any Plan (other than routine claims for
benefits) is pending, expected or threatened; using actuarial assumptions and
computation methods consistent with Part 1 of subtitle E of Title IV of ERISA,
there exist no liabilities of the Borrower, its Subsidiaries and/or its ERISA
Affiliates to all Plans which are multiemployer plans (as defined in Section
4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the
close of the most recent fiscal year of each such Plan ended prior to the date
of the most recent Credit Event; each group health plan (as defined in Section
607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered
employees or former employees of the Borrower, any Subsidiary of the Borrower,
or any ERISA Affiliate has at all times been operated in material compliance
with the provisions of Part 6 of subtitle B of Title I of ERISA and Section
4980B of the Code and no material liability exists or could reasonably be
expected to arise as a result of any failure to so comply; no lien imposed under
the Code or ERISA on the assets of the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate exists or is likely to arise on account of any
Plan; and the Borrower and its Subsidiaries may cease contributions to or
terminate any employee benefit plan maintained by any of them without incurring
any material liability.
7.11 Security Documents. (a) The provisions of the Security
Agreement are effective to create in favor of the Collateral Agent for the
benefit of the Secured Creditors a legal, valid and enforceable security
interest in all right, title and interest of the respective Credit Parties in
the Collateral described therein and the Collateral Agent, for the benefit of
the Secured Creditors, has a fully perfected Lien on, and security interest in,
all right, title and interest of the respective Credit Parties, in all of the
Collateral described therein, subject to no other Liens other than Permitted
Liens. The recordation of the
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Security Agreement in the United States Patent and Trademark Office, together
with filings on Form UCC-1 made pursuant to the Security Agreement, will be
effective under federal and state law to perfect the security interest granted
to the Collateral Agent in the trademarks and patents covered by the Security
Agreement and the filing of the Security Agreement with the United States
Copyright Office, together with filings on Form UCC- 1 made pursuant to the
Security Agreement, will be effective under federal and state law to perfect the
security interest granted to the Collateral Agent in the copyrights covered by
the Security Agreement. Each of the Credit Parties party to the Security
Agreement has good and merchantable title to all Collateral described therein,
free and clear of all Liens except those described above in this clause (a).
(b) The security interests created in favor of the Collateral
Agent, as Pledgee for the benefit of the Secured Creditors, under the Pledge
Agreement constitute first perfected security interests in the Pledged
Securities described in the Pledge Agreement, subject to no security interests
of any other Person. No filings or recordings are required in order to perfect
(or maintain the perfection or priority of) the security interests created in
the Pledged Securities and the proceeds thereof under the Pledge Agreement.
7.12 Representations and Warranties in Documents. All
representations and warranties set forth in the Documents are true and correct
in all material respects at the time as of which such representations and
warranties were made and on the Initial Borrowing Date.
7.13 Properties. Each of the Borrower and its Subsidiaries has
good and merchantable title to all properties owned by them, including all
property reflected in the consolidated pro forma balance sheet (after giving
effect to the Transaction) referred to in Section 7.05(a) (except as sold or
otherwise disposed of since the date of such balance sheet in the ordinary
course of business or as permitted by Section 9.02), free and clear of all
Liens, other than (i) as referred to in the consolidated balance sheet or in the
notes thereto or in the pro forma balance sheet or (ii) otherwise permitted by
Section 9.01. Schedule III contains a true and complete list of each parcel of
Real Property owned or leased by the Borrower and each of its Subsidiaries on
the Initial Borrowing Date, all of which Real Property is leased.
7.14 Capitalization. On the Initial Borrowing Date, after giving
effect to the Transaction, the authorized capital stock of the Borrower consists
of (i) 25,000,000 shares of common stock, $.001 par value per share ("Borrower
Common Stock"), 12,354,292 of which shares are issued and outstanding, and (ii)
1,000,000 shares of preferred stock, $.001 per share, none of which shares are
issued and outstanding. All of such outstanding shares have been duly and
validly issued, are fully paid and non-assessable and are free of preemptive
rights. Except as set forth in this Section and on Part A of Schedule VII, on
the Effective Date, neither the Borrower nor any of its Subsidiaries has
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outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock.
7.15 Subsidiaries. On the Initial Borrowing Date, the corporations
listed on Schedule VIII are the only Subsidiaries of the Borrower. Schedule VIII
correctly sets forth, as of the Initial Borrowing Date, the percentage ownership
(direct and indirect) of the Borrower in each class of capital stock of each of
its Subsidiaries and also identifies the direct owner thereof.
7.16 Compliance with Statutes, etc. Each of the Borrower and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except with
respect to each of the foregoing such noncompliance as could not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole.
7.17 Investment Company Act. None of the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.18 Public Utility Holding Company Act. None of the Borrower nor
any of its Subsidiaries is a "holding company," or 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.
7.19 Environmental Matters. (a) The Borrower and each of its
Subsidiaries have complied with, and on the date of such Credit Event are in
compliance with, in all respects, all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws except such
noncompliances which, in the aggregate, could not reasonably be expected to have
a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole. There are no
past, pending or, to the best knowledge of the Borrower, threatened material
Environmental Claims against the Borrower or any of its Subsidiaries or any Real
Property currently owned or operated by the Borrower or any of its Subsidiaries.
There are no facts, circumstances, conditions or occurrences concerning the
business or operations of the Borrower
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or any of its Subsidiaries or any Real Property owned or operated at any time by
the Borrower or any of its Subsidiaries or, to the knowledge of the Borrower,
any property adjoining any such Real Property that could reasonably be expected
(i) to form the basis of an Environmental Claim against the Borrower or any of
its Subsidiaries or any Real Property owned or operated by the Borrower or any
of its Subsidiaries or (ii) to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real
Property under any Environmental Law except such Environmental Claims and
restrictions which individually or in the aggregate could not reasonably be
expected to have a material adverse effect on the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
(b) Neither the Borrower nor any of its Subsidiaries has, at any
time, generated, used, treated, stored, transported or released Hazardous
Materials on, to or from any Real Property at any time owned, leased or at any
time operated by the Borrower or any of its Subsidiaries.
(c) There are not now and, to the best knowledge of the Borrower,
never have been any underground storage tanks located on any Real Property owned
or operated by the Borrower or any of its Subsidiaries.
(d) No Real Property at any time owned or at any time operated by
the Borrower or any of it Subsidiaries is located on any site listed on, or
proposed in the Federal Register for listing on, the Superfund National
Priorities List, or listed on the Comprehensive Environmental Response
Compensation and Liability Information System or their state equivalents.
7.20 Labor Relations. None of the Borrower nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a material adverse effect on the Borrower and its Subsidiaries
taken as a whole. There is (i) no significant unfair labor practice complaint
pending against the Borrower or any of its Subsidiaries or, to the best
knowledge of the Borrower, threatened against any of them, before the National
Labor Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Borrower or any of its Subsidiaries or, to the best
knowledge of the Borrower, threatened against any of them, (ii) no significant
strike, labor dispute, slowdown or stoppage pending against the Borrower or any
of its Subsidiaries or, to the best knowledge of the Borrower, threatened
against the Borrower or any of its Subsidiaries, and (iii) no union
representation questions existing with respect to the employees of the Borrower
or any of its Subsidiaries.
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7.21 Patents, Licenses, Franchises and Formulas. (a) The Borrower,
together with its Subsidiaries, has a license to use or otherwise has the right
to use, free and clear of pending or threatened Liens, all the patents, patent
applications, trademarks, service marks, trade names, trade secrets, copyrights,
proprietary information, computer programs, data bases, licenses, franchises and
formulas, or rights with respect to the foregoing (collectively, "Intellectual
Property"), and has obtained all licenses and other rights of whatever nature,
necessary for the present conduct of its business, without any known conflict
with the rights of others which, or the failure to obtain which, as the case may
be, could reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole.
(b) The Borrower, together with its Subsidiaries, has the right to
practice under and use all Intellectual Property used in connection with the
Acquired Business which Warehouse had a right to practice under and use
immediately prior to the Transaction.
(c) Neither the Borrower nor any of its Subsidiaries has knowledge
of any claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property (including the Intellectual Property used
in connection with the Acquired Business), or of any existing state of facts
that would support a claim that use by the Borrower or any of its Subsidiaries
of any such Intellectual Property has infringed or otherwise violated any
Intellectual Property right of any other Person and that to the best knowledge
of the Borrower and its Subsidiaries no claim is threatened except for such
claims that could not individually or in the aggregate reasonably be expected to
have a material adverse affect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole.
7.22 Indebtedness. Schedule IX sets forth a true and complete list
of all Indebtedness (other than the Loans and the Seller Note) of the Borrower
and each of its Subsidiaries as of the Initial Borrowing Date after giving
effect to the Transaction and the other transactions contemplated hereby (the
"Existing Indebtedness"), in each case showing the aggregate amount thereof and
the name of the respective obligor and any other entity which directly or
indirectly guaranteed such debt. None of the Existing Indebtedness was incurred
in connection with, or in contemplation of, the Transaction or the other
transactions contemplated hereby.
7.23 Restrictions on or Relating to Subsidiaries. There does not
exist any encumbrance or restriction on the ability of (i) any Subsidiary of the
Borrower to pay dividends or make any other distributions on its capital stock
or any other interest or participation in its profits owned by the IBorrower or
any Subsidiary of the Borrower, or to pay any Indebtedness owed to the Borrower
or a Subsidiary of the Borrower, (ii) any Subsidiary of the Borrower to make
loans or advances to the Borrower or any of the Borrower's Subsidiaries or (iii)
any Subsidiary
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of the Borrower to transfer any of its properties or assets to the Borrower or
any Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (x) applicable law, (y) this Agreement and the
other Credit Documents or (z) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the Borrower or a
Subsidiary of the Borrower.
7.24 The Transaction. All aspects of the Transaction have been
effected in all material respects in accordance with the Documents and
applicable law. At the time of consummation thereof, all consents and approvals
of, and filings and registrations with, and all other actions in respect of, all
governmental agencies, authorities or instrumentalities required in order to
consummate the Transaction shall have been obtained, given, filed or taken and
are in full force and effect (or effective judicial relief with respect thereto
has been obtained). All applicable waiting periods with respect thereto have or,
prior to the time when required, will have, expired without, in all such cases,
any action being taken by any competent authority which restrains, prevents or
imposes material adverse conditions upon the consummation of the Transaction.
Additionally, at the time of consummation thereof, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the consummation of the Transaction.
7.25 Concentration Account. Schedule IV sets forth a true and
complete description of the Concentration Account maintained with the
Concentration Account Bank by the Borrower and each of its Subsidiaries. Each
Credit Party represents and warrants that it does not now maintain, and will not
in the future maintain, any other Concentration Account with any Concentration
Account Bank other than the applicable Concentration Account; provided, however,
that each such Credit Party shall be permitted to establish new Concentration
Accounts pursuant to the terms of the Security Agreement.
7.26 Material Contracts. All Material Contracts of the Borrower
and each of its Subsidiaries as of the Initial Borrowing Date are listed on
Schedule X.
Section 8. Affirmative Covenants. The Borrower covenants and
agrees that on and after the Effective Date and until the Total Commitment and
all Letters of Credit have terminated and the Loans and Notes and Unpaid
Drawings, together with interest, Fees and all other Obligations incurred
hereunder and thereunder, are paid in full:
8.01 Information Covenants. The Borrower will furnish to each
Bank:
(a) Monthly Reports. Within 30 days after the end of each fiscal
month other than the last such month of any fiscal quarter of the
Borrower, the consolidated and consolidating statements of earnings for
such month and for the
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elapsed portion of the fiscal year ended with the last day of such month,
in each case setting forth comparative figures for the corresponding
month and elapsed portion of such fiscal year for the prior fiscal year
and comparable budgeted figures for such period and a detailed schedule
of earnings statement expense items, all of which shall be certified by
the chief financial officer or controller of the Borrower, subject to
normal year-end audit adjustments.
(b) Quarterly Financial Statements. Within 45 days after the close
of each of the first three quarterly accounting periods in each fiscal
year of the Borrower, the consolidated and consolidating balance sheets
of the Borrower and its Subsidiaries as at the end of such quarterly
period and the related consolidated and consolidating statements of
earnings and stockholders' equity and statement of cash flows, in each
case for such quarterly period and for the elapsed portion of the fiscal
year ended with the last day of such quarterly period, setting forth
comparative figures for the related periods in the prior fiscal year and
comparable budgeted figures for such period as well as a management
discussion and analysis of such results, and schedules detailing (w)
components of purchases of net video cassette rental inventory including
tape purchases for existing stores, tape purchases for new stores and the
book value of previously viewed tapes which have been sold by the
Borrower and its Subsidiaries, (x) Capital Expenditures other than
Maintenance Capital Expenditures, (y) Maintenance Capital Expenditures
and (z) aggregate expenditures for new store merchandise inventory, all
of which shall be certified by the chief financial officer or controller
of the Borrower, subject to normal year-end audit adjustments.
(c) Annual Financial Statements. Within 90 days after the close of
each fiscal year of the Borrower, (i) the consolidated and consolidating
balance sheet of the Borrower and its Subsidiaries as at the end of such
fiscal year and the related consolidated and consolidating statements of
earnings and stockholders' equity and statement of cash flows for such
fiscal year and setting forth comparative figures for the preceding
fiscal year and comparable budgeted figures for such period and
certified, (x) in the case of the consolidating statements, by the chief
financial officer or controller of the Borrower and (y) in the case of
the consolidated financial statements of the Borrower and its
Subsidiaries, by KPMG Peat Marwick LLP or any of the "big six" or other
independent certified public accountants of recognized national standing
reasonably acceptable to the Required Banks, together with a signed
opinion of such accounting firm (which opinion shall not be qualified as
to the scope of the audit or the status of the Borrower or any Subsidiary
as a going concern in any respect) stating that in the course of its
regular audit of the financial statements of the Borrower which audit was
conducted in accordance with generally accepted auditing standards, such
accounting firm obtained no knowledge of any Default or Event of Default
which has occurred and is continuing or, if in the
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opinion of such accounting firm such a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and (ii)
schedules detailing (w) components of purchases of net video cassette
rental inventory including tape purchases for existing stores, tape
purchases for new stores and the book value of previously viewed tapes
which have been sold by the Borrower and its Subsidiaries, (x) Capital
Expenditures other than Maintenance Capital Expenditures, (y) Maintenance
Capital Expenditures and (z) aggregate expenditures for new store
merchandise inventory and (iii) management's discussions and analysis of
the important operational financial developments during such fiscal year.
(d) Management Letters. Within 5 Business Days after the receipt
thereof by the Borrower or any of its Subsidiaries, a copy of any
"management letter" received by the Borrower or any of its Subsidiaries
from its certified public accountants.
(e) Budgets. As soon as available but in no event later than 30
days after the first day of each fiscal year of the Borrower, a budget
for the Borrower and its Subsidiaries in form customarily prepared by the
Borrower (including budgeted statements of earnings and sources and uses
of cash and balance sheets and budgeted openings of new stores) prepared
by the Borrower for each calendar month of such fiscal year prepared in
reasonable detail with appropriate presentation and discussion of the
principal assumptions upon which such budgets are based, accompanied by
the statement of the chief financial officer or controller of the
Borrower to the effect that, to the best of his knowledge, the budget is
a reasonable estimate for the period covered thereby.
(f) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 8.01(a), (b) and (c), a
certificate of the chief financial officer or controller of the
Borrower to the effect that no Default or Event of Default has occurred
and is continuing or, if any Default or Event of Default has occurred
and is continuing, specifying the nature and extent thereof, which
certificate, (x) in the case of certificates delivered pursuant to
Section 8.01(b) or (c), shall set forth the calculations required to
establish whether the Borrower was in compliance with the provisions of
Sections 3.03, 4.02, 8.15, 9.02, 9.05, 9.06 and 9.08 through 9.14,
inclusive, at the end of such fiscal quarter or year, as the case may
be and (y) in the case of certificates delivered pursuant to Section
8.01(c), the amount of Excess Cash Flow for the relevant Excess Cash
Flow Payment Period.
(g) Notice of Default or Litigation. Promptly, and in any event
within two Business Days after an officer of the Borrower or any of its
Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of
any event which constitutes a Default or Event of Default, (ii) any
litigation or governmental investigation or
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proceeding pending (x) against the Borrower or its Subsidiaries which
could reasonably be expected to materially and adversely affect the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole or (y) with respect to any
Document and (iii) any other event which could reasonably be expected to
materially and adversely affect the performance, business, assets, nature
of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a
whole.
(h) Other Reports and Filings. Within 5 Business Days after the
filing thereof, copies of any financial information, proxy materials and
other information and reports, if any, which any Credit Party or any of
its Subsidiaries (x) has filed with the Securities and Exchange
Commission or any successor thereto (the "SEC") or (y) has delivered to
holders of, or any agent or trustee with respect to, Indebtedness of any
Credit Party or any of its Subsidiaries in its capacity as such a holder,
agent, or trustee.
(i) Environmental Matters. Promptly upon, and in any event
within two Business Days after an officer of the Borrower or of any of
its Subsidiaries obtains knowledge thereof, notice of any of the
following environmental matters (i) any pending or threatened material
Environmental Claim against the Borrower or any of its Subsidiaries or
any Real Property owned or operated at any time by the Borrower or any
of its Subsidiaries; (ii) any condition or occurrence on or arising from
any Real Property owned or operated at any time by the Borrower or any
of its Subsidiaries that (a) could reasonably be anticipated to result
in a material noncompliance by the Borrower or any of its Subsidiaries
with any material applicable Environmental Law, or (b) could reasonably
be anticipated to form the basis of a material Environmental Claim
against the Borrower or any of its Subsidiaries or any Real Property
owned or operated by the Borrower or any of its Subsidiaries; (iii) any
condition or occurrence on any Real Property owned or operated by the
Borrower or any of its Subsidiaries that could reasonably be anticipated
to cause such Real Property to be subject to any material restrictions
on the ownership, occupancy, use or transferability of such Real
Property under any Environmental Law; and (iv) the taking of any removal
or remedial action in response to a material Release or material
threatened Release or the actual or alleged presence of any Hazardous
Material on or from any Real Property owned or operated at any time by
the Borrower or any of its Subsidiaries in each case as required by any
Environmental Law or any governmental or other administrative agency.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial
action and the Borrower or such Subsidiary's response thereto. In
addition, the Borrower will provide the Banks with copies of all
material communications with any government or governmental
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agency relating to material Environmental Claims, all material
communications with any person relating to material Environmental Claims,
and such detailed reports of any Environmental Claim in the possession of
the Borrower as may reasonably be requested by the Required Banks.
(j) Annual Meetings with Banks. Within 120 days after the close of
each fiscal year of the Borrower, the Borrower shall, at the request of
the Agent or Required Banks, hold a meeting (at a mutually agreeable
location and time) with all Banks who choose to attend such meeting at
which meeting shall be reviewed the financial results of the previous
fiscal year and the financial condition of the Borrower and its
Subsidiaries and the budgets presented for the current fiscal year of the
Borrower and its Subsidiaries.
(k) Other Information. From time to time, such other information
or documents (financial or otherwise) with respect to any Credit Party or
any of its Subsidiaries, as the Agent or the Required Banks may
reasonably request.
8.02 Books, Records and Inspections. The Borrower will, and will
cause each of its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries, in conformity with United States generally
accepted accounting principles and all requirements of law, shall be made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit officers and
designated representatives of the Agent or any Bank to visit and inspect, under
guidance of officers of the Borrower or of such Subsidiary, any of the
properties of the Borrower or such Subsidiary, and to examine the books of
account of the Borrower or such Subsidiary and discuss the affairs, finances and
accounts of the Borrower or of such Subsidiary with, and be advised as to the
same by, its and their officers, all at such reasonable times and intervals and
to such reasonable extent as the Agent or such Bank may request. The Borrower
agrees to pay all reasonable out-of-pocket costs and expenses incurred by the
Agent in connection with any exercise of its rights pursuant to this Section
8.02.
8.03 Maintenance of Property, Insurance. (a) Schedule II sets
forth a true and complete listing of all insurance maintained by the Borrower
and each of its Subsidiaries as of the Effective Date. The Borrower will, and
will cause each of its Subsidiaries to, (i) keep all material property useful
and necessary in its business in good working order and condition (ordinary wear
and tear excepted), (ii) maintain with financially sound and reput- able
insurance companies (A) at least $1 million of key-man life insurance on the
life of each of the chief executive officer and the chief financial officer of
the Borrower (it being understood and agreed that the Borrower shall obtain such
insurance within 30 days following the Initial Borrowing Date) and (B) liability
insurance and insurance on all its property in at least such amounts and against
at least such risks as are described on
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Schedule II and (iii) furnish to each Bank, upon written request, full
information as to the insurance carried. The provisions of this Section 8.03
shall be deemed to be supplemental to, but not duplicative of, the provisions of
any of the Security Documents that require the maintenance of insur- ance.
(b) The Borrower will at all times keep, and will cause each of
its Subsidiaries to keep, its property insured in favor of the Collateral Agent,
and all policies (including mortgage policies) or certificates (or certified
copies thereof) with respect to such insurance (and any other insurance
maintained by the Borrower or its Subsidiaries (other than employee benefit
insurance)) (i) shall be endorsed to the Collateral Agent's satisfaction for the
benefit of the Collateral Agent (including, without limitation, by naming the
Collateral Agent as loss payee and naming the Collateral Agent, the Agent and
each Bank as an additional insured) with respect to Collateral, (ii) shall state
that such insurance policies shall not be cancelled or revised without 30 days'
prior written notice thereof by the respective insurer to the Collateral Agent
and (iii) shall be deposited with the Collateral Agent. If the Borrower or any
of its Subsidiaries shall fail to insure its property in accordance with this
Section 8.03, or if the Borrower or any of its Subsidiaries shall fail to
endorse and deposit all policies or certificates with respect thereto, the
Collateral Agent shall have the right (but shall be under no obligation) to
procure such insurance and the Borrower jointly and severally agrees, to
reimburse the Collateral Agent for all costs and expenses of procuring such
insurance.
8.04 Corporate Franchises. The Borrower will do, and will cause
each of its Subsidiaries to do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its rights,
franchises, licenses, patents and authority to do business; provided, however,
that nothing in this Section 8.04 shall prevent the withdrawal by the Borrower
or any Subsidiary of the Borrower of its qualification as a foreign corporation
in any jurisdiction where such withdrawal could not reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, properties, operations, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries taken as a whole.
8.05 Compliance with Statutes, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property except such noncompliances as could
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole.
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8.06 Compliance with Environmental Laws. (a) The Borrower will
comply, and will cause each of its Subsidiaries to comply, in all material
respects with all Environmental Laws applicable to the operation of its business
and the ownership or use of the Real Property now or hereafter owned or operated
by the Borrower and each of its Subsidiaries, will promptly pay or cause the
Borrower to pay all costs and expenses incurred in such compliance, and will
keep or cause to be kept all such Real Properties free and clear of any Liens
imposed pursuant to such Environmental Laws. Neither the Borrower nor any
Subsidiary of the Borrower will generate, use, treat, store, release or dispose
of, or permit the generation, use, treatment, storage, Release or disposal of
Hazardous Materials on any Real Property, or transport or permit the
transportation of Hazardous Materials to or from any Real Property, other than
in compliance in all material respects with applicable law.
(b) At the request of the Agent or the Required Banks at any time
and from time to time during the existence of this Agreement: (i) if an Event of
Default exists under this Agreement, (ii) upon the reasonable belief by the
Agent that the Borrower or any of its Subsidiaries has breached any
representation or covenant herein with respect to any environmental matters and
such breach is continuing, or (iii) in the event notice is provided under
Section 8.01(i) herein, the Borrower will provide, at its sole cost and expense
(or will cause the relevant Subsidiary to provide at its sole cost and expense),
an environmental site assessment report reasonable in scope concerning any Real
Property of the Borrower or its Subsidiaries related thereto, prepared by an
environmental consulting firm reasonably approved by the Agent and the Required
Banks, indicating the presence or Release of Hazardous Materials on or from any
of the Real Property and the potential estimated cost of any removal or remedial
action in connection with any Hazardous Materials on such Real Property. If the
Borrower fails to provide the same after thirty days' notice, the Agent may
order the same, and the Borrower shall grant and hereby grants to the Agent and
the Banks and their agents access to such Real Property and specifically grants
the Agent and the Banks an irrevocable non-exclusive license, subject to the
rights of tenants, to undertake such an assessment all at the Borrower' expense,
which assessments, if obtained, will be provided to the Borrower.
8.07 ERISA. As soon as possible and, in any event, within fifteen
(15) days after the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the Borrower will deliver to each of the Banks a certificate of the chief
financial officer of the Borrower setting forth the full details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, the
Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan
administrator with respect thereto: that a Reportable Event has occurred (except
to the extent that the Borrower has previously delivered to the Banks a
certificate and notices (if any) concerning
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such event pursuant to the next clause hereof); that a contributing sponsor (as
defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA
is subject to the advance reporting requirement of PBGC Regulation Section
4043.61 (without regard to subparagraph (b)(1) thereof) and an event described
in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section
4043 is reasonably expected to occur with respect to such Plan within the
following 30 days; that an accumulated funding deficiency, within the meaning of
Section 412 of the Code or Section 302 of ERISA, has been incurred or an
application may be or has been made for a waiver or modification of the minimum
funding standard (including any required installment payments) or an extension
of any amortization period under Section 412 of the Code or Section 303 or 304
of ERISA with respect to a Plan; that any contribution required to be made with
respect to a Plan has not been timely made unless the failure to make such a
contribution would not result in a material liability; that a Plan has been or
may be terminated, reorganized, partitioned or declared insolvent under Title IV
of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may be
or have been instituted to terminate or appoint a trustee to administer a Plan
which is subject to Title IV of ERISA; that a proceeding has been instituted
pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan;
that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate will or
could reasonably be expected to incur any liability (including any indirect,
contingent, or secondary liability) to or on account of the termination of or
withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212
of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980
of the Code or Section 409 or 502(i) or 502(l) of ERISA or will or may incur any
material liability with respect to a group health plan (as defined in Section
607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the
Code; or that the Borrower or any Subsidiary of the Borrower may incur any
material liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) that provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan.
The Borrower will deliver to each of the Banks (i) a complete copy of the annual
report (on Internal Revenue Service Form 5500-series) of each Plan (including,
to the extent required, the related financial and actuarial statements and
opinions and other supporting statements, certifications, schedules and
information) required to be filed with the Internal Revenue Service and (ii)
copies of any records, documents or other information that must be furnished to
the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition
to any certificates or notices delivered to the Banks pursuant to the first
sentence hereof, copies of annual reports and any records, documents or other
information required to be furnished to the PBGC, and any material notices
received by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate
with respect to any Plan shall be delivered to the Banks no later than fifteen
(15) days after the date such report has been filed with the Internal Revenue
Service or such records, documents and/or information has been furnished to the
PBGC or such notice has been received by the Borrower, the Subsidiary or the
ERISA Affiliate, as applicable.
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8.08 End of Fiscal Years; Fiscal Quarters. The Borrower will cause
its, and each of its Subsidiaries', fiscal years to end on December 31 and each
of its, and each of its Subsidiaries', first three fiscal quarters to end on
March 31, June 30 and September 30.
8.09 Performance of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement and other debt instrument by which
it is bound, except such non-performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole.
8.10 Payment of Taxes. The Borrower will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties would otherwise attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the Borrower or any
of its Subsidiaries; provided that neither the Borrower nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if it has
maintained adequate reserves with respect thereto in accordance with generally
accepted accounting principles.
8.11 Interest Rate Protection. The Borrower shall no later than 60
days following the Initial Borrowing Date enter into arrangements acceptable to
the Agent establishing a fixed or maximum interest rate acceptable to the Agent
for an aggregate notional amount of $30.0 million of Term Loans for a period of
at least three years.
8.12 Use of Proceeds. All proceeds of the Loans shall be used as
provided in Section 7.08.
8.13 UCC Searches. On or prior to the 60th day following the
Initial Borrowing Date, the Borrower shall, at the Agent's request, deliver to
the Agent (at the Borrower's own cost) copies of Request for Information or
Copies (UCC-11), or equivalent reports for the purpose of verifying that all
financing statements necessary or, in the opinion of the Collateral Agent
desirable, to perfect the security interests purported to be created by the
Security Agreement shall have been properly recorded and filed.
8.14 Intellectual Property Rights. The Borrower will, and will
cause each of its Subsidiaries to, make all filings reasonably required in
connection with the transfer of the Intellectual Property rights in the
Acquisition. The Borrower will, and will cause each of its Subsidiaries to,
maintain in full force and effect all Intellectual Property rights
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necessary or appropriate to the business of the Borrower or any Subsidiary of
the Borrower and take no action (including, without limitation, the licensing of
Intellectual Property), or fail to take an action, as the case may be, in
connection with such Intellectual Property rights which could reasonably be
expected to result in a material adverse effect on the performance, business,
assets, nature of assets, liabilities, properties, operations, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole. The Borrower will, and will cause each of its Subsidiaries to,
diligently prosecute all pending applications filed in connection with seeking
or seeking to perfect the Intellectual Property rights and take all other
reasonable actions necessary for the protection and maintenance of the
Intellectual Property rights necessary or appropriate to the business of the
Borrower or any Subsidiary of the Borrower at all times from and after the
Initial Borrowing Date.
8.15 Permitted Acquisitions. (a) Subject to the remaining
provisions of this Section 8.15 applicable thereto and the requirements
contained in the definition of Permitted Acquisition, the Borrower and its
Subsidiaries may from time to time after the Initial Borrowing Date effect
Permitted Acquisitions, so long as with respect to each Permitted Acquisition:
(i) the Borrower demonstrates that no Default or Event of
Default is in existence at the time of the consummation of such Permitted
Acquisition or would exist after giving effect thereto and all
representations and warranties contained herein and in the other Credit
Documents shall be true and correct in all material respects with the
same effect as though such representations and warranties were made on
and as of the date of such Permitted Acquisition (both before and after
giving effect thereto);
(ii) the Borrower shall have given the Agent and the Banks at
least 15 days prior written notice of any Permitted Acquisition (each
such notice, a "Permitted Acquisition Notice"), which notice shall (r)
contain the estimated date such Permitted Acquisition is scheduled to be
consummated, (s) attach a true and correct copy of the draft purchase
agreement, letter of intent, description of material terms or similar
agreement executed by the Borrower and the seller in connection with such
Permitted Acquisition, (t) contain the estimated aggregate purchase price
of such Permitted Acquisition (including, without limitation, the amount
of Capitalized Lease Obligations assumed in connection with the Permitted
Acquisition) and the amount of related costs and expenses and the
intended method of financing thereof, (u) contain the estimated amount of
Capital Expenditure Loans required to effect such Permitted Acquisition,
(v) contain a description of any Permitted Earn-Out Debt to be incurred
by the Borrower in connection with such Permitted Acquisition and the
maximum potential liability of the Borrower with respect thereto and (w)
contain a description of the Permitted Seller Notes, the Borrower Common
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Stock or Seller Preferred Stock to be issued by the Borrower in
connection with such Permitted Acquisition; provided, however, in the
event that after the delivery of the documentation described in clause
(s) above, any material economic terms of the Permitted Acquisition shall
be amended in any material respect, the Borrower shall promptly provide
the Agent and the Banks written notice of such amendments;
(iii) the Borrower shall have given the Banks such other
information related to the Person or business, division or product line
being acquired and the Permitted Acquisition as the Agent shall
reasonably request;
(iv) (I) as soon as available but not later than the date of the
consummation of such Permitted Acquisition, a copy of the executed
purchase agreement and all related agreements, schedules and exhibits
with respect to such Permitted Acquisition and (II) at the time of
delivery of the purchase agreement, a certification from the Borrower as
to the purchase price for the acquisition (including, without limitation,
the amount of Capitalized Lease Obligations assumed in connection with
the Permitted Acquisition) and the estimated amount of all related costs,
fees and expenses and that, except as described, there are no other
amounts which will be payable in connection with the respective Permitted
Acquisition;
(v) with respect to Permitted Acquisitions effected during any
twelve-month period, the sum (without duplication) of (I) Capital
Expenditure Loans incurred by the Borrower in connection with such
Permitted Acquisitions, (II) the fair market value (as determined in good
faith by the Board of Directors of the Borrower) of the Borrower Common
Stock issued as consideration in such Permitted Acquisitions, (III) the
aggregate amount (determined by using the face amount of the debt or the
amount payable at maturity, whichever is greater) of Permitted Seller
Notes issued by the Borrower in connection with such Permitted
Acquisitions, (IV) the maximum potential liability of the Borrower with
respect to the Permitted Earn-Out Debt issued in connection with such
Permitted Acquisitions, (V) the aggregate liquidation preference of
Seller Preferred Stock issued by the Borrower in connection with such
Permitted Acquisitions, (VI) the amount of Capitalized Lease Obligations
assumed in connection with such Permitted Acquisitions and (VII) cash
paid by the Borrower in connection with such Permitted Acquisition, shall
not exceed $15,000,000 during such rolling twelve-month period with the
first such period commencing on the Initial Borrowing Date;
(vi) with respect to each Permitted Acquisition, the sum
(without duplication) of (I) Capital Expenditure Loans incurred by the
Borrower in connection with any such Permitted Acquisition, (II) the fair
market value (as determined in good faith by the Board of Directors of
the Borrower) of the Borrower Common Stock issued as consideration in
such Permitted Acquisition, (III) the aggregate amount
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(determined by using the face amount of the debt or the amount payable at
maturity, whichever is greater) of Permitted Seller Notes issued by the
Borrower in connection with such Permitted Acquisition, (IV) the maximum
potential liability of the Borrower with respect to all Permitted
Earn-Out Debt issued in connection with such Permitted Acquisition, (V)
the aggregate liquidation preference of Seller Preferred Stock issued by
the Borrower in connection with such Permitted Acquisition, (VI) the
amount of Capitalized Lease Obligations assumed in connection with such
Permitted Acquisition and (VII) cash paid by the Borrower in connection
with such Permitted Acquisition, shall not exceed $5,000,000;
(vii) calculations are made by the Borrower of the Consolidated
EBITDA of the Person or business, division or product line being acquired
pursuant to the respective Permitted Acquisition (determined in
accordance with the definition of Consolidated EBITDA contained herein,
but treating references therein and in any other defined terms used in
determining Consolidated EBITDA to "the Borrower" to instead be
references to the Person or business, division or product line being
acquired pursuant to the respective Permitted Acquisition), and the
amount thereof shall exceed $50,000 for the relevant Calculation Period;
provided, however, in the case of calculations based on unaudited
financial statements, the Agent shall be reasonably satisfied that the
Consolidated EBITDA of such Person or business, division or product line
being acquired pursuant to the respective Permitted Acquisition exceeds
$50,000 for the Calculation Period;
(viii) the Agent shall be satisfied in its reasonable discretion
that the proposed Permitted Acquisition will not reasonably likely result
in materially increased liabilities (contingent or otherwise) of the
Borrower or any of its Subsidiaries other than Permitted Seller Notes,
Permitted Earn-Out Debt and Capitalized Lease Obligations incurred in
accordance with the provisions of this Agreement (including, without
limitation, tax, ERISA or environmental liabilities);
(ix) recalculations are made by the Borrower of compliance with
the covenants contained in Sections 9.09 through 9.14, inclusive, for the
Calculation Period on a Pro Forma Basis, and such recalculations shall
show that all such covenants would have been complied with throughout the
Calculation Period on a Pro Forma Basis;
(x) the Borrower in good faith believes, based on calculations
made by the Borrower, on a Pro Forma Basis, (as if the Calculation Period
were the one-year period following the date of the consummation of the
respective Permitted Acquisition) that the financial covenants contained
in such Sections 9.09 through 9.14, inclusive, will continue to be met
for the one year period following the date of the consummation of the
respective Permitted Acquisition;
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(xi) 3 Business Days prior to the consummation of the respective
Permitted Acquisition, the Borrower shall furnish the Agent and the Banks
an officer's certificate executed by the chief financial officer of the
Borrower, certifying as to compliance with the requirements of preceding
clauses (i) through (x) and containing the calculations required by
preceding clauses (v) through (vii), inclusive, and clauses (ix) and (x);
provided that notwithstanding anything to the contrary contained in this Section
8.15(a), if at the time of, and after giving effect to, any Permitted
Acquisition, the aggregate consideration paid in connection with such Permitted
Acquisition and all other Permitted Acquisitions effected during the
twelve-month period prior to the consummation of such Permitted Acquisition, is
less than $5,000,000, the Borrower shall not be required to comply with the
requirements of Section 8.15(a)(ii) and (iv), and the officer's certificate
delivered pursuant to clause (xi) above shall contain a certification only as to
compliance with the requirements of preceding clauses (i), (iii), (vi) (for
purposes of such clause, as if such clause applied to all Permitted Acquisitions
effected during such twelve-month period), (vii), (viii) and (x), and shall
include the calculations required by preceding clauses (vi) (as modified above),
(vii), (viii) and (x). The consummation of each Permitted Acquisition shall be
deemed to be a representation and warranty by the Borrower that all conditions
thereto have been satisfied and that same is permitted in accordance with the
terms of this Agreement, which representation and warranty shall be deemed to be
a representation and warranty for all purposes hereunder, including, without
limitation, Sections 7 and 10.
(b) At the time of each Permitted Acquisition involving the
creation or acquisition of a Subsidiary, not less than 100% of the capital stock
of such Subsidiary shall be directly owned by the Borrower or a Guarantor and
100% of such capital stock owned by the Borrower or Guarantor shall be pledged
for the benefit of the Secured Creditors pursuant to the Pledge Agreement or
pursuant to a similar agreement satisfactory to the Agent.
(c) The Borrower shall cause any Subsidiary which is formed to
effect, or is acquired pursuant to, a Permitted Acquisition to execute and
deliver, prior to or on the date of the respective Permitted Acquisition, the
Subsidiaries Guaranty (or by an amendment thereto pursuant to which it shall be
a party thereto) or a substantially similar guaranty, in either case with the
documentation to be in form and substance satisfactory to the Agent.
(d) The Borrower shall on the date of a Permitted Acquisition, in
the case of Permitted Acquisitions involving the acquisition of assets by the
Borrower, or, in the case of an acquisition by the respective Subsidiary, shall
cause the respective Subsidiary to, grant to the Collateral Agent, for the
benefit of the Secured Creditors, first priority
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perfected security interests in all property of the Borrower or such
Subsidiaries acquired in connection with the Permitted Acquisition and to take,
or cause such Subsidiary to take, all actions requested by the Agent or the
Required Banks (including, without limitation, the obtaining of UCC-11's and the
filing of UCC-1's) in connection with the granting of such security interests.
All security interests required to be granted pursuant to this Section 8.15(d)
shall be granted pursuant to such security documentation (which shall be
substantially similar to the analogous Security Documents already executed and
satisfactory in form and substance to the Agent) and shall (except as otherwise
consented to by the Agent and the Required Banks) constitute valid and
enforceable perfected security interests prior to the rights of all third
Persons and subject to no other Liens except such Liens as are permitted by
Section 7.01. The security documents and other instruments related thereto shall
be duly recorded or filed in such manner and in such places as are required by
law to establish, perfect, preserve and protect the Liens, in favor of the
Collateral Agent for the benefit of the Secured Creditors, required to be
granted pursuant to the respective Additional Security Documents and all taxes,
fees and other charges payable in connection therewith shall be paid in full by
the Borrower. At the time of the execution and delivery of Additional Security
Documents, the Borrower shall cause to be delivered to the Collateral Agent such
opinions of counsel, environmental appraisals and other related documents as may
be reasonably requested by the Collateral Agent or the Required Banks to assure
themselves that this Section 8.15(d) has been complied with. All actions
required to be taken by this Section 8.15(d) with respect to the Additional
Collateral shall be completed no later than the date on which the Permitted
Acquisition is effected.
8.16 Registry. The Borrower hereby designates the Agent to serve
as its agent, solely for purposes of this Section 8.16, to maintain a register
(the "Register") on which it will record the Commitments from time to time of
each of the Banks, the Loans made by each of the Banks and each repayment in
respect of the principal amount of the Loans of each Bank. Failure to make any
such recordation, or any error in such recordation shall not affect the
Borrower's obligations in respect of such Loans. With respect to any Bank, the
transfer of the Commitments of such Bank and the rights to the principal of, and
interest on, any Loan made pursuant to such Commitments shall not be effective
until such transfer is recorded on the Register maintained by the Agent with
respect to ownership of such Commitments and Loans and prior to such recordation
all amounts owing to the transferor with respect to such Commitments and Loans
shall remain owing to the transferor. The registration of an assignment or
transfer of all or part of any Commitments and Loans shall be recorded by the
Agent on the Register only upon the acceptance by the Agent of a properly
executed and delivered assignment and assumption agreement pursuant to Section
13.04(b). Coincident with the delivery of such an assignment and assumption
agreement to the Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Bank shall surrender the Note evidencing such Loan, and thereupon one
or more new Notes in the same aggregate principal amount shall be issued to the
assigning or transferor Bank and/or
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the new Bank. The Borrower agrees to indemnify the Agent from and against any
and all losses, claims, damages and liabilities of whatsoever nature which may
be imposed on, asserted against or incurred by the Agent in performing its
duties under this Section 8.16.
8.17 Further Actions. (a) Each Credit Party shall grant to the
Collateral Agent, for the benefit of the Secured Creditors, at the request of
the Agent or the Required Banks, at any time, a security interest in any Real
Property (other than Leaseholds) or vehicles (to the extent the aggregate fair
market value of such vehicles exceeds $100,000) owned by any such Credit Party
and any other assets of such Credit Party and not already subject to a Security
Document and shall take all actions requested by the Agent or the Required Banks
(including, without limitation, the obtaining of mortgage policies, title
surveys and real estate appraisals satisfying the requirements of all applicable
laws) in connection with the granting of such security interest.
(b) The security interests required to be granted pursuant to
clause (a) above shall be granted pursuant to mortgages, deeds of trust and
security agreements, in each case satisfactory in form and substance to the
Agent and the Required Banks, which mortgages and security agreements shall
create valid and enforceable perfected security interests prior to the rights of
all third Persons and subject to no other Liens except such Liens as are
permitted by Section 9.01. The mortgages and other instruments related thereto
and security agreements shall be duly recorded or filed in such manner and in
such places and at such times as are required by law to establish, perfect,
preserve and protect the Liens, in favor of the Collateral Agent for the benefit
of the Secured Creditors, required to be granted pursuant to such documents and
all taxes, fees and other charges payable in connection therewith shall be paid
in full by the Borrower. At the time of the execution and delivery of the
Additional Security Documents, the Borrower shall cause to be delivered to the
Collateral Agent such opinions of counsel, mortgage policies, title surveys,
real estate appraisals, certificates of title and other related documents as may
be reasonably requested by the Agent or the Required Banks to assure themselves
that this Section 8.17 has been complied with.
(c) The Borrower shall, and shall cause each of its Subsidiaries
to, at its own expense, make, execute, endorse, acknowledge, file and/or deliver
to the Collateral Agent from time to time such vouchers, invoices, schedules,
confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and other assurances or
instruments and take such further steps relating to perfecting the security
interest of the Secured Creditors in the Collateral as the Collateral Agent may
reasonably require. Furthermore, at the time of any request by the Agent or the
Required Banks pursuant to this clause (c) or preceding clauses (a) or (b), the
Borrower shall cause to be delivered to the Collateral Agent such opinions of
counsel and other documents as may be reasonably requested by the Agent or the
Required Banks to assure themselves that this Section 8.17 has been complied
with.
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(d) At any time and from time to time to the extent that the
Banks, the Agent or the Collateral Agent request, in order to fulfill the
requirements of any applicable statute, regulation or order of any governmental
body, to preserve, protect, enforce or realize upon the security interests
granted to the Secured Creditors pursuant to the Security Documents, each Credit
Party will, and will cause each of its Subsidiaries to, cooperate with and
promptly take all actions reasonably necessary to assist the Banks, the Agent
and the Collateral Agent, including, without limitation, to make, execute,
acknowledge, file and/or deliver to the Banks, the Agent or the Collateral
Agent, as the case may be, such information, documents, certificates, reports
and other assurances or instruments, which the Banks, the Agent or the
Collateral Agent, as the case may be, deems reasonably appropriate or advisable
to comply with such statutes, regulations or orders so as to preserve, protect,
enforce or realize upon such security interests granted to the Secured
Creditors.
(e) Each Credit Party agrees that each action required by Section
8.17(a), (b), (c), or (d) shall be completed within 60 days of the date such
action is requested to be taken.
8.18 Concentration Account. On or prior to the 30th day after the
Initial Borrowing Date, the Borrower shall, and shall have caused each of its
Subsidiaries to, have duly authorized, executed and delivered a Concentration
Account Consent Letter in the form of Annex J to the Security Agreement with
such changes, if any, as may be approved by the Collateral Agent (as modified,
amended or supplemented from time to time in accordance with the terms thereof
and hereof, a "Concentration Account Consent Letter") with the Collateral Agent
and the Concentration Account Bank, acknowledging that the Concentration Account
listed on Schedule IV and maintained at the Concentration Account Bank is under
the exclusive dominion and control of the Collateral Agent and that all moneys,
instruments and other securities deposited in such Concentration Account are to
be held by the Concentration Account Bank for the benefit of the Collateral
Agent. Each Credit Party represents and warrants that it does not now maintain,
and will not in the future maintain, any other Concentration Account with any
Concentration Account Bank other than the applicable Concentration Account;
provided, however, that each such Credit Party shall be permitted to establish
new Concentration Accounts pursuant to the terms of the Security Agreement.
8.19 Ownership of Subsidiaries. The Borrower shall at all times
own directly or through one or more of its Wholly-Owned Subsidiaries, 100% of
the capital stock of each of its Subsidiaries.
Section 9. Negative Covenants. The Borrower hereby covenants that
on and after the Effective Date and until the Total Commitment and all Letters
of Credit have
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terminated and the Loans and Notes and all Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder and thereunder, are
paid in full:
9.01 Liens. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets (real or personal, tangible or
intangible) of the Borrower or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such
property or assets (including sales of accounts receivable with recourse to the
Borrower or any of its Subsidiaries), or assign any right to receive income or
permit the filing of any financing statement under the UCC or any other similar
notice of Lien under any similar recording or notice statute; provided that the
provisions of this Section 9.01 shall not prevent the Borrower or any of its
Subsidiaries from creating, incurring, assuming or permitting the existence of
the following (liens described below are herein referred to as "Permitted
Liens"):
(i) inchoate Liens with respect to the Borrower or any of its
Subsidiaries for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves
have been established in accordance with generally accepted accounting
principles;
(ii) unperfected Liens in respect of property or assets of the
Borrower or any of its Subsidiaries imposed by law, which were incurred
in the ordinary course of business and do not secure Indebtedness for
borrowed money, such as carriers', warehousemen's, materialmen's,
mechanics' and landlords' liens and other similar Liens arising in the
ordinary course of business, and (x) which do not in the aggregate
materially detract from the value of the Borrower's or any of its
Subsidiaries' property or assets or materially impair the use thereof in
the operation of the business of the Borrower or its Subsidiaries or (y)
which are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or assets subject to any such Lien;
(iii) Liens of the Borrower or its Subsidiaries in existence on
the Effective Date which are listed, and the property subject thereto
described, on Schedule XI, but only to the respective date, if any, set
forth in such Schedule XI for the removal and termination of any such
Liens;
(iv) Liens created pursuant to the Security Documents;
(v) easements, rights-of-way, restrictions, encroachments and
other similar charges or encumbrances on the property of the Borrower or
any of its
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Subsidiaries arising in the ordinary course of business and not
materially interfering with the conduct of the business of the Borrower
or any of its Subsidiaries;
(vi) Liens on property of the Borrower and its Subsidiaries
subject to, and securing only, Capitalized Lease Obligations to the
extent such Capitalized Lease Obligations are permitted by Section
9.05(iii); provided that such Liens only serve to secure the payment of
Indebtedness arising under such Capitalized Lease Obligation and the Lien
encumbering the asset giving rise to the Capitalized Lease Obligation
does not encumber any other asset of the Borrower or any of its
Subsidiaries;
(vii) Liens (other than any Lien imposed by ERISA) on property of
the Borrower or any of its Subsidiaries incurred or deposits made in the
ordinary course of business in connection with (x) workers' compensation,
unemployment insurance and other types of social security or (y) to
secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); provided
that the aggregate amount of cash and the fair market value of the
property encumbered by Liens described in this clause (vii) shall not
exceed $100,000;
(viii) Liens placed upon equipment or machinery used in the
ordinary course of the business of the Borrower or any of its
Subsidiaries within 60 days following the time of purchase thereof by the
Borrower or any of its Subsidiaries to secure Indebtedness representing
the purchase price thereof, provided that (x) the Indebtedness secured by
Liens permitted by this clause (viii) is permitted under Section
9.05(iii), (y) in all events, the Lien encumbering the equipment or
machinery so acquired does not encumber any other asset of the Borrower
or any of its Subsidiaries and (z) Indebtedness secured by any Lien does
not exceed 100% of the lesser of the fair market value or the purchase
price of the equipment or machinery being purchased;
(ix) Liens arising from precautionary UCC-1 financing statement
filings regarding operating leases entered into by the Borrower or any of
its Subsidiaries in the ordinary course of business;
(x) inchoate Liens (where there has been no execution or levy
and no pledge or delivery of collateral) arising from and out of
judgments or decrees in existence at such time not constituting an Event
of Default; and
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(xi) additional Liens incurred by the Borrower and its
Subsidiaries so long as the value of the property subject to such Liens,
and the Indebtedness and other obligations secured thereby, do not exceed
$100,000.
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of all or any part of
its property or assets, or enter into any partnerships, joint ventures or
sale-leaseback transactions, or purchase or otherwise acquire (in one or a
series of related transactions) any part of the property or assets (other than
purchases or other acquisitions by the Borrower or any of its Subsidiaries of
inventory, materials and equipment in the ordinary course of business) of any
Person (or agree to do any of the foregoing at any future time), except that:
(i) Capital Expenditures by the Borrower and its Subsidiaries
shall be permitted to the extent not in violation of Section 9.08;
(ii) each of the Borrower and its Subsidiaries may lease (as
lessee) real or personal property in the ordinary course of business to
the extent permitted by Section 9.04 (so long as such lease does not
create Capitalized Lease Obligations);
(iii) investments may be made to the extent permitted by
Section 9.06;
(iv) the Transaction shall be permitted as contemplated by the
Documents;
(v) the Borrower may effect Permitted Acquisitions in
accordance with the requirements of Section 8.15;
(vi) each of the Borrowers and its Subsidiaries may make sales
of inventory in the ordinary course of business;
(vii) the Borrower may sell assets so long as the aggregate
amount of Net Sales Proceeds received from such sales does not exceed
$50,000 in the aggregate in any fiscal year;
(viii) the Borrower may effect Permitted Sale- Leaseback
Transactions in accordance with the definition thereof;
(ix) any Subsidiary Guarantor may be merged with and into, or be
dissolved or liquidated into, or transfer any of its assets to, the
Borrower or any other Subsidiary Guarantor so long as the security
interests granted to the Collateral
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<PAGE> 75
Agent for the benefit of the Secured Creditors pursuant to the Security
Documents in the assets of such Subsidiary Guarantor shall remain in full
force and effect and perfected (to at least the same extent as in effect
immediately prior to such merger, dissolution, liquidation or transfer),
provided that no Subsidiary which has effected a Permitted Store
Development may, prior to the consummation of the Permitted Sale-
Leaseback Transaction contemplated thereby, merge with or be dissolved or
liquidated into, or transfer any of its assets to, the Borrower;
(x) the Borrower and its Subsidiaries may transfer patents,
trademarks, copyrights and know-how to the Intellectual Property
Subsidiary, so long as the security interests granted to the Collateral
Agent for the benefit of the Secured Creditors pursuant to the Security
Documents in the assets so transferred shall remain in full force and
effect and perfected (to at least the same extent as in effect
immediately prior to such transfer);
(xi) the Borrower and its Subsidiaries may license, as licensee,
from the Intellectual Property Subsidiary and the Intellectual Property
Subsidiary may license, as licensor, to the Borrower and its Subsidiaries
patents, trademarks, copyrights and know-how in the ordinary course of
business;
(xii) the Borrower and its Subsidiaries may sell motor vehicles
so long as the aggregate amount of Net Sales Proceeds received from such
sales does not exceed $150,000; and
(xiii) the Borrower may effect the Designated Real Property Sale.
To the extent the Required Banks waive the provisions of this Section 9.02 with
respect to the sale of any Collateral (to the extent the Required Banks are
permitted to waive such provisions in accordance with Section 13.12), or any
Collateral is sold as permitted by this Section 9.02, such Collateral shall be
sold free and clear of the Liens created by the Security Documents, and the
Agent and Collateral Agent shall be authorized to take any actions deemed
appropriate in order to effect the foregoing.
9.03 Dividends. The Borrower will not, nor will the Borrower
permit any of its Subsidiaries to, declare or pay any Dividends with respect to
the Borrower or any of its Subsidiaries, except that any Subsidiary of the
Borrower may pay Dividends to the Borrower or any Wholly- Owned Subsidiary of
the Borrower.
9.04 Concentration Account. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, open, maintain or
otherwise have any checking, savings or other deposit accounts at any bank or
other financial institution where cash or Cash Equivalents is or may be
deposited or maintained with any Person, other than
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(i) the bank deposit accounts listed on Schedule IV hereto and (ii) the
Concentration Account.
9.05 Indebtedness. The Borrower will not, and will not permit any
of its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(ii) Indebtedness of the Borrower under any Interest Rate
Protection or Other Hedging Agreement or under any similar type of
agreement to the extent same is entered into to satisfy the requirements
of Section 8.11;
(iii) Indebtedness of the Borrower and its Subsidiaries evidenced
by Capitalized Lease Obligations to the extent permitted pursuant to
Section 9.08 and purchase money Indebtedness of the Borrower and its
Subsidiaries secured by Liens permitted under Section 9.01(viii);
provided that the aggregate amount of Indebtedness evidenced by
Capitalized Lease Obligations under all Capital Leases and the aggregate
amount of such purchase money Indebtedness outstanding under this clause
(iii) at any one time shall not exceed $1,000,000;
(iv) Existing Indebtedness of the Borrower listed on Schedule IX
but without giving effect to any refinancings, renewals or increases in
the principal amount thereof;
(v) Indebtedness of the Borrower incurred under the Seller Note
in an aggregate principal amount not to exceed $2,000,000 (as reduced by
any repayments of principal thereof);
(vi) Indebtedness of the Borrower evidenced by Permitted Seller
Notes or constituting Permitted Earn- Out Debt issued in accordance with
the requirements of Section 8.15; and
(vii) Indebtedness constituting Intercompany Loans to the extent
permitted by Section 9.06(xi).
9.06 Advances, Investments and Loans. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly lend money or
credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or
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<PAGE> 77
other commodities at a future date in the nature of a futures contract, or hold
any cash or Cash Equivalents, except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and hold
receivables owing to any of them, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary terms;
(ii) the Borrower and its Subsidiaries may acquire and hold cash
and Cash Equivalents; provided that all cash or Cash Equivalents of the
Borrower and its Subsidiaries shall be held on and after the date hereof
in the Concentration Account in accordance with the terms of the
Concentration Account Consent Letter; provided, however, the Borrower and
its Subsidiaries may acquire and hold cash and Cash Equivalents not in
the Concentration Account so long as no later than the close of business
on the last Business Day of each week the Minimum Weekly Sweep Amount is
transferred by the Borrower or the applicable Subsidiary into the
Concentration Account; provided further, that at any time that any
Revolving Loans or any Capital Expenditure Loans (at any time prior to
the Capital Expenditure Loan Conversion Date) are outstanding, the
aggregate amount of cash and Cash Equivalents permitted to be held by the
Borrower and its Subsidiaries (excluding uncollected funds) shall not
exceed $1,500,000 plus the Maximum Weekly Hold Amount for any period of
five consecutive Business Days;
(iii) the Borrower may enter into Interest Rate Protection
Agreements to the extent such is entered into to satisfy the requirements
of Section 8.11;
(iv) the Borrower and its Subsidiaries may make Capital
Expenditures to the extent permitted by Section 9.08;
(v) the Transaction shall be permitted in accordance with
the provisions of Section 5;
(vi) the Borrower and its Subsidiaries may endorse negotiable
instruments for collection in the ordinary course of business;
(vii) the Borrower and its Subsidiaries may make loans and
advances in the ordinary course of business consistent with past
practices to their respective employees for moving, travel and emergency
expenses and other similar expenses, so long as the aggregate principal
amount thereof at any one time outstanding (determined without regard to
any write-downs or write-offs of such loans and advances) shall not
exceed $100,000;
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<PAGE> 78
(viii) the Borrower may effect Permitted Acquisitions in
accordance with the requirements of Section 8.15;
(ix) the Borrower and its Subsidiaries may make investments in
the Intellectual Property Subsidiary in the form of the transfer of their
respective trademarks, patents, copyrights and know-how permitted to be
transferred pursuant to Section 9.02(x);
(x) a newly-formed Subsidiary of the Borrower may effect
Permitted Store Developments, so long as (x) the aggregate investment
with respect to any one store in connection with any such Permitted Store
Development shall not exceed $1,200,000 at any one time outstanding
(determined without regard to any write-downs, write-offs or losses) and
(y) the aggregate investment with respect to all such Permitted Store
Developments shall not exceed $3,600,000 at any one time outstanding
(determined without regard to any write-downs, write-offs or losses); and
(xi) the Borrower may make intercompany loans and advances to a
newly-formed Subsidiary of the Borrower (collectively, "Intercompany
Loans"), provided, that (x) each Intercompany Loan shall be evidenced by
an Intercompany Note, (y) each such Intercompany Note shall be pledged to
the Collateral Agent pursuant to the Pledge Agreement and (z) the
proceeds of such Intercompany Loans are used by such newly-formed
Subsidiary to effect Permitted Store Developments.
9.07 Transactions with Affiliates. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower or any Affiliate of the Borrower's Subsidiaries,
other than transactions by the Borrower or any of its Subsidiaries in the
ordinary course of business unless such transaction or series of related
transactions is in writing and on terms that are no less favorable to the
Borrower or such Subsidiary, as the case may be, than those that would be
available in a comparable transaction in arm's-length dealings with an unrelated
third party, except that (i) the Borrower and its Subsidiaries may effect the
Transaction, (ii) loans and advances made in accordance with Section 9.06(vii)
shall be permitted and (iii) the Borrower may pay customary fees to non-officer
directors of the Borrower. In no event may any management or similar fees be
paid or payable by the Borrower or any of its Subsidiaries to any Person.
9.08 Capital Expenditures. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, make any expenditure for fixed or capital
assets (including, without limitation, expenditures for maintenance and repairs
which should be capitalized in accordance with generally accepted accounting
principles and including Capitalized Lease Obligations) (collectively, "Capital
Expenditures"), except that during any calendar year,
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the Borrower and its Subsidiaries may make Maintenance Capital Expenditures
(other than in connection with Permitted Transactions) so long as the aggregate
amount thereof does not exceed the amount set forth opposite such fiscal year
below:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1997 $9,100,000
1998 $7,750,000
1999 $8,500,000
2000 $8,500,000
2001 $8,500,000
2002 $8,500,000
</TABLE>
Notwithstanding anything to the contrary contained above, to the extent that
Maintenance Capital Expenditures made during any fiscal year set forth above are
less than the amounts set forth above for such fiscal year, 100% of such excess
amount may be carried forward to the immediately succeeding fiscal year and
utilized to make Maintenance Capital Expenditures in excess of the amount
permitted above in such succeeding fiscal year, provided that (x) any amount
carried forward from the immediately preceding fiscal year, if any, shall not be
utilized during a fiscal year to make Maintenance Capital Expenditures unless
and until the amount set forth in the preceding paragraph for such fiscal year
shall have been utilized in full to make Maintenance Capital Expenditures during
such fiscal year, (y) no amounts once carried forward to the next fiscal year
may be carried forward to fiscal years again thereafter and (z) in no event
shall the amount of Maintenance Capital Expenditures permitted to be carried
forward in any fiscal year exceed $1,000,000.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, effect any Permitted Capital Expenditure Transactions, except
that the Borrower may effect Permitted Capital Expenditure Transactions so long
as with respect to each Permitted Capital Expenditure Transaction (i) no Default
or Event of Default is in existence at the time of the consummation of such
Permitted Capital Expenditure Transaction or would exist after giving effect
thereto and all representations and warranties contained herein and the other
Credit Documents shall be true and correct in all material respects with the
same effect as though such representations and warranties were made on and as of
the date of such Permitted Capital Expenditure Transaction (both before and
after giving effect thereto); and (ii) unless provided pursuant to the
applicable Notice of Borrowing in the case of a Borrowing of Capital Expenditure
Loans to finance Permitted Capital Expenditure Transactions, the Borrower shall
have given the Agent and the Banks at least one day's prior written notice of
any Permitted Capital Expenditure Transaction, which notice shall contain a
certification from the chief financial officer of the Borrower, (I) certifying
(v) the estimated date such Permitted Capital Expenditure Transaction is
scheduled to be commenced, (w) the estimated amount to be expended in connection
with such Permitted
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<PAGE> 80
Capital Expenditure Transaction, (x) that at the time of, and after giving
effect to, Permitted Capital Expenditure Transactions, the Maximum Store
Investment Amount shall not exceed $350,000, (y) compliance with the
requirements of the preceding clause (i) and (z) the Borrower's good faith
belief contained in clause (x) of Section 8.15 (for such purpose, treating such
clause (and the component definitions therein) as if same were applicable to the
consummation of a "Permitted Capital Expenditure Transaction" rather than a
"Permitted Acquisition") and (II) containing the calculations required to
establish compliance with preceding clause (x) (which calculations shall be in
the form of Annex I to Exhibit A-1 to this Agreement) and clause (z). The
consummation of each Permitted Capital Expenditure Transaction shall be deemed a
representation and warranty by the Borrower that all conditions thereto have
been satisfied and 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 for all purposes hereunder, including, without
limitation, Sections 7 and 10.
(c) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may make Permitted Acquisitions in accordance with
Section 8.15 in an amount not to exceed the amounts permitted thereby.
(d) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may effect Permitted Store Developments in
accordance with Section 9.06(x) and the definition thereof in an amount not to
exceed the amounts permitted thereby.
9.09 Fixed Charge Coverage Ratio. The Borrower will not permit the
Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters
(or, if shorter, the period beginning on January 1, 1997 and ending on the last
day of a fiscal quarter of the Borrower ended after March 31, 1997), in each
case taken as one accounting period, to be less than 1.20 to 1.0.
9.10 Free Cash Flow Coverage Ratio. The Borrower will not permit
the ratio of its Consolidated Free Cash Flow to its Consolidated Interest
Expense for any period of four consecutive fiscal quarters (or, if shorter, the
period beginning on January 1, 1997 and ending on the last day of a fiscal
quarter of the Borrower ended after March 31, 1997), in each case taken as one
accounting period, ending on a date set forth below to be less than the ratio
set forth opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Ratio
----------------- -----
<S> <C>
June 30, 1997 3.20:1.0
September 30, 1997 3.20:1.0
</TABLE>
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<TABLE>
<CAPTION>
Fiscal Quarter
Ended Ratio
----------------- -----
<S> <C>
December 31, 1997 3.20:1.0
March 31, 1998 3.20:1.0
June 30, 1998 3.20:1.0
September 30, 1998 3.20:1.0
December 31, 1998 3.20:1.0
March 31, 1999 3.25:1.0
June 30, 1999 3.40:1.0
September 30, 1999 3.70:1.0
December 31, 1999 4.05:1.0
March 31, 2000 4.35:1.0
June 30, 2000 4.85:1.0
September 30, 2000 5.50:1.0
December 31, 2000 6.00:1.0
March 31, 2001 6.00:1.0
June 30, 2001 6.00:1.0
September 30, 2001 6.00:1.0
December 31, 2001 6.00:1.0
March 31, 2002 6.00:1.0
</TABLE>
9.11 Consolidated Indebtedness to Consolidated Free Cash Flow. The
Borrower will not permit the ratio of Consolidated Indebtedness as at the end of
any fiscal quarter ended on a date set forth below to Consolidated Free Cash
Flow for any period of four consecutive fiscal quarters (or, if shorter, the
period beginning on January 1, 1997 and ending on the last day of a fiscal
quarter of the Borrower ended after March 31, 1997), in each case taken as one
accounting period, ending on a date set forth below to be greater than the ratio
set forth opposite such date below:
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Ratio
----------------- -----
<S> <C>
June 30, 1997 2.60:1.0
September 30, 1997 2.60:1.0
December 31, 1997 2.60:1.0
March 31, 1998 2.60:1.0
June 30, 1998 2.60:1.0
September 30, 1998 2.60:1.0
December 31, 1998 2.60:1.0
March 31, 1999 2.55:1.0
June 30, 1999 2.45:1.0
September 30, 1999 2.25:1.0
December 31, 1999 2.05:1.0
</TABLE>
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<TABLE>
<CAPTION>
Fiscal Quarter
Ended Ratio
----------------- -----
<S> <C>
March 31, 2000 1.90:1.0
June 30, 2000 1.70:1.0
September 30, 2000 1.50:1.0
December 31, 2000 1.30:1.0
March 31, 2001 1.15:1.0
June 30, 2001 1.00:1.0
September 30, 2001 1.00:1.0
December 31, 2001 1.00:1.0
March 31, 2002 1.00:1.0
</TABLE>
9.12 Minimum Consolidated Net Worth. The Borrower will not permit
its Consolidated Net Worth at any time during any fiscal quarter commencing
after March 31, 1997 of the Borrower to be less than an amount equal to
$63,500,000 plus the product of (x) 85% and (y) the sum of the amount of the
Consolidated Net Income for each fiscal quarter of the Borrower ending after
January 1, 1997 (without any reduction for any negative Consolidated Net Income
for any fiscal quarter).
9.13 Minimum Consolidated EBITDA. The Borrower will not permit its
Consolidated EBITDA for any period of four consecutive fiscal quarters (or, if
shorter, the period beginning on January 1, 1997 and ending on the last day of a
fiscal quarter of the Borrower ended after March 31, 1997), in each case taken
as one accounting period, ending on a date set forth below to be less than an
amount equal to the product of (x) the number of video specialty stores owned by
the Borrower and its Subsidiaries on such date and (y) the amount set forth
opposite such date below:
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Amount
------------------ ------
<S> <C>
June 30, 1997 $ 49,500
September 30, 1997 $ 73,000
December 31, 1997 $ 99,000
March 31, 1998 $100,500
June 30, 1998 $102,000
September 30, 1998 $107,000
December 31, 1998 $113,000
March 31, 1999 $119,000
June 30, 1999 $125,500
September 30, 1999 $132,000
December 31, 1999 $137,500
March 31, 2000 $138,500
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Amount
------------------ ------
<S> <C>
June 30, 2000 $139,500
September 30, 2000 $140,500
December 31, 2000 $141,500
March 31, 2001 $142,500
June 30, 2001 $143,500
September 30, 2001 $144,500
December 31, 2001 $145,000
March 31, 2002 $145,000
</TABLE>
9.14 Minimum Consolidated Free Cash Flow. The Borrower will not
permit its Consolidated Free Cash Flow for any period of four consecutive fiscal
quarters (or, if shorter, the period beginning on January 1, 1997 and ending on
the last day of a fiscal quarter of the Borrower ended after March 31, 1997), in
each case taken as one accounting period, ending on a date set forth below to be
less than an amount equal to the product of (x) the number of video specialty
stores owned by the Borrower and its Subsidiaries on such date and (y) the
amount set forth opposite such date below:
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Amount
------------------ ------
<S> <C>
June 30, 1997 $24,750
September 30, 1997 $36,500
December 31, 1997 $49,500
March 31, 1998 $50,250
June 30, 1998 $51,000
September 30, 1998 $53,500
December 31, 1998 $56,500
March 31, 1999 $59,500
June 30, 1999 $62,750
September 30, 1999 $66,000
December 31, 1999 $68,750
March 31, 2000 $69,250
June 30, 2000 $69,750
September 30, 2000 $70,250
December 31, 2000 $70,750
March 31, 2001 $71,250
June 30, 2001 $71,750
September 30, 2001 $72,250
December 31, 2001 $72,500
March 31, 2002 $72,500
</TABLE>
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9.15 Limitation on Voluntary Payments and Modification of Existing
Indebtedness; Limitation on Modifications of Certificate of Incorporation,
By-Laws and Certain Other Agreements; etc. The Borrower will not, and will not
permit any of its Subsidiaries to:
(i) make (or give any notice in respect of) any voluntary or
optional payment or prepayment on or redemption (including pursuant to
any change of control provision) or acquisition for value of (including,
without limitation, by way of depositing with the trustee with respect
thereto money or securities before due for the purpose of paying when
due), or exchange of, or any involuntary prepayment or redemption as a
result of any asset sale, change of control or similar event of, or
set-off any amounts against, any Existing Indebtedness or any Seller
Note;
(ii) amend or modify, or permit the amendment or modification
of, any provision of the Existing Indebtedness or any Seller Note
Document or of any agreement relating to any of the foregoing;
(iii) materially amend, modify or change its Certificate of
Incorporation (including, without limitation, by the filing or
modification of any certificate of designation) or By-Laws in a manner
adverse to the interests of the Banks in their capacity as such;
(iv) amend, modify or change, terminate, or enter into any new
Shareholders' Agreement or any other agreement with respect to its equity
interests, except for such amendments, modifications or changes or such
new agreements which are not adverse to any Bank in its capacity as such,
do not violate or breach any of the terms of this Agreement, do not, and
will not, involve the payment by the Borrower or any of its Subsidiaries
of any amounts and do not result in the Borrower or any of its
Subsidiaries incurring then or any time in the future any material
liability or monetary obligation;
(v) amend, modify or change, terminate or enter into any new
Tax Sharing Agreement;
(vi) amend, modify or change, or enter into any new Management
Agreement, Employee Benefit Plan, Employment Agreement or Material
Contract, except in the case of this clause (vi), if the aggregate cost
to the Borrower and its Subsidiaries as a result of such amendments,
modifications, changes to such plans, agreements and contracts and new
plans, agreements and contracts are not reasonably likely to have a
material adverse effect on the performance, business, property, assets,
nature of assets, liabilities, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole; or
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<PAGE> 85
(vii) make any interest or principal or other payment with
respect to any Seller Note which is not permitted to be paid to the
holder thereof in accordance with the subordination provisions applicable
thereto.
9.16 Limitation on Certain Restrictions on Subsidiaries. The
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Subsidiary of the Borrower to
(i) pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by the Borrower or any
Subsidiary of the Borrower, or pay any Indebtedness owed to the Borrower or a
Subsidiary of the Borrower, (ii) make loans or advances to the Borrower or any
of the Borrower' Subsidiaries or (iii) transfer any of its properties or assets
to the Borrower, except for such encumbrances or restrictions existing under or
by reason of (x) applicable law, (y) this Agreement and the other Credit
Documents and (z) customary provisions restricting subletting or assignments of
any lease governing a leasehold interest of the Borrower or a Subsidiary of the
Borrower.
9.17 Limitation on Issuance of Capital Stock. (a) The Borrower
will not permit any of its Subsidiaries to issue any capital stock or other
equity interests (including by way of sales of treasury stock) or any options or
warrants to purchase, or securities convertible into, capital stock, except (i)
for transfers and replacements of then outstanding shares, (ii) for stock
splits, stock dividends and similar issuances which do not decrease the
percentage ownership of any person in any class of the capital stock of the
Borrower or such Subsidiary and (iii) upon the formation of any new Subsidiaries
as permitted by Section 9.19. Any stock issued as permitted by this Section
9.17, if owned by the Borrower or any of the Borrower's Subsidiaries, shall be
immediately pledged as Collateral and delivered pursuant to the Pledge
Agreement.
(b) The Borrower will not issue any capital stock or any options
or warrants to purchase, or securities convertible into, capital stock, except
for issuances of Borrower Common Stock or options, warrants or securities
exercisable or convertible into Borrower Common Stock where, after giving effect
to such issuance, the proceeds therefrom are applied in accordance with Section
4.02(A)(d) and no Default or Event of Default will exist under Section 10.10
(or, in the case of issuance of options, warrants, or convertible securities, no
Default or Event of Default would exist under Section 10.10 if such options,
warrants or convertible securities were to be exercised or converted).
9.18 Business. The Borrower will not, and will not permit any of
its Subsidiaries, to engage (directly or indirectly) in any business other than
a Permitted Business.
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<PAGE> 86
9.19 Limitation on Creation of Subsidiaries. The Borrower will
not, and will not permit any of its Subsidiaries to, establish, create or
acquire any new Subsidiary, except that (i) the Borrower may acquire or form
Subsidiaries in connection with (x) Permitted Transactions to the extent
otherwise permitted by this Agreement and (y) Permitted Store Developments to
the extent otherwise permitted by this Agreement and (ii) the Borrower may form
the Intellectual Property Subsidiary in connection with the investments made in
accordance with Section 9.06(ix), so long as (i) at least 30 days' prior written
notice thereof (or such lesser notice as is acceptable to the Agent) is given to
the Agent, (ii) the capital stock of the Intellectual Property Subsidiary is
pledged pursuant to the Pledge Agreement and the certificates, if any,
representing such stock, together with stock powers duly executed in blank, are
delivered to the Collateral Agent, (iii) the Intellectual Property Subsidiary
executes a counterpart of the Subsidiary Guaranty, the Pledge Agreement and the
Security Agreement, and (iv) to the extent requested by the Agent or the
Required Banks, takes all actions required pursuant to Section 8.17.
Section 10. Events of Default. Upon the occurrence of any of the
following specified events (each, an "Event of Default"):
10.01 Payments. The Borrower shall (i) default in the payment when
due of any principal of any Loan or any Note or Unpaid Drawing or (ii) default,
and such default shall continue unremedied for three or more Business Days, in
the payment when due of any interest on any Loan or Note or Unpaid Drawing, or
any Fees or any other amounts owing by it hereunder or thereunder; or
10.02 Representations, etc. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any certificate delivered pursuant hereto or thereto shall prove to be untrue in
any material respect on the date as of which made or deemed made; or
10.03 Covenants. Any Credit Party shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(g)(i), 8.08, 8.11, 8.15, 8.17, 8.18 or 9 or (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in any Credit Document and such default shall continue unremedied for
a period of 30 days after written notice to the Borrower by the Agent or any
Bank; or
10.04 Default Under Other Agreements. The Borrower or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
the Indebtedness referred to in Section 10.01) beyond the period of grace (not
to exceed 10 days), if any, provided in the instrument or agreement under which
such Indebtedness was created, (ii) default in the observance or performance of
any agreement or condition relating to any
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Indebtedness (other than the Indebtedness referred to in Section 10.01) or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause (determined without regard to whether any notice is required),
such Indebtedness to become due prior to its stated maturity and such default
shall not have been cured or waived, or (iii) any Indebtedness (other than the
Indebtedness referred to in Section 10.01) of the Borrower or any of its
Subsidiaries shall be declared to be due and payable, or required to be prepaid
other than by a regularly scheduled required prepayment, prior to the stated
maturity thereof; provided that it shall not constitute an Event of Default
pursuant to this Section 10.04 unless the aggregate amount of all Indebtedness
referred to in the preceding clauses (i) through (iii) above exceeds $250,000 at
any one time; or
10.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Borrower or any of its Subsidiaries and the petition is not
controverted within 10 days, or is not dismissed or discharged, within 60 days,
after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Borrower or any of its Subsidiaries, or the Borrower or any of
its Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Borrower or any of its Subsidiaries, or there is
commenced against the Borrower or any of its Subsidiaries any such proceeding
which remains undismissed or undischarged for a period of 60 days, or the
Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is entered;
or the Borrower or any of its Subsidiaries suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 60 days; or the Borrower or any of its
Subsidiaries makes a general assignment for the benefit of creditors; or any
corporate action is taken by the Borrower or any of its Subsidiaries for the
purpose of effecting any of the foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable IEvent shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to
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subparagraph (b)(1) thereof and an event described in subsection .62, .63, .64,
.65, .66, .67 or .68 of PBGC Regulation 4043 shall be reasonably expected to
occur with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate has incurred or is likely to incur any liability to or on account of a
Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204
or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account
of a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any
Subsidiary of the Borrower has incurred or is likely to incur liabilities (other
than normal claims for benefits in the ordinary course) pursuant to one or more
employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or Plans; (b) there shall result from any such
event or events the imposition of a lien, the granting of a security interest,
or a liability or a material risk of incurring a liability; and (c) such lien,
security interest or liability, individually, and/or in the aggregate, in the
opinion of the Required Banks, has had, or could reasonably be expected to have,
a material adverse effect upon the business, operations, condition (financial or
otherwise) or prospects of the Borrower or any Subsidiary of the Borrower; or
10.07 Security Documents. At any time after the execution and
delivery thereof, any of the Security Documents shall cease to be in full force
and effect or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges purported to be
created thereby (including, without limitation, a perfected security interest
in, and Lien on, all of the Collateral), in favor of the Collateral Agent,
superior to and prior to the rights of all third Persons (except as permitted by
Section 7.11), and subject to no other Liens (except as permitted by Section
7.11), or any Credit Party shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to any of the Security Documents and such default shall continue beyond any
grace period specifically applicable thereto pursuant to the terms of such
Security Document; or
10.08 Guaranties. Any Guaranty or any provision thereof shall
cease to be in full force or effect as to any Guarantor, or any Guarantor or any
Person acting by or on behalf of any Guarantor shall deny or disaffirm such
Guarantor's obligations under the respective Guaranty, or any Guarantor shall
default in the due performance or observance of any term, covenant or agreement
on its part to be performed or observed pursuant to the respective Guaranty and
such default shall continue beyond any grace period specifically applicable
thereto; or
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10.09 Judgments. One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving in the aggregate for
the Borrower and its Subsidiaries a liability (not paid or fully covered by a
reputable insurance company) of $250,000 or more and all such judgments or
decrees shall not be satisfied, vacated, discharged or stayed or bonded pending
appeal for any period of 30 consecutive days; or
10.10 Change in Control. There shall be a Change in Control;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent, upon the written request of the Required
Banks, shall by written notice to the Borrower, take any or all of the following
actions, without prejudice to the rights of the Agent, any Bank or the holder of
any Note to enforce its claims against any Credit Party (provided that, if an
Event of Default specified in Section 10.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Agent to the Borrower as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon all Commitments of each Bank shall forthwith
terminate immediately and any Fees shall forthwith become due and payable
without any other notice of any kind; (ii) declare the principal of and any
accrued interest in respect of all Loans and the Notes and all Obligations owing
hereunder and thereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by each Credit Party; (iii) exercise any rights
or remedies under any of the Guaranties; (iv) terminate any Letter of Credit
which may be terminated in accordance with its terms; (v) direct the Borrower to
pay (and the Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default specified in Section 10.05, it will pay) to
the Collateral Agent at the Payment Office such additional amount of cash, to be
held as security by the Collateral Agent for the benefit of the Banks in a cash
collateral account established and maintained by the Collateral Agent pursuant
to a cash collateral agreement in form and substance satisfactory to the
Collateral Agent, as is equal to the aggregate Stated Amount of all Letters of
Credit then outstanding; and (vi) enforce, as Collateral Agent, all of the Liens
and security interests created pursuant to the Security Documents.
Section 11. Definitions and Accounting Terms.
11.01 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Acquired Business" shall mean the assets, liabilities and
businesses to be acquired from the Seller pursuant to the Acquisition Documents.
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"Acquisition" shall mean the acquisition by the Borrower of the
Acquired Business pursuant to, and in accordance with the terms of, the
Acquisition Documents.
"Acquisition Agreement" shall mean the Asset Purchase Agreement,
dated as of January 7, 1997, among the Borrower, Movie Warehouse Franchise
Systems, Inc., a Delaware corporation, the Seller, Movie Warehouse Franchise
Systems, Inc., a Michigan corporation, and Hani Mansour.
"Acquisition Documents" shall mean the Acquisition Agreement, the
Seller Note Documents and all other documents entered into or delivered in
connection with the Acquisition, as the same may be amended, modified or
supplemented from time to time in accordance with the terms hereof and thereof.
"Additional Collateral" shall mean all property (whether real or
personal) in which security interests are granted (or purported to be granted)
(and continue to be in effect at the time of determination) pursuant to Section
8.15 or 8.17 or the definition of Permitted Store Development.
"Additional Security Documents" shall mean all mortgages, pledge
agreements, security agreements and other security documents entered into
pursuant to Section 8.15 or 8.17 or in accordance with the definition of
Permitted Store Development with respect to Additional Collateral.
"Adjusted Consolidated Net Income" for any period shall mean
Consolidated Net Income for such period (i) plus, without duplication, the sum
of the amount of all net non-cash charges (including, without limitation,
depreciation, amortization, deferred tax expense, non-cash interest expense and
other non-cash charges) included in arriving at Consolidated Net Income for such
period less (ii) the sum of the amount of all net non-cash gains or losses
(exclusive of items reflected in Adjusted Working Capital) and gains or losses
from sales of assets included in arriving at Consolidated Net Income for such
period.
"Adjusted Working Capital" shall mean Consolidated Current Assets
(excluding cash and Cash Equivalents) minus Consolidated Current Liabilities.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person; provided, however, that for purposes
of Section 9.07, an Affiliate of the Borrower shall include any Person that
directly or indirectly (including through limited partner or general partner
interests) owns more than 5% of any class of the capital stock of the Borrower
and for all purposes of this Agreement, neither the Agent, the Collateral Agent,
any Bank or any of their respective Affiliates, shall be considered an Affiliate
of the Borrower or any
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of its Subsidiaries. A Person shall be deemed to control another Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.
"Affiliate Contracts" shall have the meaning provided in Section
5.05.
"Agent" shall mean Banque Paribas in its capacity as Agent for the
Banks hereunder, and shall include any successor to the Agent appointed pursuant
to Section 12.09.
"Aggregate Unutilized Commitment" with respect to any Bank at any
time shall mean the sum of (i) such Bank's Unutilized Revolving Loan Commitment
at such time plus (ii) such Bank's Unutilized Capital Expenditure Loan
Commitment at such time.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented or amended from time to time.
"Applicable Margin" shall mean a percentage per annum equal to (i)
in the case of Base Rate Loans, 1.75% and (ii) in the case of Eurodollar Loans,
2.75%.
"Bank" shall mean each financial institution listed on Schedule I,
as well as any institution which becomes a "Bank" hereunder pursuant to Section
13.04.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing or to fund
its portion of any unreimbursed payment under Section 2.04(c) or (ii) a Bank
having notified in writing to the Borrower and/or the Agent that it does not
intend to comply with its obligations under Section 1.01, in either case as a
result of any takeover of such Bank by any regulatory authority or agency.
"Bankruptcy Code" shall have the meaning provided in Section
10.05.
"Banque Paribas" shall mean Banque Paribas, a French banking
organization acting through its New York Branch.
"Base Rate" shall mean the higher of (i) 1/2 of 1% in excess of
the Federal Funds Rate and (ii) the Prime Lending Rate.
"Base Rate Loan" shall mean any Loan designated or deemed
designated as such by the Borrower at the time of the incurrence thereof or
conversion thereto.
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"Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"Borrower Common Stock" shall have the meaning provided in Section
7.14.
"Borrowing" shall mean the borrowing of one Type of Loan of a
single Tranche from all the Banks having Commitments with respect to such
Tranche on a pro rata basis on a given date (or resulting from a conversion or
conversions on such date) having in the case of Eurodollar Loans the same
Interest Period; provided that Base Rate Loans incurred pursuant to Section
1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day except Saturday, Sunday and any day which
shall be in New York City a legal holiday or a day on which banking institutions
are authorized or required by law or other government action to close and (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and between
banks in the New York interbank Eurodollar market.
"Calculation Period" shall mean, with respect to any Permitted
Transaction, the period of four consecutive fiscal quarters (taken as one
accounting period but including only those fiscal quarters commencing after
December 31, 1996) most recently ended prior to the date of such Permitted
Transaction.
"CapEx TL Percentage" shall mean, after the Capital Expenditure
Loan Conversion Date, a fraction (expressed as a percentage), the numerator of
which is equal to the aggregate principal amount of all Capital Expenditure
Loans outstanding at such time and the denominator of which is equal to the
aggregate principal amount of all Term Loans and Capital Expenditure Loans
outstanding at such time.
"Capital Expenditure Commitment Percentage" shall mean at any
time, a fraction (expressed as a percentage), the numerator of which is the
Capital Expenditure Loan Commitment of such Bank at such time and the
denominator of which is the Total Capital Expenditure Loan Commitment at such
time.
"Capital Expenditure Loan" shall have the meaning provided in
Section 1.01(b).
"Capital Expenditure Loan Commitment" shall mean, with respect to
each Bank, the amount set forth opposite such Bank's name in Schedule I hereto
directly below
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the column entitled "Capital Expenditure Loan Commitment," as the same may be
(x) reduced or terminated from time to time pursuant to Section 3.02, 3.03, 4.02
and/or 10 or (y) adjusted from time to time as a result of assignments to or
from such Bank pursuant to Section 1.12 or 13.04.
"Capital Expenditure Loan Conversion Date" shall mean the date
which is the 24 month anniversary of the Initial Borrowing Date or such earlier
date on which the Total Capital Expenditure Loan Commitment has been permanently
reduced to zero pursuant to Section 3.02 or Section 10.
"Capital Expenditure Loan Facility" shall mean the facility
evidenced by the Total Capital Expenditure Loan Commitment.
"Capital Expenditure Note" shall have the meaning provided in
Section 1.05(a)(ii).
"Capital Expenditures" shall have the meaning provided in Section
9.08.
"Capital Lease," as applied to any Person, shall mean any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in conformity with generally accepted accounting principles, is accounted for as
a capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" of any Person shall mean all
rental obligations under Capital Leases, in each case taken at the amount
thereof accounted for as Indebtedness in accordance with generally accepted
accounting principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having matur- ities of not more
than six months from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank organized under the laws of the
United States, any State thereof or the District of Columbia having, or which is
the principal banking subsidiary of a bank holding company organized under the
laws of the United States, any State thereof, or the District of Columbia
having, capital, surplus and undivided profits aggregating in excess of
$200,000,000 and having a long-term unsecured debt rating of at least "A" or the
equivalent thereof from Standard & Poor's Corporation ("S&P") or "A2" or the
equivalent thereof from Moody's Investors Service, Inc. ("Moody's"), with
maturities of not more than six months from the date of acquisition by such
Person, (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any bank meeting the qualifications specified in clause (ii) above, (iv)
commercial paper issued by any
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Person incorporated in the United States rated at least A-1 or the equivalent
thereof by S&P or at least P-1 or the equivalent thereof by Moody's and in each
case maturing not more than six months after the date of acquisition by such
Person and (v) investments in money market funds substantially all of whose
assets are comprised of securities of the types described in clauses (i) through
(iv) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 et seq.
"Change in Control" means the occurrence of one or more of the
following: (i) any Person, entity or "group" (within the meaning of Section
13(d) and 14(d) of the Securities Exchange Act) shall become the "beneficial
owner" (as defined in Rules 13(d) and 13(d)-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) of 20% or more of any outstanding
class of capital stock of the Borrower having ordinary voting power in the
election of directors of the Borrower, (ii) the Borrower shall cease to own 100%
of the outstanding capital stock of each Subsidiary or (iii) the board of
directors of the Borrower shall cease to consist of a majority of Continuing
Directors.
"Claims" shall have the meaning provided in the definition of
"Environmental Claims."
"Clean-Down Period" shall mean any 30 consecutive day period
commencing on or after the Initial Borrowing Date, during which no Revolving
Loans shall be outstanding for such consecutive 30-day period.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and the rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
date of this Agreement, and to any subsequent provision of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal)
with respect to which any security interests have been granted (or purport to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, all Additional
Collateral and all cash and Cash Equivalents delivered as collateral pursuant to
this Agreement or any other Credit Document.
"Collateral Agent" shall mean the Agent acting as collateral agent
for the Secured Creditors pursuant to the Security Documents.
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"Collective Bargaining Agreements" shall have the meaning provided
in Section 5.05.
"Commitment" shall mean, with respect to each Bank, such Bank's
Term Loan Commitment, Capital Expenditure Loan Commitment and Revolving Loan
Commitment, if any.
"Commitment Commission" shall have the meaning provided in Section
3.01(a).
"Concentration Account" shall mean a separate account established
and maintained with the Concentration Account Bank for the benefit of the
Secured Creditors by the Borrower and each of its Subsidiaries and in which the
Collateral Agent has a security interest pursuant to the Concentration Account
Consent Letter.
"Concentration Account Bank" shall mean Carolina First Bank or
such other bank that may become a Concentration Account Bank in accordance with
the provisions of the Security Agreement.
"Concentration Account Consent Letter" shall have the meaning
provided in Section 8.18.
"Consolidated Current Assets" shall mean the consolidated current
assets of the Borrower and its Subsidiaries.
"Consolidated Current Liabilities" shall mean the consolidated
current liabilities of the Borrower and its Subsidiaries, but excluding the
current portion of any long-term Indebtedness which would otherwise be included
therein.
"Consolidated EBIT" shall mean, for any period, the Consolidated
Net Income before interest income, Consolidated Interest Expense and provision
for taxes and without giving effect to any extraordinary gains or losses or
gains or losses from sales of assets.
"Consolidated EBITDA" for any period shall mean Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation that were deducted in arriving at Consolidated Net Income for such
period; provided that for purposes of determining compliance with Section 9.13
(and not for purposes of determining Consolidated Free Cash Flow), Consolidated
EBITDA for the fiscal quarter ended March 31, 1997 shall be increased by the pro
forma EBITDA of Warehouse in an amount equal to $920,000.
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"Consolidated Free Cash Flow" shall, for any period, mean the
remainder of Consolidated EBITDA less Replacement Tape Expenditures; provided
that to the extent a determination of compliance is being made under Section
9.11 for any period of less than four consecutive fiscal quarters, then the
amount of Consolidated EBITDA and Replacement Tape Expenditures to be used for
the purpose of determining the amount of Consolidated Free Cash Flow and
Replacement Tape Expenditures for the period of determination shall be equal to
the product of the amount of Consolidated EBITDA or Replacement Tape
Expenditures, as the case may be, for such period and a fraction, the numerator
of which is 365 and the denominator of which is the number of days elapsed
during such period; provided, further that for purposes of determining
compliance with Section 9, (x) all calculations of Consolidated Free Cash Flow
acquired as a result of any Permitted Acquisition shall be made in accordance
with clause (ii) of the definition of "Pro Forma Basis" and as long as such
calculations are made in accordance with such clause (ii) then the Consolidated
Free Cash Flow of such Person, business, division or product line for the period
being tested by such covenants shall be included as Consolidated Free Cash Flow
of the Borrower even though such Person, business, division or product line was
acquired during such period and (y) Consolidated Free Cash Flow for the fiscal
quarter ended March 31, 1997 shall be increased by the pro forma free cash flow
of Warehouse in an amount equal to $460,000.
"Consolidated Indebtedness" shall mean, at any time, all
Indebtedness of the Borrower and its Subsidiaries determined on a consolidated
basis (excluding all Indebtedness of the type described in clause (vii) of the
definition thereof, except to the extent amounts are owing with respect thereto
upon the termination of the respective agreement constituting such Indebtedness)
plus any original issue discount attributable to such Indebtedness.
"Consolidated Interest Expense" shall mean, for any period, the
total consolidated interest expense of the Borrower and its Subsidiaries for
such period (calculated without regard to any limitations on the payment
thereof) payable during such period in respect of all Indebtedness of the
Borrower and its Subsidiaries, on a consolidated basis, for such period
(including, without duplication, that portion of Capitalized Lease Obligations
of the Borrower and its Subsidiaries representing the interest factor for such
period); provided, however, for purposes of determining compliance with Sections
9.09 and 9.10, interest expense shall be determined by applying the rules set
forth in clause (i) of the definition of "Pro Forma Basis" with respect to all
Indebtedness outstanding at the end of any Calculation Period and incurred
during such Calculation Period in connection with any Permitted Acquisition.
"Consolidated Net Income" shall mean, for any period, net income
of the Borrower and its Subsidiaries for such period determined on a
consolidated basis (after provision for taxes); provided, however, the net
income of any Subsidiary of the Borrower,
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which is not a Wholly-Owned Subsidiary, shall have its net income included in
the Consolidated Net Income of the Borrower and its Subsidiaries only to the
extent of the amount of cash dividends or distributions paid by such Subsidiary
to the Borrower.
"Consolidated Net Worth" shall mean, as to any Person, the sum of
its capital stock, capital in excess of par or stated value of shares of its
capital stock, retained earnings and any other account which, in accordance with
generally accepted accounting principles in the United States, constitutes
stockholders' equity.
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) 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
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation should not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Continuing Directors" shall mean, with respect to the Borrower,
the directors of the Borrower on the Initial Borrowing Date and each other
director, if such other director's nomination for election to the board of
directors of the Borrower is recommended by a majority of the then Continuing
Directors.
"Credit Documents" shall mean this Agreement, each Note, each
Notice of Borrowing, each Notice of Conversion, each Letter of Credit, each
Letter of Credit Request, the Subsidiaries Guaranty, each Security Document and
any letter agreements or other documents executed in connection with any of the
above.
"Credit Event" shall mean the making of any Loan or the issuance
of any Letter of Credit.
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"Credit Party" shall mean the Borrower and each of its
Subsidiaries party to a Subsidiaries Guaranty.
"Debt Agreements" shall have the meaning provided in Section 5.05.
"Debt Termination Documents" shall have the meaning provided in
Section 5.16(c).
"Default" shall mean any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is then in effect.
"Designated Real Property Sale" shall mean the sale by the
Borrower of that certain real property located at Elms Horn Drive, Greenville,
S.C.
"Dividend" with respect to any Person shall mean that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders (including, without limitation, its preferred stockholders) or
authorized or made any other distribution, payment or delivery of property
(other than common stock of such Person) or cash to its stockholders in their
capacity as stockholders, or redeemed, retired, purchased or otherwise acquired,
directly or indirectly, for a consideration any shares of any class of its
capital stock outstanding on or after the Effective Date (or any options or
warrants issued by such Person with respect to its capital stock), or set aside
any funds for any of the foregoing purposes, or shall have permitted any of its
Subsidiaries to purchase or otherwise acquire for a consideration any shares of
any class of the capital stock of such Person outstanding on or after the
Effective Date (or any options or warrants issued by such Person with respect to
its capital stock). Without limiting the foregoing, "Dividends" with respect to
any Person shall also include all cash payments made or required to be made by
such Person with respect to any stock appreciation rights, equity incentive
plans or any similar plans or setting aside of any funds for the foregoing
purposes.
"Documents" shall mean the Credit Documents, the Acquisition
Documents and the Debt Termination Documents.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Drawing" shall have the meaning provided in Section 2.05(b).
"Effective Date" shall have the meaning provided in Section 13.10.
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"Eligible Transferee" shall mean and include a commercial bank,
financial institution, other "accredited investor" (as defined in Regulation D
of the Securities Act) other than individuals, or a "qualified institutional
buyer" as defined in Rule 144A of the Securities Act.
"Employee Benefit Plans" shall have the meaning provided in
Section 5.05(i).
"Employee/Underwriter Stock Proceeds" shall have the meaning
provided in Section 4.02(A)(d).
"Employee/Underwriter Stock Proceeds Payment Period" shall have
the meaning provided in Section 4.02(A)(d).
"Employment Agreements" shall have the meaning provided in Section
5.05.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any violation of, or liability under, any Environmental Law or any
permit issued, or any approval given, under any such Environmental Law
(hereafter, "Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code, policy and
rule of common law now or hereafter in effect (including, without limitation,
the EPA regulations on asbestos abatement and removal) and in each case as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative or binding order, consent decree or judgment,
relating to the environment, health, safety or Hazardous Materials, including,
without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C.
ss. 7401 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe
Drinking Water Act, 42 U.S.C. ss. 3803 et seq.; the Oil Pollution Act of 1990,
33 U.S.C. ss. 2701 et seq.; the Occupational Safety and Health Act, 29 U.S.C.
ss. 651 et seq.; and any applicable state and local or foreign counterparts or
equivalents.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement, and to any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section
3(9) of ERISA) which together with the Borrower or a Subsidiary of the Borrower
would be deemed to be a "single employer" within the meaning of Section 414(b),
(c), (m) or (o) of the Code.
"Eurodollar Loan" shall mean each Loan designated as such by a
Borrower at the time of the incurrence thereof or conversion thereto.
"Event of Default" shall have the meaning provided in Section 10.
"Excess Cash Flow" shall mean, for any period, the remainder of
(i) the sum of (a) Adjusted Consolidated Net Income for such period, and (b) the
decrease, if any, in Adjusted Working Capital from the first day to the last day
of such period, minus (ii) the sum of (a) the amount of cash Capital
Expenditures (to the extent not financed with Indebtedness or equity but not in
excess of the amounts permitted pursuant to Section 9.08) made by the Borrower
and its Subsidiaries on a consolidated basis during such period, (b) the amount
of permanent principal payments of Indebtedness for borrowed money of the
Borrower and its Subsidiaries (other than repayments of Loans); provided that
repayments of Loans shall be deducted in determining Excess Cash Flow if such
repayments were applied to Scheduled Repayments required to be made during such
period, were made as a voluntary prepayment with internally generated funds (but
in the case of a voluntary prepayment of Revolving Loans or a voluntary
prepayment of Capital Expenditure Loans prior to the Capital Expenditure Loan
Conversion Date, only to the extent accompanied by a voluntary reduction to the
Total Revolving Loan Commitment or to the Total Capital Expenditure Loan
Commitment, as the case may be) during such period, (c) the amount of cash
expended in respect of Permitted Acquisitions and Permitted Store Developments
during such period (to the extent not financed with Indebtedness or equity but
not in excess of the amounts permitted pursuant to Section 8.15 or 9.06, as the
case may be) and (d) the increase, if any, in Adjusted Working Capital from the
first day to the last day of such period. In making the foregoing determinations
under clause (i)(b) or (ii)(d) of the immediately preceding sentence, the amount
of the Adjusted Working Capital acquired as a result of each Permitted
Transaction which occurred during the respective period for which Excess Cash
Flow is being determined shall have been deemed to have been acquired on the
first day of such period.
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"Excess Cash Flow Payment Period" shall mean (a) the period
commencing on the Capital Expenditure Loan Conversion Date and ending on the
last day of the fiscal year in which the Capital Expenditure Loan Conversion
Date occurs and (b) each fiscal year thereafter.
"Existing Indebtedness" shall have the meaning provided in Section
7.22.
"Facing Fee" shall have the meaning provided in Section 3.01(b).
"Federal Funds Rate" shall mean for any period, a fluctuating
interest rate 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 which 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.
"Fees" shall mean all amounts payable pursuant to or referred to
in Section 3.01.
"Final Maturity Date" shall mean the fifth anniversary of the
Initial Borrowing Date.
"Fixed Charge Coverage Ratio" for any period shall mean the ratio
of (x) Consolidated Free Cash Flow less the amount of all cash Maintenance
Capital Expenditures by the Borrower or any of its Subsidiaries for such period
to (y) Fixed Charges for such period.
"Fixed Charges" for any period shall mean the sum of (i)
Consolidated Interest Expense for such period, (ii) the aggregate principal
amount of all repayments and, without duplication, scheduled repayments of
Indebtedness (including the principal portion of rentals under Capitalized Lease
Obligations but excluding repayment of Revolving Loans not accompanied by a
permanent reduction to the Total Revolving Loan Commitment and excluding
repayments of Capital Expenditure Loans prior to the Capital Expenditure Loan
Conversion Date not accompanied by a permanent reduction to the Total Capital
Expenditure Loan Commitment) and (iii) taxes paid by the Borrower and its
Subsidiaries for such period (including taxes paid during such period by the
Person or business, division or product line acquired by the Borrower or any of
its Subsidiaries pursuant to a Permitted Acquisition during such period;
provided, however, the amount of such taxes shall be audited or otherwise
acceptable to the Agent).
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"Guaranties" shall mean and include each Subsidiaries Guaranty
executed by the Subsidiaries of the Borrower.
"Guarantor" shall mean each Subsidiary of the Borrower.
"Hazardous Materials" means (a) petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that
contain, dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; (b) any chemicals, materials or substances defined as or included in
the definition of "hazardous substances," "hazardous waste," "hazardous
materials," "extremely hazardous waste," "restricted hazardous waste," "toxic
substances," "toxic pollutants," "contaminants," or "pollutants," or words of
similar meaning and regulatory effect, under any applicable Environmental Law;
and (c) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated under applicable Environmental Law. Excluded
from this definition shall be Hazardous Materials in limited quantities used and
stored in compliance with all applicable Environmental Laws and required in
connection with the normal operation and maintenance of any Real Property.
"Indebtedness" shall mean, as to any Person, without duplication,
(i) all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services other than trade payables and accrued expenses arising in the ordinary
course of business, (ii) the maximum amount available to be drawn under all
letters of credit issued for the account of such Person and all unpaid drawings
in respect of such letters of credit, (iii) all Indebtedness of the types
described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person, (iv) all Capitalized Lease
Obligations of such Person, (v) all obligations of such Person to pay a
specified purchase price for goods or services, whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent
Obligations of such Person and (vii) all obligations under any Interest Rate
Protection or Other Hedging Agreement or under any similar type of agreement
entered into with a Person not a Bank.
"Indemnified Matters" shall have the meaning provided in Section
13.01.
"Indemnitees" shall have the meaning provided in Section 13.01.
"Initial Borrowing Date" shall mean the date on which the initial
Credit Event occurs.
"Intellectual Property" shall have the meaning provided in Section
7.21.
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"Intellectual Property Subsidiary" shall mean a Wholly-Owned
Subsidiary of the Borrower formed after the Initial Borrowing Date and in
accordance with the requirements of Section 9.19 for the purpose of holding the
intellectual property of the Borrower and its Subsidiaries.
"Intercompany Loan" shall have the meaning provided Section
9.06(xi).
"Intercompany Notes" shall mean a promissory note issued by a
Subsidiary of the Borrower in the form of Exhibit M, evidencing Intercompany
Loans.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection or Other Hedging Agreements" shall have
the meaning provided in the Security Documents.
"Issuing Bank" shall mean Banque Paribas and any Bank which at the
request of the Borrower agrees, in such Bank's sole discretion, to become an
Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2.
The sole Issuing Bank on the Initial Borrowing Date is Banque Paribas.
"L/C Supportable Indebtedness" shall mean (i) obligations of the
Borrower or any of its Subsidiaries incurred in the ordinary course of business
with respect to workers compensation, surety bonds and other similar statutory
obligations and security deposits for landlords and (ii) such other obligations
of the Borrower or any of its Subsidiaries as are reasonably acceptable to the
Issuing Bank and otherwise permitted to exist pursuant to the terms of this
Agreement.
"Leaseholds" of any Person means all the right, title and interest
of such Person as lessee or licensee in, to and under leases or licenses of
land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(c).
"Letter of Credit Outstandings" shall mean, at any time, the sum
of (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
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"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Lien" shall mean any mortgage, pledge, hypothe- cation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Term Loan, each Revolving Loan and each
Capital Expenditure Loan.
"Maintenance Capital Expenditures" shall mean Capital Expenditures
made by the Borrower or any of its Subsidiaries in connection with the upgrading
or maintenance of existing stores or the upgrading or maintenance of new stores.
"Management Agreements" shall have the meaning provided in Section
5.05.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Contracts" shall have the meaning provided in Section
5.05.
"Material Subsidiaries" shall mean and include, at any time, (i)
Moovies of Georgia, Inc., (ii) Moovies of Iowa, Inc., (iii) Moovies of the
Carolinas, Inc., (iv) Pic-a-Flick of Greenville, Inc. and (v) any Subsidiary of
the Borrower that (x) has assets at such time comprising 5% or more of the
consolidated assets of the Borrower and its Subsidiaries or (y) had net income
in the most recently ended fiscal year of the Borrower comprising 5% or more of
the consolidated net income of the Borrower and its Subsidiaries for such fiscal
year.
"Maximum Store Investment Amount" shall mean, as at any
determination thereof, the amount obtained by dividing (x) the total amount of
expended by the Borrower and its Subsidiaries to effect Permitted Capital
Expenditure Transactions by (y) the number of new video stores in respect of
which Permitted Capital Expenditure Transactions have been made since the
Effective Date at such time of determination.
"Maximum Weekly Hold Amount" shall mean, as at the close of
business on the last Business Day of any week, an amount of cash equal to the
product of (x) $3,000 multiplied by (y) the number of stores of the Borrower and
its Subsidiaries at such time.
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"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans,
$1,000,000 and (ii) for Eurodollar Loans, $2,000,000.
"Minimum Weekly Sweep Amount" shall mean, as at the close of
business on the last Business Day of any week, an amount of cash equal to the
remainder of (x) the amount of cash and Cash Equivalents of the Borrower and its
Subsidiaries not held in a Concentration Account at such time less (y) the
Maximum Weekly Hold Amount.
"Net Sale Proceeds" shall mean for any sale of assets, the gross
cash proceeds (including any cash received by way of deferred payment pursuant
to a promissory note, receivable or otherwise, but only as and when received)
received from such sale, net of reasonable transaction costs (including, without
limitation, attorneys' fees), the amount of such gross cash proceeds required to
be used to permanently repay any Indebtedness which is secured by the respective
assets which were sold, and the estimated marginal increase in income taxes
which will be payable by the Borrower' consolidated group as a result of such
sale.
"Note" shall mean each Term Note, each Capital Expenditure Note
and each Revolving Note.
"Notice of Borrowing" shall have the meaning pro- vided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Agent located at 787
Seventh Avenue, New York, New York 10019, Attention: Loan Operations, or such
other office as the Agent may hereafter designate in writing as such to the
other parties hereto.
"Obligations" shall mean all amounts owing to the Agent, the
Collateral Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean the office of the Agent located at 787
Seventh Avenue, New York, New York 10019, Attention: Donald J. Ercole, or such
other office as the Agent may hereafter designate in writing as such to the
other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at
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such time and the denominator of which is the Total Revolving Loan Commitment at
such time; provided that if the Percentage of any Bank is to be determined after
the Total Revolving Loan Commitment has been terminated, then the Percentages of
the Banks shall be determined immediately prior (and without giving effect) to
such termination.
"Permitted Acquisition" shall mean the acquisition by the Borrower
or any of its Subsidiaries of assets constituting all or substantially all of a
business, business unit, division or product line of any Person not already a
Subsidiary of the Borrower or 100% of the capital stock of any such Person,
although any such acquisition shall only be a Permitted Acquisition so long as
(A) the consideration therefor consists solely of the proceeds of Capital
Expenditure Loans, issuances of Borrower Common Stock, Seller Preferred Stock,
Permitted Seller Notes, Permitted Earn-Out Debt and the assumption of
Capitalized Lease Obligations; (B) the assets acquired, or the business of the
Person whose stock is acquired, shall be in a Permitted Business; (C) those
acquisitions that are structured as asset acquisitions shall be consummated by
the Borrower or through a new Subsidiary formed by the Borrower, which shall be
a Wholly-Owned Subsidiary of the Borrower, to effect such acquisition and (D)
those acquisitions that are structured as stock acquisitions shall be effected
through a purchase of 100% of the capital stock of such Person by the Borrower
or through a merger between such Person and a newly-formed direct Wholly-Owned
Subsidiary of the Borrower, as the case may be, so that after giving effect to
such merger 100% of the capital stock of the surviving corporation of such
merger is owned by the Borrower. Notwithstanding anything to the contrary
contained in the immediately preceding sentence, an acquisition shall be a
Permitted Acquisition only if all requirements of Section 8.15 with respect to
Permitted Acquisitions are met with respect thereto.
"Permitted Acquisition Notice" shall have the meaning provided in
Section 8.15(a).
"Permitted Asset Sales" shall mean and include (i) sales of
inventory in the ordinary course of business, (ii) Permitted Sale-Leaseback
Transactions effected in accordance with the definition thereof, (iii) sales of
furniture, fixtures and equipment in the ordinary course of business to the
extent the net cash proceeds therefrom do not exceed $250,000 in the aggregate,
(iv) sales of motor vehicles permitted by Section 9.02(xii) and (v) the
Designated Real Property Sale to the extent the Net Sale Proceeds therefrom do
not exceed $1,000,000.
"Permitted Business" shall mean (i) the business of owning,
operating, developing and acquiring video specialty stores for the (a) rental
and sale of videos and video games, (b) rental of video cassette players and
video game equipment; and (c) sale of video accessories, video cleaning
equipment and confectionery items in connection with the conduct of the business
described in clauses (a) and (b) above; and (ii) the licensing and franchising
of rights to conduct the businesses referred to in clause (i) above.
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"Permitted Capital Expenditure Transaction" shall mean Capital
Expenditures made by the Borrower or any of its Subsidiaries to effect tenant
improvements to video stores not previously leased by the Borrower or any of its
Subsidiaries and to acquire initial rental tape and merchandise inventory in
connection with the opening of a new video store. Notwithstanding the foregoing,
a Capital Expenditure shall only be a Permitted Capital Expenditure Transaction
if all requirements of Section 9.08 are met with respect thereto.
"Permitted Earn-Out Debt" shall mean Indebtedness of the Borrower
incurred in connection with a Permitted Acquisition and in accordance with
Section 8.15, which Indebtedness is not secured by any assets of the Borrower or
any of its Subsidiaries (including, without limitation, the assets so acquired)
and is only payable by the Borrower upon the passage of time (e.g. non-compete
payments) or in the event certain future performance goals are achieved with
respect to the assets acquired; provided that such Indebtedness shall only
constitute Permitted Earn-Out Debt to the extent the terms of such Indebtedness
expressly limit the maximum potential liability of the Borrower with respect
thereto and all such other terms shall be in form and substance satisfactory to
the Agent.
"Permitted Equity Issuances" shall mean issuances of Borrower
Common Stock or Seller Preferred Stock by the Borrower as consideration in
Permitted Acquisitions, but only to the extent permitted pursuant to Section
8.15.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"Permitted Sale-Leaseback Transactions" shall mean any sale by the
Borrower or any of its Subsidiaries of computer and telephone systems in the
ordinary course of business and property acquired, and improvements made, in
connection with Permitted Store Developments, which equipment, property and
improvements, as the case may be, is then leased back to the Borrower or such
Subsidiary, provided that the proceeds of the respective sale shall be comprised
entirely of cash and in an amount equal to at least 95% of the aggregate amount
expended by the Borrower or such Subsidiary in so acquiring or improving such
equipment or property.
"Permitted Seller Notes" shall mean notes issued by the Borrower
to sellers of stock or assets in a Permitted Acquisition and issued in
accordance with Section 8.15, which notes may be senior but shall be unsecured
and unguaranteed, and shall otherwise be in form and substance satisfactory to
the Agent.
"Permitted Store Development" shall mean the investment by a
newly-formed Wholly-Owned Subsidiary of the Borrower in real property and
improvements thereon in contemplation of a Permitted Sale-Leaseback Transaction;
provided, however such investment shall only be permitted, so long as on or
prior to the consummation of any
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such Permitted Store Development, (i) 100% of the capital stock of such
Wholly-Owned Subsidiary is pledged to the Collateral Agent for the benefit of
the Secured Creditors pursuant to the Pledge Agreement and the certificates, if
any, representing such stock, together with stock powers duly executed in blank,
are delivered to the Collateral Agent, (ii) such Wholly-Owned Subsidiary
executes a counterpart of the Subsidiary Guaranty, the Pledge Agreement and the
Security Agreement and (iii) the Borrower shall have cause to be delivered to
the Collateral Agent such other agreements and shall take such other actions as
shall be required to comply with Sections 8.15(b), (c) and (d) as if the
Permitted Store Development was a Permitted Acquisition and as shall be
necessary or appropriate in connection with providing the Collateral Agent a
first perfected security interest in all such real property and improvements,
including, without limitation, such mortgages, title policies, title insurance,
opinions of counsel, real estate appraisals and environmental appraisals.
"Permitted Transaction" shall mean and include any Permitted
Acquisition and any Permitted Capital Expenditure Transaction.
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan, as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower, a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, a Subsidiary of the Borrower or
an ERISA Affiliate maintained, contributed to or had an obligation to contribute
to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.07.
"Pledge Agreement Collateral" shall mean all "Collateral" as
defined in the Pledge Agreement.
"Pledged Securities" shall have the meaning assigned that term in
the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which The Chase Manhattan
Bank announces from time to time as its prime commercial lending rate, the Prime
Lending Rate to change when and as such prime lending rate changes. The Prime
Lending Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer by Banque Paribas or The Chase
Manhattan Bank, who may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
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"Pro Forma Basis" shall mean, with respect to any Permitted
Acquisition the calculation of the consolidated results of the Borrower and its
Subsidiaries otherwise determined in accordance with this Agreement as if the
respective Permitted Acquisition (and all other Permitted Acquisitions
consummated during the respective Calculation Period or thereafter and prior to
the date of determination pursuant to Section 8.15 or other applicable provision
of this Agreement) had been effected on the first day of the respective
Calculation Period; provided that all calculations shall take into account the
following assumptions:
(i) if any Indebtedness is incurred pursuant to the respective
Permitted Acquisition (or was incurred in any other Permitted Acquisition
which occurred during the relevant Calculation Period or thereafter and
prior to the date of determination) then all such Indebtedness shall be
deemed to have been outstanding from the first day of the respective
Calculation Period (and the interest expense associated with such
Indebtedness, shall be determined at the actual rates applicable thereto
or which would have been applicable had such debt been outstanding for
the whole such period and shall be included in determining Consolidated
Interest Expense on such Pro Forma Basis) and all Indebtedness that was
outstanding during the Calculation Period or thereafter and prior to the
date of the Permitted Acquisition but not outstanding on the date of the
Permitted Acquisition shall be deemed to have been repaid in full on the
first day of the Calculation Period;
(ii) all calculations of Consolidated EBITDA and Consolidated
Free Cash Flow (without duplication) (and the other components of the
definition of Consolidated EBITDA or Consolidated Free Cash Flow, as the
case may be, included therein) shall include only the Consolidated EBITDA
or Consolidated Free Cash Flow, as the case may be, of the Borrower and
its Subsidiaries (and the other components of the definition of
Consolidated EBITDA or Consolidated Free Cash Flow, as the case may be,
included therein) during the relevant Calculation Period and shall not
include any Consolidated EBITDA or Consolidated Free Cash Flow (or other
components) of the Person or business, division or product line being
acquired pursuant to the Permitted Acquisition unless either (x) such
Consolidated EBITDA or Consolidated Free Cash Flow, as the case may be,
of the Person or business, division or product line being acquired has
been audited for the entire Calculation Period by any of the "big six" or
other reputable nationally or regionally recognized accounting firm or
(y) in the case of calculations based on unaudited financial statements,
the Agent shall be reasonably satisfied with the amounts of Consolidated
EBITDA or Consolidated Free Cash Flow, as the case may be, (and the other
components) of such Person or business, division or product line being
acquired pursuant to the respective Permitted Acquisition; and
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(iii) if all or any portion of the respective Calculation Period
occurs before January 1, 1997, then compliance with Sections 9.09 through
9.14, inclusive, on a Pro Forma Basis, shall only be required to be
established for the period beginning on January 1, 1997, and ending on
the last day of the respective Calculation Period; provided, that to the
extent a financial covenant calculation compares a balance sheet item to
an income statement item, all calculations relating to the financial
results of the Person or business, division or product line being
acquired pursuant to the Permitted Acquisition shall, to the extent that
such results relate to income statement items, be multiplied by a
fraction (x) the numerator of which shall be the number of days from
January 1, 1997, to the end of the Calculation Period and (y) the
denominator of which shall be the number of days in the Calculation
Period without giving effect to this clause which provides that the
Calculation Period commences on January 1, 1997 (and is therefore less
than four fiscal quarters).
"Projections" shall have the meaning provided in Section 5.15.
"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December of each calendar year.
"Quoted Rate" shall mean (a) the offered quotation to first-class
banks in the New York interbank Eurodollar market by the Agent for U.S. dollar
deposits of amounts in immediately available funds comparable to the outstanding
principal amount of the Eurodollar Loan of the Agent for which an interest rate
is then being determined with maturities comparable to the Interest Period
applicable to such Eurodollar Loan determined as of 10:00 A.M. (New York time)
on the date which is two Business Days prior to the commencement of such
Interest Period, divided (and rounded upward to the next whole multiple of 1/16
of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of
all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency funding or
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation D).
"RCRA" shall mean the Resource Conservation and Recovery Act, as
the same may be amended from time to time, 42 U.S.C. ss. 6901 et seq.
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by the Borrower or any
Subsidiary of the Borrower of any cash insurance proceeds from key-man life
insurance or liability insurance or insurance payable by reason of theft,
physical destruction or damage or any
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other similar event with respect to any properties or assets of the Borrower or
any Subsidiary of the Borrower (including, without limitation, business
interruption insurance).
"Refinanced Indebtedness" shall have the meaning provided in
Section 5.16(b).
"Register" shall have its meaning provided in Section 8.16.
"Regulation D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
to all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
to all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
to all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
to all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors
of the Federal Reserve System as from time to time in effect and any successor
to all or a portion thereof.
"Release" means disposing, discharging, injecting, spilling,
pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing, pouring and the like, into or upon any land or water or air, or
otherwise entering into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.12.
"Replacement Bank" shall have the meaning provided in Section
1.12.
"Replacement Tape Expenditures" for any period shall mean the
amount of expenditures made by the Borrower or any of its Subsidiaries to
purchase rental video tapes during such period, except to the extent that such
purchases constitute Permitted Capital Expenditure Transactions.
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"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived under
subsection .22, .23, .25, .27, or .28 of PBGC Regulation Section 4043.
"Required Capital Expenditure Facility Banks" shall mean Banks the
sum of whose Capital Expenditure Loan Commitments (or after the termination
thereof, the sum of whose Capital Expenditure Loans) represent an amount greater
than 50% of the Total Capital Expenditure Loan Commitment (or, after the Capital
Expenditure Loan Conversion Date, the Banks the sum of whose outstanding Capital
Expenditure Loans represent an amount greater that 50% of all outstanding
Capital Expenditure Loans made by all Banks).
"Required Banks" shall mean Banks the sum of whose outstanding
Term Loans, Capital Expenditure Loan Commitments (or after the termination
thereof, the sum of outstanding Capital Expenditure Loans), Revolving Loan
Commitments (or after the termination thereof, the sum of outstanding Revolving
Loans and Letter of Credit Outstandings), represent an amount greater than 50%
of the sum of all outstanding Term Loans, the Total Capital Expenditure Loan
Commitment (or after the termination thereof, the sum of the then total
outstanding Capital Expenditure Loans) and the Total Revolving Loan Commitment
(or after the termination thereof, the sum of the then total outstanding
Revolving Loans and Letter of Credit Outstandings).
"Required Term Facility Banks" shall mean Banks the sum of whose
outstanding Term Loans represent an amount greater than 50% of all outstanding
Term Loans made by all Banks.
"Returns" shall have the meaning provided in Sec- tion 7.09.
"Revolving Loan Commitment" shall mean, for each Bank, the amount
set forth opposite such Bank's name on Schedule I hereto directly below the
column entitled "Revolving Loan Commitment," as same may be (x) reduced or
terminated from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or
(y) adjusted from time to time as a result of assignments to or from such Bank
pursuant to Section 1.12 or 13.04.
"Revolving Loans" shall have the meaning provided in Section
1.01(c).
"Revolving Note" shall have the meaning provided in Section
1.05(a)(iii).
"Scheduled Capital Expenditure Loan Repayment" shall have the
meaning provided in Section 4.02(A)(c).
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"Scheduled Repayment" shall have the meaning provided in Section
4.02(A)(c).
"Scheduled Term Loan Repayment" shall have the meaning provided in
Section 4.02(A)(b).
"SEC" shall have the meaning provided in Section 8.01(h).
"Section 4.04(b)(ii) Certificate" shall have the meaning provided
in Section 4.04(b)(ii).
"Secured Creditors" shall mean (x) the Banks, the Agent, the
Collateral Agent and (y) any Bank which on the date hereof is, or subsequently
becomes, party to any Interest Rate Protection or Other Hedging Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in Section
5.08.
"Security Agreement Collateral" shall mean all "Collateral" as
defined in the Security Agreement.
"Security Documents" shall mean the Pledge Agreement, the Security
Agreement, the Concentration Account Consent Letter and each Additional Security
Document.
"Seller" shall mean, collectively, Warehouse and Movie Warehouse
Cambridge Park, Inc., Michigan corporation.
"Seller Note" shall mean the 6.25% Seller Subordinated Note due
1999 issued by the Borrower in favor of the Seller as partial consideration for
the purchase price of the Acquired Business in the aggregate principal amount of
$2,000,000 in the form attached hereto as Exhibit L, as in effect on the Initial
Borrowing Date and as the same may be amended, modified or supplemented from
time to time pursuant to the terms hereof and thereof.
"Seller Note Documents" shall mean and include the Seller Note and
each of the other documents, instruments and other agreements entered into and
relating to the
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issuance by the Borrower of the Seller Note, as in effect on the Initial
Borrowing Date and as amended, modified or supplemented from time to time in
accordance with the terms hereof and thereof.
"Seller Preferred Stock" shall mean perpetual preferred stock
issued by the Borrower which preferred stock has no mandatory redemption,
sinking fund or similar requirements, pays no cash dividends, has no covenants
or voting rights and is otherwise acceptable in all respects to the Agent.
"Shareholders' Agreements" shall have the meaning provided in
Section 5.05.
"Stated Amount" of each Letter of Credit shall, at any time, mean
the maximum amount available to be drawn thereunder at such time (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Subsidiaries Guaranty" shall have the meaning provided in Section
5.09.
"Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time.
"Syndication Termination Date" shall mean the earlier of (x) 30
days after the Initial Borrowing Date or (y) the date on which the Agent, in its
sole discretion, determines (and notifies the Borrower) that the primary
syndication (and the resultant addition of institutions as Banks pursuant to
Section 13.04) has been completed.
"Tax Sharing Agreements" shall have the meaning provided in
Section 5.05.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall have the meaning provided in Section 1.01(a).
"Term Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Term Loan Commitment," as the same may be (x) reduced or
terminated pursuant to
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Section 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of
assignments to or from such Bank pursuant to Section 1.12 or 13.04.
"Term Loan Facility" shall mean the facility evidenced by Total
Term Loan Commitment.
"Term Note" shall have the meaning provided in Section 1.05(a)(i).
"Term TL Percentage" shall mean, at any time, a fraction
(expressed as a percentage), the numerator of which is equal to the aggregate
principal amount of all Term Loans outstanding at such time, and the denominator
of which is equal to the aggregate principal amount of all Term Loans
outstanding at such time and, after the Capital Expenditure Loan Conversion
Date, the Capital Expenditure Loans outstanding at such time.
"Total Capital Expenditure Loan Commitment" shall mean, at any
time, the sum of the Capital Expenditure Loan Commitments of each of the Banks.
"Total Commitment" shall mean, at any time, the sum of the
Commitments of each of the Banks.
"Total Revolving Loan Commitment" shall mean, at any time, the sum
of the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the Term
Loan Commitment of each of the Banks.
"Total Unutilized Capital Expenditure Loan Commitment" shall mean,
at any time, an amount equal to the remainder of (x) the then Total Capital
Expenditure Loan Commitment less (y) the aggregate principal amount of Capital
Expenditure Loans then outstanding.
"Total Unutilized Revolving Loan Commitment" shall mean, at any
time, an amount equal to the remainder of (x) the then Total Revolving Loan
Commitment, less (y) the sum of the aggregate principal amount of Revolving
Loans then outstanding and (z) the then aggregate amount of Letter of Credit
Outstandings.
"Tranche" shall mean the respective facility and commitments
utilized in making Loans hereunder, with there being three separate Tranches,
i.e., Term Loans, Capital Expenditure Loans and Revolving Loans.
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"Transaction" shall mean collectively, (i) the incurrence of Loans
hereunder on the Initial Borrowing Date, (ii) the consummation of the
Acquisition, (iii) the repayment of all Refinanced Indebtedness, together with
all accrued interest, premiums, fees, commissions and expenses owing in
connection therewith, and the termination of all commitments thereunder and (iv)
the payment of the Transaction Fees and Expenses in connection therewith.
"Transaction Fees and Expenses" shall mean all fees and expenses
incurred in connection with and arising out of the Transaction and the
transactions contemplated thereby and hereby; provided, however, that the
aggregate amount of such fees and expenses shall not exceed $3,000,000 in the
aggregate.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time
in effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with actuarial assumptions at such time consistent with Statement of Financial
Accounting Standards No. 87, exceeds the fair market value of the assets
allocable thereto.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
2.05(a).
"Unutilized Capital Expenditure Loan Commitment" for any Bank, at
any time, shall mean the Capital Expenditure Loan Commitment of such Bank at
such time less the aggregate principal amount of Capital Expenditure Loans made
by such Bank and then outstanding.
"Unutilized Revolving Loan Commitment" for any Bank, at any time,
shall mean the Revolving Loan Commitment of such Bank at such time less the sum
of (i) the aggregate principal amount of Revolving Loans made by such Bank and
then outstanding and (ii) such Bank's Percentage of the Letter of Credit
Outstandings.
"Warehouse" shall mean Movie Warehouse, Inc., a Michigan
corporation.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
and/or one or more
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Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association,
joint venture or other entity in which such Person and/or one or more
Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time.
Section 12. The Agent.
12.01 Appointment. The Banks hereby designate Banque Paribas as
Agent (for purposes of this Section 12, the term "Agent" shall include Banque
Paribas in its capacity as Collateral Agent pursuant to the Security Documents)
to act as specified herein and in the other Credit Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Note by the acceptance of such
Note shall be deemed irrevocably to authorize, the Agent to take such action on
its behalf under the provisions of this Agreement, the other Credit Documents
and any other instruments and agreements referred to herein or therein and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The Agent
may perform any of its duties hereunder by or through its officers, directors,
agents or employees.
12.02 Nature of Duties. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
Security Documents. Neither the Agent nor any of its officers, directors, agents
or employees shall be liable for any action taken or omitted by it or them
hereunder or under any other Credit Document or in connection herewith or
therewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Agent shall be mechanical and administrative in nature; the
Agent shall not have by reason of this Agreement or any other Credit Document a
fiduciary relationship in respect of any Bank or the holder of any Note; and
nothing in this Agreement or any other Credit Document, expressed or implied, is
intended to or shall be so construed as to impose upon the Agent any obligations
in respect of this Agreement or any other Credit Document except as expressly
set forth herein.
12.03 Lack of Reliance on the Agent. Independently and without
reliance upon the Agent, each Bank and the holder of each Note, to the extent it
deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrower and its
Subsidiaries in connection with the making and the continuance of the Loans and
the participation in Letters of Credit and the taking or not taking of any
action in connection herewith and (ii) its own appraisal of the creditworthiness
of the Borrower and its Subsidiaries and, except as expressly provided in this
Agreement, the Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank or the holder of any Note with any
credit or other information with respect thereto, whether coming into its
possession before the making of the Loans, the participation in the Letters of
Credit or at any time or times thereafter. The Agent shall
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not be responsible to any Bank or the holder of any Note for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or other writing delivered in connection herewith or for
the execution, effectiveness, genuineness, validity, enforceability, perfection,
priority or sufficiency of this Agreement or any other Credit Document or the
financial condition of the Borrower or its Subsidiaries or be required to make
any inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any other Credit Document, or the
financial condition of the Borrower or its Subsidiaries or the existence or
possible existence of any Default or Event of Default.
12.04 Certain Rights of the Agent. If the Agent shall request
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, the Agent shall be entitled to refrain from such act or taking such
action unless and until the Agent shall have received instructions from the
Required Banks; and the Agent shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, no Bank or the holder of any
Note shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Banks.
12.05 Reliance. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or facsimile message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that the Agent believed to be the proper Person, and, with respect to
all legal matters pertaining to this Agreement and any other Credit Document and
its duties hereunder and thereunder, upon advice of counsel selected by it.
12.06 Indemnification. (a) To the extent the Agent is not
reimbursed and indemnified by the Borrower, the Banks will reimburse and
indemnify the Agent, in proportion to their respective "percentages" as used in
determining the Required Banks, for and against any and all liabilities,
obligations, losses, damages, penalties, claims, actions, judgments, suits,
costs, expenses or disbursements of whatsoever kind or nature which may be
imposed on, asserted against or incurred by the Agent in performing its duties
hereunder or under any other Credit Document, in any way relating to or arising
out of this Agreement or any other Credit Document; provided that no Bank shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct.
(b) The Agent shall be fully justified in failing or refusing to
take any action hereunder and under any other Credit Document (except actions
expressly required to be
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taken by it hereunder or under the Credit Documents) unless it shall first be
indemnified to its satisfaction by the Banks pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
12.07 The Agent in Its Individual Capacity. With respect to its
obligation to make Loans under this Agreement, the Agent shall have the rights
and powers specified herein for a "Bank" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Banks," "Required Banks," "holders of Notes" or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with any Credit
Party or any Affiliate of any Credit Party as if it were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrower or any other Credit Party for services in connection with this
Agreement and may purchase and hold equity interests in the Borrower or any
other Credit Party without having to account for the same to the Banks and
otherwise without having to account for the same to the Banks.
12.08 Holders. The Agent may deem and treat the payee of any Note
as the owner thereof for all purposes hereof unless and until a written notice
of the assignment, transfer or endorsement thereof, as the case may be, shall
have been filed with the Agent. Any request, authority or consent of any Person
who, at the time of making such request or giving such authority or consent, is
the holder of any Note shall be conclusive and binding on any subsequent holder,
transferee, assignee or indorsee, as the case may be, of such Note or of any
Note or Notes issued in exchange therefor.
12.09 Resignation by the Agent. (a) The Agent may resign from the
performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice to
the Borrower and the Banks. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall
appoint a successor Agent hereunder or thereunder who shall be a commercial bank
or trust company reasonably acceptable to the Borrower (it being understood and
agreed that any Bank is deemed to be acceptable to the Borrower).
(c) If a successor Agent shall not have been so appointed within
such 15 Business Day period, the Agent, with the consent of the Borrower, shall
then appoint a successor Agent who shall serve as Agent hereunder or there-under
until such time, if any, as the Banks appoint a successor Agent as provided
above.
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(d) If no successor Agent has been appointed pursuant to clause
(b) or (c) above by the 30th Business Day after the date such notice of
resignation was given by the Agent, the Agent's resignation shall become
effective and the Banks shall thereafter perform all the duties of the Agent
hereunder and/or under any other Credit Document until such time, if any, as the
Banks appoint a successor Agent as provided above.
Section 13. Miscellaneous.
13.01 Payment of Expenses, etc. The Borrower, agrees to: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agent (including, without
limitation, the reasonable fees and disbursements of White & Case and local
counsel) in connection with the preparation, execution and delivery of this
Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein and any amendment, waiver or consent relating
hereto or thereto, of the Agent in connection with its syndication efforts with
respect to this Agreement (including, without limitation, the reasonable fees
and disbursements of White & Case) and of the Agent and each of the Banks in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Agent and for each of the Banks); (ii) pay and hold each of the Banks harmless
from and against any and all present and future stamp, excise and other similar
taxes with respect to the foregoing matters and save each of the Banks harmless
from and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to such Bank) to pay
such taxes; and (iii) defend, protect, indemnify and hold harmless the Agent and
each Bank, and each of their respective officers, directors, employees,
representatives, attorneys and agents (collectively called the "Indemnitees")
from and against any and all liabilities, obligations (including removal or
remedial actions), losses, damages (including foreseeable and unforeseeable
consequential damages and punitive damages), penalties, claims, actions,
judgments, suits, costs, expenses and disbursements (including reasonable
attorneys' and consultants fees and disbursements) of any kind or nature
whatsoever that may at any time be incurred by, imposed on or assessed against
the Indemnitees directly or indirectly based on, or arising or resulting from,
or in any way related to, or by reason of (a) any investigation, litigation or
other proceeding (whether or not the Agent, the Collateral Agent or any Bank is
a party thereto and whether or not any such investigation, litigation or other
proceeding is between or among the Agent, the Collateral Agent, any Bank, the
Borrower or any third person or otherwise) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of any
Letter of Credit or the proceeds of any Loans hereunder or the consummation of
any transactions contemplated herein (including, without limitation, the
Transaction) or in any other Credit Document or the exercise of any of their
rights or remedies provided herein or in the other Credit Documents; or, (b) the
actual or alleged
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generation, presence or Release of Hazardous Materials on or from, or the
transportation of Hazardous Materials to or from, any Real Property owned or at
any time operated by the Borrower or any of its Subsidiaries or; (c) any
Environmental Claim relating to the Borrower or any of its Subsidiaries or any
Real Property owned or at any time operated by the Borrower or any of its
Subsidiaries or; (d) the exercise of the rights of the Agent and of any Bank
under any of the provisions of this Agreement or any other Credit Document or
any Letter of Credit or any Loans hereunder; or (e) the consummation of any
transaction contemplated herein (including, without limitation, the Transaction)
or in any other Credit Document (the "Indemnified Matters") regardless of when
such Indemnified Matter arises, but excluding any such Indemnified Matter based
on the gross negligence or willful misconduct of any Indemnitee.
13.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of each Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Bank pursuant to
Section 13.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Bank shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
13.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to the Borrower, at
its address specified opposite its signature below; if to any Bank, at its
address specified opposite its name below; and if to the Agent, at its Notice
Office; or, as to any Credit Party or the Agent, at such other address as shall
be designated by such party in a written notice to the other parties hereto and,
as to each Bank, at such other address as shall be designated by such Bank in a
written notice to the Borrower and the Agent. All such notices and
communications shall, when mailed, telegraphed, telexed, facsimiled, or cabled
or sent by overnight courier, be effective 3 Business Days after deposited in
the mails, certified, return receipt requested, when delivered to the telegraph
company, cable company or one day following delivery to an overnight courier, as
the case may be, or sent by telex or facsimile device.
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13.04 Benefit of Agreement. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, however, no Credit Party may assign
or transfer any of its rights, obligations or interest hereunder or under any
other Credit Document without the prior written consent of the Banks; and
provided further, that although any Bank may transfer, assign or grant
participations in its rights hereunder, such Bank shall remain a "Bank" for all
purposes hereunder (and may not transfer or assign all or any portion of its
Commitments or Loans hereunder except as provided in Section 13.04(b)) and the
transferee, assignee or participant, as the case may be, shall not constitute a
"Bank" hereunder; and provided further, that no Bank shall transfer or grant any
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Loan or Note or extend the stated maturity of any Letter of
Credit beyond the Final Maturity Date in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees thereon (except in connection with a waiver of applicability of any
post-default increase in interest rates) or reduce the principal amount thereof,
or increase the Commitments in which such participant is participating over the
amount thereof then in effect (it being understood that a waiver of any Default
or Event of Default or of a mandatory reduction in the Total Commitment shall
not constitute a change in the terms of any Commitment, and that an increase in
any Commitment shall be permitted without the consent of any participant if the
participant's participation is not increased as a result thereof), (ii) consent
to the assignment or transfer by any Credit Party of any of its rights and
obligations under this Agreement or (iii) release all or substantially all of
the Collateral under all of the Security Documents (except as expressly provided
in the Credit Documents) supporting the Loans hereunder in which such
participant is participating. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating thereto) and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together
with one or more other Banks) may (x) (A) pledge its Loans and/or Notes
hereunder to a Federal Reserve Bank in support of borrowings made by such Bank
from such Federal Reserve Bank or (B) assign all or a portion of its Loans or
Commitments and related outstanding Obligations hereunder to its parent company,
principal office and/or any affiliate of such Bank or one or more other Banks
or, in the case of a Bank that is a fund that invests in loans, any other fund
that invests in loans and is managed by the same investment advisor of such Bank
or by an affiliate of such investment advisor or (y) assign all or a portion
equal to at least $5,000,000, of such Loans or Commitments and related
outstanding Obligations hereunder to one or more Eligible Transferees each of
which assignees shall
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<PAGE> 123
become a party to this Agreement as a Bank by execution of an assignment and
assumption agreement substantially in the form of Exhibit K (appropriately
completed); provided that: (i) at such time Schedule I shall be deemed modified
to reflect the Commitments of such new Bank and of the existing Banks; (ii) new
Notes will be issued to such new Bank and to the assigning Bank upon the request
of such new Bank or assigning Bank, such new Notes to be in conformity with the
requirements of Section 1.05 to the extent needed to reflect the revised
Commitments; (iii) the consent of the Agent shall be required in connection with
any assignment; and (iv) the Agent shall receive at the time of each such
assignment, from the assigning Bank, the payment of a non-refundable assignment
fee of $3,000. To the extent of any assignment pursuant to this Section
13.04(b), the assigning Bank shall be relieved of its obligations hereunder with
respect to its assigned Commitments. No transfer or assignment under this
Section 13.04(b) will be effective until recorded by the Agent on the Register
pursuant to Section 8.16. At the time of each assignment pursuant to this
Section 13.04(b) to a Person which is not already a Bank hereunder and which is
not a United States person (as such term is defined in Section 7701(a)(30) of
the Code) for Federal income tax purposes, the respective assignee Bank shall
provide to the Borrower, and the Agent the appropriate Internal Revenue Service
Forms (and, if applicable, a Section 4.04(b)(ii) Certificate) required by
Section 4.04(b).
13.05 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Agent or any Bank or any holder of any Note in exercising any right,
power or privilege hereunder or under any other Credit Document and no course of
dealing between a Borrower or any other Credit Party and the Agent or any Bank
or the holder of any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights, powers and remedies herein or in any other Credit Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
which the Agent or any Bank or the holder of any Note would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of the Agent or any Bank or the holder of
any Note to any other or further action in any circumstances without notice or
demand.
13.06 Payments Pro Rata. (a) The Agent agrees that promptly after
its receipt of each payment from or on behalf of the Borrower in respect of any
Obligations hereunder, it shall distribute such payment to the Banks pro rata
based upon their respective shares, if any, of the Obligations with respect to
which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right
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under the Credit Documents, or otherwise), which is applicable to the payment of
the principal of, or interest on, the Loans, Unpaid Drawings or Fees, of a sum
which with respect to the related sum or sums received by other Banks is in a
greater proportion than the total of such Obligation then owed and due to such
Bank bears to the total of such Obligation then owed and due to all of the Banks
immediately prior to such receipt, then such Bank receiving such excess payment
shall purchase for cash without recourse or warranty from the other Banks an
interest in the Obligations of the respective Credit Party to such Banks in such
amount as shall result in a proportional participation by all the Banks in such
amount; provided that if all or any portion of such excess amount is thereafter
recovered from such Bank, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
13.07 Calculations; Computations. (a) The financial statements to
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Banks); provided that, except as otherwise specifically provided herein, all
computations of Excess Cash Flow and all compu- tations determining compliance
with Sections 9.08 through 9.14, inclusive, including the definitions used
therein, shall otherwise utilize accounting principles and policies in
conformity with those used to prepare the historical financial statements for
the fiscal year ended December 31, 1996 delivered to the Banks pursuant to
Section 7.05.
(b) All computations of interest and Fees hereunder shall be made
on the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Fees are payable.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND
EMPOWERS CT CORPORATION SYSTEM WITH OFFICES ON
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<PAGE> 125
THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS DESIGNEE,
APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF,
AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS,
NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF
FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO
ACT AS SUCH, AND THE BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND
AGENT ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE
AGENT UNDER THIS AGREEMENT. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE
BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE
HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY
OTHER JURISDICTION.
(B) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS
OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
(C) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES
TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together
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<PAGE> 126
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Agent.
13.10 Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrower and each of the Banks shall
have signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Agent at its Notice Office or, in the case of the
Banks, shall have given to the Agent telephonic (confirmed in writing), written
or facsimile transmission notice (actually received) in accordance with Section
13.03 at such office that the same has been signed and mailed to it.
13.11 Headings Descriptive. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
13.12 Amendment or Waiver. (a) Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks; provided that no such change, waiver, discharge or termination
shall, without the consent of each Bank (with Obligations of the respective
types being directly affected thereby): (i) extend the final scheduled maturity
of any Loan or Note beyond the Final Maturity Date or extend the stated maturity
of any Letter of Credit beyond the Final Maturity Date, or reduce the rate or
extend the time of payment of interest or Fees thereon (except in connection
with a waiver of applicability of any post-default increase in interest rates),
or reduce the principal amount thereof, or increase the Commitments of any Bank
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Commitment
or a mandatory prepayment shall not constitute an increase of the Commitment of
any Bank, and that an increase in the available portion of any Commitment of any
Bank shall not constitute an increase in the Commitment of such Bank); (ii)
release all or substantially all of the Collateral (except as expressly provided
in the respective Credit Document); (iii) amend, modify or waive any provision
of this Section 13.12; (iv) reduce the percentage specified in, or otherwise
modify, the definition of Required Banks (it being understood that, with the
consent of the Required Banks, additional extensions of credit pursuant to this
Agreement may be included in the determination of the Required Banks on
substantially the same basis as the extensions of Term Loans, Capital
Expenditure Loans, Capital Expenditure Loan Commitments and Revolving Loan
Commitments are included on the Effective Date); or (v) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement; provided further, that no such change, waiver, discharge
or termination shall: (u) increase the Commitments of any Bank over the amount
thereof then in effect (it being understood that a waiver of any conditions
precedent, covenants, Defaults or Events of Default or of a man-
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<PAGE> 127
datory reduction in the Total Commitment or of a mandatory prepayment shall not
constitute an increase of the Commitment of any Bank, and that an increase in
the available portion of any Commitment of any Bank shall not constitute an
increase in the Commitment of such Bank) without the consent of such Bank; or
(v) without the consent of any Issuing Bank effected thereby, amend, modify or
waive any provision of Section 2 or alter its rights or obligations with respect
to Letters of Credit; or (w) without the consent of the Agent, amend, modify or
waive any provision of Section 12 or any other provision relating to the rights
or obligations of the Agent; or (x) without the consent of the Collateral Agent,
amend, modify or waive any provision of Section 12 or any other provision
relating to the rights or obligations of the Collateral Agent; or (y) without
the consent of the Required Term Facility Banks (A) amend, modify or waive (I)
Sections 4.01(v), 4.01(vi), 4.02(B)(a)(i) or the definitions of Term TL
Percentage or CapEx TL Percentage to the extent that, in any such case, such
amendment, modification or waiver would alter the application of prepayments or
repayments as between Term Loans and Capital Expenditure Loans in a manner
adverse to the Term Loans or (II) Section 4.02(A)(b) or the definition of
Required Term Facility Banks or (z) without the consent of the Required Capital
Expenditure Facility Banks (A) amend, modify or waive (I) Section 4.01(v),
4.01(vi), 4.02(B)(a)(i) or the definitions of Term TL Percentage or CapEx TL
Percentage to the extent that, in any such case, such amendment, modification or
waiver would alter the application of prepayments or repayments as between Term
Loans and Capital Expenditure Loans in a manner adverse to the Capital
Expenditure Loans or (II) Section 4.02(A)(c), the definition of Required Capital
Expenditure Facility Banks or the definition of Capital Expenditure Loan
Conversion Date.
(b) If, in connection with any proposed change, waiver, discharge
or termination to any of the provisions of this Agreement as contemplated by
clause (a)(i) through (v), inclusive, of the first proviso to Section 13.12(a),
the consent of the Required Banks is obtained but the consent of one or more of
such other Banks whose consent is required is not obtained, then the Borrower
shall have the right to replace each such non-consenting Bank or Banks (so long
as all non-consenting Banks are so replaced) with one or more Replacement Banks
pursuant to Section 1.12 so long as at the time of such replacement, each such
Replacement Bank consents to the proposed change, waiver, discharge or
termination, provided that such Borrower shall not have the right to replace a
Bank solely as a result of the exercise of such Bank's rights (and the
withholding of any required consent by such Bank) pursuant to clauses (u)-(z) of
the second proviso to Section 13.12(a).
(c) Notwithstanding anything to the contrary contained above in
this Section 13.12, the Collateral Agent may (i) enter into amendments to the
Subsidiaries Guaranty and the Security Documents for the purpose of adding
additional Subsidiaries of the Borrower (or other Credit Parties) as parties
thereto and (ii) enter into security documents to satisfy the requirements of
Sections 8.15, 8.17 and the definition of Permitted Store Developments, in each
case without the consent of the Required Banks.
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<PAGE> 128
13.13 Survival. All indemnities set forth herein including,
without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall
survive the execution and delivery of this Agreement and the Notes and the
making and repayment of the Loans.
13.14 Domicile of Loans. Each Bank may transfer and carry its
Loans at, to or for the account of any office, Subsidiary or Affiliate of such
Bank.
13.15 Confidentiality. (a) Subject to the provisions of clause (b)
of this Section 13.15, each Bank agrees that it will use its best efforts not to
disclose without the prior consent of the Borrower (other than to its employees,
auditors, advisors or counsel or to another Bank if the Bank or such Bank's
holding or parent company in its sole discretion determines that any such party
should have access to such information, provided such Persons shall be subject
to the provisions of this Section 13.15 to the same extent as such Bank) any
information with respect to the Borrower or any of its Subsidiaries which is now
or in the future furnished pursuant to this Agreement or any other Credit
Document and which is designated by the Borrower to the Banks in writing as
confidential, provided that any Bank may disclose any such information (a) as
has become generally available to the public, (b) as may be required or
appropriate in any report, statement or testimony submitted to any municipal,
state or Federal regulatory body having or claiming to have jurisdiction over
such Bank or to the Federal Reserve Board or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or elsewhere)
or their successors, (c) as may be required or appropriate in respect to any
summons or subpoena or in connection with any litigation, (d) in order to comply
with any law, order, regulation or ruling applicable to such Bank, (e) to the
Agent or the Collateral Agent, (f) to any prospective or actual transferee or
participant in connection with any contemplated transfer or participation of or
in any of the Notes or Commitments or any interest therein by such Bank,
provided, that such prospective transferee agrees to provisions substantially
the same as those contained in this Section and (g) to any rating agency.
(b) Each Credit Party hereby acknowledges and agrees that each
Bank may share with any of its affiliates any information related to the
Borrower or any of its Subsidiaries (including, without limitation, any
nonpublic customer information regarding the creditworthiness of the Borrower
and its Subsidiaries), provided such Persons shall be subject to the provisions
of this Section 13.15 to the same extent as such Bank.
13.16 Post-Closing Obligations. (a) Notwithstanding anything to
the contrary contained in this Agreement or the other Credit Documents, the
parties hereto acknowledge and agree that (x) the UCC financing statements
delivered by the relevant Credit Party on the Initial Borrowing Date shall be
filed in the appropriate governmental office within 3 Business Days after the
Initial Borrowing Date and (y) the filings of a Form 8-K with the SEC disclosing
the terms of the Transaction shall be completed in accordance with all
applicable securities law (including all timing requirements for such filing).
The
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<PAGE> 129
representations and warranties made in each of the Credit Documents with
respect to (x) the due filing or recording of such financing statements and the
perfection and priority of the security interests under the Security Documents,
and any defaults arising therefrom, shall be waived for such 3 Business Day
period and (y) the due filing of such Form 8-K shall be waived until the filing
deadline for such Form 8-K as provided under applicable securities law.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Credit Documents, the parties hereto acknowledge and
agree that as soon as practicable, but in any event not later than 120 days
following the Initial Borrowing Date, the Borrower shall have delivered to the
Collateral Agent all releases with respect to the trademarks of the Borrower and
its Subsidiaries, which releases shall be in form and substance satisfactory to
the Collateral Agent and otherwise in a form for filing with the United States
Patent and Trademark Office.
* * * *
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<PAGE> 130
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
MOOVIES, INC.
------------------
By:
Title:
787 Seventh Avenue
New York, New York 10019
Attention: Don Ercole
Telephone: (212) 841-2000
Facsimile: (212) 841-2333
<PAGE> 131
BANQUE PARIBAS,
Individually and as Agent
- --------------------
By:
Title:
- --------------------
By:
Title:
<PAGE> 132
SCHEDULE I
COMMITMENTS
<TABLE>
<CAPTION>
Capital
Expenditure Revolving
Term Loan Loan Loan
Bank Commitment Commitment Commitment Total
---- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Banque Paribas $ 4,000,000 $10,200,000 $ 0 $15,200,000
Jackson 5,500,000 8,500,000 0 14,000,000
National Life
Fleet National 5,500,000 8,500,000 0 14,000,000
Bank of
Massachusetts
First Source 3,500,000 5,500,000 0 9,000,000
Financial LLP
Merrill Lynch 5,000,000 0 0 9,000,000
Senior Floating
Rate Fund, Inc.
Creditanstalt- 3,500,000 5,500,000 0 9,000,000
Bankverein
Carolina First 0 800,000 4,000,000 4,800,000
Bank
Paribas Capital 3,000,000 2,000,000 0 5,000,000
Funding LLP
Totals: $30,000,000 $41,000,000 $ 4,000,000 $75,000,000
</TABLE>
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income per share calculations:
Income before extraordinary item $281 $ 1,765 $ 2,331 $ 201
Extraordinary item -- -- 64 229
---- -------- -------- --------
Net income $281 $ 1,765 $ 2,267 $ (28)
==== ======== ======== ========
Weighted average number
of common and common
equivalent shares are as follows:
Weighted average common
shares outstanding 3,184 10,273 12,008
Shares issued from assumed
exercise of options and
warrants (1) 211 182 184
---- -------- -------- --------
Weighted average number
of shares outstanding N/A 3,395 10,455 12,192
==== ======== ======== ========
Income per common and common equivalent shares:
Income before extraordinary item $ 0.52 $ 0.23 $ 0.02
Extraordinary item -- 0.01 0.02
---- -------- -------- --------
Net income N/A $ 0.52 $ 0.22 $ (0.00)
==== ======== ======== ========
</TABLE>
- ------------------------------------------
(1) Shares issued from assumed exercise of options and warrants include the
number of incremental shares which would result from applying the "treasury
stock method" for options and warrants, APB 15, paragraph 38 and Staff
Accouting Bulletin No. 83.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,889
<SECURITIES> 0
<RECEIVABLES> 919
<ALLOWANCES> 0
<INVENTORY> 7,260
<CURRENT-ASSETS> 15,344
<PP&E> 43,766
<DEPRECIATION> (7,373)
<TOTAL-ASSETS> 132,090
<CURRENT-LIABILITIES> 29,950
<BONDS> 28,750
0
0
<COMMON> 12
<OTHER-SE> 65,720
<TOTAL-LIABILITY-AND-EQUITY> 132,090
<SALES> 3,940
<TOTAL-REVENUES> 26,590
<CGS> 3,152
<TOTAL-COSTS> 22,634
<OTHER-EXPENSES> 3,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> 335
<INCOME-TAX> 134
<INCOME-CONTINUING> 201
<DISCONTINUED> 0
<EXTRAORDINARY> 229
<CHANGES> 0
<NET-INCOME> (28)
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
