EXHIBIT 10.3
VOLUNTARY SURRENDER AGREEMENT
This is an Agreement for voluntary surrender of collateral ("Agreement")
made and entered into this 12th day of March, 2001, by and between K-Tel
International (USA), Inc. ("K-Tel USA") and K-5 Leisure Products, Inc. ("K-5").
RECITALS
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A. On September 27, 1999, K-5 and K-Tel International, Inc. ("K-Tel")
entered into that certain Credit Agreement (the "K-5 Agreement"). As
of the date hereof, K-Tel is indebted to K-5 under the terms and
conditions of the K-5 Agreement (and all documents delivered pursuant
thereto) in the principal amount of $3,155,824,69, together with
interest on such principal sum in the amount of $10,894.10, for an
aggregate Indebtedness to K-5 of $3,166,723.79 plus costs and expenses
of collection including reasonable attorneys' fees (the "K-5
Indebtedness").
B. K-Tel is unable to meet the demand of K-5 for full satisfaction of its
obligations to K-5 under the K-5 Agreement.
C. The obligations of K-Tel to K-5 under the K-5 Agreement were
guaranteed by K-Tel USA dated September 27, 1999 which guaranty was
secured by a Security Agreement from K-Tel USA to K-5, under which K-5
holds, INTER ALIA, a security interest in essentially all of K-Tel
USA's inventory, receivables, equipment, and general intangibles (the
"Collateral").
D. On November 19, 1997, K-Tel USA and Foothill Capital Corporation
("Foothill") entered into that certain Loan and Security Agreement
(the "Foothill Agreement"). On February 28, 2001, Foothill assigned
all of its right, title and interest in the Foothill Agreement to K-5.
As of the date hereof, K-Tel USA is indebted to K-5 under the terms
and conditions of the Foothill Agreement (and all documents delivered
pursuant thereto) in the principal amount of $3,479,544.85 together
with interest on such principal sum in the amount of $12,011.58, for
an aggregate Indebtedness under the Foothill Agreement to K-5 of
$3,491,556.43 plus costs and expenses of collection including
reasonable attorneys' fees (the "Foothill Indebtedness"). On February
28, 2001, K-5 made additional advances under the Foothill Agreement of
$445,000.00 bringing the total indebtedness under the Foothill
Agreement to $3,924,544.85 (the K-5 Indebtedness and the Foothill
Indebtedness are together, the "Indebtedness"). The total of the
Indebtedness as of this date is $7,091,268.64.
E. To secure repayment of all obligations of K-Tel USA to Foothill, K-Tel
USA gave Foothill a security interest in the Collateral owned by K-Tel
to USA, which security interest has been assigned to K-5.
F. K-Tel USA is unable to meet the demand of K-5 for full satisfaction of
its obligations to K-5 under the Foothill Agreement.
G. K-5 wishes to provide for disposition of the Collateral, in a manner
which complies with the provisions of the Uniform Commercial Code now
in effect in the State of Minnesota and wishes to ensure that it is
proceeding in a commercially reasonable manner in disposing of the
Collateral.
H. K-Tel USA and K-5 intend this Agreement to assist in obtaining the
maximum return on the liquidation of the Collateral.
NOW, THEREFORE, in consideration of the above recitals, as well as the
covenants and representations contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, K-5
and K-Tel USA:
(1) The above recitals are acknowledged by the parties to be true and
correct and are incorporated herein by reference.
(2) AGREEMENT OF K-TEL USA. K-Tel USA agrees to the following:
(a) On the date hereof and in connection with K-5's foreclosure of
its security interest in the Collateral, K-Tel USA hereby
voluntarily surrenders to K-5 the Collateral together with all of
its right, title and interest therein. The Collateral will remain
subject to K-5's security interests. K-Tel USA acknowledges that
K-5 will provide all notices of default or disposition of the
Collateral required by Minnesota Statutes Section 336.9-504.
(b) On the date hereof, K-Tel USA shall deliver to K-5 all of the
Collateral and shall deliver to K-5 all documents necessary to
effectuate and facilitate (i) K-Tel USA's voluntary surrender of
all of the Collateral to K-5 hereunder and (ii) any disposition
of the Collateral by K-5 to third parties hereafter, (all such
documents to be in form acceptable to K-5). Notwithstanding such
delivery, K-Tel USA shall maintain existing insurance on the
Collateral until such time as K-5 disposes of the Collateral,
equal to the value thereof as set forth herein, all such
insurance to name K-5 as loss payee.
(c) Except for the rights of K-Tel USA to reduction of the
Indebtedness as contained in Section 3 of this Agreement, K-Tel
USA hereby waives and renounces any rights in or to the
Collateral, including without limitation any right to further
notice of the disposition thereof, whether under Minnesota
Statutes ss. 336.9-504 or otherwise, except for any right to
redeem the Collateral under Minnesota Statutes Section 336.9-506.
(3) REDUCTION OF INDEBTEDNESS. Subsequent to the voluntary surrender of the
Collateral by K-Tel USA herein, upon its full performance under Section 2 hereof
and based upon the representations, warranties and covenants of K-Tel USA
herein, K-5 will apply funds in accordance with the Uniform Commercial Code and
will reduce the amount of the Indebtedness by the amount actually received by
K-5 upon K-5's disposition to third parties of the Collateral conveyed to K-5
hereunder; provided, however, that the Indebtedness shall not be so reduced
until funds paid or to be paid upon such disposition are collected funds
(subject to no rights of setoff, charges or other claims or reductions). Upon
the collection by K-5 of the total amount of the Indebtedness, K-5 will
terminate any financing statements, wherever filed, which name K-Tel USA as
Debtor and K-5 as secured party.
(4) REPRESENTATIONS AND WARRANTIES OF K-TEL USA. To induce K-5 to enter
into this Agreement and to accept K-Tel USA Inc.'s voluntary surrender of all of
K-Tel USA, Inc.'s right, title and interest in and to the Collateral, K-Tel USA,
Inc. represents and warrants to K-5 and agrees that:
(a) TITLE AND CONDITION OF CONVEYED COLLATERAL. K-Tel USA has good
and marketable title to and owns the Collateral, free and clear
of all security interests, liens or encumbrances other than those
in favor of K-5 being foreclosed hereby and those set forth on
EXHIBIT A attached hereto. K-5 has a valid, perfected, first
priority security interest in all of the Collateral. The parties,
after due consideration, have concluded and estimated that the
value of the Collateral being surrendered will have a fair market
value substantially less than the Indebtedness.
(b) FAIR MARKET VALUE. K-Tel USA admits and agrees that K-5 by
reducing the Indebtedness as provided herein pursuant to a
commercially reasonable sale as
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required by Minnesota Statutes Section 336.9-504, will have
provided a full, fair, equivalent and adequate consideration to
K-Tel USA for the Collateral.
(c) RESIDENCE OF K-TEL USA AND LOCATION OF COLLATERAL. K-Tel USA
represents and warrants to K-5 that the addresses specified in
Section 10(a) hereof constitute the "residences" of K-Tel USA for
purposes of all state or federal laws, statutes or regulations
relating to the payments of or assessment for taxes of all types
(and the reporting of income or filing of returns relating
thereto) and that all of the Collateral is located, stored or
maintained by K-Tel USA at that location or locations in the same
county.
(d) NO TRANSFER OF COLLATERAL. K-Tel USA represents and warrants to
K-5 that during the time period commencing on March 13, 2000 and
continuing to and including the date hereof, K-Tel USA has not
transferred, conveyed, assigned or otherwise disposed of any
material portion of (or any of K-Tel USA's then existing right,
title or interest in) the Collateral other than in the ordinary
course of their business.
(5) ADDITIONAL COVENANTS OF K-TEL USA. K-Tel USA additionally covenants
to K-5 as follows:
(a) FURTHER INSTRUMENTS. On the date hereof, or thereafter if
necessary, K-Tel USA shall, without cost or expense to K-5,
execute and deliver to or cause to be executed and delivered to
K-5 such further instruments and take such other action as K-5
may reasonably require to carry out more effectively the transfer
of the Collateral contemplated by this Agreement.
(b) FURTHER DISPOSITION. The Collateral may be disposed of by K-5 by
public sale, private sale or other disposition, and any auction,
private sale or other disposition of the Collateral, pursuant to
the provisions of Minnesota Statutes Section 336.9-504, may be
held by K-5 on any real property owned, occupied, leased or
controlled by K-Tel USA without charge to K-5 for use of such
real property.
(c) BOOKS AND RECORDS. K-5 shall be entitled to reasonable access to
the books and records of K-Tel USA.
(d) RELEASE AND SETTLEMENT OF CLAIMS. K-Tel USA hereby stipulates and
agrees that the amount of the Indebtedness prior to any reduction
hereunder is as set forth in the Recitals.
(e) COMMISSION. K-Tel USA hereby stipulates and agrees that it is not
entitled to any commission or other remuneration from K-5 upon
K-5's disposition of the Collateral hereafter to any third party
and that no action undertaken by K-5 pursuant hereto will in any
way limit or discharge K-5's security interest in any of the
Collateral, or any other interests of K-5 in any other real or
personal property of K-Tel USA or any affiliates.
(6) MUTUAL COVENANTS.
(a) EFFECT OF SURRENDER. The voluntary surrender of the Collateral by
K-Tel USA hereunder is intended to be, and shall constitute, a
voluntary surrender of the same in connection with K-5's
foreclosure of its security interests in the Collateral only. It
is not a transfer for security nor is such voluntary surrender an
election or proposal by K-5 to retain the Collateral in
satisfaction of the obligations of K-Tel USA to K-5. K-5 retains
the right to seek a deficiency against K-Tel USA.
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(b) AMENDMENTS, WAIVERS, ETC. No amendment, modification or waiver or
any of the provisions of this Agreement shall be effective unless
the same shall be in writing and signed by K-5 and K-Tel USA, and
then such waiver shall be effective only in the specific instance
and for the specific purpose for which given.
(7) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each and every
representation and warranty made by K-Tel USA in this Agreement shall survive
the date hereof.
(8) ADDITIONAL ADVANCES. Although K-5 may determine to advance such other
sums as K-5 may in its sole discretion determine to be advances permitted under
Minnesota Statutes Section 336.9-504(1)(a), K-Tel USA acknowledges that K-5 has
no obligation to make any such further advances.
(9) GOVERNING LAW. This Agreement shall be governed by and construed under
and in accordance with the laws of the State of Minnesota.
(10) MISCELLANEOUS.
(a) NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and shall be considered
delivered in all aspects when it has been delivered by hand or
mailed by certified mail, return receipt requested, first class
postage prepaid, addressed as follows:
To K-5: K-5 Leisure Products, Inc.
220 Saulteaux Crescent
Winnipeg, Manitoba, Canada
Attention: Philip Kives
with a copy to: LEONARD, STREET & DEINARD, P.A.
150 South Fifth Street, Suite 2300
Minneapolis, MN 55402
Attention: Steven DeRuyter
To K-Tel USA: K-Tel International (USA), Inc.
5555 Pioneer Creek Drive
Maple Plain, MN 55359
Attention: Dennis Ward
with a copy to: BRIGGS AND MORGAN
2400 IDS Center
Minneapolis, MN 55402
Attention: Av Gordon
or such other addresses as shall be similarly furnished in writing by any
party.
(b) ENTIRE AGREEMENT; BINDING EFFECT. This instrument contains the
entire agreement between the parties hereto with respect to the
transactions contemplated herein, and shall be binding upon the
parties hereto and their respective legal representatives,
successors and assigns. There are no agreements or understandings
between the parties other than those set forth herein or executed
simultaneously herewith.
(c) COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any or all of which may contain the
signatures of fewer than all of the parties, and all of which
shall be construed together as but a single instrument.
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(d) HEADINGS. Section and paragraph headings in this Agreement are
included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
(e) NATURE OF AGREEMENT. Notwithstanding the requirement of
performance by any party subsequent to the date hereof, this
Agreement shall constitute a binding contract for the surrender
of the Collateral pursuant to the terms hereof enforceable as
between the parties hereto upon execution hereof, subject only to
satisfaction of the terms set forth herein.
(f) NO AGENCY OR JOINT VENTURE. Neither the execution of this
Agreement nor any action taken by parties hereto is intended to
be, nor shall it be construed to be, the formation of any agency
relationship, any partnership or joint venture. No party shall
have the right to obligate or otherwise bind any other party
hereunder. No third party beneficiary rights are created
hereunder.
(g) LIMITATION. The transactions contemplated in this Agreement are
not intended by K-5 or K-Tel USA to constitute an accord and
satisfaction of the Indebtedness, the obligations of K-Tel USA
under the Loan Agreement and the Foothill Agreement (the
"Obligations"), or any other obligations of K-Tel USA to K-5. K-5
does not intend to retain the Collateral in full satisfaction of
the Obligations or to fully discharge the Obligations as a result
of the transactions contemplated herein, it being expressly
understood by the parties hereto that the Indebtedness and the
Obligations shall be reduced, cancelled and discharged only by
the amounts and in the manner specifically set forth in this
Agreement and that K-5's security interest or other liens or
encumbrances upon the real or personal property of K-Tel USA,
including without limitation the Collateral, shall remain and
continue herein, unaffected by the transactions contemplated
herein except to the extent specifically set forth.
K-TEL INTERNATIONAL (USA), INC.
By: /s/ Dennis Ward
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Dennis Ward
Its Chief Financial Officer
K-5 LEISURE PRODUCTS, INC.
By: /s/ Philip Kives
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Philip Kives
Its President
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EXHIBIT A TO
VOLUNTARY SURRENDER AGREEMENT
Security Interests held by other than K-5:
FILING NUMBER AND DATE SECURED PARTY COLLATERAL
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