TRANS WORLD ENTERTAINMENT CORPORATION
and
RECORD TOWN, INC.
AMENDED AND RESTATED
NOTE AGREEMENT
Dated as of July 26, 1996
$41,331,412.90
Variable Rate Senior Notes, Series A, Due July 31, 1998
TABLE OF CONTENTS
Page
1. THE NOTES 1
1.1 Background. 1
1.2 Authorization of Amendment and Restatement. 2
1.3 Amendment and Restatement. 3
1.4 Acquisition for Investment. 3
1.5 Failure of Conditions. 3
1.6 Expenses; Issue Taxes. 4
1.7 Restructuring Fee 5
2. WARRANTIES AND REPRESENTATIONS 5
2.1 Subsidiaries. 5
2.2 Corporate Organization and Authority. 5
2.3 Business, Property, Debt, Liens and Restrictions. 6
2.4 Financial Statements; Material Adverse Change. 6
2.5 Full Disclosure. 7
2.6 Pending Litigation; Compliance with Law. 7
2.7 Title to Properties. 7
2.8 Patents and Trademarks. 7
2.9 Sale of Notes is Legal and Authorized;
Obligations are Enforceable. 8
2.10 No Defaults. 8
2.11 Governmental Consent. 8
2.12 Taxes. 9
2.13 Margin Securities. 9
2.14 ERISA. 9
2.15 Company Actions. 9
2.16 Restated Credit Agreement; Restated Series B
Note Agreement 10
2.17 Movies Plus, Inc 10
3. CLOSING CONDITIONS 10
3.1 Opinions of Counsel. 11
3.2 Compliance with this Agreement. 11
3.3 Private Placement Number. 11
3.4 Execution and Delivery of this Agreement and
the Notes. 11
3.5 Restated Credit Agreement. 11
3.6 Restated Series B Note Agreement. 12
3.7 Intercreditor Agreement. 12
3.8 Restructuring Fee. 12
3.9 Expenses. 12
3.10 Interest on Existing Notes. 12
3.11 Subsidiary Guaranties. 13
3.12 Collateral Trust Indenture and Other
Security Documents. 13
3.13 Movies Plus Subordination 13
3.14 Representations And Warranties True 14
3.15 Authorization of Transactions 14
3.16 Proceedings Satisfactory 14
4. DIRECT PAYMENT 14
5. REPAYMENTS 14
5.1 Mandatory Early Repayments. 14
5.2 Early Repayment Option. 15
5.3 Notice of Optional Repayment. 16
5.4 Repayment Upon Change of Control. 16
5.5 Repayment Upon Material Asset Sale or Tax Refund. 16
5.6 Repayment from Excess EBITDA 17
5.7 Partial Early Payments To Be Pro Rata 18
6. REGISTRATION; SUBSTITUTION OF NOTES 18
6.1 Registration of Notes. 18
6.2 Exchange of Notes. 18
6.3 Replacement of Notes. 19
7. COMPANY BUSINESS COVENANTS 19
7.1 Payment of Taxes and Claims. 19
7.2 Maintenance of Properties and Corporate Existence. 19
7.3 Maintenance of Office. 20
7.4 Liens and Encumbrances. 20
7.5 Limitations On Debt Incurrence; Prepayments
and Amendments. 22
7.6 Subsidiary Debt. 23
7.7 Current Ratio. 23
7.8 Maintenance of Ownership. 23
7.9 Fixed Charge Ratio. 23
7.10 Tangible Net Worth. 24
7.11 Tangible Net Worth of Record Town 24
7.12 Distributions and Investments. 24
7.13 Sale of Property and Subsidiary Stock. 25
7.14 Merger and Consolidation. 25
7.15 Guaranties. 25
7.16 ERISA Compliance. 25
7.17 Transactions with Affiliates. 26
7.18 Tax Consolidation. 26
7.19 Acquisition of Notes. 26
7.20 Lines of Business. 26
7.21 Required Subsidiary Guaranties. 26
7.22 Limitations on Preferred Stock. 26
7.23 Limitation on Inventory Turnover 27
7.24 Maintenance of Consolidated EBITDA. 27
7.25 Limitation on Capital Expenditures 27
7.26 Limitation on Leases 27
7.27 Limitation on Sale and Leaseback 27
7.28 Limitation on Changes in Fiscal Year 28
7.29 Limitation on Debt to Consolidated Tangible
Net Worth. 28
7.30 Store Openings. 28
7.31 No Amendment of Debt Instruments; Maintenance
of Accounts 28
7.32 Revolver Sweep 29
7.33 Foreign Subsidiaries 29
8. INFORMATION AS TO COMPANY 29
8.1 Financial and Business Information. 29
8.2 Officers' Certificates. 32
8.3 Accountants' Certificates. 32
8.4 Inspection. 32
8.5 Quarterly Meetings. 33
8.6 Monthly Monitoring Reports. 33
8.7 Excess EBITDA. 33
8.8 Tax Reserve. 33
8.9 Additional Financial Information 33
9. EVENTS OF DEFAULT. 34
9.1 Nature of Events. 34
9.2 Default Remedies. 35
9.3 Annulment of Acceleration of Notes. 36
10. INTERPRETATION OF THIS AGREEMENT 36
10.1 Terms Defined. 36
10.2 Accounting Principles. 46
10.3 Directly or Indirectly. 46
10.4 Section Headings and Table of Contents;
Independent Construction. 46
10.5 Governing Law. 47
11. MISCELLANEOUS 47
11.1 Notices. 47
11.2 Reproduction of Documents. 48
11.3 Survival. 48
11.4 Successors and Assigns. 48
11.5 Amendment and Waiver. 48
11.6 Duplicate Originals. 49
11.7 Waiver and Release. 49
11.8 Indemnification. 51
ANNEX 1 -- Purchaser Information
EXHIBIT A -- Form of Note
EXHIBIT B -- Disclosure Schedules
EXHIBIT C-1 -- Form of Matthew H. Mataraso Legal Opinion
EXHIBIT C-2 -- Form of Jones, Day, Reavis & Pogue Legal Opinion
EXHIBIT D -- Form of Intercreditor Agreement
EXHIBIT E -- Form of Subsidiary Guaranty
EXHIBIT F -- Form of Collateral Trust Indenture
EXHIBIT G -- Form of Security Agreement
EXHIBIT H -- Form of Trademark Security Agreement
EXHIBIT I -- Form of Pledge Agreement
EXHIBIT J -- Form of Concentration Bank Account Agreement
EXHIBIT K -- Form of Movies Plus Subordination Agreement
EXHIBIT L -- Contents of Monthly Report
TRANS WORLD ENTERTAINMENT CORPORATION
RECORD TOWN, INC.
38 Corporate Circle
Albany, New York 12203
AMENDED AND RESTATED
NOTE AGREEMENT
$41,331,412.90
Variable Rate Senior Notes, Series A, Due July 31, 1998
Dated as of July 26, 1996
TO EACH OF THE PURCHASERS
LISTED ON ANNEX 1
Dear Purchasers:
Trans World Entertainment Corporation (formerly Trans World Music Corp.,
the "Company"), a New York corporation, and Record Town, Inc. ("Record Town"),
a New York corporation and a Wholly-Owned Subsidiary of the Company, hereby
jointly and severally agree with the Purchasers as follows:
1. THE NOTES
1.1 Background.
Pursuant to an Amended and Restated Note Agreement dated as of June 29,
1995 (the "Existing Note Agreement"), the Company and Record Town issued
Forty-Seven Million Five Hundred Thousand Dollars ($47,500,000) in aggregate
principal amount of their joint and several Variable Rate Senior Notes due
July 31, 1996 (the "Existing Notes"). The Existing Notes are substantially in
the form of Exhibit B attached to the Existing Note Agreement. The aggregate
principal amount of Existing Notes presently outstanding is $41,331,412.90.
Certain Events of Default have occurred under the Existing Note Agreement and
are currently the subject of the Waiver Agreement. The Company and Record
Town have requested an extension of the maturity date of the Existing Notes
and the modification of certain covenants and other provisions contained in
the Existing Note Agreement. The Purchasers have, subject to the satisfaction
of the conditions precedent set forth in Section 3 of this Agreement,
consented to certain of such requests in consideration of an increased rate of
interest and other modifications. The mutual agreement of the parties as to
such matters is set forth in the amendment and restatement of the Existing
Note Agreement and the Existing Notes provided for in this Agreement.
1.2 Authorization of Amendment and Restatement.
Each of the Company and Record Town hereby authorizes, agrees and consents
to the Amendment and Restatement in their entirety of the Existing Note
Agreement and the Existing Notes as provided for herein. The Existing Notes,
as amended and restated by Exhibit A to this Agreement, shall be hereinafter
referred to individually as a "Note" and, collectively, as the "Notes". The
obligations of the Company and Record Town under the Notes and this Agreement
shall be guaranteed on a senior basis by all Required Guarantors. The Company
and Record Town hereby authorize the execution and delivery to the Purchasers
of the Notes, which Notes shall:
(a) be substituted in the place of the Existing Notes;
(b) be dated the Effective Date;
(c) mature on July 31, 1998;
(d) bear interest (computed on the basis of a 360-day year of twelve
30-day months) on the unpaid principal balance thereof at a rate equal to:
(i) prior to June 30, 1998, the greater of eleven and one-half percent
(11.50%) per annum or two and one-half percent (2.50%) per annum over the
Prime Rate, and
(ii) from and after June 30, 1998, the greater of fourteen percent
(14%) per annum or five percent (5.0%) per annum over the Prime Rate,
but in no event at a rate which exceeds the highest rate allowed by applicable
law, payable monthly (in arrears) on the final day of each calendar month in
each year, commencing on July 31, 1996 until the principal amount thereof
shall be due and payable;
(e) bear interest, payable on demand, on any overdue principal (including
any overdue prepayment of principal) and (to the extent permitted by
applicable law) on any overdue installment of interest, at a rate equal to the
lesser of
(i) one percent (1.0%) per annum over the rate otherwise applicable
thereto, or
(ii) the highest rate allowed by applicable law; and
(f) be in the form of the Note set out in Exhibit A hereto.
The term "Notes" as used herein shall include each Note delivered pursuant to
any provision of this Agreement, and each Note delivered in substitution or
exchange for any such Note. Whether or not specifically provided in any
particular Section of this Agreement, Record Town will be jointly and
severally liable with the Company for all obligations under the Notes and this
Agreement.
1.3 Amendment and Restatement.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 of this Agreement, each Purchaser, by its execution of this
Agreement, hereby agrees and consents to the Amendment and Restatement in its
entirety of the Existing Note Agreement by this Agreement and the termination
of the Waiver Agreement, and, upon the satisfaction of such conditions
precedent, the Existing Note Agreement and the Waiver Agreement shall be
deemed so amended and restated or terminated, as the case may be. Subject to
the satisfaction of the conditions precedent set forth in Section 3 of this
Agreement, each Purchaser, by its execution of this Agreement, hereby agrees
and consents to the Amendment and Restatement in their entirety of the
Existing Notes and the substitution of the Notes therefor. On the Effective
Date, the Company agrees, subject to the satisfaction of the conditions
precedent set forth in Section 3 of this Agreement, to execute and deliver to
each Purchaser the aggregate principal amount of Notes set forth opposite its
name on the schedule attached to this Agreement as Annex 1, in replacement of
its Existing Notes. Contemporaneously with the receipt by each Purchaser of
such Notes, such Purchaser hereby agrees to re-deliver to the Company for
cancellation the Existing Notes held by it. All amounts owing under and
evidenced by the Existing Notes as of the Effective Date shall continue to be
outstanding under, and shall after the Effective Date be evidenced by, the
Notes, and shall be payable in accordance with this Agreement.
1.4 Acquisition for Investment.
Each Purchaser represents to the Company and Record Town, and by agreeing
to the amendment and restatement of the Existing Note Agreement and the
substitution of the Notes for the Existing Notes it is specifically understood
and agreed, that it is acquiring the Notes for investment for its own account
or the account of its affiliated entities and with no present intention of
distributing or reselling the Notes or any part thereof to anyone other than
an affiliated entity, but without prejudice to its right at all times to:
(a) sell or otherwise dispose of all or any part of the Notes under a
registration statement filed under the Securities Act, or in a transaction
exempt from the registration requirements of the Securities Act;
(b) have control over the disposition of all of its assets to the
fullest extent required by any applicable insurance law.
It is understood that, in making the representations set out in Sections 2.9
and 2.11 hereof, the Company and Record Town are relying, to the extent
applicable, upon the representation in the immediately preceding sentence.
1.5 Failure of Conditions.
If the conditions specified in Section 3 hereof have not been fulfilled on
or prior to June 30, 1996, this Agreement shall terminate, and the Existing
Note Agreement and the Existing Notes shall continue to be in full force and
effect.
1.6 Expenses; Issue Taxes.
(a) Generally. Whether or not the transactions contemplated by this
Agreement are consummated, the Company will promptly (and in any event within
thirty (30) days of receiving any statement or invoice therefor) pay all
expenses relating to this Agreement, including but not limited to:
(i) the cost of reproducing this Agreement and the other Financing
Documents;
(ii) the reasonable fees and disbursements of the Purchasers'
special counsel, the Purchasers' financial advisor, and the Security
Trustee.
(iii) the Purchasers' out-of-pocket expenses;
(iv) all expenses relating to any Guaranty Agreement;
(v) all expenses relating to any amendments or waivers pursuant to
the provisions of this Agreement or "workouts" with respect hereto,
including, without limitation, all out-of-pocket fees, costs and expenses
paid or incurred by any holder of any Note or any security trustee acting
on behalf of any such holder in connection with the negotiation,
preparation, drafting, implementation, amendment, modification,
administration and enforcement of this Agreement, the Notes or any other
Financing Document, or for auditing, appraising, evaluating or otherwise
monitoring the Collateral or other credit support for the Notes; and
(vi) all costs and expenses, including attorneys' fees,
incurred by the holder of any Note in attending any meeting held pursuant
to Section 8.5 or enforcing any rights under this Agreement or in the
Notes or in responding to any subpoena or other legal process issued in
connection with this Agreement or the transactions contemplated hereby,
including without limitation, costs and expenses incurred in any
bankruptcy case.
The Company will also pay all taxes in connection with the issuance and
sale of the Notes and in connection with any modification of the Notes and
will save each of the Purchasers harmless against any and all liabilities with
respect to such taxes.
(b) Special Counsel and Financial Advisor. Without limiting the
generality of the foregoing, it is agreed and understood that the Company will
pay, on the Effective Date, the fees and disbursements of the Purchasers'
special counsel and financial advisor which are reflected in the statements
delivered by such Persons on or before the Effective Date.
(c) Survival. The obligations of the Company under this Section 1.6
shall survive the payment of the Notes and the termination of this Agreement.
1.7 Restructuring Fee.
In consideration of the Purchasers' willingness to enter into the
transactions contemplated hereby, the Company shall pay to the Purchasers, on
a pro rata basis, a restructuring fee as described below. A portion of said
fee equal to one percent (1.0%) of the principal amount of Notes held by the
Purchasers on the Effective Date shall be payable on the Effective Date in
accordance with Section 3.8. A portion of said fee equal to one half of one
percent (0.50%) of the principal amount of the Notes held by the Purchasers on
July 31, 1997 shall be payable to the Purchasers on July 31, 1997, but said
amount shall not be payable (and the Company and Record Town shall not be
liable therefor) if the Notes are paid in full prior to July 31, 1997. A
portion of said restructuring fee equal to $1,696,429 shall be payable on the
earlier of August 1, 1998 or the acceleration of the Notes pursuant to Section
9.2, but said amount shall not be payable (and the Company and Record Town
shall not be liable therefor) if the N otes are paid in full prior to the
earlier of August 1, 1998 or such acceleration.
2. WARRANTIES AND REPRESENTATIONS
To induce each of the Purchasers to enter into this Agreement, the Company
and Record Town jointly and severally warrant and represent to each Purchaser
that as of the Effective Date each of the following statements will be true
and correct:
2.1 Subsidiaries.
Part 2.1 of Exhibit B to this Agreement correctly identifies:
(a) each of the Company's Subsidiaries, its jurisdiction of
incorporation and the percentage of its Voting Stock owned by the Company
and by each other Subsidiary, and
(b) each of the Company's Affiliates (other than Subsidiaries) and the
nature of their affiliation.
The Company and each Subsidiary is the legal and beneficial owner of all of
the shares of Voting Stock it purports to own of each Subsidiary, free and
clear in each case of any Lien. All such shares have been duly issued and are
fully paid and nonassessable.
2.2 Corporate Organization and Authority.
The Company, and each Subsidiary,
(a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation,
(b) has all requisite power and authority and all necessary licenses,
permits, franchises and other governmental authorizations to own and operate
its Properties and to carry on its business as now conducted and as presently
proposed to be conducted, and
(c) has duly qualified and is authorized to do business and is in good
standing as a foreign corporation in each jurisdiction where the character of
its Properties or the nature of its activities makes such qualification
necessary.
2.3 Business, Property, Debt, Liens and Restrictions.
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996 filed by the Company with the Securities and Exchange
Commission and previously delivered to the Purchasers correctly describes the
general nature of the business and principal Properties of the Company and its
Subsidiaries.
(b) Part 2.3(b) of Exhibit B to this Agreement correctly lists all
outstanding Debt of (including all Guaranties of the Company and the
Subsidiaries of such Debt), and all Liens (other than those permitted by
Clauses (1) - (6) of Section 7.4(a)) on Property of, the Company and its
Subsidiaries. Neither the Company nor any Subsidiary has agreed or consented
to cause or permit in the future (upon the happening of a contingency or
otherwise) any of its Property, whether now owned or hereafter acquired, to be
subject to a Lien not permitted by Section 7.4(a).
(c) Neither the Company nor any Subsidiary is a party to any
agreement, or subject to any charter or other corporate restriction, which
restricts its right or ability to incur Debt, other than this Agreement, the
Restated Series B Note Agreement and the Restated Credit Agreement.
2.4 Financial Statements; Material Adverse Change.
(a) (i) The consolidated balance sheets of the Company and its
Subsidiaries as of February 3, 1996 and January 28, 1995, and the related
statements of income, retained earnings and changes in cash flows for the
fiscal years ended on such dates, all accompanied by reports thereon
containing opinions without qualification, by KPMG Peat Marwick LLP,
independent certified public accountants, and (ii) the consolidated balance
sheets of the Company and its Subsidiaries as of January 29, 1994, January 30,
1993 and February 1, 1992 and the related statements of income, retained
earnings and changes in cash flows for the fiscal years ended on such dates,
all accompanied by reports thereon containing opinions without qualification,
by Ernst & Young LLP, independent certified public accountants, copies of
which have been delivered to the Purchasers, have been prepared in accordance
with generally accepted accounting principles consistently applied, and
present fairly the financial position of the Company and its Subsi diaries as
of such dates and the results of their operations for such periods. Such
consolidated financial statements include the accounts of all Subsidiaries for
all periods during which a subsidiary relationship has existed.
(b) Since February 3, 1996, there have been no materially adverse
changes in the Properties, business, prospects, operating results or condition
(financial or otherwise) of Record Town, the Company and the Subsidiaries,
taken as a whole.
2.5 Full Disclosure.
The financial statements referred to in Section 2.4 do not, nor does this
Agreement or any written statement furnished by or on behalf of the Company or
Record Town to the Purchasers in connection with this Agreement, contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein not misleading, in light of the
circumstances under which they were made. There is no agreement, restriction
or other factual matter which the Company has not disclosed to the Purchasers
in writing which materially affects adversely nor, so far as the Company can
now reasonably foresee, will materially affect adversely the Properties,
business, prospects, operating results or condition (financial or otherwise)
of Record Town, the Company and the Subsidiaries, taken as a whole, or the
ability of the Company or Record Town to perform this Agreement, the Notes and
the other Financing Documents.
2.6 Pending Litigation; Compliance with Law.
There are no proceedings or investigations pending, or to the knowledge of
the Company or Record Town threatened, against or affecting the Company or any
Subsidiary in or before any court, governmental authority or agency or
arbitration board or tribunal which, individually or in the aggregate, might
materially and adversely affect the Properties, business, prospects, operating
results or condition (financial or otherwise) of Record Town, the Company and
the Subsidiaries, taken as a whole, or the ability of Record Town or the
Company to perform this Agreement, the Notes and the other Financing
Documents. Neither the Company nor any Subsidiary is in default with respect
to any order, decree or judgment of any court, governmental authority or
agency or arbitration board or tribunal, or in violation of any laws or
governmental rules or regulations where such default or violation might
materially and adversely affect the Properties, business, prospects, operating
results or condition (financial or otherwise) of Record Town, the Company and
the Subsidiaries, taken as a whole, or the ability of the Company or Record
Town to perform this Agreement, the Notes and the other Financing Documents.
2.7 Title to Properties.
The Company, and each Subsidiary, has good and marketable title in fee
simple (or its equivalent under applicable law) to all the real Property, and
has good title to all the other Property, it purports to own, including that
reflected in the most recent balance sheet referred to in Section 2.4 (except
as sold or otherwise disposed of in the ordinary course of business), free
from Liens not permitted by Section 7.4(a).
2.8 Patents and Trademarks.
The Company, and each Subsidiary, owns or possesses all the patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing necessary for the present and planned future conduct
of its business, without any known conflict with the rights of others. Part
2.8 of Exhibit B to this Agreement correctly sets forth all of the trademarks,
service marks, trade names, copyrights, licenses and related rights owned by
the Company or any Subsidiary.
2.9 Sale of Notes is Legal and Authorized; Obligations are Enforceable.
(a) Sale of Notes is Legal and Authorized. Each of the issuance, sale
and delivery of the Notes by the Company and Record Town, the execution and
delivery of this Agreement, the Notes and the other Financing Documents by
each of the Company, Record Town and the Subsidiaries, and compliance by each
of the Company, Record Town and each of the Subsidiaries with all of the
provisions of each Financing Document to which it is a party:
(i) is within the corporate powers of the Company, Record Town and
each such Subsidiary, respectively; and
(ii) is legal and does not conflict with, result in any breach
of any of the provisions of, constitute a default under, or result in the
creation of any Lien upon any Property of the Company or any Subsidiary
under the provisions of, any agreement, charter instrument, bylaw, or
other instrument to which the Company or any Subsidiary is a party or by
which any of them or their respective Properties may be bound.
(b) Obligations are Enforceable. Assuming the due execution and
delivery by the Purchasers of this Agreement, each of this Agreement, the
Notes and each other Financing Document has been duly authorized by all
necessary action on the part of each of the Company, Record Town and each
Subsidiary party thereto; has been executed and delivered by duly authorized
officers of each of the Company, Record Town and each Subsidiary party
thereto; and constitutes the legal, valid and binding obligation of each of
the Company, Record Town and each Subsidiary party thereto, enforceable in
accordance with its terms, except that the enforceability of this Agreement,
the Notes and each other Financing Document may be:
(i) limited by applicable bankruptcy, reorganization, arrangement,
insolvency, moratorium or other similar laws affecting the enforceability
of creditors' rights generally; and
(ii) subject to the availability of equitable remedies.
2.10 No Defaults.
No event has occurred and no condition exists which, upon the issuance of
the Notes and the execution and delivery of this Agreement and each other
Financing Document, would constitute a Default or an Event of Default.
Neither the Company nor any Subsidiary is in violation in any respect of any
term of any charter instrument, by-law or other instrument to which it is a
party or by which it or any of its Property may be bound.
2.11 Governmental Consent.
Neither the nature of the Company or of any Subsidiary, or of any of their
respective businesses or Properties, nor any relationship between the Company
or any Subsidiary and any other Person, nor any circumstance in connection
with the offer, issue, sale or delivery of the Notes or the execution,
delivery and performance of this Agreement and the other Financing Documents
is such as to require a consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on the part of
the Company or any Subsidiary.
2.12 Taxes.
(a) All tax returns required to be filed by the Company or any
Subsidiary in any jurisdiction have in fact been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary, or upon any of their respective Properties, income or franchises,
which are due and payable have been paid. Neither the Company nor any
Subsidiary knows of any proposed additional tax assessment against it.
Federal income tax returns of the Company and its Subsidiaries have been
audited by the Internal Revenue Service or the statute of limitations has run
for all years to and including the fiscal year ending February 1, 1992 and
there is no liability for such tax asserted against the Company or any
Subsidiary for that or any prior year.
(b) The provisions for taxes on the books of the Company and each
Subsidiary are adequate for all open years, and for its current fiscal period.
The amount of the reserve for Federal income taxes reflected in the
consolidated balance sheet of the Company and its Subsidiaries as of February
3, 1996 is an adequate provision for such Federal income taxes, if any, as may
be payable by the Company and its Subsidiaries for the fiscal years 1992
through 1995, the only open years.
2.13 Margin Securities.
None of the transactions contemplated in this Agreement will violate or
result in a violation of Section 7 of the Exchange Act or any regulations
issued pursuant thereto, including, without limitation, Regulations G, T and X
of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II
or require that any filing be made under any thereof. Neither the Company nor
any Subsidiary owns or intends to carry or purchase any "margin stock" within
the meaning of said Regulation G, including margin stock originally issued by
it.
2.14 ERISA.
Neither the Company nor any Related Person of the Company now maintains
any "employee pension benefit plan", as such term is defined in Section 3 of
ERISA (herein referred to as a "Pension Plan"), nor has the Company nor any
Related Person maintained a Pension Plan in the past. No employee of the
Company or of any of its Related Persons is entitled, as the result of current
employment by the Company or any Subsidiary, to participate in any
"multiemployer pension plan" as such term is defined in Section 4001(a)(3) of
ERISA.
2.15 Company Actions.
Neither the Company, Record Town nor any other Subsidiary has taken any
action or permitted any condition to exist which would have been prohibited by
Section 7 if such Section had been binding and effective at all times during
the period from February 3, 1996 to and including the Effective Date.
2.16 Restated Credit Agreement; Restated Series B Note Agreement.
(a) The Company has delivered to the Purchasers true, complete and
correct copies of each of the Restated Credit Agreement and the Restated
Series B Note Agreement (together, the "Other Restructuring Documents"),
together with all exhibits, schedules and disclosure letters referred to
therein or delivered pursuant thereto, and all amendments thereto, waivers
relating thereto and other side letters or agreements affecting the terms
thereof. None of such documents and agreements has been amended or
supplemented, nor have any of the provisions thereof been waived, except
pursuant to a written agreement or instrument which has heretofore been
consented to by each of the Purchasers and no consent or waiver has been
granted by the Company or any Subsidiaries thereunder. Each of the Other
Restructuring Documents has been duly executed and delivered by the Company,
and, to the best of the Company's knowledge, by each other party thereto and
is a legal, valid and binding obligation of the Company, and, to the best of
the Company's knowledge, of each other party thereto, enforceable, in all
material respects, in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws affecting the
rights of creditors generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(b) The representations and warranties of the Company, any Subsidiary
and each other party to the Other Restructuring Documents are, to the best of
the Company's knowledge, true and correct in all material respects on the
Effective Date as if made on and as of such date. Such representations and
warranties, together with the definitions of all defined terms used therein,
are by this reference deemed incorporated herein mutatis mutandis, and each
Purchaser is entitled to rely on the accuracy of such representations and
warranties.
(c) To the best of the Company's knowledge, each party to the Other
Restructuring Documents has complied in all material respects with all terms
and provisions contained therein on its part to be observed.
2.17 Movies Plus, Inc.
Except for (i) Debt owed to the Company, Record Town or a Subsidiary, and
(ii) each of (A) its Guaranty Agreements and (B) its guarantee, in favor of
the Banks, of the obligations of the Company and Record Town under the
Restated Bank Agreement, the liabilities of Movies Plus, Inc., no portion of
which constitutes Debt, do not exceed $500,000 in the aggregate.
3. CLOSING CONDITIONS
The amendment and restatement of the Existing Note Agreement and the
Existing Notes, and the substitution of the Notes for the Existing Notes are
subject to the satisfaction of the following conditions precedent:
3.1 Opinions of Counsel.
The Purchasers shall have received from
(a) Matthew H. Mataraso, counsel for the Company and Record Town, and
(b) Jones, Day, Reavis & Pogue, special counsel for the Company and
Record Town,
closing opinions, each dated as of the Effective Date, substantially in the
respective forms set forth in Exhibits C-1 and C-2 hereto and as to such other
matters as they may reasonably request. This Section 3.1 shall constitute
direction by the Company to such counsel to deliver such closing opinions to
the Purchasers.
3.2 Compliance with this Agreement.
The Company and Record Town shall have performed and complied with all
agreements and conditions contained herein which are required to be performed
or complied with by the Company and Record Town, respectively, on or prior to
the Effective Date, and such performance and compliance shall remain in effect
on the Effective Date. Each Purchaser shall have received a certificate,
dated the Effective Date and signed by a duly authorized officer of each of
the Company and Record Town, certifying that all of the agreements and
conditions specified in the immediately preceding sentence have been
satisfied.
3.3 Private Placement Number.
The Company shall have obtained from Standard & Poor's Corporation and
furnished to the Purchasers a private placement number for the Notes.
3.4 Execution and Delivery of this Agreement and the Notes.
The Company, Record Town and each Purchaser shall have entered into this
Agreement and each party hereto shall be prepared to perform its respective
obligations hereunder. Each of the Company, Record Town and the other
Purchasers shall have executed and delivered a counterpart of this Agreement
to each other party hereto. Each of the Purchasers shall have received one or
more Notes (in the amount(s) and bearing the registration number(s) set forth
below its name on Annex 1), dated the Effective Date and duly executed and
delivered by each of the Company and Record Town, in replacement of the
Existing Notes held by such Purchaser.
3.5 Restated Credit Agreement.
The Company, Record Town and the Banks shall have entered into the
Restated Credit Agreement, which agreement and all documents and instruments
executed and delivered in connection therewith shall be in form and substance
satisfactory to the Purchasers. The Company shall have delivered to each
Purchaser true, correct and complete copies of the Restated Credit Agreement
and all such documents and instruments, including all waivers relating thereto
and all side letters or agreements affecting the terms thereof.
3.6 Restated Series B Note Agreement.
The Company, Record Town and the Series B Noteholder shall have entered
into an agreement amending and restating the Existing Series B Note Agreement,
which agreement and all documents and instruments executed and delivered in
connection therewith shall be in form and substance satisfactory to the
Purchasers.
3.7 Intercreditor Agreement.
The Purchasers, the Series B Noteholder and the Banks shall have executed
and delivered an Intercreditor Agreement in the form of Exhibit D (the
"Intercreditor Agreement"), and such Intercreditor Agreement and all documents
and instruments executed and delivered in connection therewith shall be in
form and substance satisfactory to all parties thereto, and such Intercreditor
Agreement shall have been accepted and agreed to by each of the Company,
Record Town and the Security Trustee, and shall be in full force and effect.
3.8 Restructuring Fee.
The Company and Record Town shall have paid to each Purchaser, and each
Purchaser shall have received, a portion of the restructuring fee described in
Section 1.7 equal to the product of:
(a) one percent (1.0%); times
(b) the outstanding principal amount of the Notes held by such
Purchaser on the Effective Date.
Such payment shall be made by wire transfer of immediately available funds to
the account of each Purchaser to which the Company and Record Town are
obligated to make payments of interest in respect of such Purchaser's Notes.
3.9 Expenses.
All fees and disbursements required to be paid pursuant to Section
1.6(a)(ii), Section 1.6(a)(iii) and Section 1.6(b) hereof shall have been paid
in full.
3.10 Interest on Existing Notes.
The Company shall have paid to each of the Purchasers all accrued interest
on the Existing Notes held by such Purchaser to (but not including) the
Effective Date at the rate of 10.50% per annum, and additional interest on
such Purchaser's Existing Notes for the period from May 1, 1996 to (but not
including) the Effective Date at a rate equal to the excess, if any, of the
rate which would have been payable on the Notes pursuant to Section 1.2(d) if
the Notes had been outstanding at all times from and after May 1, 1996 over
10.50% per annum.
3.11 Subsidiary Guaranties.
Each Subsidiary (other than Record Town) shall have executed and delivered
an agreement in the form of Exhibit E (collectively, the "Guaranty Agreement")
unconditionally guarantying payment of the Notes.
3.12 Collateral Trust Indenture and Other Security Documents.
(a) Each of the Company, Record Town, the Guarantors and the Security
Trustee shall have executed and delivered to each of the Purchasers an
original counterpart of a Collateral Trust Indenture, in the form of Exhibit F
(the "Collateral Trust Indenture"), and the Collateral Trust Indenture shall
be in full force and effect.
(b) Each of the Company, Record Town, the Guarantors and the Security
Trustee shall have executed and delivered to each of the Purchasers an
original counterpart of a Security Agreement, in the form of Exhibit G
(collectively the "Security Agreement"), and the Security Agreement shall be
in full force and effect.
(c) The Security Trustee and each of the Company, Record Town and the
Guarantors shall have executed and delivered to each of the Purchasers an
original counterpart of a Trademark Security Agreement, in the form of Exhibit
H (collectively, the "Trademark Security Agreement"), and the Trademark
Security Agreement shall be in full force and effect.
(d) The Security Trustee and Record Town shall have executed and
delivered to each if the Purchasers an original counterpart of a Pledge
Agreement, in the form of Exhibit I (the "Pledge Agreement"), and the Pledge
Agreement shall be in full force and effect.
(e) The Company, the concentration account bank named therein and the
Security Trustee shall have executed and delivered to each of the Purchasers
an original counterpart of a Depository Bank Agreement in the form of Exhibit
J (the "Concentration Bank Account Agreement"), and the Concentration Bank
Account Agreement shall be in full force and effect.
(f) The foregoing agreements shall secure the Notes and all of the
obligations under this agreement pari passu with the obligations due under the
Restated Series B Note Agreement and the Restated Credit Agreement; and each
of the Purchasers shall have received evidence satisfactory to it that the
Liens created by the foregoing agreements are valid and perfected Liens senior
to all other Liens upon the Collateral.
3.13 Movies Plus Subordination.
Each of the Company, Record Town and the Subsidiaries (other than Movies
Plus, Inc.) shall have executed and delivered a subordination agreement in the
form of Exhibit K (collectively, the "Movies Plus Subordination Agreement"),
and the Movies Plus Subordination Agreement shall be in full force and effect.
3.14 Representations And Warranties True.
The warranties and representations set forth in Section 2 hereof shall be
true and correct as of the Effective Date.
3.15 Authorization of Transactions.
Each of the Company and Record Town shall have authorized, by all
necessary corporate action, the execution and delivery of this Agreement, the
Notes and each of the other documents and instruments executed and delivered
in connection herewith and the performance of all obligations of, and the
satisfaction of all conditions precedent pursuant to this Section 3 by, and
the consummation of all transactions contemplated by this Agreement by, the
Company and Record Town. The Purchasers shall have received a certificate
from each of the Company and Record Town, in form and substance satisfactory
to the Purchasers and their special counsel, certifying the adoption of
resolutions of the board of directors of the Company and Record Town, as the
case may be, authorizing such execution, delivery, performance, satisfaction
and consummation, which resolutions shall be attached to such certificate and
shall be in full force and effect. Each such certificate shall indicate that
there has been no resolution passed by suc h board of directors which
conflicts with, amends or rescinds such resolutions.
3.16 Proceedings Satisfactory.
All proceedings taken in connection with the issuance of the Notes and all
documents and papers relating thereto shall be satisfactory to each of the
Purchasers and their special counsel. The Purchasers and their special
counsel shall have received copies of such documents and papers as they may
reasonably request in connection therewith, all in form and substance
satisfactory to them.
4. DIRECT PAYMENT
The Company agrees that, notwithstanding any provision in this Agreement
or the Notes to the contrary, it will pay all sums becoming due to any
institutional holder of Notes in the manner provided in Annex 1 or in any
other manner as any institutional holder may designate to the Company in
writing (without presentment of or notation on the Notes).
5. REPAYMENTS
5.1 Mandatory Early Repayments.
(a) In addition to paying the entire remaining principal amount and
interest due on the Notes at maturity, the Company and Record Town agree on a
joint and several basis to repay, and there shall become due and payable on
each of the dates set out below, the principal amount of Notes set forth
opposite such date:
Payment Date Principal Amount
08/30/96 1,526,785.71
11/30/96 678,571.43
02/28/97 5,089,285.71
05/30/97 678,571.43
08/30/97 678,571.43
11/30/97 678,571.43
02/28/98 1,357,142.86
05/30/98 678,571.43
Each such repayment shall be at one hundred percent (100%) of the
principal amount repaid, together with interest accrued thereon to the date of
repayment. In certain circumstances the amount of one or more of the
foregoing required repayments shall be deemed to have been reduced pursuant to
Section 5.1(b) or Section 5.6.
(b) Except as set forth in Section 5.6, the early repayment of any of
the Notes pursuant to Section 5.2, Section 5.5 or Section 5.6 or the
acquisition of the Notes by the Company or any Subsidiary shall not reduce or
otherwise affect the obligations of the Company and Record Town to make any
repayment required by Section 5.1(a); provided that if such early repayment is
made with the proceeds of a tax refund from a period prior to the Effective
Date (a "Tax Refund") or the proceeds of a sale of the stock or assets of
Movies Plus, Inc., ("Movies Plus Proceeds") such early repayment shall reduce
the next maturing repayments due under Section 5.1(a). If at any time one or
more holders of the Notes shall be repaid in whole pursuant to Section 5.4
(each such repayment herein called an "Extraordinary Repayment"), then the
principal amount of the Notes required to be repaid pursuant to Section 5.1(a)
on each principal payment date following such Extraordinary Repayment shall be
automatically reduced to an amount w hich equals the product of (i) the
principal amount of the Notes required to be repaid on such date multiplied by
(ii) a fraction (A) the numerator of which shall equal $41,331,412.90 minus
the cumulative aggregate principal amount repaid pursuant to Section 5.4 after
giving effect to such Extraordinary Repayment and (B) the denominator of which
shall equal $41,331,412.90.
5.2 Early Repayment Option.
Subject to Section 7.5(b) of this Agreement, the Company and Record Town
may pay the Notes, in whole or in part, at any time at a price equal to the
principal amount to be repaid together with interest on the principal amount
so repaid accrued to the early repayment date.
5.3 Notice of Optional Repayment.
The Company will give notice of any optional repayment of the Notes to
each holder of the Notes not less than ten (10) days nor more than sixty (60)
days before the date fixed for repayment, specifying:
(a) such date;
(b) the principal amount of the Notes and of such holder's Notes to be
repaid on such date; and
(c) the accrued interest applicable to the repayment.
Notice of repayment having been so given, the principal amount of the Notes
specified in such notice, together with the accrued interest thereon, shall
become due and payable on the repayment date.
5.4 Repayment Upon Change of Control.
The Company and Record Town will repay, and there shall be due and payable
on the forty-fifth (45th) day following notice by the Company to the holders
of Notes of a proposed Change of Control pursuant to Section 8.1(i) (or on the
next succeeding Business Day if such forty-fifth (45th) day is not a Business
Day), all of the Notes held by each holder of Notes; provided, that a holder
of any Note may give notice to the Company on or before the thirtieth (30th)
day following receipt by such holder of such notice from the Company, that
such holder elects to forego such repayment pursuant to this Section 5.4, of
the Notes held by it. Any such repayment must be effective prior to the
effective time of any proposed Change of Control. The amount required to be
paid to such holder shall be equal to one hundred percent (100%) of the
principal amount of the Notes so repaid, together with interest accrued
thereon to the date of repayment.
If the Company shall fail to provide the notice required by Section
8.1(i), any holder of the Notes upon acquisition of knowledge of the failure
by the Company to comply with the notice requirements of Section 8.1(i) may
give notice to the Company of such failure. The Company shall immediately
provide a copy of such notice to each other holder of the Notes and for
purposes of the foregoing provisions of this Section 5.4, the date upon which
such notice was given by such holder to the Company shall be deemed to be the
date of notice by the Company of such proposed Change of Control.
5.5 Repayment Upon Material Asset Sale or Tax Refund.
(a) Material Asset Sale. Not more than two Business Days following the
consummation of any sale of (x) any Property (other than Collateral) of the
Company or its Subsidiaries in one transaction or a series of related
transactions, other than a sale of inventory in the ordinary course of the
Company's business or in connection with store closings, which sale results in
proceeds equal to or greater than $500,000, or (y) any Collateral, the Company
and Record Town shall, subject to Section 5.5(c), pay (or cause the selling
Subsidiary to pay) to the holders of the Notes an amount of principal equal to
the product of (i) the Net Asset Sale Proceeds attributable to such sale
multiplied by (ii) the Noteholders' Percentage. Nothing in this Section 5.5
shall be deemed to permit such an asset sale without the consent of the
holders of the Notes obtained in accordance with Sections 7.13 and 11.5 of
this Agreement.
(b) Tax Refunds. Not more than two Business Days following the receipt of
any Tax Refund, the Company and Record Town shall, subject to Section 5.5(c),
pay to the holders of the Notes an amount of principal equal to the product of
(i) the amount of such Tax Refund multiplied by (ii) the Noteholders'
Percentage.
(c) Certain Credits. Notwithstanding anything in Section 5.5(a) or
Section 5.5(b) to the contrary and so long as no Default or Event of Default
exists, no principal payment shall be due with respect to Movies Plus Proceeds
or the proceeds of any Tax Refund under either of such Sections at any time,
except to the extent that the aggregate amount of Movies Plus Proceeds and
proceeds from Tax Refunds received by the Company or Record Town at or prior
to such time exceeds the aggregate amount of principal payments actually made
pursuant to Section 5.1(a) at or prior to such time.
5.6 Repayment from Excess EBITDA.
In addition to all other payments of principal required by this Section 5,
on each Payment Date the Company and Record Town will pay to the holders of
the Notes a principal amount of Notes equal to the Noteholders' Percentage of
forty-five percent (45%) of Excess EBITDA for the then current fiscal year
(or, in the case of a February Payment Date, the fiscal year then most
recently ended). For purposes of this Agreement, "Excess EBITDA" for any
fiscal year shall mean the amount, if any, by which Consolidated EBITDA for
such fiscal year (calculated as of the end of the most recently ended fiscal
quarter) exceeds the EBITDA Cushion as of the end of such fiscal quarter.
If immediately prior to the August or November Payment Date in any fiscal
year the aggregate principal payments made with respect to such fiscal year
pursuant to this Section 5.6 (exclusive of amounts deemed to have reduced
payments due under Section 5.1(a)) are greater than the Noteholders'
Percentage of forty-five percent (45%) of Excess EBITDA for such fiscal year,
the amount of the next required payment due pursuant to Section 5.1(a) shall
be deemed reduced by the amount of such overage (the "Cumulative EBITDA
Overage"). The Cumulative EBITDA Overage, if any, existing immediately prior
to a February Payment Date, shall in no event be deemed to reduce the payment
required by Section 5.1(a) on such February Payment Date, but shall instead be
applied to the principal payments due on the Notes in inverse order of
maturity.
If there is Excess EBITDA for a fiscal year, the Company and Record Town,
not later than ninety (90) days after the end of such fiscal year, shall
multiply the amount of Excess EBITDA for such fiscal year by a fraction the
numerator of which shall be the aggregate amount of all federal, state, and
local income tax liabilities shown as payable on consolidated tax returns
filed or to be filed by the Company for such fiscal year, and the denominator
of which shall be the amount of Consolidated EBITDA for such fiscal year. If
the resulting number (the "Resulting Number") is less than forty percent (40%)
of such Excess EBITDA, the Company shall immediately make a principal payment
to the Noteholders in an amount equal to the Noteholders' Percentage
multiplied by a number equal to the remainder of (i) forty percent (40%) of
such Excess EBITDA, minus (ii) the Resulting Number. Payments made pursuant
to the preceding sentence shall be applied to the principal payments due on
the Notes in inverse order of maturity . If the Resulting Number is greater
than forty percent (40%) of such Excess EBITDA and the Company and Record Town
have made all payments of principal and interest required to have been made
with respect to such fiscal year under this Section 5.6, the next principal
payment required by Section 5.1(a) shall be deemed reduced by an amount equal
to the Noteholders' Percentage multiplied by the remainder of the Resulting
Number minus forty percent (40%) of such Excess EBITDA.
5.7 Partial Early Payments To Be Pro Rata.
If there is more than one holder of the Notes, the aggregate principal
amount of each required or optional partial payment (except a payment pursuant
to Section 5.4, which shall be made as therein provided) of the Notes shall be
allocated in units of One Thousand Dollars ($1,000) or multiples thereof among
the holders of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid amounts of the Notes held by each such
holder.
6. REGISTRATION; SUBSTITUTION OF NOTES
6.1 Registration of Notes.
The Company will cause to be kept at its office maintained pursuant to
Section 7.3, a register for the registration and transfer of the Notes. The
names and addresses of the holders of the Notes, the transfer thereof and the
names and addresses of the transferees of any of the Notes will be registered
in the register. The Person in whose name any Note is registered shall be
deemed and treated as the owner and holder thereof for all purposes of this
Agreement, and the Company shall not be affected by any notice or knowledge to
the contrary.
6.2 Exchange of Notes.
Upon surrender of any Note to the Company at its office maintained
pursuant to Section 7.3, the Company, upon request, will execute and deliver,
at its expense (except as provided below), new Notes in exchange therefor, in
denominations of at least One Hundred Thousand Dollars ($100,000) (except as
may be necessary to reflect any principal amount not evenly divisible by One
Hundred Thousand Dollars ($100,000)), in an aggregate principal amount equal
to the unpaid principal amount of the surrendered Note. Each such new Note
(a) shall be payable to such Person as the surrendering holder may request and
(b) shall be dated and bear interest from the date to which interest has been
paid on the surrendered Note or dated the date of the surrendered Note if no
interest has been paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any transfer.
6.3 Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any Note
and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided, if the holder of the Note is an institutional
investor, its own agreement of indemnity shall be deemed to be satisfactory),
or
(b) in the case of mutilation, upon surrender and cancellation of the
Note,
the Company at its expense will execute and deliver a new Note of like tenor,
dated and bearing interest from the date to which interest has been paid on
the lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest has been paid thereon.
7. COMPANY BUSINESS COVENANTS
The Company and Record Town covenant that on and after the date of this
Agreement until the Notes are paid in full:
7.1 Payment of Taxes and Claims.
The Company, and each Subsidiary, will pay, before they become delinquent,
(a) all taxes, assessments and governmental charges or levies imposed
upon it or its Property other than deficiencies which arise in the ordinary
course and are identified through audits and with respect to which (i)
adequate book reserves have been established with respect thereto and (ii)
such amounts due are paid by the Company or such Subsidiary immediately upon
final determination that such amounts are due, and
(b) all claims or demands of any kind (including but not limited to
those of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons) which, if unpaid, might result in the creation of a Lien upon
its Property;
provided, that items in clauses (a) and (b) above need not be paid while being
contested in good faith and by appropriate proceedings, if and for so long as
(i) adequate book reserves have been established with respect thereto and (ii)
the owning Person's title to its Property is not materially adversely affected
and its use of the Property in the ordinary course of its business is not
materially interfered with.
7.2 Maintenance of Properties and Corporate Existence.
The Company will, and will cause each Subsidiary to:
(a) Property. Maintain its Property in good condition, subject to
ordinary wear and tear, and make all necessary renewals, replacements,
additions, betterments and improvements thereto; provided that nothing
contained in this Section 7.2 shall prevent the Company from closing any
specific store location pursuant to Section 7.13 hereof;
(b) Insurance. Maintain, with financially sound and reputable
insurers, insurance with respect to its Properties and business against such
casualties and contingencies, of such types (including public liability,
larceny, embezzlement or other criminal misappropriation insurance) as is
customary in the case of corporations of established reputations engaged in
the same or a similar business and similarly situated, and in amounts
acceptable to the holders of the Notes.
(c) Financial Records. Keep accurate books of records and accounts in
which full and correct entries will be made of all its business transactions,
and will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with generally accepted
accounting principles;
(d) Corporate Existence and Rights. Do or cause to be done all things
necessary (i) to preserve and keep in full force and effect its existence,
rights and franchises and (ii) to maintain each Subsidiary as a Subsidiary,
except as otherwise permitted by Sections 7.13 and 7.14; and
(e) Compliance with Law. Not be in violation of any laws, ordinances,
orders, judgments or decrees or governmental rules and regulations to which it
is subject and will not fail to maintain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its Properties
or to the conduct of its business, if such violation or failure to maintain
might reasonably be expected to materially adversely affect the Properties,
business, prospects, operating results or condition (financial or otherwise)
of Record Town or the Company and its Subsidiaries, taken as a whole.
7.3 Maintenance of Office.
The Company and Record Town each will maintain an office in the State of
New York where notices, presentations and demands in respect of this Agreement
or the Notes may be made upon it. Such offices shall be maintained at 38
Corporate Circle, Albany, New York 12203 until such time as the Company shall
notify the holders of the Notes of a change of location.
7.4 Liens and Encumbrances.
(a) Negative Pledge. Neither the Company nor any Subsidiary will (1)
cause or permit or (2) agree or consent to cause or permit in the future (upon
the happening of a contingency or otherwise), any of its Property, whether now
owned or hereafter acquired, to be subject to a Lien except:
(1) Liens securing the payment of taxes, assessments, governmental
charges or levies, or the claims or demands of mechanics, carriers,
warehousemen, landlords and other like Persons, provided, that (A)
they do not in the aggregate materially reduce the value of any
Properties subject to such Liens or materially interfere with their
use in the ordinary course of business and (B) if appropriate, all
claims which such Liens secure are being actively contested in good
faith and by appropriate proceedings;
(2) Liens incurred or deposits made in the ordinary course of
business (A) in connection with worker's compensation, unemployment
insurance, social security and other like laws, or (B) to secure the
performance of bids, tenders, sales contracts, leases, statutory
obligations, surety, appeal and performance bonds and other similar
obligations in each case not incurred in connection with the borrowing
of money, the obtaining of advances or the payment of the deferred
purchase price of Property;
(3) Liens on Property of a Subsidiary, provided, they secure only
obligations owing to the Company or another Subsidiary;
(4) Liens created by or resulting from any litigation or
proceedings that are being contested in good faith, and Liens arising
out of judgments or awards against the Company or any Subsidiary,
provided, that (A) the Company or such Subsidiary is in good faith
prosecuting an appeal or proceedings for review of such Liens incurred
by the Company or any Subsidiary for the purpose of obtaining a stay
or discharge in the course of any legal proceeding to which the
Company or such Subsidiary is a party, so long as the Company has set
aside adequate accounting reserves; and (B) such Liens do not in the
aggregate materially reduce the value of any of the Properties subject
to the Liens or materially interfere with their use in the ordinary
conduct of the owning company's business;
(5) Liens or deposits in connection with leases, subleases,
easements, rights of way, restrictions and other similar encumbrances
granted to others in the ordinary course of business so long as they
do not in the aggregate materially reduce the value of any Properties
subject to the Liens;
(6) Easements, rights-of-way, or restrictions and other similar
encumbrances incurred in the ordinary course of business and not
interfering with the ordinary conduct of the business of the Company
or any Subsidiary;
(7) Purchase Money Mortgages or conditional sale, finance lease or
other title retention agreements or other Liens incurred, taken
subject to or assumed in connection with the purchase, lease,
improvement or construction of Property or to secure indebtedness
incurred solely for the purpose of financing the acquisition, lease,
construction or improvement of any of such Property to be subject to
such mortgages, agreements or other Liens, provided, however, that
such Purchase Money Mortgages (A) shall be permitted by Section
7.5(a)(iv) or Section 7.5(a)(v), and (B) shall not encumber any assets
of the Company other than the Property so purchased;
(8) Liens arising by operation of law and in the ordinary course
of business in the form of rights of setoff, appropriation and
application against the deposits and credits of the Company or any
Subsidiary in favor of the banks where such deposits or credits are
located, and including any rights arising pursuant to a participation
or similar contractual agreement among any such bank and other banks
which are members of a group providing credit to the Company whereby
such bank agrees to share such rights of setoff with other banks which
are members of such group;
(9) Liens upon the Collateral created by one or more of the
Security Documents;
(10) Deposits in an aggregate amount not to exceed Five Hundred
Thousand Dollars ($500,000) to secure the reimbursement obligations of
the Company and/or Record Town in respect of standby or commercial
letters of credit issued for the account of the Company and/or Record
Town by parties other than the Banks; and
(11) Liens set forth on Part 2.3(b) of Exhibit B hereto,
provided, however, that such Liens shall not spread to cover other or
additional Debt or Property of the Company or any Subsidiary.
(b) Equal and Ratable Lien; Equitable Lien. In case any Property is
subjected to a Lien in violation of Section 7.4(a), the Company will make or
cause to be made provision whereby the Notes will be secured equally and
ratably with all other obligations secured thereby, and in any case the Notes
shall have the benefit, to the full extent that, and with such priority as,
the holders may be entitled thereto under applicable law, of an equitable Lien
on such Property securing the Notes. Such violation of Section 7.4(a) shall
constitute an Event of Default hereunder, whether or not any such provision is
made pursuant to this Section 7.4(b).
7.5 Limitations On Debt Incurrence; Prepayments and Amendments.
Neither the Company nor any Subsidiary will:
(a) be or become liable for any Adjusted Funded Debt other than:
(i) the Notes; (ii) the Series B Notes; (iii) indebtedness not to exceed
$65,260,126.26 in aggregate principal amount (the "Credit Agreement Debt")
outstanding under the Restated Credit Agreement; (iv) indebtedness to others
incurred for the purpose of purchasing equipment (other than computers, cash
registers and related equipment referred to in clause (v) below), used or
useful in the ordinary course of business of the Company or its Subsidiaries
(provided that the aggregate amount of all such indebtedness shall not exceed
$2,000,000 in any fiscal year); (v) indebtedness incurred by the Company upon
reasonable and customary terms to replace and upgrade its (A) existing AS400
computer hardware and related equipment in an amount not to exceed Four
Million Dollars ($4,000,000) in the aggregate and (B) existing POS cash
register system in an amount not to exceed Six Million Dollars ($6,000,000) in
the aggregate; (vi) reimbursement obligations i n an aggregate amount not to
exceed Five Hundred Thousand Dollars ($500,000) secured by Liens permitted
under Section 7.4(a)(10) and incurred in respect of standby or commercial
letters of credit issued by parties other than the Banks for the account of
the Company and/or Record Town; and (vii) other indebtedness outstanding on
the Effective Date and reflected on Exhibit B;
(b) make any optional prepayment of any Debt or consent to any
optional reduction of the Commitment if, as a result thereof, the amount of
the Commitment and the outstanding principal amounts of the Notes and of the
Series B Notes do not bear the same relative proportion to one another as was
the case on the Effective Date; or
(c) amend any agreement governing or evidencing any Debt.
Nothing in this Section 7.5 shall permit an expenditure not permitted by
Section 7.25.
7.6 Subsidiary Debt.
No Subsidiary, except for Record Town, will become liable for, have
outstanding, or permit its Property to be subject to, any Prior Indebtedness.
Movies Plus, Inc. shall have no Debt other than Debt which is (i) owing to the
Company, Record Town, or a Guarantor and (ii) subject to the Movies Plus
Subordination Agreement.
7.7 Current Ratio.
As of the last day of the first, second and fourth fiscal quarters of the
Company during each fiscal year, Consolidated Current Assets shall be not less
than 150% of Consolidated Current Liabilities. As of the last day of the
third fiscal quarter of the Company during each fiscal year, Consolidated
Current Assets shall be not less than 135% of Consolidated Current
Liabilities. For purposes of computations made to determine compliance with
this Section 7.7, the actual cash balance of the Company and the Subsidiaries
shall be deemed to be reduced by the amount thereof in excess of the product
of $10,000 multiplied by the number of retail stores of the Company and the
Subsidiaries actually open for business on the date of such computation, and
any such excess shall be deemed to reduce accounts payable.
7.8 Maintenance of Ownership.
The Company shall at all times directly or indirectly own, free and clear
of all Liens (except as otherwise permitted by Section 7.4(a)(4) and Section
7.4(a)(9)), 100% of the outstanding capital stock of Record Town and each
other Subsidiary; provided, however, that Record Town may contract for and
consummate a sale of all or substantially all of the capital stock of Movies
Plus, Inc. in accordance with Section 5.1(b).
7.9 Fixed Charge Ratio.
On the final day of the first and second fiscal quarter of each fiscal
year, Consolidated Income Available for Fixed Charges shall be not less than
100% of Consolidated Fixed Charges for the period of four (4) fiscal quarters
ended on such dates. On the final day of the third fiscal quarter of each
fiscal year and the fourth fiscal quarter of the 1996 fiscal year,
Consolidated Income Available for Fixed Charges shall be not less than 110% of
Consolidated Fixed Charges for the period of four (4) fiscal quarters ended on
such dates. On the final day of the 1997 fiscal year, Consolidated Income
Available for Fixed Charges shall be not less than 115% of Consolidated Fixed
Charges for the fiscal year ended on such date.
7.10 Tangible Net Worth.
As of the final day of each fiscal quarter set forth below, the Company
will maintain Consolidated Tangible Net Worth of not less than the amount set
forth opposite such fiscal quarter:
Fiscal Quarter Amount
1st Quarter 1996 $75,000,000
2nd Quarter 1996 $75,000,000
3rd Quarter 1996 $75,000,000
4th Quarter 1996 $85,000,000
1st Quarter 1997 $80,000,000
2nd Quarter 1997 $80,000,000
3rd Quarter 1997 $80,000,000
4th Quarter 1997 $90,000,000
1st Quarter 1998 $80,000,000
7.11 Tangible Net Worth of Record Town.
As of the final day of each fiscal quarter set forth below, Record Town
will maintain Tangible Net Worth of not less than the amount set forth
opposite such fiscal quarter:
Fiscal Quarter Amount
1st Quarter 1996 $25,000,000
2nd Quarter 1996 $25,000,000
3rd Quarter 1996 $25,000,000
4th Quarter 1996 $35,000,000
1st Quarter 1997 $30,000,000
2nd Quarter 1997 $30,000,000
3rd Quarter 1997 $30,000,000
4th Quarter 1997 $40,000,000
1st Quarter 1998 $30,000,000
7.12 Distributions and Investments.
Neither the Company nor any Subsidiary will declare, make or become
obligated to make any Distribution or make or become obligated to make any
Restricted Investment.
7.13 Sale of Property and Subsidiary Stock.
Neither the Company nor any Subsidiary will (x) sell, lease, or otherwise
transfer any of its Property (including, without limitation, the sale or
discount of accounts receivable or notes receivable), or (y) permit any
Subsidiary to issue or transfer any shares of its stock or any other
Securities exchangeable or convertible into its stock (such stock and other
Securities being called "Subsidiary Stock"), if the effect would be to reduce
the direct or indirect proportionate interest of the Company in the
outstanding Subsidiary Stock of the Subsidiary whose shares are the subject of
the transaction, provided that these restrictions do not apply to:
(1) the issue of directors' qualifying shares;
(2) the transfer of Property (other than Subsidiary Stock) in the
ordinary course of business; and
(3) the transfer of Property by Movies Plus, Inc. or the transfer
of the stock of Movies Plus, Inc., in each case, made in accordance
with Section 5.1(b).
7.14 Merger and Consolidation.
The Company will not, and will not permit any Subsidiary to, be a party to
any merger or consolidation or sell, lease or otherwise transfer all or
substantially all of its Property.
7.15 Guaranties.
Neither the Company nor any Subsidiary will become liable for any Guaranty
(except a Guaranty of any indebtedness, dividend or other obligation as to
which the Company or a Subsidiary of which the Company enjoys at least 80% of
the Economic Benefit is the primary obligor), unless (i) such Guaranty is
permitted by Sections 7.5, 7.6 and 7.7, to the extent applicable, and (ii) the
maximum amount of indebtedness, dividend or other obligation being guaranteed
can be mathematically determined at the time the Guaranty is issued.
7.16 ERISA Compliance.
Neither the Company nor any Related Person will at any time permit any
Pension Plan maintained by it to:
(i) engage in any "prohibited transaction" as such term is defined
in Section 4975 of the Internal Revenue Code of 1986, as amended, or
described in Section 406 of ERISA;
(ii) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA, whether or not waived; or
(iii) terminate under circumstances which could result in the
imposition of a Lien on the Property of the Company or any Subsidiary
pursuant to Section 4068 of ERISA.
7.17 Transactions with Affiliates.
Neither the Company nor any Subsidiary will enter into any transaction,
including, without limitation, the purchase, sale or exchange of Property or
the rendering of any service, with any Affiliate except upon fair and
reasonable terms no less favorable to the Company or such Subsidiary than
would be obtained in a comparable arm's-length transaction with a Person not
an Affiliate.
7.18 Tax Consolidation.
The Company will not file or consent to the filing of any consolidated
income tax return with any Person other than a Subsidiary.
7.19 Acquisition of Notes.
Neither the Company nor any Subsidiary nor any Affiliate will, directly or
indirectly, acquire or make any offer to acquire any Notes unless the Company
or such Subsidiary or Affiliate has offered to acquire Notes, pro rata, from
all holders of the Notes and upon the same terms. In case the Company
acquires any Notes, such Notes shall thereafter be cancelled and no Notes
shall be issued in substitution therefor.
7.20 Lines of Business.
Neither the Company nor any Subsidiary will engage in any line of business
if as a result thereof the business of the Company and its Subsidiaries taken
as a whole would not be substantially the same as what it was at January 28,
1995 as described in the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1995.
7.21 Required Subsidiary Guaranties.
The Company shall cause each of its Subsidiaries other than Record Town,
on or before the later of the Effective Date or the tenth (10th) day after the
acquisition of such Subsidiary, to enter into a guaranty of the Notes pursuant
to an agreement to the effect and substantially in the form of Exhibit E
hereto. Each Subsidiary required to execute a Guaranty Agreement pursuant to
the provisions of Section 3.11 or this Section 7.21 shall be a "Required
Guarantor". The Company shall cause each Required Guarantor to deliver an
original executed copy of such Guaranty to each holder of Notes, together with
certified copies of the resolutions of the board of directors of such Required
Guarantor authorizing the execution, delivery and performance thereof, with
appropriate shareholder consents or approvals attached.
7.22 Limitations on Preferred Stock.
Neither the Company, Record Town nor any other Subsidiary will issue (i)
any Preferred Stock which by its terms (or by the terms of any Security into
which it is convertible or for which it is exchangeable) is exchangeable for
Debt at the option of the holder thereof on or prior to July 31, 2000 or (ii)
any Special Preferred Stock unless the issuance of such Special Preferred
Stock is permitted at such time pursuant to Section 7.5.
7.23 Limitation on Inventory Turnover.
The Company will not permit Inventory Turnover to fall below the following
amounts at the end of the following fiscal quarters of each fiscal year:
Fiscal Quarter Amount
First .3
Second .6
Third .7
Fourth 1.5
7.24 Maintenance of Consolidated EBITDA.
Consolidated EBITDA for each of the first three quarters of each fiscal
year shall be not less than ($2,000,000). Consolidated EBITDA for the fourth
fiscal quarter of 1996 shall be not less than $24,000,000. Consolidated
EBITDA for the fourth fiscal quarter of 1997 shall be not less than
$27,000,000.
7.25 Limitation on Capital Expenditures.
The Company and the Subsidiaries shall not make capital expenditures
which, in the aggregate, exceed the following amounts in the following fiscal
years:
Fiscal Year Beginning Amount
1996 $12,000,000
1997 $12,000,000
1998 (through July 31) $6,000,000
7.26 Limitation on Leases.
Neither the Company nor any Subsidiary shall be or become liable under any
agreement for the lease, hire or use of any personal property if the sum of
(a) the aggregate maximum amount of all obligations of the Company and its
Subsidiaries pursuant to all such agreements in the current or any future
fiscal year plus (b) the aggregate outstanding indebtedness permitted under
Section 7.5(a)(iv) hereof would exceed $2,000,000. Anything contained in this
Section to the contrary notwithstanding, this provision shall not apply to a
Financing Lease.
7.27 Limitation on Sale and Leaseback.
Neither the Company nor any Subsidiary shall enter into any arrangement
with any Person whereby the Company or any Subsidiary shall sell or transfer
any Property, whether now owned or hereafter acquired, and thereafter rent or
lease such Property or other Property which the Company or such Subsidiary
intends to use for substantially the same purpose or purposes as the Property
being sold or transferred.
7.28 Limitation on Changes in Fiscal Year.
The Company shall not permit its fiscal year or the fiscal year of any
Subsidiary to end on a day other than the Saturday closest to the last day of
January, or change the method of determining fiscal quarters.
7.29 Limitation on Debt to Consolidated Tangible Net Worth.
As of the final day of each fiscal quarter set forth below, the Company
shall not permit the ratio of (a) total liabilities of the Company and its
Subsidiaries to (b) Consolidated Tangible Net Worth, to exceed the amount set
forth opposite such fiscal quarter:
Fiscal Quarter Ratio
1st Quarter 1996 2.30 to 1
2nd Quarter 1996 2.50 to 1
3rd Quarter 1996 3.00 to 1
4th Quarter 1996 2.10 to 1
1st Quarter 1997 2.10 to 1
2nd Quarter 1997 2.30 to 1
3rd Quarter 1997 2.80 to 1
4th Quarter 1997 1.90 to 1
1st Quarter 1998 2.10 to 1
For purposes of computations made to determine compliance with this Section
7.29, (x) Consolidated Tangible Net Worth shall be deemed to be reduced by the
amount (the "Excess") by which cash on hand or cash equivalents as reflected
on the Company's balance sheet exceeds the product of $10,000 multiplied by
the number of retail stores of the Company and the Subsidiaries actually open
for business on the date of computation, and (y) the Excess shall be deemed to
reduce total liabilities dollar for dollar.
7.30 Store Openings.
The Company shall not, and shall not permit any Subsidiary to, (i) open
any new store other than relocations or (ii) enter into any lease in
connection with or for the purpose of opening any new store if, after giving
effect to the opening of such store or the entering into of such lease, a
default under Section 7.25 would exist; provided, however, that in the
ordinary course of business the Company and Record Town may enter into
renewals of existing store leases.
7.31 No Amendment of Debt Instruments; Maintenance of Accounts.
The Company shall not, without the prior written consent of all holders of
the Notes:
(a) amend, modify or supplement any of the terms of the Other
Restructuring Documents (other than any such amendment, modification or change
which would extend the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend the date for
payment of interest thereon); or
(b) maintain any cash balances or cash management accounts other than
at one or more of the Banks or any other financial institution that has
executed a valid Concentration Bank Account Agreement satisfactory to the
Security Trustee; provided, however, that the Company may continue to
maintain, in a manner consistent with its past practices, existing store
accounts at one or more other banks whether or not such banks execute any such
agency agreement.
7.32 Revolver Sweep.
If on any date prior to the termination of the Commitment the aggregate
cash balances of the Company, Record Town and the Subsidiaries (including cash
on deposit and cash on hand) exceed the product of $15,000 multiplied by the
number of retail stores then being operated by the Company, Record Town and
the Subsidiaries, the Company shall, within one Business Day, cause the amount
of such excess to be applied, first, to a non-permanent reduction of the
outstanding indebtedness under the Restated Credit Agreement, and second, to
cash collateralize the letters of credit outstanding under the Restated Credit
Agreement.
7.33 Foreign Subsidiaries.
The Company shall not, and shall not permit any Subsidiary to, create or
permit to be created any Subsidiary under the laws of any jurisdiction other
than the United States of America or a jurisdiction thereof.
8. INFORMATION AS TO COMPANY
8.1 Financial and Business Information.
The Company will deliver to each Purchaser, and to each other
institutional holder of outstanding Notes, and, in the case of Section 8.1(b)
below, to the National Association of Insurance Commissioners, Securities
Valuation Office, 195 Broadway, 19th Floor, New York, New York 10007:
(a) Quarterly Statements. Within sixty (60) days after the end of
each of the first three quarterly fiscal periods in each fiscal year of the
Company, two copies of:
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries and of the Company and its Subsidiaries as
at the end of that quarter, and
(ii) consolidated statements of income, retained earnings and
cash flows of the Company and its consolidated subsidiaries, and of
the Company and its Subsidiaries, for that quarter and (in the case of
the second and third quarters) for the portion of the fiscal year
ending with that quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail
and certified by a principal financial officer of the Company as presenting
fairly the financial condition of the companies being reported upon and as
having been prepared in accordance with generally accepted accounting
principles consistently applied;
(b) Annual Statements. Within ninety (90) days after the end of each
fiscal year of the Company, two copies of:
(i) a consolidated balance sheet of the Company and its
consolidated subsidiaries, and of the Company and its Subsidiaries, as
at the end of that year, and
(ii) consolidated statements of income, retained earnings and
cash flows of the Company and its consolidated subsidiaries, and of
the Company and its Subsidiaries, for that year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and, in the case of such consolidated financial statements,
accompanied by an opinion of independent certified public accountants of
recognized national standing stating that such financial statements fairly
present the financial condition of the companies being reported upon and have
been prepared in accordance with generally accepted accounting principles
consistently applied (except for changes in application in which such
accountants concur), and that the examination of such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards, and accordingly included such tests of
the accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
other report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company or any Subsidiary;
(d) SEC and Other Reports. Promptly upon their becoming available one
copy of each report, notice or proxy statement sent by the Company to
stockholders generally, and of each periodic report and any registration
statement, prospectus or written communication (other than transmittal
letters) in respect thereof filed by the Company with, or received by the
Company in connection therewith from, any securities exchange or the
Securities and Exchange Commission or any successor agency;
(e) ERISA. Immediately upon becoming aware of the occurrence of any
(i) "reportable event" as such term is defined in Section 4043 of
ERISA, or
(ii) "accumulated funding deficiency" as such term is defined
in Section 302 of ERISA, or
(iii) "prohibited transaction", as such term is defined in
Section 4975 of the Internal Revenue Code of 1986, as amended, or
described in Section 406 of ERISA,
in connection with any Pension Plan or any trust created thereunder, a notice
specifying the nature thereof, what action the Company or a Related Person is
taking or proposes to take with respect thereto, and, when known, any action
taken by the Internal Revenue Service with respect thereto;
(f) Notice of Default or Event of Default. Immediately upon becoming
aware of the existence of any Default or Event of Default hereunder or a
Default or Event of Default under the Restated Credit Agreement (as defined
therein), or a Default or Event of Default under the Restated Series B Note
Agreement (as defined therein), a notice describing its nature and the action
the Company is taking with respect thereto;
(g) Notice of Claimed Default. Immediately upon becoming aware that
the holder of any Note or of any Debt or Security of the Company or any
Subsidiary has given notice or taken any other action with respect to a
claimed default or Event of Default, a notice specifying the notice given or
action taken by such holder, the nature of the claimed default or Event of
Default and the action the Company is taking with respect thereto;
(h) Report on Proceedings. Within fifteen (15) days after the Company
obtains knowledge thereof, notice of any litigation (provided, that notice
need not be given of any litigation fully covered by insurance and with
respect to which such coverage is not disputed) or any governmental proceeding
pending against the Company or any Subsidiary in which the damages sought
exceed Five Hundred Thousand Dollars ($500,000) or which might otherwise
materially adversely affect the Properties, business, prospects, operating
results or condition (financial or otherwise) of Record Town or of the Company
and its Subsidiaries, taken as a whole, or of any Guarantor;
(i) Change of Control. Not later than two (2) Business Days after
knowledge that a Change of Control is proposed to occur, a notice specifying
(1) the date on which such proposed Change of Control is expected to occur and
describing such Change of Control in detail, and (2) that each holder of Notes
shall be repaid in full at par pursuant to Section 5.4 unless the Company
receives a notice from the holder within thirty (30) days of such holder's
receipt of the Company's notice, or as otherwise provided in Section 5.4,
indicating that such holder elects to forego the Section 5.4 repayment;
(j) Monthly Information. Within thirty (30) days after the end of
each month, a report containing the information contemplated by Exhibit L
hereto. Such report shall be signed by the President, the Chief Financial
Officer or the Treasurer of the Company;
(k) Identity of Banks. Within fifteen (15) days after the Company
obtains knowledge of any transfer or other change in the ownership of any of
the Bank Notes, or, with reasonable promptness after a request therefor, the
Company shall deliver a notice to each holder of Notes setting forth the names
and addresses of each of the Banks and the respective Commitment of, and the
principal amount of the Loans (as defined in the Restated Credit Agreement)
owing to, each Bank at such time; and
(l) Requested Information. With reasonable promptness, such other
data and information as from time to time may be reasonably requested.
8.2 Officers' Certificates.
Each set of financial statements delivered pursuant to Section 8.1(a) or
8.1(b) will be accompanied by a certificate of the President or a Vice
President and the Treasurer or an Assistant Treasurer of the Company setting
forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish compliance with the requirements
of Section 7 during the period covered by the income statements being
furnished; and
(b) Event of Default -- a statement that the signers have reviewed the
relevant terms of this Agreement and have made, or caused to be made, under
their supervision, a review of the transactions and condition of the Company
and its Subsidiaries from the beginning of the period covered by the income
statements being furnished and that the review has not disclosed the existence
during such period of any Default or Event of Default or, if any such Default
or Event of Default existed or exists, describing its nature and the action
the Company has taken with respect thereto.
8.3 Accountants' Certificates.
Each set of annual financial statements delivered pursuant to Section
8.1(b) will be accompanied by a certificate of the accountants who certify
such financial statements, stating that they have reviewed this Agreement and
whether, in making their audit, they have become aware of any Default or Event
of Default, and, if any Default or Event of Default then exists, describing
its nature.
8.4 Inspection.
The Company will permit representatives of each Purchaser and the
representatives of each other institutional holder of the Notes, at the
Company's expense, to visit and inspect any of the Properties of the Company
or any Subsidiary, to examine and make copies and abstracts of all their books
of account, records, and other papers, and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants (and by this provision the Company authorizes
said accountants to discuss the finances and affairs of the Company and its
Subsidiaries) all at reasonable times and as often as may be reasonably
requested. All nonpublic information furnished to each Purchaser pursuant to
this Agreement shall be treated as confidential information by such Purchaser.
Each Purchaser agrees to use reasonable efforts to refrain from disclosing
such information to any other Person (excluding any of the Purchasers'
officers, employees, agents or counsel), except (1) in connection with selling
or otherwise realizing upon such Purchaser's interest in the Notes, (2) as may
be necessary or desirable in connection with a request by governmental agency,
regulatory or supervisory authority or court having or claiming jurisdiction
over such Purchaser, including, without limitation, the National Association
of Insurance Commissioners, (3) information obtained from a third party which
is not subject to the provisions of this Section 8.4, (4) information that is
otherwise publicly available, (5) in connection with the enforcement of such
Purchaser's rights hereunder or under the Notes and (6) disclosures to other
Purchasers or any subsequent holders of the Notes.
8.5 Quarterly Meetings.
Within thirty (30) days after the end of each fiscal quarter of the
Company, Robert J. Higgins, and such other representatives of the Company as
the holders of the Notes may request, shall make themselves available at a
reasonably convenient location to meet with representatives of the holders of
the Notes to discuss the Company's budget, Business Plan and other finances
and affairs of the Company, provided, however, that this requirement may be
waived with respect to any quarter by the holders of not less than
seventy-five percent (75%) of the outstanding principal amount of the Notes.
8.6 Monthly Monitoring Reports.
The Company and Record Town shall pay up to $5,000.00 per month of the
fees and expenses of Policano & Manzo, L.L.C. (or other financial consultant
acceptable to the Banks, the holders of the Series B Notes and the holders of
the Notes) incurred to produce monthly monitoring reports of the type
heretofore furnished. The Company and Record Town shall give such financial
consultant such access to its books and records as is necessary to permit such
consultant to produce such reports on a timely basis.
8.7 Excess EBITDA.
As soon as possible and in any event at least three (3) days before each
Payment Date, the Company shall furnish to each holder of Notes a statement,
certified by the chief financial officer of the Company, setting forth in
reasonable detail the computation of (a) Consolidated EBITDA, (b) Excess
EBITDA and (c) the Cumulative EBITDA Overage for the relevant fiscal period
then most recently ended, and the resulting principal payment, if any,
required by Section 5.6.
8.8 Tax Reserve.
As soon as possible and in any event no later than ninety (90) days after
the end of each fiscal year, the Company shall furnish to each holder of Notes
a statement, certified by the chief financial officer of the Company, setting
forth in reasonable detail the computations required by the third paragraph of
Section 5.6 of this Agreement, including, as appropriate, the amount of any
payment due to the holders of Notes pursuant to such paragraph or the amount
by which the next payment required by Section 5.1(a) shall be reduced pursuant
to such paragraph.
8.9 Additional Financial Information.
The Company shall promptly deliver monthly unaudited financial statements
(substantially consistent with the requirements of Part I, Item 1 of Form 10-Q
under the Securities Exchange Act of 1934, as amended) to each holder of
Notes.
9. EVENTS OF DEFAULT.
9.1 Nature of Events.
An "Event of Default" shall exist if any of the following occurs and is
continuing:
(a) Principal Payments. Failure to make any payments of principal on
any Note on or before the date such payment is due;
(b) Interest Payments. Failure to pay interest or any other amount on
any Note on or before the fifth (5th) day after the date such payment is due;
(c) Particular Covenant Defaults. Failure to comply with any covenant
contained in Sections 7.2, 7.4 through 7.32, or 8.1 or to make any payment
required by Section 1.7;
(d) Other Defaults. Failure to comply with any other provision of
this Agreement or any other Financing Document, which failure continues for a
period of thirty (30) days or more;
(e) Warranties or Representations. Any warranty or representation by
or on behalf of the Company or Record Town contained herein, in any Financing
Document or in any instrument delivered in compliance with or in reference
hereto or thereto shall prove to have been false or misleading in any material
respect, or any warranty or representation by or on behalf of any Subsidiary
contained in a Guaranty Agreement or any Financing Document shall prove to
have been false or misleading in any material respect;
(f) Default on Other Debt. Failure by the Company or any Subsidiary,
to make any payment due on any other Debt or Security which individually or in
the aggregate and including the face amount thereof plus accrued interest
thereon, exceeds Five Hundred Thousand Dollars ($500,000), or any event shall
occur or any condition shall exist, the effect of which is to cause (or permit
any holder of such other Debt or Security or a trustee to cause) such other
Debt or Security, or a portion thereof, to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment;
(g) Involuntary Bankruptcy Proceedings. A custodian, receiver,
liquidator or trustee of the Company or any Subsidiary, or of any of the
Property of either, is appointed or takes possession and such appointment or
possession remains in effect for more than sixty (60) days; or the Company, or
any Subsidiary, is adjudicated bankrupt or insolvent; or an order for relief
is entered under the Federal Bankruptcy Code against the Company or any
Subsidiary; or any of the Property of either is sequestered by court order and
the order remains in effect for more than sixty (60) days; or a petition is
filed against the Company or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, and
is not dismissed within sixty (60) days after filing;
(h) Voluntary Petitions. The Company, or any Subsidiary, files a
petition in voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter
in effect, or consents to the filing of any petition against it under any such
law;
(i) Assignments for Benefit of Creditors, etc. The Company or a
Subsidiary makes an assignment for the benefit of its creditors, or generally
fails to pay its debts as they become due, or consents to the appointment of
or taking possession by a custodian, receiver, liquidator or trustee of the
Company, or a Subsidiary, or of all or any part of the Property of either;
(j) Undischarged Final Judgments. Final judgment or judgments for the
payment of money aggregating in excess of Five Hundred Thousand Dollars
($500,000) is or are outstanding against one or more of the Company and its
Subsidiaries and any one of such judgments has been outstanding for more than
thirty (30) days from the date of its entry and has not been discharged in
full or stayed; or
(k) Other Restructuring Documents. Failure to comply with any
provision under the Other Restructuring Documents such that an Event of
Default (as defined therein) shall occur, whether or not such Event of Default
is waived by the holders of the Series B Notes or the Banks.
9.2 Default Remedies.
(a) If an Event of Default described in Sections 9.1(g) through 9.1(i)
occurs, the entire outstanding principal amount of the Notes automatically
shall become immediately due and payable, without the taking of any action on
the part of any holder of the Notes or any other Person and without the giving
of any notice with respect thereto. If an Event of Default described in
Section 9.1(a) or 9.1(b) exists, any holder of Notes may, at its option,
exercise any right, power or remedy permitted by law, including but not
limited to the right by notice to the Company to declare the Notes held by
such holder to be immediately due and payable. The Company shall notify each
holder of its receipt of any such notice from any other and of the contents
such notice. If any other Event of Default exists, the holder or holders of
at least fifty-one percent (51%) in outstanding principal amount of the Notes
(exclusive of Notes owned by the Company, Subsidiaries and Affiliates) may
exercise any right, power or remedy permit ted by law, including but not
limited to the right by notice to the Company to declare all the outstanding
Notes immediately due and payable. Upon any acceleration the principal of the
Notes declared due or automatically becoming due shall become immediately due
and payable together with all interest accrued thereon without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, and the Company will immediately pay the entire
principal of and interest accrued on such Notes.
(b) No course of dealing or delay or failure on the part of any holder
of the Notes to exercise any right shall operate as a waiver of such right or
otherwise prejudice such holder's rights, powers and remedies. The Company
will pay or reimburse the holders of the Notes, to the extent permitted by
law, for all costs and expenses, including but not limited to reasonable
attorneys' fees, incurred by them in collecting any sums due on the Notes or
in otherwise enforcing any of their rights.
9.3 Annulment of Acceleration of Notes.
If a declaration is made pursuant to Section 9.2(a), the holders of at
least seventy-five percent (75%) of the outstanding principal amount of the
Notes (exclusive of Notes owned by the Company, Subsidiaries and Affiliates)
may annul such declaration and the consequences thereof if no judgment or
decree has been entered for the payment of any monies due pursuant to such
declaration and if all sums payable under the Notes and this Agreement (except
principal or interest which has become due solely by reason of such
declaration) have been duly paid. No such annulment shall extend to or waive
any subsequent Default or Event of Default.
10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined.
As used in this Agreement (including Exhibits), the following terms have
the respective meanings set forth below or in the Section indicated:
Adjusted Funded Debt -- with respect to any Person, means, without
duplication:
(1) liabilities for borrowed money, other than Current Debt;
(2) liabilities secured by any Lien existing on Property owned by the
Person (whether or not those liabilities have been assumed), other than
Current Debt;
(3) the aggregate amount of Guaranties by the Person, other than
Guaranties of Current Liabilities of other Persons;
(4) the aggregate Redemption Price of all outstanding Special
Preferred Stock of such Person; and
(5) any other obligations (other than deferred taxes), including
without limitation, Financing Leases, which are required by generally
accepted accounting principles to be shown as liabilities on its balance
sheet and which are payable or which are unpaid more than one year from
their creation.
Adjusted Tangible Assets -- all assets except the following:
(1) deferred assets, other than prepaid insurance, prepaid supplies
and prepaid taxes;
(2) patents, copyrights, trademarks, tradenames, franchises, good
will, experimental or research and development expense and other similar
intangibles;
(3) Restricted Investments;
(4) unamortized debt discount and expense;
(5) assets located and notes and receivables due from obligors
domiciled outside the United States, Puerto Rico or Canada; and
(6) interests in any Person in which the Company owns less than 49% of
the Voting Stock.
Aetna -- means Aetna Life Insurance Company.
Affiliate -- a Person (other than a Subsidiary) (1) which, directly or
indirectly, controls, or is controlled by, or is under common control with,
the Company, (2) which owns 5% or more of the Voting Stock of the Company or
(3) 5% or more of the Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is owned by the
Company or a Subsidiary. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities,
by contract or otherwise.
Bank Notes -- the promissory notes issued to evidence indebtedness under
the Restated Credit Agreement.
Banks -- at any time, means and includes each of the holders of Bank Notes
at such time.
Business Day -- any day other than a Saturday, Sunday or other day on
which commercial banking institutions in the State of New York are authorized
or obligated by law or executive order to be closed.
Business Plan -- means the Company's Three Year Strategic Business Plan,
dated as of December 12, 1995, as updated and supplied by the Company to the
holders of the Notes prior to the Effective Date.
Change of Control -- any of the following
(1) a Person or group of Persons acting in concert (other than a
Permitted Holder) becoming the beneficial owner of more than 50% (by
number of votes) of the Voting Stock of the Company; or
(2) a majority of the board of directors of the Company is replaced
within any two-year period, excluding replacements due to resignations
initiated by the incumbent board of directors or resignations due to the
death or disability of any members of the incumbent board of directors.
Collateral -- has the meaning ascribed to such term in the Collateral
Trust Indenture.
Collateral Trust Indenture -- Section 3.12.
Commitment -- the obligation of the Banks to make loans and extend letters
of credit pursuant to the Restated Credit Agreement.
Company -- the introductory sentence hereof.
Consolidated Current Assets -- at any date, means the amount at which the
current assets of the Company and all Subsidiaries would be shown on a
consolidated balance sheet of such Persons at such date, after eliminating
inter-company items, in accordance with generally accepted accounting
principles.
Consolidated Current Liabilities -- at any date, means the amount at which
the current liabilities of the Company and all Subsidiaries (excluding, for
purposes of computing current liabilities, indebtedness under the Notes and
the Series B Notes) would be shown on a consolidated balance sheet of such
Persons at such date, plus (without duplication) the aggregate amount of their
Guaranties of current liabilities of other Persons outstanding at such date.
Consolidated EBITDA -- with respect to any period means, Consolidated Net
Income for such period plus, to the extent deducted in determining
Consolidated Net Income, depreciation and amortization expenses, interest
expenses with respect to Debt and all federal, state and foreign income taxes.
Consolidated Fixed Charges -- with respect to the Company and its
Subsidiaries means for any period the sum of: (1) interest expenses with
respect to their liabilities for borrowed money for such period, (2) imputed
interest expenses on capitalized lease obligations for such period, and (3)
fixed minimum rental expenses of real estate leases for such period, in each
case determined on a consolidated basis.
Consolidated Income Available For Fixed Charges -- with respect to the
Company and all Subsidiaries, means on any date the sum of (1) Consolidated
EBITDA, and (2) all fixed minimum rent expenses with respect to leases of real
property, in each case determined on a consolidated basis for the period of
four fiscal quarters ended on such date.
Consolidated Net Income -- for any period, means net earnings after income
taxes of the Company and each Subsidiary (only for the period during which it
is a Subsidiary) determined on a consolidated basis, provided that there shall
be excluded therefrom after giving effect to any related tax effect:
(1) any gain arising from any write-up of assets;
(2) any net gain or loss arising from the sale or disposition of
capital assets (or reserves relating thereto);
(3) items classified as extraordinary or nonrecurring (including any
restructuring reserves);
(4) any writeoff of deferred financing costs; and
(5) the cumulative effect of changes in accounting principles in the
year of adoption of such change.
Consolidated Tangible Net Worth -- at any date means, the excess of (i)
all amounts that would in conformity with GAAP be included in shareholders'
equity on a consolidated balance sheet of the Company prepared as of such
date, over (ii) the aggregate amount carried as of such date as consolidated
assets on the books of the Company consisting of (x) goodwill, licenses,
patents, trademarks, unamortized debt discount and expense, and other
intangibles, (y) the cost of investments in excess of the net asset value
thereof at the time of acquisition by the Company, and (z) writeups in the
value of assets of the Company subsequent to the Effective Date.
Credit Agreement Debt -- Section 7.5.
Cumulative EBITDA Overage -- Section 5.6.
Current Debt -- with respect to any Person means all its liabilities for
borrowed money and all liabilities secured by any Lien existing on Property
owned by that Person (whether or not those liabilities have been assumed)
which, in either case, are payable on demand or within one year from their
creation, plus the aggregate amount of all Guaranties by that Person of such
liabilities of other Persons, but specifically excluding at all times all of
the debt (whenever due) classified as long term debt on the consolidated
balance sheet of the Company as of February 3, 1996.
Current Liabilities -- at any date, means the amount at which the current
liabilities of a Person would be shown on a balance sheet at such date, plus
(without duplication) the aggregate amount of their Guaranties of current
liabilities of other Persons outstanding at such date after eliminating
intercompany items, in accordance with generally accepted accounting
principles.
Debt -- with respect to any Person, means its Current Debt and Adjusted
Funded Debt.
Default -- an event or condition which will, with the lapse of time or the
giving of notice or both, become an Event of Default.
Disqualified Preferred Stock -- means, with respect to any Person, any
Preferred Stock of such Person which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or
upon the happening of any event, matures or is redeemable or is exchangeable
for Debt, in whole or in part, on or prior to July 31, 2000.
Distribution -- means and includes:
(1) dividends or other distributions in respect of capital stock of
the Company (except distributions of such stock pursuant to a stock split
or stock dividend; provided that no stock dividend shall be paid in any
capital stock of the Company other than its common stock); and
(2) the redemption or acquisition of such stock or of warrants, rights
or other options to purchase such stock (except when solely in exchange
for such stock) unless made, contemporaneously, from the net proceeds of a
sale of such stock.
Any Distribution of Property other than cash shall be valued at fair market
value.
EBITDA Cushion -- with respect to any fiscal quarter end shall mean the
amount set forth in the table below opposite the date of such quarter end.
Quarter End EBITDA Level
April 1996 $ 5,574,000
July 1996 $ 5,518,000
October 1996 $ 8,382,000
January 1997 $36,418,000
April 1997 $ 8,610,000
July 1997 $10,446,000
October 1997 $14,424,000
January 1998 $46,431,000
April 1998 $10,000,000
Economic Benefit -- with respect to Section 7.15 shall mean all rights, of
whatever nature and with respect to all classes of capital stock of, or equity
interests in, an entity to participate in any distribution with respect to
such capital stock or equity interests, whether in the form of dividends, upon
liquidation or otherwise.
Effective Date -- means the date upon which all of the conditions set
forth in Section 3 shall have been satisfied.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default -- Section 9.1.
Excess -- Section 7.29.
Excess EBITDA -- Section 5.6
Excess Tax Reserve -- Section 5.6
Exchange Act -- means the Securities Exchange Act of 1934, as amended.
Existing Note Agreement -- Section 1.1.
Existing Notes -- Section 1.1.
Existing Series B Note Agreement -- means that certain Amended and
Restated Note Agreement, dated as of June 29, 1995, among the Company, Record
Town and Aetna.
Extraordinary Repayment -- Section 5.1(b).
Financing Documents-- means the Restated Credit Agreement and the notes
issued pursuant thereto, the Restated Series B Note Agreement, the Series B
Notes, this Agreement, the Notes, the Guaranty Agreements, the Security
Documents, the Intercreditor Agreement and the Collateral Trust Indenture.
Financing Lease -- any lease which is shown or is required to be shown in
accordance with generally accepted accounting principles as a liability on a
balance sheet of the lessee thereunder.
GAAP -- means generally accepted accounting principles in effect in the
United States of America, at the time of the applicable report, applied in a
manner consistent with that employed in the preparation of the financial
statements described in Section 8.1.
Guarantor -- means, at any time, Media Logic, Inc., Trans World Fixture
Company, Inc., Saturday Matinee, Inc., Movies Plus, Inc., and each other
direct or indirect Subsidiary, if any, of the Company meeting the requirements
of Section 7.21.
Guaranty -- by any Person means all obligations of such Person
guaranteeing or in effect guaranteeing any indebtedness, dividend or other
obligation of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including obligations incurred through an agreement,
contingent or otherwise, by such Person:
(i) to purchase such indebtedness or obligation or any Property or
assets constituting security therefor,
(ii) to advance or supply funds
(1) for the purchase or payment of such indebtedness or
obligation, or
(2) to maintain working capital or any balance sheet or income
statement condition;
(iii) to lease Property, or to purchase Securities or other
Property or services, primarily for the purpose of assuring the owner
of such indebtedness or obligation of the ability of the primary
obligor to make payment of the indebtedness or obligation; or
(iv) otherwise to assure the owner of the indebtedness or
obligation against loss;
but excluding endorsements in the ordinary course of business of negotiable
instruments for deposit or collection.
The amount of any Guaranty shall be deemed to be the maximum amount for
which such Person may be liable as guarantor, upon the occurrence of any
contingency or otherwise, under or by virtue of its Guaranty.
Guaranty Agreements -- Section 3.11
Intercreditor Agreement -- Section 3.7.
Inventory Turnover -- means, at a particular date, the "Cost of Sales" as
disclosed on the Company's year-to-date consolidated statements of income
divided by the "Merchandise Inventory" amount set forth on the Company's
consolidated balance sheets for such date.
Lien -- any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether the interest
is based on common law, statute or contract, and including but not limited to
the security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting Property. For
the purposes of this Agreement, the Company or a Subsidiary shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
Financing Lease or a conditional sale agreement or other arrangement pursuant
to which title to the Property has been retained by or vested in some other
Person for security purposes, and such retention or vesting shall be deemed to
create a Lien on the Property.
Movies Plus Proceeds -- Section 5.1(b).
Noteholders' Percentage -- shall mean a fraction the numerator of which is
47.5 and the denominator of which is 140.
Net Asset Sale Proceeds -- means, with respect to any asset sale, the fair
market value of the aggregate amount of consideration received by the Company
or any Subsidiary, as the case may be, from such asset sale, after, (a)
provision for all income or other taxes payable as a result of such asset sale
and (b) payment of brokerage commissions and other reasonable fees and
expenses related to such asset sale. For purposes of this definition, the
board of directors of the Company shall determine in good faith the fair
market value of non-cash consideration.
Notes -- Section 1.2.
Other Restructuring Documents -- Section 2.16.
Payment Date -- the final day of each February, May, August and November
in each year.
Pension Plan -- Section 2.15.
Permitted Holder -- means collectively Robert J. Higgins and his estate,
spouse, children, heirs, legatees, and legal representatives, and any bona
fide trust of which one or more of the foregoing are the sole beneficiaries or
the grantors thereof and over which trust one or more of the foregoing acts as
trustee and possesses the power to direct the management thereof.
Person -- an individual, partnership, sole proprietorship, corporation,
business trust, limited liability company, joint stock company, unincorporated
organization, joint venture, governmental authority or other entity of
whatever nature.
Pledge Agreement -- Section 3.12.
Preferred Stock -- means, with respect to any Person, any class or classes
of capital stock (however designated) which is preferred as to the payment of
dividends or distributions or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over any
other class of capital stock of such Person.
Prime Rate -- means, at any time, the prime rate of interest that is
charged to the Company and Record Town by the Banks at such time with respect
to borrowings under the Restated Credit Agreement.
Prior Indebtedness -- means without duplication:
(1) unsecured Adjusted Funded Debt and Current Debt of Subsidiaries,
other than Record Town (except for debt to the Company or a Subsidiary);
(2) Adjusted Funded Debt and Current Debt of the Company and its
Subsidiaries, other than Record Town (except for debt to the Company or a
Subsidiary), secured by any Lien on the Property of the Company or any
Subsidiary; and
(3) the redemption or liquidation value (whichever is greater) of all
equity Securities of Subsidiaries (other than common stock) which are not
legally and beneficially owned by the Company and its Subsidiaries.
For purposes of this definition only, Adjusted Funded Debt and Current Debt of
Subsidiaries shall not include the Guaranties by the Subsidiaries of the
obligations of the Company under this Agreement.
Property -- any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Purchase Money Mortgage -- any Lien on Property existing at the time of
the original acquisition by the Company or a Subsidiary of such Property or
granted or retained in connection with the acquisition or improvement by the
Company or a Subsidiary of such Property in order to permit or facilitate the
financing of such acquisition or improvement.
Purchasers -- shall mean the purchasers listed on Annex 1 attached hereto.
Record Town -- the introductory sentence hereof.
Redemption Price -- with respect to any Special Preferred Stock, the
highest aggregate price at which such Special Preferred Stock is redeemable at
any time or under any circumstance on or prior to July 31, 2000.
Related Person -- any Person (whether or not incorporated) which is under
common control with the Company within the meaning of Section 414(c) of the
Internal Revenue Code of 1986, as amended, or of Section 4001(b) of ERISA.
Required Guarantor -- Section 7.21.
Restated Credit Agreement -- means, collectively, those certain Amended
and Restated Revolving Credit Agreements, each dated as of the date hereof,
among the Company, Record Town and each of NBD Bank, Bear Stearns & Co., Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banco Santander Trust &
Banking Corporation (Bahamas) Ltd.
Restated Series B Note Agreement -- means that certain Amended and
Restated Note Agreement, dated as of the date hereof, among the Company,
Record Town and the Series B Noteholder, pursuant to which the Company and
Record Town have issued the Series B Notes.
Restricted Investments -- all Property, including all investments in any
Person, whether by acquisition of stock, indebtedness, other obligation or
security, or by loan, advance, capital contribution, or otherwise, except:
(1) investments in one or more Subsidiaries or any corporation which
concurrently with such investment becomes a Subsidiary;
(2) Property to be used in the ordinary course of business;
(3) current assets arising from the sale of goods and services in the
ordinary course of business;
(4) advances to and guaranties of loans to employees for expenses
incurred in the ordinary course of business;
(5) investments in direct obligations of the United States with final
maturities not in excess of one year from the date of acquisition;
(6) investments in certificates of deposit maturing within one year
from the date of acquisition issued by a bank organized under the laws of
the United States having capital, surplus, and undivided profits,
aggregating at least $100,000,000;
(7) investments in commercial paper issued by any corporation
organized under the laws of the United States rated in the highest
category by Moody's Investors Service, Inc. or Standard & Poor's
Corporation;
(8) investments in money market funds registered under the Investment
Company Act of 1940 which invest in securities which are permitted under
clause (5), (6), or (7) above;
(9) investments in tax-exempt municipal bonds maturing not more than
one year from the date of issue and which have at least a "MIG-1" rating
from Moody's Investors Services, Inc. or an "SP-1" rating from Standard
and Poor's Corporation;
(10) guaranties by the Company of long-term leases of Subsidiaries;
and
(11) investments in licensed departments or retail (including,
without limitation, retail mail order) joint ventures in the music, video,
or entertainment businesses.
Securities Act -- means the Securities Act of 1933, as amended.
Security -- shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Agreement -- Section 3.12.
Security Documents -- means the Collateral Trust Indenture, the Security
Agreement, the Pledge Agreement, the Concentration Bank Account Agreement, the
Trademark Security Agreement and the Movies Plus Subordination Agreement, as
the same may be amended from time to time.
Security Trustee -- IBJ Schroder Bank & Trust Company, in its capacity as
Security Trustee under the Collateral Trust Indenture, and its successors in
such capacity.
Series B Noteholder -- at any time, means:
(a) if such time is prior to the Effective Date, the holder or holders
of the promissory notes issued and outstanding at such time under the
Existing Series B Note Agreement; and
(b) if such time is on or after the Effective Date, the holder or
holders of the Series B Notes issued and outstanding at such time.
Series B Notes -- means and includes each of the joint and several
Variable Rate Senior Notes, Series B, Due July 31, 1998, issued by the Company
and Record Town in the aggregate principal amount of $15,227,362.80 pursuant
to the Restated Series B Note Agreement.
Special Preferred Stock -- any Preferred Stock which by its terms (or by
the terms of any Security into which it is convertible or for which it is
exchangeable) is either redeemable at the option of the holder thereof or is
automatically redeemable upon the happening of any event (other than the
occurrence of a stated specific date of mandatory redemption thereof).
Subsidiary -- a corporation, partnership or entity of which at least 50%
of the outstanding Voting Stock is at the time, directly or indirectly, owned
or controlled by the Company.
Subsidiary Stock -- Section 7.13.
Tangible Net Worth -- at any time means the shareholders' equity of any
company (including Preferred Stock, but not including Disqualified Preferred
Stock), excluding any patents, copyrights, trademarks, tradenames, franchises,
goodwill, experimental expense and other similar intangible assets.
Tax Refund -- Section 5.1(b).
Tax Reserve Deficiency -- Section 5.6
Trademark Security Agreement -- Section 3.12.
Voting Stock -- Securities or other interests the holders of which are
ordinarily, in the absence of contingencies, entitled to elect the corporate
directors (or Persons performing similar functions).
Waiver Agreement -- means the letter agreement dated as of March 11, 1996,
as amended, among the Company, Record Town and the Purchasers.
Wholly-Owned Subsidiary -- any Subsidiary, all of the equity Securities
(except directors' qualifying shares) of which are owned by the Company and/or
the Company's other Wholly-Owned Subsidiaries.
10.2 Accounting Principles.
Where the character or amount of any asset or liability or item of income
or expense is required to be determined or any consolidation or other
accounting computation is required to be made under this Agreement, this shall
be done in accordance with generally accepted accounting principles at the
time in effect, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
10.3 Directly or Indirectly.
Where any provision in this Agreement refers to any action which a Person
is prohibited from taking, the provision shall be applicable whether such
action is taken directly or indirectly by such Person, including actions taken
by or on behalf of any partnership in which such Person is a general partner
and all liabilities of such partnerships shall be considered liabilities of
such Person for purposes of this Agreement.
10.4 Section Headings and Table of Contents; Independent Construction.
(a) Section Headings and Table of Contents, etc. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement appear
as a matter of convenience only, do not constitute a part hereof and shall not
affect the construction hereof. The words "herein," "hereof," "hereunder" and
"hereto" refer to this Agreement as a whole and not to any particular Section
or other subdivision. References to Sections are, unless otherwise specified,
references to Sections of this Agreement. References to Annexes and Exhibits
are, unless otherwise specified, references to Exhibits and Annexes attached
to this Agreement.
(b) Independent Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being independent
of each other covenant contained herein, and compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
10.5 Governing Law.
This Agreement and the Notes shall be governed by and construed in
accordance with New York law.
11. MISCELLANEOUS
11.1 Notices.
(a) Method; Address. All communications hereunder or under the Notes
shall be in writing, shall be delivered by
(i) nationwide overnight courier, and
(ii) facsimile transmission, and
shall be addressed, if to the Company and/or Record Town, at the address and
telecopy number of the Company, as follows:
Trans World Entertainment Corp.
38 Corporate Circle
Albany, New York 12203
Attention: Robert J. Higgins
Telecopy No.: (518) 869-4819
with a copy to:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attention: David S. Kurtz
Telecopy No.: (312) 782-8585
and if to any of the holders of the Notes,
(A) if such holder is a Purchaser, at the address set forth on
Annex 1 for such holder, and further including any parties referred to on such
Annex 1 which are required to receive notices in addition to such holder, and
(B) if such holder is not a Purchaser, at the address and telecopy
number set forth in the register for the registration and transfer of Notes
maintained pursuant to Section 6.1 for such holder,
or to any such party at such other address as such party may designate by
notice duly given in accordance with this Section 11.1.
(b) When Given. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the address
of the addressee (whether or not delivery is accepted) or received by the
telecopy machine of the recipient. Any communication not so addressed and
delivered shall be ineffective.
11.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by any of the Purchasers at the closing
hereunder (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to any of
the Purchasers, may be reproduced by any Purchaser by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process and such Purchaser may destroy any original document so reproduced.
The Company agrees and stipulates that any such reproduction shall, to the
extent permitted by applicable law, be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by such
Purchaser in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction s hall likewise be
admissible in evidence.
11.3 Survival.
All warranties, representations, and covenants made by the Company or
Record Town herein or on any certificate or other instrument delivered by it
or on its behalf under or in reference to this Agreement shall be considered
to have been relied upon by each Purchaser and shall survive the delivery to
each of the Purchasers of the Notes regardless of any investigation made by
any of the Purchasers or on any of the Purchasers' behalf. All statements in
any such certificate or other instrument shall constitute warranties and
representations by the Company and Record Town hereunder.
11.4 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, except that neither the Company
nor Record Town may transfer or assign any of their rights or interests
hereunder without the prior written consent of the holders of the Notes. The
provisions of this Agreement are intended to be for the benefit of all
holders, from time to time, of the Notes, and shall be enforceable by any
holder, whether or not an express assignment to such holder of rights under
this Agreement has been made by any Purchaser or any Purchaser's successor or
assign.
11.5 Amendment and Waiver.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with (and only with) the written consent of the
Company, Record Town and the holders of at least seventy-five percent (75%) of
the outstanding principal amount of the Notes (exclusive of Notes owned by the
Company, Subsidiaries and Affiliates); provided, that no such amendment or
waiver of any of the provisions of Sections 1 through 4 shall be effective as
to any Purchaser unless consented to by such Purchaser in writing; and
provided further, that no such amendment or waiver shall, without the written
consent of the holders of all the outstanding Notes, (i) subject to Section
9.3, change the amount or time of any repayment or payment of principal or the
rate or time of payment of interest, (ii) amend Section 7.21, (iii) amend
Section 9, or (iv) amend this Section 11.5. Executed or true and correct
copies of any amendment or waiver effected pursuant to the provisions of this
Section 11.5 shall be delivered by the Company to each holder of outstanding
Notes promptly following the date on which the same shall become effective.
No such amendment or waiver shall extend to or affect any provision or
obligation not expressly amended or waived.
11.6 Duplicate Originals.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
11.7 Waiver and Release.
For and in consideration of the agreements contained in this Agreement and
the Notes, and other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, each of the Company and
Record Town (the Company and Record Town being collectively referred to in
this Section 11.7 as the "Releasors") does hereby jointly and severally fully
RELEASE, REMISE, ACQUIT, IRREVOCABLY WAIVE and FOREVER DISCHARGE each of the
Purchasers, together with their respective predecessors, successors, assigns,
subsidiaries, affiliates and agents and all of their respective past, present
and future officers, directors, shareholders, employees, contractors and
attorneys, and the predecessors, heirs, successors and assigns of each of them
(the Purchasers and all of the foregoing being collectively referred to in
this Section 11.7 as the "Released Parties"), from and with respect to any and
all Claims (as defined below).
As used in this Section 11.7, the term "Claims" shall mean and include any
and all, and all manner of, action and actions, cause and causes of action,
suits, disputes, controversies, claims, debts, sums of money, offset rights,
defenses to payment, agreements, promises, notes, bonds, bills, covenants,
losses, damages, judgments, executions and demands of whatever nature, known
or unknown, whether in contract, in tort or otherwise, at law or in equity,
for money damages or dues, recovery of property, or specific performance, or
any other redress or recompense which have accrued or may ever accrue, may
have been had, may be now possessed, or may or shall be possessed in the
future by or on behalf of any one or more of the Releasors against any one or
more of the Released Parties for, upon, by reason of, on account of, or
arising from or out of, or by virtue of, any transaction, event or occurrence,
duty or obligation, indemnification, agreement, promise, warranty, covenant or
representation, breach of fiduciar y duty, breach of any duty of fair dealing,
breach of confidence, breach of funding commitment, undue influence, duress,
economic coercion, conflict of interest, negligence, bad faith, malpractice,
violations of federal or state securities laws or the Racketeer Influenced and
Corrupt Organizations Act, intentional or negligent infliction of mental
distress, tortious interference with contractual relations, tortious
interference with corporate governance or prospective business advantage,
breach of contract, deceptive trade practices, libel, slander, usury,
conspiracy, wrongful acceleration of any indebtedness, wrongful foreclosure or
attempt to foreclose on any collateral relating to any indebtedness, action or
inaction, relationship or activity, service rendered, matter, cause or thing,
whatsoever, express or implied, transpiring, entered into, created or existing
from the beginning of time to the date of the execution of this Agreement in
respect of the Existing Notes or the Existing Note Agreement, and sha ll
include, but not be limited to, any and all Claims in connection with, as a
result of, by reason of, or in any way related to or arising from the
existence of any relationships or communications by and between the Releasors
and the Released Parties with respect to the Existing Notes, the agreements
pursuant to which the Existing Notes were issued, and all agreements,
documents and instruments related thereto, as presently constituted and as the
same may from time to time be amended.
The Releasors acknowledge that they may hereafter discover facts different
from or in addition to those they now know or believe to be true with respect
to the Claims herein released. Notwithstanding the foregoing, the Releasors
agree that this Section 11.7 shall survive the termination hereof and shall
remain effective in all respects and waive the right to make any new,
different or additional claim on account of such different or additional
facts. The Releasors acknowledge that no representation or warranty of any
kind or character has been made to the Releasors by any one or more of the
Released Parties or any agent, representative or attorney of the Released
Parties to induce the execution of this Agreement containing this Section
11.7.
The Releasors hereby represent and warrant unto the Released Parties that
(a) the Releasors have the full right, power, and authority to execute
and deliver this Agreement containing this Section 11.7 without the necessity
of obtaining the consent of any other party;
(b) the Releasors have received independent legal advice from
attorneys of their choice with respect to the advisability of granting the
release provided herein, and with respect to the advisability of executing
this Agreement containing this Section 11.7;
(c) the Releasors have not relied upon any statements, representations
or promises of any of the Released Parties in executing this Agreement
containing this Section 11.7, or in granting the release provided herein;
(d) the Releasors have not entered into any other agreements or
understandings relating to the Claims;
(e) the terms of this Section 11.7 are contractual, not a mere
recital, and are the result of negotiation among all the parties; and
(f) this Section 11.7 has been carefully read by, and the contents
hereof are known and understood by, and it is signed freely by the Releasors.
The Releasors covenant and agree not to bring any claim, action, suit or
proceeding regarding or related in any manner to the matters released hereby,
and the Releasors further covenant and agree that this Section 11.7 is a bar
to any such claim, action, suit or proceeding.
All prior discussions and negotiations regarding the Claims have been and
are merged and integrated into, and are superseded by, this Section 11.7. The
Releasors understand, agree and expressly assume the risk of any fact not
recited, contained or embodied in this Section 11.7 which may hereafter turn
out to be other than, different from, or contrary to, the facts now known to
the Releasors or believed by the Releasors to be true, and further agree that
this Section 11.7 shall not be subject to termination, modification, or
rescission, by reason of any such difference in facts.
11.8 Indemnification.
The Company and Record Town agree to indemnify the Purchasers and their
respective directors, officers, employees, agents and attorneys from, and hold
each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation, litigation or other proceedings) relating to, or in connection
with, the Notes including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).
If this Agreement is satisfactory to each Purchaser, please so indicate by
signing the acceptance at the foot of a counterpart of this Agreement and
return such counterpart to the Company, whereupon this Agreement will become
binding between us in accordance with its terms.
Very truly yours,
TRANS WORLD ENTERTAINMENT CORPORATION
By /s/Robert J. Higgins
--------------------
Name: Robert J. Higgins
Title: President
RECORD TOWN, INC.
By /s/Robert J. Higgins
--------------------
Name: Robert J. Higgins
Title: President
Accepted:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By /s/Victor Khosla
----------------
Name: Victor Khosla
Title: Managing Director
OAKTREE CAPITAL MANAGEMENT, LLC, as agent
and on behalf of certain funds and accounts
By /s/Bruce A. Karsh
-----------------
Name: Bruce A. Karsh
Title: President
By /s/Kenneth Liang
----------------
Name: Kenneth Liang
Title: Managing Director
& General Counsel
FERNWOOD ASSOCIATES, L.P.
By /s/Ian R. MacKenzie
-------------------
Name: Ian R. MacKenzie
Title: General Partner
FERNWOOD RESTRUCTURINGS LTD.
By /s/Ian R. MacKenzie
-------------------
Name: Ian R. MacKenzie
Title: General Partner
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By /s/Joan M. Chiappe
------------------
Name: Joan M. Chiappe
Title: Vice President