EXHIBIT 10.38
FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND TO REVOLVING NOTE
This Amendment is made as of this 28th day of December, 1995, by and
between K-TEL INTERNATIONAL (USA), INC., a Minnesota corporation, having its
principal place of business in Plymouth, Minnesota ("K-Tel USA"), and DOMINION
ENTERTAINMENT, INC., a Minnesota corporation, having its principal place of
business in Plymouth, Minnesota ("Dominion"; K-Tel USA and Dominion are
sometimes herein collectively referred to as the "Borrowers" and each is
sometimes individually referred to as a "Borrower"), and TCF BANK MINNESOTA FSB,
a federally chartered stock savings bank (the "Bank").
RECITALS
A. The Borrowers and the Bank have entered into a Revolving Credit
Agreement dated as of July 22, 1994, as amended by a First Amendment to
Revolving Credit Agreement dated as of January 30, 1995, by a Second Amendment
to Revolving Credit Agreement and to Revolving Note dated as of July 20, 1995,
by a Third Amendment to Revolving Credit Agreement dated as of October 2, 1995
and by a Fourth Amendment to Revolving Credit Agreement and to Revolving Note
dated as of November 28, 1995 (as amended, the "Credit Agreement"), pursuant to
which the Bank, subject to the terms and conditions set forth therein, agreed to
make revolving advances to the Borrowers in the aggregate amount of up to
$3,500,000.
B. The Borrowers' joint and several obligation to repay the revolving
advances made by the Bank under the Credit Agreement is evidenced by the
Borrowers' Revolving Note dated October 2, 1995, payable to the Bank's order in
the original principal amount of $3,500,000 (the "Note").
C. The Borrowers have requested that the Bank extend the Commitment
Termination Date to November 30, 1996 and make certain other changes to the
Credit Agreement.
D. The Bank is willing to grant the Borrowers' request subject to the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used in this Amendment, unless specifically
defined herein, shall have the meanings given to such terms in the Credit
Agreement.
2. Section 1.1 of the Credit Agreement is hereby amended by deleting
the existing definitions of "Commitment Amount", "Commitment Termination Date"
and "Interest Rate Spread" and by substituting therefor the following new
definitions:
"`Commitment Amount' means (i) $3,250,000 from the date of the
Fifth Amendment through and including February 29, 1996, (ii)
$3,000,000 from March 1, 1996 through and including June 30, 1996 and
(iii) $2,750,000 from July 1, 1996 through and including November 30,
1996."
"`Commitment Termination Date' means November 30, 1996 or the
earlier termination of the Commitment pursuant to Section 7.2 hereof."
"`Interest Rate Spread' means (i) one and one-half of one
percent (1.50%) through and including December 31, 1995 and (ii) one
and three-quarters of one percent (1.75%) from and after January 1,
1996."
3. Section 1.1 of the Credit Agreement is hereby amended by adding the
following new definitions of "Capital Base", "Fifth Amendment" and "Subordinated
Debt" in the appropriate alphabetical location:
"`Capital Base' of any Person means, at any date, the sum of
the Tangible Net Worth of such Person plus the Subordinated Debt of
such Person at such date."
"`Fifth Amendment' means that certain Fifth Amendment to
Revolving Credit Agreement and to Revolving Note dated as of
December 28th, 1995, between the Bank and the Borrowers."
"`Subordinated Debt' of any Person means indebtedness for
borrowed money of such Person which has been subordinated in right of
payment to such Person's indebtedness to the Bank on terms accepted in
writing by the Bank."
4. Section 5.7 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.7 Current Ratio of K-Tel USA. K-Tel USA will
maintain at all times the ratio of its Current Assets to Current
Liabilities at not less than 1 to 1.
5. Section 5.8 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.8 Debt to Capital Base Ratio of K-Tel USA. K-Tel
USA will maintain at all times the ratio of its Debt to Capital Base at
not more than 5.0 to 1."
6. Section 5.9 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.9 Debt to Capital Base Ratio of Dominion. Dominion
will maintain at all times the ratio of its Debt to Capital Base at not
more than .40 to 1."
7. Section 5.10 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.10 Capital Base of K-Tel USA. K-Tel USA will
maintain at all times its Capital Base in an amount not less than
$3,000,000."
8. Section 5.11 of the Credit Agreement is hereby amended to read as
follows:
"Section 5.11 Capital Base of Dominion. Dominion will maintain
at all times its Capital Base in an amount not less than $2,300,000."
9. Section 6.7(b) of the Credit Agreement is hereby amended to read as
follows:
"(b) Accounts receivable from and advances to Affiliates of
K-Tel USA; provided, however, without the Bank's prior written consent,
(i) the aggregate amount of accounts receivable from and advances to
K-Tel, Inc. shall not exceed $3,000,000 in the aggregate at any time,
(ii) the aggregate amount of accounts receivable from and advances to
K-Tel International shall not exceed $6,000,000 in the aggregate at any
time, and (iii) the aggregate amount of accounts receivable from and
advances to all Affiliates of K-Tel USA other than K-Tel, Inc. and
K-Tel International shall not exceed $4,000,000 in the aggregate at any
time."
10. Section 6.13 of the Credit Agreement is hereby amended to read as
follows:
"Section 6.13 Capital Expenditures. Without the Bank's prior
written consent, neither Borrower will make any Capital Expenditure
(excluding any Capital Expenditure permitted below which is made to
acquire copyrights in Sound Recordings, Compilations and Compositions
or long-term licenses (having a term of more than 5 years) of
copyrights) during its fiscal year ended June 30, 1996 or in any fiscal
year thereafter. K-Tel USA will not make any Capital Expenditure to
acquire copyrights in Sound Recordings, Compilations and Compositions
or long-term licenses (having a term of more than 5 years) of
copyrights. Dominion will not make any Capital Expenditure to acquire
copyrights in Sound Recordings, Compilations or Compositions or
long-term licenses (having a term of more than 5 years) of copyrights
if, after giving effect to any such Capital Expenditure, (i) the
aggregate amount of Capital Expenditures made by Dominion to acquire
copyrights in Sound Recordings, Compilations, Compositions and
long-term licenses of copyrights would exceed $2,500,000 from the date
of this Agreement through the Commitment Termination Date or (ii) the
Borrowers would not be in compliance with all provisions of this
Agreement."
11. The Note is hereby amended by deleting the date "December 31, 1995"
as it appears in the first paragraph thereof and by substituting therefor the
date "November 30, 1996".
12. The effectiveness of this Amendment shall be subject to the
condition precedent that the Bank shall have received each of the following in
form and substance acceptable to the Bank:
(a) A certified copy of the resolutions of the Board of
Directors of K-Tel USA evidencing approval of this Amendment and the
other matters contemplated hereby, certified by the Secretary or
Assistant Secretary of K-Tel USA as being a true, correct and complete
copy thereof which has been duly adopted and is in full force and
effect, together with a certificate of such Secretary or Assistant
Secretary of K-Tel USA certifying the names and true signatures of the
officers of K-Tel USA authorized to sign this Amendment and the other
documents to be delivered by K-Tel USA hereunder.
(b) A certified copy of the resolutions of the Board of
Directors of Dominion evidencing approval of this Amendment and the
other matters contemplated hereby, certified by the Secretary or
Assistant Secretary of Dominion as being a true, correct and complete
copy thereof which has been duly adopted and is in full force and
effect, together with a certificate of such Secretary or Assistant
Secretary of Dominion certifying the names and true signatures of the
officers of Dominion authorized to sign this Amendment and the other
documents to be delivered by Dominion hereunder.
(c) A Certificate of the Secretary of K-Tel USA certifying as
to (1) the fact that the articles of incorporation and bylaws of K-Tel
USA, which were previously certified and delivered to the Bank continue
in full force and effect and have not been amended or otherwise
modified except as set forth in the Certificate to be delivered.
(d) A Certificate of the Secretary of Dominion certifying as
to (1) the fact that the articles of incorporation and bylaws of
Dominion, which were previously certified and delivered to the Bank
continue in full force and effect and have not been amended or
otherwise modified except as set forth in the Certificate to be
delivered.
(e) Acknowledgment and Agreement of Guarantors attached below.
(f) Such other items as the Bank may require.
13. From and after the date of this Amendment: (i) all references in
the Loan Documents to "the Note" shall be deemed to refer to the Note as amended
by this Amendment; and (ii) all references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended by this
Amendment.
14. Except as explicitly amended by this Amendment, all of the original
terms and conditions of the Credit Agreement shall remain in full force and
effect.
15. The execution of this Amendment and acceptance of any documents
related thereto shall not be deemed to be a waiver of any Default or Event of
Default under the Credit Agreement or any other Loan Document, whether or not
known to the Bank and whether or not such Default or Event of Default exists on
the date of this Amendment.
16. The Borrowers, and K-Tel International, Inc. and K-tel, Inc. by
signing the Acknowledgement and Agreement of Guarantors set forth below, each
hereby absolutely and unconditionally releases and forever discharges the Bank,
and any and all participants, parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns thereof,
together with all of the present and former directors, officers, agents and
employees of any of the foregoing, from any and all claims, demands or causes of
action of any kind, nature or description, whether arising in law or equity or
upon contract or tort or under any state or federal law or otherwise, which the
Borrower or any Guarantor has had, now has or has made claim to have against any
such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Amendment, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
17. The Borrowers hereby reaffirm their agreement under Section 8.5 of
the Credit Agreement. Without limiting the generality of the foregoing, the
Borrowers specifically agree to pay all fees and disbursements of counsel to the
Bank for the services performed by such counsel in connection with the
preparation of this Amendment and the documents and instruments incidental
thereto.
18. This Amendment and the Acknowledgment and Agreement of Guarantors
may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed an original and all of which counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
K-TEL INTERNATIONAL (USA), INC.
By /s/ Mark Dixon
Its Vice President
DOMINION ENTERTAINMENT, INC.
By /s/ Mark Dixon
Its Vice President
TCF BANK MINNESOTA FSB
By /s/ Richard D. Larson
Its Vice President
And
By /s/ Jason Korstange
Its Senior Vice President
EX1038.DOC
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, K-Tel International, Inc., and K-Tel, Inc., each a
guarantor of the indebtedness of K-Tel International (USA), Inc. and Dominion
Entertainment, Inc. (together, the "Borrowers") to the Bank pursuant to their
Guaranties dated as of July 22, 1994 and January 30, 1995, respectively, (the
"Guaranties"), each hereby (i) acknowledges receipt of the foregoing Fifth
Amendment; (ii) consents to the terms (including without limitation the release
set forth in paragraph 16 of the foregoing Fifth Amendment) and execution
thereof; (iii) reaffirms its obligations to the Bank pursuant to the terms of
its Guaranty; and (iv) acknowledges and agrees that the Bank may amend, restate,
extend, renew or otherwise modify the Credit Agreement and any indebtedness or
agreement of the Borrowers, or enter into any agreement or extend additional or
other credit accommodations, without notifying or obtaining the consent of the
undersigned and without impairing the liability of the undersigned under its
Guaranty for all of the present and future indebtedness of the Borrowers to the
Bank.
K-TEL INTERNATIONAL, INC.
By /s/ Mark Dixon
Its Vice President
K-TEL, INC.
By /s/ Mark Dixon
Its Vice President
EX1038.DOC