EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of July 30, 1998 and entered
into among HARMONY HOLDINGS, INC., a Delaware corporation ("Holdings") with its
principal place of business at 724 First Street North, Fourth Floor,
Minneapolis, Minnesota 55401, HARMONY PICTURES, INC., a Delaware corporation
("Harmony" and "Harmony Group Agent") with its principal place of business at
6806 Lexington Avenue, Ground Floor, Los Angeles, California 90038, THE END,
INC., a California corporation ("The End" and "The End Group Agent") with its
principal place of business at 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98 and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212, and 435 Hudson Street, Suite 400, New York,
New York 10014 until, 8/31/98, and thereafter at 75 Varick Street, 16th Floor,
New York, New York, CURIOUS PICTURES CORPORATION, a New York corporation
("Curious" and "Curious Group Agent") with its principal place of business at
440 Lafayette Street, 6th Floor, New York, New York 10003 and 1360 Mission
Street, 2nd Floor, San Francisco, California 94103, PURE FILM, INC., a
California corporation ("Pure") with its principal place of business at 6806
Lexington Avenue, Ground Floor, Los Angeles, California 90038, MELODY FILMS,
INC., a Delaware corporation ("Melody") with its principal place of business at
6806 Lexington Avenue, Ground Floor, Los Angeles, California 90038, LEXINGTON
FILMS, INC., a California corporation ("Lexington") with its principal place of
business at 6806 Lexington Avenue, Ground Floor, Los Angeles, California 90038,
SERIAL DREAMER FILMS, INC., a California corporation ("Serial Dreamer") with its
principal place of business at 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98 and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212, THE BEGINNING ENTERTAINMENT, INC., a
California corporation ("The Beginning") with its principal place of business at
8060 Melrose Avenue, 4th Floor, Hollywood, California 90046 until 8/31/98 and
thereafter at 433 South Beverly Drive, Beverly Hills, California 90212, THE
MOMENT FILMS, INC., a California corporation ("The Moment") with its principal
place of business at 8060 Melrose Avenue, 4th Floor, Hollywood, California
90046 until 8/31/98 and thereafter at 433 South Beverly Drive, Beverly Hills,
California 90212, GIGANTIC ENTERTAINMENT, INC., a California corporation
("Gigantic") with its principal place of business at 8060 Melrose Avenue, 4th
Floor, Hollywood, California 90046 until 8/31/98 and thereafter at 433 South
Beverly Drive, Beverly Hills, California 90212, FURIOUS PICTURES CORPORATION, a
New York corporation ("Furious") with its principal place of business at 440
Lafayette Street, 6th Floor, New York, New York 10003 and DELIRIOUS PICTURES
CORPORATION, a New York corporation ("Delirious") with its principal place of
business at 440 Lafayette Street, 6th Floor, New York, New York 10003
(Holdings, Harmony, The End, Curious, Pure, Melody, Lexington, Serial Dreamer,
The Beginning, The Moment, Gigantic, Furious and Delirious are each individually
and collectively referred to as "Borrower" or "Borrowers") and HELLER FINANCIAL,
INC. a Delaware corporation, with offices at 500 West Monroe Street, Chicago,
Illinois 60661 ("Lender").
The parties agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement
shall have the following meanings:
"ACCOUNTS" means all "accounts" (as defined in the UCC), accounts
receivable, contract rights and general intangibles relating thereto, notes,
drafts and other forms of obligations owed to or owned by Borrower arising or
resulting from the sale of goods or the rendering of services, whether or not
earned by performance.
"ACQUISITION" means, with respect to the Borrower and its Subsidiaries
(unless otherwise indicated) whether by means of a purchase, merger,
consolidation, assignment or other transaction, and whether in one transaction
or a series of transactions, (a) any acquisition of any other Person, which
Person shall become consolidated with the Borrower (or other acquiring Person)
in accordance with GAAP, or (b) any acquisition of all or any substantial part
of the assets of any other Person, pertaining to the purchase of assets or
ownership interests primarily involved in a business as permitted to be
conducted by the Borrower or its Subsidiaries by Section 6.6.
"ACTING AGENT" means, individually or collectively, the Harmony Group
Agent, The End Group Agent and Curious Group Agent.
"AFFILIATE" means any Person directly or indirectly controlling, controlled
by, or under common control with Borrower or which has an officer who is also an
officer of Borrower.
"AGREEMENT" means this Loan and Security Agreement as it may be amended,
restated, supplemented or otherwise modified from time to time.
"ANIMATION" means animated television commercials and animated music
videos.
"ASSUMPTION AGREEMENT" means that certain Assumption Agreement as set forth
in Exhibit A attached hereto.
"BASE RATE" means a variable rate of interest per annum equal to the higher
of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent, or (b) the Federal Funds Effective Rate. In the
event the Board of Governors of the Federal Reserve System ceases to publish a
Bank Prime Loan rate or its equivalent, the term "Base Rate" shall mean a
variable rate of interest per annum equal to the highest of the "prime rate",
"reference rate", "base rate", or other similar rate announced from time to time
by any of the three largest banks located in New York City, New York (with the
understanding that any such rate may merely be a reference rate and may not
necessarily represent the lowest or best rate actually charged to any customer
by any such bank).
"BORROWER'S ACCOUNTANTS" means the independent certified public accountants
selected by Borrower and reasonably acceptable to Lender, which selection shall
not be modified during the term of this Agreement without Lender's prior written
consent.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the States of California, New York,
Illinois, Minnesota and Pennsylvania, or is a day on which banking institutions
located in any such state are closed.
"CURIOUS GROUP AGENT" means Curious Pictures Corporation as Acting Agent
for Furious Pictures Corporation and Delirious Pictures Corporation.
"DEFAULT" means a condition, act or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition, act or
event were not cured or removed within any applicable grace or cure period.
"EBITDA" means, with respect to Borrowers on a consolidated basis for any
period, the net income for such period, the sum of (a) income taxes, (b)
interest expenses for such period determined in accordance with GAAP, and (c)
depreciation and amortization expense.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan within the meaning
of SECTION 3(3)
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of ERISA which (a) is maintained for employees of any Loan Party or any ERISA
Affiliate or (b) has at any time within the preceding six(6) years been
maintained for the employees of any Loan Party or any current or former ERISA
Affiliate.
"ENVIRONMENTAL CLAIMS" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"ENVIRONMENTAL LAWS" means any present or future federal, state or local
law, rule, regulation or order relating to pollution, waste, disposal or the
protection of human health or safety, plant life or animal life, natural
resources or the environment.
"EQUIPMENT" means all "equipment" (as defined in the UCC), including,
without limitation, all furniture, furnishings, fixtures, machinery, motor
vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts
thereof and all additions and accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA AFFILIATE", as applied to any Loan Party, means any Person who is a
member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of SECTION 414(b) AND (c) of the IRC.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Board of Governors of the Federal
Reserve System as the Federal Funds Rate in Federal Reserve Statistical Release
H.15(519) entitled "Selected Interest Rates" or any successor publication of the
Federal Reserve System reporting the Federal Funds Effective Rate or its
equivalent or, if such rate is not published for any Business Day, the average
of the quotations for the day of the requested Loan received by Lender from
three Federal funds brokers of recognized standing selected by Lender.
"FIXED CHARGE COVERAGE RATIO" means, for any twelve month period on a
consolidated basis, EBITDA LESS non-financed capital expenditures DIVIDED by the
sum of (a) interest PLUS (b) taxes PLUS (c) principal repayment of long term
debt PLUS (d) mandatory dividends.
"GROUP(S)" means each group of Borrowers represented by an Acting Agent.
"HARMONY GROUP AGENT" means Harmony Pictures, Inc. as Acting Agent for Pure
Film, Inc., Melody Films, Inc., and Lexington Films, Inc.
"HAZARDOUS MATERIAL" means all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any Environmental
Laws or regulations as "hazardous substances", "hazardous materials", "hazardous
wastes", "toxic substances" or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, or toxicity; (b) oil, petroleum or
petroleum derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or electrical equipment which contains
any oil or dielectric fluid containing polychlorinated biphenyls.
"INITIAL ADJUSTMENT DATE" means the first day following the first two full
fiscal quarters after the closing date.
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"INTELLECTUAL PROPERTY" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, know-how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired, all goodwill associated
with any of the foregoing, and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon.
"INTEREST RATE MARGIN" means from the closing date to the Initial
Adjustment Date, the Interest Rate Margin shall be the per annum rate of 1.5%
plus the Base Rate, from the Initial Adjustment Date and annually thereafter,
the Interest Rate Margin shall be adjusted to be the Interest Rate Margin based
on the Fixed Charge Coverage Ratio for the most recent fiscal year end, as
reflected in such audited financial statements, expressed as a per annum rate of
interest as follows:
If the Fixed Charge then the Interest
Coverage ratio is: Rate Margin is:
------------------ ---------------
Less than 1.00 1.5%
Equal to 1.00 but less than 1.20 1.25%
Equal to or greater than 1.20 1.00%
"INVENTORY" means all "inventory" (as defined in the UCC), including,
without limitation, finished goods, raw materials, work in process and other
materials and supplies used or consumed in a Person's business, and goods which
are returned or repossessed.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"LOAN" or "LOANS" means an advance or advances under the Revolving Loan,
the Term Loan or under any Note.
"LOAN DOCUMENTS" means this Agreement, all Notes, all guaranties, all
mortgages and deeds of trust, all subordination agreements or intercreditor
agreements, all Assumption Agreements and all other instruments, documents,
notes and agreements executed by or on behalf of Borrower or any guarantor and
delivered concurrently herewith or at any time hereafter to or for Lender in
connection with the Loans and other transactions contemplated by this Agreement,
all as amended, restated, supplemented or modified from time to time.
"LOAN PARTY" means Borrower and any other Person (other than Lender) which
is or becomes a Party to any Loan Document.
"LOAN YEAR" means each period of twelve (12) consecutive months commencing
on the closing date and on each anniversary thereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of any Loan Party or (b) the ability of any Loan Party to perform its
obligations under any Loan Document to which it is a party or of Lender to
enforce its security interests or collect any of the Obligations.
"NON-ANIMATION" means live action television commercials and live action
music videos.
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"NOTES" mean the Term Note and all other promissory notes made by Borrower
to the order of Lender concurrently herewith or at any time hereafter.
"OBLIGATIONS" means all obligations, liabilities and indebtedness of every
nature of Borrower from time to time owed to Lender whether under the Loan
Documents or otherwise, whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable including, without limitation, all interest, fees, cost and expenses
accrued or incurred after the filing of any petition under any bankruptcy or
insolvency law.
"PERMITTED LIENS" means, as applied to any Person, (1) the security
interests granted to Lender by Borrower, (2) those disclosed in writing by the
Acting Agents and Holdings to Lender as of the closing date, and (3) the
interests of Borrowers under operating leases and purchase money liens of
Borrowers under capital leases, so long as the lien only attaches to the asset
purchased or acquired and only secures the purchase price of the asset, in an
aggregate amount not to exceed $100,000 per fiscal year for all Borrowers,
collectively, without the prior written consent of Lender or pursuant to
SUBSECTION 6.2.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"REPRESENTATIVE" means the Chief Financial Officer of Harmony Holdings,
Inc., and/or the Controller of Harmony Holdings, Inc., said offices are
currently held by Patrick D. Grinde and Monica Underwood respectively.
"REVOLVING LOAN" means the outstanding balance of all Revolving Advances
and any amounts added to the principal balance of the Revolving Loan pursuant to
this Agreement.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of stock (or equivalent ownership or controlling interest)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"TERM LOAN" means the outstanding balance of the term loan made pursuant to
SUBSECTION 2.1(A).
"TERM LOAN FUNDING DATE" means a date prior to September 30, 1998 on which
the following have occurred: Holdings has delivered to Lender in form and
substance acceptable to Lender (1) audited financial statements, consolidated
and by each subsidiary of Holdings, indicating that Holdings' consolidated net
income (loss) is within 80% of its 1998 projected net income (loss), and (2) a
forced liquidation value desktop appraisal by an appraiser acceptable to Lender
of all Borrowers' fixed assets.
"THE END GROUP AGENT" means The End, Inc. as Acting Agent for The Beginning
Entertainment, Inc., The Moment Films, Inc., Serial Dreamer Films, Inc., and
Gigantic Entertainment, Inc.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of Illinois, as amended from time to time, and any successor statute.
1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with generally accepted accounting principles ("GAAP").
When used herein, the term "financial statements" shall include the notes and
schedules thereto. Financial statements furnished to Lender shall be prepared
in accordance
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with GAAP (as in effect at the time of such preparation) on a consistent
basis.
SECTION 2. LOANS AND COLLATERAL
2.1 LOANS.
(A) TERM LOAN. Lender, in its sole and absolute discretion, shall make a
term loan, on the Term Loan Funding Date in the principal amount of
$500,000.00 (the "Term Loan"). The Term Loan shall be funded in one
drawing. Amounts borrowed under this SUBSECTION 2.1(A) and repaid may not
be reborrowed. The Acting Agents shall make principal payments for their
Groups in the amounts of the applicable Scheduled Installment of the Term
Loan (or such lesser principal amount as shall then be outstanding) on the
dates and in the amounts set forth below.
"Scheduled Installment" means, for each date set forth below, the amount
set forth opposite such date.
Date Scheduled Installment
---- ---------------------
November 1, 1998 and the
first day of each subsequent
month through and including
July 1, 2001. $2,777.78 each by each Acting Agent
for a total monthly installment of
$8,333.34
July 31, 2001 $225,000.01 in total
(B) TERM NOTES]. Borrower shall execute and deliver to Lender with
appropriate insertions a promissory note to evidence the Term Loan (the
"TERM NOTE"). In the event of an assignment under subsection 8.12,
Borrower shall, upon surrender of the assigning Lender's Notes, issue new
Term Notes to reflect the interest held by the assigning Lender and its
assignee.
(C) REVOLVING LOAN. Upon an Acting Agent's or Representatives request
made at any time during the term of this Agreement, Lender may, in its sole
and absolute discretion, make advances to an Acting Agent or Representative
on behalf of any Borrower ("REVOLVING ADVANCES") in an aggregate amount up to
the lesser of for each Group (1) (a) 85% of the aggregate outstanding amount
of Non-Animation Eligible Accounts, and (b) 50% of the aggregate outstanding
amount of Animation Eligible Accounts, or (2) in the aggregate amount of (a)
$4,500,000, or (b) after the Term Loan Funding Date, $5,000,000 if the Term
Loan has not been advanced (the "MAXIMUM REVOLVING LOAN AMOUNT").
(1) Eligible Collateral.
"ELIGIBLE ACCOUNTS" means, as at any date of determination, the
aggregate of all Accounts that Lender, in its sole judgment, deems to be
eligible for borrowing purposes. Without limiting the generality of the
foregoing, unless otherwise agreed by Lender, the following Accounts are not
Eligible Accounts:
(a) Accounts which, at the date of issuance, were payable more
than 120 days after the date of issuance;
(b) Accounts which remain unpaid for more than 90 days after the
due date specified in the original invoice or for more than 120 days after
invoice date if no due date was specified;
(c) Accounts due from any account debtor if more than 50% of the
aggregate amount of Accounts of such account debtor have at the time remained
unpaid for more than 90 days
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after due date or 120 days after invoice date if no due date was specified;
(d) Accounts with respect to which Borrower is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower and Accounts which are otherwise eligible with respect to
which the account debtor is owed a credit by Borrower, but only to the extent of
such credit;
(e) Accounts due from an account debtor whose principal place of
business is located outside the United States of America, unless such Account is
backed by a letter of credit in form and substance and issued by a bank
acceptable to Lender;
(f) Accounts due from an account debtor which Lender has
determined does not have a satisfactory credit standing;
(g) Accounts with respect to which the account debtor is the
United States of America, unless Borrower has, with respect to such accounts,
complied with the Federal Assignment of Claims Act of 1940 as amended (31 U.S.C.
Section 3727 et seq.), any state or any municipality, or any department, agency
or instrumentality thereof;
(h) Accounts with respect to which the account debtor is a
Borrower, an Affiliate of any Borrower or a director, officer, agent, or
employee of any Borrower or any of its affiliates;
(i) Accounts with respect to which there is any unresolved
dispute with the respective account debtor;
(j) Accounts with respect to which Lender does not have a valid
first priority and fully perfected security interest or Accounts that are
subject to any claim, lien, security interest or encumbrance, except those in
favor of Lender;
(k) Accounts with respect to which the account debtor is the
subject of any bankruptcy or other insolvency proceeding;
(l) Accounts due from an account debtor to the extent that such
Accounts exceed in the aggregate an amount equal to 25% of the aggregate of all
Accounts at said date, PROVIDED Lender may advance against such Accounts in
excess of such 25% limit to the extent that the credit worthiness of such
account debtor is established by an industry standard credit report satisfactory
to Lender in its sole discretion.
(m) Accounts with respect to which the account debtor's
obligation to pay is conditional or subject to a repurchase obligation or right
to return or with respect to which the goods or services giving rise to such
Account have not been delivered (or performed, as applicable) and accepted by
such account debtor, including progress billings, bill and hold sales,
guarantied sales, sale or return transactions, sales on approval or consignment
sales;
(n) Accounts with respect to which the account debtor is located
in New Jersey or Minnesota or any other state denying creditors access to its
courts in the absence of a Notice of Business Activities Report or other similar
filing, unless Borrower has either qualified as a foreign corporation authorized
to transact business in such state or has filed a Notice of Business Activities
Report or similar filing with the applicable state agency for the then current
year;
(o) Accounts which comprise the initial 50% advance billing of
an Animation produced by Curious Group; and
(p) Accounts due from The Partner Film Co.
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(2) BORROWING MECHANICS. On any day when a Borrower, or any one of
them, desires a Revolving Advance, the Borrower's respective Acting Agent or a
Representative shall give Lender telephonic notice of the proposed borrowing by
12:00 p.m. Central time. Any such telephonic notice shall be confirmed in
writing on the same day. Lender shall not incur any liability to Borrower,
Acting Agent, and/or Representative for acting upon any telephonic notice Lender
believes in good faith to have been given by a duly authorized officer or other
person authorized to borrow on behalf of Borrower or for otherwise acting in
good faith. Lender will not make any Revolving Advance pursuant to any
telephonic notice unless Lender has also received the most recent Borrowing Base
Certificate and all other documents required pursuant to the Reporting Addendum
by 12:00 p.m. Central time. Each Revolving Advance shall be deposited by wire
transfer in immediately available funds in such account as the Acting Agent may
from time to time designate to Lender in writing.
(D) NOTE[S]. Borrower shall execute and deliver to Lender such Notes
as Lender may request in its sole discretion to evidence the Obligations, for
the Term Note, substantially in the form of Exhibit C attached hereto.
2.2 INTEREST.
(A) RATE OF INTEREST. The Loans and all other Obligations shall bear
interest from the date such Loans are made or such other Obligations become due
to the date paid at a rate per annum equal to (i) Interest Rate Margin plus the
Base Rate with respect to the Revolving Loan, and (ii) Interest Rate Margin plus
the Base Rate with respect to the Term Loan (the "INTEREST RATE"). After the
occurrence and during the continuance of an Event of Default, the Loans and all
other Obligations shall, at Lender's option, bear interest at a rate per annum
equal to 2.0% plus the Interest Rate (the "DEFAULT RATE").
(B) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Loans and
all other Obligations shall be computed on the daily principal balance on the
basis of a 360 day year for the actual number of days elapsed in the period
during which it accrues and shall be payable to Lender monthly in arrears on the
first day of each month, on the date of any prepayment of Loans, and at
maturity, whether by acceleration or otherwise. Any publicly announced change
in the Base Rate shall result in an adjustment to the Interest Rate on the day
such change takes effect.
(C) INTEREST LAWS. Notwithstanding any provision to the contrary
contained in this Agreement or any other Loan Document, Borrower shall not be
required to pay, and Lender shall not be permitted to collect, any amount of
interest in excess of the maximum amount of interest permitted by applicable law
("EXCESS INTEREST"). If any Excess Interest is provided for or determined by a
court of competent jurisdiction to have been provided for in this Agreement or
in any other Loan Document, then in such event: (1) the provisions of this
subsection shall govern and control; (2) neither Borrower nor any other Loan
Party shall be obligated to pay any Excess Interest; (3) any Excess Interest
that Lender may have received hereunder shall be, at Lender's option, (a)
applied as a credit against the outstanding principal balance of the Obligations
or accrued and unpaid interest (not to exceed the maximum amount permitted by
law), (b) refunded to the payor thereof, or (c) any combination of the
foregoing; (4) the interest rate(s) provided for herein shall be automatically
reduced to the maximum lawful rate allowed from time to time under applicable
law (the "MAXIMUM RATE"), and this Agreement and the other Loan Documents shall
be deemed to have been and shall be, reformed and modified to reflect such
reduction; and (5) neither Borrower nor any Loan Party shall have any action
against Lender for any damages arising out of the payment or collection of any
Excess Interest. Notwithstanding the foregoing, if for any period of time
interest on any Obligations is calculated at the Maximum Rate rather than the
applicable rate under this Agreement, and thereafter such applicable rate
becomes less than the Maximum Rate, the rate of interest payable on such
Obligations shall remain at the Maximum Rate until Lender shall have received
the amount of interest which Lender would have received during such period on
such Obligations had the rate of interest not been limited to the Maximum Rate
during such period.
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2.3 FEES.
(A) CLOSING FEE. Borrower shall pay to Lender on the closing date,
a closing fee in the amount of $35,000 which fee shall be fully
earned, due and payable upon the execution and delivery of this
Agreement.
(B) COMMITMENT FEE. Borrower shall have paid prior to the closing
date and Lender shall have earned a non-refundable Commitment Fee of $35,000.
On or after the closing date, the Commitment Fee shall be applied to the closing
fee.
(C) UNUSED LINE FEE. Borrower shall pay to Lender, a fee in an
amount equal to .375% per annum multiplied by the amount equal to
(a) (i) $4,500,000 or (ii) after the Term Loan Funding Date,
$5,000,000 less (b) the sum of the average daily balance of the
Revolving Loan during the preceding month, such fee to be calculated
on the basis of a 360 day year for the actual number of days elapsed
and to be payable monthly in arrears on the first day of each month
following the closing date during the term of this Agreement,
including all Renewal Terms.
(D) COLLATERAL MANAGEMENT FEE. Borrower shall pay to Lender a
quarterly collateral management fee in an amount equal to
$2,500.00, payable quarterly in arrears on the first day of each
quarter following the closing date during the term of this
Agreement, including all Renewal Terms.
(E) EXAMINATION FEE. Borrower shall pay to Lender an examination
fee for each examination equal to $750.00 per examiner per day or
any portion thereof together with out-of-pocket expenses. Exam fees
for review of the books and records of Harmony, The End and Curious
will be limited to the aggregate of $25,000 per annum, provided no
Event of Default has occurred. Exams will be conducted on a
quarterly basis.
(F) LATE REPORTING FEE. Borrower shall pay to Lender a late
reporting fee in an amount equal to $25.00 per document per day for
each Business Day, after a one (1) day grace period any report,
financial statement, schedule or other document required by this
Agreement, to be delivered to Lender, as more fully set forth on
the Reporting Addendum, is past due. The collection of such late
reporting fee shall not constitute a waiver by Lender of any
Default or Event of Default resulting from the Acting Agent's and
Holdings' failure to deliver such items on a timely basis, or in
any way affect or impair Lender's right to impose the Default Rate
as a result thereof.
(G) OTHER FEES AND EXPENSES. Borrower shall pay to Lender, all
charges for returned items and all other bank charges incurred by
Lender, as well as Lender's standard wire transfer charges for each
wire transfer made under this Agreement.
2.4 PAYMENTS AND PREPAYMENTS.
(A) MANNER AND TIME OF PAYMENT. Borrower hereby authorizes Lender,
in its sole discretion, to charge interest and other amounts payable hereunder
to the Revolving Loan, all as set forth on Lender's books and records. If
Lender elects to bill Borrower for any amount due hereunder, such amount shall
be immediately due and payable with interest thereon as provided herein. All
payments made by Borrower or the Acting Agents with respect to the Obligations
shall be made without deduction, defense, setoff or counterclaim. All payments
to Lender hereunder shall, unless otherwise directed by Lender, be made by wire
transfer to Lender's account, ABA No. 0710-0001-3, Account No. 5590116 at The
First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller
9
Commercial Funding for the benefit of Harmony Holdings, Inc., Harmony
Pictures, Inc., and as the Harmony Group Agent; The End, Inc., and as The End
Group Agent; and Curious Pictures Corporation, and as the Curious Group
Agent;. Proceeds remitted to Lender shall be credited to the Obligations on
the same Business Day such proceeds were received; PROVIDED HOWEVER, for the
purpose of calculating interest on the Obligations, such funds shall be
deemed received on the third Business Day thereafter.
(B) MANDATORY PREPAYMENTS. At any time that the Revolving Loan
exceeds the Maximum Revolving Loan Amount, the Acting Agents, on behalf of the
Borrowers, shall immediately repay the Revolving Loan to the extent necessary to
reduce the principal balance to an amount equal to or less than the Maximum
Revolving Loan Amount.
(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. The Obligations may only
be prepaid or repaid in full and not in part (other than
prepayments of the Revolving Loan which do not terminate this
Agreement or prepayments permitted under any Note). Borrower may,
at any time upon not less than three Business Days' prior notice
given by the Acting Agents to Lender, prepay the Obligations and
terminate this Agreement. If Borrower voluntarily prepays the
Obligations in full (other than voluntary prepayments of the
Revolving Loan which do not terminate this Agreement), prior to the
Termination Date, Borrower, at the time of prepayment, shall pay to
Lender, as compensation for the costs of being prepared to make
funds available to Borrower under this Agreement, and not as a
penalty, an amount determined by multiplying the applicable
percentage set forth below by (1) in the case of a prepayment in
full of the Obligations, the outstanding balance of the Term Loan
at the date of such prepayment plus $4,500,000, or $5,000,000 if
the Term Loan has not yet been advanced, or (2) in the case of a
prepayment in full of the Revolver Loan only the amount of such
prepayment: 2.0% upon a prepayment during the first Loan Year; 1.0%
upon a prepayment during the second Loan Year; and 0.0% upon a
prepayment during the third Loan Year, and during any Renewal Term
(as defined below).
(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
2.5 TERM OF THIS AGREEMENT. This Agreement shall be effective until
July ___, 2001 (the "ORIGINAL TERM") and shall automatically renew from year
to year thereafter (each such year a "RENEWAL TERM") unless terminated by the
Acting Agents and/or Holdings giving to Lender or Lender giving to the Acting
Agents and/or Holdings not less than 60 days prior written notice of its
intention to terminate at the end of the Original Term or at the end of any
Renewal Term or upon repayment of all Obligations or as otherwise provided
for herein (the "TERMINATION DATE"). Upon termination (whether on the
Termination Date or otherwise) all Obligations shall become immediately due
and payable without notice or demand. Notwithstanding any termination, until
all Obligations have been fully paid and satisfied, Lender shall be entitled
to retain security interests in and liens upon all Collateral, and even after
payment of all Obligations hereunder, certain of Lender's and Borrower's
agreements and obligations shall survive such terminations as set forth in
SUBSECTION 8.6.
2.6 STATEMENTS. Lender shall render a monthly statement of account to the
Acting Agents and Holdings within twenty (20) days after the end of each month.
Such statement of account shall constitute an account stated and the Acting
Agents and Holdings shall have fully and irrevocably waived all objections to
such statements and the contents thereof unless the Acting Agent and Holdings
makes written objection thereto within thirty (30) days from the date such
statement is mailed to the Acting Agent and Holdings.
10
2.7 GRANT OF SECURITY INTEREST. To secure the payment and performance of
the Obligations, each Borrower hereby grants to Lender a continuing security
interest, lien and mortgage in and to all right, title and interest of Borrower
in all personal and real property of Borrower whether now owned or existing or
hereafter acquired or arising and regardless of where located (all being
collectively referred to as the "COLLATERAL") including, without limitation:
(A) Accounts, and all guaranties and security therefor, and all goods and rights
represented thereby or arising therefrom including the rights of stoppage in
transit, replevin and reclamation; (B) Inventory; (C) general intangibles (as
defined in the UCC); (D) documents (as defined in the UCC) or other receipts
covering, evidencing or representing goods; (E) instruments (as defined in the
UCC); (F) chattel paper (as defined in the UCC); (G) Equipment; (H) investment
property (as defined in the UCC) including, without limitation, all securities
(certificated and uncertificated), security accounts, securities entitlements,
commodity contracts and commodity accounts; (I) Intellectual Property; (J) all
deposit accounts of Borrower maintained with any bank or financial institution;
(K) all cash and other monies and property of Borrower in the possession or
under the control of Lender or any lender participant in any of the Loans; (L)
all books, records, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software that at any time evidence or
contain information relating to any of the property described above or are
otherwise necessary or helpful in the collection thereof or realization thereon;
and (M) proceeds of all or any of the property described above, including,
without limitation, the proceeds of any insurance policies covering any of the
above described property.
2.8 JOINT AND SEVERAL LIABILITY.
(A) Holdings, Harmony, The End, Curious, Pure, Melody, Lexington,
Serial Dreamer, The Beginning, The Moment, Gigantic, Furious and Delirious
hereby, jointly and severally, promise to pay in full to Lender the
Obligations, including without limitation the principal amount of all Loans,
together with accrued interest, fees and other amounts due thereon, all in
accordance with the terms of this Agreement.
(B) Each Borrower expressly represents and acknowledges that it is part
of a common enterprise with the other Borrowers and that any financial
accommodations by Lender to the other Borrowers hereunder and under the other
Loan Documents are and will be of direct and indirect interest, benefit and
advantage to each Borrower. Each Borrower acknowledges that any notice given
by Lender to any other Borrower or any Acting Agent shall be effective with
respect to each Borrower. Each Borrower shall be entitled to subrogation and
contribution rights from and against any other Borrower to the extent such
Borrower is required to pay to Lender any amount in excess of the Loans
hereunder used directly by such Borrower or as otherwise available under
applicable law; provided, however, that such subrogation and contribution
rights are and shall be subject to the terms and conditions of paragraph (C)
below. The provisions of this paragraph (B) shall in no way limit the
obligations and liabilities of any Borrower and each Borrower shall remain
liable to Lender for the full amount of the Obligations.
(C) No Borrower will exercise any rights which it may acquire by way
of subrogation hereunder or under any other Loan Document or at law by any
payment made hereunder or otherwise, nor shall any Borrower seek or be entitled
to seek any contribution or reimbursement from any other Borrower in respect of
payments made by such Borrower hereunder or under any other Loan Documents,
until all amounts owing to Lender on account of the Obligations are paid in full
and this Agreement is terminated. If any amounts shall be paid to any Borrower
on account of such subrogation or contribution rights at any time when all of
the Obligations shall not have been paid in full, such amount shall be held by
such Borrower in trust for Lender, segregated from other funds of such Borrower,
and shall, forthwith upon receipt by such Borrower, be turned over to Lender in
the exact form received by such Borrower (duly endorsed by such Borrower to
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, as provided for herein.
2.9 DESIGNATION OF ACTING AGENT. Each of the Borrowers hereby designates
the Acting
11
Agent or Representative designated for its Group to act as its agent and
representative for all purposes hereunder and under any Loan Document. Each
Group shall have the right to change the identity of its Acting Agent upon
notice to, and with the written consent of Lender.
SECTION 3. CONDITIONS TO LOANS
The making of Loans by Lender on the closing date and on each funding date of a
Revolving Advance are each subject to satisfaction of all of the conditions,
agreements and covenants set forth in this Agreement and all of the conditions
set forth in the Conditions Rider, attached hereto.
SECTION 4. BORROWER'S REPRESENTATIONS, WARRANTIES
AND CERTAIN COVENANTS
To induce Lender to enter into the Loan Documents, and to make and to
continue to make Loans and/or provide other financial accommodations to or on
behalf of Borrower, each Borrower represents, warrants and covenants (as
applicable) to Lender that the following statements are and will be true,
correct and complete and shall remain so for so long as this Agreement shall be
in effect and until payment in full of all Obligations.
4.1 DUE INCORPORATION, QUALIFICATION AND AUTHORIZATION. Holdings, Harmony
and Melody are corporations duly organized, validly existing and in good
standing under the laws of the State of Delaware. The End, Pure, Lexington,
Serial Dreamer, The Beginning, The Moment and Gigantic are corporations duly
organized, validly existing and in good standing under the laws of the State of
California; and Curious, Furious and Delirious are corporations duly organized,
validly existing and in good standing under the laws of the State of New York.
Each Borrower has the corporate power and authority to own its properties and to
carry on its business as presently conducted. Holdings is duly qualified and in
good standing as a foreign corporation authorized to transact business in the
States of California and Minnesota; and Curious and Harmony are duly qualified
and in good standing as foreign corporations authorized to transact business in
the State of California and any other jurisdiction where the conduct of
Borrower's business and the location of the Collateral of Borrower's properties
requires such business qualification. The End is in the process of becoming
duly qualified and in good standing as a foreign corporation authorized to
transact business in the State of New York. The execution, delivery and
performance of this Agreement and the Loan Documents have been duly authorized
and are not in contravention of any applicable law, Borrower's corporate charter
or by-laws or any other formation document or any agreement or order by which
each Borrower is bound; Borrower is not, to the best of Borrower's knowledge, in
violation of any law, ordinance, rule, regulation, order or other requirement of
any government or any instrumentality or agency thereof.
4.2 DUE FINANCIAL CONDITION. All financial statements concerning each
Borrower and their Subsidiaries which have been or may hereafter be furnished by
Borrower, the Acting Agents and/or Holdings and its Subsidiaries to Lender have
been or will be prepared in accordance with GAAP consistently applied throughout
the periods involved and do or will present fairly each Borrower's financial
condition as at the dates thereof and the results of its operations for the
periods then ended.
4.3 ACCOUNT WARRANTIES AND COVENANTS. As to each Account that, at the time
of its creation, the Account is a valid, bona fide account, representing an
undisputed indebtedness incurred by the named account debtor for goods actually
sold and delivered or for services completely rendered; there are no rights of
cancellation, setoffs, offsets or counterclaims, genuine or otherwise, against
the Account; the Account does not represent a sale to an Affiliate or a
consignment, sale or return or a bill and hold transaction; no agreement exists
permitting any return, deduction or discount (other than the discount stated on
the invoice); Borrower is the lawful owner of the Account and has the right to
assign the same to Lender; the Account is free of all security interests, liens,
claims and encumbrances other than those in favor of Lender, and the Account is
due and payable in accordance with its terms. No
12
credits or allowances will be issued, granted or allowed by Borrower to
account debtors and no returns will be accepted without Lender's prior
written consent; PROVIDED HOWEVER, until the earlier of (i) the occurrence of
a Default or Event of Default or (ii) such time as Lender notifies Holdings
or an Acting Agent to the contrary, Borrower may presume consent. The Acting
Agents and Holdings will immediately notify Lender in the event that an
account debtor alleges any dispute or claim with respect to an Account or of
any other circumstances known to any Borrower that may impair the validity or
collectibility of an Account. Lender shall have the right, at any time or
times hereafter, to verify the validity, amount or any other matter relating
to an Account, by mail, telephone or in person. After the occurrence of a
Default or an Event of Default, neither Borrower nor any Acting Agent shall,
without the prior consent of Lender, adjust, settle or compromise the amount
or payment of any Account, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon.
4.4 NAMES AND LOCATIONS. Each Borrower currently conducts business or
during the past five years conducted business under the following names, trade
names, fictitious names and business names. The location of each of Borrower's
principal place of business, the location of each Borrower's books and records,
the location of all other offices of Borrower and all Collateral locations are
as set forth below:
HOLDINGS:
LOCATIONS
Principal Place of Business: 724 First Street North, Fourth Floor, Minneapolis,
Minnesota 55401
Books and Records: Same as principal place of business and the following:
Harmony Holdings, Inc., Curious Pictures Corporation, Furious Pictures
Corporation and Delirious Pictures Corporation at 440 Lafayette Street, 6th
Floor, New York, New York 10003; Curious Pictures Corporation at 1360 Mission
Street, 2nd Floor, San Francisco, California 94103 Harmony Pictures, Inc.,
Lexington Films, Inc., Melody Films, Inc., and Pure Film, Inc. at 6806 Lexington
Avenue, Ground Floor, Los Angeles, California 90038; The End, Inc., Serial
Dreamer Films, Inc., The Beginning Entertainment, Inc. The Moment Films, Inc.,
and Gigantic Entertainment, Inc. at 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98 and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212; The End, Inc. at 435 Hudson Street, Suite 400,
New York, New York 10014 until 8/31/98, and thereafter at 75 Varick Street, 16th
Floor, New York, New York 10006.
Other: None
TRADENAMES
None
HARMONY:
LOCATIONS
Principal Place of Business: 6806 Lexington Avenue, Ground Floor, Los Angeles,
California 90038
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
THE END:
13
LOCATIONS
Principal Place of Business: 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98 and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212 435 Hudson Street, Suite 400, New York, New
York 10014 until 8/31/98, and thereafter at 75 Varick Street, 16th Floor, New
York, New York
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
CURIOUS:
LOCATIONS
Principal Place of Business: 440 Lafayette Street, 6th Floor, New York, New
York 10003 and 1360 Mission Street, 2nd Floor, San Francisco, California 94103
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
Curious Toys
PURE:
LOCATIONS
Principal Place of Business: 6806 Lexington Avenue, Ground Floor, Los Angeles,
California 90038
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
MELODY:
LOCATIONS
Principal Place of Business: 6806 Lexington Avenue, Ground Floor, Los Angeles,
California 90038
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
14
Other: None
TRADENAMES
None
LEXINGTON:
LOCATIONS
Principal Place of Business: 6806 Lexington Avenue, Ground Floor, Los Angeles,
California 90038
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
SERIAL DREAMER:
LOCATIONS
Principal Place of Business: 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98, and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
THE BEGINNING:
LOCATIONS
Principal Place of Business: 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98, and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
THE MOMENT:
15
LOCATIONS
Principal Place of Business: 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98, and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
GIGANTIC
LOCATIONS
Principal Place of Business: 8060 Melrose Avenue, 4th Floor, Hollywood,
California 90046 until 8/31/98, and thereafter at 433 South Beverly Drive,
Beverly Hills, California 90212
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
TRADENAMES
None
FURIOUS:
LOCATIONS
Principal Place of Business: 440 Lafayette Street, 6th Floor, New York, New
York 10003
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None_
TRADENAMES
None
DELIRIOUS:
LOCATIONS
Principal Place of Business: 440 Lafayette Street, 6th Floor, New York, New
York 10003
Books and Records: Same as principal place of business and 724 First Street
North, Fourth Floor, Minneapolis, Minnesota 55401
Other: None
16
TRADENAMES
None
Such locations are Borrower's sole locations for its business and the
Collateral. The Acting Agents and Holdings and any other Borrower will give
Lender at least 30 days advance written notice of: (a) any change of name or of
any new trade name or fictitious business name, (b) any change of principal
place of business, (c) any change in the location of such party's books and
records or the Collateral, or (d) any new location for such Person's books and
records or the Collateral.
4.5 TITLE; LIENS; OPERATION OF BUSINESS. Borrower has and will continue
to have good, marketable and legal title to the Collateral, free and clear of
all liens, claims, security interests or encumbrances, except for Permitted
Liens. Borrower maintains and shall continue to maintain complete and accurate
records with respect to all of its assets. Borrower maintains and shall
continue to maintain all licenses, permits, franchises, approvals and consents
as are required in the conduct of its business and the ownership and operation
of its properties.
4.6 LITIGATION; ADVERSE FACTS. There are no judgments outstanding against
or affecting Borrower, guarantor of the Obligations, its officers, directors or
affiliates or any of Borrower's property and there are no actions, charges,
claims, demands, suits, proceedings, or governmental investigations now pending
or threatened against Borrower or any of Borrower's property, except as set
forth in Schedule 4.6 attached hereto.
4.7 PAYMENT OF TAXES. All material tax returns and reports of Borrower
and each of its Subsidiaries required to be filed by any of them have been
timely filed and are complete and accurate in all material respects. All taxes,
assessments, fees and other governmental charges which are due and payable by
Borrower and each of its Subsidiaries have been paid when due. Borrower will
make timely payment or deposit of all F.I.C.A. payments and withholding taxes
and will, upon request, furnish Lender with proof satisfactory to Lender that
Borrower has made such required payments or deposits. As of the closing date,
none of the income tax returns of Borrower or any of its Subsidiaries are under
audit. No tax liens have been filed against Borrower or any of its
Subsidiaries. The charges, accruals and reserves on the books of Borrower and
each of its Subsidiaries in respect of any taxes or other governmental charges
are in accordance with GAAP. The federal tax identification number for each
Borrower is as follows:
Borrower Name TAX ID #
------------- --------
Harmony Holdings, Inc. 95-4333330
Harmony Pictures, Inc. 95-4266372
The End, Inc. 95-4433134
Curious Pictures Corporation 13-3696930
Pure Film, Inc. 95-4658917
Melody Films, Inc. 95-4266370
Lexington Films, Inc. 95-4659774
Serial Dreamer Films, Inc. 95-4669631
The Beginning Entertainment, Inc. 95-1041790
The Moment Film, Inc. 95-4621314
Gigantic Entertainment, Inc. 41-1912935
Furious Pictures Corporation 13-3964472
Delirious Pictures Corporation 13-3964473
4.8 EMPLOYEE BENEFIT PLANS. Borrower, each of its Subsidiaries and each
ERISA Affiliate is in compliance, and will continue to remain in compliance, in
all material respects with all applicable
17
provisions of ERISA, the IRC and all other applicable laws and the
regulations and interpretations thereof with respect to all Employee Benefit
Plans. No material liability has been incurred by Borrower, any Subsidiaries
or any ERISA Affiliate which remains unsatisfied for any funding obligation,
taxes or penalties with respect to any Employee Benefit Plan. Neither
Borrower nor any of its Subsidiaries shall establish any new Employee Benefit
Plan or amend any existing Employee Benefit Plan if the liability or
increased liability resulting from such establishment or amendment shall have
a Material Adverse Effect.
4.9 ENVIRONMENTAL COMPLIANCE. Each Loan Party has been, is currently, and
will continue to remain in compliance with all applicable Environmental Laws.
There are no claims, liabilities, liens, investigations, litigation,
administrative proceedings, whether pending or threatened, or judgments or
orders relating to any Hazardous Materials asserted or threatened against any
Loan Party or relating to any real property currently or formerly owned, leased
or operated by any Loan Party.
4.10 ABILITY TO PAY DEBTS. Borrower is now and shall be at all times
hereafter able to pay its debts as they become due and shall have sufficient
capital to enable it to operate its businesses.
4.11 DISCLOSURE. There is no event that has occurred nor any fact known by
Borrower but not furnished to Lender, which will have or reasonably be expected
to have a Material Adverse Effect.
4.12 INSURANCE. Borrower maintains, and will continue to maintain adequate
insurance policies for public liability, property damage for its business and
properties, product liability, and business interruption with respect to its
business and properties against loss or damage of the kinds customarily carried
or maintained by corporations of established reputation engaged in similar
businesses and in amounts acceptable to Lender. Borrower shall cause Lender to
be named as loss payee on all insurance policies relating to any Collateral and
shall cause Lender to be named as additional insured under all liability
policies, in each case pursuant to appropriate endorsements in form and
substance satisfactory to Lender and shall collaterally assign to Lender as
security for the payment of the Obligations all business interruption insurance
of Borrower. No notice of cancellation has been received with respect to such
policies and Borrower is in compliance with all conditions contained in such
policies. Borrower shall apply any proceeds received from any policies of
insurance relating to any Collateral to the Obligations. In the event Borrower
fails to provide Lender with evidence of the insurance coverage required by
this Agreement, Lender may, after giving notice to the Acting Agents and/or
Holdings with one (1) day to cure such lack of coverage, but is not required to,
purchase insurance at Borrower's expense to protect Lender's interests in the
Collateral. This insurance may, but need not, protect Borrower's interests.
The coverage purchased by Lender may not pay any claim made by Borrower or any
claim that is made against Borrower in connection with the Collateral. Borrower
may later cancel any insurance purchased by Lender, but only after providing
Lender with evidence that Borrower has obtained insurance as required by this
Agreement. If Lender purchases insurance for the Collateral, Borrower will be
responsible for the costs of that insurance, including interest and other
charges imposed by Lender in connection with the placement of the insurance,
until the effective date of the cancellation or expiration of the insurance.
The costs of the insurance may be added to the Obligations. The costs of the
insurance may be more than the cost of insurance Borrower is able to obtain on
its own.
4.13 ACCOUNTING METHODS; ACCESS TO ACCOUNTANTS. Borrower shall maintain
its current method of accounting, as of the closing date, without modification.
Borrower authorizes Lender to discuss the financial condition and financial
statements of Borrower with Borrower's Accountants, and authorizes Borrower's
Accountants to respond to all of Lender's inquiries and Borrower hereby waives
the right to assert a confidential relationship, if any, it may have with
Borrower's Accountants in connection with any information requested by Lender
pursuant to or in accordance with this Agreement.
4.14 INSPECTION. Lender shall have the right at any time during normal
business hours to visit and inspect any of the properties of Borrower or any of
its Subsidiaries, and, in conjunction with such inspection, to make copies and
take extracts from any of their books and records therefrom.
18
4.15 COLLECTION OF ACCOUNTS. Upon the occurrence of a Default or an Event
of Default and until such Default is cured or such Default or Event of Default
is waived in writing by Lender, Lender may, at any time, with or without notice
to Borrower, notify all account debtors of Borrower that the Accounts have been
assigned to Lender, and that Lender has a security interest in same; collect the
Accounts directly, and add the collection costs and expenses to Borrower's loan
account. Unless and until Lender collects the Accounts directly, or gives any
Acting Agent or Holdings written instructions, all payments on Accounts shall be
collected in the manner set forth in SUBSECTION 4.16 below.
4.16 COLLECTION OF ACCOUNTS AND PAYMENTS. The Acting Agents, Holdings
and Lender shall establish depository accounts ("Lender's Depository Accounts")
with such banks as are acceptable to Lender and Borrower to which Borrower shall
remit all payments on Accounts and to which Borrower will immediately deposit
all payments made for Inventory or other payments constituting proceeds of
Collateral in the identical form in which such payment was received, whether by
cash or check. Borrower, and any of its Affiliates, employees, agents, or other
Persons acting for or in concert with Borrower, shall, acting as trustee for
Lender, receive, as the sole and exclusive property of Lender, any monies,
checks, notes, drafts or any other payments relating to and/or proceeds of
Accounts or other Collateral which come into the possession or under the control
of Borrower or any of Borrower's Affiliates, employees, agents or other Persons
acting for or in concert with Borrower. Borrower hereby agrees that all
payments received by Lender, whether by cash, check, wire transfer or any other
instrument, made to such Lender's Depository Accounts or otherwise received by
Lender and whether on the Accounts or as proceeds of other Collateral or
otherwise will be the sole and exclusive property of Lender.
4.17 YEAR 2000. Borrower has made an assessment of the microchip and
computer-based systems and the software used in its business and based upon such
assessment believes that it will be "Year 2000 Compliant" by January 1, 2000.
For purposes of this paragraph, "Year 2000 Compliant" means that all software,
embedded microchips and other processing capabilities utilized by, and material
to the business operations or financial condition of, Borrower are able to
interpret, store, transmit, receive and manipulate data involving all calendar
dates correctly and without causing any abnormal ending scenarios in relation to
dates in and after the Year 2000. From time to time, at the request of Lender,
Borrower shall provide to Lender such updated information as is requested
regarding the status of its efforts to become Year 2000 Compliant.
SECTION 5. REPORTING AND OTHER AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, during the term of this Agreement
and until payment in full of all Obligations, each Borrower shall perform all of
the following:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Holdings will deliver to
Lender the financial statements and other reports listed on the Reporting
Addendum attached hereto on the dates and in the manner set forth in such
Reporting Addendum.
5.2 APPRAISALS. From time to time, upon the request of Lender, the Acting
Agents and/or Holdings will obtain and deliver to Lender, at Borrower's expense,
appraisal reports in form and substance and from appraisers satisfactory to
Lender and Borrower, stating the then current fair market and forced liquidation
values of all or any portion of the Collateral; PROVIDED HOWEVER, so long as no
Default or Event of Default is continuing, Lender shall not request an appraisal
as to any particular category of Collateral to be performed more than once every
Loan Year at Borrower's expense.
5.3 GOVERNMENT NOTICES. The Acting Agents and Holdings will deliver to
Lender promptly after receipt copies of all notices, requests, subpoenas,
inquiries or other writings received by any Borrower from any governmental
agency concerning any Employee Benefit Plan, the violation or alleged violation
of any Environmental Laws, the storage, use or disposal of any Hazardous
Material, the violation
19
or alleged violation of the Fair Labor Standards Act or Borrower's payment or
non-payment of any taxes including any tax audit.
5.4 MAINTENANCE OF PROPERTIES. Borrower will maintain or cause to be
maintained in good repair, working order and condition all material properties
used in the business of Borrower and its Subsidiaries and will make or cause to
be made all appropriate repairs, renewals and replacements thereof.
5.5 COMPLIANCE WITH LAWS. Borrower will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority as now in effect and which
may be imposed in the future in all jurisdictions in which Borrower or any of
its Subsidiaries is now doing business or may hereafter be doing business.
5.6 FURTHER ASSURANCES. Borrower shall, and shall cause each of its
Subsidiaries to, from time to time, execute such guaranties, financing or
continuation statements, documents, security agreements, reports and other
documents or deliver to Lender such instruments, certificates of title,
mortgages, deeds of trust, or other documents as Lender at any time may
reasonably request to evidence, perfect or otherwise implement the guaranties
and security for repayment of the Obligations provided for in the Loan
Documents.
5.7 USE OF PROCEEDS AND MARGIN SECURITY. Borrower shall use the proceeds
of all Loans for proper business purposes consistent with all applicable laws,
statutes, rules and regulations. No portion of the proceeds of any Loan shall
be used by Borrower or any of its Subsidiaries for the purpose of purchasing or
carrying margin stock within the meaning of Regulation G or Regulation U, or in
any manner that might cause the borrowing or the application of such proceeds to
violate Regulation T or Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act.
5.8 COVENANTS REGARDING FORMATION OF SUBSIDIARIES AND ACQUISITIONS. At
the time of any Acquisition or the formation of any new Subsidiary of Harmony,
The End, and/or Curious which is permitted under this Agreement, Holdings and
its Subsidiaries, as appropriate, shall (a) provide to Lender an executed
Assumption Agreement for such new Subsidiary, in substantially the form of
Exhibit A, attached hereto, which shall constitute a Loan Document for purposes
of this Agreement, as well as a warranties and representations document for such
new Subsidiary, substantially in the form of Exhibit B attached hereto, together
with appropriate attachments; (b) have the new Subsidiary execute and deliver to
Lender, UCC Financing Statements for all appropriate jurisdictions to perfect
Lender's first priority security interest; and (c) provide all other
documentation, including an opinion of counsel in form and substance
satisfactory to Lender with respect to such Acquisition, or the formation of
such Subsidiary, becoming a Borrower under this Agreement (and, in connection
with an Acquisition, a copy of the opinion of seller's counsel containing
reliance language for the benefit of Lender). Any such document, agreement or
instrument executed or issued pursuant to this Section 5.8 shall be a "Loan
Document" for purposes of this Agreement.
SECTION 6. NEGATIVE COVENANTS
Each Borrower covenants and agrees that, during the term of this Agreement
and until payment in full of all Obligations, Borrowers shall not:
6.1 BOOK NET WORTH.
Permit Holdings' book net worth on a consolidated basis, at any time, to be less
than $3,000,000.
6.2 CAPITAL EXPENDITURE LIMITS. Make or incur any plant or fixed capital
expenditure, or any
20
commitment therefor, or purchase, which is not financed by third party
financing, or lease any real or personal property or replacement equipment in
excess of $500,000.00 in the aggregate for any fiscal year on a consolidated
basis for Borrower, excluding all current real property leases and the
Beverly Hills lease build out as set forth on schedule 6.2 attached hereto.
6.3 COMPENSATION. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts, management fees or
other payments, whether directly or indirectly, in money or otherwise, during
any fiscal year to all of Holding's executives, officers, shareholders, and
directors (or any relatives of each of the foregoing) and to these same
executives, officers, shareholders and directors who hold similar positions with
the other Borrowers, in an aggregate amount of $1,000,000 per fiscal year for
the term of this Agreement. Each additional officer, executive, and director of
Holdings' total compensation will be limited to an aggregate amount not to
exceed $200,000 per fiscal year.
6.4 INDEBTEDNESS AND LIABILITIES. Directly or indirectly create, incur,
assume, guaranty, or otherwise become or remain directly or indirectly liable,
on a fixed or contingent basis, with respect to any indebtedness outside of the
ordinary course of Borrower's business as presently conducted, except for
renewals or extension of existing indebtedness (previously disclosed to Lender);
PROVIDED HOWEVER, in no event shall Borrower prepay any indebtedness owing to
any third party, other than the Obligations pursuant to SUBSECTION 2.4(C).
6.5 TRANSFERS, NEGATIVE PLEDGES AND RELATED MATTERS.
(A) TRANSFERS. Sell, lease, consign, assign or otherwise dispose of,
or grant any option with respect to any of the assets of Borrower, except that
Borrower may grant options pursuant to the agreements set forth on Schedule
6.5(A) attached hereto. Borrower shall notify Lender in writing when any Person
exercises their option pursuant to the agreements set forth on Schedule 6.5(A).
(B) NO NEGATIVE PLEDGES. Enter into or assume any agreement (other
than the Loan Documents) prohibiting the creation or assumption of any lien,
claim, security interest or encumbrance upon its properties or assets, whether
now owned or hereafter acquired.
6.6 INVESTMENTS, LOANS AND ACQUISITIONS. Make or permit to exist
investments in or loans to any other Person, or make any Acquisition, except
that so long as no Default or Event of Default then exists or would be caused
thereby:
(a) Borrower may make loans to employees for moving, entertainment,
travel and other similar expenses in the ordinary course of business in an
aggregate outstanding amount, on a consolidated basis, not in excess of $600,000
at any time;
(b) Borrower may make intercompany loans pursuant to
SUBSECTION 6.11;
(c) Borrower may make Acquisitions with the prior written
consent of Lender provided:
(i) The assets to be acquired are appropriate for use
in the business of Borrower or the Person to be acquired
is engaged in a business substantially similar to Borrower's
business;
(ii) Borrower shall have complied with the applicable
provisions of subsection 5.8 hereof; and
(iii) Borrower shall have delivered to Lender updated
financial projections (prepared in good faith and using
assumptions reasonable under the circumstances)
demonstrating that, after giving effect to such Acquisition
(and
21
the incurrence of any associated Indebtedness for money
borrowed for such Acquisition consented to by Lender),
compliance with all financial covenants under this Agreement
is maintained from the date of such projections through the
Termination Date.
6.7 DISTRIBUTIONS. Without the prior written consent of Lender, make any
distribution or declare or pay any dividends (in cash or in stock) on, or
purchase, acquire, redeem or retire any of Borrower's capital stock, of any
class, whether now or hereafter outstanding, except that Borrower may redeem or
retire in the aggregate 10% of its publicly traded capital stock during the term
of this Agreement, so long as no Default or Event of Default then exists or
would be caused thereby.
6.8 RESTRICTION ON FUNDAMENTAL CHANGES. (a) Enter into any transaction of
merger or consolidation except between Children's Broadcasting Corporation and
Holdings, and such transaction will not result in a diminution of net worth of
Holdings and its Subsidiaries; (b) liquidate, wind-up, dissolve itself, or cease
or suspend its business; (c) make any change in Borrower's financial structure
or in any of its business operations; (d) acquire by purchase or otherwise all
or any substantial part of the business or assets of, or stock or other
beneficial ownership of, any Person other than as permitted by SUBSECTION 6.6;
(e) establish, create or acquire any new Subsidiary other than as permitted by
SUBSECTION 6.6; or (f) without prior written notice to Lender, change its fiscal
year or change its tax entity designation under the IRC.
6.9 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into or
permit to exist any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate or with any
officer, director or employee of any Loan Party, except for transactions in the
ordinary course of Borrower's business, as presently conducted, and upon fair
and reasonable terms which are fully disclosed to Lender and which are no less
favorable to Borrower than it would obtain in a comparable arm's length
transaction with an unaffiliated Person.
6.10 BANK ACCOUNTS. Establish any new bank accounts without Lender's prior
written consent, which consent will not be unreasonably withheld, or amend or
terminate any blocked account or lockbox agreement without Lender's prior
written consent.
6.11 INTERCOMPANY ADVANCES. Permit, so long as no Default or Event of
Default then exists or would be caused thereby, intercompany advances amongst
all of the Borrowers to exceed in the aggregate (a) $500,000 for a single
occurrence and/or (b) $2,000,000 to all Borrowers at any time after the closing
date. Existing intercompany advances as set forth on Schedule 6.11 attached
hereto totaling $_______________ as of July 31, 1998 will not exceed in the
aggregate $___________ at any time during the term of this Agreement. Permit,
so long as no Default or Event of Default then exists or would be caused
thereby, intercompany advances amongst any other Subsidiaries or affiliates of
Holdings (other than Borrowers) except for The End (London) Ltd. in an amount
not to exceed in the aggregate $500,000 above the July 31 balance set forth on
schedule 6.11 during the term of this Agreement.
SECTION 7. DEFAULT, RIGHTS AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence or existence of any one or more of
the following events (each, an "EVENT OF DEFAULT"):
(A) PAYMENT. Failure to make payment of any of the Obligations when
due or declared due; or
(B) FAILURE TO PERFORM. Failure of Borrower or any Loan Party to
perform or comply with any term, condition, provision, covenant or agreement
contained in the Loan Documents; or
22
(C) DEFAULT IN OTHER AGREEMENTS. The existence of a default by
Borrower in any material agreement to which Borrower is a party or by which
Borrower or Borrower's property or assets are bound; or
(D) BREACH OF WARRANTY. Any representation, warranty, certification,
report or other statement made by any Loan Party in any Loan Document or in any
statement, certificate or report at any time given by such Person in writing
pursuant or in connection with any Loan Document is false in any material
respect on the date made; or
(E) CHANGE IN CONTROL. (a) Holdings shall fail to own, directly or
indirectly, 99% of the capital stock of each of the other Borrowers, (b) Harmony
shall fail to own 90% of the capital stock of each member of its Group, (c) The
End shall fail to own 90% of the capital stock of each member of its Group, and
(d) Curious shall fail to own 90% of the capital stock of each member of its
Group.
(F) MATERIAL ADVERSE EFFECT. Any event which creates a Material
Adverse Effect; or
(G) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) A
court enters a decree or order for relief with respect to any guarantor of the
Obligations, Borrower or any of its Subsidiaries in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (2) a receiver, liquidator, sequestrator, trustee, custodian or other
fiduciary having similar powers over any guarantor of the Obligations, Borrower
or any of its Subsidiaries, or over all or a substantial part of their
respective property, is appointed; or
(H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. Borrower or
any of its Subsidiaries, or any guarantor of the Obligations, commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect; consents to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of its
property; or makes any assignment for the benefit of creditors; or
(I) LEVY. Any lien, levy or assessment is filed or recorded with
respect to or otherwise imposed upon all or any part of Borrower's assets by the
United States or any department or instrumentality thereof or by any state,
county, municipality or other governmental agency; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of
attachment, levy, or similar process is entered or filed against Borrower or any
of its assets in an amount in any individual case in excess of $10,000 or an
amount in the aggregate at any time in excess of $50,000; or
(K) DISSOLUTION; INJUNCTION. Any order, judgment or decree is
entered against Borrower decreeing the dissolution or split up of Borrower, or
enjoining, restraining or in any way preventing Borrower from conducting all or
any material part of its business; or
(L) LOSS OF GUARANTOR. Any guarantor of the Obligations dies,
dissolves or liquidates, or the business of any such guarantor is suspended or
terminated for any reason; or
(M) FAILURE OF SECURITY. Lender does not have or ceases to have a
valid and perfected first priority security interest in the Collateral, or any
of the Loan Documents ceases to be in full force and effect or is declared to be
null and void; or
(N) SUBORDINATED DEBT PAYMENTS. Borrower makes any payment on
account of indebtedness which has been subordinated to the Obligations, except
to the extent such payment is allowed under any subordination agreement entered
into with Lender; or
23
(O) INTERCOMPANY ADVANCES. Borrower makes any intercompany advances
other than those permitted in SUBSECTION 6.11.
Notwithstanding anything contained in this SECTION 7 to the contrary,
Lender shall refrain from exercising its rights and remedies and an Event of
Default shall not be deemed to have occurred by reason of the occurrence of any
of the events set forth in SUBSECTIONS 7.1(G), 7.1(I), AND 7.1(J) of this
Agreement if, within 10 days from the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied.
7.2 SUSPENSION OF LOANS. Upon the occurrence of any Default or Event of
Default, notwithstanding any grace period or right to cure, Lender without
notice or demand, may immediately cease making additional Loans or advances
under this Agreement or any other agreement between Borrower and Lender. The
foregoing shall in no way affect, limit, or waive Lender's sole and absolute
discretion to make advances under this Agreement.
7.3 ACCELERATION. Upon the occurrence of any Event of Default described
in the foregoing SUBSECTIONS 7.1(G) OR 7.1(H), all Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrower, and this Agreement shall thereupon terminate; PROVIDED
HOWEVER, such termination shall not affect Lender's rights and security interest
in the Collateral or the Obligations. Upon the occurrence and during the
continuance of any other Event of Default, Lender may, by written notice to the
Acting Agents and Holdings, declare all or any portion of the Obligations to be,
and the same shall forthwith become, immediately due and payable and Lender may
terminate this Agreement; PROVIDED HOWEVER, such termination shall not affect
Lender's rights and security interest in the Collateral or the Obligations.
7.4 REMEDIES. Upon the occurrence of an Event of Default, in addition to
and not in limitation of any other rights or remedies available to Lender at law
or in equity, Lender may exercise in respect of the Collateral, all the rights
and remedies of a secured party on default under the UCC and may also (a)
require Borrower to, and Borrower hereby agrees that it will, at its expense and
upon request of Lender forthwith, assemble all or part of the Collateral as
directed by Lender and make it available to Lender at a place to be designated
by Lender; (b) require Borrower to hold all returned Inventory in trust for
Lender, segregate all returned Inventory from all other Inventory of Borrower or
in Borrower's possession and conspicuously label said returned Inventory as
Lender's property; (c) withdraw all cash in any blocked account and apply such
monies in payment of the Obligations; and (d) without notice or demand or legal
process, enter upon any premises of Borrower and take possession of the
Collateral. Borrower agrees that, to the extent notice of sale of the
Collateral or any part thereof shall be required by law, ten days notice to the
Acting Agents and Holdings of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. At any sale of the Collateral (whether public or private), if
permitted by law, Lender may bid (which bid may be, in whole or in part, in the
form of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Lender. Lender shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given.
Borrower shall remain liable for any deficiency. Lender may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Borrower
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter enacted. Lender shall
not be required to proceed against any Collateral but may proceed against
Borrower directly.
7.5 APPOINTMENT OF ATTORNEY-IN-FACT. Borrower hereby constitutes and
appoints Lender as Borrower's attorney-in-fact with full authority in the place
and stead of Borrower and in the name of Borrower, Lender or otherwise, from
time to time in Lender's discretion to take any action and to execute any
instrument that Lender may deem necessary or advisable to accomplish the
purposes of this
24
Agreement, including: (a) to ask, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for moneys due and to
become due under or in respect of any of the Collateral; (b) upon the
occurrence of a Default or an Event of Default, to adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly
any account debtor or obligor thereunder or allow any credit or discount
thereon; (c) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a)
above; (d) to file any claims or take any action or institute any proceedings
that Lender may deem necessary or desirable for the collection of or to
preserve the value of any of the Collateral or otherwise to enforce the
rights of Lender with respect to any of the Collateral; (e) to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral; (f) upon the
occurrence of a Default or an Event of Default, to notify the postal
authorities to change the address for delivery of Borrower's mail to an
address designated by Lender to receive and open all mail addressed to
Borrower and to retain all mail relating to the Collateral and forward all
other mail to Borrower; (g) to make, settle and adjust all claims and make
all determinations and decisions with respect to Borrower's insurance
policies. The appointment of Lender as Borrower's attorney-in-fact and
Lender's rights and powers are coupled with an interest and are irrevocable
until indefeasible payment in full and complete performance of all of the
Obligations.
7.6 LIMITATION ON DUTY OF LENDER WITH RESPECT TO COLLATERAL. Beyond the
safe custody thereof, Lender shall have no duty with respect to any Collateral
in its possession or control (or in the possession or control of any agent or
bailee) or with respect to any income thereon or the preservation of rights
against prior parties or any other rights pertaining thereto. Lender shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Lender accords its own property. Lender shall
not be liable or responsible for any loss or damage to any of the Collateral, or
for any diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee, broker or other agent or
bailee selected by Borrower or an Acting Agent or selected by Lender in good
faith.
7.7 LICENSE OF INTELLECTUAL PROPERTY. Borrower hereby assigns, transfers
and conveys to Lender, effective upon the occurrence of any Event of Default
hereunder, the non-exclusive right and license to use all Intellectual Property
owned or used by Borrower together with any goodwill associated therewith, all
to the extent necessary to enable Lender to realize on the Collateral and any
successor or assign to enjoy the benefits of the Collateral. This right and
license shall inure to the benefit of all successors, assigns and transferees of
Lender and its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and license is granted free of charge,
without requirement that any monetary payment whatsoever be made to Borrower by
Lender.
7.8 WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of Lender to
exercise, and no delay in exercising and no course of dealing with respect to,
any right under this Agreement or the other Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise by Lender of any right
under this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The rights in this
Agreement and the other Loan Documents are cumulative and shall in no way limit
any other remedies provided by law.
7.9 DEMAND; PROTEST. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, and notice of nonpayment at maturity, and agrees that Lender may
compromise, settle or release without notice to Borrower any accounts,
documents, instruments, chattel paper and/or guaranties at any time held by
Lender on which Borrower may in any way be liable. Borrower agrees to any
extensions of time of payment or partial payment at, before or after termination
of this Agreement.
25
7.10 MARSHALING; PAYMENTS SET ASIDE. Lender shall not be under any
obligation to marshal any assets in favor of any Loan Party or any other party
or against or in payment of any or all of the Obligations. To the extent that
any Loan Party makes a payment or payments to Lender or Lender enforces its
security interests or exercise its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all liens, security interests, rights and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
SECTION 8 MISCELLANEOUS
8.1 SET OFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, Lender, each assignee of Lender's interest,
and each participant is hereby authorized by Borrower at any time or from time
to time, without notice to Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all balances held by it at any of its offices for the account of Borrower or
any of its Subsidiaries (regardless of whether such balances are then due to
Borrower or its Subsidiaries) and any other property at any time held or owing
by that Lender or assignee to or for the credit or for the account of Borrower
against and on account of any of the Obligations then outstanding; PROVIDED
HOWEVER, no participant shall exercise such right without the prior written
consent of Lender.
8.2 EXPENSES AND ATTORNEYS' FEES. Borrower shall promptly pay all fees,
costs and expenses incurred by Lender in connection with any matters
contemplated by or arising out of this Agreement or the other Loan Documents
including the following, and all such fees, costs and expenses shall be part of
the Obligations, payable on demand and secured by the Collateral: (a) fees,
costs and expenses (including attorneys' fees, allocated costs of internal
counsel and fees of environmental consultants, accountants and other
professionals retained by Lender) incurred in connection with (i) the
examination, review, due diligence investigation, documentation and closing of
the financing arrangements evidenced by the Loan Documents, and (ii) the review,
negotiation, preparation, documentation, execution and administration of the
Loan Documents, the Loans, and any amendments, waivers, consents, forbearances
and other modifications relating thereto or any subordination or intercreditor
agreements; (b) fees, costs and expenses incurred in creating, perfecting and
maintaining perfection of Lender's rights in and to the Collateral; (c) fees,
costs and expenses incurred in connection with forwarding to Borrower the
proceeds of Loans including Lender's standard wire transfer fee; (d) fees,
costs, expenses and bank charges, including bank charges for returned checks,
incurred by Lender in establishing, maintaining and handling lock box accounts,
blocked accounts or other accounts for collection of the Collateral; (e) fees,
costs, expenses (including attorneys' fees and allocated costs of internal
counsel) and costs of settlement incurred in collecting upon or enforcing rights
against the Collateral or incurred in any action to enforce this Agreement or
the other Loan Documents or to collect any payments due from Borrower or any
other Loan Party under this Agreement or any other Loan Document or incurred in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement, whether in the nature of a "workout" or in
connection with any insolvency or bankruptcy proceedings or otherwise.
8.3 INDEMNITY. In addition to the payment of expenses pursuant to
SUBSECTION 8.2, Borrower shall indemnify, pay and hold Lender and the officers,
directors, employees, agents, consultants, auditors, persons engaged by Lender
to evaluate or monitor the Collateral, affiliates and attorneys of Lender and
such holders (collectively called the "INDEMNITEES") harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including the fees and disbursements of counsel for
26
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto) that may be imposed on, incurred by, or
asserted against that Indemnitee, in any manner relating to or arising out of
this Agreement or the other Loan Documents, the consummation of the
transactions contemplated by this Agreement, the statements contained in the
commitment letters, if any, delivered by Lender, Lender's agreement to make
the Loans hereunder, the use or intended use of the proceeds of any of the
Loans or the exercise of any right or remedy hereunder or under the other
Loan Documents (the "INDEMNIFIED LIABILITIES"); PROVIDED HOWEVER, Borrower
shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Liabilities arising from the gross negligence or willful
misconduct of that Indemnitee as determined by a court of competent
jurisdiction.
8.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
waiver of any provision of this Agreement or of the other Loan Documents, or
consent to any departure by Borrower or an Acting Agent therefrom, shall be
effective unless the same shall be in writing and signed by Lender. Each
amendment, modification, termination or waiver shall be effective only in the
specific instance and for the specific purpose for which it was given.
8.5 NOTICES. Unless otherwise specifically provided herein, all notices
shall be in writing addressed to the respective party as set forth below and may
be personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. Central time or, if not, on the
next succeeding Business Day; (c) if delivered by overnight courier, two (2)
days after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four (4) Business Days after depositing in the United States mail, with postage
prepaid and properly addressed.
If to Borrower: HARMONY HOLDINGS, INC.
724 First Street North, Fourth Floor
Minneapolis , Minnesota 55401
Attn: James G. Gilbertson
With a copy to: Lance W. Riley, Esq.
Telephone No.: (612) 338-3300
Telecopy No.: (612) 338-4318
HARMONY PICTURES, INC. and
as the HARMONY GROUP AGENT
6806 Lexington Avenue, Ground Floor
Attn: James G. Gilbertson
With a copy to: Lance W. Riley, Esq.
Los Angeles, California 90038
Telephone No.: (213) 960-1400
Telecopy No.: (213) 960-1415
THE END, INC. and as THE END
GROUP AGENT
8060 Melrose Avenue, 4th Floor
Hollywood, California 90046 -
until 9/30/98 then -
433 South Beverly Drive
Beverly Hills, California 90212
Attn: James G. Gilbertson
With a copy to: Lance W. Riley, Esq.
Telephone No.: (213) 782-9000
27
Telecopy No.: (213) 782-9001
CURIOUS PICTURES CORPORATION
and as the CURIOUS GROUP AGENT
440 Lafayette Street, 6th Floor
New York, New York 10003
Attn: James G. Gilbertson
With a copy to: Lance W. Riley, Esq.
Telephone No.: (212) 674-1400
Telecopy No.: (212) 674-0061
If to Lender: HELLER FINANCIAL, INC.
Attn: Portfolio Manager,
Heller Commercial Funding
500 West Monroe Street
Chicago, Illinois 60661
Telephone No.: (312) 928-8750
Telecopy No.: (312) 928-8761
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this SUBSECTION
8.5.
8.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND CERTAIN AGREEMENTS.
All agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower and Lender set forth in SUBSECTIONS 8.2, 8.3, 8.11,
8.14 AND 8.15 (including, without limitation, Borrower's agreement to pay fees,
agreement to indemnify Lender, agreement as to choice of law and jurisdiction
and Borrower's and Lender's waiver of a jury trial) shall survive the payment of
the Loans and the termination of this Agreement.
8.7 INDULGENCE NOT WAIVER. No failure or delay on the part of Lender in
the exercise of any power, right or privilege shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
8.8 ENTIRE AGREEMENT. This Agreement and the other Loan Documents embody
the entire agreement among the parties hereto and supersede all prior
commitments, agreements, representations, and understandings, whether written or
oral, relating to the subject matter hereof, and may not be contradicted or
varied by evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto.
8.9 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
8.10 HEADINGS. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
8.11 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
28
8.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that Borrower may not assign its rights or obligations hereunder
without the prior written consent of Lender. Lender may assign its rights and
delegate its obligations under this Agreement and further may assign, or sell
participations in, all or any part of the Loans, or any other interest herein to
an affiliate or to another Person. Lender shall be relieved of its obligations
hereunder with respect to the assigned portion thereof. Borrower hereby
acknowledges and agrees that any assignment will give rise to a direct
obligation of Borrower to the assignee and that the assignee shall be considered
to be a "Lender". Lender may furnish any information concerning Borrower and
its Subsidiaries in its possession from time to time to assignees and
participants (including prospective assignees and participants).
8.13 NO FIDUCIARY RELATIONSHIP; LIMITATION OF LIABILITIES.
(A) No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by Lender to Borrower.
(B) Neither Lender, nor any affiliate, officer, director, shareholder,
employee, attorney, or agent of Lender shall have any liability with respect to,
and Borrower hereby waives, releases, and agrees not to sue any of them upon,
any claim for any special, indirect, incidental, or consequential damages
suffered or incurred by Borrower in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Borrower hereby waives, releases, and agrees not to sue Lender or any of
Lender's affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of, or
in any way related to, this Agreement or any of the other Loan Documents, or any
of the transactions contemplated by this Agreement or any of the transactions
contemplated hereby.
8.14 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF
ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS
OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS. BORROWER HEREBY WAIVERS PERSONAL SERVICE OF ANY AND ALL
PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON THE ACTING
AGENTS AND HOLDINGS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO THE ACTING AGENTS AND HOLDINGS, AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS
BEEN POSTED.
8.15 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. BORROWER AND LENDER
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
8.16 CONSTRUCTION. Borrower and Lender each acknowledge that it has had
the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the
29
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by Borrower and
Lender.
8.17 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto. Delivery of an executed counterpart of a signature
page to this Agreement, any amendments, waivers, consents or supplements, or to
any other Loan Document by telecopier shall be as effective as delivery of a
manually executed counterpart thereof.
8.18 CONFIDENTIALITY. Lender shall hold all nonpublic information obtained
pursuant to the requirements hereof and identified as such by Borrower in
accordance with such its customary procedures for handling confidential
information of this nature and in accordance with safe and sound business
practices and in any event may make disclosure to such of its respective
affiliates, officers, directors, employees, agents and representatives as need
to know such information in connection with the Loans. If Lender or any of its
affiliates is otherwise a creditor of Borrower, Lender or such affiliate may use
the information in connection with its other credits. Lender may also make
disclosure reasonably required by a bona fide offeree or assignee (or
participation), or as required or requested by any Governmental Authority or
representative thereof, or pursuant to legal process, or to its accountants,
lawyers and other advisors, and shall require any such offeree or assignee (or
participant) to agree (and require any of its offerees, assignees or
participants to agree) to comply with this SUBSECTION 8.18. In no event shall
Lender be obligated or required to return any materials furnished by Borrower.
Witness the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
HELLER FINANCIAL, INC. HARMONY HOLDINGS, INC.
By: By:
Name: Steve Narsutis Name: Christopher T. Dahl
Title: Senior Vice President Title: Chief Executive Officer
FEIN: 95-4333330
HARMONY PICTURES, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 95-4266372
THE END, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
30
FEIN: 95-4433134
CURIOUS PICTURES CORPORATION
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 13-3696930
PURE FILM, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 95-4658917
Signatures continue on following pages
MELODY FILMS, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 95-4266370
LEXINGTON FILMS, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 95-4659774
SERIAL DREAMER FILMS, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 95-4669631
THE BEGINNING ENTERTAINMENT, INC.
By:
Name: Christopher T. Dahl
31
Title: Chief Executive Officer
FEIN: 95-1041790
THE MOMENT FILMS, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 95-4621314
GIGANTIC ENTERTAINMENT, INC.
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 41-1912935
FURIOUS PICTURES CORPORATION
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 13-3964472
DELIRIOUS PICTURES CORPORATION
By:
Name: Christopher T. Dahl
Title: Chief Executive Officer
FEIN: 13-3964473
CONDITIONS RIDER
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This Conditions Rider is attached to and made a part of that certain Loan
and Security Agreement dated as of July __, 1998 and entered into among Harmony
Holdings, Inc., Harmony Pictures, Inc., The End, Inc., Curious Pictures
Corporation, Pure Film, Inc., Melody Films, Inc., Lexington Films, Inc., Serial
Dreamer Films, Inc., The Beginning Entertainment, Inc., The Moment Films, Inc.,
Gigantic Entertainment, Inc., Furious Pictures Corporation and Delirious
Pictures Corporation and Heller Financial, Inc. Capitalized terms used herein
and not defined herein shall have the meanings ascribed to them in the Loan and
Security Agreement.
(A) CLOSING DELIVERIES. Lender shall have received, in form and
substance satisfactory to Lender, all documents, instruments and information and
all other agreements, notes, certificates, orders, authorizations, financing
statements, mortgages and other documents which Lender may at any time request,
including, without limitation, the following:
(1) this duly executed Agreement (including Conditions Rider,
Reporting Addendum and all Schedules);
(2) duly executed UCC-1 Financing Statements listing Borrower as
debtor and Lender as secured party to be filed in all appropriate
jurisdictions;
(3) receipt of clear UCC, tax lien and pending suit and judgment
searches in all requisite jurisdictions for Borrower or appropriate
termination statements and/or releases for Borrower and all
Subsidiaries;
(4) evidence of Borrower's property/liability insurance, Lender's
loss payable endorsements, and confirmation that there is adequate
liability coverage acceptable to Lender to cover existing
contingent liabilities;
(5) a duly executed Term Note;
(6) a duly executed Blocked Account Agreement in New York with
Marine Midland bank;
(7) two duly executed Blocked Account Agreements in California
with City National Bank;
(8) evidence that Holdings, Harmony and Melody are corporations in
good standing with the State of Delaware; Pure, Lexington, Serial
Dreamer, The End, The Beginning, The Moment and Gigantic are
corporations in good standing with the State of California; and
that Curious, Furious and Delirious are corporations in good
standing with the State of New York.
(9) evidence that Holdings is a corporation in good standing as a
foreign corporation with the States of Minnesota and California;
and that Harmony is a corporation in good standing as a foreign
corporation with the State of California; and that Melody and
Curious are corporations in good standing as foreign corporations
with the State of California;
(10) a takeover audit including, without limitation, a review of
past due Accounts, acceptable to Lender;
(11) an opinion of Borrower's general counsel;
(12) an opinion of Borrower's outside counsel;
(13) a duly executed Guaranty from Children's Broadcasting
Corporation;
(14) a duly executed Validity Guaranty from Radio Management, LLC;
33
(15) a duly executed Landlord's Waivers and Consents executed by
the lessors of: (a) 724 First Street North, Fourth Floor,
Minneapolis, Minnesota 55401; (b) 440 Lafayette Street, 6th Floor,
New York, New York 10003; (c) 1360 Mission Street, 2nd Floor, San
Francisco, California 94103; (d) 6806 Lexington Avenue, Ground
Floor, Los Angeles, California 90038; and (e) 435 Hudson Street,
Suite 400, New York, New York 10006 and 75 Varick Street, 16th
Floor, New York, New York _______________.
(16) evidence that all indebtedness of Holdings to Imperial Bank,
existing on the closing date shall be paid in full with the
proceeds of the initial Loan made hereunder and all liens
associated therewith terminated and all accounts closed; and
(17) receipt and review by Lender of the service contract between
Entertainment Partners and Holdings to evaluate the relationship
and tax obligations of Holdings.
(B) SECURITY INTERESTS. Lender shall have received satisfactory
evidence that all security interests and liens granted to Lender pursuant to
this Agreement or the other Loan Documents have been duly perfected and
constitute first priority liens on the Collateral.
(C) CLOSING DATE AVAILABILITY. After giving effect to the
consummation of the transactions contemplated hereunder on the closing date and
the payment by Borrower, the Acting Agents or Holdings of all costs, fees and
expenses relating thereto, the Maximum Revolving Loan Amount on the closing date
shall exceed the requests for Revolving Advances on such date by at least
$____________________.
(D) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Conditions Rider and in the Loan Documents shall be
true, correct and complete in all material respects on and as of each funding
date of the Loans to the same extent as though made on and as of that date,
except for any representation or warranty limited by its terms to a specific
date and taking into account any disclosures made by Borrower or an Acting Agent
to Lender after the closing date and approved by Lender.
(E) FEES. On the closing date or any funding date of a Revolving
Advance, the Acting Agent and/or Holdings shall have paid to Lender all fees due
on or prior to such dates.
(F) NO DEFAULT. No event shall have occurred and be continuing or
would result from the consummation of the requested borrowing that would
constitute an Event of Default or a Default.
(G) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have performed
in all material respects all agreements and satisfied all conditions which any
Loan Document provides shall be performed by it on or before that funding date
of any Loan.
(H) NO PROHIBITION. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Lender
from making any Loans.
(I) NO LITIGATION. There shall not be pending or, to the knowledge
of Borrower, threatened, any action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration by, against or affecting any
Loan Party or any of its Subsidiaries or any property of any Loan Party or any
of its Subsidiaries that has not been disclosed to Lender by the Acting Agents
or Holdings in writing, and there shall have occurred no development in any such
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration that, in the opinion of Lender, would reasonably be
expected to have a Material Adverse Effect.
34
(J) POST-CLOSING CONDITIONS. Borrower covenants and agrees to
satisfy the following post-closing conditions within the time periods specified:
(1) MONTHLY PROJECTIONS. Within 30 days after the closing
date, Holdings will provide Lender with consolidated and consolidating monthly
income statement projections for fiscal year 1999 for all Borrowers and its
subsidiaries in form and substance acceptable to Lender.
(2) DESKTOP APPRAISAL. Prior to any advance of funds under the
Term Loan, Holdings will provide Lender with a forced liquidation value desktop
appraisal in form and substance and by an appraiser, acceptable to Lender, of
all of Borrower's fixed assets.
(3) DISSOLUTION OF SUBSIDIARIES. (a) Within 90 days after the
closing date or prior to funding the Term Loan, Holdings will provide Lender
with evidence acceptable to Lender that Harmony Media Communications, Inc.,
Harmony Entertainment, Inc., and Upon a Star Entertainment Group, Inc., have
been dissolved and that all assets have been transferred to one or more of the
Borrowers. (b) Within 90 days after December 31, 1998, Holdings will provide
Lender with evidence acceptable to Lender that Hollywood Business Solutions,
Inc. has been dissolved and that all assets have been transferred to one or more
of the Borrowers.
(4) BANK ACCOUNT CLOSING. Within 90 days after the closing
date, Holdings will provide Lender with evidence that all accounts for all
Borrowers at Bank of America have been closed. In addition, Holdings will
provide Lender with evidence of the opening of an account with U.S. Bank, N.A.
in Minneapolis with access by all Borrowers.
(5) LANDLORD WAIVER. Within 60 days after the closing date,
Holdings or The End will provide Lender with a landlord's waiver for the
California location for The End and its Subsidiaries.
(6) GOOD STANDING. Within 60 days after the closing date, The
End will provide Lender with evidence that The End is in good standing as a
foreign corporation with the State of New York;
(7) INTERCOMPANY ADVANCES SCHEDULE 6.11. Within fifteen (15)
days after the closing date, Holdings will provide Lender with Schedule 6.11
dated as of July 31, 1998.
REPORTING ADDENDUM
This Reporting Addendum is attached and made a part of that certain Loan
and Security Agreement, dated as of July __, 1998 and entered into among Harmony
Holdings, Inc., Harmony Pictures, Inc., The End, Inc., Curious Pictures
Corporation, Pure Film, Inc., Melody Films, Inc., Lexington Films, Inc., Serial
Dreamer Films, Inc., The Beginning Entertainment, Inc., The Moment Films, Inc.,
Gigantic Entertainment, Inc., Furious Pictures Corporation and Delirious
Pictures Corporation and Heller Financial, Inc. Capitalized terms used herein
and not defined herein shall have the meanings ascribed to them in the Loan and
Security Agreement.
(A) COLLATERAL REPORTS. Holdings, on behalf of all Borrowers, shall
execute and deliver to Lender, no later than the 15th day of each month, or more
frequently if requested by Lender, a detailed aging of the Accounts, a
reconciliation statement and a summary aging, by vendor, of all accounts payable
and any book overdraft. Holdings, on behalf of all Borrowers, shall deliver to
Lender not less than once per week, or more frequently if requested by Lender,
collection reports, sales journals and invoices. Holdings, on behalf of all
Borrowers, shall also deliver to Lender at Lender's request, original delivery
receipts, account debtors' purchase orders, shipping instructions, bills of
lading and other documentation respecting shipment arrangements. Absent such a
request by Lender, copies of all such documentation shall be held by Holdings on
behalf of all Borrowers as custodian for Lender. Holdings, on behalf of all
Borrowers, shall execute and deliver to Lender, no later than the 15th day of
each month, or
35
more frequently if requested by Lender, a detailed report of the Obligations
under the Loan allocated to each Borrower, the availability for each Borrower
for borrowing purposes under the formulas set forth in Section 2.1 and the
intercompany advances specifying the amount, the donor and recipient, and a
report detailing the concentration status of each Borrower's Accounts.
(B) RETURNS. Returns and allowances, if any, as between each
Borrower and its account debtors, shall be permitted by Borrower on the same
basis and in accordance with the usual customary practices of Borrower as
they exist at the time of the execution and delivery of this Agreement. If
at any time prior to the occurrence of an Event of Default any account debtor
returns any inventory to Borrower, Borrower shall promptly determine the
reason for such return and, if Borrower accepts such return, issue a credit
memorandum (with a copy to be sent to Lender) in the appropriate amount to
such account debtor. Holdings shall promptly notify Lender of all returns and
recoveries and of all disputes and claims.
(C) FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Holdings agrees
to deliver to Lender: (a) as soon as available, but in any event within 45
days after the end of each month during each of Borrower's fiscal years, a
company prepared balance sheet and profit and loss statement covering
Borrower's operations during such period; and (b) as soon as available, but
in any event within 90 days after the end of each of Borrower's fiscal years,
financial statements of each Borrower on a consolidated basis for each such
fiscal period, certified by independent certified public accountants
acceptable to Lender. Such financial statements shall include a balance sheet
and profit and loss statement and the accountants' letter to management.
Together with the above, Holdings shall also deliver each Borrower's Form
10-Qs, 10-Ks or 8-Ks, if any, as soon as the same become available, and any
other report reasonably requested by Lender relating to the Collateral and
the financial condition of each Borrower and a certificate signed by the
chief financial officer of Holdings to the effect that all reports,
statements or computer prepared information of any kind or nature delivered
or caused to be delivered to Lender fairly present the financial condition of
all Borrowers and that there exists on the date of delivery of such
certificate to Lender no condition or event which constitutes an Event of
Default.
(D) TAX RETURNS, RECEIPTS. Holdings agrees to deliver to Lender
copies of each of Borrower's future federal income tax returns, and any
amendments thereto, within 30 days of the filing thereof with the Internal
Revenue Service. Holdings further agrees to promptly deliver to Lender, upon
request, satisfactory evidence of each Borrower's payment of all federal
withholding taxes required to be paid by each Borrower.
(E) GUARANTOR REPORTS. Holdings agrees to cause any guarantor of
any of the Obligations, other than Radio Management, LLC, to deliver its
annual financial statements and copies of all federal income tax returns as
soon as the same are available and in any event no later than 90 days after
the same are required to be filed by law.
(F) TITLE TO EQUIPMENT. Upon Lender's request, Holdings shall
immediately deliver to Lender, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items
of Equipment for each Borrower.
(G) BORROWING BASE CERTIFICATES, REGISTERS AND JOURNALS. On each
Business Day upon which an Acting Agent requests a Revolving Advance, but in no
event less than once during any week, an Acting Agent shall deliver to Lender
for such Business Day: (1) a Borrowing Base Certificate in the form prescribed
by Lender; (2) an invoice register or sales journal describing all sales of
Borrower, in form and substance satisfactory to Lender, and, if Lender so
requests, copies of invoices evidencing such sales and proofs of delivery
relating thereto; (3) a cash receipts journal; (4) a credit memo journal; (5) an
adjustment journal, setting forth all adjustments to Borrower's accounts
receivable; and (6) copies of all contract awards for each new project being
billed.
(H) APPRAISALS. The Acting Agents and/or Holdings agree to deliver
to Lender appraisals as
36
set forth in SUBSECTION 5.2.
(I) PROJECTIONS. As soon as available and in any event no later than
30 days prior to the end of each fiscal year of Borrower, Holdings will deliver
consolidated and consolidating projections of Borrower and its Subsidiaries for
the forthcoming three fiscal years, year by year and month by month.
(J) LITIGATION SCHEDULE. Holdings agrees to deliver to Lender, no
later than the 1st day of each quarter, or more frequently if requested by
Lender, a detailed report on the status of all items listed on Schedule 4.6,
LITIGATION; ADVERSE FACTS. Said Schedule 4.6 shall be revised quarterly to
address resolved and new matters, pursuant to SUBSECTION 4.6.
(K) OTHER INFORMATION. With reasonable promptness, Borrower, the
Acting Agent or Holdings will deliver such other information and data as Lender
may reasonably request from time to time.
The reports, statements and other information required by
paragraphs A, C, D, E and G above shall be prepared by Holdings
on behalf of all Borrowers on a consolidated and consolidating
basis by Group.
37