LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (CENTRAL)
AS LENDER
AND
THE MUSICLAND GROUP, INC.
AS BORROWER
DATED: SEPTEMBER 29, 1999
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS........................................................1
SECTION 2. CREDIT FACILITIES..................................................8
2.1....Revolving Loans....................................................8
2.2....Letter of Credit Accommodations....................................9
2.3....Availability Reserves.............................................11
SECTION 3. INTEREST AND FEES.................................................11
3.1....Interest..........................................................11
3.2....Closing Fee.......................................................13
3.3....Servicing Fee.....................................................13
3.4....Unused Line Fee...................................................13
3.5....Changes in Laws and Increased Costs of Loans......................13
SECTION 4. CONDITIONS PRECEDENT..............................................14
4.1....Conditions Precedent to Initial Loans and Letter of Credit
Accommodations....................................................14
4.2....Conditions Precedent to All Loans and Letter of Credit
Accommodations....................................................15
SECTION 5. GRANT OF SECURITY INTEREST........................................16
SECTION 6. COLLECTION AND ADMINISTRATION.....................................17
6.1....Borrower's Loan Account...........................................17
6.2....Statements........................................................17
6.3....Collection of Proceeds of Inventory...............................17
6.4....Payments..........................................................19
6.5....Authorization to Make Loans.......................................19
6.6....Use of Proceeds...................................................20
SECTION 7. COLLATERAL REPORTING AND COVENANTS................................20
7.1....Collateral Reporting..............................................20
7.2....Inventory Covenants...............................................20
7.3....Power of Attorney.................................................21
7.4....Lender's Right to Cure............................................22
7.5....Access to Premises................................................22
SECTION 8. REPRESENTATIONS AND WARRANTIES....................................22
8.1....Corporate Existence, Power and Authority; Subsidiaries............22
8.2....Financial Statements; No Material Adverse Change..................23
8.3....Chief Executive Office; Collateral Locations......................23
8.4....Priority of Liens; Title to Properties............................23
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8.5....Tax Returns.......................................................23
8.6....Litigation........................................................24
8.7....Compliance with Other Agreements and Applicable Laws..............24
8.8....Environmental Compliance..........................................24
8.9....Employee Benefits.................................................25
8.10...Bank Accounts.....................................................26
8.11...Accuracy and Completeness of Information..........................26
8.12...Survival of Warranties; Cumulative................................26
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS................................27
9.1....Maintenance of Existence..........................................27
9.2....New Collateral Locations..........................................27
9.3....Compliance with Laws, Regulations, Etc............................27
9.4....Payment of Taxes and Claims.......................................28
9.5....Insurance.........................................................28
9.6....Financial Statements and Other Information........................29
9.7....Sale of Assets, Consolidation, Merger, Dissolution, Etc...........30
9.8....Encumbrances......................................................31
9.9....Compliance with ERISA.............................................31
9.10...Costs and Expenses................................................32
9.11...Further Assurances................................................32
SECTION 10 EVENTS OF DEFAULT AND REMEDIES....................................33
10.1...Events of Default.................................................33
10.2...Remedies..........................................................35
SECTION 11 JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW......36
11.1...Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver......................................................36
11.2...Waiver of Notices.................................................38
11.3...Amendments and Waivers............................................38
11.4...Waiver of Counterclaims...........................................38
11.5...Indemnification...................................................38
SECTION 12 TERM OF AGREEMENT; MISCELLANEOUS..................................39
12.1...Term..............................................................39
12.2...Notices...........................................................40
12.3...Partial Invalidity................................................40
12.4...Successors........................................................41
12.5...Entire Agreement..................................................41
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INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 1.36 Locations of Inventory
Schedule 8.4 Existing Liens
Schedule 8.8 Environmental Matters
Schedule 8.10 Bank Accounts
Schedule 10.1 Designated Officers
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated September 29, 1999 is
entered into by and between Congress Financial Corporation (Central), an
Illinois corporation ("Lender") and The Musicland Group, Inc., a Delaware
corporation ("Borrower").
W I T N E S S E T H
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WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural unless the context
otherwise requires. All references to Borrower and Lender pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this Agreement now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in accordance with Section
11.3 or is cured in a manner satisfactory to Lender, if such Event of Default is
capable of being cured as determined by Lender. Any accounting term used herein
unless otherwise defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:
1.1. "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether
or not the Reference Bank actually holds or has made any such deposits or loans.
The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.
1.2. "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets or business of Borrower or any Obligor or (iii) the security
interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect outstanding
Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in
respect of any state of facts which Lender determines in good faith constitutes
an Event of Default or may, with notice or passage of time or both, constitute
an Event of Default.
1.3. "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.4. "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the States of New York or Illinois, and a day on which the Reference
Bank and Lender are open for the transaction of business, except that if a
determination of a Business Day shall relate to any Eurodollar Rate Loans, the
term Business Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market or other applicable
Eurodollar Rate market.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.6. "Collateral" shall have the meaning set forth in Section 5 hereof.
1.7. "Company" shall mean Borrower, MRI, MPI and any other subsidiary of
Borrower which has granted to Lender a lien on its Inventory to secure the
Obligations.
1.8. "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower, MRI or
MPI or any other
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Company which is acceptable to lender in its sole discretion, which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) work-in-process; (b) components which are not
part of finished goods; (c) spare parts for equipment; (d) packaging and
shipping materials; (e) supplies used or consumed in Borrower's or any other
Company's business including, without limitation, displays and demonstration
Inventory; (f) Inventory at premises other than Specified Locations, provided,
that with respect to any Specified Location which is not owned and controlled by
Borrower or any other Company and which is subject to statutory or consensual
liens in favor of a third party, an Availability Reserve equal to two month's
rent for each such location shall be maintained unless Lender shall have
received an agreement in writing from the person in possession of such Inventory
and/or the owner or operator of such premises in form and substance satisfactory
to Lender acknowledging Lender's first priority security interest in the
Inventory, waiving security interests and claims by such person against the
Inventory and permitting Lender access to, and the right to remain on, the
premises so as to exercise Lender's rights and remedies and otherwise deal with
the Collateral; (g) Inventory subject to a security interest or lien in favor of
any person other than Lender except those permitted in this Agreement; (h) ▇▇▇▇
and hold goods; (i) unserviceable, obsolete or slow moving Inventory other than
"pack-aways" and goods returnable to vendors in accordance with such vendors'
return policies; (j) Inventory which is not subject to the first priority, valid
and perfected security interest of Lender; (k) returned, damaged and/or
defective Inventory other than such goods which are returnable to vendors within
vendors' return policy guidelines; and (l) Inventory purchased or sold on
consignment. General criteria for Eligible Inventory may be established and
revised from time to time by Lender in its reasonable discretion determined in
good faith. Any Inventory which is not Eligible Inventory shall nevertheless be
part of the Collateral except for consigned Inventory.
1.9. "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of
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1974, (ii)applicable state counterparts to such laws, and (iii) any common law
or equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to any
Hazardous Materials.
1.10. "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.11. "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.12. "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.13. "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.14. "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.15. "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.16. "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
1.17. "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or
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man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea
formaldehyde insulation, radioactive materials, biological substances, poly-
chlorinated biphenyls, pesticides, herbicides and any other kind and/or type of
pollutants or contaminants (including materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including any that are or become classified as hazardous or toxic under any
Environmental Law).
1.18. "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.19. "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.20. "Interest Rate" shall mean, as to Prime Rate Loans, a rate per
annum equal to the Prime Rate and, as to Eurodollar Rate Loans, a rate of one
and three-quarters (1.75%) percent per annum in excess of the Adjusted
Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period
selected by Borrower as in effect three (3) Business Days after the date of
receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in
accordance with the terms hereof, whether such rate is higher or lower than any
rate previously quoted to Borrower);provided, that, the Interest Rate shall mean
the rate of two (2.00%) percent per annum in excess of the Prime Rate as to
Prime Rate Loans and the rate of three and three-quarters (3.75%) percent per
annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at
Lender's option, without notice, (a) for the period (i) from and after the date
of termination or non-renewal hereof until Lender has received full and final
payment of all obligations (notwithstanding entry of a judgment against
Borrower) and (ii) from and after the date of the occurrence of an Event of
Default for so long as such Event of Default is continuing as determined by
Lender, and (b) on the Revolving Loans at any time outstanding in excess of the
amounts available to Borrower under Section 2 (whether or not such excess(es),
arise or are made with or without Lender's knowledge or consent and whether made
before or after an Event of Default), provided, that if the Revolving Loans
exceed the amounts available to Borrower under Section 2 as a result of the
implementation by Lender of a new Availability Reserve or a change to the
Eligible Inventory criteria, such increased rate of interest shall not be
applied unless the excess is not repaid by Borrower within seven (7) days after
notice to Borrower of such change.
1.21. "Inventory" shall mean all of Borrower's and each other Company's
now owned and hereafter existing or acquired raw materials, work in process,
finished goods
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and all other inventory of whatsoever kind or nature, at the Specified Locations
but does not include inventory that is no longer located at a Specified
Location.
1.22. "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any Obligor
or (b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by Borrower of its obligations to such
issuer.
1.23. "Loans" shall mean the Revolving Loans.
1.24. "Maximum Credit" shall mean the amount of $25,000,000.
1.25. "MPI" shall mean Media Play, Inc., a Subsidiary of Borrower.
1.26. "MRI" shall mean Musicland Retail, Inc., a Subsidiary of Borrower.
1.27. "Obligations" shall mean any and all Revolving Loans, Letter of
Credit Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, arising under this Agreement or any other Financing Agreement,
whether now existing or hereafter arising, whether arising before, during or
after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute (including the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case, whether or not such amounts are allowed or allowable in whole or in part
in such case), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and however acquired by Lender.
1.28. "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.29. "Payment Account" shall mean such account as Lender may designate
from time to time to receive payments with respect to the Obligations whether
from a Blocked Account or otherwise.
1.30. "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.
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1.31. "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
1.32. "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.33. "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral, together with
the tapes, disks, diskettes and other data and software storage media and
devices, file cabinets or containers in or on which the foregoing are stored
(including any rights of Borrower with respect to the foregoing maintained with
or by any other person).
1.34. "Reference Bank" shall mean First Union National Bank, or such
other bank as Lender may from time to time designate so long as any change in
Reference Bank applies to all similarly situated borrowers from Lender.
1.35. "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.36. "Specified Locations" shall mean the locations of Inventory listed
on Schedule 1.36 hereto, as such Schedule may be updated from time to time by
agreement of Borrower and Lender.
1.37. "Trigger Event" shall mean such time a s the Value of Eligible
Inventory is less than $150,000,000 and there are Loans or Letter of Credit
Obligations outstanding; provided, that no Trigger Event shall be deemed to
occur if the Value of Eligible Inventory increases to an amount in excess of
$150,000,000 (whether due to normal Inventory purchases or by Borrower pledging
or causing to be pledged to Lender additional Inventory) or if no Loans or
Letter of Credit Accommodations remain outstanding within (i) fifteen (15) days
if the aggregate outstanding balance of the Loans and Letter of Credit
Accommodations was less than $5,000,000 at the time of the occurrence of the
Trigger Event or (ii) seven (7) days if the aggregate outstanding balance of the
Loans and Letter of Credit Accommodations is greater than $5,000,000 at the time
of the Trigger Event. To the extent that a fifteen (15) day grace period
pursuant to clause (i) above is then in effect and the outstanding balance of
the Loans and Letter of Credit Accommodations increase during such grace period
to an amount greater than $5,000,000, the grace period shall be the shorter of
seven (7) days from the date the balance of the Loans and Letter of Credit
Obligations exceed $5,000,000 and the end of the fifteen (15) day grace period
already in effect. Notwithstanding the foregoing, to the extent that a Trigger
Event has occurred and Borrower intends to cure such Trigger Event by providing
additional Eligible Inventory (whether by including additional Specified
Locations or additional Obligors), the Trigger Event will be
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deemed not to have occurred if Borrower delivers or causes to be delivered to
Lender within the applicable grace period all documents, instruments, UCC
financing statements and agreements as Lender shall reasonably require to allow
Lender to perfect its liens on such additional Inventory; provided, that if
subsequent to delivery of such documentation it is determined that such
additional Inventory does not satisfy the eligibility criteria for Eligible
Inventory, the grace period to cure such Trigger Event (if such conditions still
exist) shall be limited to the number of unexpired days from the original grace
period.
1.38. "Value" shall mean, as reasonably determined by Lender in good
faith, with respect to Inventory, the lower of (a) cost computed on a
first-in-first-out basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1. Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the lesser of the Maximum Credit
and the sum of:
(i) Sixty-Five percent (65%) of the Value of Eligible Inventory;
provided, that following the occurrence and during the continuance of a
Trigger Event the advance rate set forth herein may, in Lender's
discretion, be limited to eighty-five percent (85%) of the net orderly
liquidation value of Eligible Inventory as determined by an appraisal
conducted by an appraiser satisfactory to Lender; less
(ii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not less than
five (5) days prior notice to Borrower, reduce the lending formula(s) with
respect to Eligible Inventory to the extent that Lender reasonably and in good
faith determines that: (i) the number of days of the turnover of the Inventory
for any period has changed in any material respect or (ii) the liquidation value
of the Eligible Inventory, or any category thereof, has materially decreased, or
(iii) the nature and quality of the Eligible Inventory has materially
deteriorated. In determining whether to reduce the lending formula(s), Lender
may consider (but without duplication) events, conditions, contingencies or
risks which are also considered in determining Eligible Inventory or in
establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the Loans and
the Letter of Credit Accommodations outstanding at any time shall not exceed the
Maximum Credit. In the event that the outstanding amount of any component of the
Loans, or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the
sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the
Maximum Credit, as applicable, such
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event shall not limit, waive or otherwise affect any rights of Lender in that
circumstance or on any future occasions and Borrower shall, upon demand by
Lender, which may be made at any time or from time to time, immediately repay to
Lender the entire amount of any such excess(es) for which payment is demanded.
2.2. Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained herein, at
the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to one and one-quarter
percent (1.25%) per annum on the daily outstanding balance of the Letter of
Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month, except that
Borrower shall pay to Lender such letter of credit fee, at Lender's option,
without notice, at a rate equal to three and one-quarter percent (3.25%) per
annum on such daily outstanding balance for: (i) the period from and after the
date of termination or non-renewal hereof until Lender has received full and
final payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default for so long as such Event of Default is continuing as
determined by Lender. Such letter of credit fee shall be calculated on the
basis of a three hundred sixty (360) day year and actual days elapsed and the
obligation of Borrower to pay such fee shall survive the termination or
non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on the
date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than: (i) if the proposed Letter
of Credit Accommodation is for the purpose of purchasing Eligible Inventory and
any negotiable documents of title evidencing such Eligible Inventory have been
consigned to Lender in a manner acceptable to Lender, the sum of (A) the
percentage equal to one hundred percent (100%) minus the then applicable
percentage set forth in Section 2.1(a)(i) above of the Value of such Eligible
Inventory or the orderly liquidation value of such Eligible Inventory at the
discretion of Lender following the occurrence and during the continuance of a
Trigger Event, plus (B) freight, taxes, duty and other amounts which Lender
estimates must be paid in connection with such Inventory upon arrival and for
delivery to one of Borrower's locations for Eligible Inventory within the United
States of America and (ii) if the proposed Letter of Credit Accommodation is for
any other purpose, or if any negotiable documents of title evidencing such
Eligible Inventory have not been consigned to Lender in a manner satisfactory to
Lender, an amount equal to one hundred (100%) percent of the face amount thereof
and all other commitments and
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obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodation, an Availability Reserve shall
be established in the applicable amount set forth in Section 2.2(c)(i) or
Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all outstanding Letter
of Credit Accommodations and all other commitments and obligations made or
incurred by Lender in connection therewith shall not at any time exceed
$20,000,000. At any time an Event of Default exists or has occurred and is
continuing, upon Lender's request, Borrower will either furnish cash collateral
to secure the reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Lender for the
Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrower shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses which
Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation. Borrower assumes all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any payment
request made with respect to any Letter of Credit Accommodation or any
documents, drafts or acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any instructions of Borrower. Lender
shall have the sole and exclusive right and authority to, and Borrower shall
not, at any time an Event of Default exists or has occurred and is continuing,
(i) approve or resolve any questions of non-compliance of documents, (ii)
give any instructions as to acceptance or rejection of any documents or goods,
(iii) execute any and all applications for steamship or airway guaranties,
indemnities or delivery orders, (iv) grant any extensions of the maturity of,
time of payment for, or time of presentation of,
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any drafts, acceptances, or documents, and (v) agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letter of Credit Accommodations,
or documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. Lender may take such actions either in its own name or in
Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken by
Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3. Availability Reserves.
All Revolving Loans otherwise available to Borrower pursuant to the
lending formulas and subject to the Maximum Credit and other applicable limits
hereunder shall be subject to Lender's continuing right to establish and revise
Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1. Interest.
(a) Borrower shall pay to Lender interest on the outstanding principal
amount of the non-contingent Obligations at the Interest Rate. All interest
accruing hereunder on and after the date of any Event of Default or termination
or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of such a
request from Borrower, such Prime Rate Loans shall be converted to Eurodollar
Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be,
provided, that, (i) no Event of Default, or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing, (ii) no party hereto shall have sent any notice of termination
or non-renewal of this Agreement, (iii) Borrower shall have complied with such
customary procedures as are established by Lender and specified by Lender to
Borrower from time to time for requests by Borrower for Eurodollar Rate Loans,
(iv) no more than seven (7) Interest Periods may be in effect at any one time,
(v) the
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aggregate amount of the Eurodollar Rate Loans must be in an amount not less than
$3,000,000 or an integral multiple of $1,000,000 in excess thereof, (vi) at
any time that a Trigger Event has occurred and is continuing, the maximum amount
of the Eurodollar Rate Loans at any time requested by Borrower shall not exceed
the amount equal to ninety percent (90%) of the lowest principal amount of the
Revolving Loans which it is anticipated will be outstanding during the
applicable Interest Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii) Lender shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available to
Lender through the Reference Bank and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any
existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to
the contrary contained herein, Lender and Reference Bank shall not be required
to purchase United States Dollar deposits in the London interbank market or
other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but
the provisions hereof shall be deemed to apply as if Lender and Reference Bank
had purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate
Loans upon the last day of the applicable Interest Period, unless Lender has
received and approved a request to continue such Eurodollar Rate Loan at least
three (3) Business Days prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice by
Lender to Borrower, convert to Prime Rate Loans in the event that (i) an Event
of Default or event which, with the notice or passage of time, or both, would
constitute an Event of Default, shall exist, (ii) this Agreement shall terminate
or not be renewed, or (iii) the aggregate principal amount of the Prime Rate
Loans which have previously been converted to Eurodollar Rate Loans or existing
Eurodollar Rate Loans continued, as the case may be, at the beginning of an
Interest Period shall at any time during such Interest Period exceed either (A)
the aggregate principal amount of the Loans then outstanding, or (B) the
Revolving Loans then available to Borrower under Section 2 hereof. Borrower
shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge
any loan account of Borrower, provided, that Lender shall notify Borrower within
five (5) Business Days of any such charge to a loan account of Borrower) any
amounts required to compensate Lender, the Reference Bank or any participant
with Lender for any loss (including loss of anticipated profits), cost or
expense incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in arrears
not later than the first day of each calendar month and shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. The
interest rate on non-contingent Obligations (other than Eurodollar Rate Loans)
shall increase or decrease by an amount equal to each increase or decrease in
the Prime Rate effective on the first day of the month after any change in such
Prime Rate is announced based on the Prime Rate in effect on the last day of the
month in which any such change occurs. In no event shall charges constituting
interest payable by Borrower to Lender exceed the maximum amount or the rate
permitted under any
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applicable law or regulation, and if any such part or provision of this
Agreement is in contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
3.2. Closing Fee.
Borrower shall pay to Lender as a closing fee the amount of $93,750,
which shall be fully earned as of and payable on the date hereof.
3.3. Servicing Fee.
Borrower shall pay to Lender annually a servicing fee in an amount equal
to $10,000 in respect of Lender's services for each year (or part thereof) while
this Agreement remains in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be fully earned as of and payable
in advance on the date hereof and on each anniversary of the date of this
Agreement.
3.4. Unused Line Fee.
Borrower shall pay to Lender monthly an unused line fee at a rate equal
to one-eighth of one percent (0.125%) per annum calculated upon the amount by
which $25,000,000 exceeds the average daily principal balance of the outstanding
Revolving Loans and Letter of Credit Accommodations during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
3.5. Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to Prime
Rate Loans in the event that (i) any change in applicable law or regulation (or
the interpretation or administration thereof) shall either (A) make it unlawful
for Lender, Reference Bank or any participant to make or maintain Eurodollar
Rate Loans or to comply with the terms hereof in connection with the Eurodollar
Rate Loans, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any participant of making or maintaining any Eurodollar Rate
Loans by an amount deemed by Lender to be material, or (C) reduce the amounts
received or receivable by Lender in respect thereof, by an amount deemed by
Lender to be material or (ii) the cost to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans shall otherwise
increase by an amount deemed by Lender to be material. Borrower shall pay to
Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower, provided, that Lender shall notify Borrower within five (5)
Business Days of any such charge to a loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or any participant with Lender
for any loss (including loss of anticipated profits), cost or expense incurred
by such person as a result of the foregoing, including, without limitation, any
such loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person
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to make or maintain the Eurodollar Rate Loans or any portion thereof. A
certificate of Lender setting forth the basis for the determination of such
amount necessary to compensate Lender as aforesaid shall be delivered to
Borrower and shall be conclusive, absent manifest error. If any such change in
law or increased cost becomes effective at a time when no Eurodollar Rate Loans
are then outstanding, Lender shall give notice to Borrower of such change or
increased cost prior to making or converting any Loan to a Eurodollar Rate Loan.
(b) If any payments or prepayments in respect of the Eurodollar Rate
Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower, provided, that Lender shall notify Borrower within
five (5) Business Days of any such change to a loan account of Borrower) any
amounts required to compensate Lender, the Reference Bank or any participant
with Lender for any additional loss (including loss of anticipated profits),
cost or expense incurred by such person as a result of such prepayment or
payment, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such person to make or maintain such Eurodollar Rate Loans or any portion
thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1. Conditions Precedent to Initial Loans and Letter of Credit
Accommodations.
Each of the following is a condition precedent to Lender making the
initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lender or
lenders to Borrower and each other Company of their respective financing
arrangements with Borrower and the other Companies and the termination and
release by it or them, as the case may be, of any interest in and to any assets
and properties of Borrower and each Obligor, duly authorized, executed and
delivered by it or each of them, including, but not limited to, (i) UCC
termination statements for all UCC financing statements previously filed by it
or any of them or their predecessors, as secured party and Borrower or any
Obligor, as debtor and (ii) satisfactions and discharges of any mortgages, deeds
of trust or deeds to secure debt by Borrower or any Obligor in favor of such
existing lender or lenders, in form acceptable for recording in the appropriate
government office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the
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Obligations or the liability of any Obligor in respect thereof, subject only to
the security interests and liens permitted herein or in the other Financing
Agreements;
(c) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the assets
business or prospects of Borrower or any Obligor since the date of Lender's
latest field examination and no change or event shall have occurred which would
impair the ability of Borrower or any Obligor to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce the Obligations or realize upon the Collateral;
(e) Lender shall have completed a field review of the Records and such
other information with respect to the Collateral and the other collateral
pledged by the other Companies as Lender may require to determine the amount of
Revolving Loans available to Borrower, the results of which shall be
satisfactory to Lender, not more than seven (7) Business Days prior to the date
hereof;
(f) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower and the Other Companies with
respect to the Financing Agreements and such other matters as Lender may
request; and
(h) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2. Conditions Precedent to All Loans and Letter of Credit
Accommodations.
Each of the following is a condition precedent to Lender making Loans
and/or providing Letter of Credit Accommodations to Borrower, including the
initial Loans and Letter of Credit Accommodations and any future Loans and
Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct in all material respects with the
same effect
-15-
as though such representations and warranties had been made on and as of the
date of the making of each such Loan or providing each such Letter of Credit
Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice or
passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1. all present and future rights of Borrower to payment for goods sold
or leased or for services rendered which are not evidenced by instruments or
chattel paper, and whether or not earned by performance;
5.2. all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of other Collateral, including (a) rights and
remedies under or relating to insurance related to the Collateral, (b) rights of
stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (c) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Collateral, including returned, repossessed and
reclaimed goods;
5.3. Inventory (excluding Inventory consigned to Borrower);
5.4. those Records which relate specifically to the Collateral described
in the other provisions of this Section 5;
5.5. all insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the Inventory (excluding
consigned Inventory); and
5.6. all products and proceeds of the foregoing.
Notwithstanding the foregoing, Lender's security interest in the
Collateral described in Sections 5.1 and 5.2 shall (i) only attach and be
effective at such times as a Trigger Event is then continuing and (ii) be
limited to only those accounts, and proceeds
-16-
related thereto, arising from the sale of Inventory (excluding consigned
Inventory) from the Specified Locations to unrelated third parties. Further,
notwithstanding the foregoing, Inventory which is no longer located at a
Specified Location shall cease to constitute Collateral, nor shall the proceeds
of such Inventory which is no longer located at a Specified Location constitute
Collateral.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1. Borrower's Loan Account.
Lender shall maintain one or more loan account(s) on its books in which
shall be recorded (a) all Loans, Letter of Credit Accommodations and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including fees, charges, costs, expenses and interest. All entries in
the loan account(s) shall be made in accordance with Lender's customary
practices as in effect from time to time.
6.2. Statements.
Lender shall render to Borrower each month a statement setting forth the
balance in the Borrower's loan account(s) maintained by Lender for Borrower
pursuant to the provisions of this Agreement, including principal, interest,
fees, costs and expenses. Each such statement shall be subject to subsequent
adjustment by Lender but shall, absent manifest errors or omissions, be
considered correct and deemed accepted by Borrower and conclusively binding upon
Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
7.3. Collection of Proceeds of Inventory.
(a) Within one hundred eighty (180) days of the date hereof, or such
earlier time as a Trigger Event has occurred, Borrower and MPI shall establish
an account (the "Concentration Account") which, following the occurrence and
during the continuance of a Trigger Event, will receive all proceeds from the
deposit accounts of MPI with respect to Specified Locations or other proceeds
with respect to sales of Inventory from the Specified Locations. The bank at
which the Concentration Account is maintained shall enter into an agreement, in
form and substance satisfactory to Lender, providing that at any time that
Lender has notified such bank that a Trigger Event has occurred and is
continuing, all items received or deposited in the Concentration Account will be
the property of Lender, that the depository bank has no lien upon, or right to
setoff against, the Concentration Account or the funds on deposit in such
Concentration Account and that the depository bank will wire, or
-17-
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited in the Concentration Account to the Payment Account.
(b) At Lender's discretion, at any time that a Trigger Event has occurred
and is continuing, Borrower shall establish and maintain, and cause each other
Company to establish and maintain, at its expense, blocked accounts or lockboxes
and related blocked accounts (in either case, "Blocked Accounts"), as Lender
may specify, with such banks as are acceptable to Lender into which Borrower and
such Company shall promptly deposit all payments constituting proceeds of
Inventory or other Collateral in the identical form in which such payments are
made, whether by cash, check or other manner. Such Blocked Accounts may be the
existing bank accounts of Borrower and each other Company with respect to
Specified Locations, provided that the banks at which such accounts are
maintained agree to execute the required agreements described herein. The banks
at which the Blocked Accounts are established shall enter into an agreement, in
form and substance satisfactory to Lender, providing that all items received or
deposited in the Blocked Accounts are the property of Lender, that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to the Concentration Account. Borrower
agrees that all payments made to such Concentration Account or Blocked Accounts
or other funds received and collected by Lender, as proceeds of Inventory or
other Collateral or otherwise shall be the property of Lender.
(c) For purposes of calculating the amount of the Loans available to
Borrower, such payments and any other payments made by Borrower will be
applied (conditional upon final collection) to the Obligations on the Business
Day of receipt by Lender of immediately available funds in the Payment Account
provided such payments and notice thereof are received in accordance with
Lender's usual and customary practices as in effect from time to time and within
sufficient time to credit Borrower's loan account on such day, and if not, then
on the next Business Day. For the purposes of calculating interest on the
Obligations, such payments or other funds received will be applied (conditional
upon final collection) to the Obligations on the Business Day of receipt of
immediately available funds by Lender in the Payment Account provided such
payments or other funds and notice thereof are received in accordance with
Lender's usual and customary practices as in effect from time to time and within
sufficient time to credit Borrower's loan account on such day, and if not, then
on the next Business Day.
(d) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Collateral which come into their possession or
under their control and immediately upon receipt thereof, shall deposit or cause
the same to be deposited in the Blocked Accounts, or remit the same or cause the
same to be remitted, in kind, to Lender. In no event shall the same be
commingled with Borrower's own funds. Borrower agrees to reimburse Lender on
demand for any amounts owed or paid to any bank at which a Blocked Account is
established
-18-
or any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or indemnification of such
bank or person. The obligation of Borrower to reimburse Lender for such amounts
pursuant to this Section 6.3 shall survive the termination or non-renewal of
this Agreement.
6.4. Payments.
At any time that a Blocked Account has been established pursuant to
Section 6.3, all Obligations shall be payable to the Payment Account as provided
in such Section 6.3 or such other place as Lender may designate from time to
time. At all other times, all Obligations shall be payable in full to the
Payment Account as set forth in Section 12.1(a). Prior to such payment in full,
Borrower may make payments to the Payment Account in its discretion and reborrow
Revolving Loans, subject to the terms and limitations of this Agreement.
Lender may apply payments received or collected from Borrower or for the account
of Borrower (including the monetary proceeds of collections or of realization
upon any Collateral) to such of the Obligations, whether or not then due, in
such order and manner as Lender determines. At Lender's option, all principal,
interest, fees, costs, expenses and other charges provided for in this Agreement
or the other Financing Agreements may be charged directly to the loan account(s)
of Borrower. Borrower shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrower shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5. Authorization to Make Loans.
Lender is authorized to make the Loans and provide the Letter of Credit
Accommodations based upon telephonic, facsimile or other instructions received
from anyone purporting to be an officer of Borrower or other authorized person
or, at the discretion of Lender, if such Loans are necessary to satisfy any
Obligations. All requests for Loans or Letter of Credit Accommodations hereunder
shall specify the date on which the requested advance is to be made or Letter of
Credit Accommodations established (which day shall be a Business Day) and the
amount of the requested Loan. Requests received after 11:00 a.m. Chicago time on
any day shall be deemed to have been made as of the opening of business on the
immediately following Business Day. All Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed to have been
made
-19-
to, and at the request of and for the benefit of, Borrower when deposited to the
credit of Borrower or otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and conditions of this
Agreement.
6.6. Use of Proceeds.
Borrower shall use the initial proceeds of the Loans provided by Lender
to Borrower hereunder only for: (a) payments to each of the persons listed in
the disbursement direction letter furnished by Borrower to Lender on or about
the date hereof and (b) costs, expenses and fees in connection with the
preparation, negotiation, execution and delivery of this Agreement and the other
Financing Agreements. All other Loans made or Letter of Credit Accommodations
provided by Lender to Borrower pursuant to the provisions hereof shall be used
by Borrower only for general operating, working capital and other proper
corporate purposes of Borrower not otherwise prohibited by the terms hereof.
None of the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Loans to
be considered a "purpose credit" within the meaning of Regulation G of the Board
of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1. Collateral Reporting.
Borrower shall provide Lender with the following documents in a form
satisfactory to Lender with respect to Borrower and each other Company: on a
monthly basis (not later than the 21st day of each month), or more frequently as
Lender may request at any time that a Trigger Event has occurred and is
continuing, (a) perpetual inventory reports by category and location; (b) upon
Lender's request, (i) access to deposit slips and bank statements with the
ability for Lender to obtain copies of such records, (ii) agings of accounts
payable, (iii) access to shipping and delivery information with the ability for
Lender to obtain copies of such records, (iv) copies of vendor return policies
and (v) access to purchase orders, invoices and delivery documents for Inventory
acquired by Borrower with the ability for Lender to obtain copies of such
records; and (c) such other reports as to the Collateral and the collateral
pledged by each other Company to the Lender as Lender shall reasonably request
from time to time. If any of Borrower's records or reports of the Collateral are
prepared or maintained by an accounting service, contractor, shipper or other
agent, Borrower hereby irrevocably authorizes such service, contractor, shipper
or agent to deliver such records, reports, and related documents to Lender and
to follow Lender's instructions with respect to further services at any time
that an Event of Default exists or has occurred and is continuing.
7.2. Inventory Covenants.
With respect to the Inventory: (a) Borrower shall, and shall cause each
other Company to, at all times maintain inventory records reasonably
satisfactory to Lender,
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keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's, and each other Company's cost
therefor and daily withdrawals therefrom and additions thereto; (b) Borrower
shall, and shall cause each other Company to, conduct a physical count of the
Inventory at least once each year, but at any time or times as Lender may
request on or after an Event of Default, and promptly following such physical
inventory shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender concerning such physical
count; (c) neither Borrower nor any other Company shall remove any Inventory
from the Specified Locations, without the prior written consent of Lender,
except for sales of Inventory in the ordinary course of such Company's business
and except to move Inventory to or from the distribution center to any location,
to vendors for return in the ordinary course of business or directly from one
store to another store; (d) upon Lender's request at any time that a Trigger
Event has occurred and is continuing, Borrower shall, at its expense, at any
time or times as Lender may request, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory of each Company in form, scope
and methodology acceptable to Lender and by an appraiser acceptable to Lender,
addressed to Lender or upon which Lender is expressly permitted to rely; (e)
Borrower shall, and shall cause each other Company to, produce, use, store and
maintain the Inventory with all reasonable care and caution and in accordance
with applicable standards of any insurance and in conformity with applicable
laws (including the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto); (f)
Borrower assumes all responsibility and liability arising from or relating to
the production, use, sale or other disposition of the Inventory; (g) Borrower
shall, and shall cause each other Company to, keep the Inventory in good and
marketable condition; and (h) Borrower shall not, and shall cause each other
Company not to without prior written notice to Lender, acquire or accept any
Inventory on consignment or approval unless such Inventory is readily
identifiable.
7.3. Power of Attorney.
Borrower hereby irrevocably designates and appoints Lender (and all
persons designated by Lender) as Borrower's true and lawful attorney-in-fact,
and authorizes Lender, in Borrower's or Lender's name, to: (a) at any time an
Event of Default or event which with notice or passage of time or both would
constitute an Event of Default exists or has occurred and is continuing do all
acts and things which are necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement and the other Financing Agreements,
(b) at any time that a Trigger Event has occurred and is continuing to (i) take
control in any manner of any item of payment or proceeds thereof, (ii) have
access to any lockbox or postal box into which Borrower's mail is deposited and
(iii) endorse Borrower's name upon any items of payment proceeds of Collateral
thereof and deposit the same in the Lender's account for application to the
Obligations, and (c)at any time, execute in Borrower's name and file any UCC
financing statements or amendments thereto. Borrower hereby releases Lender and
its officers, employees and designees from any liabilities arising from any act
or acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's own gross negligence or
willful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.
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7.4. Lender's Right to Cure.
Lender may, after reasonable notice to Borrower, at its option, (a) cure
any default by Borrower under any agreement with a third party or pay or bond on
appeal any judgment entered against Borrower, (b) discharge taxes, liens,
security interests or other encumbrances at any time levied on or existing with
respect to the Collateral and (c) pay any amount, incur any expense or perform
any act which, in Lender's judgment, is necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations and charge
Borrower's account therefor, such amounts to be repayable by Borrower on demand.
Lender shall be under no obligation to effect such cure, payment or bonding and
shall not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.5. Access to Premises.
Once each year or, at any time a Trigger Event has occurred and is
continuing, at such times as Lender may request, in any case, at the cost and
expense of Borrower (provided, that one audit each year shall be deemed to be
paid for by the servicing fee set forth in Section 3.3), (a) Lender or its
designee shall have complete access to all of Borrower's premises where
Collateral is located during normal business hours and after notice to Borrower,
or at any time and without notice to Borrower if an Event of Default exists or
has occurred and is continuing, for the purposes of inspecting, verifying and
auditing the Collateral and all of Borrower's books and records, including the
Records, and (b) Borrower shall promptly furnish to Lender access to, and the
ability to obtain copies of such books and records or extracts therefrom as
Lender may reasonably request, and (c) use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the realization of Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1. Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing under the
laws of its state of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where the
nature and extent of the business transacted by it or the ownership of assets
makes such qualification necessary, except for those jurisdictions in which the
failure to so qualify would not have a material adverse effect
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on Borrower's financial condition, results of operation or business or the
rights of Lender in or to any of the Collateral. The execution, delivery and
performance of this Agreement, the other Financing Agreements and the
transactions contemplated hereunder and thereunder are all within Borrower's
corporate powers, have been duly authorized and are not in contravention of law
or the terms of Borrower's certificate of incorporation, by-laws, or other
organizational documentation, or any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower or its property are bound. This
Agreement and the other Financing Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their respective terms.
Borrower does not have any subsidiaries except as set forth on the Information
Certificate.
8.2. Financial Statements; No Material Adverse Change.
All financial statements relating to Borrower which have been or may
hereafter be delivered by Borrower to Lender have been prepared in accordance
with GAAP and fairly present the financial condition and the results of
operation of Borrower as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished by Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by Borrower to Lender prior to the date of this Agreement.
8.3. Chief Executive Office; Collateral Locations.
The chief executive office of Borrower and Borrower's Records are located
only at the addresses set forth in the Information Certificate and its only
other places of business and the only other locations of Collateral, if any, are
the addresses set forth in the Information Certificate, subject to the right of
Borrower to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are not
owned by Borrower and sets forth the owners and/or operators thereof.
8.4. Priority of Liens; Title to Properties.
The security interests and liens granted to Lender under this Agreement
and the other Financing Agreements constitute valid and perfected first priority
liens and security interests in and upon the Collateral subject only to the
liens indicated on Schedule 8.4 hereto and the other liens permitted under
Section 9.8 hereof. Borrower has good and marketable title to all of its
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those granted to Lender
and such others as are specifically listed on Schedule 8.4 hereto or permitted
under Section 9.8 hereof.
8.5. Tax Returns.
Borrower has filed, or caused to be filed, in a timely manner all tax
returns, reports and declarations which are required to be filed by it. All
information in such tax
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returns, reports and declarations is complete and accurate in all material
respects. Borrower has paid or caused to be paid all taxes due and payable or
claimed due and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
8.6. Litigation.
Except as set forth on the Information Certificate, there is no present
investigation by any governmental agency pending, or to the best of Borrower's
knowledge threatened, against or affecting Borrower, its assets or business and
there is no action, suit, proceeding or claim by any Person pending, or to the
best of Borrower's knowledge threatened, against Borrower or its assets or
goodwill, or against or affecting any transactions contemplated by this
Agreement, which if adversely determined against Borrower would result in any
material adverse change in the assets, business or prospects of Borrower or
would impair the ability of Borrower to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce any Obligations or realize upon any Collateral.
8.7. Compliance with Other Agreements and Applicable Laws.
Borrower is not in default under, or in violation of any of the terms of,
any agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound, except for such defaults or
violations which would not reasonably be expected to have a material adverse
effect on the business, assets, results of operations or financial condition of
Borrower and Borrower is in compliance with all applicable provisions of laws,
rules, regulations, licenses, permits, approvals and orders of any foreign,
Federal, State or local governmental authority except for such noncompliance
which would not reasonably be expected to have a material adverse effect on the
business, assets, results of operations or financial condition of Borrower.
8.8. Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto and except for events
which have been resolved with the appropriate governmental authorities and with
respect to which no liabilities remain unsatisfied, Borrower has not generated,
used, stored, treated, transported, manufactured, handled, produced or disposed
of any Hazardous Materials, on or off its premises (whether or not owned by it)
in any manner which at any time violates any applicable Environmental Law or any
license, permit, certificate, approval or similar authorization thereunder and
the operations of Borrower complies in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
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(b) Except as set forth on Schedule 8.8 hereto and except for
investigations, proceedings, complaints, orders, directives, claims, citations
or notices which have been resolved with the appropriate governmental
authorities and with respect to which no liabilities remain unsatisfied, there
has been no investigation, proceeding, complaint, order, directive, claim,
citation or notice by any governmental authority or any other person nor is any
pending or to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower has no unsatisfied material liability (contingent or
otherwise) in connection with a release, spill or discharge, threatened or
actual, of any Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials.
(d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
8.9. Employee Benefits.
(a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.9(c) hereof and any deficiency with respect to vested accrued benefits
described in Section 8.9(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by Borrower to be incurred with respect to any employee benefit
plan of Borrower or any of its ERISA Affiliates. There has been no reportable
event (within the meaning of Section 4043(b) of ERISA) or any other event or
condition with respect to any employee pension benefit plan of Borrower or any
of its ERISA Affiliates which presents a risk of termination of any such plan
by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any of
its ERISA Affiliates is required under Section 302 of ERISA and Section 412 of
the Code to have paid under the terms of each employee benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof, and no accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any employee benefit plan, including
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any penalty or tax described in Section 8.9(a) hereof and any deficiency with
respect to vested accrued benefits described in Section 8.9(d) hereof.
(d) The current value of all vested accrued benefits under all employee
benefit plans maintained by Borrower that are subject to Title IV of ERISA does
not exceed the current value of the assets of such plans allocable to such
vested accrued benefits, including any penalty or tax described in Section
8.9(a) hereof and any accumulated funding deficiency described in Section 8.9(c)
hereof. The terms "current value" and "accrued benefit" have the meanings
specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever been
obligated to contribute to any "multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10. Bank Accounts.
All of the deposit accounts or other accounts with respect to the
Specified Locations in the name of or used by Borrower or any other Company
maintained at any bank or other financial institution are set forth on Schedule
8.10 hereto, subject to the right of Borrower and such other Companies to
establish new accounts with at least ten (10) days' prior written notice to
Lender.
8.11. Accuracy and Completeness of Information.
All information furnished by or on behalf of Borrower in writing to
Lender in connection with this Agreement or any of the other Financing
Agreements or any transaction contemplated hereby or thereby, including all
information on the Information Certificate is true and correct in all material
respects on the date as of which such information is dated or certified and does
not omit any material fact necessary in order to make such information not
misleading. No event or circumstance has occurred which has had or could
reasonably be expected to have a material adverse affect on the business, assets
or prospects of Borrower, which has not been fully and accurately disclosed to
Lender in writing.
8.12. Survival of Warranties; Cumulative.
All representations and warranties contained in this Agreement or any of
the other Financing Agreements shall survive the execution and delivery of this
Agreement and shall be deemed to have been made again to Lender on the date of
each additional borrowing or other credit accommodation hereunder and shall be
conclusively presumed to have been relied on by Lender regardless of any
investigation made or information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition to any other
representations or warranties which Borrower shall now or hereafter give, or
cause to be given, to Lender.
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SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1. Maintenance of Existence.
Borrower shall at all times preserve, renew and keep in full, force and
effect its corporate existence and rights and franchises with respect thereto
and maintain in full force and effect all permits, licenses, trademarks,
tradenames, approvals, authorizations, leases and contracts necessary to carry
on the business as presently or proposed to be conducted. Borrower shall give
Lender written notice of any proposed change in its corporate name at least
thirty (30) days prior to such change becoming effective, which notice shall set
forth the new name and Borrower shall deliver to Lender a copy of the amendment
to the Certificate of Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2. New Collateral Locations.
Borrower and each other Company may open any new location within the
continental United States provided Borrower (a) gives Lender thirty (30) days
prior written notice of the intended opening of any such new location which is
to be a Specified Location or any existing location which is being newly
designated as a Specified Location and (b) executes and delivers, or causes to
be executed and delivered, to Lender such agreements, documents, and instruments
as Lender may deem reasonably necessary or desirable to protect its interests in
the Collateral at a new Specified Location, including UCC financing statements;
provided, that the thirty (30) day notice period will be waived with respect to
the designation of a new Specified Location which is being pledged to cure a
Trigger Event within the required grace period.
9.3. Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material respects with
all laws, rules, regulations, licenses, permits, approvals and orders applicable
to it and duly observe all requirements of any Federal, State or local
governmental authority, including the Employee Retirement Security Act of 1974,
as amended, the Occupational Safety and Health Act of 1970, as amended, the
Fair Labor Standards Act of 1938, as amended, and all statutes, rules,
regulations, orders, permits and stipulations relating to environmental
pollution and employee health and safety, including all of the Environmental
Laws, except for such noncompliance which would not have a material adverse
effect on Borrower, its business or assets.
(b) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by Borrower or (B) the release, spill or discharge, threatened
or actual,
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of any Hazardous Material or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or (D) any other environmental, health or safety matter, which affects
Borrower or its business, operations or assets or any properties at which
Borrower transported, stored or disposed of any Hazardous Materials.
(c) Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including attorneys' fees and legal expenses) directly or indirectly
arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrower and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4. Payment of Taxes and Claims.
Borrower shall duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes, assessments, contributions and governmental charges
the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books. Borrower shall be
liable for any tax or penalties imposed on Lender as a result of the financing
arrangements provided for herein and Borrower agrees to indemnify and hold
Lender harmless with respect to the foregoing, and to repay to Lender on demand
the amount thereof, and until paid by Borrower such amount shall be added and
deemed part of the LOANS, PROVIDED, THAT, nothing contained herein shall be
construed to require Borrower to pay any income or franchise taxes attributable
to the income of Lender from any amounts charged or paid hereunder to Lender.
The foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5. Insurance.
Borrower shall, at all times, maintain with Zurich Insurance Co. or other
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
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obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance. Borrower
shall cause Lender to be named as a loss payee and an additional insured (but
without any liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable endorsements to all
insurance policies in form and substance satisfactory to Lender. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations, provided, that any insurance proceeds received by Lender from a
loss at a Specified Location other than the main distribution center will be
promptly delivered by Lender to Borrower so long as (i) no Event of Default is
then continuing and (ii) no Trigger Event is then continuing.
9.6. Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated and consolidating financial statements (including in each
case balance sheets, statements of income and loss, and statements of cash flow
(such statement of cash flow to be prepared on a consolidated basis only)), all
in reasonable detail, fairly presenting the financial position and the results
of the operations of Borrower and its subsidiaries as of the end of and through
such fiscal month and (ii) within ninety (90) days after the end of each fiscal
year, audited consolidated financial statements and unaudited consolidating
financial statements of Borrower and its subsidiaries (including in each case
balance sheets, statements of income and loss and statements of cash flow (such
statement of cash flow to be prepared on a consolidated basis only)), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP or another independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrower and its subsidiaries
as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details of
(i) any material loss, damage, investigation, action, suit, proceeding or claim
relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition,
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financial or otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would constitute an
Event of Default.
(c) Borrower shall promptly after the sending or filing thereof furnish
or cause to be furnished to Lender access to, and the ability to obtain copies
of all reports which Borrower sends to its stockholders generally and copies of
all reports and registration statements which Borrower files with the Securities
and Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Once each year, so long as no Event of Default has occurred, Borrower
shall furnish or cause to be furnished to Lender such budgets, forecasts,
projections and other information respecting the Collateral and the business of
Borrower which Borrower prepares in the ordinary course of its business,
provided that during the continuance of an Event of Default Borrower shall
provide such information as and when Lender requests such information. Lender is
hereby authorized to deliver a copy of any financial statement or any other
information relating to the business of Borrower to any court or other
government agency or, provided, that such party has executed a confidentiality
agreement acceptable to Borrower and Lender in their reasonable determination,
to any participant or assignee or prospective participant or assignee. Borrower
hereby irrevocably authorizes all accountants or auditors to deliver to Lender,
at Borrower's expense, copies of reports of internal controls of Borrower and
any reports or management letters prepared by such accountants or auditors on
behalf of Borrower and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
(e) Borrower shall give Lender prior written notice of any amendment to
documents evidencing indebtedness of Borrower, Musicland Stores Corporation or
any other Company owing to any unrelated third parties.
9.7. Sale of Assets, Consolidation, Merger, Dissolution, Etc.
To the extent prohibited pursuant to that certain Indenture dated as of
April 6, 1998 among Musicland Stores Corporation, Borrower and Bank One, NA as
Trustee with respect to the 9-7/8% Senior Subordinated Notes due 2008, as in
effect on the date hereof as the same may be amended or otherwise modified from
time to time (provided that Borrower shall give prior written notice to Lender
of such amendment or modification), Borrower shall not, directly or indirectly,
(a) merge into or with or consolidate with any other Person or permit any other
Person to merge into or with or consolidate with it, or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or indebtedness to any other
Person or any of its assets to any other Person (except for sales of Inventory
in the ordinary course of business). Notwithstanding the foregoing, intercompany
mergers and restructurings among the Borrower and its Subsidiaries shall be
permitted with prior written notice to Lender so long as such mergers or
restructurings do not adversely affect the Collateral or any collateral pledged
to Lender by any of the other Companies or Lender's security interest therein.
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9.8. Encumbrances.
Borrower shall not create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of the Collateral (including the items described in Sections
5.1 and 5.2 whether or not the security interest has attached), except: (a)
liens and security interests of Lender; (b) liens securing the payment of taxes,
either not yet overdue or the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books;
(c) non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of Borrower's business to the extent: (i)
such liens secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower, in each case prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books; (d) zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property which do not interfere
in any material respect with the use of such real property or ordinary conduct
of the business of Borrower as presently conducted thereon or materially impair
the value of the real property which may be subject thereto; (e) subordinated
liens on the Collateral in favor of vendors provided such liens are subordinated
to Lender on terms and conditions and subject to agreements acceptable to
Lender, and (f) the security interests and liens set forth on Schedule 8.4
hereto.
9.9. Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit plans"
maintained by Borrower or any of its ERISA Affiliates: (i) terminate any of such
employee benefit plans so as to incur any liability in excess of $5,000,000 to
the Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii)
allow or suffer to exist any prohibited transaction involving any of such
employee benefit plans or any trust created thereunder which would subject
Borrower or such ERISA Affiliate to a tax or penalty or other liability on
prohibited transactions imposed under Section 4975 of the Code or ERISA, (iii)
fail to pay to any such employee benefit plan any contribution which it is
obligated to pay under Section 302 of ERISA, Section 412 of the Code or the
terms of such plan, (iv) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such employee benefit
plan, (v) allow or suffer to exist any occurrence of a reportable event or any
other event or condition which presents a material risk of termination by the
Pension Benefit Guaranty Corporation of any such employee benefit plan that is a
single employer plan, which termination could result in any liability to the
Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with
respect to any multiemployer pension plan.
(b) As used in this Section 9.9, the terms "employee benefit plans",
"accumulated funding deficiency" and "reportable event" shall have the
respective meanings
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assigned to them in ERISA, and the term "prohibited transaction" shall have the
meaning assigned to it in Section 4975 of the Code and ERISA.
9.10. Costs and Expenses.
Borrower shall pay to Lender on demand all commercially reasonable costs,
expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) all insurance premiums
paid by Lender pursuant to Section 9.5, appraisal fees and search fees; (c)
costs and expenses of remitting loan proceeds, collecting checks and other items
of payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (g) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $650.00 per person per day for
Lender's examiners in the field and office; and (h) the reasonable fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
9.11. Further Assurances.
At the request of Lender at any time and from time to time, Borrower
shall, at its expense, duly execute and deliver, or cause to be duly executed
and delivered, such further agreements, documents and instruments, and do or
cause to be done such further acts as may be necessary or proper to evidence,
perfect, maintain and enforce the security interests and the priority thereof in
the Collateral and to otherwise effectuate the provisions or purposes of this
Agreement or any of the other Financing Agreements. Lender may at any time and
from time to time request a certificate from an officer of Borrower representing
that all conditions precedent to the making of Loans and providing Letter of
Credit Accommodations contained herein are satisfied. In the event of such
request by Lender, Lender may, at its option, cease to make any further Loans or
provide any further Letter of Credit Accommodations until Lender has received
such certificate and, in addition, Lender has determined that such
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conditions are satisfied. Where permitted by law, Borrower hereby authorizes
Lender to execute and file one or more UCC financing statements signed only by
Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1. Events of Default.
The occurrence or existence of any one or more of the following events
are referred to herein individually as an "Event of Default", and collectively
as "Events of Default":
(a) (i) Borrower fails to pay when due any of the Obligations or (ii)
Borrower or any Obligor fails to perform any of the covenants contained in
Sections 9.1, 9.2 and 9.6 of this Agreement (or the corresponding sections of
any Security Agreement executed by any other Obligor in favor of Lender) and
such failure shall continue for fifteen (15) days after written notice from
Lender or after such time as any of the officers of Borrower or such Obligor
listed on Schedule 10.1 should reasonably have known of such failure, or any of
the covenants contained in Sections 9.3, 9.4 and 9.9 of this Agreement (or the
corresponding sections of any Security Agreement executed by any other Obligor
in favor of Lender) and such failure shall continue for thirty (30) days after
written notice from Lender or after such time as any of the officers of Borrower
or such Obligor listed on Schedule 10.1 should reasonably have known of such
failure; provided, that, such fifteen (15) day period or thirty (30) day period,
as the case may be, shall not apply in the case of: (A) any failure to observe
any such covenant which is not capable of being cured at all or within such
fifteen (15) day or thirty (30) day period, as applicable (provided, that
failure to give the prior notices required in Sections 9.1 and 9.2 will not be
deemed incurable and will have full benefit of the applicable cure periods
described above), or which has been the subject of a prior failure within a six
(6) month period or (B) an intentional breach of Borrower or any Obligor of any
such covenant or (iii) Borrower or any Obligor fails to perform any of the
terms, covenants, conditions or provisions contained in this Agreement or any of
the other Financing Agreements other than those described in Section 10.1(a)(ii)
above;
(b) any representation, warranty or material statement of fact made by
Borrower or any other Obligor to Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money which is uninsured or which
the insurance company does not admit in writing its liability therefor within
thirty (30) days of the entering of such judgment, is rendered against Borrower
or any Obligor in excess of $5,000,000 in any one case or in excess of
$10,000,000 in the aggregate and shall remain
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undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor or any of their assets
which judgment could reasonably be expected to have a material adverse effect
on Borrower or such Obligor or their respective assets or businesses or on
Lender's security interest in the Collateral or any collateral pledged by any
other Obligor;
(e) Borrower or any Obligor dissolves or suspends or discontinues doing
business, except to the extent such Borrower or Obligor merges out of existence
in a manner permitted in this Agreement;
(f) Borrower or any Obligor becomes insolvent as defined in the U.S.
Bankruptcy Code, as amended, but excluding from any such insolvency
determination the effects of any intercompany indebtedness between Borrower or
such Obligor and any of their Affiliates, makes an assignment for the benefit of
creditors, or calls a meeting of its creditors or principal creditors to discuss
their inability to pay their debts as they come due;
(g) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against Borrower or any Obligor or all or any part of its properties and
such petition or application is not dismissed within sixty (60) days after the
date of its filing or Borrower or any Obligor shall file any answer admitting or
not contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United States
of America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by Borrower or any Obligor or for all or any part of its property; or
(i) any default by Borrower or any Obligor under any agreement, document
or instrument relating to any indebtedness for borrowed money owing to any
person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $15,000,000, which default continues for more than the
applicable cure period, if any, with respect thereto, which default results in
the acceleration of maturity of such obligation or any default by Borrower or
any Obligor under any contract, lease, license or other obligation to any person
other than Lender, which default results in the termination of rights of
Borrower or Obligor by the other party thereto if such termination could
reasonably be expected to have a material adverse effect on Borrower or such
Obligor or on their respective assets or businesses or on Lender's security
interests in the Collateral or any collateral pledged by any other Obligor;
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(j) any "Change of Control" as defined in that certain Indenture dated as
of April 6, 1998 among Musicland Stores Corporation, Borrower and Bank One, NA
as Trustee with respect to the 9-7/8% Senior Subordinated Notes due 2008, as in
effect on the date hereof;
(k) the indictment or threatened indictment of Borrower or any Obligor
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against Borrower or any Obligor, pursuant to which
statute or proceedings the penalties or remedies sought or available include
forfeiture of any material amount of property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business, assets or
prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default under any of the other Financing
Agreements.
10.2. Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedie may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of
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effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including entering into contracts with respect thereto,
public or private sales at any exchange, broker's board, at any office of Lender
or elsewhere) at such prices or terms as Lender may deem reasonable, for cash,
upon credit or for future delivery, with the Lender having the right to purchase
the whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of Borrower, which
right or equity of redemption is hereby expressly waived and released by
Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold
or leased by Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is finally
collected by Lender. If notice of disposition of Collateral is required by law,
five (5) days prior notice by Lender to Borrower designating the time and place
of any public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually received by
Lender from any sale, lease, foreclosure or other disposition of the Collateral
to payment of the Obligations, in whole or in part and in such order as Lender
may elect, whether or not then due. Borrower shall remain liable to Lender for
the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event of
Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of
this Agreement providing for any future Loans or Letter of Credit Accommodations
to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of Illinois (without giving
effect to principles of conflicts of law).
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(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Circuit Court of ▇▇▇▇ County, Illinois and the
United States District Court for the Northern District of Illinois, Eastern
Division and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against Borrower
or its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, Borrower
shall answer or otherwise plead in response to such process, failing which
Borrower shall be deemed in default and judgment may be entered by Lender
against Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT
OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by a
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final and non-appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct.
11.2. Waiver of Notices.
Borrower hereby expressly waives demand, presentment, protest and notice
of protest and notice of dishonor with respect to any and all instruments and
commercial paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind or nature
whatsoever with respect to the Obligations, the Collateral and this Agreement,
except such as are expressly provided for herein. No notice to or demand on
Borrower which Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.
11.3. Amendments and Waivers.
Neither this Agreement nor any provision hereof shall be amended,
modified, waived or discharged orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender, and as to
amendments, as also signed by an authorized officer of Borrower. Lender shall
not, by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Lender. Any such
waiver shall be enforceable only to the extent specifically set forth therein. A
waiver by Lender of any right, power and/or remedy on any one occasion shall not
be construed as a bar to or waiver of any such right, power and/or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
11.4. Waiver of Counterclaims.
Borrower waives all rights to interpose any claims, deductions, setoffs
or counterclaims of any nature (other than compulsory counterclaims) in any
action or proceeding brought by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating hereto
or thereto.
11.5. Indemnification.
Borrower shall indemnify and hold Lender, and its directors, agents,
employees and counsel, harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses imposed on, incurred by or asserted
against any of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the fees and expenses of counsel except to the
extent such loss, claim, damage, liability, cost or expense is caused by such
party's own gross negligence or willful misconduct. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may
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be unenforceable because it violates any law or public policy, Borrower shall
pay the maximum portion which it is permitted to pay under applicable law to
Lender in satisfaction of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1. Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Lender or Borrower (subject to
Lender's right to extend the Renewal Date as provided above) may terminate this
Agreement and the other Financing Agreements effective on the Renewal Date or on
the anniversary of the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
all other Financing Agreements must be terminated simultaneously. In addition,
Borrower may terminate this Agreement in its discretion at any time, subject to
clause (c) below. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and
unpaid Obligations and shall furnish cash collateral to Lender in such amounts
as Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including issued and outstanding Letter of
Credit Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
Business Day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, Chicago time.
(b) No termination of this Agreement or the other Financing Agreements
shall relieve or discharge Borrower of its respective duties, obligations and
covenants under this Agreement or the other Financing Agreements until all
Obligations have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end of
the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay
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to Lender, upon the effective date of such termination, an early termination fee
in the amount set forth below if such termination is effective in the period
indicated:
Amount Period
------ ------
(i) $62,500 From the date hereof to and
including the first anniversary
of the date hereof
(ii) $31,250 From the date hereof to and
including the second anniversary
of the date hereof
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
Notwithstanding the foregoing, no such early termination fee shall be due from
Borrower if (i) Borrower terminates this Agreement in connection with a
refinancing provided by First Union National Bank or an affiliate thereof or an
affiliate of Lender, or (ii) Borrower terminates this Agreement as a result of
the imposition by Lender of a new Availability Reserve which impairs Borrower's
ability to borrow the Maximum Credit or the imposition of any new criteria for
Eligible Inventory which causes a Trigger Event to occur.
12.2. Notices.
All notices, requests and demands hereunder shall be in writing and (a)
made to Lender at its address set forth below and to Borrower at its chief
executive office set forth below, or to such other address as either party may
designate by written notice to the other in accordance with this provision, and
(b) deemed to have been given or made: if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next Business Day, one (1)
Business Day after sending; and if by certified mail, return receipt requested,
five (5) days after mailing.
12.3. Partial Invalidity.
If any provision of this Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Agreement as a whole, but this Agreement shall be construed as though it did not
contain the particular provision held to be
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invalid or unenforceable and the rights and obligations of the parties shall be
construed and enforced only to such extent as shall be permitted by applicable
law.
12.4. Successors.
This Agreement, the other Financing Agreements and any other document
referred to herein or therein shall be binding upon and inure to the benefit of
and be enforceable by Lender, Borrower and their respective successors and
assigns, except that Borrower may not assign its rights under this Agreement,
the other Financing Agreements and any other document referred to herein or
therein without the prior written consent of Lender. Lender may, after notice to
Borrower, assign its rights and delegate its obligations under this Agreement
and the other Financing Agreements and further may assign, or sell
participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5. Entire Agreement.
This Agreement, the other Financing Agreements, any supplements hereto or
thereto, and any instruments or documents delivered or to be delivered in
connection herewith or therewith represents the entire agreement and
understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.
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IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
------ --------
CONGRESS FINANCIAL CORPORATION THE MUSICLAND GROUP, INC.
(CENTRAL)
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------- -------------------------------
Title Senior Vice President Title Vice Chairman and C.F.O.
---------------------------- ----------------------------
Address:
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▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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