EXHIBIT 10.2
AMENDED AND RESTATED CREDIT LOAN AND SECURITY AGREEMENT
-------------------------------------------------------
THIS AMENDED AND RESTATED CREDIT LOAN AND SECURITY AGREEMENT (the
"Agreement") is entered into as of the 8th day of January, 1997, by and between
VIDEO CITY, INC., formerly known as Prism Entertainment Corporation, a Delaware
Corporation (the "Borrower") , and IMPERIAL BANK, a California chartered bank
(the "Bank") , with reference to the following:
PREAMBLE
--------
A. Prism Entertainment Corporation ("Entertainment"),
Prism Pictures Corporation, and Prism Pictures International,
Ltd. (collectively, "Prism") each filed with United States
Bankruptcy Court, Central District of California (the "Court") a
voluntary petition for relief under chapter 11 of the Bankruptcy
Code on December 1, 1995.
B. Prism has jointly filed that certain Amended Plan of
Reorganization Dated October 25, 1996, which, as modified, has been confirmed by
the Court (as modified and confirmed, the "Plan"), pursuant to which the three
Prism entities will be substantively consolidated into Entertainment, then merge
with ▇▇▇ Video City, Inc. ("VCI") , with Entertainment as the surviving entity
(the "Merger"), which will then change its name to Video City, Inc.
C. As of the date of this Agreement, the Borrower is indebted to
the Bank in the aggregate approximate amount of $2,742,430.44 plus fees and
expenses (the "Bank Debt"). The Obligations of the Borrower to the Bank with
respect to the Bank Debt are evidenced by that certain Revolving Credit Loan and
Security Agreement dated as February 24, 1995 between Prism and the Bank (the
"Original Agreement") and certain other loan and security documents, including
but not limited to those listed on Exhibit "1" hereto (together with the
Original Agreement, the "Original Loan Documents") .
D. The Borrower desires to restructure the Bank Debt in accordance
with the Plan, and, subject to the terms and conditions set forth in this
Agreement, the parties have agreed to such restructuring (the "Loan") .
NOW, THEREFORE, in consideration of the above facts, the mutual
covenants, agreements, representations and warranties contained herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
-1-
TERMS
-----
1. CERTAIN DEFINITIONS.
-------------------
Unless elsewhere defined herein, each capitalized term used in this
Agreement shall have the following meanings. Unless the context otherwise
requires, any of the following capitalized terms may be used in the singular or
the plural, depending on the reference. Capitalized terms not defined in this
Agreement shall have the meaning ascribed to them in the Original Loan
Documents.
1. DEFINITIONS.
-----------
"ACKNOWLEDGEMENT" shall mean an acknowledgement of an Irrevocable Authority
-----------------
executed by the applicable account debtor in substantially the form of
Exhibit E attached to the Original Agreement or such other form as may be
acceptable to the Bank in its sole and absolute discretion.
"AFFILIATE" shall mean any Person who directly or indirectly through one or
-----------
more intermediaries, controls, is under common control with or is
controlled by, the applicable Person.
"AMENDED AND RESTATED COPYRIGHT MORTGAGE" shall mean the document in
-----------------------------------------
respect of the Products and substantially in the form of Exhibit "2"
attached hereto or such other form as may be acceptable to the Bank in its
sole and absolute discretion.
"AMENDED AND RESTATED NOTE" shall have the meaning set forth in Section
---------------------------
2.1.5 hereof.
"APPROVED LICENSE AGREEMENTS" shall have the meaning set forth in the
-----------------------------
Original Loan Agreement.
"BANK" shall have the meaning set forth in the opening paragraph of this
------
Agreement.
"BANK NOTICE LETTER" shall mean a notice, in the form of Exhibit H attached
--------------------
to the Original Agreement or such other form as may be acceptable to the
Bank in its sole and absolute discretion, notifying a third party bank or
other financial institution at which any Borrower maintains a bank account
of the Bank's security interest therein.
"BORROWER" shall have the meaning set forth in the opening paragraph of
----------
this Agreement.
"BOUGH BREAKS II" shall mean that certain Product entitled "When the Bough
-----------------
Breaks II".
-2-
"BOUGH BREAKS II PRODUCTION AGREEMENT" shall mean that certain letter
-------------------------------------
agreement dated August 16, 1996, between Prism and ▇▇▇▇▇▇/▇▇▇▇▇▇
Entertainment regarding the production of Bough Breaks II.
"BUSINESS DAY" shall mean a day when banks are not authorized or required
-------------
to close in the State of California.
"CLOSING" shall mean the date, not later than January 31, 1997 (without the
---------
prior written consent of the Bank), upon which all conditions of this
Agreement and to the Merger have been satisfied and the Borrower is
prepared for the Plan to go effective and upon which date the transactions
contemplated by this Agreement shall be consummated, which consummation
shall be deemed to take place concurrently with the Effective Date of the
Plan.
"CODE" shall mean the Uniform Commercial Code in effect from time to time
-----
in the relevant State or States.
"COLLATERAL" shall have the meaning set forth in Section 4.2 hereof.
----------
"CONFIRMATION ORDER" shall mean that certain order of the Court entered
-------------------
December 17, 1996 entitled "Order Confirming Debtors' Amended Joint Plan of
Reorganization Dated october 25, 1996, as Modified".
"COPYRIGHTS" shall have the meaning set forth in Section 4. 2.1.1 hereof.
----------
"COSTS" shall mean, collectively, all sums (other than Principal and
-------
Interest) payable by the Borrower pursuant to this Agreement including,
without limitation, sums payable pursuant to Sections 11 and 13.7 hereof.
"COURT" shall have the meaning set forth in Paragraph A hereof.
-----
"EFFECTIVE DATE" shall have the meaning set forth in the Plan.
--------------
"ENCUMBRANCES" shall mean security interests, mortgages, pledges, equities,
------------
encumbrances, conditional sales or other title retention agreements, leases
(excluding only operating leases for office equipment and real property),
rights, restrictions, reservations or charges or liens of any nature,
collectively.
"ENTERTAINMENT" shall have the meaning set forth in Paragraph A of this
-------------
Agreement.
-3-
"ENVIRONMENTAL LAWS" shall mean any and all federal, state, provincial,
-------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of the United States, any State, foreign
country, state or province thereof or any municipality or other local
governmental division of any of the foregoing, or of any department,
commission, board, bureau, agency or instrumentality of the United States,
any State, foreign country, state or province thereof or municipality or
other local governmental division of any of the foregoing, regulating,
relating to or imposing liability or standards of conduct concerning any
Hazardous Material or environmental protection or health and safety, as now
or may at any time hereafter be in effect, including without limitation,
the Clean Water Act, also known as the Federal Water Pollution Control Act,
33 U.S.C. SS 1251 et seq.; the Clean Air Act, 42 U.S.C. SS 7401 et seq.;
-- --- -- ---
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. S 136,
the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. SS 1201
et seq.; the Comprehensive Environmental Response, Compensation and
-- ---
Liability Act of 1980, 42 U.S.C. SS 9601 et seq.; the Superfund Amendments
-- ---
and Reauthorization Act of 1986, ▇▇▇.▇.▇▇. 99-499, ▇▇▇ ▇▇▇▇. ▇▇▇▇; the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. SS 11001
et seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. SS
-- ---
6901 et seq.; the Occupational Safety and Health Act of 1970 as amended, 29
-- ---
U.S.C. SS 655 and 657; the California Health & Safety Code SS 25300 et
--
seq., together, in each case, with any amendment thereto, and the
---
regulations and rules adopted and the official publications promulgated
thereunder and all substitutions thereof.
"ENVIRONMENTAL LIABILITIES" shall mean any claims, obligations or
--------------------------
liabilities, known or unknown, matured or not matured, absolute or
contingent, assessed or unassessed, where such claims, obligations or
liabilities would reasonably be expected to have a materially adverse
effect on the business or condition (financial or otherwise) of the
Borrower which have been or are imposed by reason of or based upon any
provision of any Environmental Law including, without limitation, any such
claims, obligations or liabilities relating to or arising out of or
attributable, in whole or in part, to the use, storage, treatment, release,
processing, distribution, transportation, manufacture, refinement,
handling, production or disposal of any Hazardous Materials by the Borrower
or any of its employees, agents, representatives or predecessors in
interest in connection with or in any way arising from or relating to the
Borrower or any of its properties, or relating to or arising from or
attributable, in whole or in part, to the use, storage, treatment, release,
processing, distribution, transportation,
-4-
manufacture, refinement, handling, production or disposal of any such
Hazardous Materials, by any other Person on, under, at, from, or in any way
affecting, any of the properties owned or used by the Borrower or any other
location where such could have a materially adverse effect on the business
or condition (financial or otherwise) of the Borrower.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
heretofore and hereafter amended, and any regulations promulgated
thereunder.
"ERISA AFFILIATE" shall mean, with respect to the Borrower, all trades or
---------------
businesses (whether or not incorporated) which, together with the Borrower,
are treated as a single employer under Section 414(b), (c), (m) or (o) of
the Internal Revenue Code.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 8 hereof.
----------------
"EXCESS CASH AMOUNT" shall have the meaning set forth in the Plan.
------------------
"EXISTING PRODUCTS" shall mean all Theatrical Pictures, Video Pictures,
-----------------
made-for-television motion pictures and mini-series, all television series
and programs, and all other feature and non-feature length motion pictures
produced for release in any other medium in which the Borrower currently
has any right, title or interest including, without limitation, the
Products listed on Schedule 5.1.15 hereto.
"EXISTING LICENSE AGREEMENTS" shall have the meaning set forth in Section
---------------------------
5.1.11 hereof.
"FEDERAL RESERVE" shall have the meaning set forth in Section 2.4.1 hereof.
---------------
"FEE ORDER" shall mean the order of the Court regarding the allowance or
---------
disallowance of the Bank's fees and costs under the Original Loan
Documents.
"FOX ▇▇▇▇▇▇" shall mean Fox ▇▇▇▇▇▇ Associates.
----------
"FOX ▇▇▇▇▇▇ NOTE" shall mean that certain Promissory Note dated July 15,
---------------
1994,executed by Fox ▇▇▇▇▇▇ in favor of Prism in the original principal
amount of $340,000.
"GAAP" shall mean generally accepted accounting principles consistently
----
applied (except for accounting changes in response to Financial Accounting
Standards Board releases or other authoritative pronouncements).
-5-
"HAZARDOUS MATERIALS" shall mean (i) any chemical, compound, material,
--------------------
mixture or substance that is now or hereafter defined or listed in, or
otherwise classified pursuant to, any Environmental Laws (as hereinafter
defined) as a "hazardous substance" , "hazardous material" , "hazardous
waste", "extremely hazardous waste", "infectious waste", "toxic substance",
"toxic pollutant" or any other formulation intended to define, list, or
classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, or "EP toxicity" and (ii) any petroleum, natural
gas, natural gas liquid, liquefied natural gas, synthetic gas usable for
fuel (or mixtures of natural gas and such synthetic gas) , ash produced by
a resource recovery facility utilizing a municipal solid waste stream, and
drilling fluids, produced waters, and other wastes associated with the
exploration, development or production of crude oil, natural gas, or
geothermal resources. The term "Hazardous Waste" specifically includes, but
is not limited to, each and every substance and material which constitutes
(a) a "hazardous substance" within the meaning of 42 US.C. S 9601(14); (b)
a "hazardous substance" within the meaning of California Health & Safety
Code S 25316; (c) a "hazardous waste" within the meaning of California
Health & Safety Code S 25117; (d) an "extremely hazardous waste" within the
meaning of California Health & Safety Code S 25115; and/or (e) a "hazardous
substance," "hazardous waste," or "extremely hazardous waste " under any
regulations promulgated pursuant to such statutory provisions, including
but not limited to all regulations adopted by the State of California
Department of Toxic Substances Control pursuant to California Health &
Safety Code S 25141.
"INDEBTEDNESS" shall mean, at any time and with respect to any Person, (i)
------------
indebtedness of such Person for borrowed money (whether by loan or the
issuance and sale of debt instruments and/or securities) or for the
deferred purchase price of property or services purchased, (ii) obligations
of such Person in respect of letters of credit, acceptance facilities, or
drafts or similar instruments issued or accepted by banks and other
financial institutions for the account of such Person, (iii) obligations of
such Person under capitalized leases, and (iv) indebtedness of others of
the type described in clauses (i), (ii) and (iii) hereof which (a) such
Person has directly or indirectly assumed or guaranteed and/or (b) is
secured by a lien on assets of such Person, whether or not such Person
shall have assumed or guaranteed such indebtedness.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in Section 11
-----------------------
hereof.
-6-
"INDEMNITEES" shall have the meaning set forth in Section 11 hereof.
-----------
"▇▇▇▇▇▇" shall mean ▇▇▇▇▇▇ Entertainment Inc., a Tennessee Corporation.
------
"INTEREST" shall mean all interest amounts required to be paid by the
--------
Borrower pursuant to this Agreement.
"INTEREST IMPOUND ACCOUNT" shall have the meaning set forth in Section
------------------------
2.2.2 hereof.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986 and
---------------------
the rules, regulations and notices issued thereunder, as now and hereafter
in effect, or any successor provision thereto.
"IRREVOCABLE AUTHORITY" shall mean an irrevocable authority executed by the
---------------------
Borrower instructing the applicable account debtor to remit License
Payments to the Master Collection Account in substantially the form of
Exhibit D to the Original Agreement or such other form as may be acceptable
to the Bank in its sole and absolute discretion.
"LABORATORY AUTHORIZATION LETTER" shall mean an agreement for a particular
-------------------------------
Product or Products in substantially the form of Exhibit G to the Original
Agreement, or such other form as may be acceptable to the Bank in its sole
and absolute discretion .
"LABORATORY PLEDGEHOLDER AGREEMENT" shall mean an agreement for a
---------------------------------
particular Product or Products in substantially the form of either of the
agreements attached to the Original Agreement as Exhibits F-1 and F-2, as
applicable, or such other form as may be acceptable to the Bank in its sole
and absolute discretion.
"LICENSE AGREEMENTS" shall mean any agreement, arrangement or
------------------
understanding now existing or hereafter entered into (including, without
limitation, so-called "output" or other multi-Product agreements), to which
the Borrower (or any agent of the Borrower acting on behalf of the
Borrower) is a party and pursuant to which the Borrower (or any agent of
the Borrower acting on behalf of the Borrower) has granted, sold, conveyed,
licensed, sublicensed, leased, subleased or otherwise transferred rights to
any Person with respect to the distribution, subdistribution, sale, rental,
lease, sublease, licensing, sublicensing, exhibition, telecast, broadcast ,
transmission (including, without limitation , by way of satellite or cable)
or other use, exploitation or disposition of any Product or any elements
thereof (including, but not limited to, all music and musical compositions;
negatives; soundtracks; and Literary
-7-
Properties) and/or the Copyrights in any of the foregoing or any part
thereof in any media existing now or in the future and in any territory
(including, without limitation, motion picture, television, "home video"
and all other audio-visual device rights, merchandising and commercial tie-
ups, soundtrack album, music publishing, novelization and publishing
rights, trailer rights, and all other allied, incidental, ancillary and
subsidiary rights); such agreements shall include, without limitation, the
Existing License Agreements. License Agreements shall also include the
▇▇▇▇▇▇ License Agreement, the Fox ▇▇▇▇▇▇ Note, the Bough Breaks II
Production Agreement, and any and all instruments and notes payable to the
Borrower in connection with any License Agreement or Product.
"LICENSE PAYMENTS" shall mean all amounts (including, without limitation,
----------------
so-called "minimum guarantees" and "advances") payable to or for the
benefit of the Borrower pursuant to any License Agreement whether
characterized as accounts, accounts receivable, general intangibles or
otherwise; any and all sums, proceeds, money, products, profits or
increases payable to the Borrower pursuant to any License Agreement; all
chattel paper that may arise in connection with any License Agreement and
any and all amounts payable thereunder whether characterized as accounts,
accounts receivable, contracts receivable, general intangibles or
otherwise; and any and all proceeds of the foregoing payable to the
Borrower.
"LITERARY PROPERTIES" shall mean all literary and other properties which
-------------------
are or may form the basis of any Product or which are or may be
incorporated into any Product, including, without limitation, all scripts,
screenplays and/or photoplays based thereon in whole or in part; all
component parts of any Product consisting of such literary or other
properties; all motion picture, television, "home video" and other
audiovisual device rights in and to any story underlying any Product; all
treatments of said stories and other literary material, together with all
preliminary and final photoplays, treatments, scenarios, screenplays,
scripts, bibles and storybooks at every stage thereof used or to be used in
connection with any Product; and all other literary material upon which any
Product is or may be adapted or based in whole or in part; in each case
whether now in existence or hereafter made, produced, created or written
and whether or not in possession of the Borrower.
"LOAN" shall have the meaning set forth in Paragraph D hereof .
----
"LOAN AMOUNT" shall have the meaning set forth in Section 2.1.1 hereof.
-----------
-8-
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Amended and
--------------
Restated Note, all Irrevocable Authorities, Acknowledgements , Laboratory
Pledgeholder Agreements , Laboratory Authorization Letters, Bank Notice
Letters, Trademark Mortgages, UCC financing statements, Copyright
Mortgages, and any other certificates, financial statements, schedules,
exhibits, documents or agreements of any type or nature heretofore or
hereafter executed and/or delivered by or on behalf of the Borrower to the
Bank in any way relating to or in furtherance of this Agreement or
evidencing and/or securing any of the Obligations in each case either as
originally executed or as the same may be Modified from time to time.
"MASTER COLLECTION ACCOUNT" shall mean that certain operating account of
-------------------------
the Borrower established at the offices of the Bank pursuant to the
Original Loan Documents and numbered 0060071241.
"MERGER" shall have the meaning set forth in paragraph B hereof.
------
"MODIFICATIONS" shall mean amendments, alterations, supplements,
-------------
replacements , modifications or terminations , collectively.
"MODIFY" shall mean amend, alter, supplement, replace, modify or terminate,
------
collectively.
"NET COLLECTIONS" shall mean (i) the gross amount collected under License
---------------
Agreements in existence on the Effective Date, less only third party
participation claims and applicable royalties, if any, (ii) 50% of the
gross amount of the producer's fee due to the Borrower from Bough Breaks
II, and (iii) the gross amount collected under License Agreements entered
into by the Borrower after the Effective Date, less only third party
participations, applicable royalties, sales commissions, and residuals, if
any.
"NEW COLLATERAL" shall have the meaning set forth in Section 4.3 hereof.
--------------
"OBLIGATIONS" shall mean, collectively, the Principal , together with
-----------
accrued Interest and Costs.
"ORIGINAL AGREEMENT" shall have the meaning set forth in paragraph c
------------------
hereof.
"ORIGINAL LOAN DOCUMENTS" shall have the meaning set forth in paragraph C
-----------------------
hereof.
"ORIGINAL NOTES" shall mean, collectively, that certain $5,000,000
--------------
Promissory Note dated February 24, 1995 and that
-9-
certain $1,000,000 Promissory Note dated February 24, 1995 executed by
Prism in favor of the Bank.
"PERMITTED ENCUMBRANCES" shall mean the Encumbrances granted to the Bank
----------------------
herein, the junior lien of ▇▇▇▇▇▇ on the Collateral, the senior lien of
▇▇▇▇▇▇ on the New Collateral, and those Encumbrances set forth on Schedule
1 attached to the Original Agreement.
"PERSON" shall mean an individual or a corporation, association, limited
------
liability company, joint venture, partnership, trust or other private or
governmental entity.
"PHYSICAL MATERIALS" shall have the meaning set forth in Section 4.2.1.3
------------------
hereof.
"PLAN" shall have the meaning set forth in Paragraph B hereof .
----
"POTENTIAL EVENT OF DEFAULT" shall mean any event, act or condition which
--------------------------
with notice or lapse of time, or both, would constitute an Event of
Default.
"PRIME RATE" shall mean the fluctuating per annum commercial rate of
----------
interest announced by the Bank from time to time at its principal office as
the Bank's "prime rate".
"PRINCIPAL" shall have the meaning set forth in Section 2.1.1 hereof.
---------
"PRISM" shall have the meaning set forth in Paragraph A of this Agreement.
-----
"PRODUCER" shall mean any Person who has licensed or otherwise granted
--------
rights in a Product to the Borrower pursuant to a Rights-In Agreement.
"PRODUCTS" shall mean all Existing Products plus all of the Borrower's
--------
right, title or interest in Bough Breaks II.
"RELEVANT FOREIGN JURISDICTIONS" shall have the meaning set forth in
------------------------------
Section 5.1.1 hereof.
"RESTRICTED PAYMENT" shall mean (i) any distribution, dividend or other
------------------
direct or indirect payment in respect of any shares of any class of any
capital stock of the Borrower or any of its Subsidiaries now or hereafter
outstanding; (ii) any purchase, redemption or other acquisition or
reacquisition by the Borrower of any share of any class of any of its own
capital stock or other capital stock or equity interest of the Borrower now
or hereafter outstanding, (iii) any payment made to retire, or obtain the
surrender of any outstanding warrants, puts or options or
-10-
other rights to purchase or acquire any shares of any class of any capital
stock of the Borrower now or hereafter outstanding, (iv) any loan by the
Borrower to the holder of any shares of any class of any capital stock of
the Borrower, and/or (v) any payment of principal or other retirement of
indebtedness of the Borrower which is subordinated by its terms, by
agreement or by operation of law (or is required by any Loan Document to be
subordinated) to the Obligations.
"RIGHTS-IN AGREEMENTS" shall mean any agreement, arrangement or
--------------------
understanding now existing or hereafter entered into (including, without
limitation, so-called "output" or other multi-Product agreements) , to
which the Borrower is a party and pursuant to which the Borrower has been
granted, sold, conveyed, licensed, sublicensed, leased, subleased or
otherwise transferred rights by any Person with respect to the
distribution, subdistribution, sale, rental, lease, sublease, licensing,
sublicensing, exhibition, telecast, broadcast, transmission (including,
without limitation, by way of satellite or cable) or other use,
exploitation or acquisition of any Product or any elements thereof
(including, but not limited to, all music and musical compositions;
negatives; soundtracks; and Literary Properties) and/or the Copyrights in
any of the foregoing or any part thereof in any media existing now or in
the future and in any territory (including, without limitation, motion
picture, television, "home video" and all other audio-visual device rights,
merchandising and commercial tie-ups, soundtrack album, music publishing,
novelization and publishing rights, trailer rights, and all other allied,
incidental, ancillary and subsidiary rights).
"STATE" shall mean any state of the United States.
-----
"SUBSIDIARY" shall mean any corporation, association, limited liability
----------
company, joint venture, partnership, trust or other entity which is
directly or indirectly through one or more intermediaries controlled by the
Person in question.
"THEATRICAL PICTURES" shall mean all feature and non-feature length motion
-------------------
pictures produced for theatrical release in which the Borrower now has any
right, title or interest. For avoidance of doubt, a Theatrical Picture may
also come within the definition of a Video Picture.
"TRADEMARK MORTGAGES" shall mean the documents in respect of each
-------------------
trademark, logo, tradename, service ▇▇▇▇ and/or service name of the
Borrower in substantially the form of Exhibit I attached to the Original
Agreement or in such other form as may be acceptable to the Bank in its
sole and absolute discretion.
-11-
"▇▇▇▇▇▇" shall mean ▇▇▇▇▇▇ Home Entertainment, Inc., a Georgia corporation.
------
"▇▇▇▇▇▇ LICENSE AGREEMENT" shall mean that certain license agreement, dated
------------------------
as of November 8, 1994 by and between Prism Entertainment and ▇▇▇▇▇▇.
"▇▇▇▇▇▇ PAYMENTS ASSIGNMENT AGREEMENT" shall mean that certain Assignment,
------------------------------------
Notice and Acknowledgement of Assignment entered into as of March, 1995, by
and among Prism, the Bank, and ▇▇▇▇▇▇.
"UNITED STATES" AND "U.S." shall mean the United States of America and its
------------------------
territories and possessions.
"VIDEO PICTURES" shall mean all feature and non-feature length motion
--------------
pictures produced for "home video" release on videotape, cassette,
cartridge, disc or other "home video" medium in which the Borrower now has
any right, title or interest. For the avoidance of doubt, a Video Picture
may also come within the definition of Theatrical Picture.
Unless the context otherwise requires, the following terms used in this
Agreement shall have the meanings ascribed to them in the Commercial Code of the
State of California: "account", "account debtor", "chattel paper", "general
intangibles", "goods", "instrument", inventory", "money", "proceeds", and
"products".
2. RESTRUCTURING OF DEBT.
---------------------
2.1 Terms of the Loan.
-----------------
2.1.1 Loan Amount. The aggregate principal amount of the Loan (the
-----------
"Loan Amount") will be the total amount of (i) two million seven hundred forty-
two thousand four hundred thirty dollars and forty-four cents ($2,742,430.44)
(the "Undisputed Principal"), plus (ii) all fees and costs of the Bank to which
objections are timely filed pursuant to Section 2.3 hereof or which are
subsequently allowed by order of the court (the "Supplemental Principal" and,
together with the Undisputed Principal, the "Principal") . The total amount of
Supplemental Principal asserted by the Bank is four hundred fifty thousand
dollars ($450,000) .
2.1.2 Interest Rate. So long as no Event of Default is continuing,
-------------
the Loan will bear interest at a rate per annum equal to the Prime Rate plus
3.0% (the "Loan Rate").
2.1.3 Default Rate. In the event of an Event of Default, the Loan
------------
will bear interest at a rate per annum equal to the Loan Rate plus 5%.
-12-
2.1.4 Term. If not sooner paid pursuant to the terms set forth
----
below, all Obligations shall be payable on July 1, 1999 (the "Term").
2.1.5 Amended and Restated Note. The Borrower shall execute and
-------------------------
deliver to the Bank an amended and restated promissory note (the "Amended and
Restated Note") payable to the Bank in the form of Exhibit "3" hereto to
evidence the Borrower's obligation to repay the Loan Amount.
2.2 Payments.
--------
2.2.1 Excess Cash Amount. At Closing, the Borrower shall pay to the
------------------
Bank the Excess Cash Amount, if any, calculated under the Plan. The Borrower
shall promptly pay to the Bank any additional sums due the Bank after the
Closing pursuant to Section 6.01(d) of the Plan.
2.2.2 Monthly Interest Payments. Commencing on the twentieth day of
-------------------------
the first month following the Closing, and continuing on the first day of each
subsequent month through June, 1998, the Borrower shall make monthly Interest
payments from sources other than License Payments and exploitation of the
Products. Interest on the Undisputed Principal shall be paid directly to the
Bank. Interest on the full amount of the fees and costs as asserted by the Bank
as of the Closing shall be paid into a separate account maintained at the Bank
and designated as the "Interest Impound Account" pending the determination of
the Supplemental Principal amount under section 2.3 hereof.
2.2.3 Amortization of Remaining Principal. All Principal outstanding
-----------------------------------
as of July 1, 1998 shall be amortized by twelve equal monthly payments on the
twentieth of each month for the balance of the Term. Interest shall be payable
monthly on the amount of the Principal then outstanding.
2.2.4 Payments from Net Collections. The Borrower shall pay to the
-----------------------------
Bank all Net Collections during the Term. Through June 30, 1998, Net Collections
shall be applied to reduce the Principal. From and after July 1, 1998, Net
Collections shall be credited and applied to the next monthly payment of
Principal and Interest then due.
2.2.5 Payments from Sale of Collateral. The net proceeds of any
--------------------------------
sale of the Collateral or any portion thereof shall be paid to the Bank, and
shall be applied first to Costs, then to Interest, and then to Principal, until
the Obligations are fully satisfied.
2.2.6 Time and Place of Payments. The Borrower shall make each
--------------------------
payment hereunder (and under any instrument delivered hereunder) to the Bank at
the office of the Bank set forth in, or designated by the Bank pursuant to
Section 12 hereof, not later
-13-
than 10:00 a.m. (Los Angeles time) on the day when due, in freely transferable
Dollars representing "same day" funds, and if necessary the Borrower shall
procure (from either the payor of such funds or from the Bank, at the election
of the Borrower) conversion of any payments from third parties into Dollars,
with the Borrower bearing all costs and risks of any and all such conversion.
Whenever any payment to be made hereunder or under any instrument delivered
hereunder shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day; and such extension of
time shall in each such case be included in the computation and payment of
Interest.
2.2.7 Application of Payments. Except as otherwise provided herein,
-----------------------
all payments made hereunder in respect of any of the Obligations (whether
optional or mandatory) shall be credited first to Costs to the extent that Costs
have not previously been paid, then to Interest to the extent that Interest on
all outstanding Principal under the Loan is accrued and unpaid, and then to
Principal.
2.2.8 No Offset by Borrower; Net Payments. All payments by the
-----------------------------------
Borrower under this Agreement shall be made without setoff or counterclaim and
in such amounts as may be necessary in order that all such payments (after
deduction or withholding for or on account of any present or future taxes of any
kind, imposts, levies, assessments, duties, fees, deductions or other charges,
restrictions, conditions of whatever nature now or hereafter imposed, levied,
collected or asserted to be due or payable by or for the account of the United
States or any foreign country, or any State or foreign state or province,
municipality or other political subdiviision or taxing authority thereof, and
including any penalty or fine or similar liabilities for the nonpayment thereof)
shall not be less than the amounts otherwise specified to be paid under this
Agreement. All payments under this Agreement shall be made under all
circumstances, irrespective of any restrictions then existing in any
jurisdiction and without regard to the nationality, residence or domicile of the
Bank or the Borrower, and without requiring any affidavit or the fulfillment or
any other formality except as otherwise expressly provided in this Agreement.
2.2.9 Prepayment Without Penalty. The Borrower may pay all or any
--------------------------
part of the outstanding Obligations at any time during the Term without penalty.
2.3 Objection to Fees. The Borrower may, within 60 days of the Effective
-----------------
Date, file an objection to the fees and costs of the Bank on the basis that such
fees and costs, or a portion thereof, should be disallowed pursuant to
Bankruptcy Code section 506(b). Such fees and costs as are allowed by the
Fee Order (or, if no timely objection is made, all of the Bank's fees and
costs), shall constitute the Supplemental Principal. Immediately
-14-
upon the entry of the Fee Order, the Borrower shall pay to the Bank all Interest
accumulated on the Supplemental Principale If no timely objection is made
pursuant to this section 2.3, the Borrower shall, on the 61st day after the
Effective Date, pay to the Bank all Interest accumulated on the Supplemental
Principal.
2.4 Capital Adequacy and Increased Cost of the Commitments.
------------------------------------------------------
2.4.1 If, after the Closing, the adoption or implementation of any
applicable rule, law or regulation regarding capital requirements for banks or
bank holding companies, or any change therein (including any change according to
a prescribed schedule of increasing requirements, whether or not currently
known) or any change in the interpretation or administration thereof by any
foreign or domestic court, central bank (including, without limitation, the
Federal Reserve System of the United States (the "Federal Reserve")), monetary
authority or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive of any such
Person regarding capital adequacy (whether or not having the force of law)
has the effect of reducing the return on the Bank's capital to a level below
that which the Bank could have achieved (taking into consideration the
Bank's policies with respect to capital adequacy immediately before such
adoption, implementation, change or compliance and assuming that the Bank's
capital was fully utilized prior to such adoption, implementation, change or
compliance) but for such adoption, implementation, change or compliance as a
consequence of the Loan or the Commitments by any amount, the Borrower shall pay
to the Bank as an additional fee from time to time on demand of the Bank such
amount as shall be necessary to compensate the Bank for such reduction. The
determination by the Bank of such amount, if done on the basis of any reasonable
averaging and attribution methods, shall in the absence of manifest error be
conclusive, and, at the Borrower's request, the Bank shall demonstrate the basis
of such determination.
2.4.2 If any present or future applicable law (which
expression, as used in this Section 2.4.2, includes statutes, rules and
regulations thereunder and interpretations thereof by any competent court or by
any governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Bank by any central bank or other fiscal, monetary or
other authority (including, without limitation, the Federal Reserve) (whether or
not having the force of law)) shall:
2.4.2.1 subject the Bank to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Agreement, the Loan or the Amended and
-15-
Restated Note (other than taxes based upon or measured by the income or profits
of the Bank); or
2.4.2.2 materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to the Bank of Principal or
Interest or any other amounts payable to the Bank under this Agreement; or
2.4.2.3 impose or increase or render applicable any special
deposit, reserve, assessment liquidity or other similar requirements (whether or
not having the force of law) against assets held by, or deposits in or for the
account of the Bank, or the Loan or the Amended and Restated Note; or
2.4.2.4 impose on the Bank any other conditions or
requirements with respect to this Agreement, the Loan, or the Note or any class
of loans or commitments of which the Loan forms a part;
and the result of any of the foregoing is:
(i) to increase the cost to the Bank of making, funding,
issuing, renewing, extending or maintaining the Loan; or
(ii) to reduce the amount of Principal, Interest or other
amount payable to the Bank hereunder on account of any of the Loan; or
(iii) to require the Bank to make any payment or to
forego any Interest or other sum payable hereunder, the amount of which payment
or foregone Interest or other sum is calculated by reference to the gross amount
of any sum receivable or deemed received by the Bank from the Borrower
hereunder;
then, and in each such case, the Borrower will, upon demand following receipt of
written notice from the Bank, which written notice shall include calculations of
the amounts payable, pay to the Bank such additional amounts as will be
sufficient to compensate the Bank for such additional cost, reduction, payment
or foregone Interest or other sum, but without duplication of any amount payable
by the Borrower pursuant to Section 2.4.1 hereof. The determination by the Bank
of any such amount shall, in the absence of manifest error, be conclusive, and
at the Borrower's request the Bank shall demonstrate the basis for such
determination.
3. MASTER COLLECTION ACCOUNT.
-------------------------
3.1.1 The Borrower shall maintain the Master Collection Account, and
shall cause all License Payments to be directly remitted by the applicable
account debtors into the Master Collection Account. Except as permitted in
this
-16-
Section 3.1.1 and in Section 4.5 hereof, the Borrower shall not be
permitted to deposit any funds in the Master Collection Account without the
prior written consent of the Bank.
3.1.2 The Borrower shall be entitled to withdraw from the Master
Collection Account with respect to a License Payment which has been
deposited in full the amount of third party participations, sales
commissions, and applicable royalties and other costs which the Borrower
may deduct to arrive at Net Collections. The balance of any License Payment
shall be released forthwith from the Master Collection Account for
application to the Amended and Restated Note in accordance with the terms
hereof. Other than as expressly provided in this Section 3.1.2, the
Borrower shall not be entitled to withdraw any portion of the funds
deposited in the Master Collection Account, and such account shall be under
the exclusive control of the Bank, until such time, if ever, as all of the
Obligations and all other sums, liabilities and other obligations owing by
the Borrower to the Bank under the Loan Documents shall have been
indefeasibly paid in full.
4. SECURITY INTEREST.
-----------------
4.1 Continuation of First Priority Security Interest As security for the
------------------------------------------------
full and timely payment and performance of all of the Obligations and any other
liabilities of or amounts owed by the Borrower to the Bank arising out of this
Agreement, or any of the other Loan Documents, whether now existing or hereafter
arising, the Borrower hereby acknowledges the validity and first priority of the
Bank's security interests in the "Collateral" and grants a continuing security
interest in and lien upon, and mortgages, pledges and assigns to the Bank for
security purposes, the "Collateral".
4.2 The Collateral. The term "Collateral" shall mean all of the
--------------
Borrower's now owned or hereafter acquired right, title and interest in and
relating to (i) the Master Collection Account, (ii) the Products, and (iii) the
License Agreements, and all proceeds of any and all of the foregoing property,
including, without limitation, all assets, accounts, accounts receivable,
contract receivables, goodwill, contract rights, general intangibles, inventory,
goods, documents, instruments, returned merchandise, chattel paper, cash,
deposit accounts, completion bonds, policies of insurance relating thereto or
arising therefrom and all products, replacements or substitutions for, and
accessions and additions to any and all of the foregoing property and interests
in property, and all payments under any indemnity, warranty or guarantee payable
by reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral, and all books and records relating to any of the foregoing
Collateral. Without in any way limiting the generality
-17-
of the foregoing, the Collateral shall specifically include all of the
Borrower's right, title and interest, now owned or hereafter acquired,
throughout the entire universe, in and to each and all of the following:
4.2.1 All Products (whether such Products are in preproduction,
production, principal photography , post-production or completed) and
Literary Properties, including, without limitation, all of the Borrower's
right, title and interest in and to:
4.2.1.1 All common law and statutory copyrights and copyright
registrations, and applications for registration, now existing or
hereafter arising, United States and foreign, obtained or to be
obtained on or in connection with the Products, the Literary
Properties or any parts thereof or any underlying or component element
of any Product or Literary Property, including, but not limited to,
all copyrights on the property described in Sections 4.2.1.2 through
4.2.1.5 hereof together with the right to copyright and all rights to
renew or extend such copyrights and the right (but not the obligation)
of the Bank to ▇▇▇ in its own name and/or in the name of the Borrower
for past, present and future infringements of copyright (collectively,
the "Copyrights");
4.2.1.2 All rights in and to all music, musical compositions,
lyrics and recordings used and to be used in, or derived from, any of
the Products, including, without limitation, all rights to record, re-
record, produce, reproduce, license, synchronize or publish all or any
of said music and musical compositions;
4.2.1.3 All physical properties of every kind or nature of or
relating to any of the Products and all versions thereof, to the
extent now or hereafter in existence, including, without limitation,
exposed film, developed film, positives, negatives, prints, answer
prints, special effects, pre-print materials (including, without
limitation, negatives, positives, duplicate negatives , inter-
negatives , inter-positives, color reversals, intermediates,
lavenders, fine grain master prints and matrixes, master tapes, discs,
cassettes and cartridges, soundtracks, recordings, audio and video
tapes, discs, cassettes and cartridges, master magnetic tracks, other
optical soundtrack recordings and music cue sheets, and all other
forms of pre-print elements used in any way to produce prints or other
copies or additional pre-print elements, whether now known or
hereafter devised or created) , audio and video tapes, cassettes and
discs (including, without limitation, 8mm, CD-I, CD-ROM and VHD) of
all types and
-18-
gauges, cut-outs, trims and any and all other physical properties of
every kind and nature relating to any of the Products in whatever
state of completion, and all duplicates, drafts, versions, variations
and copies of each thereof (all of the foregoing collectively referred
to as the "Physical Materials"), and any and all rights of access to
removal and transfer of, and duplication and reproduction of, any and
all of the Physical Materials;
4.2.1.4 All production, distribution, subdistribution, leasing,
subleasing, license, sublicense, exhibition, telecasting,
broadcasting, transmission (including, without limitation, by way of
satellite or cable), ancillary, publishing, spin-off, collateral,
allied, subsidiary, merchandising and other exploitation rights
pertinent or related to the Products, including, without limitation,
the following: (i) all rights to produce remakes, sequels, pre-sequels
or serials based in whole or in part upon the Products, the Literary
Properties, the theme of the Products or the text or any part of the
Literary Properties; (ii) all rights throughout the world to exhibit
the Products in theaters; (iii) all rights throughout the world to
telecast, broadcast , distribute , transmit (including, without
limitation, by way of microwave, satellite or cable) or reproduce by
means of television, including commercially sponsored, sustaining and
subscription, satellite, cable or "pay" television, by means of video
cassettes, video cartridges (including, without limitation, 8mm, video
and laser discs (including, without limitation, CD-I, CD-ROM and
VHD)), tapes, cartridges, interactive video (whether such interactive
video is "pay-per-view," computer generated, computer received,
received via cable television, supplied via computer modem,
incorporated into software, supplied via direct satellite reception or
is incorporated into a computer game, arcade game or home video game)
or any other scientific, mechanical, audiovisual or electronic means,
methods, processes or devices, now known or hereafter created,
conceived or devised, the Products and any remake of, sequel or pre-
sequel to or serialization of the Products; (iv) all rights to produce
primarily for television or similar use a motion picture or series of
motion pictures, by use of film, video, tape, disc (including, without
limitation, CD-I, CD-ROM and VHD), cassette, cartridge or any other
audiovisual or mechanical recording device now known or hereafter
devised, based upon the Products, the Literary Properties or any part
thereof, including, without limitation, based upon any treatment,
script, scenario or the like used in the Products; (v) all rights to
reissue any of the Products by means of film,
-19-
tape, disc (including, without limitation, CD-I, CD-ROM and VHD) or
any other devices now known or hereafter created, conceived or
devised; (vi) all merchandising rights, including, without limitation,
all rights to use, exploit and license others to use and exploit any
and all commercial tie-ups of any kind arising out of or connected
with the Literary Properties, the Products, the title or titles of the
Products and Literary Properties, and the characters of the Products
or of the Literary Properties; and (vii) the names or characteristics
of said characters in any of the Products or Literary Properties,
including, without limitation, any and all commercial tie-up,
sponsorships , publishing, merchandising and other exploitation in
connection with or related to the Products, any remake, prequel,
sequel or serialization thereof or the Literary Properties;
4.2.1.5 The dramatic , non-dramatic, stage, television, "home
video", radio and publishing riqhts in and to the Products, the
Literary Properties or any part thereof, and the right to obtain
Copyrights and renewals of Copyrights therein;
4.2.1.6 The titles of the Products and the Literary Properties
and all rights to the use thereof, including, without limitation,
rights protected by trademark and service ▇▇▇▇ ▇▇▇▇ against unfair
competition or any other applicable statutory or common law, or other
rule of principle of law; and all trademarks, tradenames, logos,
service marks and service names, at any time owned or used by any
Borrower in connection with any of the Products;
4.2.1.7 All accounts, accounts receivable, contracts
receivable, general intangibles, contract rights and other rights
which may arise or may have risen in connection with the creation,
production, delivery, distribution, exhibition of all or any part of
the Products, including, but not limited to, (i) all general
intangibles and contract rights for services or other performances by
any third parties, including Persons furnishing services or materials
or both, and actors, writers, directors, individual producers or any
and all other performing or non-performing artists in any way
connected with the Products or the Literary Properties, (ii) all
general intangibles and contract rights relating to licenses of sound
or other equipment, and licenses for photographic or other processes
relating to the Products, and (iii) any and all other such rights as
the Borrower has, the ownership or control of which is necessary or
desirable, in the opinion of the Bank, in order to
-20-
complete production and distribution of the Products; with respect to
each agreement that is a part of the Collateral, the Collateral shall
include the right (but not the obligation) of the Bank and the
Borrower, to modify such agreement, to perform thereunder, to compel
performance thereunder and otherwise to exercise all remedies
thereunder;
4.2.1.8 All documents issued by any pledgeholder or bailee with
respect to the Products or any of the Physical Materials; and
4.2.1.9 All insurance policies and completion bonds on or
connected with the Products or the production or distribution thereof
or the Physical Materials, and all proceeds which may be derived
therefrom.
4.2.2 All License Agreements, including, without limitation:
4.2.2.1 All presently existing and hereafter arising License
Payments, accounts, and other accounts receivable and general
intangibles or sums payable to the Borrower in respect of the License
Agreements; and all proceeds of any of the foregoing, of every kind
and character;
4.2.2.2 All sums, proceeds, money, products, profits and
increases, including money, profits or increases, or other property
presently owned or hereafter obtained from, in connection with or
related to the License Agreements;
4.2.2.3 All instruments, notes or chattel paper which may arise
in connection with any and all of the License Agreements;
4.2.2.4 All security interests granted to the Borrower under
any License Agreements or any other agreements; and
4.2.2.5 The Fox ▇▇▇▇▇▇ Note, which shall be pledged to the Bank
as security for the Obligations in a form satisfactory to the Bank in
its sole discretion.
4.2.3 All inventions, processes, formulae, licenses, patents, patent
rights, trademarks, trademark rights, trademark registrations, service
marks, service ▇▇▇▇ rights, service ▇▇▇▇ registrations, tradenames,
tradename rights, tradename registrations, service names, service name
rights, service name registration, logos, indicia, corporate and company
names, business source or business identifiers
-21-
and renewals and extensions thereof, United States and foreign, and the
related goodwill and other like business property rights relating to the
Products, and the right (but not the obligation) to register claim under
any trademark, tradename, service ▇▇▇▇, service name or patent and to renew
and extend such trademarks, tradenames, service marks, service names or
patents and the right (but not the obligation) to ▇▇▇ in the name of the
Borrower or in the name of the Bank for past, present or future
infringement of trademarks, tradenames, service marks, service names or
patents;
4.2.4 All cash, cash equivalents and bank accounts of the Borrower
wherever located, including, without limitation, the Master Collection
Account, which represent or include funds obtained from, in connection with
or related to the Products, and all drafts checks, certificates of deposit,
notes, bills of exchange and other writings which evidence a right to the
payment of money and are not themselves security agreements or leases and
are of a type which in the ordinary course of business is transferred by
delivery with any necessary endorsement or assignment obtained from, in
connection with or related to the Products, whether now owned or hereafter
acquired;
4.2.5 All inventory of prints, video laser discs (including (without
limitation) CD-I, CD-ROM and VHD), video cassettes, video cartridges, video
tapes, advertising materials and all other items of inventory relating to
the Products;
4.2.6 All books and records relating to any and all of the foregoing
Collateral;
4.2.7 All Rights-In Agreements (including, without limitation, all
security interests granted to the Borrower pursuant thereto or in
accordance therewith); and
4.2.8 All proceeds of, products of or accessions or additions to, any
and all of the foregoing collateral.
4.3 Granting of Security Interest in and Lien on Inventory. As
------------------------------------------------------
additional security for the full and timely payment and performance of all of
the Obligations and any other liabilities of or amounts owed by the Borrower to
the Bank arising out of this Agreement, or any of the other Loan Documents,
whether now existing or hereafter arising, the Borrower hereby grants a
continuing security interest in and lien upon all present and future inventory
and merchandise including, without limitation, all present and future goods held
for sale or lease or to be furnished under a contract of service, all raw
materials, work in progress and finished goods, all packing materials, supplies
and containers relating to or used in connection with any of the
-22-
foregoing, and all bills of lading, warehouse receipts or documents of title
relating to any of the foregoing, whether now owned or hereafter acquired by the
Borrower, wherever located, and all accessions or additions to, any and all of
the foregoing (the "New Collateral"). The lien on and security interest in the
New Collateral granted to the Bank shall be subject to and subordinate to the
lien therein of ▇▇▇▇▇▇.
4.4 Security Documents. All currently existing documents and filings
------------------
which evidence and/or perfect the security interests and rights granted to the
Bank under the Original Loan Documents (the "Original Security Documents") shall
remain in full force and effect for purposes of evidencing and/or perfecting the
security interests and rights granted herein. For the purpose of further
evidencing or perfecting the security interests granted by the Borrower to the
Bank, the Borrower agrees, in the sole discretion of the Bank, to:
4.4.1 Execute and deliver, or cause to be executed and delivered, to
the Bank, Uniform Commercial Code financing statements and Bank Notice
Letters from all jurisdictions as may be, in the opinion of the Bank,
necessary to perfect and/or continue perfection of such security interests;
4.4.2 (i) Execute and deliver, or cause to be executed and delivered,
to the Bank, the Amended and Restated Copyright Mortgage, and (ii) cause to
be recorded in the United States Copyright Office and the United States
Patent and Trademark Office, as appropriate, an additional original copy of
such Amended and Restated Copyright Mortgage;
4.4.3 With respect to each License Payment, execute and deliver, and
cause all account debtors of each such License Payment to execute and
deliver, an Irrevocable Authority and Acknowledgment to the Bank pursuant
to which all such account debtors are instructed and agree to remit all
such License Payments directly to the Master Collection Account; and
4.4.4 Execute and deliver, or cause to be executed and delivered, to
the Bank, the Fox ▇▇▇▇▇▇ Note and such endorsement or other evidence of the
pledge thereof in favor of the Bank as the Bank deems necessary or
appropriate in its sole and absolute discretion, and any other instrument
or note evidencing a right to payment under any License Agreement.
4.4.5 Execute and deliver, or cause to be executed and delivered, to
the Bank, such other instruments and documents as the Bank may request to
carry out and fulfill
-23-
the purposes of this Agreement, all in form and substance satisfactory to
the Bank.
4.5 Borrower to Deliver Funds to the Bank. In the event that the Borrower
-------------------------------------
receives any funds which should have been delivered directly to the Bank
pursuant to Section 3.1.1 or 4.4.3 hereof, the Borrower agrees that such funds
are being held in trust for the Bank, and the Borrower shall, promptly upon
receipt thereof, deliver the same to the Bank.
4.6 Filing and Recordation. The Borrower shall, in accordance with the
----------------------
Bank's instructions, execute and deliver all documents of whatever kind and
render such other assistance as may be necessary to cause all of the agreements,
instruments and documents executed pursuant to this Agreement to be duly
recorded and/or filed in all places necessary, in the opinion of the Bank, to
perfect and protect the security interests and liens of the Bank in the
Collateral and the New Collateral, and (without limiting the Borrower's
recording and/or filing obligations pursuant to Section 4.4 hereof or elsewhere
herein) the Bank is hereby authorized to file or record all of such agreements,
instruments and documents. In the event that any re-recording or re-filing
thereof (or the filing or recording of any additional agreements, instruments
and/or documents) required to protect and preserve any such lien or security
interest, the Borrower agrees that it shall again promptly execute and deliver
all documents of whatever kind and render such other assistance as may be
necessary to cause the same to be re-recorded and/or re-filed (or any additional
agreements, instruments and/or documents filed or recorded) at the time and in
the manner requested by the Bank. Notwithstanding the foregoing, the Borrower
hereby authorizes the Bank to execute (or re-execute) in the name of the
Borrower and/or to file or record (or re-file or re-record) any financing
statements, Copyright Mortgages, Trademark Mortgages or other documents or
instruments in respect of any security interests created pursuant to this
Agreement or any of the other Loan Documents which may at any time be required
in the opinion of the Bank, and the Borrower hereby irrevocably designates the
Bank, its agents, representatives and designees as agent and attorney-in-fact
for the Borrower for these purposes. Such appointment is coupled with an
interest and is therefore irrevocable.
4.7 Termination of Securitv Interest In All Collateral. Upon the
--------------------------------------------------
full and complete indefeasible satisfaction of all of the Obligations and any
other liabilities or obligations of or amounts owing by the Borrower to the Bank
pursuant to the Loan Documents, whether now existing or hereafter arising, and
submission by the Borrower to the Bank of appropriate termination statements or
other instruments reflecting the termination of the Bank's security interests in
the Collateral and the New Collateral, at the expense of the Borrower, the Bank
shall promptly execute and return such instruments, including, but not
-24-
limited to, the Amended and Restated Note marked "paid", to the Borrower.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
5.1 For the purpose of inducing the Bank to enter into this
Amendment, New Entertainment hereby represents and warrants to the Bank as of
the Closing as follows:
5.1.1 Good Standinq and Corporate Power. The Borrower is a corporation
---------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and is qualified to transact business as
a foreign corporation in good standing in (i) the State of California and
(ii) in each other jurisdiction where the failure to be so qualified would
have a material adverse effect on it, its assets or properties, or the
conduct of its business (which jurisdictions together the State of
California are hereinafter collectively referred to as the "Relevant
Foreign Jurisdictions"). The corporate charter or right to conduct business
of the Borrower in its jurisdiction of incorporation and the Relevant
Foreign Jurisdictions has never been suspended, revoked or terminated. The
Borrower has the right, power and authority to own its properties and
assets and to transact the business in which it is engaged and proposes to
engage including, without limitation, the power to distribute and otherwise
exploit the Products in accordance with each License Agreement to which it
is a party.
5.1.2 Binding Agreement. This Agreement and the other Loan Documents
------------------
(to the extent such other Loan Documents are intended to be of a
contractual nature), when executed and delivered, will constitute the
valid and legally binding obligations of the Borrower and are enforceable
in accordance with their respective terms except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors rights generally.
5.1.3 Due Authorization; No conflicts or Violations. The execution,
---------------------------------------------
delivery and performance of this Agreement by the Borrower, the execution,
delivery and performance of each of the other Loan Documents to which the
Borrower is a party, and the grant of the security interests contemplated
by this Agreement and the other Loan Documents to which the Borrower is a
party, (i) have been duly authorized by all requisite actions by the board
of directors and stockholders of the Borrower and will not violate any
provision of any law, any order of any court or other agency of the United
States, any State or any foreign country, state or province having
jurisdiction, and (ii) will not violate any provision of the
certificate/articles
-25-
of incorporation, by-laws or other formation, charter or corporate
governance document of the Borrower, or any provision of any agreement or
instrument to which the Borrower is a party or by which the Borrower or any
of its properties or assets may be bound, or be in conflict with, result in
a breach of or constitute a default under, any such agreement or other
instrument.
5.1.4 Authorizations. All authorizations, approvals, registrations or
--------------
filings from or with (i) any governmental or public regulatory body or
authority of the United States, any State or of any foreign country, state,
province or other jurisdiction, or (ii) any other Person, required for the
execution, delivery or performance by the Borrower of the Loan Documents to
which the Borrower is a party, have been obtained or made and are in full
force and effect.
5.1.5 Necessary Rights. The Borrower owns and controls and has good,
----------------
valid and marketable title to, and will continue to own and control and
have good, valid and marketable title to, all rights necessary for the
development, production, distribution, subdistribution, sale, lease,
sublease, rental, license, sublicense, telecast, broadcast, transmission
(including, without limitation, by way of satellite or cable) and other
exploitation of all Products in accordance with the requirements contained
in any agreement relating to any Product to which the Borrower is a party,
including this Agreement, the License Agreements (including, without
limitation, all rights necessary to perform all of the Borrower's
obligations, to perform and observe all conditions referred to herein or
therein and to be in compliance with and observe all of the Borrower's
representations and warranties made herein or therein); and owns and
controls and has good, valid and marketable title to all other collateral.
5.1.6 The Security Interests. This Agreement and the other Loan
----------------------
Documents to be delivered to the Bank pursuant to Section 4.4 hereof, will
create and grant to the Bank valid security interests and charges in the
Collateral and New Collateral. The Bank shall have perfected first priority
security interests in and liens on the Collateral, and such Collateral
shall be subject only to the junior liens of the Permitted Encumbrances.
The Bank shall have a perfected second priority security interest in and
lien upon the New Collateral junior only to the security interest therein
and lien thereon of ▇▇▇▇▇▇.
5.1.7 No Violation of Rights. As of the Closing, the Borrower is not
----------------------
aware of any violation or infringement by any of the Products or any of the
component parts thereof
-26-
upon any copyright, trademark, service ▇▇▇▇, patent, tradename, service
name, performing right or any literary, dramatic, musical, artistic,
personal, private, civil, contract or property right or any other right of
any Person, and is not aware of any material contained in any of the
Products that is libelous or slanderous or that would invade the rights of
privacy of any Person.
5.1.8 No Judgments, Litigation, Etc. Except as set forth on Schedule
-----------------------------
5.1.8 attached hereto, there are no judgments or orders or actions at law
or in equity and no proceedings (including, without limitation, tax audits)
by or before any court, arbitrator, arbitration panel, governmental
commission, bureau or other administrative agency pending (or, to the best
knowledge of the Borrower after due inquiry, threatened) against the
Borrower that could have a material adverse impact on the financial
condition of the Borrower or on the overall value of the Collateral.
5.1.9 No Defaults. There does not exist any Event of Default, and the
-----------
Borrower is not in default in any material respect in the payment or
performance of any of its obligations under any agreement, instrument or
undertaking to which the Borrower is a party or by which it or any of its
assets may be bound which may materially and adversely affect its ability
to fully and timely perform all of its obligations under any Loan Document,
any License Agreement or which would materially and adversely affect the
value, on an overall basis, of the Collateral or New Collateral or the
Bank's security interests therein.
5.1.10 Trade Names and Trade Styles. As of the Closing, Schedule
----------------------------
5.1.10 hereto completely and accurately sets forth all trade names and
trade styles of the Borrower.
5.1.11 Existing License Agreements. As of the Closing, Schedule
---------------------------
5.1.11 hereto completely and accurately sets forth (i) a description of all
currently existing License Agreements (collectively, the "Existing License
Agreements"), and (ii) identifies each Existing License Agreement for which
there exists (as of the date of execution of this Agreement) payment
instructions thereby instructing an account debtor to remit one or more
License Payments to any Person (other than the Bank or the Borrower).
5.1.12 Furnishing of Documents. The Borrower has furnished the Bank
-----------------------
with true and complete copies of (i) the Borrower's certificate of
incorporation, by-laws or other corporate formation, charter or governance
documents together with all amendments thereto, and (ii) all License
Agreements required to be furnished hereunder to the extent
-27-
any such agreements are in existence on the date this representation and
warranty is deemed made. Each of the License Agreements is in full force
and effect and constitutes the binding obligations of all of the parties
thereto in accordance with their respective terms. There has been no
default or accrued right of termination under the License Agreements by the
Borrower or to the Borrower's knowledge, any other party under said
agreements.
5.1.13 Financial Statements. All financial statements provided to the
--------------------
Bank by the Borrower will be true, correct and complete except to the
extent expressly qualified therein.
5.1.14 ERISA Compliance. The Borrower and each ERISA Affiliate is in
----------------
compliance in all material respects with the provisions of ERISA which are
applicable to it. Neither the Borrower nor any of its ERISA Affiliates has
established (and does not maintain or contribute to) any employee benefit
plan or other plan covered by Title IV of ERISA, does not sponsor, maintain
or contribute to any "multi-employer plan", as such term is defined in
Section 414(f) of the Internal Revenue Code, and has not breached any
fiduciary duty imposed upon it under Title I of ERISA.
5.1.15 Existing Products. As of the Closing, Schedule 5.1.15 hereto
-----------------
completely and accurately sets forth all Products in which the Borrower has
any interest (collectively, the "Existing Products").
5.1.16 Location of Physical Materials. As of the Closing, Schedule
------------------------------
5.1.16 hereto completely and accurately sets forth the names and addresses
of all laboratories that have possession of any physical and/or sound
materials or elements related to or used in connection with any Product in
which the Borrower has any interest.
5.1.17 No Subsidiaries or Affiliates. As of the Closing, the Borrower
-----------------------------
has no Subsidiaries or Affiliates.
5.1.18 Disclosure Statement. As of the Closing, all financial
--------------------
information and projections contained in the disclosure statement for the
Plan and in the exhibits thereto are true and accurate.
5.1.19 Finality of Confirmation Order, etc. As of the Closing, the
-----------------------------------
Plan has been duly confirmed by the Confirmation Order, which has been
entered by the Court and has become final and non-appealable. All of the
Loan Documents to be executed and delivered by the Borrower in connection
with this Agreement are within the scope of authority granted to the
Borrower under the Plan and Confirmation Order. No modifications,
supplements or
-28-
corrections are required to the Plan or the Confirmation Order to grant the
Borrower authority to execute and deliver the Loan Documents.
5.1.20 Satisfaction of Conditions to Effective Date. All actions
--------------------------------------------
required to be taken and all conditions required to be satisfied for the
Effective Date to occur under the Plan have been taken and satisfied, with
the exception that the Merger will become effective contemporaneously with
the execution of this Agreement.
5.2 No Misrepresentations. No representation or warranty of the Borrower
---------------------
made herein or in any other Loan Documents, and none of such documents
themselves contains, or will contain, a misstatement by or on behalf of the
Borrower of a material fact or omits, or will omit to state a material fact
required to be stated herein or therein in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading in any respect.
5.3 Making of and Survival of Representations and Warranties. All
--------------------------------------------------------
representations and warranties of Borrower made herein and in the other Loan
Documents shall survive the execution and delivery of this Agreement.
6. AFFIRMATIVE COVENANTS.
---------------------
The Borrower hereby covenants to and agrees with the Bank that, until
indefeasible payment in full of all of the Obligations the Borrower will (unless
otherwise waived in writing by the Bank):
6.1 Existence. Do or cause to be done all things necessary to comply with
---------
all laws and regulations applicable the Borrower, and to preserve, renew and
keep in full force and effect (i) the corporate existence of the Borrower in its
place of incorporation and in all other jurisdictions where the Borrower
conducts business, and (ii) all rights, licenses, permits and franchises of the
Borrower.
6.2 Performance Covenants.
---------------------
6.2.1 Duly and timely comply with all the terms, conditions,
covenants and warranties set forth in this Agreement, the other Loan
Documents and the License Agreements, all at the times and places and in
the manner set forth herein and therein, and diligently protect the rights
of the Borrower and the Bank under such agreements where the failure to
protect such rights would have a material adverse effect on the Borrower's
or the Bank's interest therein;
-29-
6.2.2 At all times maintain or cause to be maintained in favor of
the Bank the security interests provided for under or pursuant to the Loan
Documents as valid and perfected first priority security interests in the
Collateral, and valid and perfected security interests in the New
Collateral junior only to the senior lien therein of ▇▇▇▇▇▇ and purchase
money security interests, if any, therein.
6.2.3 Diligently and timely defend the Collateral and New Collateral
and the Bank's right therein against any and all Encumbrances (other than
Permitted Encumbrances).
6.3 Books, Records and Other Information. Maintain at all times true and
------------------------------------
complete books, records and accounts in which true and correct entries shall be
made of the Borrower's transactions in accordance with GAAP, including, without
limitation, books and records with respect to all costs and expenditures
incurred in connection with each Product. The Borrower shall allow any
representative of the Bank to (i) examine all books, records, documents
(including, without limitation, License Agreements and Rights-In Agreements) and
files of the Borrower relating to the Collateral and to make copies thereof, at
such reasonable times and on reasonable prior notice during business hours and
as often as the Bank may request, and (ii) confirm directly with account debtors
all accounts receivable of the Borrower relating to the Collateral (including
accounts and contracts receivable not reflected on the Borrower's consolidated
balance sheet in accordance with GAAP). The Borrower shall promptly furnish
the Bank with such information respecting the Products or any other Collateral
or New Collateral or other information as the Bank may from time to time
reasonably request.
6.4 Insurance.
---------
6.4.1 Procure, comply with all terms of, pay all premiums due on and
maintain in full force and effect so long as any sums shall remain owing
hereunder all insurance (with financially sound and reputable insurers
acceptable to the Bank) customary in the motion picture and television
industries for each Product, or necessary to adequately protect the
Collateral, including, without limitation, errors and omissions insurance,
negative and soundtrack insurance (except where such insurance is provided
by the laboratories at which Physical Materials are stored), other
casualty insurance, third party property damage insurance, third party
liability insurance, and all risk floaters.
6.4.2 Cause (i) all such above-described insurance to provide
for the benefit of the Bank that 30 days' prior written notice of
suspension, cancellation, termination, modification, non-renewal or lapse
or material change of coverage shall be given to the Bank; and (ii) all
above-
-30-
described insurance to name the Bank as the loss payee, an additional
insured or a named beneficiary (as the case may be);
6.4.3 Upon the request of the Bank, render a statement, in such
detail as the Bank may request, as to all such insurance coverage; and
6.4.4. If the Borrower fails to pay any premium required by
such insurance policies, the Bank may, in its sole discretion, pay the same
and an amount equal to such payment shall be deemed a Cost hereunder.
6.5 Notice of Events, Etc. Promptly give notice in writing to the Bank of
---------------------
(i) the occurrence of any Event of Default or Potential Event of Default; (ii)
any action or event of which the Borrower has knowledge which might materially
and adversely affect the condition (whether financial or otherwise) of the
Borrower and/or the performance by the Borrower of any of its obligations under
any Loan Document or the security interests granted under any Loan Document;
(iii) any change in the name, chief executive office or the location of the
accounts, books and records of the Borrower, and (iv) any proposed Modification
to any agreement for which the consent of the Bank is required.
6.6 Financial Information. Cause to be delivered to the Bank:
---------------------
6.6.1 As soon as practicable and in any event within 51 days after
the end of each fiscal quarter of each fiscal year of the Borrower an
unaudited balance sheet of the Borrower as at the end of such period and
the related statements of operations, stockholders' equity (deficiency) and
cash flow of the Borrower for such quarter setting forth in each case in
comparative form the figures for the corresponding periods of the previous
fiscal year, all in reasonable detail and certified by the Chief Financial
Officer of the Borrower that they fairly present the financial condition of
the Borrower as at the dates indicated and the results of its operations
for the periods indicated, subject to changes resulting from audit and
normal year-end adjustment;
6.6.2 As soon as practicable and in any event within 105 days after
the end of each fiscal year of the Borrower, balance sheets of the Borrower
as at the end of such year and the related statements of operations,
stockholders' equity (deficiency) and cash flow of the Borrower for such
fiscal year, setting forth in each case, in comparative form the figures
for the previous year, all in reasonable detail and (i) in the case of such
financial statements, accompanied by a report thereon of BDO ▇▇▇▇▇▇▇ or
other independent certified public accountants of recognized
-31-
international standing selected by the Borrower which reports shall state
that such financial statements present fairly the financial position of the
Borrower as at the dates indicated and the results of their operations and
cash flow for the periods indicated in conformity with GAAP applied on a
basis consistent with prior years (except as otherwise stated therein) and
that the examination by such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and (ii) in the case of such financial statements, certified by
the chief financial or other senior officer of the Borrower, as applicable;
6.6.3 As soon as practicable and in any event within 30 days after
the end of each calendar month, a monthly statement comparing actual
collection of License Payments with projected collections.
6.7 Further Assurances. Duly execute and deliver, or cause to be duly
------------------
executed and delivered to the Bank such further agreements, documents,
instruments and information and do or cause to be done such further acts as may
be necessary or proper to evidence and/or perfect the security interests of the
Bank in the Collateral and New Collateral, to pursue rights or claims asserted
by the Bank against ▇▇▇▇▇▇ relating to the ▇▇▇▇▇▇ License Agreement or the
▇▇▇▇▇▇ Payments Assignment Agreement, or to otherwise carry out more effectively
the provisions and purposes of the Loan Documents as the Bank may from time to
time reasonably request.
6.8 Supporting Documents. Deliver to the Bank copies duly certified by
--------------------
representatives of the Borrower of any documents relating to the Products as the
Bank may reasonably request.
6.9 Payment of Obligations. Duly and punctually pay or cause to be
----------------------
paid all Obligations on the dates, at the places and in the manner set forth
herein.
6.10 Rights in Products. As soon as any Product or any Literary Property
------------------
may be registered for copyright, take any and all actions as may be necessary to
register and/or cause to be registered all of the Borrower's rights in such
Product or Literary Property- (subject to the Copyright Mortgages) including,
without limitation, the Borrower's rights in the copyrights thereof, all in
conformity with the laws of the United States and any and all relevant foreign
jurisdictions; and immediately deliver to the Bank written evidence of each such
filing for (and actual) registration of such rights, which rights shall
constitute part of the Collateral under the Loan Documents; and as soon as
practicable, execute and record or cause to be recorded all of the Copyright
Mortgages in conformity with the laws of the Untied States and any and all other
relevant jurisdictions, and immediately deliver to the Bank written
-32-
evidence of the submission thereof for recording (and as soon as available, a
recorded copy of each such Copyright Mortgage).
6.11 Laboratories; No Removal. To the extent the Borrower has control over
------------------------
or rights to receive any of the physical elements of any Product, deliver or
cause to be delivered to a laboratory or laboratories all negative and preprint
material and all soundtrack material with respect thereto and prior to
requesting any such laboratory to deliver such negative or other preprint or
soundtrack material to another laboratory, the Borrower shall to the extent
necessary in the sole discretion of the Bank provide the bank with a Laboratory
Pledgeholder Agreement (and/or if applicable, Laboratory Authorization Letter)
executed by the Borrower and such other laboratory. The Borrower hereby agrees
that without the prior written consent of the Bank, the Borrower shall not
remove or cause the removal of any negative or preprint film material or sound
materials with respect to any Product (i) to a location outside the United
States or (ii) to any State where UCC-1 financing statements have not been filed
against the Borrower for the benefit of the Bank describing the Collateral.
6.12 Trademarks. Service Marks. Etc. Promptly notify the Bank upon each
------------------------------
registration or application for registration of any intangible rights including,
but not limited to, all trademarks, tradenames, logos, service marks, patents
and service names relating to any Product.
6.13 Trade Names and Trade Styles. Promptly notify the Bank of any
----------------------------
addition or change to any of the Borrower's trade names or trade styles.
6.14 Compliance With Laws. At all times comply with the requirements of
--------------------
all applicable laws, rules, regulations and orders of all governmental
authorities of the United States, the States, foreign countries, states,
provinces thereof and their respective counties, municipalities and other
subdivisions and of any other jurisdictions (whether domestic or foreign)
applicable to the Borrower.
6.15 Taxes and Claims. Timely file all tax returns and reports required to
----------------
be filed by the Borrower; and duly pay and discharge (i) all taxes, assessments
and governmental charges upon or against the Borrower or the Collateral or New
Collateral or any portion thereof prior to the date on which penalties attach
thereto, unless and to the extent that the same are being diligently contested
in good faith by appropriate proceedings promptly instituted and appropriate
reserves therefor as required by GAAP have been established so long as by reason
of such nonpayment and contest no material item or portion of the assets of the
Borrower is in jeopardy of being seized, levied upon or forfeited, and (ii) all
lawful claims, including but not limited to, those for labor, materials,
supplies, services or anything
-33-
else which might or could if unpaid become an Encumbrance upon any portion of
the Collateral, unless and to the extent that the same are being diligently
contested in good faith by appropriate proceedings and appropriate reserves or
other appropriate provision promptly instituted as shall be required in
conformity with GAAP therefor have been established so long as by reason of such
non-payment and contest no material item or portion of the assets of the
Borrower is in jeopardy of being seized, levied upon or forfeited.
6.16 Notice of Litigation. Promptly give notice in writing to the Bank of
--------------------
all actual or threatened litigation to which the Borrower is (or may become) a
party, including any arbitration or other controversy, claim, suit or other
proceeding of which the Borrower has knowledge which may materially and
adversely affect the Borrower, the Collateral, the New Collateral, the
exploitation of any Product or the Bank's rights in the Collateral or New
Collateral and/or under any of the Loan Documents, and furnish to the Bank from
time to time all information reasonably requested by the Bank concerning the
status of any such litigation, arbitration or other proceeding.
6.17 Discharge of Liabilities. Do or cause to be done all things necessary
------------------------
to ensure that all costs, expenses, obligations and liabilities of the Borrower
including, without limitation, all costs of developing, producing and
exploiting the Products, shall be discharged as and when they fall due except
costs being diligently contested in good faith for which appropriate reserves
and provisions as required by GAAP have been made, so long as by reason of such
non-payment and contest no material item or portion of the assets of the
Borrower is in jeopardy of being seized, levied upon or forfeited.
6.18 Progress of Products. The Borrower shall (i) upon the request of the
--------------------
Bank, keep the Bank fully informed of the progress of the development,
production and distribution or other exploitation of each Product, (ii) deliver
to the Bank copies of all License Agreements and such other documents relating
to the development, production or exploitation of each Product or otherwise
relating to the Collateral as the Bank may request, and (iii) answer all
inquiries of, supply full details to, the Bank of financial and other matters
relating thereto as requested by the Bank.
6.19 Miscellaneous Collateral. Promptly (i) cause all License Payments to
------------------------
be paid by account debtors directly into the Master Collection Account, and (ii)
upon the occurrence and continuation of an Event of Default, deliver to the Bank
all cash and cash equivalents (including, without limitation, any and all
proceeds of License Payments) , drafts, checks, certificates of deposit, notes,
bills of exchange or other writings which evidence a right of the Borrower to
the payment of any money
-34-
arising out of or relating to the Master Collection Account, License Agreements,
and/or the Products.
6.20 SEC Filings. Promptly upon their becoming available, furnish the
-----------
Bank with copies of all financial statements, reports, notices and proxy
statements sent or made available generally by the Borrower to any of its
security holders, of all regular and periodic reports and all registration
statements and prospectuses, if any, filed by the Borrower with any national or
regional securities exchange, any inter-dealer quotation system (including,
without limitation, the National Association of Securities Dealers, Inc.) or
with the SEC or any governmental authority succeeding to any of its functions or
similar authority (whether governmental or otherwise) in any other jurisdiction
and of all press releases and other statements made available generally by the
Borrower to the public concerning material developments in the business of the
Borrower.
6.21 Library Sales Agent. On or before January 31, 1997, the Borrower
-------------------
shall employ a sales agent reasonably satisfactory to the Bank on terms and
conditions reasonably satisfactory to the Bank to continue the exploitation of
the Products. The Bank has approved the retention of October Films as sales
agent for purposes of this Section 6.21, subject to the Borrower's providing the
Bank with a written agreement for such retention reasonably satisfactory to the
Bank.
6.22 Future Exploitation of the Products. All future sales or other
-----------------------------------
exploitation of the Products shall be pursuant to written agreements in the form
of the "Approved License Agreements" approved in the Original Agreement, or such
other written agreements as may be approved by the Bank, which approval shall
not be unreasonably withheld.
6.23 Collection of License Payments. The Borrower shall continue to
------------------------------
collect License Payments and make payments therefrom to the Bank in accordance
with section 2.2.4 hereof, and shall collect at least the following amounts of
License Payments during the following periods, calculated by deposits into the
Master Collection Account:
Quarter Minimum Collections
------- -------------------
First quarter 1997 $400,000
Second quarter 1997 $400,000
Third quarter 1997 $800,000
Fourth quarter 1997 $ 75,000
First quarter 1998 $160,000
-35-
Second quarter 1998 $200,000
The Bank's share of the Bough Breaks II Producer's Fee shall not be counted
against the minimum collections required above. Any collections during a
quarter in excess of the minimum requirement for such quarter shall be credited
against the minimum amount required for the following quarter. In the event of
a shortfall from the minimum in any quarter, the Borrower shall have 60 days
from the end of such quarter in which to cure such shortfall by application of
collections during such 60 days. Any collections applied to cure a shortfall
for a preceding quarter shall not be counted in the calculation of collections
for the quarter in which such collections were made.
6.24 Intercreditor Agreement With ▇▇▇▇▇▇. The Borrower shall cooperate
-----------------------------------
fully with the Bank and provide such assistance to the Bank as the Bank may
reasonably request in connection with the negotiation of all intercreditor
agreements or other agreements with ▇▇▇▇▇▇ that the Bank deems necessary or
advisable.
7. NEGATIVE COVENANTS.
------------------
The Borrower hereby covenants to and agrees with the Bank that, until
indefeasible payment in full of all of the Obligations, the Borrower will not
directly or indirectly without the prior written consent of the Bank:
7.1 Encumbrances. Create, incur, assume or suffer to exist
------------
(i) any Encumbrance upon the Collateral except for Permitted Encumbrances, or
(ii) any Encumbrance upon the New Collateral that is senior to the lien of the
Bank therein except for (a) the senior lien of ▇▇▇▇▇▇ therein, or (b) purchase
money security interests.
7.2 Prohibition of Modifications. Modify or permit or suffer to occur any
----------------------------
Modification (i) to any License Agreement, or (ii) to any other agreement to
which the Borrower is a party or which requires the consent or approval of the
Borrower to Modify that would materially and adversely (a) affect the condition
(financial or otherwise) of the Borrower, (b) lessen the ability of the Borrower
to perform its obligations under any Loan Document, (c) lessen any of the rights
granted to the Bank under any Loan Document, (d) affect the Collateral or New
Collateral, and/or (e) affect the Bank's interest in the Collateral or New
Collateral.
7.3 Affiliated Transactions. During a continuing Event of Default, deal
-----------------------
with any Affiliate on terms that are less favorable to the Borrower than those
that might be obtained from unaffiliated third parties.
-36-
7.4 Place of Business. Take any action with a view toward establishing,
-----------------
or in fact establish, a new place of business outside of the state of
California, or change the name (or conduct business other than under the current
name) of the Borrower, without in each case giving the Bank at least thirty
(30) days prior written notice of such action.
7.5 Title of Products. Change or permit a change of the title of any
-----------------
Product without first providing the Bank with at least thirty (30) days' prior
written notice of the proposed change of title.
7.6 License Agreements. Enter into or agree to be bound in any way by any
------------------
License Agreement with any distributor or licensee who will not execute and
deliver to the Bank an Acknowledgement covering all License Payments relating to
such License Agreement.
7.7 Financial Performance. Fail to reflect in any balance sheet,
---------------------
statement, report, accounting or analysis provided to the Bank under sections
6.6.1 or 6.6.2 hereof a minimum of $100,000 in profits on a quarterly basis
(pre-tax and calculated in accordance with generally accepted accounting
methods) or a minimum of $750,000 in profits for each fiscal year (pre-tax and
before reduction for any accelerated write-downs of the value of the Collateral,
or extraordinary reduction, relating to amortization of existing video cassette
inventory, calculated in accordance with generally accepted accounting methods).
7.8 Restricted Payments. Make any Restricted Payment during a continuing
-------------------
Event of Default.
8. EVENTS OF DEFAULT.
-----------------
An "Event of Default" shall mean the occurrence of any of the following
Events:
8.1 A default in the payment when due and in the manner prescribed herein
of any installment of Principal or Interest or any other Obligation and such
default shall continue for ten (10) calendar days.
8.2 The failure, refusal or neglect of the Borrower to observe or perform
for any reason any of the material covenants, conditions, agreements or
provisions contained in any Loan Document, or in any of the other agreements or
instruments referenced herein or contemplated hereby (other than the payment of
Obligation of which the failure to pay constitutes an Event of Default described
in Section 8.1 hereof) or to execute and deliver any documents, agreements or
instruments requested by the Bank hereunder or thereunder, provided that if such
failure, refusal or neglect is capable of remedy the Borrower shall be entitled
to cure the same within 30 days of the Borrower's
-37-
receipt of written notice from the Bank of the occurrence of such failure,
refusal or neglect.
8.3 Any material representation or warranty made by the Borrower in any
Loan Document, or any report, certificate, financial statement or other
instrument furnished by or on behalf of the Borrower in connection with any Loan
Document shall prove to have been false or misleading in any material respect.
8.4 A default or breach (without regard to any notice or period of cure)
with respect to the payment of (i) any indebtedness of the Borrower to ▇▇▇▇▇▇,
or (ii) any indebtedness for borrowed money of the Borrower to any third party
when due or in performance of any other obligation incurred in connection with
any such indebtedness for borrowed money by the Borrower which accelerates any
such indebtedness and would have a material adverse effect upon the Collateral
or New Collateral or the Borrower's ability to fully and timely perform all of
its Obligations under the Loan Documents.
8.5 The Bank shall cease to have valid and perfected first priority
security interests at any time for any reason in the Collateral or any portion
thereof, or shall cease to have a valid and perfected security interest (junior
only to the senior lien of ▇▇▇▇▇▇ and purchase money security interests, if any)
at any time for any reason in the New Collateral or any portion thereof.
8.6 If any judgment against the Borrower or any of its property or assets
which would or might materially and adversely affect (i) its ability to perform
its obligations or under any Loan Document, any License Agreement or any other
material agreement to which the Borrower is a party, and/or (ii) the overall
value of Collateral and the New Collateral and/or the Bank's rights therein,
remains unpaid, unstayed or undismissed for a period of more than 30 days.
8.7 The Borrower shall be dissolved or shall sustain the loss,
cancellation or forfeiture of its legal status or good standing by reason of any
judicial, extra-judicial or administrative proceedings or otherwise, or shall
(i) apply for or consent to the appointment of a receiver, trustee or liquidator
of the Borrower or of all or a substantial part of the Borrower's assets; (ii)
be unable to, or admit in writing its inability to, pay its debts as they
mature; (iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent; (v) file a voluntary petition in bankruptcy
or a petition or an answer seeking reorganization or an arrangement for the
benefit of creditors or take advantage of any insolvency law in its capacity as
a debtor; (vi) interpose an answer admitting the material allegations of the
petition filed against the Borrower in any bankruptcy, reorganization or
insolvency proceedings; (vii) take any action which would have the effect of
dissolving the Borrower (or a stockholder thereof
-38-
takes any such action); or (viii) take any action for the purpose of effecting
any of the foregoing.
8.8 Any (i) involuntary petition is filed against the Borrower seeking to
subject the Borrower to any bankruptcy, insolvency or similar laws and such
petition shall remain unstayed or not be withdrawn for a period of thirty (30)
days; or (ii) an order, judgment or decree shall be entered against the Borrower
by any court of competent jurisdiction approving a petition seeking its
reorganization or appointment of a receiver, trustee or liquidator of the
Borrower or of all or a substantial part of its assets and such order, judgment
or decree shall continue and stay in effect for a period of thirty (30) days.
8.9 A material adverse change in the business, assets, condition
(financial or otherwise, and whether progressive, sudden or otherwise) of the
Borrower which would or might materially and adversely affect (i) the ability of
the Borrower to perform its obligations under any Loan Document, any License
Agreement or any other material agreement to which the Borrower is a party,
and/or (ii) the overall value of the Collateral and the New Collateral and/or
the Bank's rights therein.
8.10 Any Loan Document, at any time after its execution in delivery and
for any reason other than the agreement of the Bank or satisfaction in full of
all the Obligations of the Borrower thereunder, ceases to be in full force in
effect or is declared by a court of competent jurisdiction to be null and void,
invalid or unenforceable in any respect; or any party thereto denies that it has
any or further liability or obligation under any Loan Document, or purports to
revoke, terminate or resend same.
8.11 The Borrower shall claim that any Loan Document is ineffective or
unenforceable, in whole or in part, for any reason.
9. REMEDIES; APPLICATION OF PROCEEDS.
---------------------------------
9.1 The Bank may, upon the occurrence of an Event of Default, exercise
any one or more of the following rights and remedies:
9.1.1 Declare the Amended and Restated Note and all Obligations to be
forthwith due and payable, whereupon all such Obligations shall be
accelerated and shall become immediately due and payable without
presentation, demand or notice of any kind to the Borrower (all of which
are hereby waived by the Borrower), except that if an Event of Default
specified in Sections 8.7 or 8.8 shall occur with respect to the Borrower,
such acceleration shall be automatic and no declaration or other act of
any of the Bank shall be necessary to effect such acceleration;
-39-
9.1.2 Proceed to protect and enforce the rights of the Bank to payment
of Obligations and its rights to proceed against the Collateral and the New
Collateral and exercise it remedies whether by suit in equity or by action
at law, or both, whether for the specific performance of any covenant,
agreement or other provision of any of the Loan Documents or any other
legal or equitable right or remedy of the Bank;
9.1.3 In addition to those actions that may otherwise be permitted to
be taken by the Bank under any of the Loan Documents, with respect to the
Collateral and the New Collateral, take the following actions:
9.1.3.1 Collections. Etc. The Bank may demand, ▇▇▇ for, collect
-----------------
or receive, in the name of the Bank or in the name of the Borrower, or
otherwise, any money or property at any time payable or receivable on
account of or in exchange for, or make any compromise or settlement
deemed desirable with respect to, any of the Collateral and the New
Collateral (but the Bank shall be under no obligation to do so), or
extend the time of payment, arrange for payment in installments, or
otherwise modify the term of, or release, any of the Collateral and
the New Collateral, without thereby incurring responsibility to
discharge, or discharging, or otherwise affecting any liability of the
Borrower. The Bank shall not be required to take any steps to preserve
any rights against other parties to the Collateral and the New
Collateral. The Bank may (but is not obligated to) make such payments
and take all such actions as the Bank deems necessary to protect the
Bank's security interest in the Collateral and the New Collateral
and/or the value thereof, and the Bank is hereby authorized (without
limiting the general nature of the authority hereinabove conferred) to
pay, purchase, contest or compromise any Encumbrance; and
9.1.3.2 Possession and Sale of Collateral. Etc. The Bank may
---------------------------------------
exercise in respect of the Collateral and the New Collateral, all
other rights and remedies hereunder and all the rights and remedies of
a secured party under the Code. In addition, the Bank may notify any
and all account debtors of the Borrower to make all further License
Payments to the Bank, and enter upon each premises of wherever the
Collateral and/or the New Collateral may be and take possession of
the Collateral and/or the New Collateral and demand and receive such
possession from any Person who has possession thereof; and take such
measures as it may deem necessary or proper for the care or protection
thereof, including the right to remove all or any portion of the
Collateral and the New Collateral (but
-40-
the Bank shall not be obligated to do so). With or without taking such
possession, the Bank may sell or cause to be sold, whenever the Bank
shall decide, in one or more sales or parcels, and at such price or
prices and upon such other terms as the Bank may deem commercially
reasonable (irrespective of the impact of any such sales on the market
price of such assets), and for cash or on credit or for future
delivery, without assumption of any credit risk, all or any portion of
the Collateral and the New Collateral at any broker's board or at
public or private sale. The Bank may be the purchaser of any or all of
the Collateral and New Collateral so sold and shall be entitled, for
the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of such assets sold at any such
public or private sale, to use and apply any or all of the Obligations
as a credit on account of the purchase price payable by the Bank at
such sale. Each purchaser (including the Bank) at any such sales shall
thereafter hold the Collateral and/or the New Collateral purchased
absolutely free from any claim or right of whatever kind, including
any equity of redemption of the Borrower, any such demand, notice,
claim, right and equity being hereby expressly waived and released.
The Borrower agrees that, to the extent notice of sale shall be
required by law, at least ten (10) Business Days' notice of sale to
the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Bank shall not be obligated to make any sale of the
Collateral or the New Collateral regardless of notice of sale having
been given. The Bank may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such
sale may, without further notice be made at the time and place to
which it has so adjourned. The Borrower hereby waives any claims
against the Bank arising by reason of the fact that the price at which
any Collateral or New Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a
public sale, even if the Bank accepts the first offer received and
does not offer such Collateral or New Collateral to more than one
offeree; and
9.1.4 The Bank may exercise all other rights and remedies available
at law or in equity (or both) pursuant to any applicable law, statute, rule
or regulation.
9.2 Appointment of Laboratory as Pledgeholder. Any laboratory which has
------------------------------------------
possession of any of the Collateral is hereby constituted and appointed by the
Borrower as pledgeholder for the Bank and upon the occurrence of any Event of
Default,
-41-
each such pledgeholder is hereby authorized to sell all or any portion of the
Collateral upon the order and direction of the Bank and the Borrower hereby
waives any and all claims for damages or otherwise for any action taken by such
pledgeholder.
9.3 Appointment of a Receiver. Upon the occurrence of an Event of Default
-------------------------
the Bank shall be entitled to the appointment of a receiver, to take possession
of all or any portion of the Collateral and the New Collateral and to exercise
such powers as the court shall confer upon the receiver.
9.4 Power of Attorney. The Borrower does hereby irrevocable make,
-----------------
constitute, and appoint the Bank and its officers and designees as its true and
lawful attorney-in-fact, with full power in the name of the Bank and/or the
Borrower, to take the following actions upon the occurrence of an Event of
Default: to receive, open and dispose of all mail addressed to the Borrower;
and to endorse any notes, checks, drafts, money orders or other evidence of
payment relating to the Collateral and/or the New Collateral that may come into
the possession of the Bank with full power and right to cause the Borrower's
mail to be transferred to the Bank's own officers or otherwise; and to do any
and all other acts necessary or proper to carry out the intent of this
Agreement; to enforce all of the Borrower's rights under and pursuant to all
agreements with respect to the Collateral and/or the New Collateral, all for the
sole benefit of the Bank, and to enter into such other agreements as may be
necessary to complete the distribution, delivery and exploitation of the
Products, to enter into and perform such agreements as may be necessary in order
to carry out the terms, covenants, and conditions of this Agreement which are
required to be observed or performed by the Borrower, to execute such other and
further mortgages, pledges and assignments of the Collateral and/or the New
Collateral as the Bank may require for the purpose of protecting, maintaining,
or enforcing the security interests granted to the Bank by this Agreement and
the other Loan Documents, and to do any and all other things necessary or proper
to carry out the intention of this Agreement and the other Loan Documents; and
the Borrower hereby ratifies and confirms all that the Bank as such attorney-in-
fact or its substitutes shall properly do by virtue of this power of attorney.
Such powers of attorney are coupled with an interest and are therefore
irrevocable.
9.5 Rights and Remedies Cumulative; Limitation Regarding New Collateral.
-------------------------------------------------------------------
No right or remedy conferred upon the Bank herein or in any of the other Loan
Documents or otherwise available at law or in equity (or both) shall be
exclusive of any other right or remedy contained herein or therein or otherwise
made available. All such rights and remedies are cumulative and are not
exclusive of any right or remedy which the Bank may otherwise have. All such
rights and remedies shall be subject to the first priority lien of ▇▇▇▇▇▇ in the
New Collateral.
-42-
9.6 Application of Proceeds After Event of Default. After the occurrence
----------------------------------------------
of an Event of Default, all Collateral and/or New Collateral in the form of
cash, all income on the Collateral and/or the New Collateral and all proceeds
from any sale or other disposition of the Collateral and/or the New Collateral
pursuant hereto shall be applied (in such order as the Bank shall in its sole
discretion determine) as follows:
9.6.1 To the payment of all Costs and to all other costs or expenses
incurred in connection with any sale of the Collateral and/or the New
Collateral, including, but not limited to, all court costs and the fees and
expenses of counsel for the Bank in connection therewith, to the extent
that such advances, costs, or expenses shall not have been paid previously
to the Bank;
9.6.2 To the payment of Interest;
9.6.3 To the repayment of Principal;
9.6.4 To the repayment of all other sums, liabilities and obligations
then owing by the Borrower to the Bank under any other agreements or
instruments.
Any amounts remaining after such applications shall be remitted to the
Borrower or as a court of competent jurisdiction may otherwise direct.
10. CONDITIONS PRECEDENT.
--------------------
The obligations of the Bank to consummate the transactions
contemplated herein on the Closing Date shall be subject to the performance of
the Borrower of all of its covenants to be performed hereunder, to the accuracy
of the representations and warranties herein contained, and to the fulfillment
to the satisfaction of the Bank in its sole and absolute discretion, on or
before the Closing Date, of each of the following conditions, unless waived in
writing by the Bank in its sole and absolute discretion:
10.1 Conditions to be Fulfilled by Borrower. Concurrently with the
--------------------------------------
execution of this Agreement, the Borrower shall have complied with each of the
following conditions precedent to the satisfaction of the Bank in its sole and
absolute discretion, unless otherwise waived in writing by the Bank in its sole
and absolute discretion:
10.1.1 Supporting Documents of the Borrower. The Bank shall have
------------------------------------
received certificates of a senior executive officer of the Borrower
acceptable to the Bank certifying: (i) that attached thereto is a true and
complete copy of resolutions of the board of directors of the Borrower
authorizing (x) the Borrower's performance of all of its
-43-
obligations under the Loan documents, (y) the entering into by the Borrower
of all Loan Documents to which the Borrower is a party, and (z) the
execution and delivery by an officer of the Borrower of all of the Loan
Documents to which the Borrower is a party; (ii) that attached thereto are
true and complete copies of the certificate of incorporation, the by-laws
or other corporate formation, charter or governance documents of the
Borrower together with all amendments thereto; and (iii) that the
representations and warranties set forth in Section 5 hereof are true and
correct.
10.1.2 Good Standing Certificates. The Bank shall have received from
--------------------------
the Borrower good standing certificates, dated as of a recent date, issued
by the Office of the Secretary of State or other appropriate governmental
authority of (i) the jurisdiction of incorporation of the Borrower, and
(ii) all other jurisdictions where the Borrower is qualified to do
business, in each case indicating that the Borrower is in good standing.
Where applicable, such good standing certificates shall list the
certificate of incorporation or other corporate formation, charter or other
governance documents, all amendments thereto and all other certificates and
documents filed which relate to the Borrower.
10.1.3 The Amended and Restated Note. The Amended and Restated Note
-----------------------------
shall have been duly executed by the Borrower and delivered to the Bank.
10.1.4 Opinions of Counsel for the Borrower. The Bank shall have
------------------------------------
received the favorable written opinions, addressed to the Bank and
satisfactory in form, scope and substance to the Bank and its counsel, of
counsel to the Borrower.
10.1.5 Security Instruments. The Bank shall have received (i) the
--------------------
agreements and documents set forth in Section 4.4 hereof, and (ii) evidence
of the completion of all recordings and filings as may be necessary or, in
the opinion of the Bank, desirable to perfect and/or continue the
perfection of the security interests created by the Loan Documents
including, but not limited to, any copyright filings and financing
statement filings and no report shall have been obtained by the Bank
listing the Borrower (by its present name or any previous name) as a debtor
and evidencing an Encumbrance on any of the Collateral or the New
Collateral (other than Permitted Encumbrances).
10.1.6 Insurance. The Bank shall have received such policies,
---------
binders, endorsements and certificates as it may request in its sole and
absolute discretion, to evidence the Borrower's compliance with the
insurance requirements of Section 6.4 hereof.
-44-
10.1.7 Approvals. The Borrower shall have procured the consents and
---------
approvals from all United States, State, provincial, municipal and foreign
governmental agencies and authorities as are necessary to consummate the
transactions contemplated by this Agreement, the Loan Documents and any
other agreements or documents referred to or contemplated herein or
therein.
10.1.8 Evidence of Merger and New Collateral Ownership; Lien Thereon.
-------------------------------------------------------------
The Borrower shall have provided the Bank with evidence satisfactory to the
Bank that, as of the Closing, (i) the merger contemplated by the Plan has
been or shall contemporaneously therewith be consummated, (ii) that the
Borrower is the owner of the New Collateral, and (iii) that the Bank has a
second priority lien (junior only to the first lien of ▇▇▇▇▇▇) on the New
Collateral and a first priority lien on the Collateral.
10.1.9 The Borrower shall have provided to the Bank, prior to or at
the Closing, the schedules described in sections 5.1.8, 5.1.10, 5.1.11,
5.1.15, and 5.1.16 hereto.
10.1.10 Additional Documents. The Bank shall have received such
--------------------
additional documents, agreements and certificates as the Bank may request
in its sole and absolute discretion .
10.2 Representations and Warranties True. The representations and
-----------------------------------
warranties of the Borrower contained in Section 5 hereof shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on the Closing.
10.3 Effective Date Not Later Than January 31, 1997. The Effective Date of
----------------------------------------------
the Plan shall have occurred not later than January 31, 1997.
10.4 Entry of Necessary Court Orders. The Bank shall have received a
-------------------------------
conformed copy of the entered order confirming the Plan and a conformed copy of
the Plan as confirmed.
11 . INDEMNIFICATION.
---------------
11.1 The Borrower agrees to, and hereby does, indemnify, pay and hold the
Bank and its officers, directors, employees and agents (collectively called the
"Indemnitees") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs (including,
without limitation, settlement costs and payments), expenses, fines and
disbursement of any kind or nature whatsoever, known or unknown, contingent or
otherwise (including, without limitation, the fees and disbursements of counsel
for such Indemnitees in
-45-
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto), which may
be imposed on, incurred by, or asserted against that Indemnitee, arising out of,
or in any way related to, the Bank entering into this Agreement, or the Original
Loan Documents (including without limitation, any and all sums, losses and costs
incurred by the Bank pursuant to its indemnification obligations under the
Laboratory Pledgeholder Agreements) (the "Indemnified Liabilities"), except any
Indemnified Liabilities resulting solely from the gross negligence or willful
misconduct of the Bank. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in the preceding sentence may be unenforceable
because it violates any law or public policy, the Borrower shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them.
11.2 In the event that any suit, action, investigation, claim or proceeding
is begun, made or instituted as a result of which the Borrower may become
obligated to any Indemnitee hereunder, the Borrower agrees to defend, contest or
otherwise protect against any such suit, action, investigation, claim or
proceeding at their sole cost and expense, using counsel acceptable to the
Indemnitee. Each Indemnitee shall have the right, but not the obligation, to
participate, at its own expense, in the defense thereof by counsel of its
choice. In the event that the Borrowers fail timely to so defend, contest or
otherwise protect, the Indemnitee shall have to right to do so, including,
without limitation, the right to make any compromise or settlement thereof on
behalf of the Borrowers, and to recover all attorneys' fees, disbursements and
all amounts paid as a result thereof.
11.3 The indemnification contained in this Section 11 shall survive the
termination of the other provisions of this Agreement and the repayment of all
of the Obligations, and shall constitute separate and independent obligation of
the Borrower from its other obligations under this Agreement.
12. NOTICES.
-------
All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly give if telecopied or if delivered by messenger or courier delivery,
or sent by first class mail (or air mail where available), postage prepaid,
certified or registered, return receipt requested, as set forth below or at such
other address as may be furnished in writing:
-46-
If to the Borrower:
------------------
Video City, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇, Chief Executive Officer
▇▇▇▇▇ ▇▇▇▇▇▇▇, President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
--------------
Loeb & Loeb
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Bank:
--------------
Imperial Bank
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
--------------
Sidley & Austin
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice given by messenger or courier delivery as provided in this Section 12
shall be deemed given when delivered if during normal business hours on a
Business Day (or if not, the next Business Day after delivery); any notice given
by telecopiers as provided herein shall be deemed given when sent if during
normal business hours on a Business Day (or, if not, the next Business Day after
it is sent) , provided that at the time such telecopy is sent, the sending party
receives written confirmation of receipt and forwards a copy of the notice by
mail, messenger or courier delivery as provided herein; any notice given by
first class mail (or air mail where available) , postage prepaid, certified or
registered, return receipt requested shall be deemed given five (5) Business
Days after the date of mailing. Any party may by notice to the other change the
address at which notices and demands may be given to it.
-47-
13. MISCELLANEOUS
13.1 No Waiver. No failure or delay on the part of the Bank in notifying
---------
the Borrower of an Event of Default or Potential Event of Default, or in
exercising, or partial exercise of, any right, power or privilege hereunder
shall operate as a wavier of any Event of Default, Potential Event of Default,
or privilege or right hereunder or otherwise or preclude any other or further
exercise of any other right power or privilege.
13.2 Governing Law; Successors and Assigns. This Agreement shall be
-------------------------------------
subject to, construed and governed by, the laws of the State of California
without giving effect to such state's conflicts of law provisions. This
Agreement may not be assigned, pledged, hypothecated or otherwise encumbered by
the Borrower. Subject to the foregoing sentence, this Agreement shall inure to
the benefit of the Bank (and its successors and assigns) and the Borrower, and
shall be binding upon the successors and assigns of the parties hereto.
13.3 Submission to Jurisdiction and Waiver of Jury Trial Rights.
----------------------------------------------------------
13.3.1 THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
THE COURTS OF THE SUPERIOR COURT OF LOS ANGELES COUNTY, STATE OF
CALIFORNIA, AND THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT
OF CALIFORNIA (THE "CALIFORNIA COURTS"), FOR THE PURPOSES OF ANY SUIT,
ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR
THE SUBJECT MATTER HEREOF BROUGHT BY THE BANK. THE BORROWER TO THE EXTENT
PERMITTED BY APPLICABLE LAW (A) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY
WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH COURTS, ANY CLAIM THAT IT IS NOT SUBJECT
PERSONALLY TO THE JURISDICTION OF THE CALIFORNIA COURTS, THAT ITS PROPERTY
IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURTS, AND (B)
HEREBY WAIVES THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING
ANY OFFSETS OR COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR
OTHERWISE ARISE FROM THE SAME SUBJECT MATTER. THE BORROWER HEREBY CONSENTS
TO SERVICE OF PROCESS BY MAIL AT ITS ADDRESS TO WHICH NOTICES ARE TO BE
GIVEN PURSUANT TO SECTION 12 HEREOF. THE BORROWER AGREES THAT ITS
SUBMISSION TO JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS
MADE FOR THE EXPRESS BENEFIT OF THE BANK. FINAL JUDGMENT AGAINST THE
BORROWER IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND
MAY BE ENFORCED IN THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTIONS (A)
BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF
-48-
WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF
INDEBTEDNESS OR LIABILITY OF THE BORROWER THEREIN DESCRIBED OR (B) IN ANY
OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF THE STATE OF CALIFORNIA
OR SUCH OTHER JURISDICTIONS. NOTWITHSTANDING THE FOREGOING, THE BANK MAY AT
ITS OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST THE
BORROWER OR ANY OF ITS ASSETS IN ANY ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ OR OF ANY COUNTRY OR PLACE WHERE THE BORROWER OR SUCH ASSETS MAY BE
FOUND.
13.3.2 TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE
WAIVED, THE BORROWER AND THE BANK HEREBY IRREVOCABLY WAIVE, AND COVENANT
THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE),
ANY RIGHT TO A TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHT, POWER OR REMEDY OR DEFEND AGAINST ANY ISSUE, CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION OR PROCEEDING UNDER, IN CONNECTION WITH, ARISING OUT OF
OR BASED UPON THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE SUBJECT MATTER
HEREOF OR THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING
OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE BORROWER ACKNOWLEDGES THAT
IT HAS BEEN INFORMED BY THE BANK THAT THE PROVISIONS OF THIS SECTION
CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE BANK HAS RELIED, IS RELYING
AND WILL RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER LOAN DOCUMENTS
AND HONORING ITS COMMITMENTS . THE BANK MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE BORROWER TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
13.4 Headings. Section headings are included for the sake of convenience
--------
only and shall not affect the interpretation of any provision of this
Agreement.
13.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original Agreement, but all of
which together shall constitute one and the same instrument.
13.6 Entire Agreement. The Loan Documents and all other agreements and
----------------
documents referred to herein set forth the entire agreement and understanding of
the parties concerning the subject matter of this Agreement and supersede all
prior agreements, arrangements, and understandings regarding such subject matter
between the parties hereto, which agreements, arrangements and understandings
are merged herein.
13.7 Costs. Subject to Section 2.3 hereof, the Borrower agrees to pay all
-----
out-of-pocket costs and expenses incurred by the Bank in connection with the
transactions hereby contemplated
-49-
and the preparation, negotiation, execution and delivery of this Agreement, the
other Loan Documents and any other documentation contemplated hereby or thereby.
After the Closing, the Borrower shall pay all out-of-pocket costs and expenses
incurred by the Bank in connection with any administration, waiver or
Modification of the Loan Documents and/or the enforcement or protection of the
rights of the Bank in connection therewith, including but not limited to, any
fees and disbursements of counsel for the Bank, fees and expenses of technical
or other consultants engaged by the Bank as well as all out-of-pocket costs and
expenses incurred by the Bank in connection with any action which may be
instituted by any Person against the Bank in respect of the foregoing. The
Borrower agrees that it shall indemnify the Bank from and hold it harmless
against any documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or any other
Loan Document. The obligation of the Borrower under this Section shall survive
the termination of this Agreement and/or the payment of the Obligations.
13.8 Release. The Borrower, for itself and on behalf of its predecessors,
-------
successors and assigns (collectively, the "Borrower Releasors"), does hereby
forever release, discharge, and acquit the Bank and its past and present
employees, agents, officers, directors, predecessors, successors and assigns,
(collectively, the "Bank Releasees") of and from any and all rights, claims,
causes of action, contracts, agreements, duties, demands, or liabilities
whatsoever of every kind and nature, including without limitation any so-called
"lender liability" claims or defenses, at law or in equity, known or unknown,
matured or unmatured, foreseeable or unforeseeable (collectively, "Claims"),
which the Borrower Releasors have, ever had, or may have had prior to the
Closing against the Bank Releasees by reason of any liability, act, omission,
matter, thing or circumstance arising out of or related to the execution,
administration and enforcement of the Original Loan Documents, and the assertion
and treatment of the Bank's claims in the chapter 11 cases. The Borrower
represents and warrants that there has been no assignment or other transfer of
any interest in any Claim which it may have against any of the Bank Releasees
and which was released by this Agreement, and the Borrower agrees to indemnify
and hold harmless the Bank Releasees, and each of them, from any Claims,
including attorneys' fees, incurred by the Bank Releasees, or any of them, as a
result of any person asserting any such assignment or transfer or any rights or
Claims under any such assignment or transfer. The Borrower acknowledges that
there is a risk that subsequent to the execution of this Agreement, the Borrower
will discover or suffer damage, loss or injury to persons or property which is
in some way caused by or connected with the Claims, but which is unknown or
unanticipated at the time of the execution of this Agreement. The Borrower does
hereby specifically assume such risk and agrees that this release shall and does
apply to all unknown or unanticipated
-50-
Claims, as well as those currently known or anticipated. Accordingly, the
Borrower acknowledges that it has read the provisions of California Civil Code
section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR
AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR.
and knowingly and expressly waives, relinquishes and forfeits all rights and
benefits accorded by the provisions of California Civil Code section 1542, or
any similar federal or state statutes, and furthermore waives any rights that it
might have to invoke said provision now or in the future with respect to the
release contained herein.
13.9 Survival of Agreement, Representations and Warranties, Etc. All
----------------------------------------------------------
warranties, representations, covenants and agreements made by the Borrower
herein or in any certificate or other instrument delivered by the Borrower or on
its behalf in connection with this Agreement or any other Loan Documents shall
be considered to have been relied upon by the Bank, shall survive the making of
the Loan herein contemplated and the execution and delivery to the Bank of the
Notes regardless of any investigation made by the Bank or on its behalf and
shall continue in full force and effect. All statements in any such
certificates or other instrument shall constitute joint and several
representations and warranties by the Borrower hereunder.
13.10 Severability. Any provision of this Agreement or any other Loan
------------
Document which is invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without invalidating the remaining provisions
hereof or thereof, and any such invalidity, illegality or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
13.11 Amendments. No Modification or waiver of any provision of this
----------
Agreement or any of the other Loan Documents, and no consent to any departure by
the Borrower herefrom or therefrom (including, without limitation, any
Modification to or deviation from any form of Loan Document required to be
delivered hereunder by the Borrower), shall in any event be effective unless
the same shall be in writing and signed by the Bank and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
13.12 Maximum Interest Fees. Charges and Reimbursement.
------------------------------------------------
Notwithstanding anything contained herein or in any other Loan Documents to the
contrary, in no event shall the Bank be entitled
-51-
to receive Interest or fees, other charges and cost reimbursements with respect
to the Loan in amounts which, when added to all of the other Interest, fees,
other charges or cost reimbursements charged, paid to or received by the Bank
on the Loan, causes the Interest and the fees, other charges and cost
reimbursements with respect to the Loan to exceed the highest lawful amount
thereof. The Borrower and the Bank intend to comply with the applicable law
governing the highest lawful amount of interest, fees, charges and cost
reimbursements. If the applicable law is ever judicially interpreted so as to
render usurious or unlawful any amount called for under the Loan Documents, or
contracted for, charged, taken, reserved or received with respect to the Loan,
or if acceleration of the term of the Loan or if any prepayment by the Borrower
results in the Borrower having paid or demand having been made on the Borrower
to pay, any interest, fees or other charges in excess of the amount permitted
by applicable law, then all excess amounts theretofore collected by the Bank
shall be credited on the Principal (or, if the Loan has been or would thereby be
paid in full, such excess amounts shall be refunded to the Borrower), and the
provision of the Loan and all other Loan Documents and any demand on the
Borrower shall immediately be deemed reformed and the amounts thereafter
collectible thereunder and hereunder shall be reduced, without the necessity of
the execution of any new documents, so as to comply with the applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
thereunder and hereunder. The right to accelerate the Term of the Loan does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and the Bank does not intend to collect any
unearned interest in the event of acceleration. All sums paid or agreed to be
paid to the Bank for the use, forbearance or extension of the Loan shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
through the full term of the Loan until payment in full so that the rate or
amount of interest, fees and other charges on account of the Loan does not
exceed the applicable usury or other ceilings. By execution of this Agreement,
the Borrower acknowledges that it believes the Loan to be nonusurious and
otherwise lawful and agree that if, at any time, the Borrower should have reason
to believe that the Loan is in fact usurious or otherwise unlawful, it will give
the Bank written notice of its belief and the reasons why the Borrower believes
the Loan to be usurious or otherwise unlawful; and the Borrower agrees that the
Bank shall have ninety (90) days following its receipt of such written notice in
which to make appropriate refund or other adjustment in order to correct such
condition if it in fact exists.
13.13 Interpretation. Where the context or construction requires, all
--------------
words applied in the plural should begin to have been used in singular, and vice
versa; the masculine shall include the feminine and neuter, and vice versa; and
the present tenths shall include the past and future tenths; and vice versa.
-52-
13.14 No Third-Party Rights. Nothing in this Agreement, whether expressed
---------------------
or implied is intended to confer any rights or remedies under or by reason of
this Agreement on any Person other than the parties to it and their respective
successors and assigns, where as anything in this Agreement intended to relieve
or discharge to application or liability of any third Persons to any party to
this Agreement nor shall any provisions give and third Persons any right of
segregation or action over against any party to this Agreement.
13.15 Amendment and Restatement. The Original Agreement and the Original
-------------------------
Notes are amended and restated in their entirety by this Agreement and the
Amended and Restated Note.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
VIDEO CITY, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------
Its: President
-----------------------
IMPERIAL BANK
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------
Its: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
---------------------------------
-53-