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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 29, 1995 Commission File No. 1-7923
HANDLEMAN COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1242806
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Kirts Boulevard, Troy, Michigan 48084 - 4142
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(Address of principal executive offices) (Zip Code)
810-362-4400
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
COMMON STOCK $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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PACIFIC STOCK EXCHANGE
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CHICAGO STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
NONE
------------------
(Title of Class)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
YES X NO
----- -----
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
The aggregate market value as of July 14, 1995 was $337,561,488.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. The number of shares of common
stock outstanding as of July 14, 1995 was 33,597,524.
Item 14(a) 3. on page 32 describes the exhibits filed with the Securities and
Exchange Commission.
Certain sections of the definitive Proxy Statement to be filed for the 1995
Annual Meeting of Shareholders are incorporated by reference into Part III.
Page 1 of 228
PART 1
Item 1. BUSINESS
Handleman Company, a Michigan corporation (herein referred to as the
"Company" or "Handleman" or "Registrant"), which has its executive office in
Troy, Michigan, is the successor to a proprietorship formed in 1934, and to a
partnership formed in 1937.
DESCRIPTION OF BUSINESS:
- ------------------------
Handleman Company is engaged in the sale and distribution of prerecorded
music, video, hardcover and paperback books, and personal computer software
primarily to mass merchants throughout the United States, Canada and Mexico. In
addition, the Company provides various services as a specialized merchandiser
(rackjobber) to these accounts. The Company is also in the business of
acquiring video and audio licenses, giving it exclusive rights to manufacture
and distribute certain video and audio products.
The following table sets forth net sales, and the approximate percentage
contribution to consolidated sales, for the fiscal years ended April 29, 1995,
April 30, 1994 and May 1, 1993, for the prerecorded music, video, book, and
personal computer software product lines of the Company.
YEAR ENDED
(DOLLAR AMOUNTS IN THOUSANDS)
-------------------------------------------
APRIL 29, 1995 APRIL 30, 1994 MAY 1, 1993
-------------- -------------- -----------
Prerecorded Music $ 653,416 $ 571,555 $ 626,990
% of Total 53.3 53.6 55.9
Video 461,615 389,532 378,604
% of Total 37.6 36.5 33.8
Book 57,565 66,061 70,850
% of Total 4.7 6.2 6.3
Personal Computer Software 53,466 39,418 45,261
% of Total 4.4 3.7 4.0
---------- ---------- ----------
TOTAL $1,226,062 $1,066,566 $1,121,705
========== ========== ==========
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Page 2 of 228
Business Segments
-----------------
The Company operates in one business segment, selling home entertainment
software to mass merchants and also to specialty chain stores, drugstores and
supermarkets. The Company has United States, Canadian and Mexican operations.
Canadian and Mexican operations were not material and, therefore, are not
displayed separately below.
DOLLAR AMOUNTS IN THOUSANDS
------------------------------------
1995 1994 1993
---------- ---------- ----------
Net sales:
United States $1,152,681 $1,017,993 $1,062,723
Other 73,381 48,573 58,982
---------- ---------- ----------
Total net sales $1,226,062 $1,066,566 $1,121,705
========== ========== ==========
Operating income:
United States $ 54,935 $ 52,963 $ 75,017
Other (1,079) (1,113) 2,581
Interest expense, net (8,024) (6,211) (6,713)
---------- ---------- ----------
Income before income taxes $ 45,832 $ 45,639 $ 70,885
========== ========== ==========
Identifiable assets:
United States $ 705,916 $ 614,215 $ 624,322
Other 48,160 26,783 34,754
---------- ---------- ----------
Total assets $ 754,076 $ 640,998 $ 659,076
========== ========== ==========
GENERAL
-------
The Company is a link between manufacturers of home entertainment software
products and mass merchant chain stores. Customers purchase from Handleman due
to the value-added benefits the Company adds to the basic product, and due to
the benefit of only dealing with one vendor for each product line.
Manufacturers utilize the Company's services to avoid the necessity of
distributing to thousands of individual stores throughout a vast geographic
range. Information regarding the number of active vendors from which the
Company purchases, number of titles the Company is currently distributing and
number of retail departments presently serviced follows:
NUMBER OF NUMBER OF
SKUS CURRENTLY RETAIL
NUMBER OF DISTRIBUTED DEPARTMENTS
VENDORS BY THE COMPANY SERVICED*
--------- -------------- -----------
Music 197 27,900 6,500
Video 147 5,900 7,400
Book 235 6,700 2,600
Software 153 1,300 4,700
North Coast Entertainment, Inc. ("NCE"), a subsidiary of Handleman Company,
includes the Company's proprietary products and retail operations. NCE sales of
licensed video, music and personal computer software products and sales at
licensed retail departments during fiscal 1995 were $106.2 million, compared to
$69.5 million in fiscal 1995, a 53% increase. The fiscal year sales increase
was primarily attributable to sales from companies acquired in fiscal 1995. The
Company is actively pursuing opportunities to increase sales of proprietary
products, which contribute a relatively higher gross profit margin percentage.
* During fiscal 1995 the Company changed its definition of number of retail
departments serviced to exclude departments which do not receive product on a
regular basis and are not fixtured.
3
Page 3 of 228
Vendors
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An important reason the Company's customers utilize its services is due to the
multitude of manufactureres and suppliers offering products for-sale, the
complexity of programs offered by those vendors, the "hits" nature of the
business, and the high risk of inventory obsolescence.
The Company must anticipate consumer demand for individual titles. In order to
maximize sales, the Company must be able to immediately react to "breakout"
titles, while simultaneously minimizing inventory exposure for artists or titles
which do not sell. In addition, because the Company distributes throughout the
U.S., Canada and Mexico, it must adapt selections it offers to local tastes.
This is accomplished via a coordination of national and local purchasing
responsibility, both monitored by inventory control programs.
The Company purchases from many different vendors. The volume of purchases from
individual vendors fluctuates from year-to-year based upon the saleability of
selections being offered by such vendor. Though within each product line a
small number of major, financially sound vendors account for a high percentage
of purchases, product must be selected from a variety of vendors in order to
maintain an adequate selection for consumers. The Company must closely monitor
its inventory exposure and accounts payable balances with smaller vendors which
may not have the financial resources to honor their return commitments. At this
time, the high risk vendors which require close monitoring tend to be
concentrated in the video and software product lines.
Since the public's taste in prerecorded music, video, book, and personal
computer software is broad and varied, Handleman is required to maintain large
inventories to satisfy diverse tastes. The Company minimizes the effect of
obsolescence through planned purchasing methods and computerized inventory
controls. Since substantially all vendors from which the Company purchases
product offer some level of return allowances and price protection, the
Company's exposure to markdown risk is limited unless vendors are unable to
fulfill their return obligations or non-saleable product purchases exceed vendor
return limitations. Vendors offer a variety of return programs, ranging from
100% returns to zero return allowance. Other vendors offer incentive and
penalty arrangements to restrict returns. It is possible that the Company may
possess in its inventories certain product that it cannot utilize in the
ordinary course of business and may only be returnable with cost penalties or
may be non-returnable until the Company can comply with the provisions of the
vendor's return policies.
Handleman generally does not have distribution contracts with manufacturers or
suppliers; consequently, its relationships with them may be discontinued at any
time by such manufacturers or suppliers, or by Handleman.
4
Page 4 of 228
Customers
---------
Handleman Company's customers utilize its services for a variety of reasons.
The Company selects products from a multitude of vendors offering numerous
titles, different formats (e.g., cassettes, compact discs) and different payment
and return arrangements. As a result, customers avoid most of the risks
inherent in product selection and the risk of inventory obsolescence.
Handleman also offers its customers a variety of "value-added" services:
STORE SERVICE: Sales representatives visit individual retail stores and meet
with store management to discuss upcoming promotions, special merchandising
efforts, department changes, current programs, or breaking releases which will
increase sales. They also monitor inventory levels, check merchandise displays,
and install point-of-purchase advertising materials.
ADVERTISING: Handleman supplies point-of-purchase materials and assists
customers in preparing radio, television and print advertisements.
FIXTURING: Handleman provides specially designed fixtures that emphasize
product visibility and accessibility.
FREIGHT: Handleman coordinates delivery of product to each store.
PRODUCT EXCHANGE: Handleman protects its continuing customers against product
markdowns by offering the privilege of exchanging slower-selling product for
newer product.
The nature of the Company's business lends itself to computerized ordering and
distribution techniques, which the Company pioneered and implemented through
development of its computerized system, known as Retail Inventory Management
Systems (RIMS). RIMS is refined continuously to meet the more sophisticated
needs of its customer base. RIMS captures consumer demand and integrates retail
inventory control with ordering and distributing functions. RIMS can also
accept transmissions of customer point-of-sale data so as to immediately react
to store selling patterns. Using RIMS, the Company is able to tailor the
inventories of individual stores to reflect the customer profile of each store
and to adjust inventory levels, product mix and selections according to seasonal
and current selling trends.
The Company determines the selections to be offered in its customers' retail
stores, and ships these selections to the stores from one of its distribution
centers located throughout North America. Slow selling items are removed from
the stores by the Company and are recycled for redistribution or return to the
manufacturers. Returns from customer stores occur for a variety of reasons,
including new releases which did not achieve their expected sales potential, ad
product to be returned after the ad has run, regularly scheduled realignment
pick-ups and customer directed returns. The Company provides a reserve for the
gross profit margin impact of expected customer returns.
During the fiscal year ended April 29, 1995, one customer, Kmart Corporation,
accounted for approximately 40% of the Company's consolidated sales, while a
second customer, Wal-Mart, accounted for approximately 25%. Handleman may not
have contracts with its customers, and such relationships may be discontinued at
any time by the customers or Handleman; the discontinuance of the relationships
with either of the two largest customers would have a materially adverse effect
upon the Company's future sales and earnings.
5
Page 5 of 228
Operations
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The Company distributes products from facilities throughout the U.S., Canada and
Mexico. Besides economies of scale and through-put considerations in
determining the number of facilities it operates, the Company must also consider
freight costs to and from customers' stores and the importance of timely
delivery of new releases. Due to the nature of the home entertainment software
business, display of new releases close to authorized "street dates" is an
important driver of both retail sales and customer satisfaction.
The Company also operates four regional return centers in the United States as a
means to expedite the processing of customer returns. In order to minimize
inventory investment, customer returns must be sorted and identified for either
redistribution or return to vendors as expeditiously as possible. An item
returned from one store may actually be required for shipment to another store.
Therefore, timely recycling prevents purchasing duplicate product for a store
whose order could be filled from returns from other stores.
On March 9, 1995, the Company announced a facility realignment involving its
second high-technology Automated Distribution Center ("ADC"), to be located in
the Midwest, which will be opening in the first calendar quarter of 1996. The
Company has realigned its Western region by replacing certain distribution
centers with its first ADC located in Sparks, Nevada. The implementation of the
ADCs will reduce operating costs and decrease inventory levels, while improving
the Company's speed and reliability in supplying products to its customers. See
Note 4, Provision for Facility Realignment, on page 24 under Item 8, for
additional information regarding the facility realignment.
The Company is installing a new proprietary inventory management system
("PRISM"). As of April 29, 1995, PRISM had been installed in the Company's U.S.
music and video shipping branches and return centers, and it is scheduled to be
installed in the Canadian music and video shipping branches and return center
during fiscal 1996. PRISM automates and integrates the functions of ordering
product, receiving, warehousing, order fulfillment, ticket printing and
perpetual inventory maintenance. PRISM also provides the basis to develop title
specific billing to allow the Company to better serve its customers.
Competition
-----------
Handleman is primarily a specialized merchandiser (rackjobber) of prerecorded
music, video, book and personal computer software. The business of the Company
is highly competitive as to both price and alternative supply arrangements in
all of its product lines. The Company's customers compete with alternative
sources from which consumers could purchase the same product, such as (1) record
and book clubs, (2) video rental outlets, and (3) specialty retail outlets. The
Company competes directly for sales to its customers with (1) manufacturers
which bypass wholesalers and sell directly to retailers, (2) independent
distributors, and (3) other specialized merchandisers. In addition, some large
mass merchants have "vertically integrated" so as to provide their own
rackjobbing. Some of these companies, however, also purchase from independent
rackjobbers.
The Company believes that the distribution of home entertainment software will
remain highly competitive. The Company believes that customer service and
continual progress in operational efficiencies are the keys to growth in this
competitive environment.
The Company has been advised by a major customer that it will begin to purchase
a substantial portion of its video product directly from the manufacturers.
Net video sales to this customer were $75.7 million and $57.5 million in fiscal
1994 and fiscal 1995, respectively. The Company expects that this downward
trend in video sales to this customer will accelerate in fiscal 1996.
6
Page 6 of 228
Industry Outlook
----------------
The following are some statistics from various industry sources.
. According to the Electronic Industries Association ("EIA"), compact disc
hardware sales increased 23% to 26.5 million units in 1994. As a result,
penetration into U.S. households has reached 44%.
. Video cassette recorder ("VCR") penetration into U.S. households reached 85%
in 1994, and is expected to grow to approximately 90% by 1998, according to
Veronis, Suhler & Associates ("Veronis"), an entertainment industry investment
banker.
. According to Computer Retail Week, PC penetration into U.S. households has
reached an estimated 33%, and could reach 40% by the end of calendar 1995.
While Handleman does not market home electronic hardware, its business is
closely correlated to the health of the consumer electronics market and
developments within that industry. The Company's expertise lies in the
selection of the best product available from the multitude of suppliers for each
hardware format.
Information regarding industry outlook by product line follows:
Music
- -----
According to the Recording Industry Association of America (RIAA), the U.S.
music industry posted sales, at list price, of $12.0 billion in 1994, growing
20% from $10.0 billion in 1993. According to Veronis, the U.S. market is
expected to grow at an 8.2% compound annual rate through 1998.
Compact discs ("CDs") remained the catalyst of music industry growth in 1994,
accounting for over 71% of net revenues for the year.
Despite the growing dominance of CDs, cassettes still remain a popular format.
Industry-wide sales of cassettes, including cassette singles, rose 2.1% in
calendar 1994, and still represent sales of over $3 billion. Car stereos and
portable systems, two areas where CDs have had very little impact, still rely
almost entirely on the analog cassette. The size, cost and convenience of
cassettes are also important factors in the continuing popularity of this music
format.
Video
- -----
The continued success of VCR hardware has translated directly into increased
sell-through revenues. According to Veronis, for-sale home video in the United
States was a $5.0 billion business in 1994, at retail, growing from $4.2 billion
in 1993. Veronis projects industry video sales to be $6.8 billion by 1998, at
retail.
The Company is monitoring developments within the Pay Per View (PPV) market, but
does not perceive such developments as a near term threat to the sell-through
video market. From a longer-term perspective, the Company believes PPV, in some
way, shape or form, is probably inevitable. However, PPV replacing video sell-
through is not believed to be inevitable. There are numerous reasons why the
Company and many industry experts feel this way. First is cost. The cost of
PPV systems will be high and for many consumers, prohibitive. Second, PPV is
perceived to be a substitute for rental more than it is for sell-through. In
fact, some feel that PPV will serve to increase the sell-through market by
increasing consumer awareness of video product. Finally, PPV's impact on sell-
through will be limited because PPV cannot replace the appealing characteristics
of video sell-through. Sell-through offers consumers the shopping experience,
the ability to collect and display, and the option to give a video as a gift.
7
Page 7 of 228
Book
- ----
Book industry sales grew an estimated 6% in 1994 to $15.2 billion, according to
Veronis. In addition, consumer books are projected to grow at a 7.4% compound
annual rate to $20.4 billion, at retail, by 1998.
The book industry is a more mature market, and thus a less volatile market, than
either the music or video industry. However, mass media promotions have helped
spur increased interest and consumer demand. Both paperbacks and hardcovers are
being promoted via print and television advertising, and many talk show programs
profile authors and their books. In addition, mega-star authors such as John
Grisham, Stephen King and Danielle Steel continue to produce best sellers which
are purchased by their loyal readers.
Software
- --------
Personal computer software sales, at retail, were $7.38 billion in calendar
1994, a 17% increase over 1993, according to PC Data. Increases in personal
computer software sales are driven by sales of the related hardware. According
to Dataquest, PC hardware unit sales grew 26% in calendar 1994 versus calendar
1993, are forecasted to grow another 18% in calendar 1995, and are forecasted to
continue to grow in excess of a 10% compounded rate through calendar 1999.
* * * * *
See Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 2, Acquisition of Business, on page 24 under
Item 8, for additional information regarding the Company's activities.
The Company's sales and earnings are of a seasonal nature. Note 10,
Quarterly Financial Summary (Unaudited), on page 29 under Item 8 discloses
quarterly results which indicate the seasonality of the Company's business.
The Company has approximately 4,100 employees, of whom approximately 400
are members of various local unions.
8
Page 8 of 228
Item 2. PROPERTIES
The Company leases 9 warehouses in the United States and 5 in Canada. The U.S.
leased warehouses are located in the states of Missouri, New York, Ohio (2),
Oregon, Indiana, Maryland, New Jersey and Nevada. The Company also leases
satellite sales offices in Massachusetts (381 sq. ft.), Texas (972 sq. ft.) and
New Mexico (4,125 sq. ft.). In Canada, leased warehouses are located in the
provinces of Alberta, Ontario and Quebec (3). The Company owns warehouses in
Brighton, Michigan; Chicago, Illinois; Los Angeles, California; Atlanta,
Georgia; Little Rock, Arkansas; Tampa, Florida; Baltimore, Maryland; Cincinnati,
Ohio and Denver, Colorado. The Company sold its warehouse in Denver in June
1995, and the Company expects to complete the sale of its warehouses in
Cincinnati and Los Angeles within 60 days of filing this Form 10-K. The Company
owns two buildings in Troy, Michigan; one facility is the 130,000 square feet
corporate office building, and the second facility is the 20,000 square feet
building which houses the Company's print shop. The Atlanta and Little Rock
buildings are encumbered by Economic Development Corporation Revenue Bonds as
explained in Note 6 to Handleman's Consolidated Financial Statements under Item
8. The bonds were issued in connection with the construction of these buildings.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Registrant or any
of its subsidiaries is a party other than ordinary routine litigation incidental
to the business.
Item 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS
Not applicable.
9
Page 9 of 228
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange, Chicago
Stock Exchange, and Pacific Stock Exchange.
Below is a summary of the market price of the Company's common stock as traded
on the New York Stock Exchange:
Fiscal Year Ended
--------------------------------------------
April 29, 1995 April 30, 1994
-------------------- -------------------
Quarter Low High Low High
------- ------ ------ ------ ------
First ............... 10 11 1/4 10 1/2 15 1/4
Second .............. 10 1/4 11 7/8 9 7/8 12 3/4
Third ............... 10 1/2 11 3/4 11 5/8 13 7/8
Fourth .............. 10 1/4 11 1/8 10 1/2 14
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As of July 14, 1995, the Company had 3,601 shareholders of record.
Below is a summary of the dividends declared during the past two fiscal years:
Fiscal Year Ended
------------------------------
Quarter April 29, 1995 April 30, 1994
------- -------------- --------------
First ................. $.11 $.11
Second ................ .11 .11
Third ................. .11 .11
Fourth ................ .11 .11
---- ----
TOTAL.............. $.44 $.44
==== ====
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Page 10 of 228
Item 6. SELECTED FINANCIAL DATA
HANDLEMAN COMPANY
FIVE YEAR REVIEW
(amounts in thousands except per share data and ratios)
-----------------
1995 % 1994 % 1993 % 1992 % 1991 %
----------- ------ ----------- ------ ----------- ------ ----------- ------ --------- ------
SUMMARY OF OPERATIONS:
Net sales $1,226,062 100.0 $1,066,566 100.0 $1,121,705 100.0 $1,020,237 100.0 $702,737 100.0
Gross profit, after direct
product costs 278,464 22.7 249,049 23.4 278,159 24.8 257,711 25.3 185,874 26.5
Selling, general &
administrative expenses * 212,094 17.3 187,663 17.6 191,882 17.1 177,073 17.4 142,744 20.3
Depreciation: included in
selling, general
& administrative expenses 24,787 2.0 24,189 2.3 21,722 1.9 20,399 2.0 15,765 2.2
Provision for facility
realignment 5,500 .4 2,000 .2
Amortization of acquisition
costs 7,014 .6 7,536 .7 8,679 .8 7,365 .7 137 --
Interest expense, net 8,024 .7 6,211 .6 6,713 .6 7,034 .7 1,606 .2
Income before income taxes * 45,832 3.7 45,639 4.3 70,885 6.3 64,916 6.4 37,887 5.4
Income taxes * 17,809 1.4 17,983 1.7 27,142 2.4 24,903 2.5 14,400 2.1
Effective tax rate * 38.9% 39.4% 38.3% 38.4% 38.0%
Net income 28,023 2.3 27,656 2.6 43,743 3.9 40,013 3.9 23,487 3.3
Dividends 14,755 14,701 13,589 13,258 13,081
Average number of shares
outstanding 33,518 33,389 33,229 33,166 32,771
PER SHARE DATA:
Earnings per share $ 0.84 $ 0.83 $ 1.32 $ 1.21 $ .72
Dividends per share 0.44 0.44 .41 .40 .40
FINANCIAL DATA:
Cash and receivables $ 283,043 $ 237,846 $ 257,319 $ 250,169 $128,784
Inventories 276,109 234,594 241,502 240,369 167,073
Current assets 560,931 477,376 501,052 491,975 296,611
Additions to property and
equipment 41,241 28,737 33,391 22,714 16,068
Total assets 754,076 640,998 659,076 655,075 423,727
Debt, current 0 32,200 17,860 -- 23,600
Current liabilities 289,961 261,227 259,723 254,824 170,052
Debt, non-current 146,200 76,364 105,702 135,750 15,930
Working capital 270,970 216,149 241,329 237,151 126,559
Shareholders' equity 311,652 299,493 288,700 260,861 233,614
FINANCIAL RATIOS:
Quick ratio
(Cash and
receivables/current
liabilities) 1.0 .9 1.0 1.0 .8
Working capital ratio
(Current assets/current
liabilities) 1.9 1.8 1.9 1.9 1.7
Inventory turnover
(Direct product
costs/average
inventories) 3.5 3.2 3.3 3.5 3.1
Debt to total
capitalization ratio
(Debt, non-current/debt,
non-current plus
shareholders' equity) 31.9% 20.3% 26.8% 34.2% 6.4%
Return on beginning
shareholders' equity
(Net income/beginning
shareholders' equity) 9.4% 9.6% 16.8% 17.1% 10.7%
* Prior year amounts restated to conform with classifications adopted in fiscal
1995.
Note: See Item 7., Management's Discussion and Analysis of Financial Condition
and Results of Operations, and Note 2, Acquisition of Business, on page
24 under Item 8., for additional information regarding the Company's
activities.
11
Page 11 of 228
Item 7.
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
COMPARISON OF 1995 WITH 1994
- ----------------------------
The Company operates principally in one business segment: selling prerecorded
music, video, book and personal computer software products primarily to mass
merchants, and also to specialty chain stores, drugstores and supermarkets.
Net sales for fiscal 1995 were $1.23 billion versus $1.07 billion last year, an
increase of $159.5 million or 15%.
MUSIC - Sales for fiscal 1995 were $653.4 million, compared to $571.6 million in
fiscal 1994, an increase of $81.8 million or 14%. This increase in music sales
resulted generally from an overall improvement in product quality and depth, as
well as a high level of promotional and display activity. The growth in music
sales was also driven by the continuing increase in compact disc ("CD") sales as
a percentage of the Company's total music sales mix.
According to the Recording Industry Association of America ("RIAA"), a music
industry trade association, industry-wide CD shipments at list price were
expected to reach 71% of total music shipments for calendar 1994. Handleman's
CD sales for fiscal 1995 were $364.7 million or 56% of its music sales, up from
$278.1 million or 49% of its music sales in fiscal 1994. As CD hardware
continues to be purchased by middle-income Americans, who tend to be shoppers at
mass merchant outlets (the Company's primary customers), Handleman's CD sales
mix is expected to continue to approach the industry level. The installed base
of CD players had grown to 44% of U.S. households by the end of calendar 1994.
Music sales are driven by a continuous supply of releases from popular artists,
as well as emerging new artists. Below is a summary of Handleman's music sales
by genre, as a percent of total music sales dollars.
Music Sales by Genre
Year Ended
April April
1995 1994
------ ------
Rock 36% 36%
Country 23 23
Budget 17 18
Soul 7 7
Other 17 16
---- ----
100% 100%
Country music continues to be popular. Mass merchant stores serviced by
Handleman sell more country music as a percentage of total music volume than do
specialty music stores. Rock music continues to be the largest sales category
for both Handleman and the music industry.
A statistical overview of the U.S. music industry as contained in the RIAA 1994
Annual Report showed that music buyers are continuing to spend more at
alternative outlets, which include mass merchant and discount stores, than in
past years. The alternative outlet share of music sales increased to 27% in
1994, from 16% in 1989. During the same time period, the specialty music store
market share decreased from 72% to 53%.
Veronis, Suhler & Associates ("Veronis"), an entertainment industry investment
banker, forecasted in July 1994 that the U.S. music market will register sales
growth at an 8.2% compounded annual rate through 1998.
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Page 12 of 228
VIDEO - Sales for fiscal 1995 were $461.6 million, compared with $389.5 million
in fiscal 1994, a $72.1 million or 19% increase. The improvement in video sales
resulted from sales of hit video product.
The continual release of movie box office hits builds consumer awareness of for-
sale videos, which drives sales not only for those titles but for other videos
as well. Movie studios are increasingly willing to by-pass the rental market
as the first window of opportunity for a title, and are continuing the trend of
scheduling major titles for release throughout the year, instead of only at the
Christmas selling season. The increased sales of hit-video titles, however,
does negatively impact gross profit margin percentages since such items are
typically discounted.
The continued penetration of video cassette recorders ("VCR") into U.S.
households has helped increase sell-through video revenue. The VCR's
penetration into U.S. households reached an estimated 85% in 1994; additionally,
more than 20% of households with a VCR now own a second VCR. Much of this
growth has been due to the steady decline of VCR prices. In 1979, the average
price of a VCR was approximately $1,200. According to the Electronics
Industries Association ("EIA"), the average retail price of a VCR dropped to
$294 by 1987 and to $220 by 1994. Although growth is predictably slowing,
Veronis forecasts that an installed base of 90% of U.S. households should be
achieved by 1998. This penetration level represents a base capable of
supporting expansion of the home video market through the 1990's.
According to Veronis, video industry retail sales are projected to be $6.8
billion by 1998, compared to $5.0 billion in 1994, an 8% compounded growth rate.
The Company has been advised by a major customer that it will begin to purchase
a substantial portion of its video product directly from the manufacturers.
Net video sales to this customer were $75.7 million and $57.5 million in fiscal
1994 and fiscal 1995, respectively. The Company expects that this downward
trend in video sales to this customer will accelerate in fiscal 1996.
BOOK - Sales for fiscal 1995 were $57.6 million versus $66.1 million in fiscal
1994, a decrease of $8.5 million or 13%. The decrease in sales of book product
was the result of lower shipments to certain of the Company's major customers.
Industry sales of consumer books grew an estimated 6.2% to $15.2 billion, at
retail, in 1994. According to Veronis, sales of consumer books are projected to
grow at a 7.4% compounded annual rate to $20.4 billion, at retail, by 1998.
PERSONAL COMPUTER SOFTWARE - Sales increased 36% in fiscal 1995 to $53.5
million, from $39.4 million last year, principally due to expansion of the
software customer base. Many customers of Handleman have opened or expanded
personal computer software departments within their stores.
Personal computers ("PCs") continue to gain acceptance in U.S. households.
According to the EIA, the installed base of computers has increased from 7% in
1983 to 33% of households at the end of 1994. The installed base is expected to
increase to 40% by 1995. One of the factors helping propel PC sales has been a
steady decrease in PC unit prices. The retail price of a PC is now in the price
range where a typical mass merchant shopper is able to purchase a PC. This
should spur sales of software products at mass merchant outlets. Handleman is
expected to benefit as more middle-income Americans, the typical shoppers at
stores supplied by Handleman, purchase computers.
Another factor influencing software sales is a decline in retail prices due to
strong competition among software companies trying to capture market share in
their respective categories. For example, retail prices for many productivity
software packages have fallen from an introductory price of $300-$500 to less
than $100. This trend should benefit mass merchants, as their shoppers are more
likely to purchase lower-priced software.
According to the computer research firm Dataquest, it is projected that mass
market retailers will emerge as the largest distribution channel for personal
computer software over the next two years.
13
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OTHER DATA - The gross profit margin percentage for fiscal year 1995 was 22.7%,
compared to 23.4% in fiscal year 1994. The decrease in gross profit margin
percentage was primarily due to increased sales of low-margin mega-hit video
product and a shift in music sales to CDs which earn a lower gross profit margin
percentage than cassettes. As a result of CD unit sales prices, however, being
greater than cassette unit sales prices, gross profit dollars per CD unit sold
are higher than gross profit dollars per cassette unit sold.
Selling, general and administrative expenses for fiscal year 1995 were $212.1
million or 17.3% of net sales versus $187.7 million or 17.6% for fiscal year
1994. The increase in selling, general and administrative expense dollars was
principally due to the higher sales level.
On March 9, 1995, the Company announced a facility realignment involving its
second high-technology Automated Distribution Center ("ADC"), to be located in
the Midwest, which will be opening in the first calendar quarter of 1996. The
Company recorded a $5.5 million pre-tax provision ($.10 per share after tax)
against fourth quarter fiscal 1995 results related to costs associated with the
transition from the current Midwestern distribution structure to this regional
ADC operation. The charge was principally related to estimated losses on the
sales of buildings currently used as distribution facilities in the Midwest.
The Company recorded a $2.0 million pre-tax provision ($.03 per share after tax)
against fourth quarter fiscal 1994 results in connection with realigning its
Western region into the first ADC. The implementation of the ADCs will reduce
operating costs and decrease inventory levels, while improving the Company's
speed and reliability in supplying products to its customers.
Depending on the success of the first two ADCs, the Company will consider
opening a third ADC to service the Eastern region.
Net interest expense for fiscal 1995 was $8.0 million, compared to $6.2 million
in fiscal 1994. The increase was primarily due to higher interest rates and
higher borrowing levels in fiscal 1995 compared to fiscal 1994.
Net income for fiscal 1995 was $28.0 million or $.84 per share, compared to
$27.7 million or $.83 per share in fiscal 1994.
COMPARISON OF 1994 WITH 1993
- ----------------------------
Net sales for fiscal 1994 were $1.07 billion versus $1.12 billion for fiscal
1993, a decrease of $55.1 million or 5%.
MUSIC - Sales for fiscal 1994 were $571.6 million, compared to $626.9 million in
fiscal 1993, a decrease of $55.3 million or 9%. The decline in sales of music
product was primarily attributable to two factors. First was the impact of
customer inventory concerns, which resulted in reduced sales volume and
increased merchandise returns. The second factor was a reduction in the number
of departments serviced.
According to the RIAA, industry-wide CD shipments at list price reached 65% of
total music revenue in calendar 1993. Handleman's CD sales for fiscal 1994 were
$278.1 million, or 49% of its music sales. In fiscal 1993, CD's accounted for
46% of Handleman's music sales.
VIDEO - Sales for fiscal 1994 were $389.5 million, compared to $378.6 million in
fiscal 1993, a $10.9 million or 3% increase.
BOOK - Sales for fiscal year 1994 were $66.1 million, compared to $70.9 million
last year, a decrease of $4.8 million or 7%. This decrease was primarily due to
a reduction in the number of departments supplied.
PERSONAL COMPUTER SOFTWARE - Sales for fiscal 1994 were $39.4 million, compared
to $45.3 million for fiscal 1993, a decrease of $5.9 million or 13%. The
decline in sales was primarily due to the loss of two customers in the third
quarter of fiscal 1994, who switched to suppliers that do not provide in-store
service.
14
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OTHER DATA - The gross profit margin percentage for fiscal year 1994 was 23.4%,
compared to 24.8% for fiscal year 1993. The reduction in gross profit margin
percentage was primarily due to an increase in mega-hit video sales, which carry
lower gross profit margins than other products, and a decrease in music gross
profit margin partially attributable to a decline in sales of high margin budget
products and to an increasing percentage of sales of CDs.
Selling, general and administrative expenses for fiscal year 1994 declined to
$187.7 million (17.6% of net sales), from $191.9 million (17.1% of net sales)
last year. The decrease in selling, general and administrative expense dollars
was primarily due to cost reductions initiated by Company management and the
lower sales volume. Except for the first quarter of fiscal 1994, selling,
general and administrative expenses, as a percent of net sales, were lower in
each fiscal quarter compared to the corresponding quarter in fiscal 1993.
The Company recorded a $2.0 million pre-tax charge ($.03 per share after tax)
against fourth quarter fiscal 1994 results related to costs associated with the
transition from the current distribution structure to the first planned ADC.
This charge included costs for disposal of certain facilities as well as
relocation expenses and certain compensation costs.
Net interest expense for fiscal 1994 was $6.2 million, compared to $6.7 million
in fiscal 1993. The decline in net interest expense was primarily the result of
lower interest rates in fiscal 1994 compared to fiscal 1993.
Net income for fiscal 1994 was $27.7 million or $.83 per share, compared to
$43.7 million or $1.32 per share for fiscal 1993. The reduction in net income
was primarily attributable to the reduction in sales and the decrease in gross
profit margin percentage.
LIQUIDITY AND CAPITAL RESOURCES - Working capital at April 29, 1995 was $271
million, compared to $216 million at April 30, 1994, an increase of $55 million
or 25%. The increase in working capital resulted primarily from using long-term
debt to replace $31 million of senior notes classified as current liabilities as
of April 30, 1994. The working capital ratio was 1.9 to 1 at April 29, 1995 and
1.8 to 1 at April 30, 1994. For fiscal 1995, net cash provided from operating
activities primarily resulted from net income and non-cash charges for
depreciation, amortization and recoupment. The increase in merchandise
inventories was funded primarily by a corresponding increase in accounts
payable.
The Company's capital assets consist primarily of display fixtures and
facilities. The Company also acquires licenses for video, music and software
products which it distributes. Purchases of these assets are expected to be
funded primarily by cash flows from operations. Cash used for the acquisition
of Madacy Music Group, Inc. was substantially provided from financing
activities.
On November 21, 1994, the Company announced that it had placed $100 million of
senior notes with a group of six insurance companies. Proceeds are being used
to refinance floating rate bank indebtedness and for corporate growth purposes.
The principal amount of $100 million is broken into three tranches of $20
million, $55 million and $25 million, with average maturities of three years,
five years and seven years, respectively. Interest rates are 7.81% for the
first tranche, 8.26% for the second tranche and 8.59% for the third tranche.
The Company received $55 million of such proceeds in November 1994, $25 million
in February 1995, and the remaining $20 million in April 1995.
In July 1994, the Company replaced its $147 million revolving credit agreement
with a five year, $250 million unsecured revolving credit agreement entered into
with a group of banks. Under the new agreement, the Company may elect to pay
interest under a variety of formulae tied principally to either prime or
"LIBOR". During the first three years of the agreement, the Company may elect
to enter into term loans with maturities not to exceed five years in length and
having a final maturity not later than July 12, 2001. Interest on these term
loans will be based upon a pre-determined formula. The agreement also provides
for issuance of standby letters of credit for maturities not to exceed one year.
As a result of placement of the $100 million in senior notes in November 1994,
the revolving credit agreement was reduced to $145 million.
EFFECTS OF INFLATION ON OPERATIONS
- ----------------------------------
The Company's financial statements have reported amounts based on historical
costs which represent dollars of varying purchasing power and do not measure the
effects of inflation. If the financial statements had been restated for
inflation, net income would have been lower because depreciation expense would
have to be increased to reflect the most current costs.
15
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as a part of
this report:
Report of Independent Accountants
Consolidated Balance Sheet at April 29, 1995, April 30, 1994 and May 1, 1993.
Consolidated Statement of Income - Years Ended April 29, 1995, April 30, 1994
and May 1, 1993.
Consolidated Statement of Shareholders' Equity - Years Ended April 29, 1995,
April 30, 1994 and May 1, 1993.
Consolidated Statement of Cash Flows - Years Ended April 29, 1995, April 30,
1994 and May 1, 1993.
Notes to Consolidated Financial Statements
16
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Report of Independent Accountants
To the Board of Directors and Shareholders of
Handleman Company:
We have audited the consolidated financial statements and the financial
statement schedule listed in Item 14(a) of this Annual Report on Form 10-K of
Handleman Company and Subsidiaries. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Handleman Company
and Subsidiaries as of April 29, 1995, April 30, 1994 and May 1, 1993 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Detroit, Michigan
June 7, 1995
17
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HANDLEMAN COMPANY
CONSOLIDATED BALANCE SHEET
APRIL 29, 1995, APRIL 30, 1994 AND MAY 1, 1993
(amounts in thousands except share data)
----------------
ASSETS 1995 1994 1993
- ------ --------- --------- ---------
Current assets:
Cash and cash equivalents $ 24,392 $ 10,568 $ 57,306
Accounts receivable, less allowance of
$24,053 in 1995, $19,613 in 1994 and
$21,184 in 1993 for gross profit impact
of future returns 258,651 227,278 200,013
Merchandise inventories 276,109 234,594 241,502
Other current assets 1,779 4,936 2,231
-------- -------- --------
Total current assets 560,931 477,376 501,052
Property and equipment, net 124,772 112,027 112,829
Other assets, net of allowances 68,373 51,595 45,195
-------- -------- --------
Total assets $754,076 $640,998 $659,076
======== ======== ========
LIABILITIES
- -----------
Current liabilities:
Accounts payable $243,138 $197,676 $200,394
Debt, current -- 32,200 17,860
Income taxes, currently payable 2,702 3,677 7,124
Accrued and other liabilities 44,121 27,674 34,345
-------- -------- --------
Total current liabilities 289,961 261,227 259,723
Debt, non-current 146,200 76,364 105,702
Deferred income taxes 6,263 3,914 4,951
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock, par value $1.00; 1,000,000
shares authorized; none issued -- -- --
Common stock, $.01 par value; 60,000,000
shares authorized; 33,533,000, 33,411,000
and 33,218,000 shares issued in 1995,
1994 and 1993 335 334 332
Paid-in capital 33,188 31,900 29,136
Foreign currency translation adjustment and other (8,130) (5,732) (804)
Retained earnings 286,259 272,991 260,036
-------- -------- --------
Total shareholders' equity 311,652 299,493 288,700
-------- -------- --------
Total liabilities and shareholders' equity $754,076 $640,998 $659,076
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED APRIL 29, 1995, APRIL 30, 1994 AND MAY 1, 1993
(amounts in thousands except per share data)
------------------
1995 1994 1993
------ ------ ------
Net sales $1,226,062 $1,066,566 $1,121,705
Direct product costs 947,598 817,517 843,546
---------- ---------- ----------
Gross profit 278,464 249,049 278,159
Selling, general and administrative expenses 212,094 187,663 191,882
Provision for facility realignment 5,500 2,000 --
Amortization of acquisition costs 7,014 7,536 8,679
Interest expense, net 8,024 6,211 6,713
---------- ---------- ----------
Income before income taxes 45,832 45,639 70,885
Income taxes 17,809 17,983 27,142
---------- ---------- ----------
Net income $ 28,023 $ 27,656 $ 43,743
========== ========== ==========
Earnings per average common share outstanding
during the year $ .84 $ .83 $ 1.32
========== ========== ==========
Average number of common shares outstanding
during the year 33,518 33,389 33,229
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
19
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HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 29, 1995, APRIL 30, 1994 AND MAY 1, 1993
(amounts in thousands except per share data)
----------------
Foreign
Common Stock Currency
---------------- Translation Total
Shares Paid-In Adjustment Retained Shareholders'
Issued Amount Capital and Other Earnings Equity
------- ------- -------- ------------ --------- --------------
May 2, 1992 33,276 $333 $29,870 $ 776 $229,882 $260,861
Equity adjustment,
foreign currency
translation (1,580) (1,580)
Net income 43,743 43,743
Cash dividends, $.41
per share (13,589) (13,589)
Other, net (58) (1) (734) (735)
------ ---- ------- ------- -------- --------
May 1, 1993 33,218 332 29,136 (804) 260,036 288,700
Equity adjustment,
foreign currency
translation (2,197) (2,197)
Net income 27,656 27,656
Cash dividends, $.44
per share (14,701) (14,701)
Common stock issued for employee
benefit plans and other 193 2 2,764 (2,731) 35
------ ---- ------- ------- -------- --------
April 30, 1994 33,411 334 31,900 (5,732) 272,991 299,493
Equity adjustment,
foreign currency
translation (1,447) (1,447)
Net income 28,023 28,023
Cash dividends, $.44
per share (14,755) (14,755)
Common stock issued for employee
benefit plans and other 122 1 1,288 (951) 338
------ ---- ------- ------- -------- --------
April 29, 1995 33,533 $335 $33,188 $(8,130) $286,259 $311,652
====== ==== ======= ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
20
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HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED APRIL 29, 1995, APRIL 30, 1994 AND MAY 1, 1993
(amounts in thousands)
----------------
1995 1994 1993
------------ ------------ ----------
Cash flows from operating activities:
Net income $ 28,023 $ 27,656 $ 43,743
----------- ----------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 24,787 24,189 21,722
Amortization of acquisition costs 7,014 7,536 8,679
Recoupment of license advances 10,057 4,915 3,219
(Increase) decrease in assets from
operating activities:
Accounts receivable (17,122) (27,265) 15,381
Merchandise inventories (35,194) 6,908 (1,133)
Other assets 16 (706) 323
Increase (decrease) in liabilities from
operating activities:
Accounts payable 39,432 (2,718) (13,418)
Income taxes, currently payable (2,030) (3,447) (2,269)
Deferred income taxes 2,349 (3,272) 3,923
Accrued and other liabilities 6,266 (4,036) 514
----------- ----------- ---------
Total adjustments 35,575 2,104 36,941
----------- ----------- ---------
Net cash provided from operating activities 63,598 29,760 80,684
----------- ----------- ---------
Cash flows from investing activities:
Additions to property and equipment (40,675) (28,737) (33,391)
Retirements of property and equipment 3,142 2,826 5,724
License advances (11,343) (18,726) (2,394)
Acquisition of Madacy Music Group, Inc. (22,670) -- --
----------- ----------- ---------
Net cash used by investing activities (71,546) (44,637) (30,061)
----------- ----------- ---------
Cash flows from financing activities:
Issuances of debt 1,680,200 993,890 640,300
Payments of debt (1,642,564) (1,008,888) (652,488)
Cash dividends (14,755) (14,701) (13,589)
Other changes in shareholders' equity, net (1,109) ( 2,162) (2,315)
----------- ----------- ---------
Net cash provided from (used by)
financing activities 21,772 (31,861) (28,092)
----------- ----------- ---------
Net increase (decrease) in cash and
cash equivalents 13,824 (46,738) 22,531
Cash and cash equivalents at
beginning of year 10,568 57,306 34,775
----------- ----------- ---------
Cash and cash equivalents at
end of year $ 24,392 $ 10,568 $ 57,306
=========== =========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
1. Accounting Policies:
-------------------
Business
The Company operates principally in one business segment: selling
prerecorded music, video, hardcover and paperback books and personal
computer software products primarily to mass merchants, and also to
specialty chain stores, drugstores and supermarkets.
Annual Closing Date
The Company's fiscal year ends on the Saturday closest to April 30th.
Fiscal years 1995, 1994 and 1993 consisted of 52 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its domestic, Canadian and Mexican subsidiaries, where the Company has
voting or contractual control. All material intercompany accounts and
transactions have been eliminated.
Foreign Currency Translation
The Company utilizes the policies outlined in Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation", to convert the
balance sheet and operations of its Canadian and Mexican subsidiaries to
United States dollars.
Recognition of Revenue and Future Returns
Revenues are recognized upon shipment of the merchandise. The Company
reduces gross sales and cost of sales for expected returns at the time the
merchandise is sold.
Pension Plan
The Company has a noncontributory defined benefit pension plan covering
substantially all hourly and salaried employees. Pension benefits are
generally based upon length of service and average annual compensation for
the five highest years of compensation in the last 10 years of employment.
Net periodic pension cost is accrued on a current basis, and funded as
permitted or required by applicable regulations.
Inventory Valuation
Merchandise inventories are stated at the lower of cost (first-in, first-out
method) or market. The Company accounts for inventories using the full cost
method which includes costs associated with acquiring and preparing
inventory for distribution. Costs associated with acquiring and preparing
inventory for distribution of $19,299,000, $16,289,000 and $17,618,000 were
incurred during the years ended April 29, 1995, April 30, 1994 and May 1,
1993, respectively. Merchandise inventories as of April 29, 1995, April 30,
1994 and May 1, 1993 include $3,554,000, $3,621,000, and $3,503,000,
respectively, of such costs.
Property and Equipment
Property and equipment is recorded at cost. Upon retirement or disposal,
the asset cost and related accumulated depreciation are eliminated from the
respective accounts and the resulting gain or loss is included in the
consolidated statement of income for the period. Repair costs are charged
to expense as incurred.
22
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------------
1. Accounting Policies: (continued)
-------------------
Depreciation
Depreciation is computed using primarily the straight-line method based on
the following estimated useful lives:
Buildings and improvements 10-40 years
Display fixtures, equipment,
furniture and other 3-10 years
Leasehold improvements Lesser of lease term or
useful life
Licenses
The Company acquires video and audio licenses giving it exclusive rights to
manufacture and distribute certain prerecorded video and audio products.
The licenses are included in other assets in the consolidated balance sheet
and are amortized over a period which is the lesser of the term of the
license agreement or its expected useful life. As of April 29, 1995,
April 30, 1994 and May 1, 1993, licenses, net of amortization, amounted to
$22,571,000, $21,285,000, and $7,474,000, respectively.
Intangible Assets
Intangible assets, included in other assets in the consolidated balance
sheet, consist of excess cost over net assets of businesses acquired and
non-competition and other ancillary agreements. These assets are amortized
using the straight-line method over periods predominantly ranging from 5 to
15 years. As of April 29, 1995, the weighted average period remaining to be
amortized was approximately 11 years.
Cash Flows
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Financial Instruments
The Company has evaluated the fair value of those assets and liabilities
identified as financial instruments under Statement of Financial Accounting
Standards No. 107. The Company estimates that fair values generally
approximated carrying values at April 29, 1995 and April 30, 1994. Fair
values have been determined through information obtained from market sources
and management estimates.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified to conform with
presentations adopted in 1995.
23
Page 23 of 228
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------------
2. Acquisition of Business:
-----------------------
Effective January 1, 1995, two majority-owned subsidiaries of the Company
acquired the assets of Madacy Music Group, Inc. The aggregate cash
consideration paid for the assets approximated $22,670,000, including
certain transaction costs. The acquisition has been accounted for as a
purchase transaction and, accordingly, the purchase price was allocated to
assets and liabilities based on estimated fair values as of the acquisition
date. The excess of the consideration paid over the estimated fair values of
net assets acquired of approximately $20,000,000 is being amortized on the
straight-line basis over 15 years.
The following unaudited proforma results of operations for the years ended
April 29, 1995 and April 30, 1994 assume the acquisition occurred as of the
beginning of the respective periods after giving effect to certain
adjustments, including amortization of goodwill, increased interest expense
on acquisition debt and related income tax effects. The proforma results
have been prepared for informational purposes only and do not purport to
indicate the results of operations which would have actually occurred had
the combination been in effect on the dates indicated, or which may occur in
the future.
Fiscal Fiscal
1995 1994
-------------- --------------
Net sales $1,249,777,000 $1,091,968,000
Net income 29,677,000 29,612,000
Earnings per common share .89 .89
3. Sales and Accounts Receivable:
-----------------------------
The Company's customers are comprised mainly of mass merchant retail chains
located in the United States, Canada and Mexico. For the years ended
April 29, 1995, April 30, 1994 and May 1, 1993, one customer accounted for
approximately 40 percent, 41 percent and 38 percent of the Company's net
sales, and a second customer accounted for approximately 25 percent, 26
percent and 24 percent of the Company's net sales, respectively.
Collectively, these customers accounted for approximately 57 percent, 69
percent and 54 percent of accounts receivable at April 29, 1995, April 30,
1994 and May 1, 1993, respectively.
4. Provision for Facility Realignment
----------------------------------
The Company is realigning its operations by replacing existing distribution
centers with new automated distribution centers (ADCs). The Company
recorded a $5,500,000 pre-tax charge against fourth quarter fiscal 1995
results related to costs associated with the transition from the current
distribution structure to an ADC in its Midwestern region. This charge
included costs for disposal of certain existing facilities and certain
compensation costs. The Company recognized a $2,000,000 pre-tax charge in
the fourth quarter of fiscal 1994 related to realigning its Western region.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------------
5. Pension Plan:
------------
The Handleman Company Pension Plan's funded status, the components of net
pension expense, and the amount which is recorded in the Company's
consolidated balance sheet at April 29, 1995, April 30, 1994 and May 1, 1993
are as follows:
1995 1994 1993
------------ ------------ ------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $12,057,000,
$10,352,000, and $9,266,000 in 1995,
1994 and 1993, respectively $12,835,000 $11,012,000 $ 9,734,000
----------- ----------- -----------
Projected benefit obligation $15,648,000 $13,401,000 $11,603,000
Plan assets at fair value 13,102,000 12,781,000 12,967,000
----------- ----------- -----------
Projected benefit obligation (in excess of)
less than plan assets (2,546,000) (620,000) 1,364,000
Unrecognized net loss (gain) from past
experience different from that assumed 1,450,000 389,000 (1,112,000)
Unrecognized net gain from excess funding,
being amortized over eighteen years
beginning April 28, 1985 (966,000) (1,085,000) (1,204,000)
Unrecognized prior service cost 268,000 280,000 413,000
----------- ----------- -----------
Accrued pension liability included in
other liabilities $(1,794,000) $(1,036,000) $ (539,000)
=========== =========== ===========
A weighted average discount rate of 8.0 percent, and a rate of increase in
future compensation levels of 5.0 percent were used for all periods in
determining the actuarial present value of the projected benefit obligation.
1995 1994 1993
------ ------ ------
Net pension expense included the
following components:
Service cost $ 797,000 $ 724,000 $ 601,000
Interest cost 1,132,000 978,000 840,000
Actual return on plan assets (1,031,000) (580,000) (1,524,000)
Net amortization and deferral (140,000) (625,000) 391,000
----------- --------- -----------
Net pension expense $ 758,000 $ 497,000 $ 308,000
=========== ========= ===========
The expected long-term rate of return on assets was 8.5 percent for all
years. The assets are invested in various pooled investment funds and
mutual funds maintained by the Plan trustee and common stock of the Company.
25
Page 25 of 228
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------------
6. Debt:
----
In July 1994, the Company entered into a contractually committed, five-year,
$250,000,000 credit agreement with a consortium of banks. This replaced a
$147,000,000 credit agreement which was scheduled to expire in June 1995.
Subsequently, the credit agreement was decreased to $145,000,000. Under the
new agreement, the Company may elect to pay interest under a variety of
formulae tied principally to either prime or "LIBOR". During the first
three years of the agreement, the Company may elect to enter into term loans
with maturities not to exceed five years in length and having a final
maturity not later than July 12, 2001. Interest on these term loans will be
based upon a pre-determined formula. As of April 29, 1995, $40,000,000 was
outstanding under the credit agreement, at interest rates ranging from 6.31%
to 6.39%. As the Company intends to extend the maturities of the
outstanding balance beyond one year, and has the ability to do so, the debt
has been classified as non-current. Borrowings outstanding will be due on
the termination date of the agreement.
In November 1994, the Company entered into a $100,000,000 senior note
agreement with a group of insurance companies. These notes bear interest at
rates of 7.81% to 8.59% with average maturities ranging from three to seven
years. The Company used the proceeds to refinance floating rate bank
indebtedness and for other corporate purposes.
Scheduled maturities for the senior note, credit agreement, and Economic
Development Corporation (EDC) limited obligation revenue bonds are as
follows:
1997.................... $ 8,000,000
1998.................... $15,000,000
1999.................... $58,571,000
2000.................... $18,571,000
After 2000.............. $46,058,000
The EDC bonds, senior note and the credit agreement all contain certain
restrictions, relating to, among others, working capital, debt and net
worth. The EDC bonds are collateralized by land, buildings and equipment
with an aggregate net book value of approximately $7,032,000 at April 29,
1995.
Interest expense for the years ended April 29, 1995, April 30, 1994 and
May 1, 1993, was $9,136,000, 7,029,000 and $8,004,000, respectively.
Interest paid for the years ended April 29, 1995, April 30, 1994 and May 1,
1993 was $8,004,000, $7,262,000 and $8,514,000, respectively.
26
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
_______________
7. Income Taxes:
------------
The domestic and foreign components of income before income taxes for the
years ended April 29, 1995, April 30, 1994 and May 1, 1993 are as follows:
1995 1994 1993
----------- ------------ -----------
Domestic $43,723,000 $46,426,000 $67,803,000
Foreign 2,109,000 (787,000) 3,082,000
----------- ----------- -----------
Income before income taxes $45,832,000 $45,639,000 $70,885,000
=========== =========== ===========
Provisions for income taxes for the years ended April 29, 1995, April 30,
1994 and May 1, 1993 consist of the following:
1995 1994 1993
----------- ----------- -----------
Currently payable:
Federal $14,738,000 $17,749,000 $18,739,000
Foreign 475,000 249,000 1,174,000
State and other 2,882,000 3,257,000 3,306,000
Deferred, net:
Federal (390,000) (2,418,000) 3,015,000
Foreign, state and other 104,000 (854,000) 908,000
----------- ----------- -----------
$17,809,000 $17,983,000 $27,142,000
=========== =========== ===========
The following table provides a reconciliation of the Company's effective
income tax rate to the statutory federal income tax rate:
Percent of Income
-----------------
1995 1994 1993
---- ---- ----
Federal statutory rate 35.0% 35.0% 34.0%
State and local income taxes 4.3 4.3 3.8
Other (.4) .1 .5
---- ---- ----
Effective tax rate 38.9% 39.4% 38.3%
==== ==== ====
Items that gave rise to significant portions of the deferred tax accounts at
April 29, 1995, April 30, 1994 and May 1, 1993 are as follows:
April 29, 1995 April 30, 1994 May 1, 1993
-------------------------- --------------------------- ----------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities Assets Liabilities
----------------------------------------------------------------------------------------------------------------
Allowances $ 4,732,000 $ 2,972,000 $2,196,000 $ 3,794,000 $1,188,000 $ 7,972,000
Employee benefits 1,810,000 370,000 1,524,000 369,000 1,008,000 432,000
Property and equipment 856,000 7,459,000 1,054,000 5,708,000 490,000 5,757,000
Inventories 342,000 4,861,000 277,000 3,512,000 217,000 127,000
Other 176,000 57,000 319,000 76,000 257,000 233,000
----------- ----------- ---------- ----------- ---------- -----------
$ 7,916,000 $15,719,000 $5,370,000 $13,459,000 $3,160,000 $14,521,000
=========== =========== ========== =========== ========== ===========
The undistributed earnings of the foreign subsidiaries for which no U.S.
federal income tax liabilities have been recorded were $24,070,000 at
April 29, 1995. The Company intends to reinvest indefinitely the
undistributed earnings of its foreign subsidiaries. Due to the availability
of foreign tax credits, no significant U.S. federal income tax liabilities
are expected to result if such earnings were distributed.
Income taxes paid in 1995, 1994 and 1993 were approximately $19,569,000,
$25,204,000 and $26,095,000, respectively.
27
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------
8. Property and Equipment:
-----------------------
Property and equipment consists of the following:
1995 1994 1993
------------ ------------ ------------
Land $ 6,741,000 $ 7,176,000 $ 8,044,000
Buildings and improvements 42,312,000 44,056,000 43,417,000
Display fixtures 101,051,000 87,538,000 77,217,000
Equipment, furniture and other 58,412,000 40,940,000 39,735,000
Leasehold improvements 3,101,000 2,802,000 2,848,000
------------ ------------ ------------
211,617,000 182,512,000 171,261,000
Less accumulated depreciation
and amortization 86,845,000 70,485,000 58,432,000
------------ ------------ ------------
$124,772,000 $112,027,000 $112,829,000
============ ============ ============
9. Stock Plans:
------------
The Company's shareholders approved the adoption of the Handleman Company
1992 Performance Incentive Plan (the "Plan"), which authorizes the granting
of stock options, stock appreciation rights and restricted stock. At any
given time, the maximum number of shares of stock which may be issued
pursuant to restricted stock awards or granted pursuant to stock options or
stock appreciation rights shall not exceed 5% of the number of shares of the
Company's common stock outstanding as of the immediately preceding fiscal
year end, less restricted stock, options and awards issued or granted under
the Plan since adoption in September 1992. As of April 29, 1995, 1,033,010
shares of the Company's stock are available for use under the Plan.
Pursuant to the restricted stock provisions of the Plan, the Company issued,
net of forfeitures, 120,908 shares of common stock during the year ended
April 29, 1995. These restricted shares are held in the custody of the
Company and vest only if specified performance goals are achieved. These
shares are treated as outstanding for purpose of calculating earnings per
share and payment of dividends. If the minimum performance goals under
which an award is issued are not satisfied, the shares are forfeited. If
performance goals are exceeded, a maximum of 95,538 additional shares can be
issued. The number of shares which may vest will be prorated to the extent
actual results are between minimum and maximum performance goals.
Compensation expense for restricted stock was $150,000 in 1995. The Company
did not record any compensation expense related to the restricted stock in
1994 because minimum performance goals were not achieved.
Information with respect to options outstanding under the previous and
current stock option plans for the years ended May 1, 1993, April 30, 1994
and April 29, 1995 is set forth below. Options were granted during such
years at no less than fair market value at the date of grant.
Number Option
Of Shares Price Range
--------- ------------
Balance, May 2, 1992 851,395 $ 6.29 - $22.17
Granted 201,111 13.63 - 15.25
Terminated (28,300) 11.75 - 21.83
Exercised (11,736) 11.92 - 12.75
--------- ---------------
Balance, May 1, 1993 1,012,470 6.29 - 22.17
Granted 258,509 13.75 - 14.25
Terminated (40,275) 11.75 - 21.83
Exercised (13,250) 6.29 - 11.92
--------- ---------------
Balance, April 30, 1994 1,217,454 11.75 - 22.17
Granted 86,650 10.44 - 14.25
Terminated (93,825) 10.44 - 21.83
Exercised - 0 - -- --
--------- ---------------
Balance, April 29, 1995 1,210,279 $10.44 - $22.17
========= ===============
Number of shares exercisable
at April 29, 1995 876,879
=========
28
Page 28 of 228
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------------
10. Quarterly Financial Summary (Unaudited):
---------------------------------------
(amounts in thousands except per share data)
FOR THE THREE MONTHS ENDED
--------------------------
July 30, Oct. 29, Jan. 31, April 29,
Fiscal Year 1995 1994 1994 1995 1995
---------------- --------- -------- --------- ----------
Net sales $212,464 $347,160 $362,911 $303,527
Gross profit 51,016 80,232 82,087 65,129
Income before income taxes 1,464 25,210 18,894 264
Net income 901 15,480 11,096 546
Earnings per share .03 .46 .33 .02*
Dividends per share .11 .11 .11 .11
July 31, Oct. 30, Jan. 31, April 30,
Fiscal Year 1994 1993 1993 1994 1994
---------------- --------- --------- --------- ----------
Net sales $193,995 $322,465 $300,027 $250,079
Gross profit 45,459 77,425 68,616 57,549
Income (loss) before income taxes (4,568) 25,503 16,640 8,064
Net income (loss) (2,768) 15,453 10,084 4,887
Earnings (loss) per share (.08) .46 .30 .15*
Dividends per share .11 .11 .11 .11
Aug. 1, Oct. 31, Jan. 31, May 1,
Fiscal Year 1993 1992 1992 1993 1993
---------------- --------- --------- --------- ---------
Net sales $212,312 $321,852 $335,656 $251,885
Gross profit 56,042 75,164 81,518 65,435
Income before income taxes 7,344 23,270 23,212 17,059
Net income 4,532 14,360 14,324 10,527
Earnings per share .14 .43 .43 .32*
Dividends per share .10 .10 .10 .11
* Earnings per common share were improved by $.04, $.07 and $.06 for the
fourth quarters of fiscal 1995, 1994 and 1993, respectively, resulting from
various year-end adjustments to previous accrual estimates. Income before
income taxes for the quarters ended April 29, 1995 and April 30, 1994
include the effect of pre-tax provisions for facility realignment of
$5,500,000 ($.10 per share after tax) and $2,000,000 ($.03 per share after
tax), respectively. See note 4 to the consolidated financial statements.
29
Page 29 of 228
Item 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10, with the exception of the following information regarding executive
officers of the Registrant required by Item 10, is contained in the Handleman
Company definitive Proxy Statement for its 1995 Annual Meeting of Shareholders
to be filed on or before August 25, 1995, and such information is incorporated
herein by reference. All officers serve at the discretion of the Board of
Directors.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AND AGE OFFICE AND YEAR FIRST ELECTED
- ---------------------------- ------------------------------------------------
Stephen Strome 50 (1) President (1990), Chief Executive Officer (1991)
and Director (1989)
Peter J. Cline 48 (2) Executive Vice President/President of
Distribution (1994)
Lawrence R. Hicks 50 (3) Executive Vice President/Merchandising (1994)
Louis A. Kircos 41 (4) Executive Vice President/Corporate Development
and Subsidiaries (1994)
Richard J. Morris 49 (5) Senior Vice President/Finance (1994), Secretary
and Chief Financial Officer (1993)
Joseph R. Szmadzinski 45 (6) Senior Vice President/Technology (1994)
Thomas C. Braum, Jr. 40 (7) Vice President (1992) and Corporate
Controller (1988)
1. Stephen Strome has served as President since March 1990. On May 1, 1991,
Mr. Strome was named Chief Executive Officer.
2. Peter J. Cline has served as Executive Vice President/President of
Distribution since joining the Company in April, 1994. Prior to joining
Handleman Company, Mr. Cline was employed by the Snacks and International
Consumer Products Division of Borden, Inc. from August 1990 until April
1994 where he served in various executive positions, most recently as Group
Vice President - North American Snacks. Previously, Mr. Cline was employed
by The Stroh Brewery Company from July 1986 to August 1990 where he served
in a variety of executive positions, including Senior Vice President -
Sales and Marketing from August 1989 to August 1990.
3. Lawrence R. Hicks has served as a Vice President since January 1982. Mr.
Hicks was elected Senior Vice President in June 1988, and Executive Vice
President in April 1994.
4. Louis A. Kircos was elected Senior Vice President - Corporate Development
and Subsidiaries in March 1993, and Executive Vice President in April 1994.
In July 1986, Mr. Kircos was elected Treasurer and Secretary, and served as
Treasurer until February 1992, and as Secretary until August 1993. Mr.
Kircos was elected Vice President--Finance in September 1987. In March
1990, Mr. Kircos was elected Senior Vice President - Finance.
5. Richard J. Morris has served as Vice President/Finance, Secretary and Chief
Financial Officer since August 1993. In April 1994, Mr. Morris was elected
Senior Vice President. Prior to joining Handleman Company, Mr. Morris was
employed by PolyGram Holding, Inc., where he served as Senior Vice
President, Finance from January 1983 until July 1993.
6. Joseph R. Szmadzinski has served as Senior Vice President/Technology since
joining the Company in November 1994. Prior to joining Handleman Company,
Mr. Szmadzinski was Chief Executive Officer of Edcor Data Services from
September 1991 until November 1994. Previously, Mr. Szmadzinski was
partner-in-charge of Coopers & Lybrand's midwestern information technology
consulting group from 1987 until September 1991.
7. Thomas C. Braum, Jr. has served as Corporate Controller since June 1988.
In February 1992, Mr. Braum was elected Vice President.
30
Page 30 of 228
Item 11. EXECUTIVE COMPENSATION
Information required by this item is contained in the Handleman Company
definitive Proxy Statement for its 1995 Annual Meeting of Shareholders, to be
filed on or before August 25, 1995 and such information is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in the Handleman Company
definitive Proxy Statement for its 1995 Annual Meeting of Shareholders, to be
filed on or before August 25, 1995 and such information is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in the Handleman Company
definitive Proxy Statement for its 1995 Annual Meeting of Shareholders, to be
filed on or before August 25, 1995 and such information is incorporated herein
by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements and supplementary data are filed
as a part of this report under Item 8.:
Report of Independent Accountants
Consolidated Balance Sheet at April 29, 1995, April 30, 1994
and May 1, 1993.
Consolidated Statement of Income - Years Ended April 29, 1995,
April 30, 1994 and May 1, 1993.
Consolidated Statement of Shareholders' Equity - Years Ended
April 29, 1995, April 30, 1994 and May 1, 1993.
Consolidated Statement of Cash Flows - Years Ended April 29, 1995,
April 30, 1994 and May 1, 1993.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
II. Valuation and Qualifying Accounts and Reserves
All other schedules for Handleman Company have been omitted since the
required information is not present or not present in an amount
sufficient to require submission of the schedule, or because the
information required is included in the financial statements or the
notes thereto.
31
Page 31 of 228
3. Exhibits as required by Item 601 of Regulation S-K.
S-K Item 601 (3)
The Registrant's Restated Articles of Incorporation dated June 30,
1989 and Revised Bylaws adopted March 7, 1990 and Amendments to the
Bylaws adopted June 16, 1993, were filed with the Form 10-K dated
May 1, 1993, and are incorporated herein by reference.
S-K Item 601 (10)
The Registrant's 1975 Stock Option Plan was filed with the
Commission in Form S-8, dated November 17, 1977, File No. 2-60162.
The Registrant's 1983 Stock Option Plan was filed with the
Commission in Form S-8 dated January 18, 1985, File No. 2-95421.
The first amendment to the 1983 Stock Option Plan, adopted on
March 11, 1987, was filed with the Commission with the Form 10-K for
the year ended May 2, 1987. Both plans are incorporated herein by
reference.
The Registrant's 1992 Performance Incentive Plan was filed with the
Commission in Form S-8, dated March 5, 1993, File No. 33-59100.
The advisory agreement with David Handleman was filed with the Form
10-K for the year ended April 28, 1990.
The Credit Agreement among Handleman Company, Certain Banks And NBD
Bank, N.A., As Agent dated June 24, 1991 was filed with the Form
10-K for the year ended May 2, 1992. This Credit Agreement was
replaced by the Credit Agreement dated July 12, 1994 and filed as
Exhibit A.
The Note Agreement dated October 1, 1991 was filed with the Form
10-K for the year ended May 2, 1992. In accordance with the Note
Agreement the final payment on the outstanding notes was paid on
October 1, 1994.
The Credit Agreement among Handleman Company, the Banks named
therein and NBD Bank, N.A., as Agent, dated July 12, 1994 is filed
as Exhibit A to this Form 10-K.
The Note Agreement dated as of November 1, 1994 is filed as Exhibit
B to this Form 10-K.
S-K Item 601 (21) - Subsidiaries of the Registrant:
Handleman Company of Canada, Limited, an Ontario Corporation
Entertainment Zone, Inc., a Michigan Corporation
Scorpio Productions, Inc., a Texas Corporation
Hanley Advertising Company, a Michigan Corporation
Softprime, Inc., a Michigan Corporation
Rackjobbing, S.A. de C.V.
Rackjobbing Services, S.A. de C.V.
Michigan Property and Risk Management Company, a Michigan
Corporation
North Coast Entertainment, Inc., a Michigan Corporation
Anchor Bay Entertainment, Inc., a Michigan Corporation (formerly
Video Treasures, Inc.)
Sellthrough Entertainment, Inc., a Michigan Corporation
North Coast Entertainment, Ltd., a Canadian Corporation
Sofsource, Inc., a Michigan Corporation
Madacy Music Group, Inc., a Michigan Corporation
Mediaphon, Gmbh, a German Corporation
Madacy Music Group, Ltd., a Canadian Corporation
American Sterling Corp., a Delaware Corporation
S-K Item 601 (23) - Consent of Independent Accountants:
Filed with this report.
32
Page 32 of 228
(b) During the last quarter of the period covered by this report, the
Registrant filed a Form 8-K on February 9, 1995 and a Form 8-K/A,
Amendment #1 on April 25, 1995, both related to the purchase of assets of
Madacy Music Group, Inc. The Form 8-K/A, Amendment #1 included the
following financial statements:
. Consolidated financial statements of Madacy Music Group, Inc. for the
year ended December 31, 1994, and
. ProForma consolidated income statements of Handleman Company and
Madacy Music Group for the nine months ended January 31, 1995 and the
year ended April 30, 1994.
Note: The Exhibits attached to this report will be furnished to requesting
security holders upon payment of a reasonable fee to reimburse the
Registrant for expenses incurred by Registrant in furnishing such
Exhibits.
33
Page 33 of 228
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Handleman Company and Subsidiaries on Form S-3 (File Nos. 33-16553, 33-26456,
33-33797 and 33-42018) and Form S-8 (File Nos. 2-60162, 2-95421, 33-59100,
33-16637 and 33-69030) of our report dated June 7, 1995, on our audits of
the consolidated financial statements and financial statement schedule of
Handleman Company and Subsidiaries as of April 29, 1995, April 30, 1994 and
May 1, 1993 and for the years then ended, which report is included in this
Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Detroit, Michigan
July 21, 1995
34
Page 34 of 228
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 1, 1993, APRIL 30, 1994 AND APRIL 29, 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- ----------- ----------- --------------- -------------
Deductions:
Balance at Additions: Adjustments
Beginning Charged to of, or Charges Balance at
Description Of Period Expense to, Reserve end of Period
- ----------------------------------- ----------- ----------- --------------- -------------
Year ended May 1, 1993:
Accounts receivable,
allowance for gross
profit impact of future
returns $19,523,000 $5,385,000 $3,724,000 $21,184,000
=========== ========== ========== ===========
Other assets, collectability
allowance for receivables
from bankrupt customers $12,531,000 $ 403,000 $1,007,000 $11,927,000
=========== ========== ========== ===========
Year ended April 30, 1994:
Accounts receivable,
allowance for gross
profit impact of future
returns $21,184,000 $3,467,000 $5,038,000 $19,613,000
=========== ========== ========== ===========
Other assets, collectability
allowance for receivables
from bankrupt customers $11,927,000 $2,092,000 $ 959,000 $13,060,000
=========== ========== ========== ===========
Year ended April 29, 1995:
Accounts receivable,
allowance for gross
profit impact of future
returns $19,613,000 $8,510,000 $4,070,000 $24,053,000
=========== ========== ========== ===========
Other assets, collectability
allowance for receivables
from bankrupt customers $13,060,000 $ 698,000 $ 582,000 $13,176,000
=========== ========== ========== ===========
35
Page 35 of 228
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HANDLEMAN COMPANY
DATE: July 25, 1995 BY: /s/ Stephen Strome
--------------------------- ------------------------------------
Stephen Strome, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Richard J. Morris /s/ Thomas C. Braum, Jr.
- ---------------------------------- ------------------------------------
Richard J. Morris, Senior Vice President, Thomas C. Braum, Jr., Vice President,
Finance, Secretary and Chief Financial Corporate Controller
Officer (Principal Financial Officer) (Principal Accounting Officer)
July 25, 1995 July 25, 1995
- ---------------------------------- ------------------------------------
DATE DATE
/s/ David Handleman /s/ Richard H. Cummings
- ---------------------------------- ------------------------------------
David Handleman, Director Richard H. Cummings, Director
(Chairman of the Board)
July 25, 1995 July 25, 1995
- ---------------------------------- ------------------------------------
DATE DATE
/s/ James B. Nicholson /s/ Alan E. Schwartz
- ---------------------------------- ------------------------------------
James B. Nicholson, Director Alan E. Schwartz, Director
July 25, 1995 July 25, 1995
- ---------------------------------- ------------------------------------
DATE DATE
/s/ Verne G. Istock /s/ John F. Daly
- ---------------------------------- ------------------------------------
Verne G. Istock, Director John F. Daly, Director
July 25, 1995 July 25, 1995
- ---------------------------------- ------------------------------------
DATE DATE
/S/ Lloyd E. Reuss /s/ Gilbert R. Whitaker
- ---------------------------------- ------------------------------------
Lloyd E. Reuss, Director Gilbert R. Whitaker, Jr., Director
July 25, 1995 July 25, 1995
- ---------------------------------- ------------------------------------
DATE DATE
Page 36 of 228
EXHIBIT A
THIS CREDIT AGREEMENT, dated as of July 12, 1994 (as amended or modified
from time to time, this "Agreement"), is by and among Handleman Company, a
Michigan corporation (the "Company"), each of the Subsidiaries of the Company
designated in Section 1.1 as a Borrowing Subsidiary (individually, a "Borrowing
Subsidiary" and, collectively, the "Borrowing Subsidiaries") (the Company and
the Borrowing Subsidiaries may each be referred to as a "Borrower" and,
collectively, as the "Borrowers") and the Banks set forth on the signature pages
hereof (collectively, together with any Additional Bank that becomes a party
hereto pursuant to Section 9.16, the "Banks" and individually, a "Bank") and NBD
Bank, N.A., a national banking association, as agent for the Banks (in such
capacity, the "Agent").
INTRODUCTION
------------
The Borrowers desire to obtain a revolving credit facility, including
letters of credit, in the aggregate principal amount of $250,000,000 (or the
equivalent thereof in any other permitted currency), with the ability to
increase such amount to $300,000,000 pursuant to Section 9.16 (or the equivalent
thereof in any other permitted currency), in order to provide funds for its
general corporate purposes, and the Banks are willing to establish such a credit
facility in favor of the Borrowers on the terms and conditions herein set forth.
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
-----------
1.1 Certain Definitions. As used herein the following terms shall have
the following respective meanings:
"Absolute Rate Bid-Option Loan" means a Loan which pursuant to the
applicable Notice of Bid-Option Loan is made at the Bid-Option Absolute Rate.
Page 37 of 228
"Adjusted EBIT" of any person shall mean, for any period, the earnings of
such person for such period before interest, extraordinary items, special
reserves and taxes, all as determined in accordance with generally accepted
accounting principles.
"Advance" shall mean any Loan and any Letter of Credit Advance.
"Affiliate" when used with respect to any person shall mean any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this definition "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"Applicable Facility Fee" shall mean (a) if the Company has not received an
Investment Grade Senior Debt Rating, fifteen one-hundredths of one percent
(0.15%) per annum or (b) if the Company, in its sole discretion, has received an
Investment Grade Senior Debt Rating, the per annum rate set forth below based
upon the Investment Grade Senior Debt Rating of the Company in effect on the
date of determination which change in the per annum rate shall be effective
seven Business Days after the Company provides written notice to the Agent that
it has initially obtained the Investment Grade Senior Debt Rating or of any
subsequent change in the Investment Grade Senior Debt Rating, which notice the
Company agrees to provide to the Agent within seven Business Days after
obtaining the rating or any subsequent change, provided, however, that in
determining the Applicable Facility Fee, the Investment Grade Senior Debt Rating
shall be determined based upon the debt ratings given the Company by S&P,
Moody's and Fitch, and, in the event such ratings are not equivalent, the
Applicable Facility Fee shall be determined based upon: (i) in the case of two
different ratings, the lower of the two ratings or (ii) in the case of three
different ratings (A) if two agencies ratings are in agreement, the rating on
which two agencies are in agreement or (B) if all three agencies have issued
different ratings, the rating between the highest and lowest rating of the
agencies:
-2-
Page 38 of 228
Investment Grade Applicable
Senior Debt Rating Facility
S&P/Moody's/Fitch Fee
----------------- ----------
(a) A/A2/A or higher 0.10%
(b) A- /A3/A- 0.125%
(c) BBB+/Baa/BBB+ 0.15%
(d) BBB/Baa2/BBB 0.15%
(e) BBB-/Baa3/BBB- 0.20%
"Applicable Lending Office" shall mean, with respect to any Advance made by
any Bank or with respect to such Bank's Commitment, the office of such Bank or
of any Affiliate of such Bank located at the address specified as the applicable
lending office for such Bank set forth next to the name of such Bank in the
signature pages hereof or any other office or Affiliate of such Bank or of any
Affiliate of such Bank hereafter selected and notified to the Company and the
Agent by such Bank.
"Applicable Margin" shall mean, with respect to any Application Period, (a)
if the Company has not received an Investment Grade Senior Debt Rating as of the
Determination Date, the per annum rate set forth in Schedule 1 below based upon
the Leverage Ratio for the Determination Period; or (b) if the Company, in its
sole discretion, has received an Investment Grade Senior Debt Rating as of the
Determination Date, the per annum rate set forth in Schedule 2 below based upon
the Investment Grade Senior Debt Rating of the Company in effect on the
Determination Date, which change in the per annum rate shall be effective
fourteen Business Days after the Company provides written notice to the Agent
that it has initially obtained the Investment Grade Senior Rating or of any
subsequent change in the Investment Grade Senior Debt Rating, provided, however,
that in determining the Applicable Margin pursuant to Schedule 2 below, the
Investment Grade Senior Debt Rating shall be determined based upon the debt
ratings given the Company by S&P, Moody's and Fitch, and, in the event such
ratings are not equivalent, the Applicable
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Margin shall be determined based upon: (i) in the case of two different ratings,
the lower of the two ratings or (ii) in the case of three different ratings (A)
if two agencies ratings are in agreement, the rating on which two agencies are
in agreement or (B) if all three agencies have issued different ratings, the
rating between the highest and lowest rating of the agencies:
Schedule 1
- ----------
Leverage Ratio Applicable Margin
-------------- -----------------
(a) Greater than or equal to 1.25 0.625%
(b) Less than 1.25 but greater than
or equal to 0.65 0.50%
(c) Less than 0.65 0.34%
For purposes of this definition of the term "Applicable Margin", (a) the term
"Application Period" means a period commencing with and including the 60th day
after the end of the most recently completed fiscal quarter of the Company to
and including the 59th day after the end of the next following fiscal quarter of
the Company or the next succeeding Business Day, (b) the term "Determination
Date" means, with respect to any Application Period, the last day of the
Determination Period for such Application Period, and (c) the term
"Determination Period" means, with respect to any Application Period, the period
of four consecutive fiscal quarters of the Company ending with the fiscal
quarter ending immediately preceding such Application Period.
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Schedule 2
- ----------
Investment Grade
Senior Debt Rating
S&P/Moody's/Fitch Applicable Margin
------------------ -----------------
(a) A/A2/A or higher 0.20%
(b) A-/A3/A- 0.275%
(c) BBB+/Baa1/BBB+ 0.30%
(d) BBB/Baa2/BBB 0.34%
(e) BBB-/Baa3/BBB- 0.40%
"Application Period" shall have the meaning ascribed thereto in the
definition of the term "Applicable Margin".
"Bankers Acceptances" shall mean bills of exchange within the meaning of
the Bills of Exchange Act (Canada), denominated in CAD, drawn by Canadian
business corporations of credit standing comparable to the Company and accepted
by the respective banks referred to in the definition of "Canadian Domestic
Rate".
"Bank Obligations" shall mean all indebtedness, obligations and
liabilities, whether now owing or hereafter arising, direct, indirect,
contingent or otherwise, of the Borrowers to the Agent or any Bank pursuant to
the Loan Documents.
"Bid-Option Absolute Rate" means, with respect to any Absolute Rate Bid-
Option Loan, the Bid-Option Absolute Rate, as defined in Section 2.2(d)(ii)(E),
that is offered for such Loan.
"Bid-Option Auction" means a solicitation of Bid-Option Quotes setting
forth Bid-Option Absolute Rates or Bid-Option Eurocurrency Rate Margins, as the
case may be, pursuant to Section 2.2(b).
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"Bid-Option Eurocurrency Rate" means the sum of (a) the Bid-Option
Eurocurrency Rate Margin plus (b) the Eurocurrency Base Rate.
"Bid-Option Eurocurrency Rate Margin" means, with respect to any
Eurocurrency Rate Bid-Option Loan, the Bid-Option Eurocurrency Rate Margin, as
defined in Section 2.2(d)(ii)(F), that is offered for such Loan.
"Bid-Option Interest Period" means (a) with respect to each Eurocurrency
Rate Bid-Option Borrowing, the Eurocurrency Rate Interest Period applicable
thereto, and (b) with respect to each Absolute Rate Bid-Option Borrowing, the
period commencing on the date of such Borrowing and ending on the date elected
by the Borrower in the applicable Notice of Borrowing, which date shall be not
less than 30 and not more than 360 days after the date of such Bid-Option Loan;
provided that:
(i) any such Interest Period that would otherwise end on a day
that is not a Business Day shall be extended to the next succeeding
Business day; and
(ii) no such Interest Period that would end after the Termination
Date shall be permitted.
"Bid-Option Loan" means a Loan which is made by a Bank pursuant to a Bid-
Option Auction.
"Bid-Option Note" means a promissory note of the Borrowers in substantially
the form of Exhibit A hereto evidencing the obligation of the Borrowers to repay
Bid-Option Loans, as amended or modified from time to time and together with any
promissory note or notes issued in exchange or replacement therefor.
"Bid-Option Percentage" means, with respect to any Bank, the percentage of
the aggregate outstanding principal amount of the Bid-Option Loans of all the
Banks represented by the outstanding principal amount of the Bid-Option Loans of
such Bank.
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"Bid-Option Quote" means an offer by a Bank to make a Bid-Option Loan
in accordance with Section 2.2(d).
"Bid-Option Quote Request" shall have the meaning ascribed thereto in
Section 2.2(b).
"Borrowing" shall mean the aggregation of Advances made to any
Borrower, or continuations and conversions of such Advances, made pursuant to
Article II on a single date and for a single Interest Period. A Borrowing may
be referred to for purposes of this Agreement by reference to the type of Loan
comprising the relating Borrowing, e.g., a "Floating Rate Borrowing" if such
Loans are Floating Rate Loans, a "Eurocurrency Rate Syndicated Borrowing" if
such Loans are Eurocurrency Rate Syndicated Loans, an "Absolute Rate Bid-Option
Borrowing" if such Loans are Absolute Rate Bid-Option Loans, or a "Eurocurrency
Rate Bid-Option Borrowing" if such Loans are Eurocurrency Rate Bid-Option Loans.
Floating Rate Borrowings and Fixed Rate Syndicated Borrowings may be similarly
collectively referred to as "Syndicated Borrowings", and Absolute Rate Bid-
Option Borrowings and Eurocurrency Rate Bid-Option Borrowings may be
collectively referred to as "Bid-Option Borrowings".
"Borrowing Subsidiary" shall mean any subsidiary of the Company or any
other person upon request by the Company to the Agent for designation of such
subsidiary or person as a "Borrowing Subsidiary" hereunder so long as (a) the
Required Banks consent to such designation, (b) the Company guarantees the
obligations of such new Borrowing Subsidiary pursuant to the terms of Article
VIII hereof, (c) such new Borrowing Subsidiary delivers all corporate or
organizational documents and authorizing resolutions reasonably requested by the
Agent and (d) the Borrowers and such new Borrowing Subsidiary execute all
agreements and take such other action reasonably requested by Agent.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which (a) the Agent is not open to the public for carrying on
substantially all of its banking functions or (b) if such reference relates to
the date for payment or purchase of any amount denominated in any currency other
than Dollars, banks are not generally open to the public for carrying on
substantially all of their banking functions in the principal financial center
of the country issuing such currency.
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"CAD" shall mean Canadian dollars.
"Canadian Domestic Rate" shall mean, with respect to any Eurocurrency
Interest Period, the per annum interest rate which is determined by the Agent in
accordance with the following formula (such sum to be rounded upward, if
necessary, to the nearest whole multiple of 1/100 of 1%):
1 = 1 - Z
- - ---
x y 365
where:
"x" is the Canadian Domestic Rate;
"y" is the average of the discount rate (expressed as a decimal)
quoted by NBD Bank Canada at its main office in Toronto and two other
banks to be named and to be mutually agreed upon by the Agent and
Company, two of which banks shall be Schedule A banks, at 10:00 a.m.
(Toronto time) two (2) Business Days prior to the first day of such
Eurocurrency Interest Period as the discount rate at which such banks
would purchase Bankers Acceptances having a tenor and aggregate face
principal amount the same as such Eurocurrency Interest Period
applicable to, and the principal amount of, the relevant Eurocurrency
Rate Syndicated Loan requested by a Borrower; and
"z" is the duration in days of such Eurocurrency Interest Period.
"Capital Lease" of any person shall mean any lease which, in
accordance with generally accepted accounting principles, is or should be
capitalized on the books of such person.
"Cash Flow" of any person shall mean, for any period, the net income
(after deduction for income taxes and other taxes of such person determined by
reference to income or profits of such person) for such period plus, to the
extent deducted in computation of such net income, the amount of depreciation
and amortization expense, and the amount of deferred income tax expense (reduced
by the amount of deferred tax
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liability paid during such period), all as determined in accordance with
generally accepted accounting principles.
"CD Interest Period" shall mean, with respect to any CD Rate Loan, the
period commencing on the day such Loan is made or converted to a CD Rate Loan
and ending on the date 30, 60, 90 or 180 days or one year thereafter, as any
Borrower may elect under Section 2.6 or 2.9, and, with respect to any
continuation of such Loan as a CD Rate Loan, each subsequent period commencing
on the last day of the immediately preceding CD Interest Period and ending on
the date 30, 60, 90 or 180 days or one year thereafter, as any Borrower may
elect under Section 2.6 or 2.9, provided, however, that (a) each Interest Period
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day, and (b) no CD Interest Period which would end
after the Termination Date shall be permitted.
"CD Rate" shall mean, with respect to any CD Rate Loan and the related
CD Interest Period, the per annum rate that is equal to the sum of:
(a) the Applicable Margin, plus
(b) the rate per annum obtained by dividing (i) the arithmetic mean of
secondary market bid rates per annum (expressed as a percentage) quoted at
approximately 10:00 a.m. New York time (or as soon thereafter as practicable) on
the first day of the related CD Interest Period by two or more New York
certificate of deposit dealers of recognized standing selected by the Agent for
the purchase from the Agent at face value of negotiable certificates of deposit
of the Agent with a term comparable to such CD Interest Period in an aggregate
amount comparable to the related CD Rate Loan to be made by the Agent in its
capacity as a Bank hereunder, by (ii) an amount equal to one minus the stated
maximum rate (expressed as a decimal) of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) under any regulations of the Board of Governors of the Federal Reserve
System (or any successor agency thereto), applicable on the first day of the
related CD Interest Period to a negotiable certificate of deposit of the Agent
with a term comparable to such CD Interest Period in an amount comparable to the
related CD Rate Loan, plus
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(c) the annual assessment rate (expressed as a percentage) estimated
by the Agent on the first day of the related CD Interest Period to be payable by
the Agent to the Federal Deposit Insurance Corporation (or any successor agency
thereto) for such Corporation's (or such successor's) insuring Dollar deposits
of the Agent in the United States during the related CD Interest Period;
all as conclusively determined by the Agent, absent manifest error, such sum to
be rounded up, if necessary, to the nearest whole multiple of one one-hundredth
of one percent (1/100 of 1%).
"CD Rate Loan" shall mean any Syndicated Loan which bears interest at
the CD Rate.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations thereunder.
"Commitment" shall mean, with respect to each Bank, the commitment of
each such Bank to make Syndicated Loans and to participate in Letter of Credit
Advances made through the Agent pursuant to Section 2.1, in amounts not
exceeding in aggregate principal amount outstanding at any time the respective
commitment amount for each such Bank set forth next to the name of each such
Bank in the signature pages hereof, as such amounts may be reduced from time to
time pursuant to Section 2.4 or as may be increased from time to time pursuant
to Section 9.16.
"Consolidated" or "consolidated" shall mean, when used with reference
to any financial term in this Agreement, the aggregate for two or more persons
of the amounts signified by such term for all such persons determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Contingent Liabilities" of any person shall mean, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect
of which obligations such person assures a creditor against loss or agrees to
take any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such person in respect of
any letters of credit, surety bonds
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or similar obligations and all obligations of such person to advance funds to,
or to purchase assets, property or services from, any other person in order to
maintain the financial condition of such other person.
"Cumulative Net Income" of any person shall mean, as of any date, the
net income (after deduction for income and other taxes of such person determined
by reference to income or profits of such person) for the period commencing on
the specified date through the end of the most recently completed fiscal year of
such person (but without reduction for any net loss incurred for any fiscal year
during such period), taken as one accounting period, all as determined in
accordance with generally accepted accounting principles.
"Current Assets" and "Current Liabilities" of any person shall mean,
as of any date, all assets or liabilities, respectively, of such person which,
in accordance with generally accepted accounting principles, are (or, if the
balance sheet is qualified, should be) classified as current assets or current
liabilities, respectively, on a balance sheet of such person.
"Default" shall mean any of the events or conditions described in
Section 6.1 which might become an Event of Default with notice or lapse of time
or both.
"Determination Date" shall have the meaning ascribed thereto in the
definition of the term "Applicable Margin".
"Determination Period" shall have the meaning ascribed thereto in the
definition of the term "Applicable Margin".
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"Effective Date" shall mean the effective date specified in the final
paragraph of this Agreement.
"Environmental Laws" at any date shall mean all provisions of law,
statute, ordinances, rules, regulations, judgments, writs, injunctions, decrees,
orders, awards and standards which are applicable to any Borrower or any
Significant Subsidiary and promulgated by the
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government of the United States of America or any foreign government or by any
state, province, municipality or other political subdivision thereof or therein
or by any court, agency, instrumentality, regulatory authority or commission of
any of the foregoing concerning the protection of, or regulating the discharge
of substances into, the environment.
"Equivalent" of an amount of one currency (the "first currency")
denominated in another currency (the "second currency"), as of any date of
determination, shall mean the amount of the second currency which could be
purchased with the amount of the first currency at the spot or other relevant
rate of exchange quoted by the Agent at approximately 11:00 a.m. on such date,
which rate shall be substantially representative of the market rate.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder.
"ERISA Affiliate" shall mean, with respect to any person, any trade or
business (whether or not incorporated) which, together with such person or any
Subsidiary of such person, would be treated as a single employer under Section
414 of the Code.
"Eurocurrency Base Rate" applicable to any Eurocurrency Interest
Period means, other than a Eurocurrency Rate Syndicated Loan denominated in CAD
described in clause (b) below, (a) the rate per annum obtained by dividing (i)
the per annum rate of interest at which deposits in the Permitted Currency in
which such Eurocurrency Rate Loan is to be denominated for such Eurocurrency
Interest Period and in an aggregate amount comparable to (A) in the case of
Eurocurrency Rate Syndicated Loans, the amount of the related Eurocurrency Rate
Syndicated Loan to be made by the Agent in its capacity as a Bank hereunder and
(B) in the case of Eurocurrency Rate Bid-Option Loans, the aggregate amount of
the Eurocurrency Rate Bid-Option Borrowing set forth in the related Bid-Option
Quote Request, are offered to the Agent by other prime banks in the applicable
interbank market selected by the Agent in its reasonable discretion, at
approximately 11:00 a.m. London time, on the second Eurocurrency Business Day
prior to the first day of such Eurocurrency Interest Period by (ii) an amount
equal to one minus the stated maximum rate (expressed as a decimal) of all
reserve requirements including,
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without limitation, any marginal, emergency, supplemental, special or other
reserves, that is specified on the first day of such Eurocurrency Interest
Period by the Board of Governors of the Federal Reserve System (or any successor
agency thereto) for determining the maximum reserve requirement with respect to
eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) maintained by a member bank of such System;
all as conclusively determined by the Agent, absent manifest error, such sum to
be rounded up, if necessary, to the nearest whole multiple of one one-hundredth
of one percent (1/100 of 1%) or (b) in the case of any Eurocurrency Rate Loans
denominated in CAD, the Canadian Domestic Rate.
"Eurocurrency Business Day" shall mean, with respect to any
Eurocurrency Rate Loan, a day which is both a Business Day and a day on which
dealings in Dollar deposits or the relevant Permitted Currency are carried out
in the relevant interbank market.
"Eurocurrency Interest Period" shall mean, with respect to any
Eurocurrency Rate Syndicated Loan, the period commencing on the day such
Eurocurrency Rate Syndicated Loan is made or converted to a Eurocurrency Rate
Syndicated Loan and ending on the date one, two, three, six or twelve months
thereafter, as any Borrower may elect under Section 2.6 or 2.9, and each
subsequent period commencing on the last day of the immediately preceding
Eurocurrency Interest Period and ending on the date one, two, three, six or
twelve months thereafter, as any Borrower may elect under Section 2.6 or 2.9,
and with respect to any Eurocurrency Rate Bid-Option Loan, the period commencing
on the date of such Eurocurrency Rate Bid-Option Loan and ending on a date
between 30 days and twelve months thereafter, as any Borrower may elect in the
Notice of Bid-Option Loan, provided, however, that (a) any Eurocurrency Interest
Period which commences on the last Eurocurrency Business Day of a calendar month
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Eurocurrency
Business Day of the appropriate subsequent calendar month, (b) each Eurocurrency
Interest Period which would otherwise end on a day which is not a Eurocurrency
Business Day shall end on the next succeeding Eurocurrency Business Day or, if
such next succeeding Eurocurrency Business Day falls in the next succeeding
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calendar month, on the next preceding Eurocurrency Business Day, and (c) no
Eurocurrency Interest Period which would end after the Termination Date shall be
permitted.
"Eurocurrency Rate Loan" shall mean any Eurocurrency Rate Bid-Option
Loan or Eurocurrency Rate Syndicated Loan.
"Eurocurrency Rate Bid-Option Loan" means a Loan which pursuant to the
applicable Notice of Bid-Option Loan is made at the Bid-Option Eurocurrency
Rate.
"Eurocurrency Rate Syndicated Loan" means any Syndicated Loan which
bears interest at the Syndicated Eurocurrency Rate.
"Event of Default" shall mean any of the events or conditions
described in Section 6.1.
"Federal Funds Rate" shall mean the per annum rate that is equal to
the per annum rate established and announced by the Agent from time to time as
the opening federal funds rate paid or payable by the Agent in its regional
federal funds market for overnight borrowings from other banks; as conclusively
determined by the Agent, absent manifest error, such rate to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%), which Federal Funds Rate shall change simultaneously with any
change in such announced rates.
"Fitch" shall mean Fitch Investors Service Inc. or any successor
thereto.
"Fixed Charges" of any person shall mean, for any period, the sum,
without duplication, of (a) interest paid or payable during such period by such
person on Indebtedness of such person, plus (b) all payments of principal or
other sums paid or payable during such period by such person with respect to
Indebtedness of such person having a final maturity more than one year from the
date of creation of such Indebtedness, plus (c) all debt discount and expense
amortized or required to be amortized during such period by such person, plus
(d) the maximum amount of all rents and other payments (exclusive of property
taxes,
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property and liability insurance premiums and maintenance costs) paid or
required to be paid by such person during such period under any Capital Lease or
operating lease or other lease of real or personal property in respect of which
such person is obligated as a lessee or user, plus (e) all dividends and other
distributions paid or payable or otherwise accumulating during such period on
any capital stock of such person.
"Fixed Rate Loan" shall mean any Fixed Rate Syndicated Loan or Bid-
Option Loan.
"Fixed Rate Syndicated Loan" means any CD Rate Loan or Eurocurrency
Rate Syndicated Loan.
"Floating Rate" shall mean the per annum rate equal to the greater of
(i) the Prime Rate in effect from time to time, and (ii) the sum of five-eighths
of one percent (5/8 of 1%) per annum plus the Federal Funds Rate in effect from
time to time; which Floating Rate shall change simultaneously with any change in
such Prime Rate or Federal Funds Rate, as the case may be.
"Floating Rate Loan" shall mean any Syndicated Loan which bears
interest at the Floating Rate.
"Funded Debt" of any person shall mean all Indebtedness that would, in
accordance with generally accepted accounting principles, constitute long term
debt, including (a) any Indebtedness with a maturity of longer than one year
after the creation of such Indebtedness, (b) any Indebtedness outstanding under
a revolving credit or similar agreement (and any renewal or extension thereof)
providing for borrowings which constitute long term debt, (c) any Capital Lease
and (d) any guarantee with respect to Funded Debt of another person.
Notwithstanding the foregoing, (i) any portion of Funded Debt included in
Current Liabilities shall be excluded from Funded Debt and (ii) only the highest
amount of the aggregate Advances outstanding under this Agreement which have not
been paid off for thirty consecutive days during the most recent six month
period ended as of any day Funded Debt is measured shall be Funded Debt.
"generally accepted accounting principles" shall mean generally
accepted accounting principles in effect as of the Effective Date and
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applied on a basis consistent with that reflected in the financial statements
referred to in Section 4.6.
"Guaranties" shall mean the guaranty entered into by the Company for
the benefit of the Agent and the Banks pursuant to Article VIII of this
Agreement and guaranties entered into by each of the Guarantors for the benefit
of the Agent and the Banks pursuant to Section 5.1(f) in substantially the form
of Exhibit B hereto with any additional limitation in the amount guaranteed as
requested by the Required Banks, as amended or modified from time to time.
"Guarantor" shall mean each Significant Subsidiary of the Company and
each person otherwise becoming a Significant Subsidiary of the Company, or
otherwise entering into a Guaranty, from time to time (except as otherwise
provided in Section 5.1(f)) (including without limitation existing Subsidiaries
which later become Significant Subsidiaries).
"Indebtedness" of any person shall mean, as of any date, (a) all
obligations of such person for borrowed money, (b) all obligations of such
person as lessee under any Capital Lease, (c) the unpaid purchase price for
goods, property or services acquired by such person, except for accounts payable
arising in the ordinary course of business, (d) all obligations of such person
to purchase goods, property or services where payment therefor is required
regardless of whether delivery of such goods or property or the performance of
such services is ever made or tendered (generally referred to as "take or pay
contracts"), other than obligations incurred in the ordinary course of business,
(e) all obligations of such person in respect of any interest rate or currency
swap, rate cap or other similar transaction (valued in an amount equal to the
highest termination payment, if any, that would be payable by such person upon
termination for any reason on the date of determination), and (f) all
obligations of others similar in character to those described in clauses (a)
through (e) of this definition for which such person is contingently liable, as
obligor, guarantor, surety or in any other capacity, or in respect of which
obligations such person assures a creditor against loss or agrees to take any
action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such person in respect of
letters of credit, surety bonds or similar obligations and all
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obligations of such person to advance funds to, or to purchase assets, property
or services from, any other person in order to maintain the financial condition
of such other person. Notwithstanding the foregoing, clause (f) shall not
include (i) obligations or guarantees owing or guaranteed by any Subsidiary or
the Company to or for the benefit of any other Subsidiary or the Company, or
(ii) Unfunded Benefit Liabilities.
"Interest Expense" of any person shall mean, for any period, all
interest paid or payable by such person during such period.
"Interest Coverage Ratio" shall mean, as of any date, the ratio of
(a) Consolidated Adjusted EBIT for the Company and its Subsidiaries as
calculated for the four most recently ended consecutive fiscal quarters of the
Company to (b) Consolidated Interest Expense of the Company and its Subsidiaries
as calculated for the same four fiscal quarters.
"Interest Payment Date" shall mean (a) with respect to any CD Rate
Loan, Eurocurrency Rate Loan or Bid-Option Loan, the last day of each Interest
Period with respect to such CD Rate Loan, Eurocurrency Rate Loan or Bid-Option
Loan and, in the case of any Interest Period exceeding three months or 90 days,
as the case may be, those days that occur during such Interest Period at
intervals of three months or 90 days, as the case may be, after the first day of
such Interest Period, and (b) in all other cases, the last Business Day of each
March, June, September and December occurring after the date hereof, commencing
with the first such Business Day occurring after the date of this Agreement.
"Interest Period" shall mean any CD Interest Period, Eurocurrency
Interest Period or Bid-Option Interest Period.
"Investment Grade Senior Debt Rating" means, at any date, that the
Company's senior unsecured long term debt is rated BBB- or better by S&P and
Baa3 or better by Moody's or BBB- or better by Fitch.
"Invitation for Bid-Option Quotes" shall mean an invitation for Bid-
Option Quotes in the form referred to in Section 2.2(c).
"Letter of Credit" shall mean a standby letter of credit having a
stated expiry date not later than twelve months after the date of issuance and
not later than the fifth Business Day before the Termination Date
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issued by the Agent on behalf of the Banks for the account of any Borrower under
an application and related documentation acceptable to the Agent requiring,
among other things, immediate reimbursement by such Borrower to the Agent in
respect of all drafts or other demand for payment honored thereunder and all
expenses paid or incurred by the Agent relative thereto.
"Letter of Credit Advance" shall mean any issuance of a Letter of
Credit under Section 2.6 made pursuant to Section 2.1 in which each Bank
acquires a pro rata risk participation pursuant to Section 2.6(d).
"Letter of Credit Documents" shall have the meaning ascribed thereto
in Section 3.3(b).
"Leverage Ratio" of any person shall mean the ratio of Funded Debt of
such person to Tangible Capital Funds of such person.
"Lien" shall mean any pledge, assignment, deed of trust,
hypothecation, mortgage, security interest, conditional sale or title retaining
contract, financing statement filing, or any other type of lien, charge,
encumbrance or other similar claim or right.
"Loan" shall mean any Syndicated Loan or any Bid-Option Loan, as the
context may require.
"Loan Documents" shall mean this Agreement, the Notes, the Letter of
Credit Documents, the Guaranties and any other agreement, instrument or document
executed at any time in connection with this Agreement.
"Maturity Date" shall mean, with respect to each Term Loan, a date
agreed upon between the Borrowers and the Agent on which such Term Loan shall be
paid in full, subject to the limitations set forth in Section 2.1(b).
"Moody's" shall mean Moody's Investor Service, Inc. or any successor
thereto.
"Multiemployer Plan" shall mean any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
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"Net Worth" of any person shall mean, as of any date, the amount of
any preferred stock, paid in capital and similar equity accounts plus (or minus
in the case of a deficit) the capital surplus and retained earnings of such
person and the amount of any foreign currency translation adjustment account
shown as a capital account of such person.
"Notes" shall mean the Revolving Credit Notes, the Bid-Option Notes
and the Term Notes; "Note" shall mean any Revolving Credit Note, any Bid-Option
Note or any Term Note.
"Notice of Bid-Option Loan" shall have the meaning set forth in
Section 2.2(f).
"Optional Currency" shall mean any currency which is freely
transferrable and convertible into Dollars and approved by the Banks; provided,
that, subject to the terms of this Agreement (including without limitation
Section 3.8), the currencies of Canada, the United Kingdom, France and Germany
shall be deemed acceptable to the Banks.
"Original Dollar Amount" shall mean, with respect to any Loan, the
Equivalent in Dollars of the original principal amount of such Loan specified in
the related request therefor given by any Borrower pursuant to Section 2.6 (a)
as such amount is reduced by payments of principal made in respect of such Loan
in Dollars (or the Dollar Equivalent thereof in the case of a payment made in an
Optional Currency) and (b) as such amount is adjusted pursuant to Section
3.1(d).
"Overdue Rate" shall mean (a) in respect of principal of Floating Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the Floating Rate, (b) in respect of principal of Fixed Rate Loans, a rate
per annum that is equal to the sum of three percent (3%) per annum plus the per
annum rate in effect thereon until the end of the then current Interest Period
for such Loan and, thereafter, a rate per annum that is equal to the sum of
three percent (3%) per annum plus the Floating Rate, and (c) in respect of other
amounts payable by any Borrower hereunder (other than interest), a per annum
rate that is equal to the sum of three percent (3%) per annum plus the Floating
Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
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"Permitted Currency" shall mean Dollars and any Optional Currency.
"Permitted Liens" shall mean Liens permitted by Section 5.2(g) hereof.
"Person" or "person" shall include an individual, a corporation, a
limited liability company, an association, a partnership, a trust or estate, a
joint stock company, an unincorporated organization, a joint venture, a trade or
business (whether or not incorporated), a government (foreign or domestic) and
any agency or political subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any person, any pension plan
(other than a Multiemployer Plan) subject to Title IV of ERISA or to the minimum
funding standards of Section 412 of the Code which has been established or
maintained by such person, any Subsidiary of such person or any ERISA Affiliate,
or by any other person if such person, any Subsidiary of such person or any
ERISA Affiliate could have liability with respect to such pension plan.
"Prime Rate" shall mean the per annum rate announced by the Agent from
time to time as its "prime rate" (it being acknowledged that such announced rate
may not necessarily be the lowest rate charged by the Agent to any of its
customers), which Prime Rate shall change simultaneously with any change in such
announced rate.
"Prohibited Transaction" shall mean any non-exempt transaction
involving any Plan which is proscribed by Section 406 of ERISA or Section 4975
of the Code.
"Reportable Event" shall mean a reportable event as described in
Section 4043(b) of ERISA including those events as to which the thirty (30) day
notice period is waived under Part 2615 of the regulations promulgated by the
PBGC under ERISA.
"Required Banks" shall mean Banks holding not less than 75 percent of
the aggregate principal amount of the Syndicated Advances then outstanding (or
75 percent of the Commitments if no Syndicated Advances are then outstanding).
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"Revolving Credit Advance" shall mean any Revolving Credit Loan and
any Letter of Credit Advance.
"Revolving Credit Loan" shall mean any borrowing under Section 2.6
evidenced by the Revolving Credit Notes and made pursuant to Section 2.1.
"Revolving Credit Note" shall mean any promissory note of the
Borrowers evidencing the Revolving Credit Loans, in substantially the form
annexed hereto as Exhibit C, as amended or modified from time to time and
together with any promissory note or notes issued in exchange or replacement
therefor.
"Short Term Borrowings" shall mean all Indebtedness for borrowed money
with an original maturity less than one year, other than the Advances.
"Significant Subsidiary" shall mean any Subsidiary which has total
assets which equal or exceed 10% of the consolidated total assets of the Company
and its Subsidiaries.
"S&P" shall mean Standard & Poor's Corporation or any successor
thereto.
"Subsidiary" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors'
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of the Company.
"Subordinated Debt" of any person shall mean, as of any date, that
Indebtedness of such person for borrowed money which is expressly subordinate
and junior in the right of payment to the Advances of such person to the Banks
in manner and by agreement satisfactory in form and
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substance to the Required Banks, which consent and agreement may not be
unreasonably withheld.
"Syndicated Advance" shall mean any Syndicated Loan or any Letter of
Credit Advance.
"Syndicated Eurocurrency Rate" means, with respect to any Eurocurrency
Rate Syndicated Loan for any Eurocurrency Rate Interest Period or portion
thereof, the per annum rate that is equal to the sum of (a) the Applicable
Margin, plus (b) the Eurocurrency Base Rate; which Syndicated Eurocurrency Rate
shall change simultaneously with any change in such Applicable Margin.
"Syndicated Loan" shall mean any Revolving Credit Loan or any Term
Loan.
"Tangible Capital Funds" of any person shall mean the sum of Tangible
Net Worth of such person and Subordinated Debt of such person.
"Tangible Capitalization" of any person shall mean the sum of Tangible
Net Worth of such person and Funded Debt of such person.
"Tangible Net Worth" of any person shall mean, as of any date, (a) the
amount of any preferred stock, paid in capital and similar equity accounts plus
(or minus in the case of a deficit) the capital surplus and retained earnings of
such person and the amount of any foreign currency translation adjustment
account shown as a capital account of such person, less (b) the net book value
of all items of the following character which are included in the assets of such
person: (i) goodwill, including without limitation, the excess of cost over book
value of any asset, (ii) organization or experimental expenses, (iii)
unamortized debt discount and expense, (iv) patents, trademarks, trade names and
copyrights, (v) deferred taxes and deferred charges, (vi) franchises, licenses
and permits, and (vii) other assets which are deemed intangible assets under
generally accepted accounting principles other than (xx) licenses giving the
Company rights to manufacture and distribute certain video, music, books and
software products, and (yy) any rights under that certain covenant not to
compete given by William Hall in connection with the acquisition of Sight &
Sound Distribution Co., plus (c) the net book value of the items set forth
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in clause (b) above in an amount not to exceed 15% of Consolidated Net Worth of
the Company.
"Term Loan" shall mean any borrowing under Section 2.6 evidenced by
the Term Notes and made pursuant to Section 2.1.
"Term Loan Fixed Rate" shall mean, with respect to each Term Loan, the
per annum rate equal to the sum of (a) the Eurocurrency Base Rate for the
average life of such Term Loan, plus (b) the Applicable Margin, plus (c) the
Applicable Facility Fee; all as calculated on the second Eurocurrency Business
Day prior to the date such Term Loan is to be made.
"Term Note" shall mean any promissory note of the Borrowers evidencing
the Term Loans, in substantially the form annexed hereto as Exhibit D, as
amended or modified from time to time and together with any promissory note or
notes issued in exchange or replacement therefor.
"Termination Date" shall mean the earlier to occur of (a) July 12,
1999 and (b) the date on which the Commitment shall be terminated pursuant to
Section 2.4 or 6.2.
"Total Capitalization" of any person shall mean the sum of Net Worth
of such person and Funded Debt of such person.
"Total Liabilities" of any person shall mean, as of any date, all
obligations which, in accordance with generally accepted accounting principles,
are classified as liabilities on a balance sheet of such person.
"Unfunded Benefit Liabilities" shall mean, with respect to any Plan as
of any date, the amount of the unfunded benefit liabilities determined in
accordance with Section 4001(a)(18) of ERISA.
"Working Capital" of any person shall mean, as of any date, the
amount, if any, by which the Current Assets of such person exceed the Current
Liabilities of such person.
1.2 Other Definitions; Rules of Construction. As used herein, the
terms "Agent", "Banks", "Company", "Borrowing Subsidiary", "Borrowing
Subsidiaries" and "this Agreement" shall have the respective meanings
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ascribed thereto in the introductory paragraph of this Agreement. Such terms,
together with the other terms defined in Section 1.1, shall include both the
singular and the plural forms thereof and shall be construed accordingly. All
computations required hereunder and all financial terms used herein shall be
made or construed in accordance with generally accepted accounting principles
unless such principles are inconsistent with the express requirements of this
Agreement. Use of the terms "herein", "hereof", and "hereunder" shall be deemed
references to this Agreement in its entirety and not to the Section or clause in
which such term appears. References to "Sections" and "subsections" shall be to
Sections and subsections, respectively, of this Agreement unless otherwise
specifically provided.
ARTICLE II.
THE COMMITMENTS AND THE ADVANCES
--------------------------------
2.1 Commitments of the Banks.
(a) Revolving Credit Advances. Each Bank agrees, for itself only,
subject to the terms and conditions of this Agreement, to make Revolving Credit
Loans to the Borrowers pursuant to Section 2.6 and Section 3.3 and to
participate in Letter of Credit Advances to the Borrowers pursuant to Section
2.6, from time to time from and including the Effective Date to but excluding
the Termination Date, not to exceed in aggregate principal amount at any time
outstanding the amount of its respective Commitment as of the date any such
Syndicated Advance is made; provided, however, that the aggregate principal
amount of Letter of Credit Advances outstanding at any time shall not exceed
$50,000,000.
(b) Term Loans. Each Bank agrees, for itself only, subject to the
terms and conditions of this Agreement to make Term Loans to the Borrowers
pursuant to Section 2.6, from time to time from and including the Effective Date
to and including the third anniversary of the Effective Date, which Term Loans
(i) shall have maturities not to exceed the earlier of (A) five years from the
date such Term Loan is made and (B) July 12, 2001, (ii) may, at the option of
the Company, provide for interest only payments during the initial two years
followed by equal annual amortization resulting in full payout on the Maturity
Date of each
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such Term Loan, (iii) the amount of all Term Loans made hereunder
shall not exceed $150,000,000 in aggregate, (iv) shall be made in Dollars and
(v) shall result in the Commitments being automatically and permanently reduced
by the amount of each Term Loan as set forth in Section 2.4.
2.2 Bid-Option Loans.
(a) The Bid-Option. From the Effective Date to but excluding the
Termination Date, any Borrower may, as set forth in this Section 2.2, request
the Banks to make offers to make Bid-Option Loans to such Borrower. Each Bank
may, but shall have no obligation to, make such offers and such Borrower may,
but shall have no obligation to, accept any such offers, in the manner set forth
in this Section 2.2; furthermore, each Bank may limit the aggregate amount of
Bid-Option Loans when quoting rates for more than one Bid-Option Interest Period
in any Bid-Option Quote, provided that such limitation shall not be less than
the minimum amounts required hereunder for Bid-Option Loans and the Borrower may
choose among the Bid-Option Loans if such limitation is imposed; provided, that
the aggregate outstanding principal amount of Bid-Option Loans shall not at any
time exceed the lower of (i) the excess of (A) the aggregate amount of the
Commitments over (B) the sum of the aggregate outstanding principal amount of
Syndicated Advances and (ii) the lesser of (A) $150,000,000 and (B) sixty
percent (60%) of the aggregate amount of the Commitments (as the same may be
reduced in accordance with the terms of this Agreement);
(b) Bid-Option Quote Request. When a Borrower wishes to request
offers to make Bid-Option Loans under this Section 2.2, it shall transmit to the
Agent by telex or telecopy a Bid-Option Quote Request substantially in the form
of Exhibit E hereto so as to be received no later than 11:00 a.m. Detroit time
(i) on the Business Day next preceding the date of the Loan proposed therein, in
the case of a Bid-Option Auction for Absolute Rate Bid-Option Loans, or (ii) the
fifth Business Day next preceding the date of the Loan proposed therein, in the
case of a Bid-Option Auction for Eurocurrency Rate Bid-Option Loans specifying:
(A) the proposed date of the Bid-Option Loan, which shall be a
Business Day;
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(B) the aggregate amount of such Bid-Option Loan, which shall be
a minimum of $10,000,000 or a larger multiple of $5,000,000;
(C) whether the Borrowing is to be an Absolute Rate Bid-Option
Borrowing or a Eurocurrency Rate Bid-Option Borrowing; and
(D) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period.
A Borrower may request offers to make Bid-Option Loans for more than one Bid-
Option Interest Period in a single Bid-Option Quote Request.
(c) Invitation for Bid-Option Quotes. Promptly upon receipt of a Bid-
Option Quote Request, the Agent shall send to the Banks by telecopy (or
telephone promptly confirmed by telecopy) an Invitation for Bid-Option Quotes
substantially in the form of Exhibit F hereto, which shall constitute an
invitation by a Borrower to each Bank to submit Bid-Option Quotes offering to
make the Bid-Option Loans to which such Bid-Option Quote Request relates in
accordance with this Section 2.2.
(d) Submission and Contents of Bid-Option Quotes. (i) Each Bank may
submit a Bid-Option Quote containing an offer or offers to make Bid-Option Loans
in response to any Invitation for Bid-Option Quotes. Each Bid-Option Quote must
comply with the requirements of this subsection (d) and must be submitted to the
Agent by telecopy (or by telephone promptly confirmed by telecopy) at its office
referred to in Section 9.2 not later than (A) 9:00 a.m. Detroit time on the
proposed date of the Borrowing, in the case of a Bid-Option Auction for Absolute
Rate Bid-Option Loans, or (B) 9:00 a.m. Detroit time on the fourth Business Day
prior to the proposed date of the Borrowing, in the case of a Bid-Option Auction
for Eurocurrency Rate Bid-Option Loans; provided that Bid-Option Quotes
submitted by the Agent (or any Affiliate of the Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Agent or such Affiliate
notifies the Borrower of the terms of the offer or offers contained therein not
later than (A) 8:45 a.m. Detroit time on the proposed date of such Borrowing, in
the case of a Bid-Option Auction for Absolute Rate Bid-Option Loans or (B) 8:45
a.m. Detroit time on the fourth Business Day prior to the proposed date of the
Borrowing, in the
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case of a Bid-Option Auction for Eurocurrency Rate Bid-Option Loans. Subject to
Sections 3.2, 3.3 and Article VI, any Bid-Option Quote so made shall be
irrevocable except with the written consent of the Agent given on the
instructions of the Borrower.
(ii) Each Bid-Option Quote shall be in substantially the form of
Exhibit G hereto, but may be submitted to the Agent by telephone with prompt
confirmation by delivery to the Agent of such written Bid-Option Quote, and
shall in any case specify:
(A) the proposed date of the Borrowing;
(B) the principal amount of the Bid-Option Loan for which each
such offer is being made, which principal amount (x) must be in a minimum of
$5,000,000 or a larger multiple of $5,000,000, and (y) may not exceed the
principal amount of the Bid-Option Loans for which offers were requested;
(C) whether the Bid-Option Loans for which the offers are made
are Absolute Rate Bid-Option Loans or Eurocurrency Rate Bid-Option Loans, which
must match the type of Borrowing stated in the related Invitation for Bid-Option
Quotes;
(D) the Interest Period(s) for which each such Bid-Option
Absolute Rate or Bid-Option Eurocurrency Rate Margin, as the case may be, is
offered;
(E) in the case of a Bid-Option Auction for Absolute Rate
Bid-Option Loans, the rate of interest per annum (rounded to the nearest 1/100
of 1%) (the "Bid-Option Absolute Rate") offered for each such Bid-Option Loan;
(F) in the case of a Bid-Option Auction for Eurocurrency Rate
Bid-Option Loans, the applicable margin, which may be positive or negative (the
"Bid-Option Eurocurrency Rate Margin") expressed as a percentage (rounded to the
nearest 1/100 of 1%), offered for each such Bid-Option Loan; and
(G) the identity of the quoting Bank.
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(iii) Any Bid-Option Quote shall be disregarded if it:
(A) is not substantially in the form of Exhibit G hereto (or
submitted by telephone to the Agent with prompt written confirmation to follow)
or does not specify all of the information required by clause (ii) of this
subsection (d);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth
in the applicable Invitation for Bid-Option Quotes; or
(D) arrives after the time set forth in Section 2.2(d)(i);
provided that a Bid-Option Quote shall not be disregarded pursuant to clause (B)
or (C) above solely because it contains an indication that an allocation that
might otherwise be made to it pursuant to Section 2.2(g) would be unacceptable.
The Agent shall notify the Borrower of any disregarded Bid-Option Quote.
(e) Notice to Borrower. The Agent shall promptly notify the Borrower
of the terms of any Bid-Option Quote submitted by a Bank that is in accordance
with Section 2.2(d). Any Bid-Option Quote not made in accordance with Section
2.2(d) shall be disregarded by the Agent. The Agent's notice to the Borrower
shall specify (i) the aggregate principal amount of Bid-Option Loans for which
offers have been received for each Bid-Option Interest Period specified in the
related Bid-Option Quote Request, and (ii) the respective principal amounts and
respective Bid-Option Absolute Rates or Bid-Option Eurocurrency Rate Margins, as
the case may be, so offered.
(f) Acceptance and Notice by Borrower. Not later than 11:00 a.m.
Detroit time on (i) the proposed date of a Borrowing, in the case of a Bid-
Option Auction for Absolute Rate Bid-Option Loans or (ii) the third Business Day
prior to the proposed date of the Borrowing, in the case of a Bid-Option
Borrowing for Eurocurrency Rate Bid-Option Loans, the Borrower shall notify the
Agent of its acceptance or non-acceptance of
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the offers so notified to it pursuant to subsection (e) of this Section and the
Agent shall, promptly upon receiving such notice from the Borrower, notify each
Bank whose Bid-Option Quote has been accepted. In the case of acceptance, such
notice (a "Notice of Bid-Option Loan") shall specify the aggregate principal
amount of offers for the applicable Interest Period(s) that have been accepted.
The Borrower may accept any Bid-Option Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Bid-Option Loan may
not exceed the applicable amount set forth in the related Bid-Option Quote
Request for the applicable Bid-Option Interest Period;
(ii) the principal amount of each Bid-Option Loan must be
$10,000,000 or a larger multiple of $5,000,000;
(iii) acceptance of offers may only be made on the basis of
ascending Bid-Option Absolute Rates or Bid-Option Eurocurrency Rate Margins, as
the case may be; and
(iv) the Borrower may not accept any offer that is described in
Section 2.2(d)(iii) or that otherwise fails to comply with the requirements of
this Agreement.
(g) Allocation by Agent. If offers are made by two or more Banks with
the same Bid-Option Absolute Rates or Bid-Option Eurocurrency Rate Margins, as
the case may be, for a greater aggregate principal amount than the amount in
respect of which offers are accepted for the related Interest Period, the
principal amount of Bid-Option Loans in respect of which such offers are
accepted shall be allocated by the Agent among such Banks as nearly as possible
(in such multiples, not greater than $100,000, as the Agent may deem
appropriate) in proportion to the aggregate principal amount of such offers.
Determinations by the Agent of the amounts of Bid-Option Loans shall be
conclusive in the absence of manifest error.
2.3 Effect on Commitments. Notwithstanding anything in this
Agreement to the contrary, the sum of the aggregate principal amount of all
Revolving Credit Loans plus, all Letter of Credit Advances (being the maximum
amount available to be drawn under the related Letters of Credit plus the amount
of any draws under Letters of Credit that have not
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been reimbursed) and all Bid-Option Loans shall not at any time exceed the
aggregate amount of the Commitments of all Banks. Each Bank's obligation to make
its pro rata portion of any subsequently requested Revolving Credit Loan or
Letter of Credit Advance shall not be affected by the making by such Bank of a
Bid-Option Loan, and the Bank which has outstanding Bid-Option Loans may be
obligated to exceed its Commitment, provided that, as stated above, the
aggregate principal amount of all Revolving Credit Loans, all Letters of Credit
Advances and all Bid-Option Loans shall not at any time exceed the aggregate
amount of the Commitments of all Banks.
2.4 Termination and Reduction of Commitments. (a) (i) The Company
shall have the right to terminate or reduce the Commitments at any time and from
time to time at its option, provided that (A) the Company shall give five days'
prior written notice of such termination or reduction to the Agent (with
sufficient executed copies for each Bank) specifying the amount and effective
date thereof, (B) each partial reduction of the Commitments shall be in a
minimum amount of $15,000,000 and in an integral multiple thereof and shall
reduce the Commitments of all of the Banks proportionately in accordance with
the respective commitment amounts for each such Bank set forth in the signature
pages hereof next to the name of each such Bank, (C) no such termination or
reduction shall be permitted with respect to any portion of the Commitments as
to which a request for a Borrowing pursuant to Section 2.6 is then pending and
(D) the Commitments may not be terminated if any Loans are then outstanding and
may not be reduced below the principal amount of Loans then outstanding.
(ii) The Commitments then outstanding shall automatically be
reduced by an amount equal to each Term Loan made pursuant to Section 2.6.
The Commitments or any portion thereof terminated or reduced pursuant to this
Section 2.4(a), whether optional or mandatory, may not be reinstated. The
Borrowers shall immediately prepay the Loans to the extent they exceed the
reduced aggregate Commitments pursuant hereto, and any reduction hereunder shall
reduce the Commitment amount of each Bank proportionately in accordance with
the respective Commitment amounts for each such Bank set forth on the signature
pages hereof next to the name of each such Bank.
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(b) For purposes of this Agreement, a Letter of Credit Advance (i)
shall be deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date of
determination and on or before the stated expiry date thereof plus the amount of
any draws under such Letter of Credit that have not been reimbursed as provided
in Section 3.3 and (ii) shall be deemed outstanding at all times on and before
such stated expiry date or such earlier date on which all amounts available to
be drawn under such Letter of Credit have been fully drawn, and thereafter until
all related reimbursement obligations have been paid pursuant to Section 3.3.
As provided in Section 3.3, upon each payment made by the Agent in respect of
any draft or other demand for payment under any Letter of Credit, the amount of
any Letter of Credit Advance outstanding immediately prior to such payment shall
be automatically reduced by the amount of each Revolving Credit Loan deemed
advanced in respect of the related reimbursement obligation of the Borrower.
2.5 Fees. (a) The Borrowers agree to pay to the Banks a facility
fee on the amount of the Commitments, whether used or unused, for the period
from the Effective Date to but excluding the Termination Date, at a rate equal
to the Applicable Facility Fee. Accrued facility fees shall be payable
quarterly in arrears on the last Business Day of each March, June, September and
December, commencing on the first such Business Day occurring after the date of
this Agreement, and on the Termination Date.
(b) On or before the date of issuance of any Letter of Credit, the
Borrowers agree (i) to pay to the Banks a fee at a rate equal to the greater of
(A) Applicable Margin and (B) thirty one-hundredths of one percent (30/100 of
1%) per annum, of the maximum amount available to be drawn from time to time
under such Letter of Credit for the period from and including the date of
issuance of such Letter of Credit to and including the stated expiry date of
such Letter of Credit, and (ii) to pay an additional fee to the Agent for its
own account computed at the rate of two and one-half basis points (2.5 b.p.) per
annum of such maximum amount for such period. Such fees are nonrefundable and
the Borrowers shall not be entitled to any rebate of any portion thereof if such
Letter of Credit does not remain outstanding through its stated expiry date or
for any other reason. The Borrowers further agree to pay to the Agent, on
demand, such other customary administrative fees, charges and expenses of the
Agent in
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respect of the issuance, negotiation, acceptance, amendment, transfer and
payment of such Letter of Credit or otherwise payable pursuant to the
application and related documentation under which such Letter of Credit is
issued. The Agent shall provide the Borrowers a schedule of all such customary
fees.
(c) The Borrowers agrees to pay to the Agent an agency fee for its
services as Agent under this Agreement in such amounts as may from time to time
be agreed upon by the Borrowers and the Agent.
2.6 Disbursement of Syndicated Advances. (a) Any Borrower shall give
the Agent notice of its request for each Syndicated Advance in substantially the
form of Exhibit H hereto (with sufficient executed copies for each Bank) not
later than 10:00 a.m. Detroit time (i) three Eurocurrency Business Days prior to
the date such Advance is requested to be made if such Borrowing is to be made as
a Eurocurrency Rate Syndicated Loan or as a Term Loan, and (ii) one Business Day
prior to the date such Advance is requested to be made if such Borrowing is to
be made as a CD Rate Loan, and (iii) five Business Days prior to the date any
Letter of Credit Advance is requested to be made and (iv) on the date such
Syndicated Loan is requested to be made in all other cases, which notice shall
specify whether a Eurocurrency Rate Syndicated Loan, Term Loan, CD Rate Loan,
Floating Rate Loan or a Letter of Credit Advance is requested and, in the case
of each requested Fixed Rate Syndicated Loan, the Interest Period to be
initially applicable to such Loan and the Permitted Currency in which such Loan
is to be denominated. The Agent, on the same day any such notice is given,
shall provide notice of such requested Syndicated Loan to each Bank. Subject to
the terms and conditions of this Agreement, the proceeds of each such requested
Syndicated Loan shall be made available to the Borrower requesting such Loan by
depositing the proceeds thereof, in immediately available funds, in the case of
any Syndicated Loan denominated in Dollars in an account maintained and
designated by such Borrower at the principal office of the Agent, and, in all
other cases, in an account maintained and designated by such Borrower at a bank
acceptable to the Agent in the principal financial center of the country issuing
the Optional Currency in which such Loan is denominated or in such other place
specified by the Agent. Subject to the terms and conditions of this Agreement,
the Agent shall, on the date any Letter of Credit Advance is requested to be
made, issue the related Letter of Credit on behalf of the Banks for the account
of the Borrower
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requesting such Letter of Credit. Notwithstanding anything herein to the
contrary, the Agent may decline to issue any requested Letter of Credit on the
basis that the beneficiary, the purpose of issuance or the terms or the
conditions of drawing are unacceptable to it based upon any legal or ethical
concerns in its reasonable discretion.
(b) Each Bank, on the date any Syndicated Loan is requested to be
made, shall make its pro rata share of such Syndicated Loan available in
immediately available funds for disbursement to the Borrower requesting such
Loan pursuant to the terms and conditions of this Agreement, in the case of any
Syndicated Loan denominated in Dollars, at the principal office of the Agent
and, in all other cases, to the account of the Agent at its designated branch or
correspondent bank in the country issuing such Permitted Currency in which such
Loan is denominated or at such other place specified by the Agent. Unless the
Agent shall have received notice from any Bank prior to the date such Syndicated
Loan is requested to be made under this Section 2.6 that such Bank will not make
available to the Agent such Bank's pro rata portion of such Loan, the Agent may
assume that such Bank has made such portion available to the Agent on the date
such Loan is requested to be made in accordance with this Section 2.6. If and
to the extent such Bank shall not have so made such pro rata portion available
to the Agent, the Agent may (but shall not be obligated to) make such amount
available to such Borrower, and such Bank agrees to pay to the Agent forthwith
on demand such amount together with interest thereon, for each day from the date
such amount is made available to such Borrower by the Agent until the date such
amount is repaid to the Agent, at a rate per annum equal to the Federal Funds
Rate then in effect. If such Bank shall pay such amount to the Agent together
with interest, such amount so paid shall constitute a Syndicated Loan by such
Bank as part of the related Borrowing for purposes of this Agreement. The
failure of any Bank to make its pro rata portion of any such Borrowing available
to the Agent shall not relieve any other Bank of its obligation to make
available its pro rata portion of such Loan on the date such Loan is requested
to be made, but no Bank shall be responsible for failure of any other Bank to
make such pro rata portion available to the Agent on the date of any such Loan.
(c) All Revolving Credit Loans made under this Section 2.6 shall be
evidenced by the Revolving Credit Notes and the Term Loans made under this
Section 2.6 shall be evidenced by the Term Notes, and all
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such Loans shall be due and payable and bear interest as provided in Article
III. Each Bank is hereby authorized by the Borrowers to record on the schedule
attached to the Notes, or in its books and records, the date, amount and type of
each Loan and the duration of the related Interest Period (if applicable), the
amount of each payment or prepayment of principal thereon, and the other
information provided for on such schedule, which schedule or books and records,
as the case may be, shall constitute prima facie evidence of the information so
recorded, provided, however, that failure of any Bank to record, or any error in
recording, any such information shall not relieve the Borrowers of their
obligation to repay the outstanding principal amount of the Loans, all accrued
interest thereon and other amounts payable with respect thereto in accordance
with the terms of the Notes and this Agreement. Subject to the terms and
conditions of this Agreement, each Borrower may borrow Revolving Credit Loans
under this Section 2.6 and under Section 3.3, prepay Revolving Credit Loans
pursuant to Section 3.1 and reborrow Revolving Credit Loans but not Term Loans
under this Section 2.6 and under Section 3.3.
(d) All Bid-Option Loans shall be disbursed directly by the Bank
making such Bid-Option Loan to the Borrower by 1:30 p.m. Detroit time on the
date such Bid-Option Loan is requested to be made via wire transfer in
immediately available funds to NBD Bank, N.A., 611 Woodward Avenue, Detroit,
Michigan 48226, ABA Number 072000326, Attention: Gwen Harper, Reference:
Handleman Company, confirm to Margie Beisiegel, Facsimile No. (313) 225-2747 or
as otherwise directed by the Borrowers.
(e) Nothing in this Agreement shall be construed to require or
authorize any Bank to issue any Letter of Credit, it being recognized that the
Agent has the sole obligation under this Agreement to issue Letters of Credit on
behalf of the Banks, and the Commitment of each Bank with respect to Letter of
Credit Advances is expressly conditioned upon the Agent's performance of such
obligations. Upon such issuance by the Agent, each Bank shall automatically
acquire a pro rata risk participation interest in such Letter of Credit Advance
based on the amount of its respective Commitment. If the Agent shall honor a
draft or other demand for payment presented or made under any Letter of Credit,
the Agent shall provide notice thereof to each Bank on the date such draft or
demand is honored unless a Borrower shall have satisfied its reimbursement
obligation under Section 3.3 by payment to the Agent on
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such date. Each Bank, on such date, shall make its pro rata share of the amount
paid by the Agent available in immediately available funds at the principal
office of the Agent for the account of the Agent. If and to the extent such Bank
shall not have made such pro rata portion available to the Agent, such Bank and
the Borrowers severally agree to pay to the Agent forthwith on demand such
amount together with interest thereon, for each day from the date such amount
was paid by the Agent until such amount is so made available to the Agent at a
per annum rate equal to the Federal Funds Rate. If such Bank shall pay such
amount to the Agent together with such interest, such amount so paid shall
constitute a Revolving Credit Loan by such Bank as part of the Revolving Credit
Borrowing disbursed in respect of the reimbursement obligation of the Company
under Section 3.3 for purposes of this Agreement. The failure of any Bank to
make its pro rata portion of any such amount paid by the Agent available to the
Agent shall not relieve any other Bank of its obligation to make available its
pro rata portion of such amount, but no Bank shall be responsible for failure of
any other Bank to make such pro rata portion available to the Agent.
2.7 Conditions for First Disbursement. The obligation of each Bank
to make its first Advance hereunder is subject to receipt by each Bank and the
Agent of the following documents and completion of the following matters, in
form and substance reasonably satisfactory to each Bank and the Agent; provided,
however, that, subject to the other terms and conditions of this Agreement, the
Banks shall be obligated to make Advances to the Company upon receipt of the
following documents and completion of the following matters with respect to the
Company and the Banks shall be obligated to make Advances to each other Borrower
upon delivery of such documents and completion of all such matters with respect
to such Borrower:
(a) Charter Documents. Certificates of recent date of the appropriate
authority or official of each Borrower's respective state of incorporation
listing all charter documents of each Borrower, on file in that office and
certifying as to the good standing and corporate existence of each Borrower,
together with copies of such charter documents of each Borrower, certified as of
a recent date by such authority or official and certified as true and correct as
of the Effective Date by a duly authorized officer of each Borrower,
respectively;
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(b) By-Laws and Corporate Authorizations. Copies of the by-laws of
each Borrower together with all authorizing resolutions and evidence of other
corporate action taken by each Borrower to authorize the execution, delivery and
performance by each Borrower of this Agreement and the Notes and the
consummation by each Borrower of the transactions contemplated hereby, certified
as true and correct as of the Effective Date by a duly authorized officer of
each Borrower, respectively;
(c) Incumbency Certificate. Certificates of incumbency of each
Borrower containing, and attesting to the genuineness of, the signatures of
those officers authorized to act on behalf of such Borrower in connection with
this Agreement and the Notes and the consummation by such Borrower of the
transactions contemplated hereby, certified as true and correct as of the
Effective Date by a duly authorized officer of each Borrower;
(d) Notes. A Revolving Credit Note, duly executed on behalf of the
Borrowers, for each Bank;
(e) Legal Opinion. The favorable written opinion of Honigman Miller
Schwartz and Cohn, counsel for the Borrowers in the form of Exhibit I attached
hereto; and
(f) Consents, Approvals, Etc. Copies of all governmental and
nongovernmental consents, approvals, authorizations, declarations, registrations
or filings, if any, required on the part of any Borrower in connection with the
execution, delivery and performance of this Agreement and the Notes or the
transactions contemplated hereby or as a condition to the legality, validity or
enforceability of this Agreement and the Notes, certified as true and correct
and in full force and effect as of the Effective Date by a duly authorized
officer of each Borrower, or, if none are required, a certificate of such
officer to that effect.
2.8 Further Conditions for Disbursement. The obligation of each Bank
to make any Advance (including its first Advance), or any continuation or
conversion under Section 2.9, is further subject to the satisfaction of the
following conditions precedent:
(a) The representations and warranties contained in Article IV hereof
and in any other Loan Document shall be true and correct
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in all material respects on and as of the date such Advance is made, continued
or converted (both before and after such Advance is made, continued or
converted) as if such representations and warranties were made on and as of such
date; and
(b) No Event of Default and no Default shall exist or shall have
occurred and be continuing on the date such Advance is made, continued or
converted (whether before or after such Advance is made, continued or
converted);
(c) In the case of any Letter of Credit Advance, the Borrower
requesting such Letter of Credit Advance shall have delivered to the Agent an
application for the related Letter of Credit and other related documentation
requested by and acceptable to the Agent appropriately completed and duly
executed on behalf of such Borrower.
Each Borrower shall be deemed to have made a representation and warranty to the
Banks at the time of the making of, and the continuation or conversion of, each
Advance to the effects set forth in clauses (a) and (b) of this Section 2.8.
For purposes of this Section 2.8, the representations and warranties contained
in Section 4.6 hereof shall be deemed made with respect to the most recent
financial statements delivered pursuant to Section 5.1(d)(iii).
2.9 Subsequent Elections as to Borrowings. Any Borrower may elect
(a) to continue a Fixed Rate Syndicated Borrowing of one type, or a portion
thereof, as a Fixed Rate Syndicated Borrowing of the then existing type, or (b)
may elect to convert a Fixed Rate Syndicated Borrowing, or a portion thereof, to
a Borrowing of another type or (c) elect to convert a Floating Rate Borrowing,
or a portion thereof, to a Fixed Rate Syndicated Borrowing, or (d) elect to
convert a Syndicated Loan denominated in a Permitted Currency to a Syndicated
Loan denominated in another Permitted Currency, in each case by giving notice
thereof to the Agent (with sufficient executed copies for each Bank) in
substantially the form of Exhibit J hereto not later than 10:00 a.m. Detroit
time (i) three Eurocurrency Business Days prior to the date any such
continuation of or conversion to a Eurocurrency Rate Syndicated Borrowing is to
be effective, (ii) one Business Day prior to the day any such continuation of or
conversion to a CD Rate Borrowing is to be effective and (iii) the date such
continuation or conversion is to be effective in all other cases, provided
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that an outstanding Fixed Rate Syndicated Borrowing may only be converted on the
last day of the then current Interest Period with respect to such Borrowing, and
provided, further, if a continuation of a Borrowing as, or a conversion of a
Borrowing to, a Fixed Rate Syndicated Borrowing is requested, such notice shall
also specify the Interest Period to be applicable thereto upon such continuation
or conversion. The Agent, on the day any such notice is given, shall provide
notice of such election to the Banks. If any Borrower shall not timely deliver
such a notice with respect to any outstanding Fixed Rate Syndicated Borrowing,
the Borrower shall be deemed to have elected to convert such Fixed Rate
Syndicated Borrowing to a Floating Rate Borrowing on the last day of the then
current Interest Period with respect to such Borrowing.
2.10 Limitation of Requests and Elections. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
Fixed Rate Syndicated Borrowing pursuant to Section 2.6, or a request for a
continuation of a Fixed Rate Syndicated Borrowing as a Fixed Rate Syndicated
Borrowing of the then existing type, or a request for conversion of a Fixed Rate
Syndicated Borrowing of one type to a Fixed Rate Syndicated Borrowing of another
type, or a request for a conversion of a Floating Rate Borrowing to a Fixed Rate
Syndicated Borrowing pursuant to Section 2.9, (a) in the case of any
Eurocurrency Rate Syndicated Borrowing or a CD Rate Borrowing, deposits in the
relevant Permitted Currency for periods comparable to the Interest Period
elected by the Borrower are not available to any Bank in the relevant interbank
or secondary market and such Bank has provided to the Agent and the Borrowers a
certificate prepared in good faith to that effect, or (b) any Bank reasonably
determines that the CD Rate or Eurocurrency Base Rate, as the case may be, will
not adequately and fairly reflect the cost to such Bank of making, funding or
maintaining the related CD Rate Loan or Eurocurrency Rate Syndicated Loan and
such Bank has provided to the Agent and the Borrowers a certificate prepared in
good faith to that effect, or (c) by reason of national or international
financial, political or economic conditions or by reason of any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect, or the interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by any Bank with any directive of such authority (whether or not
having the force of law), including without limitation exchange controls, it is
impracticable, unlawful or impossible for any Bank (i) to make or fund the
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relevant Fixed Rate Syndicated Borrowing or (ii) to continue such Fixed Rate
Syndicated Borrowing as a Fixed Rate Syndicated Borrowing of the then existing
type or (iii) to convert a Loan to such a Fixed Rate Syndicated Loan, and such
Bank has provided to the Agent and the Borrowers a certificate prepared in good
faith to that effect, then the Borrowers shall not be entitled, so long as such
circumstances continue, to request a Fixed Rate Syndicated Borrowing of the
affected type pursuant to Section 2.6 or a continuation of or conversion to a
Fixed Rate Syndicated Borrowing of the affected type pursuant to Section 2.9.
In the event that such circumstances no longer exist, the Banks shall again
honor requests, subject to this Agreement, for Fixed Rate Syndicated Borrowings
of the affected type pursuant to Section 2.6, and requests for continuations of
and conversions to Fixed Rate Syndicated Borrowings of the affected type
pursuant to Section 2.9.
Notwithstanding any other provision of this Agreement to the contrary
and in order to give effect to the provisions of Section 3.1(a)(ii), the
Borrowers shall make requests for Fixed Rate Syndicated Loans pursuant to
Section 2.6, and requests for continuations of and conversions to Fixed Rate
Syndicated Loans pursuant to Section 2.9, such that, on each date that any
scheduled principal payment is due with respect to any Term Loan pursuant to
Section 3.1(a), either Floating Rate Loans or Fixed Rate Syndicated Loans having
an Interest Period ending on such date, or any combination thereof, are
outstanding on such date in an aggregate outstanding principal amount not less
than the amount of such principal payment.
2.11 Minimum Amounts; Limitation on Number of Borrowings. Except for
(a) Borrowings and conversions thereof which exhaust the entire remaining amount
of the Commitments, and (b) conversions or payments required pursuant to Section
3.1(b) or Section 3.8, each Syndicated Loan and each continuation or conversion
pursuant to Section 2.9 and each prepayment thereof shall be in a minimum amount
of $1,000,000 and in an integral multiple thereof and each Letter of Credit
shall be in a minimum amount of $1,000,000. Notwithstanding anything herein to
the contrary, the Borrowers shall not be permitted to request (a) that any
Syndicated Loan be denominated in any currency other than a Permitted Currency
or (b) that any Syndicated Loan other than a Eurocurrency Rate Loan be
denominated in a currency other than Dollars.
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ARTICLE III.
PAYMENTS AND PREPAYMENTS
------------------------
3.1 Principal Payments. (a) Unless earlier payment is required under
this Agreement, (i) the Borrowers shall pay to the Banks on the Termination Date
the entire outstanding principal amount of the Revolving Credit Loans and (ii)
the Borrowers shall pay to the Banks the outstanding principal amount of each
Term Loan on the Maturity Date of each such Term Loan.
(b) Unless earlier payment is required under this Agreement, the
Borrowers shall, on the maturity date of any Bid-Option Loan, pay to the Bank of
such Bid-Option Loan the outstanding principal amount of such Loan.
(c) The Borrowers may at any time and from time to time prepay all or
a portion of the Loans without premium or penalty in the case of Revolving
Credit Loans, provided that (i) a Borrower may not prepay any portion of any
Loan as to which an election for continuation of or conversion to a Fixed Rate
Syndicated Loan is pending pursuant to Section 2.9, and (ii) unless earlier
payment is required under this Agreement or unless Borrower pays all amounts
required pursuant to Section 3.9, any Fixed Rate Syndicated Loan or Bid-Option
Loan may only be prepaid on the last day of the then current Interest Period
with respect to such Loan and (iii) such prepayment shall only be permitted if a
Borrower shall have given not less than one Business Days' notice thereof with
respect to prepayment of Floating Rate Loans and CD Rate Loans, three
Eurocurrency Business Days' notice thereof with respect to prepayment of
Eurocurrency Rate Loans and three Business Days' notice thereof with respect to
prepayment of any Term Loan, such notice specifying the Loan or portion thereof
to be so prepaid and shall have paid to the Banks, together with such prepayment
of principal, all accrued interest to the date of payment on such Loan or
portion thereof so prepaid and all amounts owing to the Banks under Section 3.9
in connection with such prepayment. Upon the giving of such notice, the
aggregate principal amount of such Loan or portion thereof so specified in such
notice, together with such accrued interest and other amounts, shall become due
and payable on the specified date.
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(d) If, pursuant to Section 2.9, a Borrowing, or portion thereof, is
continued or converted, such Borrowing or portion thereof shall be repaid on the
last day of the related Interest Period in the Permitted Currency in which such
Borrowing is then denominated and (i) in the case of any conversion, the Agent
shall readvance to the Borrower making such request the Equivalent of the
Original Dollar Amount of the Borrowing or portion thereof as has been so repaid
by the Borrower in the Permitted Currency requested pursuant to Section 2.7, and
(ii) in the case of any continuation, the Agent shall readvance to the Borrower
the same amount of such Permitted Currency as has been so repaid. For purposes
of effecting the repayment required by this Section 3.1(c), the Agent shall
apply the proceeds of such readvance toward the repayment of such Borrowing or
portion thereof on the last day of the related Interest Period. In the case of
any conversion, the Agent shall be deemed to have applied the proceeds of such
advance toward the purchase of the Permitted Currency to be repaid and to have
applied the proceeds of such purchase toward such repayment. If after any such
application there shall remain owing an amount of the Permitted Currency due to
the Agent, for the benefit of the Banks, or if an excess of such Permitted
Currency shall result, such Borrower shall pay to the Banks, or the Banks shall
pay to such Borrower the amount of such deficiency or such excess. In the case
of any continuation, on the last day of such Interest Period, the Original
Dollar Amount of such Borrowing or portion thereof shall be adjusted to the
amount in Dollars resulting from the conversion of the amount of such Permitted
Currency so readvanced to Dollars determined as of the second Business Day
preceding such day. If, after such adjustment of the Original Dollar Amount of
such Borrowing or portion thereof, the Original Dollar Amount of all Loans then
outstanding under this Agreement would exceed the aggregate amount of the
Commitments of the Banks, the Borrowers shall repay to the Banks on the last day
of such related Interest Period an amount in the Permitted Currency in which
such Borrowing is denominated equal to the amount of such excess or in full if
such excess exceeds the amount of such Borrowing, together with all amounts
owing to the Banks under Section 3.9 in connection therewith.
(e) All prepayments of any Term Loan, whether optional or mandatory,
shall be applied to installments of principal of such Term Loan in the inverse
order of their maturities and no partial prepayment of any Term Loan shall
reduce the amount or defer the date of the scheduled installments of principal
required to be paid thereon.
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3.2 Interest Payments. The Borrowers shall pay interest to the Banks
on the unpaid principal amount of each Loan (other than Bid-Option Loans, for
which the interest shall be payable directly to the Bank of such Bid-Option Loan
as described in clauses (c) and (d) below), for the period commencing on the
date such Loan is made until such Loan is paid in full,
on each Interest Payment Date and at maturity (whether at stated maturity, by
acceleration or otherwise), and thereafter on demand, at the following rates per
annum:
(a) With respect to Revolving Credit Loans:
(i) During such periods that such Loan is a Floating Rate
Loan, the Floating Rate.
(ii) During such periods that such Loan is a CD Rate Loan,
the CD Rate.
(iii) During such periods that such Loan is a Eurocurrency
Rate Syndicated Loan, the Syndicated Eurocurrency Rate applicable to such Loan
for each related Eurocurrency Interest Period.
(b) With respect to Term Loans, the Term Loan Fixed Rate
applicable to such Term Loan.
(c) With respect to Absolute Rate Bid-Option Loans, the
Bid-Option Absolute Rate quoted for such Loan by the Bank making such Loan.
(d) With respect to each Eurocurrency Rate Bid-Option Loan, the
Bid-Option Eurocurrency Rate.
Notwithstanding the foregoing paragraphs (a) through (d), the Borrowers shall
pay interest on demand at the Overdue Rate on the outstanding principal amount
of any Loan and any other amount payable by the Borrowers hereunder (other than
interest) on and after an Event of Default.
3.3 Letter of Credit Reimbursement Payments. (a)(i) The Borrowers
agree to pay to the Banks, on the day on which the Agent shall honor a draft or
other demand for payment presented or made under any
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Letter of Credit, an amount equal to the amount paid by the Agent in respect of
such draft or other demand under such Letter of Credit and all expenses paid or
incurred by the Agent relative thereto. Unless a Borrower shall have made such
payment to the Banks on such day, upon each such payment by the Agent, the Agent
shall be deemed to have disbursed to the Borrower for whose benefit the Letter
of Credit was issued, and such Borrower shall be deemed to have elected to
satisfy its reimbursement obligation by, a Revolving Credit Loan bearing
interest at the Floating Rate for the account of the Banks in an amount equal to
the amount so paid by the Agent in respect of such draft or other demand under
such Letter of Credit. Such Revolving Credit Loan shall be disbursed
notwithstanding any failure to satisfy any conditions for disbursement of any
Loan set forth in Article II hereof and, to the extent of the Revolving Credit
Loan so disbursed, the reimbursement obligation of the Borrowers under this
Section 3.3 shall be deemed satisfied; provided, however, that nothing in this
Section 3.3 shall be deemed to constitute a waiver of any Default or Event of
Default caused by the failure to the conditions for disbursement or otherwise.
(ii) If, for any reason (including without limitation as a result of
the occurrence of an Event of Default with respect to any Borrower pursuant to
Section 6.1(i)), Floating Rate Loans may not be made by the Banks as described
in Section 3.3(a)(i), then (A) the Borrowers agree that each reimbursement
amount not paid pursuant to the first sentence of Section 3.3(a)(i) shall bear
interest, payable on demand by the Agent, at the interest rate then applicable
to Floating Rate Loans, and (B) effective on the date each such Floating Rate
Loan would otherwise have been made, each Bank severally agrees that it shall
unconditionally and irrevocably, without regard to the occurrence of any Default
or Event of Default, in lieu of deemed disbursement of loans, to the extent of
such Bank's Commitment, purchase a participating interest in each reimbursement
amount. Each Bank will immediately transfer to the Agent, in same day funds,
the amount of its participation. Each Bank shall share on a pro rata basis
(calculated by reference to its Commitment) in any interest which accrues
thereon and in all repayments thereof. If and to the extent that any Bank shall
not have so made the amount of such participating interest available to the
Agent, such Bank and the Borrowers severally agree to pay to the Agent forthwith
on demand such amount together with interest thereon, for each day from the date
of demand by the Agent until the date such amount is paid to the Agent, at (x)
in the case
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of the Borrowers, the interest rate then applicable to Floating Rate Loans and
(y) in the case of such Bank, the Federal Funds Rate.
(b) The reimbursement obligation of the Borrowers under this Section
3.3 shall be absolute, unconditional and irrevocable and shall remain in full
force and effect until all obligations of the Borrowers to the Banks hereunder
shall have been satisfied, and such obligations of the Borrowers shall not be
affected, modified or impaired upon the happening of any event, including
without limitation, any of the following, whether or not with notice to, or the
consent of, the Borrowers:
(i) Any lack of validity or enforceability of any Letter of Credit or
any documentation relating to any Letter of Credit or to any transaction related
in any way to such Letter of Credit (the "Letter of Credit Documents");
(ii) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or other right which
any Borrower may have at any time against any beneficiary or any transferee of
any Letter of Credit (or any persons or entities for whom any such beneficiary
or any such transferee may be acting), the Agent or any Bank or any other person
or entity, whether in connection with any of the Letter of Credit Documents, the
transactions contemplated herein or therein or any unrelated transactions;
(iv) Any draft or other statement or document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) Payment by the Agent to the beneficiary under any Letter of Credit
against presentation of documents which do not comply with the terms of the
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to such Letter of Credit;
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(vi) Any failure, omission, delay or lack on the part of the Agent or
any Bank or any party to any of the Letter of Credit Documents to enforce,
assert or exercise any right, power or remedy conferred upon the Agent, any Bank
or any such party under this Agreement or any of the Letter of Credit Documents,
or any other acts or omissions on the part of the Agent, any Bank or any such
party;
(vii) Any other event or circumstance that would, in the absence of
this clause, result in the release or discharge by operation of law or
otherwise of any Borrower from the performance or observance of any obligation,
covenant or agreement contained in this Section 3.3.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which any Borrower has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to any Borrower
against the Agent or any Bank.
Nothing in this Section 3.3 shall limit the liability, if any, of the
Banks to the Borrower pursuant to Section 9.5.
3.4 Payment Method. (a) All payments to be made by the Borrowers
hereunder will be made to the Agent for the account of the Banks (i) in the case
of principal and interest on any Loan, in the Permitted Currency in which such
Loan is denominated and (ii) in all other cases, in the otherwise specified or
relevant currency, and in all cases in immediately available, freely
transferable, cleared funds not later than 1:00 p.m. at the place for payment on
the date on which such payment shall be come due (x) in the case of principal
and interest on any Loan denominated in a Permitted Currency other than Dollars,
by credit to the account of the Agent at its designated branch or correspondent
bank in the country issuing the relevant Permitted Currency or in such other
place specified by the Agent with respect to such Loan pursuant to Section
2.6(b), and (y) in all other cases to the Agent at the address of its principal
office specified in Section 9.2. Payments received after 1:00 p.m. at the place
for payment shall be deemed to be payments made prior to 1:00 p.m. at the place
for payment on the next succeeding Business Day. Each Borrower hereby
authorizes the Agent to charge its account with the Agent in order to cause
timely payment of amounts due hereunder to be made (subject to sufficient funds
being available in such account for that purpose).
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(b) At the time of making each such payment, a Borrower shall, subject
to the other terms and conditions of this Agreement, specify to the Agent that
Borrowing or other obligation of the Borrowers hereunder to which such payment
is to be applied. In the event that a Borrower fails to so specify the relevant
obligation or if an Event of Default shall have occurred and be continuing, the
Agent may apply such payments as it may determine in its sole discretion to
obligations of the Borrowers to the Banks arising under this Agreement.
(c) On the day such payments are deemed received, the Agent shall
remit to the Banks their pro rata shares of such payments in immediately
available funds, (i) in the case of payments of principal and interest on any
Borrowing denominated in a Permitted Currency other than Dollars, at an account
maintained and designated by each Bank at a bank in the principal financial
center of the country issuing the Permitted Currency in which such Borrowing is
denominated or in such other place specified by the Agent and (ii) in all other
cases, to the Banks at their respective address in the United States specified
for notices pursuant to Section 9.2. Such pro rata shares shall be determined
with respect to each such Bank, (ii) in the case of payments of principal and
interest on any Borrowing, by the ratio which the outstanding principal balance
of its Loan included in such Borrowing bears to the outstanding principal
balance of the Loans of all of the Banks included in such Borrowing and (ii) in
the case of fees paid pursuant to Section 2.5 and other amounts payable
hereunder (other than the Agent's fees payable pursuant to Section 2.5(d) and
amounts payable to any Bank under Section 2.6 or 3.7) by the ratio which the
Commitment of such Bank bears to the Commitments of all the Banks.
(d) This Agreement arises in the context of an international
transaction, and the specification of payment in a specific currency at a
specific place pursuant to this Agreement is of the essence. Such specified
currency shall be the currency of account and payment under this Agreement. The
obligations of the Borrowers hereunder shall not be discharged by an amount paid
in any other currency or at another place, whether pursuant to a judgment or
otherwise, to the extent that the amount so paid, on prompt conversion into the
applicable currency and transfer to the Banks under normal banking procedure,
does not yield the amount of such currency due under this Agreement. In the
event that any payment, whether pursuant to a judgment or otherwise, upon
conversion
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and transfer, does not result in payment of the amount of such currency due
under this Agreement, the Banks shall have an independent cause of action
against the Borrowers for the currency deficit.
(e) If for purposes of obtaining judgment in any court it becomes
necessary to convert any currency due hereunder into any other currency, the
Borrowers will pay such additional amount, if any, as may be necessary to ensure
that the amount paid in respect of such judgment is the amount in such other
currency which, when converted at the Agent's spot rate of exchange prevailing
on the date of payment, would yield the same amount of the currency due
hereunder. Any amount due from the Borrowers under this Section 3.4(e) will be
due as a separate debt and shall not be affected by judgment being obtained for
any other sum due under or in respect of this Agreement.
3.5 No Setoff or Deduction. All payments of principal of and
interest on the Loans and other amounts payable by any Borrower hereunder shall
be made by such Borrower without setoff or counterclaim, and free and clear of,
and without deduction or withholding for, or on account of, any present or
future taxes, levies, imposts, duties, fees, assessments, or other charges of
whatever nature, imposed by any governmental authority, or by any department,
agency or other political subdivision or taxing authority, unless required by
applicable laws.
3.6 Payment on Non-Business Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan or any other amount due hereunder
becomes due and payable on a day which is not a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, in the case
of any installment of principal, interest shall be payable thereon at the rate
per annum determined in accordance with this Agreement during such extension.
Computations of interest and other amounts due under this Agreement shall be
made on the basis of a year of 360 days (or 365 or 366 days, as the case may be,
when determining the Floating Rate) for the actual number of days elapsed,
including the first day but excluding the last day of the relevant period.
3.7 Additional Costs. (a) In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to any Bank or the Agent,
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or any interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by any
Bank or the Agent with any directive of any such authority (whether or not
having the force of law), shall (a) affect the basis of taxation of payments to
any Bank or the Agent of any amounts payable by any Borrower under this
Agreement (other than taxes imposed on the overall net income of the Bank or the
Agent, by the jurisdiction, or by any political subdivision or taxing authority
of any such jurisdiction, in which any Bank or the Agent, as the case may be,
has its principal office), or (b) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by any Bank or the Agent, as the case
may be, or (c) shall impose any other condition with respect to this Agreement,
the Commitments, the Notes or the Advances, and the result of any of the
foregoing is to increase the cost to any Bank or the Agent, as the case may be,
of making, funding or maintaining any Fixed Rate Loan or to reduce the amount of
any sum receivable by any Bank or the Agent, thereon, then the Borrowers shall
pay to such Bank or the Agent, as the case may be, from time to time, upon
request by such Bank (with a copy of such request to be provided to the Agent)
or the Agent, additional amounts sufficient to compensate such Bank or the
Agent, as the case may be, for such increased cost or reduced sum receivable to
the extent, in the case of any Fixed Rate Loan, such Bank or the Agent, as the
case may be, is not compensated therefor in the computation of the interest rate
applicable to such Fixed Rate Loan. Each Bank or the Agent, as the case may be,
seeking compensation hereunder shall deliver to the Borrowers a statement
setting forth (i) such increased cost or reduced sum receivable as such Bank or
the Agent, as the case may be, has calculated in good faith, (ii) a description
of the event giving rise thereto, (iii) a calculation in reasonable detail of
the amounts requested and (iv) a statement that such Bank or the Agent, as the
case may be, has not allocated to its Commitment, Borrowings or outstanding
Loans a proportionately greater amount than is attributable to each of its other
credit extensions that are affected similarly by compliance by such Bank or the
Agent, as the case may be, whether or not such Bank or the Agent, as the case
may be, allocates any portion of such amount to such other commitments or credit
extensions. Before delivery of such statement each Bank or the Agent, as the
case may be, shall use reasonable efforts in accordance with its normal
practices and procedures to reduce amounts payable under this Section 3.7(a).
Such statement as to the amount of such increased cost or reduced sum
receivable, prepared
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in good faith and in reasonable detail by such Bank or the Agent, as the case
may be, and submitted by such Bank or the Agent, as the case may be, to the
Borrowers, shall be conclusive and binding for all purposes absent manifest
error in computation.
(b) In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to any Bank or the Agent, but applicable to banks or
financial institutions generally, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by any Bank or the Agent with any
directive of any such authority (whether or not having the force of law),
including any risk-based capital guidelines, affects the amount of capital
required or expected to be maintained by such Bank or the Agent (or any
corporation controlling such Bank or the Agent) and such Bank or the Agent, as
the case may be, determines that the amount of such capital is increased by or
based upon the existence of such Bank's or the Agent's obligations hereunder and
such increase has the effect of reducing the rate of return on such Bank's or
the Agent's (or such controlling corporation's) capital as a consequence of such
obligations hereunder to a level below that which such Bank or the Agent (or
such controlling corporation) could have achieved but for such circumstances
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank or the Agent to be material, then the Borrowers shall
pay to such Bank or the Agent, as the case may be, from time to time, upon
request by such Bank (with a copy of such request to be provided to the Agent)
or the Agent, additional amounts sufficient to compensate such Bank or the Agent
(or such controlling corporation) for any reduced rate of return which such Bank
or the Agent reasonably determines to be allocable to the existence of such
Bank's or the Agent's obligations hereunder. Each Bank or the Agent, as the
case may be, seeking compensation hereunder shall deliver to the Borrowers a
statement setting forth (i) such increased cost or reduced sum receivable as
such Bank or the Agent, as the case may be, has calculated in good faith, (ii) a
description of the event giving rise thereto, (iii) a calculation in reasonable
detail of the amounts requested and (iv) a statement that such Bank or the
Agent, as the case may be, has not allocated to its Commitment, Borrowings or
outstanding Loans a proportionately greater amount than is attributable to each
of its other credit extensions that are affected similarly by compliance by such
Bank or the Agent, as the case may be, whether or not such Bank
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or the Agent, as the case may be, allocates any portion of such amount to such
other commitments or credit extensions. Before delivery of such statement each
Bank or the Agent, as the case may be, shall use reasonable efforts in
accordance with its normal practices and procedures to reduce amounts payable
under this Section 3.7(b). Such statement as to the amount of such compensation,
prepared in good faith and in reasonable detail by such Bank or the Agent, as
the case may be, and submitted by such Bank or the Agent to the Borrowers, shall
be conclusive and binding for all purposes absent manifest error in computation.
3.8 Illegality and Impossibility. In the event that any applicable
law, treaty, rule or regulation (whether domestic or foreign) now or hereafter
in effect and whether or not presently applicable to any Bank, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Bank
with any directive of such authority (whether or not having the force of law),
including without limitation exchange controls, shall make it unlawful or
impossible for any Bank to maintain any Fixed Rate Loan under this Agreement or
shall make it impracticable, unlawful or impossible for, or shall in any way
limit or impair the ability of, any Borrower to make or any Bank to receive any
payment under this Agreement at the place specified for payment hereunder, or to
freely convert any amount paid into Dollars at market rates of exchange or to
transfer any amount paid or so converted to the address of its principal office
specified in Section 9.2, the Borrowers shall upon receipt of notice thereof
from such Bank, repay in full the then outstanding principal amount of each
Fixed Rate Loan so affected, together with all accrued interest thereon to the
date of payment and all amounts owing to such Bank under Section 3.9, (a) on the
last day of the then current Interest Period applicable to such Loan if such
Bank may lawfully continue to maintain such Loan to such day, or (b) immediately
if such Bank may not continue to maintain such Loan to such day.
3.9 Indemnification. If any Borrower makes any payment of principal
with respect to any Fixed Rate Loan on any other date than the last day of an
Interest Period applicable thereto or any prepayment of principal with respect
to any Term Loan, (whether pursuant to Section 3.8 or Section 6.2 or otherwise),
or if any Borrower fails to borrow any Fixed Rate Loan after notice has been
given to the Banks in accordance with
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Section 2.6, the Borrowers shall reimburse each Bank on demand for any resulting
net loss or expense incurred by each such Bank after giving credit for any
earnings or other quantifiable financial benefit to such Bank from such Bank's
investment or other amounts prepaid or not reborrowed, including without
limitation any loss incurred in obtaining, liquidating or employing deposits
from third parties, whether or not such Bank shall have funded or committed to
fund such Loan. A statement as to the amount of such loss or expense, prepared
in good faith and in reasonable detail by such Bank and submitted by such Bank
to the Borrowers, shall be conclusive and binding for all purposes absent
manifest error in computation, provided that before delivery of such statement,
each Bank shall use reasonable efforts in accordance with its normal practices
and procedures to reduce amounts payable under this Section. Calculation of all
amounts payable to such Bank under this Section 3.9 shall be made as though such
Bank shall have actually funded or committed to fund the relevant Fixed Rate
Loan or Term Loan through the purchase of an underlying deposit in an amount
equal to the amount of such Loan and having a maturity comparable to the related
Interest Period; provided, however, that such Bank may fund any Fixed Rate Loan
or Term Loan in any manner it sees fit and the foregoing assumption shall be
utilized only for the purpose of calculation of amounts payable under this
Section 3.9.
3.10 HLT Classification. In the event that after the Effective Date,
the Loans or any Commitment hereunder are classified on the Agent's books as a
"highly leveraged transaction" (an "HLT Classification") by the Agent or any
governmental authority, central bank or comparable agency having jurisdiction
over the Agent, the Agent shall promptly give notice of such HLT Classification
to the Borrowers and the Banks whereupon the Agent, the Banks and the Borrowers
shall commence negotiations in good faith to agree on a revised commitment fee,
interest rates and/or margins hereunder reflecting such HLT Classification. In
the event that the Borrowers and the Required Banks fail to agree on such
revised commitment fee, interest rates and/or margins within 90 days of the
notice given by the Agent referred to above, then the Agent shall (i) if
requested by the Required Banks, by five Business Days' notice to the Borrowers
terminate the unused portions of the Commitments and they shall thereupon
terminate, and (ii) if requested by Required Banks, by five Business Days'
notice to the Borrowers declare all amounts outstanding under the Notes
(together with accrued interest thereon and any other
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amounts payable hereunder) to be, and all such amounts shall thereupon become,
absolutely and immediately due and payable. The Borrowers hereby absolutely and
unconditionally agree to pay to the Agent for the accounts of the Banks on the
date of any such acceleration all amounts payable hereunder and under the Notes.
The Banks acknowledge that an HLT Classification (including any election to
accelerate amounts payable hereunder and under the Notes, as provided herein) is
not a Default or an Event of Default hereunder.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
------------------------------
Each Borrower represents and warrants to the Agent and the Banks that:
4.1 Corporate Existence and Power. Each Borrower is a Person duly
organized, validly existing and in good standing under the laws of the state or
other political subdivision of its jurisdiction of incorporation or
organization, as the case may be, and is duly qualified to do business, and is
in good standing, in all additional jurisdictions where such qualification is
necessary under applicable law, except where the failure to be so qualified
would not have a material adverse effect on the business and financial condition
of the Company and its Subsidiaries taken as a whole. Each Borrower has all
requisite corporate power to own or lease the properties used in its business
and to carry on its business as now being conducted and as proposed to be
conducted, and to execute and deliver this Agreement and the Notes and to engage
in the transactions contemplated by this Agreement.
4.2 Corporate Authority. The execution, delivery and performance by
each Borrower of this Agreement and the Notes have been duly authorized by all
necessary corporate action and are not in contravention of any material law,
rule or regulation, or any judgment, decree, writ, injunction, order or award of
any arbitrator, court or governmental authority, or of the terms of such
Borrower's charter or by-laws, or of any material contract or undertaking to
which the Borrower is a party or by which the Borrower or its property is bound
or affected and do not result in the imposition of any Lien except for Permitted
Liens.
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4.3 Binding Effect. This Agreement is, and the Notes when delivered
hereunder will be, legal, valid and binding obligations of each Borrower
enforceable against each Borrower in accordance with their respective terms;
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
and except that the remedy of specific performance and injunctive and other
forms of equitable relief are subject to equitable defenses and to the
discretion of the court before which any proceedings may be brought.
4.4 Subsidiaries. Schedule 4.4 hereto correctly sets forth the
corporate name, jurisdiction of incorporation and ownership of each Significant
Subsidiary of each Borrower. Each Significant Subsidiary and each corporation
becoming a Significant Subsidiary of any Borrower after the date hereof is and
will be a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and is and will be
duly qualified to do business in each additional jurisdiction where such
qualification is or may be necessary under applicable law, except where the
failure to be so qualified would not have a material adverse effect on the
business or financial condition of the Company and its Subsidiaries taken as a
whole. Each Significant Subsidiary of any Borrower has and will have all
requisite corporate power to own or lease the properties used in its business
and to carry on its business as now being conducted and as proposed to be
conducted. All outstanding shares of capital stock of each class of each
Significant Subsidiary of any Borrower have been and will be validly issued and
are and will be fully paid and nonassessable and, except as otherwise indicated
in Schedule 4.4 hereto or disclosed in writing to the Agent from time to time,
are and will be owned, beneficially and of record, by a Borrower or another
Significant Subsidiary of a Borrower free and clear of any Liens. As of the
Effective Date, there are no Significant Subsidiaries.
4.5 Litigation. Except as set forth in Schedule 4.5 hereto, there is
no action, suit or proceeding pending or, to the best of each Borrower's
knowledge, threatened against or affecting any Borrower or any of their
respective Significant Subsidiaries before or by any court, governmental
authority or arbitrator, which if adversely decided would result, either
individually or collectively, in any material adverse change in the business,
properties, operations or financial condition of the
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Company and its Subsidiaries taken as a whole or in any material adverse effect
on the legality, validity or enforceability of this Agreement or the Notes and,
to the best of the Company's knowledge, there is no basis for any such action,
suit or proceeding.
4.6 Financial Condition. The consolidated balance sheet of the
Company and its Subsidiaries and the consolidated statements of income and cash
flow of the Company and its Subsidiaries for the fiscal year ended April 30,
1994 and reported on by Coopers & Lybrand, independent certified public
accountants, copies of which have been furnished to the Banks, fairly present,
and the financial statements of the Company and its Subsidiaries delivered
pursuant to Section 5.1(d) will fairly present the consolidated financial
position of the Company and its Subsidiaries as at the respective dates thereof,
and the consolidated results of operations of the Company and its Subsidiaries
for the respective periods indicated, all in accordance with generally accepted
accounting principles consistently applied (subject, in the case of said interim
statements, to year-end audit adjustments). There has been no material adverse
change in the business, properties, operations or financial condition of the
Company and its Subsidiaries taken as a whole since April 30, 1994. There is no
material Contingent Liability of the Company that is not reflected in such
financial statements or in the notes thereto.
4.7 Use of Loans. Each Borrower will use the proceeds of the Loans
for its general corporate purposes, including repayment of certain senior notes.
No Borrower nor any of their respective Subsidiaries extends or maintains, in
the ordinary course of business, credit for the purpose, whether immediate,
incidental, or ultimate, of buying or carrying margin stock (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any Loan will be used for the purpose, whether
immediate, incidental, or ultimate, of buying or carrying any such margin stock
or maintaining or extending credit to others for such purpose. After applying
the proceeds of each Loan, such margin stock will not constitute more than 25%
of the value of the assets (either of any Borrower alone or of the Borrowers and
their respective Subsidiaries on a consolidated basis) that are subject to any
provisions of this Agreement that may cause the Loans to be deemed secured,
directly or indirectly, by margin stock.
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4.8 Consents, Etc. Except for such consents, approvals,
authorizations, declarations, registrations or filings delivered by the
Borrowers pursuant to Section 2.7(f), if any, each of which is in full force and
effect, no consent, approval or authorization of or declaration, registration or
filing with any governmental authority or any nongovernmental person, including
without limitation any creditor, lessor or stockholder of any Borrower, is
required on the part of any Borrower in connection with the execution, delivery
and performance of this Agreement, the Notes or the transactions contemplated
hereby or as a condition to the legality, validity or enforceability of this
Agreement or the Notes.
4.9 Taxes. The Company and its Significant Subsidiaries have filed
all material tax returns (federal, state and local) required to be filed and
have paid all taxes shown thereon to be due, including interest and penalties,
or have established adequate financial reserves on their respective books and
records for payment thereof except where the failure to file such returns, pay
such taxes or establish such reserves would not have a material adverse effect
on the Company and its Subsidiaries, taken as a whole.
4.10 Title to Properties. Except as otherwise disclosed in the
latest balance sheet delivered pursuant to this Agreement, the Company or one or
more of its Subsidiaries have good and marketable fee simple title to all of the
real property, and a valid and indefeasible ownership interest in all of the
other properties and assets reflected in said balance sheet or subsequently
acquired by the Company or any such Subsidiary material to the business or
financial condition of the Company and its Subsidiaries taken as a whole, except
for title defects that do not have a material adverse effect. All of such
properties and assets are free and clear of any Lien, except for Permitted
Liens.
4.11 ERISA. The Borrowers, their respective Significant
Subsidiaries, their ERISA Affiliates and their respective Plans are in
substantial compliance in all material respects with those provisions of ERISA
and of the Code which are applicable with respect to any Plan. No Prohibited
Transaction and no Reportable Event has occurred with respect to any such Plan
which would cause an Event of Default. No Borrower, any of their respective
Significant Subsidiaries nor any of their ERISA Affiliates is an employer with
respect to any Multiemployer Plan. The
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Borrowers, their respective Significant Subsidiaries and their ERISA Affiliates
have met the minimum funding requirements under ERISA and the Code with respect
to each of their respective Plans, if any, and have not incurred any liability
to the PBGC, other than premiums which are not yet due and payable. The
execution, delivery and performance of this Agreement and the Notes does not
constitute a Prohibited Transaction. There is no material unfunded benefit
liability, determined in accordance with Section 4001(a)(18) of ERISA, with
respect to any Plan of any Borrower, their respective Significant Subsidiaries
or their ERISA Affiliates.
4.12 Environmental and Safety Matters. Except as disclosed on
Schedule 4.12, each Borrower and each Significant Subsidiary of each Borrower is
in substantial compliance with all material federal, state and local laws,
ordinances and regulations relating to safety and industrial hygiene or to the
environmental condition, including without limitation all material Environmental
Laws in jurisdictions in which any Borrower or any such Significant Subsidiary
owns or operates, or has owned or operated, a facility or site, or arranges or
has arranged for disposal or treatment of hazardous substances, solid waste, or
other wastes, accepts or has accepted for transport any hazardous substances,
solid wastes or other wastes or holds or has held any interest in real property
or otherwise. Except as disclosed on Schedule 4.12, no written demand, claim,
notice, suit, suit in equity, action, administrative action, investigation or
inquiry whether brought by any governmental authority, private person or
otherwise, arising under, relating to or in connection with any Environmental
Laws is pending or, to the best of each Borrower's knowledge, threatened against
any Borrower or any such Significant Subsidiary, any real property in which any
Borrower or any such Significant Subsidiary holds or has held an interest or any
past or present operation of any Borrower or any such Significant Subsidiary
which would have a material adverse effect on the Company and its Subsidiaries,
taken as a whole. Neither any Borrower nor any Significant Subsidiary of any
Borrower (a) is the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any toxic
substances, radioactive materials, hazardous wastes or related materials into
the environment, or (b) has received any notice of any toxic substances,
radioactive materials, hazardous waste or related materials in, or upon any of
its properties in violation of any Environmental Laws. As to such matters
disclosed on Schedule 4.12, none will have an adverse
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material effect on the financial condition or business of the Company and its
Subsidiaries taken as a whole. Except as set forth on Schedule 4.12, to the best
of each Borrower's knowledge, no release, threatened release or disposal of
hazardous waste, solid waste or other wastes is occurring or has occurred on,
under or to any real property in which any Borrower or any of their respective
Significant Subsidiaries holds any interest or performs any of its operations,
in violation of any Environmental Law.
ARTICLE V.
COVENANTS
---------
5.1 Affirmative Covenants. Each Borrower covenants and agrees that,
until the later of the Termination Date and the latest Maturity Date of any
outstanding Term Loan and thereafter until irrevocable payment in full of the
principal of and accrued interest on the Notes and the performance of all other
obligations of the Borrowers under this Agreement, unless the Required Banks
shall otherwise consent in writing, it shall, and shall cause each of its
Significant Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
legal existence, except to the extent permitted by Section 5.2(h), and its
qualification as a foreign corporation in good standing in each jurisdiction in
which such qualification is necessary under applicable law, other than where
failure to so qualify will not have a material adverse effect on the Company and
its Subsidiaries taken as a whole.
(b) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws), in effect from time to time;
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, revenues or property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
give rise to Liens upon such properties or any portion thereof, except to the
extent that payment of any
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of the foregoing is then being contested in good faith by appropriate legal
proceedings, and except where failure to comply would not have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
(c) Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of the business of any
Borrower or any of their respective Significant Subsidiaries and keep such
property in good repair, working order and condition and from time to time make,
or cause to be made all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar businesses;
and, maintain in full force and effect insurance with responsible and reputable
insurance companies or associations in such amounts, on such terms and covering
such risks, as is usually carried by companies engaged in similar businesses and
owning similar properties similarly situated and maintain in full force and
effect public liability insurance, insurance against claims for personal injury
or death or property damage occurring in connection with any of its activities
or any properties owned, occupied or controlled by it, in such amount as it
shall reasonably deem necessary.
(d) Reporting Requirements. Furnish to the Banks and the Agent the
following:
(i) Promptly and in any event within three calendar days after
becoming aware of the occurrence of (A) any Event of Default or Default, (B) the
commencement of any material litigation against, by or affecting any Borrower or
any of their respective Significant Subsidiaries, and any material developments
therein, or (C) entering into any material contract or undertaking that is not
entered into in the ordinary course of business if such contract or undertaking
is publicly disclosed, a statement of the chief financial officer of the Company
setting forth details of such Event of Default or Default or such litigation and
the action which such Borrower or such Significant Subsidiary, as the case may
be, has taken and proposes to take with respect thereto;
(ii) As soon as available and in any event within 45 days after the
end of each fiscal quarter of the Company, the consolidated balance sheet of
the Company and its Subsidiaries as of the
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end of such quarter, and the related consolidated statements of income and cash
flow for the period commencing at the end of the previous fiscal year and ending
with the end of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the preceding
fiscal year, all in reasonable detail and duly certified (subject to year-end
audit adjustments) by the chief financial officer of the Company as having been
prepared in accordance with generally accepted accounting principles, together
with a certificate of the chief financial officer of the Company stating (A)
that no Event of Default or Default has occurred and is continuing or, if an
Event of Default or Default has occurred and is continuing, a statement setting
forth the details thereof and the action which the Company has taken and
proposes to take with respect thereto, and (B) that a computation (which
computation shall accompany such certificate and shall be in reasonable detail)
showing compliance with Section 5.2(a), (b), (c), (d) and (e) hereof is in
conformity with the terms of this Agreement;
(iii) As soon as available and in any event within 90 days after the
end of each fiscal year of the Company, a copy of the consolidated balance sheet
of the Company and its Subsidiaries as of the end of such fiscal year and the
related consolidated statements of income and cash flow of the Company and its
Subsidiaries for such fiscal year, with a customary audit report of Coopers &
Lybrand, or other independent certified public accountants selected by the
Company and acceptable to the Required Banks, without qualifications
unacceptable to the Required Banks, together with a certificate of such
accountants stating (A) that they have reviewed this Agreement and stating
further whether, in the course of their review of such financial statements,
they have become aware of any Event of Default or Default and if an Event of
Default or Default then exists and is continuing, a statement setting forth the
nature and status thereof, and (B) that a computation by the Company (which
computation shall accompany such certificate and shall be in reasonable detail)
showing compliance with Section 5.2 (a), (b), (c), (d) and (e) hereof is in
conformity with the terms of this Agreement;
(iv) Promptly after the sending or filing thereof, copies of all
reports, proxy statements and financial statements which the Company sends to or
files with any of their respective security holders or any securities exchange
or the Securities and Exchange Commission or any successor agency thereof;
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(v) Promptly and in any event within 10 calendar days after receiving
or becoming aware thereof (A) a copy of any notice of intent to terminate any
Plan of any Borrower, their respective Significant Subsidiaries or any ERISA
Affiliate filed with the PBGC, (B) a statement of the chief financial officer of
such Borrower setting forth the details of the occurrence of any Reportable
Event with respect to any such Plan, (C) a copy of any notice that any Borrower,
any of their respective Significant Subsidiaries or any ERISA Affiliate may
receive from the PBGC relating to the intention of the PBGC to terminate any
such Plan or to appoint a trustee to administer any such Plan, or (D) a copy of
any notice of failure to make a required installment or other payment within the
meaning of Section 412(n) of the Code or Section 302(f) of ERISA with respect to
any such Plan; and
(vi) Promptly, such other information respecting the business,
properties, operations or condition, financial or otherwise, of any Borrower or
any of their respective Significant Subsidiaries as any Bank or the Agent may
from time to time reasonably request.
(e) Accounting; Access to Records, Books, Etc. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with
generally accepted accounting principles and to comply with the requirements of
this Agreement and, on and after an Event of Default, at any reasonable time and
from time to time with prior notice to the Company, permit any Bank or the Agent
or any agents or representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and visit the properties of,
the Borrowers and their respective Significant Subsidiaries, and to discuss the
affairs, finances and accounts of the Borrowers and their respective Significant
Subsidiaries with their respective directors, officers, employees and
independent auditors, provided that representatives of the Company selected by
the Company are present during any such visit or discussion, and by this
provision the Company does hereby authorize such persons to discuss such
affairs, finances and accounts with any Bank or the Agent subject to the above
terms and conditions.
(f) Guaranties. Cause each person (other than a person organized
under the laws of a jurisdiction other than the United States or
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any political subdivision thereof) that is or becomes a Significant Subsidiary
of any Borrower from time to time to execute and deliver a Guaranty to the
Banks, together with the other documentation relating to such Guaranty similar
to that required to be delivered by or on behalf of the Borrowers under Section
2.7 (a), (b), (c), (e) and (f).
(g) Further Assurances. Will, and will cause each Guarantor to,
execute and deliver within 30 days after request therefor by the Required Banks
or the Agent, all further instruments and documents and take all further action
that may be necessary or desirable, in order to give effect to, and to aid in
the exercise and enforcement of the rights and remedies of the Banks and the
Agent under, this Agreement and the Notes. In addition, the Company agrees to
deliver to the Agent and the Banks from time to time upon the acquisition or
creation of any Significant Subsidiary not listed in Schedule 4.4 hereto
supplements to Schedule 4.4 such that such Schedule, together with such
supplements, shall at all times accurately reflect the information provided for
thereon.
5.2 Negative Covenants. Until the later of the Termination Date and
the latest Maturity Date of any outstanding Term Loan and thereafter until
irrevocable payment in full of the principal of and accrued interest on the
Notes and the performance of all other obligations of each Borrower under this
Agreement, each Borrower agrees that, unless the Required Banks shall otherwise
consent in writing it shall not, and shall not permit any of its Significant
Subsidiaries to:
(a) Current Ratio and Working Capital. Permit or suffer (i) the ratio
of Consolidated Current Assets of the Company and its Subsidiaries to
Consolidated Current Liabilities of the Company and its Subsidiaries to be less
than 1.50 to 1.00 and (ii) the Consolidated Working Capital of the Company and
its Subsidiaries to be less than $125,000,000 at any time. The Company shall
not be in breach of this covenant unless both (i) and (ii) are breached.
(b) Net Worth. Permit or suffer Consolidated Net Worth of the Company
and its Subsidiaries at any time to be less than $200,000,000 plus 50% of
Cumulative Net Income of the Company and its Subsidiaries for each fiscal year
of the Company ending after April 27, 1991.
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(c) Tangible Net Worth. Permit or suffer the Consolidated Tangible
Net Worth of the Company and its Subsidiaries at any time to be less than
$150,000,000 plus 50% of Cumulative Net Income for each fiscal year of the
Company ending after April 27, 1991.
(d) Interest Coverage Ratio. Permit or suffer the Interest Coverage
Ratio to be less than (i) 2.00 to 1.00 as of the end of each fiscal quarter
ending after the Effective Date through May 2, 1996, and (ii) 2.25 to 1.00 as of
the end of any fiscal quarter thereafter; provided, however, that during such
time as the Company has an Investment Grade Senior Debt Rating of BBB+ or
higher, the step-up under clause (ii) above shall not be required.
(e) Funded Debt. Create, incur, assume or in any manner become liable
in respect of, or suffer to exist, any Funded Debt other than:
(i) The Advances; or
(ii) Funded Debt in aggregate outstanding principal amount not
exceeding 50% of Consolidated Total Capitalization of the Company and its
Subsidiaries or 55% of Consolidated Tangible Capitalization of the Company and
its Subsidiaries.
(f) Short Term Borrowings. Permit or suffer the aggregate Short Term
Borrowings of the Company and its Subsidiaries to exceed $35,000,000.
(g) Liens. Create, incur or suffer to exist any Lien on any of the
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired, of the Company or any of
its Subsidiaries, other than:
(i) Liens for taxes not delinquent or for taxes being contested
in good faith by appropriate proceedings and as to which adequate financial
reserves have been established on its books and records;
(ii) Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which are not
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material in the aggregate, and which would not have a material adverse effect on
the business or operations of the Company and its Subsidiaries taken as a whole
and which constitute (A) pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (B) good faith deposits in
connection with bids, tenders, contracts or leases to which the Company or any
of its Subsidiaries is a party for a purpose other than borrowing money or
obtaining credit, including rent security deposits, (C) liens imposed by law,
such as those of carriers, warehousemen and mechanics, if payment of the
obligation secured thereby is not yet due, (D) Liens securing taxes, assessments
or other governmental charges or levies not yet subject to penalties for
nonpayment, and (E) pledges or deposits to secure public or statutory
obligations of the Company or any of its Subsidiaries, or surety, customs or
appeal bonds to which the Company or any of its Subsidiaries is a party;
(iii) Liens affecting real property which constitute minor survey
exceptions or defects or irregularities in title, minor encumbrances,
easements or reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of such real property, provided that
all of the foregoing, in the aggregate, do not at any time materially detract
from the value of said properties or materially impair their use in the
operation of the businesses of the Company and its Subsidiaries taken as a
whole;
(iv) Each Lien described in Schedule 5.2 hereto may be suffered to
exist upon the same terms as those existing on the date hereof, including
extensions, renewals and replacements thereof so long as such extension, renewal
or replacement does not increase the principal amount of the Funded Debt secured
or extend such Lien to any other property, assets, rights or revenues;
(v) (A) any Lien in property or in rights relating thereto to secure
any rights granted with respect to such property in connection with the
provision of all or a part of the purchase price or cost of the construction of
such property created contemporaneously with, or within 360 days after such
acquisition or the completion of such construction, or (B) any Lien in property
existing in such property at the time of acquisition thereof, whether or not the
debt secured thereby is
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assumed by the Company or a Subsidiary, or (C) any Lien existing in the property
of a corporation at the time such corporation is merged into or consolidated
with the Company or a Subsidiary or at the time of a sale, lease, or other
disposition of the properties of a corporation or firm as an entirety or
substantially as an entirety to the Company or a Subsidiary; provided, in the
case of (A), (B) and (C), no such Liens shall exceed 100% of the fair market
value of the related property and not more than one such Lien shall encumber
such property at any one time;
(vi) Liens granted by any Subsidiary in favor of the Company or any
other Subsidiary; and
(vii) The interest or title of a lessor under any lease otherwise
permitted under this Agreement with respect to the property subject to such
lease to the extent performance of the obligations of the Company or its
Subsidiary thereunder is not delinquent.
Notwithstanding the foregoing subparagraphs (i) through (vii), and in addition
to the Liens permitted thereby, the Company and its Subsidiaries may create,
issue, incur or assume Liens in an aggregate amount at any time outstanding not
exceeding 15% of Consolidated Tangible Net Worth of the Company and its
Subsidiaries.
(h) Merger; Etc. Merge or consolidate or amalgamate with any other
person or take any other action having a similar effect, provided, however, (i)
a Subsidiary of the Company may merge with the Company, provided that the
Company shall be the surviving corporation, (ii) a Subsidiary of the Company may
merge or consolidate with another Subsidiary of the Company and (iii) this
Section 5.2(h) shall not prohibit any merger if the surviving or continuing
corporation is incorporated in the United States and, immediately after such
merger, no Default or Event of Default shall exist or shall have occurred and be
continuing and, prior to the consummation of such merger, the Company shall have
provided to the Banks an express written assumption by such surviving or
continuing corporation in form and substance satisfactory to the Required Banks
of all obligations of the Company hereunder and under the Notes and an opinion
of counsel and a certificate of the chief financial officer of the Company
(attaching computations to demonstrate compliance with all financial covenants
hereunder), each stating that such merger complies
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with this Section 5.2(h) and that any other conditions under this Agreement
relating to such transaction have been satisfied.
(i) Disposition of Assets; Etc. Sell, lease, license, transfer,
assign or otherwise dispose of all or a substantial portion of its business,
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether in one or a series of transactions, other than inventory
sold in the ordinary course of business upon customary credit terms and sales of
scrap or obsolete material or equipment, provided, however, that this Section
5.2(i) shall not prohibit any such sale, lease, license, transfer, assignment or
other disposition if the aggregate book value (disregarding any write-downs of
such book value other than ordinary depreciation and amortization) of all of the
business, assets, rights, revenues and property disposed of after the date of
this Agreement shall be less than 10% percent of such aggregate book value of
the Consolidated total assets of the Company and its Subsidiaries as of the most
recently ended fiscal year, and if immediately after such transaction, no
Default or Event of Default shall exist or shall have occurred and be
continuing. Notwithstanding the foregoing, (i) any Subsidiary may sell, lease,
transfer or otherwise dispose of its assets to the Company or any other
Subsidiary, and (ii) the Company or any Subsidiary may sell, lease, transfer or
otherwise dispose of its assets in excess of the limitation set forth above so
long as the proceeds of such sale are used (x) to purchase or committed to
purchase other property of a similar nature of at least equivalent value within
twelve (12) months of such sale or (y) to prepay Funded Debt and Loans.
(j) Acquisitions. Acquire all or any substantial portion of the
assets or securities of any person if the total cash or cash equivalent
consideration, including promissory notes but excluding stock or other
consideration that is not cash or the equivalent of cash, and other acquisition
costs would exceed $50,000,000, without the consent of the Required Banks.
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ARTICLE VI.
DEFAULT
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6.1 Events of Default. The occurrence of any one of the following
events or conditions shall be deemed an "Event of Default" hereunder unless
waived by the Required Banks pursuant to Section 9.1:
(a) Nonpayment of Principal. Any Borrower shall fail to pay when due
any principal of the Notes or any reimbursement obligation under Section 3.3
(whether by deemed disbursement of a Revolving Credit Loan or otherwise); or
(b) Nonpayment of Interest. Any Borrower shall fail to pay when due
any interest or any fees or any other amount payable hereunder and such failure
shall remain unremedied for three Business Days; or
(c) Misrepresentation. Any representation or warranty made by any
Borrower or any Guarantor in Article IV hereof, any Guaranty or any other
certificate, report, financial statement or other document furnished by or on
behalf of any Borrower or any Guarantor in connection with this Agreement shall
prove to have been incorrect in any material respect when made or deemed made;
or
(d) Certain Covenants. Any Borrower shall fail to perform or observe
any term, covenant or agreement contained in Section 5.2(f),(g),(h),(i), or (j)
hereof; or
(e) Other Defaults. Any Borrower or any Guarantor shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement or any Guaranty, and any such failure shall remain unremedied for 10
calendar days after notice thereof shall have been given to such Borrower or
such Guarantor, as the case may be, by the Agent; or
(f) Cross Default. Any Borrower or any of their respective
Significant Subsidiaries shall fail to pay any part of the principal of, the
premium, if any, or the interest on, or any other payment of money due under any
of its Indebtedness (other than Indebtedness hereunder), beyond any period of
grace provided with respect thereto, which individually or together with other
such Indebtedness as to which any such failure exists has an aggregate
outstanding principal amount in excess of $10,000,000; or if any Borrower or any
of their respective
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Significant Subsidiaries fails to perform or observe any other term, covenant or
agreement contained in any agreement, document or instrument evidencing or
securing any such Indebtedness having such aggregate outstanding principal
amount, or under which any such Indebtedness was issued or created, beyond any
period of grace, if any, provided with respect thereto and such Borrower or such
Significant Subsidiary has been notified by the creditor of such default; or
(g) Judgments. One or more judgments or orders for the payment of
money in an aggregate amount of $25,000,000 shall be rendered against any
Borrower or any of their respective Significant Subsidiaries, or any other
judgment or order (whether or not for the payment of money) shall be rendered
against or shall affect any Borrower or any of their respective Significant
Subsidiaries which causes or could cause a material adverse change in the
business, properties, operations or financial condition of the Company and its
Subsidiaries taken as a whole or which does or could have a material adverse
effect on the legality, validity or enforceability of this Agreement or the
Notes or any Guaranty, and either (i) such judgment or order shall have remained
unsatisfied or uninsured for a period of 21 days and such Borrower or such
Significant Subsidiary shall not have taken action necessary to stay enforcement
thereof by reason of pending appeal or otherwise, prior to the expiration of the
applicable period of limitations for taking such action or, if such action shall
have been taken, a final order denying such stay shall have been rendered, or
(ii) enforcement proceedings shall have been commenced by any creditor upon any
such judgment or order; or
(h) ERISA. The occurrence of a Reportable Event that results in or
could result in liability of any Borrower, any Significant Subsidiary of any
Borrower or their ERISA Affiliates to the PBGC or to any Plan and such
Reportable Event is not corrected within thirty (30) days after the occurrence
thereof; or the occurrence of any Reportable Event which could constitute
grounds for termination of any Plan of any Borrower, their respective
Significant Subsidiaries or their ERISA Affiliates by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer any such Plan and such Reportable Event is not corrected within
thirty (30) days after the occurrence thereof; or the filing by any Borrower,
any Significant Subsidiary of any Borrower or any of their ERISA Affiliates of a
notice of intent to terminate a Plan or the institution of other proceedings to
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terminate a Plan; or any Borrower, any Significant Subsidiary of any Borrower or
any of their ERISA Affiliates shall fail to pay when due any liability to the
PBGC or to a Plan; or the PBGC shall have instituted proceedings to terminate,
or to cause a trustee to be appointed to administer, any Plan of any Borrower,
their respective Significant Subsidiaries or their ERISA Affiliates; or any
person engages in a Prohibited Transaction with respect to any Plan which
results in or could result in liability of the any Borrower, any Significant
Subsidiary of any Borrower, any of their ERISA Affiliates, any Plan of any
Borrower, their respective Significant Subsidiaries or their ERISA Affiliates or
fiduciary of any such Plan; or failure by any Borrower, any Significant
Subsidiary of any Borrower or any of their ERISA Affiliates to make a required
installment or other payment to any Plan within the meaning of Section 302(f) of
ERISA or Section 412(n) of the Code that results in or could result in liability
of any Borrower, any Significant Subsidiary of any Borrower or any of their
ERISA Affiliates to the PBGC or any Plan; or the withdrawal of any Borrower, any
of their respective Significant Subsidiaries or any of their ERISA Affiliates
from a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(9a)(2) of ERISA; or any Borrower, any of their
respective Significant Subsidiaries or any of their ERISA Affiliates becomes an
employer with respect to any Multiemployer Plan without the prior written
consent of the Required Banks; provided, however, that this Section 6.1(h) shall
apply only to events or occurrences which, when aggregated with all other events
and occurrences described in this Section 6.1(h), could result in liability to
the Borrowers or their respective Significant Subsidiaries greater than
$25,000,000; or
(i) Insolvency, Etc. Any Borrower or any of their respective
Significant Subsidiaries shall be dissolved or liquidated (or any judgment,
order or decree therefor shall be entered), or shall generally not pay its debts
as they become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors, or
shall institute, or there shall be instituted against any Borrower or any of
their respective Significant Subsidiaries, any proceeding or case seeking to
adjudicate it a bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief or protection of debtors or seeking the entry of an order for relief,
or the appointment of
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a receiver, trustee, custodian or other similar official for it or for any
substantial part of its assets, rights, revenues or property, and, if such
proceeding is instituted against such Borrower or such Significant Subsidiary
and is being contested by such Borrower or such Significant Subsidiary, as the
case may be, in good faith by appropriate proceedings, such proceeding shall
remain undismissed or unstayed for a period of 60 days; or such Borrower or such
Significant Subsidiary shall take any action (corporate or other) to authorize
or further any of the actions described above in this subsection; or
(j) Change of Control. The Company shall experience a Change of
Control. For purposes of this Section 6.1(j), a "Change of Control" shall occur
if during any twelve-month period (i) any person or group of persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule 13D-3
promulgated by the Securities and Exchange Commission under said Act) of 50% or
more in voting power of the voting shares of the Company that were outstanding
as of the date of this Agreement and (ii) a majority of the board of directors
of the Company shall cease for any reason to consist of individuals who as of a
date twelve months prior to any date compliance herewith is determined were
directors of the Company.
6.2 Remedies. (a) Upon the occurrence and during the continuance of
any Event of Default, the Agent may and, upon being directed to do so by the
Required Banks, shall by notice to the Company (i) terminate the Commitments or
(ii) declare the outstanding principal of, and accrued interest on, the Notes
and all other amounts owing under this Agreement to be immediately due and
payable, or (iii) demand immediate delivery of cash collateral, and the
Borrowers agree to deliver such cash collateral upon demand, in an amount equal
to the maximum amount that may be available to be drawn at any time prior to the
stated expiry of all outstanding Letters of Credit, or any one or more of the
foregoing, whereupon the Commitments shall terminate forthwith and all such
amounts, including cash collateral, shall become immediately due and payable,
provided that in the case of any event or condition described in Section 6.1(i)
with respect to any Borrower, the Commitments shall automatically terminate
forthwith and all such amounts, including cash collateral, shall automatically
become immediately due and payable without notice; in all cases without demand,
presentment, protest,
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diligence, notice of dishonor or other formality, all of which are hereby
expressly waived. Such cash collateral delivered in respect of outstanding
Letters of Credit shall be deposited in a special cash collateral account to be
held by the Agent as collateral security for the payment and performance of the
Borrowers' obligations under this Agreement to the Banks and the Agent.
(b) The Agent may and, upon being directed to do so by the Required
Banks, shall, in addition to the remedies provided in Section 6.2(a), exercise
and enforce any and all other rights and remedies available to it or the Banks,
whether arising under this Agreement, the Notes or under applicable law, in any
manner deemed appropriate by the Agent, including suit in equity, action at law,
or other appropriate proceedings, whether for the specific performance (to the
extent permitted by law) of any covenant or agreement contained in this
Agreement or in the Notes or in aid of the exercise of any power granted in this
Agreement or the Notes.
(c) Upon the occurrence and during the continuance of any Event of
Default, each Bank may at any time and from time to time exercise any of its
rights of set off or bankers lien that it may possess by common law or statute
without prior notice to the Borrowers, provided that each Bank may also set off
against any deposit whether or not it is then matured. Each Bank agrees to
promptly notify the Company after any such setoff and application, provided that
the failure to give such notice shall not effect the validity of such setoff and
application. The rights of such Bank under this Section 6.2(c) are in addition
to other rights and remedies which such Bank may have.
ARTICLE VII.
THE AGENT AND THE BANKS
-----------------------
7.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the Notes as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto. The provisions of this Article VII are solely
for the benefit of the Agent and the Banks, and the
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Borrowers shall not have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Agent shall act solely as agent of the Banks and does not assume and shall
not be deemed to have assumed any obligation towards or relationship of agency
or trust with or for the Borrowers.
7.2 Agent and Affiliates. NBD Bank, N.A. in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise or refrain from exercising the same as though it were not the
Agent. NBD Bank, N.A. and its affiliates may (without having to account
therefor to any Bank) accept deposits from, lend money to, and generally engage
in any kind of banking, trust, financial advisory or other business with any
Borrower or any Subsidiary of any Borrower as if it were not acting as Agent
hereunder, and may accept fees and other consideration therefor without having
to account for the same to the Banks.
7.3 Scope of Agent's Duties. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement, have a fiduciary relationship with any Bank, and no
implied covenants, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or shall otherwise exist against the Agent. As to any
matters not expressly provided for by this Agreement (including, without
limitation, collection and enforcement actions under the Notes), the Agent shall
not be required to exercise any discretion or take any action, but the Agent
shall take such action or omit to take any action pursuant to the written
instructions of the Required Banks and may request instructions from the
Required Banks. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, pursuant to the written instructions of the Required
Banks, which instructions and any action or omission pursuant thereto shall be
binding upon all of the Banks; provided, however, that the Agent shall not be
required to act or omit to act if, in the judgment of the Agent, such action or
omission may expose the Agent to personal liability or is contrary to this
Agreement, the Notes or applicable law.
7.4 Reliance by Agent. The Agent shall be entitled to rely upon any
certificate, notice, document or other communication (including any cable,
telegram, telex, facsimile transmission or oral communication) believed by it to
be genuine and correct and to have been sent or given by
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or on behalf of a proper person. The Agent may treat the payee of any Note as
the holder thereof unless and until the Agent receives written notice of the
assignment thereof pursuant to the terms of this Agreement signed by such payee
and the Agent receives the written agreement of the assignee that such assignee
is bound hereby to the same extent as if it had been an original party hereto.
The Agent may employ agents (including without limitation collateral agents) and
may consult with legal counsel (who may be counsel for the Borrowers),
independent public accountants and other experts selected by it and shall not be
liable to the Banks, except as to money or property received by it or its
authorized agents, for the negligence or misconduct of any such agent selected
by it with reasonable care or for any action taken or omitted to be taken by it
in good faith in accordance with the advice of such counsel, accountants or
experts.
7.5 Default. The Agent shall not be deemed to have knowledge of the
occurrence of any Default or Event of Default, unless the Agent has received
written notice from a Bank or a Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice, the Agent shall give written notice
thereof to the Banks.
7.6 Liability of Agent. Neither the Agent nor any of its directors,
officers, agents, or employees shall be liable to the Banks for any action taken
or not taken by it or them in connection herewith with the consent or at the
request of the Required Banks or in the absence of its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any recital, statement, warranty or
representation contained in this Agreement or any Note or any Guaranty, or in
any certificate, report, financial statement or other document furnished in
connection with this Agreement, (ii) the performance or observance of any of the
covenants or agreements of any Borrower or any Guarantor, (iii) the satisfaction
of any condition specified in Article II hereof, or (iv) the validity,
effectiveness, legal enforceability, value or genuineness of this Agreement or
the Notes or any collateral subject thereto or any other instrument or document
furnished in connection herewith.
7.7 Nonreliance on Agent and Other Banks. Each Bank acknowledges and
agrees that it has, independently and without reliance
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on the Agent or any other Bank, and based on such documents and information as
it has deemed appropriate, made its own credit analysis of the Borrowers and
decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decision in taking or not taking action under this Agreement.
The Agent shall not be required to keep itself informed as to the performance or
observance by any Borrower or any Guarantor of this Agreement, the Notes or any
other documents referred to or provided for herein or to inspect the properties
or books of any Borrower or any Guarantor and, except for notices, reports and
other documents and information expressly required to be furnished to the Banks
by the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any information concerning the affairs, financial
condition or business of the Borrowers or any of their respective Subsidiaries
which may come into the possession of the Agent or any of its affiliates.
7.8 Indemnification. The Banks agree to indemnify the Agent (to the
extent not reimbursed by the Borrowers, but without limiting any obligation of
the Borrowers to make such reimbursement), ratably according to the respective
principal amounts of the Advances then outstanding made by each of them (or if
no Advances are at the time outstanding, ratably according to the respective
amounts of their Commitments), from and against any and all claims, damages,
losses, liabilities, costs or expenses of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Agent in any way relating to or
arising out of this Agreement or the transactions contemplated hereby or any
action taken or omitted by the Agent under this Agreement, provided, however,
that no Bank shall be liable for any portion of such claims, damages, losses,
liabilities, costs or expenses resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any out-of-
pocket expenses (including without limitation fees and expenses of counsel)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the Agent
is not
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reimbursed for such expenses by the Borrowers, but without limiting the
obligation of the Borrowers to make such reimbursement. Each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any amounts
owing to the Agent by the Banks pursuant to this Section. If the indemnity
furnished to the Agent under this Section shall, in the judgment of the Agent,
be insufficient or become impaired, the Agent may call for additional indemnity
from the Banks and cease, or not commence, to take any action until such
additional indemnity is furnished.
7.9 Resignation of Agent. The Agent may resign as such at any time
upon thirty days' prior written notice to the Borrowers and the Banks. In the
event of any such resignation, the Required Banks shall, by an instrument in
writing delivered to the Borrowers and the Agent, appoint a successor, which
shall be a Bank or any other commercial bank organized under the laws of the
United States or any State thereof and having a combined capital and surplus of
at least $500,000,000. The Agent shall consult with the Borrowers and keep the
Borrowers informed regarding the appointment of a successor Agent. If a
successor is not so appointed or does not accept such appointment before the
Agent's resignation becomes effective, the resigning Agent may appoint a
temporary successor to act until such appointment by the Required Banks is made
and accepted or if no such temporary successor is appointed as provided above by
the resigning Agent, the Required Banks shall thereafter perform all the duties
of the Agent hereunder until such appointment by the Required Banks is made and
accepted. Any successor to the Agent shall execute and deliver to the Borrowers
and the Banks an instrument accepting such appointment and thereupon such
successor Agent, without further act, deed, conveyance or transfer shall become
vested with all of the properties, rights, interests, powers, authorities and
obligations of its predecessor hereunder with like effect as if originally named
as Agent hereunder. Upon request of such successor Agent, the Borrowers and the
resigning Agent shall execute and deliver such instruments of conveyance,
assignment and further assurance and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in such successor
Agent all such properties, rights, interests, powers, authorities and
obligations. The provisions of this Article VII shall thereafter remain
effective for such resigning Agent with respect to any actions taken or omitted
to be taken by such Agent while acting as the Agent hereunder.
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7.10 Sharing of Payments. The Banks agree among themselves that, in
the event that any Bank shall obtain payment in respect of any Advance or any
other obligation owing to the Banks under this Agreement through the exercise of
a right of set-off, banker's lien, counterclaim or otherwise in excess of its
ratable share of payments received by all of the Banks on account of the
Advances and other obligations (or if no Advances are outstanding, ratably
according to the respective amounts of the Commitments), such Bank shall
promptly purchase from the other Banks participations in such Advances and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all of the Banks share such payment in
accordance with such ratable shares. The Banks further agree among themselves
that if payment to a Bank obtained by such Bank through the exercise of a right
of set-off, banker's lien, counterclaim or otherwise as aforesaid shall be
rescinded or must otherwise be restored, each Bank which shall have shared the
benefit of such payment shall, by repurchase of participations theretofore sold,
return its share of that benefit to each Bank whose payment shall have been
rescinded or otherwise restored. The Borrowers agree that any Bank so
purchasing such a participation may, to the fullest extent permitted by law,
exercise all rights of payment, including set-off, banker's lien or
counterclaim, with respect to such participation as fully as if such Bank were a
holder of such Advance or other obligation in the amount of such participation.
The Banks further agree among themselves that, in the event that amounts
received by the Banks and the Agent hereunder are insufficient to pay all such
obligations or insufficient to pay all such obligations when due, the fees and
other amounts owing to the Agent in such capacity shall be paid therefrom before
payment of obligations owing to the Banks under this Agreement, other than
agency fees payable pursuant to Section 2.5(d) of this Agreement which shall be
paid on a pro rata basis with amounts owing to the Banks. Except as otherwise
expressly provided in this Agreement, if any Bank or the Agent shall fail to
remit to the Agent or any other Bank an amount payable by such Bank or the Agent
to the Agent or such other Bank pursuant to this Agreement on the date when such
amount is due, such payments shall be made together with interest thereon for
each date from the date such amount is due until the date such amount is paid to
the Agent or such other Bank at a rate per annum equal to the rate at which
borrowings are available to the payee in its overnight federal funds market. It
is further understood and agreed among the Banks and the Agent that if the Agent
or any Bank shall engage in any other transactions with any Borrower and
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shall have the benefit of any collateral or security therefor which does not
expressly secure the obligations arising under this Agreement except by virtue
of a so-called dragnet clause or comparable provision, the Agent or such Bank
shall be entitled to apply any proceeds of such collateral or security first in
respect of the obligations arising in connection with such other transaction
before application to the obligations arising under this Agreement.
ARTICLE VIII.
GUARANTY
--------
As an inducement to the Banks and the Agent to enter into the
transactions contemplated by this Agreement, the Company agrees with the Banks
and the Agent as follows:
8.1 Guarantee of Obligations. (a) The Company hereby (i) guarantees,
as principal obligor and not as surety only, to the Banks the prompt payment of
the principal of and any and all accrued and unpaid interest (including interest
which otherwise may cease to accrue by operation of any insolvency law, rule,
regulation or interpretation thereof) on the Advances and all other obligations
of the Borrowing Subsidiaries to the Banks and the Agent under this Agreement
when due, whether by scheduled maturity, acceleration or otherwise, all in
accordance with the terms of this Agreement and the Notes, including, without
limitation, default interest, indemnification payments and all reasonable costs
and expenses incurred by the Banks and the Agent in connection with enforcing
any obligations of the Borrowing Subsidiaries hereunder, including without
limitation the reasonable fees and disbursements of counsel, (ii) guarantees the
prompt and punctual performance and observance of each and every term, covenant
or agreement contained in this Agreement and the Notes to be performed or
observed on the part of the Borrowing Subsidiaries and (iii) agrees to make
prompt payment, on demand, of any and all reasonable costs and expenses incurred
by the Banks or the Agent in connection with enforcing the obligations of the
Company hereunder, including, without limitation, the reasonable fees and
disbursements of counsel (all of the foregoing being collectively referred to as
the "Guaranteed Obligations").
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(b) If for any reason any duty, agreement or obligation of any
Borrowing Subsidiary contained in this Agreement shall not be performed or
observed by any Borrowing Subsidiary as provided therein, or if any amount
payable under or in connection with this Agreement shall not be paid in full
when the same becomes due and payable, the Company undertakes to perform or
cause to be performed promptly each of such duties, agreements and obligations
and to pay forthwith each such amount to the Agent for the account of the Banks
regardless of any defense or setoff or counterclaim which any Borrowing
Subsidiary may have or assert, and regardless of any other condition or
contingency.
8.2 Nature of Guaranty. The obligations of the Company hereunder
constitute an absolute and unconditional and irrevocable guaranty of payment and
not a guaranty of collection and are wholly independent of and in addition to
other rights and remedies of the Banks and the Agent and are not contingent upon
the pursuit by the Banks and the Agent of any such rights and remedies, such
pursuit being hereby waived by the Company.
8.3 Waivers and Other Agreements. The Company hereby unconditionally
(a) waives any requirement that the Banks or the Agent, upon the occurrence of
an Event of Default first make demand upon, or seek to enforce remedies against
any Borrowing Subsidiary before demanding payment under or seeking to enforce
the obligations of the Company hereunder, (b) covenants that the obligations of
the Company hereunder will not be discharged except by complete performance of
all obligations of the Borrowing Subsidiary contained in this Agreement and the
Notes, (c) agrees that the obligations of the Company hereunder shall remain in
full force and effect without regard to, and shall not be affected or impaired,
without limitation, by any invalidity, irregularity or unenforceability in whole
or in part of this Agreement or the Notes, or any limitation on the liability of
the Borrowing Subsidiaries thereunder, or any limitation on the method or terms
of payment thereunder which may or hereafter be caused or imposed in any manner
whatsoever (including, without limitation, usury laws), (d) waives diligence,
presentment and protest with respect to, and any notice of default or dishonor
in the payment of any amount at any time payable by the Borrowing Subsidiaries
under or in connection with this Agreement or the Notes, and further waives any
requirement of notice of acceptance of, or other formality
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relating to, the obligations of the Company hereunder and (e) agrees that the
Guaranteed Obligations shall include any amounts paid by the Borrowing
Subsidiaries to the Banks or the Agent which may be required to be returned to
the Borrowing Subsidiaries or to its representative or to a trustee, custodian
or receiver for any Borrowers.
8.4 Obligations Absolute. The obligations, covenants, agreements and
duties of the Company under this Agreement shall not be released, affected or
impaired by any of the following whether or not undertaken with notice to or
consent of the Company: (a) an assignment or transfer, in whole or in part, of
the Advances made to the Borrowing Subsidiary or of this Agreement or any Note
although made without notice to or consent of the Company, or (b) any waiver by
any Bank or the Agent or by any other person, of the performance or observance
by any Borrowing Subsidiary of any of the agreements, covenants, terms or
conditions contained in this Agreement or in the other Loan Documents, or (c)
any indulgence in or the extension of the time for payment by any Borrowing
Subsidiary of any amounts payable under or in connection with this Agreement or
any other Loan Document, or of the time for performance by any Borrowing
Subsidiary of any other obligations under or arising out of this Agreement or
any other Loan Document, or the extension or renewal thereof, or (d) the
modification, amendment or waiver (whether material or otherwise) of any duty,
agreement or obligation of any Borrowing Subsidiary set forth in this Agreement
or any other Loan Document (the modification, amendment or waiver from time to
time of this Agreement and the other Loan Documents being expressly authorized
without further notice to or consent of the Company), or (e) the voluntary or
involuntary liquidation, sale or other disposition of all or substantially all
of the assets of any Borrowing Subsidiary or any receivership, insolvency,
bankruptcy, reorganization, or other similar proceedings, affecting any
Borrowing Subsidiary or any of its assets, or (f) the merger or consolidation of
any Borrowing Subsidiary or the Company with any other person, or (g) the
release of discharge of any Borrowing Subsidiary or the Company from the
performance or observance of any agreement, covenant, term or condition
contained in this Agreement or any other Loan Document, by operation of law, or
(h) any other cause whether similar or dissimilar to the foregoing which would
release, affect or impair the obligations, covenants, agreements or duties of
the Company hereunder.
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8.5 No Investigation by Banks or Agent. The Company hereby waives
unconditionally any obligation which, in absence of such provision, the Banks or
the Agent might otherwise have to investigate or to assure that there has been
compliance with the law of any jurisdiction with respect to the Guaranteed
Obligations recognizing that, to save both time and expense, the Company has
requested that the Banks and the Agent not undertake such investigation. The
Company hereby expressly confirms that the obligations of the Company hereunder
shall remain in full force and effect without regard to compliance or
noncompliance with any such law and irrespective of any investigation or
knowledge of any Bank or the Agent of any such law.
8.6 Indemnity. As a separate, additional and continuing obligation,
the Company unconditionally and irrevocably undertakes and agrees with the Banks
and the Agent that, should the Guaranteed Obligations not be recoverable from
the Company under Section 8.1 for any reason whatsoever (including, without
limitation, by reason of any provision of this Agreement or the Notes or any
other agreement or instrument executed in connection herewith being or becoming
void, unenforceable, or otherwise invalid under any applicable law) then,
notwithstanding any knowledge thereof by any Bank or the Agent at any time, the
Company as sole, original and independent obligor, upon demand by the Agent,
will make payment to the Agent for the account of the Banks and the Agent of the
Guaranteed Obligations by way of a full indemnity in such currency and otherwise
in such manner as is provided in this Agreement and the Notes.
8.7 Subordination, Subrogation, Etc. The Company agrees that any
present or future indebtedness, obligations or liabilities of any Borrowing
Subsidiary to Company shall be fully subordinate and junior in right and
priority of payment to any present or future indebtedness, obligations or
liabilities of the Borrowing Subsidiaries to the Banks and the Agent. The
Company waives any right of subrogation to the rights of any Bank or the Agent
against any Borrowing Subsidiary or any other person obligated for payment of
the Guaranteed Obligations and any right of reimbursement or indemnity
whatsoever arising or accruing out of any payment which the Company may make
pursuant to this Agreement and the Notes, and any right of recourse to security
for the debts and obligations of each Borrowing Subsidiary, unless and until the
entire principal balance of and interest on the Guaranteed Obligations shall
have
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been paid in full, and to the extent the Company is an "insider" as defined in
Section 101(2) of the United States Bankruptcy Code, such waiver shall be
permanent and shall not be revoked or terminated in any event, including payment
in full of the principal and interest of the Guaranteed Obligations.
ARTICLE IX.
MISCELLANEOUS
-------------
9.1 Amendments, Etc. (a) No amendment, modification, termination or
waiver of any provision of this Agreement nor any consent to any departure
therefrom shall be effective unless the same shall be in writing and signed by
the Borrowers and the Required Banks and, to the extent any rights or duties of
the Agent may be affected thereby, the Agent, provided, however, that no such
amendment, modification, termination, waiver or consent shall, without the
consent of the Agent and all of the Banks, (i) authorize or permit the extension
of time for, or any reduction of the amount of, any payment of the principal of,
or interest on, the Notes or any Letter of Credit reimbursement obligation, or
any fees or other amount payable hereunder, (ii) amend or terminate the
respective Commitment of any Bank set forth on the signature pages hereof or
modify the provisions of this Section regarding the taking of any action under
this Section or the provisions of Section 9.10 or the definition of Required
Banks, or (iii) provide for the discharge of any Guarantor.
(b) Any such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
(c) Notwithstanding anything herein to the contrary, no Bank that is
in default of any of its obligations, covenants or agreements under this
Agreement shall be entitled to vote (whether to consent or to withhold its
consent) with respect to any amendment, modification, termination or waiver of
any provision of this Agreement or any departure therefrom or any direction from
the Banks to the Agent, and, for purposes of determining the Required Banks at
any time when any Bank is in default under this Agreement, the Commitments and
Advances of such defaulting Banks shall be disregarded.
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9.2 Notices. (a) Except as otherwise provided in Section 9.2(c)
hereof, all notices and other communications hereunder shall be in writing and
shall be delivered or sent to the Borrowers at 500 Kirts Blvd., Troy, Michigan
48084, Attention: Richard J. Morris, Facsimile No. (810) 362-3656, and to the
Agent and the Banks at the respective addresses and numbers for notices set
forth on the signatures pages hereof, or to such other address as may be
designated by any Borrower, the Agent or any Bank by notice to the other parties
hereto. All notices and other communications shall be deemed to have been given
at the time of actual delivery thereof to such address, or if sent by certified
or registered mail, postage prepaid, to such address, on the third day after the
date of mailing, or if deposited prepaid with Federal Express or other
nationally recognized overnight delivery service prior to the deadline for next
day delivery, on the Business Day next following such deposit, provided,
however, that notices to the Agent shall not be effective until received.
(b) Notices by a Borrower to the Agent with respect to terminations or
reductions of the Commitments pursuant to Section 2.4, requests for Advances
pursuant to Section 2.6, requests for continuations or conversions of Loans
pursuant to Section 2.9 and notices of prepayment pursuant to Section 3.1 shall
be irrevocable and binding on the Borrowers.
(c) Any notice to be given by a Borrower to the Agent pursuant to
Sections 2.6 or 2.9 and any notice to be given by the Agent or any Bank
hereunder, may be given by telephone, and all such notices given by a Borrower
must be immediately confirmed in writing in the manner provided in Section
9.2(a). Any such notice given by telephone shall be deemed effective upon
receipt thereof by the party to whom such notice is to be given.
9.3 No Waiver By Conduct; Remedies Cumulative. No course of dealing
on the part of the Agent or any Bank, nor any delay or failure on the part of
the Agent or any Bank in exercising any right, power or privilege hereunder
shall operate as a waiver of such right, power or privilege or otherwise
prejudice the Agent's or such Bank's rights and remedies hereunder; nor shall
any single or partial exercise thereof preclude any further exercise thereof or
the exercise of any other right, power or privilege. No right or remedy
conferred upon or reserved to the Agent or any Bank under this Agreement or the
Notes or any Guaranty is intended to be exclusive of any other right or remedy,
and every right and
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remedy shall be cumulative, except as limited by this Agreement, and in addition
to every other right or remedy granted thereunder or now or hereafter existing
under any applicable law. Every right and remedy granted by this Agreement or
the Notes or any Guaranty or by applicable law to the Agent or any Bank may be
exercised from time to time and as often as may be deemed expedient by the Agent
or any Bank and, unless contrary to the express provisions of this Agreement or
the Notes or such Guaranty, irrespective of the occurrence or continuance of any
Default or Event of Default.
9.4 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of any Borrower or any
Guarantor made herein, in any Guaranty or in any certificate, report, financial
statement or other document furnished by or on behalf of any Borrower or any
Guarantor in connection with this Agreement shall be deemed to be material and
to have been relied upon by the Banks, notwithstanding any investigation
heretofore or hereafter made by any Bank or on such Bank's behalf, and those
covenants and agreements of the Borrowers set forth in Sections 3.7, 3.9 and 9.5
hereof shall survive the repayment in full of the Advances and the termination
of the Commitments for a period of one year from such repayment or termination.
9.5 Expenses. (a) The Borrowers agree to pay, or reimburse the Agent
for the payment of, on demand, (i) the reasonable fees and expenses of counsel
to the Agent, including without limitation the fees and expenses of Dickinson,
Wright, Moon, Van Dusen & Freeman in connection with the preparation, execution,
delivery and administration of this Agreement, the Notes and the consummation of
the transactions contemplated hereby, and in connection with advising the Agent
as to its rights and responsibilities with respect thereto, and in connection
with any amendments, waivers or consents in connection therewith, and (ii) all
stamp and other taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing or recording of this Agreement, the Notes
and the consummation of the transactions contemplated hereby, and any and all
liabilities with respect to or resulting from any delay in paying or omitting to
pay such taxes or fees, and (iii) all reasonable costs and expenses of the Agent
and any Bank (including without limitation reasonable fees and expenses of
counsel, including without limitation counsel who are employees of the Agent or
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any Bank, and whether incurred through negotiations, legal proceedings or
otherwise) in connection with any Default or Event of Default or the enforcement
of, or the exercise or preservation of any rights under, this Agreement or the
Notes or any Guaranty or in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement and (iv) all reasonable
costs and expenses of the Agent and the Banks (including reasonable fees and
expenses of counsel) in connection with any action or proceeding relating to a
court order, injunction or other process or decree restraining or seeking to
restrain the Agent from paying any amount under, or otherwise relating in any
way to, any Letter of Credit and any and all costs and expenses which any of
them may incur relative to any payment under any Letter of Credit.
(b) Each Borrower hereby indemnifies and agrees to hold harmless the
Banks and the Agent, and their respective officers, directors, employees and
agents, harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses of any kind or nature whatsoever which the Banks
or the Agent or any such person may incur or which may be claimed against any of
them by reason of or in connection with any Letter of Credit, and neither any
Bank nor the Agent or any of their respective officers, directors, employees or
agents shall be liable or responsible for: (i) the use which may be made of any
Letter of Credit or for any acts or omissions of any beneficiary in connection
therewith; (ii) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged; (iii) payment by the
Agent to the beneficiary under any Letter of Credit against presentation of
documents which do not comply with the terms of any Letter of Credit, including
failure of any documents to bear any reference or adequate reference to such
Letter of Credit; (iv) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; or (v) any other event or
circumstance whatsoever arising in connection with any Letter of Credit;
provided, however, that the Borrowers shall not be required to indemnify the
Banks and the Agent and such other persons, and the Agent shall be liable to the
Borrowers to the extent, but only to the extent, of any direct, as opposed to
consequential or incidental, damages suffered by the Borrowers which were caused
by (A) the Agent's wrongful dishonor of any Letter of Credit after the
presentation to it by the beneficiary thereunder of a draft or other demand for
payment and other
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documentation strictly complying with the terms and conditions of such Letter of
Credit, or (B) the Agent's payment by the Agent to the beneficiary under any
Letter of Credit against presentation of documents which do not comply with the
terms of the Letter of Credit to the extent, but only to the extent, that such
payment constitutes gross negligence or wilful misconduct of the Agent. It is
understood that in making any payment under a Letter of Credit the Agent will
rely on documents presented to it under such Letter of Credit as to any and all
matters set forth therein without further investigation and regardless of any
notice or information to the contrary, and such reliance and payment against
documents presented under a Letter of Credit substantially complying with the
terms thereof shall not be deemed gross negligence or wilful misconduct of the
Agent in connection with such payment.
9.6 Successors and Assigns. (a) This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that no Borrower may, without the prior consent of the
Banks, assign its rights or obligations hereunder or under the Notes and the
Banks shall not be obligated to make any Loan hereunder to any entity other than
the Borrowers.
(b) Any Bank may, with the prior consent of the Company (which consent
may be withheld in the sole discretion of the Company), sell to any financial
institution or institutions, and such financial institution or institutions may
further sell, a participation interest (undivided or divided) in, the Loans and
such Bank's rights and benefits under this Agreement and the Notes, and to the
extent of that participation interest such participant or participants shall
have the same rights and benefits against the Borrowers under Section 3.7, 3.9
and 6.2(c) as it or they would have had if such participant or participants were
the Bank making the Loans to the Borrowers hereunder, provided, however, that
(i) such Bank's obligations under this Agreement shall remain unmodified and
fully effective and enforceable against such Bank, (ii) such Bank shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Bank shall remain the holder of its Notes for all
purposes of this Agreement, (iv) the Borrowers, the Agent and the other Banks
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement, and (v) such Bank shall
not grant to its participant any rights to consent or withhold consent to any
action taken by such Bank or
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the Agent under this Agreement other than action requiring the consent of all of
the Banks hereunder.
(c) The Agent from time to time in its sole discretion may appoint
agents for the purpose of servicing and administering this Agreement and the
transactions contemplated hereby and enforcing or exercising any rights or
remedies of the Agent provided under this Agreement, the Notes or otherwise. In
furtherance of such agency, the Agent may from time to time direct that the
Borrowers provide notices, reports and other documents contemplated by this
Agreement (or duplicates thereof) to such agent. Each Borrower hereby consents
to the appointment of such agent and agrees to provide all such notices, reports
and other documents and to otherwise deal with such agent acting on behalf of
the Agent in the same manner as would be required if dealing with the Agent
itself.
(d) Each Bank may, with the prior consent of the Company (which
consent may be withheld in the sole discretion of the Company) and the Required
Banks, assign to one or more banks or other entities all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the Loans owing to it and the Note or Notes held
by it); provided, however, that (i) each such assignment shall be of a uniform,
and not a varying, percentage of all rights and obligations, (ii) except in the
case of an assignment of all of a Bank's rights and obligations under this
Agreement, (A) the amount of the Commitment of the assigning Bank being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$5,000,000, and in integral multiples of $1,000,000 thereafter, or such lesser
amount as the Company and the Agent may consent to and (B) after giving effect
to each such assignment, the amount of the Commitment of the assigning Bank
shall in no event be less than $3,000,000, (iii) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance in the form of Exhibit K
hereto (an "Assignment and Acceptance"), together with any Note or Notes subject
to such assignment and a processing and recordation fee of $3,000, and (iv) any
Bank may without the consent of the Company or the Agent, and without paying any
fee, assign or sell a participation interest to any Affiliate of such Bank that
is a bank or financial institution all or
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a portion of its rights and obligations under this Agreement. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in such Assignment and Acceptance, (x) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Bank hereunder and (y) the Bank assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto).
(e) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to the financial condition of any Borrower or the
performance or observance by any Borrower of any of its obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.6 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Agent, such
assigning Bank or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably
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incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Bank.
(f) The Agent shall maintain at its address designated on the
signature pages hereof a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the Loans owing to,
each Bank from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and the
Company, the Borrowing Subsidiaries, the Agent and the Banks may treat each
person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Company or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(g) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee, together with any Note or Notes subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Company. Within five Business Days after its receipt of such
notice, the Borrowers, at their own expense, shall execute and deliver to the
Agent in exchange for the surrendered Note or Notes a new Note to the order of
such assignee in an amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Bank has retained a
Commitment hereunder, a new Note to the order of the assigning Bank in an amount
equal to the Commitment retained by it hereunder. Such new Note or Notes shall
be in an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note or Notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
Exhibit K hereto.
(h) No Borrower shall be liable for any costs or expenses of any Bank
in effectuating any participation or assignment under this Section 9.6.
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(i) The Banks may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 9.6, disclose
to the assignee or participant or proposed assignee or participant any
information relating to the Borrowers.
(j) Notwithstanding any other provision set forth in this Agreement,
any Bank may at any time create a security interest in, or assign, all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System; provided that such creation of a security interest or
assignment shall not release such Bank from its obligations under this
Agreement.
9.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
9.8 Governing Law; Consent to Jurisdiction. This Agreement is a
contract made under, and shall be governed by and construed in accordance with,
the law of the State of Michigan applicable to contracts made and to be
performed entirely within such State and without giving effect to choice of law
principles of such State. Each Borrower further agrees that any legal action or
proceeding with respect to this Agreement or the Notes or the transactions
contemplated hereby may be brought in any court of the State of Michigan, or in
any court of the United States of America sitting in Michigan, and each Borrower
hereby irrevocably submits to and accepts generally and unconditionally the
jurisdiction of those courts with respect to its person and property.
9.9 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
9.10 Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable
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whether such action is taken directly or indirectly by such person, whether or
not expressly specified in such provision.
9.11 Integration and Severability. This Agreement and the Notes
embody the entire agreement and understanding between the Borrowers and the
Agent and the Banks, and supersede all prior agreements and understandings,
relating to the subject matter hereof. In case any one or more of the
obligations of any Borrower under this Agreement or the Notes shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining obligations of such Borrower and the other
Borrowers shall not in any way be affected or impaired thereby, and such
invalidity, illegality or unenforceability in one jurisdiction shall not affect
the validity, legality or enforceability of the obligations of the Borrowers
under this Agreement or the Notes in any other jurisdiction.
9.12 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that it would be permitted by an
exception to, or would be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or such condition exists.
9.13 Interest Rate Limitation. Notwithstanding any provisions of
this Agreement or the Notes, in no event shall the amount of interest paid or
agreed to be paid by any Borrower exceed an amount computed at the highest rate
of interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Agreement or the Notes at the
time performance of such provision shall be due, shall involve exceeding the
interest rate limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be
fulfilled shall be reduced to an amount computed at the highest rate of interest
permissible under applicable law, and if for any reason whatsoever any Bank
shall ever receive as interest an amount which would be deemed unlawful under
such applicable law such interest shall be automatically applied to the payment
of principal of such Bank's Advances outstanding hereunder (whether or not then
due and payable) and not to the payment of interest, or shall be
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refunded to the Borrowers if such principal and all other obligations of the
Borrowers to such Bank have been paid in full.
9.14 Joint Obligations; Contribution Rights; Savings Clause. (a)
Notwithstanding anything to the contrary set forth herein or in any Note, the
obligations of the Borrowers hereunder and under the Notes are joint.
(b) If any Borrower makes a payment in respect of the Bank Obligations
it shall have the rights of contribution set forth below against the other
Borrowers; provided that such Borrower shall not exercise its right of
contribution until all the Bank Obligations shall have been paid in full. If
any Borrower makes a payment in respect of the Bank Obligations that is smaller
in proportion to its Payment Share (as hereinafter defined) than such payments
made by the other Borrowers are in proportion to the amounts of their respective
Payment Shares, the Borrower making such proportionately smaller payment shall,
when permitted by the preceding sentence, pay to the other Borrowers an amount
such that the net payments made by the Borrower in respect of the Bank
Obligations shall be shared among the Borrowers pro rata in proportion to their
respective Payment Shares. If any Borrower receives any payment that is greater
in proportion to the amount of its Payment Shares than the payments received by
the other Borrowers are in proportion to the amounts of their respective Payment
Shares, the Borrower receiving such proportionately greater payment shall, when
permitted by the second preceding sentence, pay to the other Borrowers an amount
such that the payments received by the Borrowers shall be shared among the
Borrowers pro rata in proportion to their respective Payment Shares.
Notwithstanding anything to the contrary contained in this paragraph or in this
Agreement, no liability or obligation of any Borrower that shall accrue pursuant
to this paragraph shall be paid nor shall it be deemed owed pursuant to this
paragraph until all of the Bank Obligations shall be paid in full.
For purposes hereof, the "Payment Share" of each Borrower shall be the
sum of (a) the aggregate proceeds of the Bank Obligations received by such
Borrower (and, if received subject to a repayment obligation remaining unpaid on
the Obligation Date, as hereinafter defined), plus (b) the product of (i) the
aggregate Bank Obligations remaining unpaid on the date such Bank Obligations
become due and
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payable in full, whether by stated maturity, acceleration, or otherwise (the
"Obligation Date") reduced by the amount of such Bank Obligations attributed to
Borrowers pursuant to clause (a) above, times (ii) a fraction, the numerator of
which is such Borrower's net worth on the effective date of this Agreement
(determined as of the end of the immediately preceding fiscal reporting period
of the Borrower), and the denominator of which is the aggregate net worth of all
Borrowers on such effective date.
(c) It is the intent of each Borrower, the Agent and the Banks that
each Borrower's maximum Bank Obligations shall be in, but not in excess of:
(i) in a case or proceeding commenced by or against such Borrower
under the Bankruptcy Code on or within one year from the date on which any of
the Bank Obligations are incurred, the maximum amount that would not otherwise
cause the Bank Obligations (or any other obligations of such Borrower to the
Agent and the Banks) to be avoidable or unenforceable against such Borrower
under (A) Section 548 of the Bankruptcy Code or (B) any state fraudulent
transfer or fraudulent conveyance act or statute applied in such case or
proceeding by virtue of Section 544 of the Bankruptcy Code; or
(ii) in a case or proceeding commenced by or against such Borrower
under the Bankruptcy Code subsequent to one year from the date on which any of
the Bank Obligations are incurred, the maximum amount that would not otherwise
cause the Bank Obligations (or any other obligations of such Borrower to the
Agent and the Banks) to be avoidable or unenforceable against such Borrower
under any state fraudulent transfer or fraudulent conveyance act or statute
applied in any such case or proceeding by virtue of Section 544 of the
Bankruptcy Code;
(iii) in a case or proceeding commenced by or against such Borrower
under any law, statute or regulation other than the Bankruptcy Code (including,
without limitation, any other bankruptcy, reorganization, arrangement,
moratorium, readjustment of debt, dissolution, liquidation or similar debtor
relief laws), the maximum amount that would not otherwise cause the Bank
Obligations (or any other obligations of such Borrower to the Agent and the
Banks) to be avoidable or unenforceable against such Borrower under such law,
statute or regulation including, without limitation, any state fraudulent
transfer or
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fraudulent conveyance act or statute applied in any such case or proceeding.
(d) The Borrowers acknowledge and agree that they have requested that
the Banks make credit available to the Borrowers with each Borrowing Subsidiary
expecting to derive benefit, directly and indirectly, from the loans and other
credit extended by the Banks to the Borrowers.
9.15 Confidentiality. The Banks and the Agent shall hold all
confidential information obtained pursuant to the requirements of this Agreement
which has been identified as such by the Company in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to its examiners, affiliates, outside auditors, counsel and other
professional advisors in connection with this Agreement or as reasonably
required by any bona fide transferee or participant in connection with the
contemplated transfer of any Note or participation therein or as required or
requested by any governmental agency or representative thereof or pursuant to
legal process. Without limiting the foregoing, it is expressly understood that
such confidential information shall not include information which, at the time
of disclosure is in the public domain or, which after disclosure, becomes part
of the public domain or information which is obtained by any Bank or the Agent
prior to the time of disclosure and identification by the Company under this
Section, or information received by any Bank or the Agent from a third party.
Nothing in this Section or otherwise shall prohibit any Bank or the Agent from
disclosing any confidential information to the other Banks or the Agent or
render any of them liable in connection with any such disclosure.
9.16 Additional Banks. The Company and the Agent may at any time and
from time to time designate additional financial institutions ("Additional
Banks") to be parties to this Agreement, or any Bank may increase the amount of
its Commitment, provided that the aggregate Commitments of all Additional Banks
plus any increase in the amount of the Commitments of any existing Bank shall
not exceed $50,000,000. Any Additional Bank shall become a party to this
Agreement and be considered a Bank hereunder for all purposes if (a) it shall
agree in writing to be bound by all of the terms and provisions of this
Agreement,
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such agreement to specify the amount of the Commitment of such Additional Bank
and to be otherwise in form and substance satisfactory to the Company and the
Agent, (b) it shall make Advances to the Borrowers in the principal amount which
bears the same ratio to the amounts of the Advances of the other Banks then
outstanding as the Commitment of such Additional Bank bears to the then
Commitments of such other Banks, and (c) a copy of such agreement and evidence
satisfactory to the Agent of the making of such Advances shall be furnished to
the Banks.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered on the _____ day of July, 1994, which shall be
the Effective Date of this Agreement, notwithstanding the day and year first
above written.
HANDLEMAN COMPANY
By: _____________________________
Its: ____________________________
Address for Notices: NBD BANK, N.A., as a Bank and as Agent
611 Woodward Avenue By: _____________________________
Detroit, Michigan 48226
Attention: Richard H. Huttenlocher Its: ____________________________
Vice President
Facsimile No.: (313) 225-2747
Telephone No.: (313) 225-2259
Commitment Amount: $85,000,000
Initial Percentage of
Total Commitments: 34%
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Address for Notices: COMERICA BANK
500 Woodward Avenue, 8th Floor By: _____________________________
Detroit, Michigan 48226
Attention: Mr. David C. Bird Its: ___________________________
Vice President
Facsimile No.: (313) 222-9516
Telephone No.: (313) 222-5060
Commitment Amount: $58,000,000
Initial Percentage of
Total Commitments: 23.2%
Address for Notices: PNC BANK, NATIONAL ASSOCIATION
500 West Madison Street By: _____________________________
Suite 3410
Chicago, Illinois 60606 Its: __________________________
Attention: Mr. John F. Broeren
Facsimile No.: (312) 906-3420
Telephone No.: (312) 906-3424
Commitment Amount: $30,000,000
Initial Percentage of
Total Commitments: 12%
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Address for Notices: UNITED STATES NATIONAL BANK
OF OREGON
309 S.W. Sixth Avenue By: _____________________________
Portland, Oregon 97208
Attention: Ms. Clara Jones Its: __________________________
Facsimile No.: (503) 275-5428
Telephone No.: (503) 275-3192
Commitment Amount: $25,000,000
Initial Percentage of
Total Commitments: 10%
Address for Notices: ROYAL BANK OF CANADA,
Grand Cayman (North America
No. 1) Branch
Pierrepont Plaza
300 Codman Plaza, 15th Floor
Brooklyn, New York 11201-2701 By: _____________________________
Attention: Loans Administration Its:___________________________
Facsimile No.: (718) 522-____
Telephone No.: (212) 858-7183
With a Copy to:
One North Franklin
Suite 700
Chicago, Illinois 60606
Attention: Ms. Pat Herbig
Facsimile No.: (312) 551-0805
Telephone No.: (312) 551-1616
Commitment Amount: $20,000,000
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Initial Percentage of
Total Commitments: 8%
Address for Notices: TRUST COMPANY BANK
25 Park Place-Mail Code 124 By: _____________________________
Atlanta, Georgia 30303
Attention: Mr. John Vincent Its: __________________________
Facsimile No.: (404) 827-6270
Telephone No.: (404) 588-7794 By: _____________________________
Commitment Amount: $20,000,000 Its: __________________________
Initial Percentage of
Total Commitments: 8%
Address for Notices: THE FIFTH THIRD BANK
38 Fountain Square Plaza By: _____________________________
Dept. #00752
Cincinnati, Ohio 45263 Its: __________________________
Attention: Mr. Andrew Hauck
Facsimile No.: (513) 579-5226
Telephone No.: (513) 579-4104
Commitment Amount: $12,000,000
Initial Percentage of
Total Commitments: 4.8%
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AGREEMENT
---------
Reference is made to the Credit Agreement dated as of July 12, 1994
(as now or hereafter amended or modified from time to time, the "Credit
Agreement") among HANDLEMAN COMPANY, a Michigan corporation (the "Company"),
certain borrowing subsidiaries designated therein from time to time (the
"Borrowing Subsidiaries, and collectively with the Company, the "Borrowers"),
the banks named therein (the "Banks") and NBD BANK, formerly known as NBD Bank,
N.A., as agent for the Banks (the "Agent"). Terms defined in the Credit
Agreement are used herein with the same meaning.
1. North Coast Entertainment, Inc., a Michigan corporation (the "New
Borrowing Subsidiary") has decided to become a Borrowing Subsidiary under the
Credit Agreement, with its address for notice as described next to its signature
below. The New Borrowing Subsidiary (i) confirms that it has received a copy of
the Credit Agreement, together with copies of documents and information as it
has deemed appropriate to make its own decision to enter into this Agreement;
(ii) agrees that it will perform in accordance with all of the obligations and
comply with all of the covenants that by the terms of the Credit Agreement and
the other Loan Documents are required to be performed by or complied with by it
as a Borrowing Subsidiary; (iii) confirms that the representations and
warranties contained in Article IV of the Credit Agreement and in any other
Credit Agreement applicable to a Borrowing Subsidiary are true and correct as of
the date hereof as to the New Borrowing Subsidiary.
2. Upon execution and delivery of this Agreement by the Company, the
New Borrowing Subsidiary and the Required Banks to the Agent together with all
other items required pursuant to paragraph 3, the New Borrowing Subsidiary shall
be a party to the Credit Agreement and have the rights and obligations of a
Borrowing Subsidiary thereunder.
3. This Agreement shall not become effective and the New Borrowing
Subsidiary shall not become a Borrowing Subsidiary under the Credit Agreement
until receipt by the Agent of the following documents and completion of the
following matters, in form and substance reasonably satisfactory to the Agent:
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(a) A certificate of incumbency of the New Borrowing Subsidiary
containing, and attesting to the genuineness of, the signatures of those
officers authorized to act on behalf of the New Borrowing Subsidiary in
connection with this Agreement, the Credit Agreement and the Notes and the
consummation by the New Borrowing Subsidiary of the transactions contemplated
herein, certified as true and correct as of the effective date of this Agreement
by a duly authorized officer of the New Borrowing Subsidiary and the Company,
respectively;
(b) The Notes, duly executed on behalf of the Company and the New
Borrowing Subsidiary, for each Bank; and
(c) This Agreement duly executed on behalf of the New Borrowing
Subsidiary, the Company and the Required Banks.
4. The Company (a) fully consents to the New Borrowing Subsidiary
becoming a Borrowing Subsidiary; (b) agrees that the Guaranty contained in
Article VIII of the Credit Agreement with respect to the indebtedness,
obligations and liabilities of the Borrowing Subsidiaries in favor of the Agent
and the Banks is ratified and confirmed and shall remain in full force and
effect; and (c) confirms that all indebtedness, obligations and liabilities of
the Borrowing Subsidiaries, including the New Borrowing Subsidiary, outstanding
to the Banks under the Loan Documents are guaranteed by the Guaranty.
5. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Michigan.
6. This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
7. Each of the undersigned Banks below consents to the New Borrowing
Subsidiary becoming a Borrowing Subsidiary under the Credit Agreement. Upon
delivery of this executed Agreement to the Agent, the Agent shall deliver a copy
of this Agreement to each Bank, together with the original Notes payable to each
such Bank.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officer thereunto duly authorized as of the
____ day of February, 1995.
500 Kirts Blvd. NORTH COAST ENTERTAINMENT, INC.
Troy, Michigan 48084
Attention: Richard J. Morris By:______________________________________
Facsimile No. (810) 362-3656
Its:____________________________________
HANDLEMAN COMPANY
By:_____________________________________
Its:___________________________________
NBD BANK, formerly known as NBD Bank, N.A.,
as Agent and Individually as a Bank
By: _____________________________________
Its: __________________________________
COMERICA BANK
By: _____________________________________
Its: __________________________________
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PNC BANK, NATIONAL ASSOCIATION
By: _____________________________________
Its: __________________________________
UNITED STATED NATIONAL BANK OF
OREGON
By: _____________________________________
Its: __________________________________
ROYAL BANK OF CANADA, GRAND CAYMAN
(NORTH AMERICA NO. 1) BRANCH
By: _____________________________________
Its: __________________________________
TRUST COMPANY BANK
By: _____________________________________
Its: __________________________________
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THE FIFTH THIRD BANK
By: _____________________________________
Its: __________________________________
Exhibits and Schedules to this Credit Agreement are not attached hereto, but are
available upon request to the Registrant.
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EXHIBIT B
Handleman Company
Note Agreement
Dated as of November 1, 1994
$20,000,000 7.81% Series A Senior Notes
Due April 21, 2000
$55,000,000 8.26% Series B Senior Notes
Due November 18, 2001
$25,000,000 8.59% Series C Senior Notes
Due February 28, 2005
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TABLE OF CONTENTS
(Not a part of the Agreement)
Section Heading Page
Section 1. Description of Notes and Commitment........................ 1
Section 1.1. Description of Notes..................................... 1
Section 1.2. Commitment, Closing Dates................................ 2
Section 1.3. Other Agreements......................................... 3
Section 1.4. Additional Series of Notes............................... 3
Section 2. Prepayment of Notes........................................ 3
Section 2.1. Required Prepayments..................................... 3
Section 2.2. Optional Prepayment With Premium......................... 4
Section 2.3. Prepayment on Change of Control.......................... 4
Section 2.4. Notice of Prepayments.................................... 6
Section 2.5. Allocation of Prepayments................................ 6
Section 2.6. Direct Payment........................................... 6
Section 3. Representations............................................ 7
Section 3.1. Representations of the Company........................... 7
Section 3.2. Representations of the Purchaser......................... 7
Section 4. Closing Conditions......................................... 8
Section 4.1. Conditions............................................... 8
Section 4.2. Waiver of Conditions..................................... 9
Section 5. Company Covenants.......................................... 9
Section 5.1. Corporate Existence, Etc................................. 9
Section 5.2. Insurance................................................ 9
Section 5.3. Taxes, Claims for Labor and Materials,
Compliance with Laws..................................... 10
Section 5.4. Maintenance, Etc......................................... 10
Section 5.5. Nature of Business....................................... 10
Section 5.6. Current Ratio............................................ 10
Section 5.7. Consolidated Net Worth................................... 11
Section 5.8. Consolidated Tangible Net Worth.......................... 11
Section 5.9. Limitations on Funded Debt and Current Debt.............. 11
Section 5.10. Limitation on Liens...................................... 12
Section 5.11. Mergers, Consolidations and Sales of Assets.............. 14
Section 5.12. Guaranties............................................... 15
Section 5.13. Repurchase of Notes...................................... 16
Section 5.14. Transactions with Affiliates............................. 16
Section 5.15. Termination of Pension Plans............................. 16
Section 5.16. Designation of Significant Subsidiaries.................. 16
Section 5.17. Reports and Rights of Inspection......................... 16
Section 6. Events of Default and Remedies Therefor.................... 20
Section 6.1. Events of Default........................................ 20
Section 6.2. Notice to Holders........................................ 21
Section 6.3. Acceleration of Maturities............................... 21
Section 6.4. Rescission of Acceleration............................... 22
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Section 7. Amendments, Waivers and Consents........................... 22
Section 7.1. Consent Required......................................... 22
Section 7.2. Solicitation of Holders.................................. 23
Section 7.3. Effect of Amendment or Waiver............................ 23
Section 8. Interpretation of Agreement................................ 23
Section 8.1. Definitions.............................................. 23
Section 8.2. Accounting Principles.................................... 31
Section 8.3. Directly or Indirectly................................... 31
Section 9. Miscellaneous.............................................. 31
Section 9.1. Registered Notes......................................... 31
Section 9.2. Exchange of Notes........................................ 31
Section 9.3. Loss, Theft, Etc. of Notes............................... 32
Section 9.4. Expenses, Stamp Tax Indemnity............................ 32
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative........ 32
Section 9.6. Notices.................................................. 33
Section 9.7. Successors and Assigns................................... 33
Section 9.8. Survival of Covenants and Representations................ 33
Section 9.9. Severability............................................. 33
Section 9.10. Governing Law............................................ 33
Section 9.11. Captions................................................. 34
Section 9.12. Entire Agreement......................................... 34
Signature Page.................................................................. 35
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Attachments to Note Agreement:
Schedule I - Names and Addresses of Purchasers and Amounts
of Commitments
Schedule II - Liens Securing Funded Debt (including Capitalized
Leases) as of October 1, 1994
Exhibit A-1 - Form of 7.81% Series A Senior Note due April 21, 2000
Exhibit A-2 - Form of 8.26% Series B Senior Note due November 18, 2001
Exhibit A-3 - Form of 8.59% Series C Senior Note due February 28, 2005
Exhibit B - Representations and Warranties of the Company
Exhibit C - Description of Special Counsel's Closing Opinion
Exhibit D - Form of Closing Opinion of Counsel to the Company
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Handleman Company Note Agreement
HANDLEMAN COMPANY
500 KIRTS BOULEVARD
TROY, MICHIGAN 48084-5299
NOTE AGREEMENT
$20,000,000 7.81% Series A Senior Notes
Due April 21, 2000
$55,000,000 8.26% Series B Senior Notes
Due November 18, 2001
$25,000,000 8.59% Series C Senior Notes
Due February 28, 2005
Dated as of
November 1, 1994
To the Purchasers named in Schedule I
hereto which are signatories of this
Agreement
Ladies and Gentlemen:
The undersigned, Handleman Company, a Michigan corporation (the "Company"),
agrees with you as follows:
Section 1. Description of Notes and Commitment.
Section 1.1 Description of Notes;. The Company will authorize the issue
and sale of:
(a) $20,000,000 aggregate principal amount of its 7.81% Series A
Senior Notes (the "Series A Notes") to be dated the date of issue, to bear
interest from such date (computed on the basis of a 360-day year of twelve
30-day months) at the rate of 7.81% per annum, payable quarterly on the
twenty-first day of each January, April, July and October in each year
(commencing July 21, 1995) and at maturity and to bear interest on overdue
principal (including any overdue optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any overdue
installment of interest, at a rate equal to the greater (determined on a
daily basis) of (x) 9.89% per annum, or (y) the rate per annum which NBD
Bank, N.A. (or its successor) announces publicly as its "prime" rate of
interest (or such lesser amount, if any, as may be required by applicable
law), whether by acceleration or otherwise, until paid, to be expressed to
mature on April 21, 2000, and to otherwise be substantially in the form
attached hereto as Exhibit A-1;
(b) $55,000,000 aggregate principal amount of its 8.26% Series B
Senior Notes (the "Series B Notes") to be dated the date of issue, to bear
interest from such date (computed on the basis of a 360-day year of twelve
30-day months) at the rate of 8.26% per
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Handleman Company Note Agreement
annum, payable quarterly on the eighteenth day of each February, May,
August and November in each year (commencing February 18, 1995) and at
maturity and to bear interest on overdue principal (including any overdue
optional prepayment of principal) and premium, if any, and (to the extent
legally enforceable) on any overdue installment of interest, at a rate
equal to the greater (determined on a daily basis) of (x) 10.34% per annum,
or (y) the rate per annum which NBD Bank, N.A. (or its successor) announces
publicly as its "prime" rate of interest (or such lesser amount, if any, as
may be required by applicable law), whether by acceleration or otherwise,
until paid, to be expressed to mature on November 18, 2001, and to
otherwise be substantially in the form attached hereto as Exhibit A-2; and
(c) $25,000,000 aggregate principal amount of its 8.59% Series C
Senior Notes (the "Series C Notes") to be dated the date of issue, to bear
interest from such date (computed on the basis of a 360-day year of twelve
30-day months) at the rate of 8.59% per annum, payable quarterly on the
twenty-eighth day of each February, May, August and November in each year
(commencing May 28, 1995) and at maturity and to bear interest on overdue
principal (including any overdue optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any overdue
installment of interest, at a rate equal to the greater (determined on a
daily basis) of (x) 10.68% per annum, or (y) the rate per annum which NBD
Bank, N.A. (or its successor) announces publicly as its "prime" rate of
interest (or such lesser amount, if any, as may be required by applicable
law), whether by acceleration or otherwise, until paid, to be expressed to
mature on February 28, 2005 and to otherwise be substantially in the form
attached hereto as Exhibit A-3.
The Series A Notes, the Series B Notes and the Series C Notes are hereinafter
sometimes collectively referred to as the "Notes"; and the term "Series" shall
include all of the Series A Notes, all of the Series B Notes or, as the case may
be, all of the Series C Notes. The Notes are not subject to prepayment or
redemption at the option of the Company prior to their expressed maturity dates
except on the terms and conditions and in the amounts and with the premium, if
any, set forth in (S)2 of this Agreement. You and the other purchasers named in
Schedule I are hereinafter sometimes referred to as the "Purchasers".
'Section 1.2. Commitment, Closing Dates';. Subject to the terms
and conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to you, and you
agree to purchase from the Company, on the respective Closing Dates hereafter
mentioned and at a price of 100% of the principal amount thereof, Notes of the
Series and in the principal amount set forth opposite your name on Schedule I.
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Handleman Company Note Agreement
The Notes of the Series set forth opposite your name on Schedule I
hereto will be delivered to you on the following dates: the Series B Notes
shall be delivered on November 18, 1994 or such other date as shall be mutually
agreed upon by the Company and the Purchasers of the Series B Notes (the "First
Closing Date"); the Series C Notes shall be delivered on February 28, 1995 or
such other date as shall be mutually agreed upon by the Company and the
Purchasers of the Series C Notes (the "Second Closing Date"); and the Series A
Notes shall be delivered on April 21, 1995 or such other date as shall be
mutually agreed upon by the Company and the Purchasers of the Series A Notes
(the "Third Closing Date" and collectively with the First Closing Date and the
Second Closing Date, the "Closing Dates"). Delivery of the Notes will be made
at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois
60603, against payment therefor in Federal Reserve or other funds current and
immediately available in the Company's Account No. 020-98-63 at NBD Bank, N.A.
in Detroit, Michigan (ABA No. 072000326) in the amount of the purchase price at
10:00 A.M., Troy, Michigan time, on the relevant Closing Date. The Notes
delivered to you on the relevant Closing Date will be delivered to you in the
form of a single registered Note for the full amount of your purchase (unless
different denominations are specified by you), registered in your name or in the
name of such nominee as you may specify at any time prior to the date fixed for
delivery.
Section 1.3. Other Agreements;. Simultaneously with the execution and
delivery of this Agreement, the Company is entering into identical agreements
(other than signature lines of the Purchasers) with each of the other Purchasers
under which such other Purchasers agree to purchase from the Company the
principal amount of Notes set opposite such Purchasers' names in Schedule I, and
your obligation and the obligations of the Company hereunder are subject to the
execution and delivery of such agreements by the other Purchasers. This
Agreement and such agreements with the other Purchasers are herein collectively
referred to as the "Agreements". The obligations of each Purchaser shall be
several and not joint and no Purchaser shall be liable or responsible for the
acts of any other Purchaser.
Section 1.4. Additional Series of Notes;. The Company may, from
time to time, issue and sell additional series of its unsecured promissory notes
and may, in connection with the documentation thereof, incorporate by reference
various provisions of this Agreement. Such incorporation by reference shall not
dilute or otherwise affect the relative priority or other rights of the holders
of the Notes hereunder including, without limitation, the percentages of these
Notes required to approve an amendment or effectuate a waiver under the
provisions of Section 7 or the percentages of these Notes required to accelerate
the Notes or rescind such an acceleration under the provisions of Section 6.
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Section 2. Prepayment of Notes;.
Section 2.1. Required Prepayments;. (a) The Company agrees that:
(i) on April 21 in each year commencing April 21, 1996 and ending
April 21, 1999, both inclusive, the Company will pay and apply and there
shall become due and payable on the principal indebtedness evidenced by the
Series A Notes an amount equal to the lesser of (x) $4,000,000 or (y) the
principal amount of the Series A Notes then outstanding. The entire
remaining principal amount of the Series A Notes shall become due and
payable on April 21, 2000.
(ii) on November 18 in each year commencing November 18, 1997 and
ending November 18, 2000, both inclusive, the Company will pay and apply
and there shall become due and payable on the principal indebtedness
evidenced by the Series B Notes an amount equal to the lesser of (x)
$11,000,000 or (y) the principal amount of the Series B Notes then
outstanding. The entire remaining principal amount of the Series B Notes
shall become due and payable on November 18, 2001.
(iii) on February 28 in each year commencing February 28, 1999 and
ending February 28, 2004, both inclusive, the Company will pay and apply
and there shall become due and payable on the principal indebtedness
evidenced by the Series C Notes an amount equal to the lesser of (x)
$3,571,429 or (y) the principal amount of the Series C Notes then
outstanding. The entire remaining principal amount of the Series C Notes
shall become due and payable on February 28, 2005.
No premium shall be payable in connection with any required prepayment made
pursuant to this (S)2.1.
(b) For purposes of this (S)2.1, (i) any prepayment of less than all of
the outstanding Notes of any Series pursuant to (S)2.2 shall be deemed to be
applied first to the amount of principal scheduled to remain unpaid at the final
maturity of the Notes of such Series, and then to the remaining scheduled
principal payments on the Notes of such Series in inverse chronological order,
and (ii) any prepayment pursuant to (S)2.3, or any purchase, redemption,
retirement or other acquisition by the Company or any Subsidiary or Affiliate of
less than all of the outstanding Notes of a Series shall reduce the amount of
the payment required at the final maturity of the Notes of such Series and each
prepayment required to be made pursuant to this (S)2.1 on the Notes of such
Series in the proportion that the principal amount of such purchase, redemption,
retirement or other acquisition bears to the unpaid principal amount of the
Notes of such Series immediately prior to such purchase, redemption, retirement
or other acquisition (after giving effect to any prepayment on the Notes of such
Series made pursuant to this (S)2.1 on the date of such purchase, redemption,
retirement or other acquisition). Upon making any such
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purchase, redemption, retirement or other acquisition of less than all of the
outstanding Notes of a Series, the Company shall provide to each holder of the
Notes of such Series an amortization schedule indicating the date and amount of
each remaining prepayment required pursuant to this (S)2.1.
Section 2.2. Optional Prepayment With Premium;. Upon compliance
with (S)2.4, the Company shall have the privilege, at any time and from time to
time, of prepaying the outstanding Notes, either in whole or in part (but if in
part then in a minimum principal amount of $1,000,000) by payment of the
principal amount of the Notes, or portion thereof to be prepaid, and accrued
interest thereon to the date of such prepayment, together with a premium equal
to the Make-Whole Amount, if any, applicable to the Notes, or portion thereof to
be prepaid.
Section 2.3. Prepayment on Change of Control;. (a) In the event
that a Change of Control shall occur, the Company will give written notice (the
"Company Notice") of such fact not more than 15 business days after such Change
of Control to all holders of the Notes. The Company Notice shall (i) describe
the facts and circumstances of such Change of Control in reasonable detail, (ii)
refer to this (S)2.3 and the rights of the holders hereunder, and (iii) contain
an offer by the Company to prepay all, but not less than all, of the outstanding
Notes in full, together with accrued interest to the date of prepayment. Each
holder of the Notes shall have the right to accept such offer, and have all, but
not less than all, Notes held by such holder prepaid in full, by written notice
to the Company given within 30 days following receipt of the Company Notice. In
the event that any holder of outstanding Notes shall have accepted such offer,
the Company will, within 10 business days following the end of such 30-day
notice period, give notice of prepayment of such accepting holder's Notes
pursuant to the provisions of (S)2.4 and the Company shall prepay all Notes held
by each accepting holder at 100% of the principal amount of such Notes, together
with accrued interest thereon to the date of prepayment.
(b) In the event the Company fails to give the Company Notice as required
above, each holder of Notes shall have the right to require the Company to
prepay all the Notes held by such holder at 100% of the principal amount of such
Notes, with the accrued interest thereon to the date of prepayment and a premium
equal to the Make-Whole Amount, if any, applicable to the Notes to be prepaid.
Written notice of a required prepayment pursuant to this (S)2.3(B) shall be
delivered by any holder of Notes to the Company within 90 days after any
investment officer of such holder has actual knowledge of such Change of
Control. On the date designated in such holder's notice (which shall be no less
than 30 days after the date such notice is delivered to the Company, and shall
not be more than 60 days after the date of such holder's notice) the Company
shall
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prepay the Notes of such holder at 100% of the principal amount thereof,
together with accrued interest thereon to the date of prepayment and a premium
equal to the Make-Whole Amount, if any, applicable to the Notes to be prepaid.
If the holder of any Note gives notice pursuant to this (S)2.3(B), the Company
will give a Company Notice within five business days of receipt of such notice
to all the remaining holders of the Notes.
(c) Whether or not notice has been given pursuant to the provisions of
(S)2.3(A), the Company will promptly provide any holder of a Note with all
information which it may request which is reasonably necessary in order to
enable such holder to evaluate the effect of a Change of Control on such
holder's investment in the Notes.
As used herein the term "Change of Control" shall be deemed to have
occurred at such time or times after the First Closing Date as, during any
period of twelve consecutive months,
(i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "1934
Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act) of 50% or more of the Voting Stock of the Company outstanding on
the date of this Agreement; and
(ii) individuals who at the beginning of such twelve-month period
constitute the Company's Board of Directors cease for any reason to
constitute a majority of the directors then in office.
Section 2.4. Notice of Prepayments;. The Company will give notice of
any prepayment of the Notes pursuant to (S)2.2 or (S)2.3 (to the extent
applicable) to each holder thereof not less than 30 days nor more than 60 days
before the date fixed for such prepayment specifying (i) such date, (ii) the
principal amount of the holder's Notes to be prepaid on such date, (iii) the
estimated Make-Whole Amount, if any, with respect to such holder's Notes and
(iv) the accrued interest applicable to the prepayment. Notice of prepayment
having been so given, the aggregate principal amount of the Notes specified in
such notice, together with accrued interest thereon and the Make-Whole Amount,
if any, payable with respect thereto, shall become due and payable on the
prepayment date specified in such notice. In addition, in the event of any
prepayment pursuant to (S)2.2 or (S)2.3(B), the Company shall, at least three
days prior to the date of such prepayment, provide each holder of a Note written
notice of the Make-Whole Amount, if any, payable in connection with such
prepayment of such holder's Notes including a reasonably detailed computation
thereof.
Section 2.5. Allocation of Prepayments;. All partial prepayments of the
Series A Notes, the Series B Notes or the Series C Notes, as the case may be,
pursuant to (S)2.1 shall be applied on all outstanding Notes of such Series
ratably in accordance with the unpaid principal amounts thereof. All partial
prepayments pursuant to the provisions of (S)2.2 shall be applied on all
outstanding Notes (without regard to the Series thereof)
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ratably in accordance with the unpaid principal amounts thereof. All partial
prepayments pursuant to the provisions of (S)2.3 shall be allocated as therein
provided.
Section 2.6. Direct Payment;. Notwithstanding anything to the
contrary contained in this Agreement or the Notes, in the case of any Note owned
by you or your nominee, or owned by any subsequent Institutional Holder which
has given written notice to the Company requesting that the provisions of this
(S)2.6 shall apply, the Company will punctually pay when due the principal
thereof, interest thereon and premium, if any, due with respect to said
principal, without any presentment thereof, directly to you, to your nominee or
to such subsequent Institutional Holder at your address or your nominee's
address set forth in Schedule I hereto or such other address as you, your
nominee or such subsequent Institutional Holder may from time to time designate
in writing to the Company or, if a bank account with a United States bank is
designated for you or your nominee on Schedule I hereto or in any written notice
to the Company from you, from your nominee or from any such subsequent
Institutional Holder, the Company will make such payments in immediately
available funds (which wire transfer shall be initiated by the transmitting bank
not later than 11:00 A.M., Detroit, Michigan time, on the date such payment is
due), to such bank account, marked for attention as indicated, or in such other
manner or to such other account in any bank in the United States as you, your
nominee or any such subsequent Institutional Holder may from time to time direct
in writing. You and any subsequent Institutional Holder of any Notes to which
this (S)2.6 applies agree that in the event that you or it shall sell or
transfer any such Notes you or it will, prior to the delivery of such Notes
(unless you or it have already done so), make a notation thereon of all
principal, if any, prepaid on such Notes and will also note thereon the date to
which interest has been paid on such Notes. With respect to any Notes to which
this (S)2.6 applies, the Company shall be entitled to presume conclusively that
you or any subsequent Institutional Holder as shall have requested the
provisions of this (S)2.6 to apply to its Notes remains the holder of such Notes
until such Notes shall have been presented to the Company as evidence of the
transfer of such Notes.
Section 3. Representations;.
Section 3.1. Representations of the Company;. The Company
represents and warrants that all representations and warranties set forth in
Exhibit B are true and correct as of the date hereof and are incorporated herein
by reference with the same force and effect as though herein set forth in full.
Section 3.2. Representations of the Purchaser;. You represent,
and in entering into this Agreement the Company understands, that
(a) you are acquiring the Notes for the purpose of investment and
not with a view to the distribution thereof (as such term is used
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in Section 2(11) of the Securities Act of 1933, as amended) in violation of
the securities laws of the United States or any state thereof; it being
understood, however, that the disposition of your property shall at all
times be and remain within your control;
(b) you have such knowledge and experience in financial and business
matters necessary to evaluate the merits and risks connected with the
purchase of the Notes;
(c) you have had the opportunity to ask questions and receive
answers relating to the sale of the Notes and to obtain information
necessary in order to make your investment decision; and
(d) at least one of the following statements is an accurate
representation as to the source of funds to be used by you to pay the
purchase price of the Notes you are purchasing hereunder:
(i) no part of such funds constitutes assets allocated to any
separate account maintained by you in which any employee benefit plan
(or its related trust) has any interest; or
(ii) to the extent that any part of such funds constitutes
assets allocated to any separate account maintained by you in which
any employee benefit plan (or its related trust) has any interest, (i)
such separate account is a "pooled separate account" within the
meaning of Prohibited Transaction Class Exemption 90-1, as amended, in
which case you have disclosed to the Company the name of each employee
benefit plan whose assets in such separate account exceed 10% of the
total assets or are expected to exceed 10% of the total assets of such
account as of the date of such purchase (and for the purposes of this
paragraph (d), all employee benefit plans maintained by the same
employer or employee organization are deemed to be a single plan), or
(ii) such separate account contains only the assets of a specific
employee benefit plan, complete and accurate information as to the
identity of which you have delivered to the Company.
As used in this (S)3.2, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such terms in
Section 3 of ERISA.
Section 4. Closing Conditions;.
Section 4.1. Conditions;. Your obligation to purchase the Notes
of the Series set forth opposite your name on Schedule I on the relevant Closing
Date shall be subject to the performance by the Company of its agreements
hereunder which by the terms hereof are to be performed at or prior to the time
of delivery of the Notes of such Series and to the following further conditions
precedent:
(a) Closing Certificate. You shall have received a certificate
dated the relevant Closing Date, signed by the President
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or a Vice President of the Company, the truth and accuracy of which shall
be a condition to your obligation to purchase the Notes proposed to be sold
to you on such Closing Date and to the effect that (i) the representations
and warranties of the Company set forth in Exhibit B hereto are true and
correct on and with respect to such Closing Date, (ii) the Company has
performed all of its obligations hereunder which are to be performed on or
prior to (x) such Closing Date and (y) each previous Closing Date, if any,
and (iii) no Default or Event of Default has occurred and is continuing.
(b) Legal Opinions. You shall have received from Chapman and Cutler,
who are acting as your special counsel in this transaction, and from
Honigman Miller Schwartz and Cohn, counsel to the Company, their respective
opinions, each dated the relevant Closing Date, in form and substance
satisfactory to you, and covering the matters set forth in Exhibits C and
D, respectively, hereto.
(c) Related Transactions. The Company shall have consummated the sale
of the entire principal amount of the Notes scheduled to be sold on such
Closing Date and each previous Closing Date, if any, pursuant to this
Agreement and the other agreements referred to in (S)1.3.
(d) Private Placement Numbers. On or prior to the First Closing Date,
appropriate filings shall have been made with Standard & Poor's Corporation
CUSIP Service Bureau, as agent for the National Association of Insurance
Commissioners, in order to obtain a private placement number for each
Series of Notes.
(e) Payment of Certain Fees and Expenses. On each Closing Date, the
Company shall have paid the outstanding reasonable fees and expenses of
Chapman and Cutler, special counsel to the Purchasers, as evidenced by
appropriate bills or invoices.
(f) Satisfactory Proceedings. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all documents
necessary to the consummation thereof, shall be reasonably satisfactory in
form and substance to you and your special counsel, and you shall have
received a copy (executed or certified as may be appropriate) of all legal
documents or proceedings taken in connection with the consummation of said
transactions.
(g) Legality. The Notes purchased by you on the relevant Closing Date
shall qualify on such date as a legal investment under the laws and
regulations of each jurisdiction to which you are subject (without resort
to so called "basket provisions" permitting limited investments by you
without restriction as to the character of a particular investment) and
such purchase shall not subject you to any penalty or other onerous
condition under or pursuant to any applicable law or governmental
regulation; and you shall have received
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such certificates or other evidence as you may reasonably request to
establish compliance with this condition.
Section 4.2. Waiver of Conditions;. If on the relevant Closing Date
the Company fails to tender to you the Notes to be issued to you on such date or
if the conditions specified in (S)4.1 have not been fulfilled, you may thereupon
elect to be relieved of all further obligations under this Agreement. Without
limiting the foregoing, if the conditions specified in (S)4.1 have not been
fulfilled, you may waive compliance by the Company with any such condition to
such extent as you may in your sole discretion determine. Nothing in this
(S)4.2, other than an express waiver by you of compliance by the Company with
any closing condition specified in (S)4.1, shall operate to relieve the Company
of any of its obligations hereunder or to waive any of your rights against the
Company.
Section 5. Company Covenants;.
From and after the First Closing Date and continuing so long as any
amount remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc;. The Company will preserve and
keep in full force and effect, and will cause each Significant Subsidiary to
preserve and keep in full force and effect, its corporate existence and all
licenses and permits necessary to the proper conduct of its business, provided
that the foregoing shall not prevent any transaction permitted by (S)5.11.
Section 5.2. Insurance;. The Company will maintain, and will cause
each Significant Subsidiary to maintain, insurance coverage by financially sound
and reputable insurers in such forms and amounts and against such risks as are
customary for corporations of established reputation engaged in the same or a
similar business and owning and operating similar properties.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws;. The Company will promptly pay and discharge, and will cause each
Significant Subsidiary promptly to pay and discharge, all lawful taxes,
assessments and governmental charges or levies imposed upon the Company or such
Significant Subsidiary, respectively, or upon or in respect of all or any part
of the property or business of the Company or such Significant Subsidiary, all
trade accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid might become a Lien
upon any property of the Company or such Significant Subsidiary; provided the
Company or such Significant Subsidiary shall not be required to pay any such
tax, assessment, charge, levy, account payable or claim if (i) the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any property
of the Company or such Significant Subsidiary or any material interference with
the use thereof by the Company or such Significant Subsidiary, and the Company
or such Significant Subsidiary shall set aside on its books
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reserves deemed by it to be adequate with respect thereto, or (ii) the failure
to pay such tax, assessment, charge, levy, account payable or claim would not,
individually or in the aggregate, have, in the reasonable good faith judgment of
the Company, a material and adverse affect on the properties, business,
prospects, profits or condition of the Company and its Subsidiaries, taken as a
whole. The Company will promptly comply, and will cause each Significant
Subsidiary to comply, with all laws, ordinances or governmental rules and
regulations to which it is subject including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, ERISA and Environmental
Laws, the violation of which could, individually or in the aggregate, materially
and adversely affect the properties, business, prospects, profits or condition
of the Company and its Subsidiaries, taken as a whole, or would result in any
Lien not permitted under (S)5.10.
Section 5.4. Maintenance, Etc;. The Company will maintain, preserve
and keep, and will cause each Significant Subsidiary to maintain, preserve and
keep, its properties which are, individually or in the aggregate, material to
the conduct of its business (whether owned in fee or a leasehold interest) in
good repair and working order and from time to time will make all necessary
repairs, replacements, renewals and additions so that at all times the
efficiency thereof shall be maintained.
Section 5.5. Nature of Business;. (a) Neither the Company nor any
Significant Subsidiary will engage in any business if, as a result, the general
nature of the business, taken on a consolidated basis which would then be
engaged in by the Company and its Significant Subsidiaries would be
substantially changed from the general nature of the business engaged in by the
Company and its Significant Subsidiaries on the date of this Agreement. (b) At
all times after the First Closing Date, Non-Significant Subsidiaries shall not,
in the aggregate, own more than 30% of Consolidated Total Assets.
Section 5.6. Current Ratio; Consolidated Working Capital;. The
Company will at all times keep and maintain either (i) the ratio of Consolidated
Current Assets to Consolidated Current Liabilities at not less than 1.25 to 1.0;
or (ii) Consolidated Working Capital in an amount not less than $100,000,000.
Section 5.7. Consolidated Net Worth;. The Company will at all times
keep and maintain Consolidated Net Worth at an amount not less than the sum of
(i) $244,564,000 plus (ii) 40% of positive Consolidated Net Earnings, if any,
for each of the fiscal years of the Company ending after April 30, 1994.
Section 5.8. Consolidated Tangible Net Worth;. The Company will at
all times keep and maintain Consolidated Tangible Net Worth at an amount not
less than the sum of (i) $189,564,000 plus (ii) 40% of positive
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Consolidated Net Earnings, if any, for each of the fiscal years of the
Company ending after April 30, 1994.
Section 5.9. Limitations on Funded Debt and Current Debt;. (a) The
Company will not, and will not permit any Subsidiary to, create, issue, assume,
guarantee, incur, permit or suffer to exist or in any manner be or become liable
in respect of any Funded Debt or Current Debt, except:
(1) Funded Debt evidenced by the Notes;
(2) Funded Debt of the Company and its Subsidiaries outstanding as
of October 1, 1994 and reflected on Annex 2 to Exhibit B hereof;
(3) Funded Debt of the Company and its Subsidiaries, provided that
at the time of issuance thereof and after giving effect thereto and to the
application of the proceeds thereof,
(A) the aggregate unpaid principal amount of Consolidated Funded
Debt shall not exceed the lesser of (x) 55% of Consolidated Total
Capitalization, and (y) 60% of Consolidated Tangible Capitalization;
and
(B) the sum of (i) the aggregate unpaid principal amount of
Controlled Funded Debt of Subsidiaries plus (ii) the aggregate unpaid
principal amount of all Funded Debt of the Company secured by Liens
permitted by (S)5.10(J) shall not exceed 15% of Consolidated Net
Worth;
(4) unsecured Current Debt of the Company, provided that during the
365-day period immediately preceding the date of any determination
hereunder, there shall have been a period of at least 30 consecutive days
during which either (i) the amount of Current Debt of the Company
outstanding was zero or (ii) after giving effect to the inclusion in the
definition of the term "Funded Debt" of the amounts described in clause
(iv) of the definition of such term set forth in (S)8.1 hereof, the Company
would have been permitted to incur at least $1.00 of additional Funded Debt
pursuant to the provisions of (S)5.9(A)(3);
(5) Funded Debt or Current Debt of a Wholly-owned Subsidiary to the
Company or to another Wholly-owned Subsidiary; and
(6) refundings, renewals or extensions of Funded Debt and Current
Debt permitted by the foregoing clauses (1) through (5) of this (S)5.9
without increase to the aggregate unpaid principal amount outstanding at
the time of such refunding, renewal or extension.
(b) Any corporation which becomes a Subsidiary after the date hereof shall
for all purposes of this (S)5.9 be deemed to have created, issued, assumed or
incurred at the time it becomes a Subsidiary all Funded Debt of such corporation
existing immediately after it becomes a Subsidiary.
Section 5.10. Limitation on Liens;. The Company will not, and will
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not permit any Subsidiary to, create or incur, or suffer to be incurred or to
exist, any Lien on its or their property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations in
priority to the payment of its or their general creditors, or acquire or agree
to acquire, or permit any Subsidiary to acquire, any property or assets upon
conditional sales agreements or other title retention devices, except:
(a) Liens for taxes and assessments or governmental charges or levies
and Liens securing claims or demands of mechanics and materialmen, provided
that payment thereof is not at the time required by (S)5.3;
(b) Liens of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in
respect of which the Company or a Subsidiary shall at any time in good
faith be prosecuting an appeal or proceeding for a review and in respect of
which a stay of execution pending such appeal or proceeding for review
shall have been secured and for which the Company shall have set aside on
its books reserves deemed by it to be adequate;
(c) Liens incidental to the conduct of business or the ownership of
properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's
and attorneys' liens and statutory landlords' liens) and Liens to secure
the performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other Liens of like general nature,
provided that all Liens described in this clause (c) are incurred in the
ordinary course of business and not in connection with the borrowing of
money, and provided further that, in each case, the obligation secured is
not overdue or, if overdue, is being contested in good faith by appropriate
actions or proceedings;
(d) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, not incurred in connection with the borrowing of money, and
which are necessary for the conduct of the activities of the Company and
its Subsidiaries or which customarily exist on properties of corporations
engaged in similar activities and similarly situated and which do not in
any event materially impair their use in the operation of the business of
the Company and its Subsidiaries, taken as a whole;
(e) Liens securing Indebtedness of a Subsidiary to the Company or to
another Subsidiary;
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(f) Liens existing as of October 1, 1994 and reflected in Schedule II
hereto, securing Indebtedness of the Company or any Subsidiary outstanding
on such date;
(g) Liens incurred after the First Closing Date given to secure the
payment of the purchase price incurred in connection with the acquisition
or construction of any real property or fixed assets (the "New Property")
useful and intended to be used in carrying on the business of the Company
or a Subsidiary, including Liens existing on such New Property at the time
of acquisition thereof or at the time of acquisition by the Company or a
Subsidiary of any business entity then owning such New Property, so long as
such existing Liens were not incurred, extended or renewed in contemplation
of such acquisition, provided that (w) the Lien shall attach solely to the
New Property acquired or constructed, (x) at the time of acquisition or
construction of such New Property, the aggregate amount remaining unpaid on
all Indebtedness secured by Liens on such New Property whether or not
assumed by the Company or a Subsidiary shall not exceed 90% (100% in the
case of Capitalized Leases and industrial revenue bond financings) of the
fair market value at the time of acquisition or construction of such New
Property (as determined in good faith by the Board of Directors of the
Company), (y) such Lien is created or assumed with respect to such New
Property at the time of, or within 120 days after, such acquisition or
construction, and (z) all such Indebtedness shall have been incurred within
the applicable limitations provided in (S)5.9;
(h) Liens securing extensions, renewals or refundings of any
Indebtedness secured by a Lien permitted pursuant to the provisions of
clause (f) above, provided that, at the time of such extension, renewal or
refunding and after giving effect thereto and to the application of the
proceeds thereof, (x) the aggregate unpaid principal amount of Indebtedness
of the Company or any Subsidiary which is secured by a Lien pursuant to
this clause (h) shall be not greater than the aggregate unpaid principal
amount of such Indebtedness immediately preceding such extension, renewal
or refunding, and (y) such Lien shall attach solely to the property which
was subject thereto immediately preceding such extension, renewal or
refunding;
(i) The interest of a lessee under any lease of property of the
Company or a Subsidiary entered into by the Company or such Subsidiary, as
lessor, provided that such lease is entered into in the ordinary course of
business of the Company or such Subsidiary; and
(j) Liens in addition to those described in clauses (a) through (i)
above, provided that (x) the sum of (1) the aggregate
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unpaid principal amount of all Controlled Funded Debt of Subsidiaries, plus
(2) the aggregate amount of all Indebtedness of the Company secured by
Liens pursuant to this clause (j) shall not at any time exceed 15% of
Consolidated Net Worth, and (y) all such Indebtedness shall have been
incurred within the applicable limitations provided in (S)5.9.
Section 5.11. Mergers, Consolidations and Sales of Assets;. (a) The
Company will not, and will not permit any Subsidiary to, (i) consolidate with or
into or be a party to a merger with or into any other corporation or (ii) sell,
lease or otherwise dispose of all or any substantial part (as defined in
paragraph (c) of this (S)5.11) of the assets of the Company and its
Subsidiaries, provided that:
(1) any Subsidiary may merge or consolidate with or into the Company
or any Wholly-owned Subsidiary so long as in any merger or consolidation
involving the Company, the Company shall be the surviving or continuing
corporation and in any merger or consolidation not involving the Company, a
Wholly-owned Subsidiary shall be the surviving or continuing corporation;
(2) the Company may consolidate or merge with or into any other
corporation if (i) either (a) the Company shall be the surviving or
continuing corporation, or (b) the surviving or continuing corporation (the
"surviving corporation") is a solvent corporation organized under the laws
of the United States or any state thereof and expressly and unconditionally
assumes in writing the due and punctual performance of all obligations of
the Company hereunder and under the Notes, and (ii) at the time of such
consolidation or merger and after giving effect thereto no Default or Event
of Default shall have occurred and be continuing; and
(3) any such Subsidiary may sell, lease or otherwise dispose of all or
any substantial part of its assets to the Company or any Wholly-owned
Subsidiary.
(b) The Company will not sell, transfer or otherwise dispose of any shares
of stock of any Subsidiary (except to qualify directors) or any Indebtedness of
any Subsidiary, and will not permit any Subsidiary to sell, transfer or
otherwise dispose of (except to the Company or a Wholly-owned Subsidiary) any
shares of stock or any Indebtedness of any other Subsidiary, unless:
(1) the Board of Directors of the Company shall have determined, as
evidenced by a resolution thereof, that the proposed sale, transfer or
disposition of said shares of stock and Indebtedness is in the best
interests of the Company;
(2) said shares of stock and Indebtedness are sold, transferred or
otherwise disposed of to a Person, for a cash consideration and on terms
reasonably deemed by the Board of
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Directors to be adequate and satisfactory;
(3) the Subsidiary being disposed of shall not have any continuing
investment in the Company or any other Subsidiary not being simultaneously
disposed of; and
(4) such sale or other disposition does not involve a substantial part
(as hereinafter defined) of the assets of the Company and its Subsidiaries,
taken as a whole.
(c) As used in this (S)5.11, a sale, lease or other disposition of assets
shall be deemed to be a "substantial part" of the assets of the Company and its
Subsidiaries only if
(i) the book value of such assets, when added to the book value of all
other assets sold, leased or otherwise disposed of by the Company and its
Subsidiaries (other than in the ordinary course of business) during the
365-day period immediately preceding such sale, lease or other disposition,
exceeds 15% of Consolidated Total Assets, or
(ii) the book value of such assets, when added to the book value of
all other assets sold, leased or otherwise disposed of by the Company and
its Subsidiaries (other than in the ordinary course of business) during the
period from and after the First Closing Date to and including the date of
such sale, lease or other disposition, exceeds 25% of Consolidated Total
Assets.
For purposes of the computation of a "substantial part" pursuant to the
requirements of this (S)5.11, the issue or sale by any Subsidiary of any shares
of stock of any class (including any warrants, rights or options to purchase or
otherwise acquire stock or other Securities exchangeable for or convertible into
stock) of such Subsidiary to any Person other than the Company or a Wholly-owned
Subsidiary shall be deemed to be a sale of the assets of such Subsidiary.
Notwithstanding anything to the contrary contained in the foregoing, a
sale, lease or other disposition of assets shall not be included in the
computation of a "substantial part" of the assets of the Company and its
Subsidiaries for purposes of determining compliance with this (S)5.11 if, and to
the extent that, (i) such sale, lease or other disposition of assets is
permitted pursuant to clause (a)(3) of this (S)5.11, or (ii) the net after tax
proceeds from any such sale, lease or other disposition of assets are actually
used, or committed to be used pursuant to the terms of a binding, unconditional
and non-cancellable contract, in Approved Transactions within 365 days from the
respective date of such transaction.
Section 5.12. Guaranties;. The Company will not, and will not permit
any Significant Subsidiary to, become or be liable in respect of any Guaranty
except (i) Guaranties by the Company which are limited in amount to a stated
maximum dollar exposure and included in Current Debt or Funded Debt, (ii)
Guaranties by the Company of obligations incurred by any
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Subsidiary in compliance with (S)5.9(A)(3), or (iii) Guaranties by any
Significant Subsidiary of Funded Debt incurred by the Company in compliance with
(S)5.9(A)(2) or (3) and ranking pari passu with the Notes, so long as such
Significant Subsidiary shall guarantee the Notes equally and ratably and in a
manner reasonably satisfactory to the holders of 66-2/3% of the aggregate
principal amount of Notes then outstanding.
Section 5.13. Repurchase of Notes;. Neither the Company nor any
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase all or any portion of outstanding Notes unless an offer has
been made to repurchase Notes, pro rata, from all holders of outstanding Notes,
without regard to Series, at the same time and upon the same terms (except that
such terms may vary for the Notes of different Series to reflect variations, if
any, in the fair market values of such different Series). In case the Company
repurchases or otherwise acquires any Notes, such Notes shall immediately
thereafter be cancelled and no Notes shall be issued in substitution therefor.
Without limiting the foregoing, upon the purchase or other acquisition of any
Notes by the Company, any Subsidiary or any Affiliate, such Notes shall no
longer be outstanding for purposes of any section of this Agreement relating to
the taking by the holders of the Notes of any actions with respect hereto,
including, without limitation, (S)6.3, (S)6.4 and (S)7.1.
Section 5.14. Transactions with Affiliates;. The Company will not,
and will not permit any Subsidiary to, enter into or be a party to any material
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to, or exchange of property with, or the rendering of
any service by or for, any Affiliate), except in the ordinary course of and
pursuant to the reasonable requirements of the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than would obtain in a comparable arm's-length transaction with
a Person other than an Affiliate.
Section 5.15. Termination of Pension Plans;. The Company will not and
will not permit any Subsidiary to withdraw from any Multiemployer Plan or permit
any employee benefit plan maintained by it to be terminated if such withdrawal
or termination could result in withdrawal liability (as described in Part 1 of
Subtitle E of Title IV of ERISA) or the imposition of a Lien on any property of
the Company or any Subsidiary pursuant to Section 4068 of ERISA.
Section 5.16. Designation of Significant Subsidiaries;. The Company
may designate any Subsidiary (which was not previously designated a Significant
Subsidiary) to be a Significant Subsidiary by giving written notice to each
holder of Notes that the Board of Directors of the Company has made such
designation, provided, however, that no Subsidiary may be designated a
Significant Subsidiary unless, at the time of such action and after giving
effect thereto, (i) the Company would be permitted to incur
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at least $1.00 of additional Funded Debt under the provisions of (S)5.9(A)(3),
and (ii) no Default or Event of Default shall have occurred and be continuing.
Section 5.17. Reports and Rights of Inspection;. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and account
in which entries will be made of all dealings or transactions of, or in relation
to, the business and affairs of the Company or such Subsidiary, in accordance
with GAAP consistently applied (except for changes disclosed in the financial
statements furnished to you pursuant to this (S)5.17 and concurred in by the
independent public accountants referred to in (S)5.17(B) hereof), and will
furnish to you so long as you are either the holder of any Note or are
obligated, pursuant to (S)1.2, to purchase any Note and to each other
Institutional Holder of the then outstanding Notes (in duplicate if so specified
below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any event
within 45 days after the end of each quarterly fiscal period (except the
last) of each fiscal year, copies of:
(1) a consolidated balance sheet of the Company and its
Subsidiaries as of the close of such quarterly fiscal period, setting
forth in comparative form the consolidated figures for the fiscal year
then most recently ended,
(2) consolidated statements of income and retained earnings of
the Company and its Subsidiaries for such quarterly fiscal period and
for the portion of the fiscal year ending with such period, in each
case setting forth in comparative form the consolidated figures for
the corresponding periods of the preceding fiscal year, and
(3) a consolidated statement of cash flows of the Company and its
Subsidiaries for the portion of the fiscal year ending with such
quarterly fiscal period, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding
fiscal year,
all in reasonable detail and certified by an authorized financial officer
of the Company as having been prepared in accordance with GAAP;
(b) Annual Statements. As soon as available and in any event within
120 days after the close of each fiscal year of the Company, copies of:
(1) a consolidated balance sheet of the Company and its
Subsidiaries as of the close of such fiscal year, and
(2) consolidated statements of income and retained earnings and
cash flows of the Company and its Subsidiaries for such fiscal year,
in each case setting forth in comparative form the consolidated
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figures for the preceding fiscal year, all in reasonable detail and
accompanied by a report thereon of a firm of independent public accountants
of recognized national standing selected by the Company to the effect that
the consolidated financial statements present fairly, in all material
respects, the consolidated financial condition of the Company and its
Subsidiaries as of the end of the fiscal year being reported on and the
results of operations and cash flows for said year in conformity with GAAP
and that the examination of such accountants in connection with such
financial statements was made in accordance with generally accepted
auditing standards and included such tests of the accounting records and
such other auditing procedures as said accountants deemed necessary in the
circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of
the Company or any Subsidiary and required to be filed with any securities
exchange or the Securities and Exchange Commission or any successor agency,
or otherwise required to be made public, and any management letter received
from such accountants in connection with such audit;
(d) SEC and Other Reports. Promptly after the distribution, filing or
issuance thereof, one copy of each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally and of each
regular or periodic report, and any registration statement or prospectus
filed by the Company or any Subsidiary with any securities exchange or the
Securities and Exchange Commission or any successor agency, and copies of
any orders in any proceedings (other than proceedings with respect to
litigation in the ordinary course of business of the Company and its
Subsidiaries) to which the Company or any of its Subsidiaries is a party,
issued by any governmental agency, Federal or state, having jurisdiction
over the Company or any of its Subsidiaries;
(e) ERISA Reports. Promptly upon becoming aware thereof, written
notice of (i) a Reportable Event with respect to any Plan; (ii) the
institution of any steps by the Company, any ERISA Affiliate, the PBGC or
any other person to terminate any Plan; (iii) the institution of any steps
by the Company or any ERISA Affiliate to withdraw from any Plan; (iv) a
non-exempt "prohibited transaction" within the meaning of Section 406 of
ERISA in connection with any Plan; (v) any material increase in the
contingent liability of the Company or any Subsidiary with respect to any
post-retirement welfare liability; or (vi) the taking of any action by, or
the threatening of the taking of any action by, the Internal Revenue
Service, the Department of Labor or the PBGC with respect to any of the
foregoing;
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(f) Officers' Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial
officer of the Company stating that such officer has reviewed the
provisions of this Agreement and setting forth: (i) the information and
computations (in sufficient detail) required in order to establish whether
the Company was in compliance with the requirements of (S)5.6 through
(S)5.16 at the end of the period covered by the financial statements then
being furnished, and (ii) whether there existed as of the date of such
financial statements and whether, to the best of such officer's knowledge,
there exists on the date of the certificate or existed at any time during
the period covered by such financial statements any Default or Event of
Default and, if any such condition or event exists on the date of the
certificate, specifying the nature and period of existence thereof and the
action the Company is taking and proposes to take with respect thereto;
(g) Accountants' Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion
with respect to such financial statements, stating that (i) they have
reviewed this Agreement and stating further whether, in making their audit,
such accountants have become aware of any Default or Event of Default under
any of the terms or provisions of this Agreement insofar as any such terms
or provisions pertain to or involve accounting matters or determinations,
and if any such condition or event then exists, specifying the nature and
period of existence thereof, and (ii) the computation by the Company
delivered pursuant to clause (f) hereof (which computation shall accompany
such certificate) conforms with the terms of this Agreement;
(h) Notice of Default or Event of Default. Within 3 business days of
becoming aware of the existence of any condition or event which constitutes
a Default or an Event of Default, a written notice specifying the nature
and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto;
(i) Notice of Claimed Default. Immediately upon becoming aware that
the holder of any Note or any holder or holders of any evidences of
indebtedness for borrowed money of the Company or any Subsidiary
aggregating in excess of $5,000,000 has or have given notice or taken any
other action with respect to a claimed default or Event of Default, a
written notice specifying the notice given or action taken by such holder
and the nature of the claimed default or Event of Default and what action
the Company is taking or proposes to take with respect thereto; and
(j) Requested Information. With reasonable promptness, such
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other data and information as you or any such Institutional Holder may
reasonably request.
Without limiting the foregoing, the Company will permit you, so long as you are
the holder of any Note, and each Institutional Holder of the then outstanding
Notes (or such Persons as either you or such Institutional Holder may
designate), to visit and inspect, under the Company's guidance, any of the
properties of the Company or any Subsidiary, to examine all of their books of
account, records, reports and other papers, to make copies and extracts
therefrom and to discuss their respective affairs, finances and accounts with
their respective officers, employees, and independent public accountants (and by
this provision the Company authorizes said accountants to discuss with you the
finances and affairs of the Company and its Subsidiaries) all at such reasonable
times and as often as may be reasonably requested; provided that representatives
selected by the Company may be present during any such visitation or discussion.
The Company shall be required to pay or reimburse you or any other holder for
all reasonable expenses which you or any such holder may incur in connection
with any such visitation or inspection if any Default or Event of Default shall
exist or be continuing at the time of such visitation or inspection.
Section 6. Events of Default and Remedies Therefor;.
Section 6.1. Events of Default;. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any Note when
the same shall have become due and such default shall continue for more
than 3 business days; or
(b) Default shall occur in the making of any payment of the
principal of any Note or premium, if any, thereon at the expressed maturity
or any accelerated maturity date or at any date fixed for prepayment; or
(c) Default shall occur in the observance or performance of any
covenant or agreement contained in (S)5.10 or (S)5.11; or
(d) Default shall occur in the observance or performance of any
covenant or agreement contained in (S)5.6 through (S)5.9 or (S)5.12 through
(S)5.16 which is not remedied within 10 days after the day on which the
Company first receives notice thereof from a holder of a Note; or
(e) Default shall occur in the observance or performance of any
other provision of this Agreement which is not remedied within 30 days
after the day on which the Company first obtains knowledge of such default;
or
(f) Default or defaults shall occur in the making of any payment or
payments of principal, premium, if any, or interest on any Indebtedness of
the Company or any Material Subsidiary having an aggregate unpaid principal
amount in excess of $10,000,000, as and
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when the same shall become due and payable by the lapse of time, by
declaration, by call for redemption or otherwise, and any such default
shall continue beyond the period of grace, if any, allowed with respect
thereto; or
(g) Default or defaults or the happening of any event shall occur,
or any condition shall exist, under any indentures, agreements or other
instruments pursuant to which any Indebtedness of the Company or any
Material Subsidiary having an aggregate unpaid principal amount in excess
of $10,000,000 is outstanding and such default or defaults, event or
condition (i) shall constitute a circumstance which with the lapse of time
or giving of notice or both would permit the acceleration of such
Indebtedness and (ii) shall continue (x) for a period of time sufficient to
permit the acceleration of such Indebtedness or (y) if shorter, 30 days; or
(h) Any representation or warranty made by the Company herein, or
made by the Company in any statement or certificate furnished by the
Company in connection with the consummation of the issuance and delivery of
the Notes or furnished by the Company pursuant hereto, is untrue in any
material respect as of the date of the issuance or making thereof; or
(i) Final judgment or judgments for the payment of money aggregating
in excess of $5,000,000 is or are outstanding against the Company or any
Material Subsidiary or against any property or assets of either and any one
of such judgments has remained unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of 45 days from the date of its entry, or
is not fully insured against within 45 days from the date of its entry by a
reputable insurance company which has acknowledged its obligation for such
judgment; or
(j) A custodian, liquidator, trustee or receiver is appointed for
the Company or any Significant Subsidiary or for the major part of the
property of either and is not discharged within 30 days after such
appointment; or
(k) The Company or any Significant Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any Significant
Subsidiary applies for or consents to the appointment of a custodian,
liquidator, trustee or receiver for the Company or such Significant
Subsidiary or for the major part of the property of either; or
(l) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against
the Company or any Significant Subsidiary and, if instituted against the
Company or any Significant Subsidiary, are consented to
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or are not dismissed within 60 days after such institution.
Section 6.2. Notice to Holders;. When any Event of Default described in
the foregoing (S)6.1 has occurred, or if the holder of any Note or of any other
evidence of Funded Debt or Current Debt of the Company gives any notice or takes
any other action with respect to a claimed default, the Company agrees to give
notice thereof as provided in (S)5.17(H) or (S)5.17(I), as the case may be,
hereof.
Section 6.3. Acceleration of Maturities;. When any Event of Default
described in paragraph (a) or (b) of (S)6.1 has happened and is continuing, any
holder of any Note may, and when any Event of Default described in paragraphs
(c) through (i), inclusive, of (S)6.1 has happened and is continuing, the holder
or holders of 51% or more of the principal amount of the Notes at the time
outstanding may, by notice to the Company, declare the entire principal and all
interest accrued on all Notes to be, and all Notes shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived. When any Event of
Default described in paragraph (j), (k) or (l) of (S)6.1 has occurred, then all
outstanding Notes shall immediately become due and payable without presentment,
demand or notice of any kind. Upon the Notes becoming due and payable as a
result of any Event of Default as aforesaid, the Company will forthwith pay to
the holders of the Notes the entire principal and interest accrued on such Notes
and, in the case of any Event of Default described in paragraphs (a) through
(i), inclusive of (S)6.1, pay to such holders, to the extent not prohibited by
applicable law, an amount as liquidated damages for the loss of the bargain
evidenced hereby (and not as a penalty) equal to the applicable Make-Whole
Amount, determined as of the date on which such Notes shall so become due and
payable. No course of dealing on the part of the holder or holders of any Notes
nor any delay or failure on the part of any holder of Notes to exercise any
right shall operate as a waiver of such right or otherwise prejudice such
holder's rights, powers and remedies. The Company further agrees, to the extent
permitted by law, to pay to the holder or holders of the Notes all costs and
expenses incurred by them in the collection of any Notes upon any default
hereunder or thereon, including reasonable compensation to such holder's or
holders' attorneys for all services rendered in connection therewith.
Section 6.4. Rescission of Acceleration;. The provisions of (S)6.3 are
subject to the condition that if the principal of, and accrued interest on, all
or any outstanding Notes have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in paragraphs (a)
through (k), inclusive, of (S)6.1, the holders of 51% in aggregate principal
amount of the Notes then outstanding may, by written instrument filed with the
Company, rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is
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annulled and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other sums
payable under such Notes and under this Agreement (except any principal,
interest or premium on such Notes which has become due and payable solely
by reason of such declaration under (S)6.3) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have
been made good, cured or waived pursuant to (S)7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
Section 7. Amendments, Waivers and Consents;.
Section 7.1. Consent Required;. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of at least 51% in aggregate principal
amount of outstanding Notes; provided that without the written consent of the
holders of all of the Notes then outstanding, no such amendment or waiver shall
be effective which will change (i) the time of payment of the principal of, or
the interest on, any Note or change the principal amount thereof or change the
rate of interest thereon, (ii) any of the provisions with respect to
prepayments, or (iii) any of the provisions of this (S)7 or (S)6.
In making any determination, prior to the Third Closing Date, of
whether the holders of the requisite percentage of the aggregate principal
amount of the outstanding Notes have given their consent for the purposes of
this (S)7.1, all Notes issued or to be issued pursuant to the provisions of
(S)1.1 shall, to the extent that they have not theretofore been prepaid, be
deemed to be "outstanding," and all such Notes which are to be issued on any
subsequent Closing Date shall be deemed to be held by the Purchaser which has
agreed in (S)1.2 to purchase said Notes on said date.
Section 7.2. Solicitation of Holders;. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each holder of Notes (irrespective of the amount
of Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. The Company will not solicit or request any proposed
amendment of any of the
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provisions of this Agreement or the Notes unless such solicitation or request is
directed to, or requested of, all issues of Notes at the time outstanding. The
Company will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any holder of Notes as consideration for or as an inducement to
entering into by any holder of Notes of any waiver or amendment of any of the
terms and provisions of this Agreement or the Notes unless such remuneration is
concurrently paid to each holder of the Notes (whether or not such holder
consented to such waiver or amendment), on the same terms, ratably to the
holders of all Notes then outstanding.
Section 7.3. Effect of Amendment or Waiver;. Any such amendment or
waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation
not expressly amended or waived or impair any right consequent thereon.
Section 8. Interpretation of Agreement; Definitions;.
Section 8.1. Definitions;. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
"Affiliate" shall mean any Person (other than a Subsidiary) which
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, the Company.
"Approved Transaction" shall mean (i) the purchase, acquisition or
construction of assets which are to be used in the business of the Company
or a Subsidiary, or (ii) the prepayment of unsubordinated Indebtedness for
borrowed money of the Company so long as the Company has prepaid Notes
pursuant to the provisions of (S)2.2 hereof pro rata with all other
unsubordinated Indebtedness for borrowed money then being prepaid.
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated
balance sheet of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Rentals" of any Person shall mean, as of the date of any
determination thereof, the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Change of Control" shall have the meaning set forth in (S)2.3(C).
"Closing Dates" shall have the meaning set forth in (S)1.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Handleman Company, a Michigan corporation, and
any
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Person who succeeds to all, or substantially all, of the assets and
business of Handleman Company.
"Company Notice" shall have the meaning set forth in (S)2.3(A).
"Consolidated Current Assets" and "Consolidated Current Liabilities"
shall mean as of the date of any determination thereof such assets and
liabilities of the Company and its Subsidiaries on a consolidated basis as
shall be determined in accordance with GAAP to constitute current assets
and current liabilities, respectively.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company
and its Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Net Earnings" for any period shall mean the net earnings
of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, but excluding in any event (i)
items deemed extraordinary in accordance with GAAP and (ii) any equity
interest of the Company in the unremitted earnings of any corporation which
is not a Subsidiary.
"Consolidated Net Worth" shall mean, as of the date of any
determination thereof, the Net Worth of the Company and its Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"Consolidated Tangible Capitalization" shall mean, as of the date of
any determination thereof, the sum of (i) Consolidated Tangible Net Worth,
plus (ii) Consolidated Funded Debt.
"Consolidated Tangible Net Worth" shall mean, as of the date of any
determination thereof, Consolidated Net Worth less, without duplication,
the net book value of all assets of the Company and its Subsidiaries which
constitute the following: (i) goodwill, including without limitation, the
excess of cost over book value of any asset, (ii) organization or
experimental expenses, (iii) unamortized debt discount and expense, (iv)
patents, trademarks, trade names and copyrights, (v) deferred taxes and
deferred charges, (vi) franchises, licenses and permits, and (vii) other
assets which are properly classified as "intangible assets" in accordance
with GAAP, other than (xx) licenses giving the Company rights to
manufacture and distribute certain video, music, books and software
products, and (yy) any rights under that certain covenant not to compete
given by William Hall in connection with the acquisition of Sight & Sound
Distribution Co., plus the net book value of the items set forth in clauses
(i) through (vii) above in an amount not to exceed 15% of Consolidated Net
Worth of the Company.
"Consolidated Total Assets" shall mean, as of the date of any
determination thereof, the total amount of all assets of the Company and
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its Subsidiaries determined in accordance with GAAP, as shown on a
consolidated balance sheet of the Company and its Subsidiaries as at the
end of the immediately preceding fiscal year.
"Consolidated Total Capitalization" shall mean, as of the date of any
determination thereof, the sum of (i) Consolidated Net Worth, plus (ii)
Consolidated Funded Debt.
"Consolidated Working Capital" shall mean the excess of Consolidated
Current Assets over Consolidated Current Liabilities.
"Control," "Controls" and "Controlled" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Controlled Funded Debt of Subsidiaries" shall mean all Funded Debt of
Subsidiaries but shall exclude Funded Debt of a Subsidiary resulting from
the guarantee by such Subsidiary of Funded Debt of the Company ranking pari
passu with the Notes, provided that such Subsidiary shall guarantee the
Notes equally and ratably and in a manner reasonably satisfactory to the
holders of 66-2/3% in aggregate principal amount of the Notes then
outstanding.
"Current Debt" of any Person shall mean, as of the date of any
determination thereof, (i) all Indebtedness of such Person for borrowed
money other than Funded Debt of such Person and (ii) Guaranties by such
Person of Current Debt of others.
"Default" shall mean any event or condition, the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute
an Event of Default.
"Environmental Laws" shall mean the Resource Conservation and Recovery
Act of 1976, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, any so-called "Superfund" or "Superlien" law, the
Toxic Substances Control Act, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability or standards of conduct concerning,
public health, safety or the environment, including any of the foregoing
which concerns Hazardous Materials, toxic or dangerous waste, substance or
material, as now or any time hereafter in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to
time. References to sections of ERISA shall be construed to also refer to
any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that
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is, along with the Company, a member of a controlled group of corporations
or a controlled group of trades or businesses, as described in section
414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in (S)6.1.
"First Closing Date" shall have the meaning set forth in (S)1.2.
"Funded Debt" of any Person shall mean (i) all Indebtedness of such
Person for borrowed money or which has been incurred in connection with the
acquisition of assets in each case having a final maturity of one or more
than one year from the date of origin thereof (or which is renewable or
extendible at the option of the obligor for a period or periods more than
one year from the date of origin), but excluding all payments in respect
thereof that are included in Consolidated Current Liabilities, (ii) all
Capitalized Rentals of such Person, (iii) all Guaranties by such Person of
Funded Debt of others, and (iv) in the case of the Company, if, during the
365-day period immediately preceding the date of any determination of
Funded Debt of the Company hereunder, there shall not have been a period of
at least 30 consecutive days during which Current Debt of the Company was
equal to zero, then an amount equal to the highest amount of Current Debt
of the Company outstanding during any period of 30 consecutive days
selected by the Company during such preceding 365-day period.
"GAAP" shall mean generally accepted accounting principles in effect
in the United States on the date of this Agreement.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing, or in effect
guaranteeing, any Indebtedness, dividend or other obligation, of any other
Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (i) to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, (ii) to advance or supply funds (x) for the purchase or payment
of such Indebtedness or obligation, (y) to maintain working capital or
other balance sheet condition or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, (iii)
to lease property or to purchase Securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of the
Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be
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deemed to be Indebtedness equal to the principal amount of such
Indebtedness for borrowed money which has been guaranteed, and a Guaranty
in respect of any other obligation or liability or any dividend shall be
deemed to be Indebtedness equal to the maximum aggregate amount of such
obligation, liability or dividend.
"Hazardous Materials" shall mean any hazardous substance defined as
such in (or for purposes of) any Environmental Law including, without
limitation, crude oil or any fraction thereof not occurring naturally in
the soil or ground water, polychlorinated biphenyls (PCB's), urea
formaldehyde, any radioactive material or asbestos.
"Indebtedness" of any Person shall mean and include all obligations of
such Person which in accordance with GAAP shall be classified upon a
balance sheet of such Person as liabilities of such Person, and in any
event shall include all (i) obligations of such Person for borrowed money
or which has been incurred in connection with the acquisition of property
or assets, (ii) obligations secured by any Lien upon property or assets
owned by such Person, even though such Person has not assumed or become
liable for the payment of such obligations, (iii) obligations created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person, notwithstanding the fact that
the rights and remedies of the seller, lender or lessor under such
agreement in the event of default are limited to repossession or sale of
property, (iv) Capitalized Rentals and (v) Guaranties of obligations of
others of the character referred to in this definition. Notwithstanding
the foregoing, Indebtedness of the Company shall not include the amount of
the unfunded benefit liabilities of the Company determined in accordance
with Section 4001(a)(18) of ERISA.
"Institutional Holder" shall mean any insurance company, bank, savings
and loan association, trust company, investment company, charitable
foundation, employee benefit plan (as defined in ERISA) or other
institutional investor or financial institution.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition
of shares of capital stock, indebtedness or other obligations or Securities
or by loan, advance, capital contribution or otherwise; provided, however,
that "Investments" shall not mean or include routine investments in
property to be used or consumed in the ordinary course of business.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and
including but not limited to the security interest lien arising from a
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mortgage, encumbrance, pledge, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes. The term "Lien"
shall include reservations, exceptions, encroachments, easements, rights-
of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances (including, with respect to stock, stockholder
agreements, voting trust agreements, buy-back agreements and all similar
arrangements) affecting property. For the purposes of this Agreement, the
Company or a Subsidiary shall be deemed to be the owner of any property
which it has acquired or holds subject to a conditional sale agreement,
Capitalized Lease or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a Lien.
"Make-Whole Amount" shall mean, in connection with any prepayment or
acceleration of the Notes of any Series, the excess, if any, of (i) the
aggregate present value as of the date of such prepayment of each dollar of
principal of such Series being prepaid and the amount of interest
(exclusive of interest accrued to the date of prepayment) that would have
been payable in respect of such dollar if such prepayment had not been made
(all taking into account the application of such prepayment required by
(S)2.1), determined by discounting such amounts at the Reinvestment Rate
from the respective dates on which they would have been payable, over (ii)
100% of the principal amount of the outstanding Notes of such Series being
prepaid. If the Reinvestment Rate is equal to or higher than the interest
rate applicable to the Series of Notes then being prepaid, the Make-Whole
Amount with respect to Notes of such Series shall be zero. The Make-Whole
Amount, if any, to be paid in connection with the prepayment of any Notes
shall be determined as of the date three business days prior to the date of
such prepayment. For purposes of any determination of the Make-Whole
Amount:
"Reinvestment Rate" shall mean (a) the sum of (x) 0.50% plus (y) the
yield to maturity for actively traded marketable U.S. Treasury fixed
interest rate securities having a maturity (rounded to the nearest month)
corresponding to the remaining Weighted Average Life to Maturity of the
Series of Notes being prepaid (taking into account the application of such
prepayment required by (S)2.1), as set forth on the page designated "USD"
of the Bloomberg Financial Markets Service (or, if not available, any other
nationally recognized trading screen reporting on-line intraday trading in
United States government securities) at 10:00 A.M. (New York time), or (b)
in the event that no such nationally recognized trading screen reporting
on-line trading in U.S. Treasury fixed interest rate securities is
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Handleman Company Note Agreement
available, "Reinvestment Rate" shall mean the sum of (x) 0.50%, plus (y)
the arithmetic mean of the yields for the two columns under the heading
"Week Ending" published in the Statistical Release under the caption
"Treasury Constant Maturities" for the maturity (rounded to the nearest
month) corresponding to the Weighted Average Life to Maturity of the Series
of Notes being prepaid (taking into account the application of such
prepayment required by (S)2.1). For purposes of (a) and (b) of the
preceding sentence, if no maturity exactly corresponds to such Weighted
Average Life to Maturity of the Series of Notes being prepaid, yields for
the two published maturities most closely corresponding to such Weighted
Average Life to Maturity shall be calculated pursuant to the immediately
preceding sentence and the Reinvestment Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purposes of
calculating the Reinvestment Rate, the most recent Statistical Release
published prior to the date of determination of the Make-Whole Amount shall
be used.
"Statistical Release" shall mean the then most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Federal Reserve System and which
establishes yields on actively traded U.S. Government Securities adjusted
to constant maturities or, if such statistical release is not published at
the time of any determination hereunder, then such other reasonably
comparable index which shall be designated by the holders of 66-2/3% in
aggregate principal amount of the outstanding Notes of each Series.
"Weighted Average Life to Maturity" of the principal amount of the
Notes of the Series being prepaid shall mean, as of the time of any
determination thereof, the number of years obtained by dividing the then
Remaining Dollar-Years of such principal by the aggregate amount of such
principal. The term "Remaining Dollar-Years" of such principal shall mean
the amount obtained by (i) multiplying (x) the remainder of (1) the amount
of principal that would have become due on each scheduled payment date with
respect to the Notes of such Series if such prepayment had not been made,
less (2) the amount of principal on the Notes of such Series scheduled to
become due on such date after giving effect to such prepayment and the
application thereof in accordance with the provisions of (S)2.1, by (y) the
number of years (calculated to the nearest one-twelfth) which will elapse
between the date of determination and such scheduled payment date,
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Handleman Company Note Agreement
and (ii) totaling the products obtained in (i).
"Material Subsidiary" shall mean any Subsidiary having a Net Worth
determined as at the end of the immediately preceding fiscal year of such
Subsidiary that equaled or exceeded $1,000,000.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Net Worth" of any Person shall mean, as of the date of any
determination thereof, the amount of any preferred stock, paid in capital
and similar equity accounts, plus (or minus in the case of a deficit) the
capital surplus and retained earnings of such Person and the amount of any
foreign currency translation adjustment account shown as a capital account
of such Person, but excluding any treasury stock.
"New Property" shall have the meaning set forth in (S)5.10.
"Non-Significant Subsidiary" shall mean any Subsidiary which is not,
at the time of any determination hereunder, a Significant Subsidiary.
"Notes" shall have the meaning set forth in (S)1.1.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to
which the Company or any ERISA Affiliate contributed or is a member or
otherwise may have any liability.
"Purchasers" shall have the meaning set forth in (S)1.1.
"Rentals" shall mean and include, as of the date of any determination
thereof, all fixed payments (including as such all payments which the
lessee is obligated to make to the lessor on termination of the lease or
surrender of the property) payable by the Company or a Subsidiary, as
lessee or sublessee under a lease of real or personal property, but shall
be exclusive of any amounts required to be paid by the Company or a
Subsidiary (whether or not designated as rents or additional rents) on
account of maintenance, repairs and similar charges. Fixed rents under any
so-called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, then currently required to be paid by the lessee
regardless of sales volume or gross revenues.
"Reportable Event" shall have the same meaning as in ERISA.
"Second Closing Date" shall have the meaning set forth in (S)1.2.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Series" shall have the meaning set forth in (S)1.1.
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"Series A Notes" shall have the meaning set forth in (S)1.1.
"Series B Notes" shall have the meaning set forth in (S)1.1.
"Series C Notes" shall have the meaning set forth in (S)1.1.
"Significant Subsidiary" shall mean any Subsidiary having total
assets, determined in accordance with GAAP, which, (a) as at the end of the
immediately preceding fiscal year of the Company equaled or exceeded 10% of
Consolidated Total Assets, or (b) has been designated as a Significant
Subsidiary pursuant to the provisions of (S)5.16.
The term "subsidiary" shall mean, as to any particular parent
corporation, any corporation of which more than 50% (by number of votes) of
the Voting Stock shall be beneficially owned, directly or indirectly, by
such parent corporation. The term "Subsidiary" shall mean any corporation
which is either (i) a subsidiary of the Company or (ii) a corporation of
which 50% (by number of votes) of the Voting Stock shall be beneficially
owned, directly or indirectly, by the Company and which is Controlled by
the Company.
"Third Closing Date" shall have the meaning set forth in (S)1.2.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing
similar functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean
a Subsidiary of which all of the issued and outstanding shares of stock
(except shares required as directors' qualifying shares) and all Funded
Debt and Current Debt shall be owned by the Company and/or one or more of
its Wholly-owned Subsidiaries.
Section 8.2. Accounting Principles;. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
Section 8.3. Directly or Indirectly;. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.
Section 9. Miscellaneous;.
Section 9.1. Registered Notes;. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes,
and the Company will register or transfer or cause to be registered or
transferred as hereinafter provided any Note issued pursuant to this
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Handleman Company Note Agreement
Agreement.
At any time and from time to time the registered holder of any Note which
has been duly registered as hereinabove provided may transfer such Note upon
surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
holder of such Note or its attorney duly authorized in writing.
The Person in whose name any registered Note shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes of this
Agreement. Payment of or on account of the principal, premium, if any, and
interest on any registered Note shall be made to or upon the written order of
such registered holder.
Section 9.2. Exchange of Notes;. At any time and from time to time,
upon not less than ten days' notice to that effect given by the holder of any
Note initially delivered or of any Note substituted therefor pursuant to (S)9.1,
this (S)9.2 or (S)9.3, and, upon surrender of such Note at its office, the
Company will deliver in exchange therefor, without expense to such holder,
except as set forth below, a Note for the same aggregate principal amount as the
then unpaid principal amount of the Note so surrendered, or Notes in the
denomination of $100,000 or any amount in excess thereof as such holder shall
specify, dated as of the date to which interest has been paid on the Note so
surrendered or, if such surrender is prior to the payment of any interest
thereon, then dated as of the date of issue, registered in the name of such
Person or Persons as may be designated by such holder, and otherwise of the same
Series, form and tenor as the Notes so surrendered for exchange. The Company may
require the payment of a sum sufficient to cover any stamp tax or governmental
charge imposed upon such exchange or transfer.
Section 9.3. Loss, Theft, Etc. of Notes;. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the holder
thereof, a new Note, of like Series, form and tenor, in lieu of such lost,
stolen, destroyed or mutilated Note. If the Purchaser or any subsequent
Institutional Holder is the owner of any such lost, stolen or destroyed Note,
then the affidavit of an authorized officer of such owner, setting forth the
fact of loss, theft or destruction and of its ownership of such Note at the time
of such loss, theft or destruction shall be accepted as satisfactory evidence
thereof and
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Handleman Company Note Agreement
no further indemnity shall be required as a condition to the execution and
delivery of a new Note other than the written agreement of such owner to
indemnify the Company.
Section 9.4. Expenses, Stamp Tax Indemnity;. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
directly all of your out-of-pocket expenses in connection with the preparation,
execution and delivery of this Agreement and the transactions contemplated
hereby, including but not limited to the charges and disbursements of your
special counsel, duplicating and printing costs and charges for shipping the
Notes, adequately insured to you at your home office or at such other place as
you may designate, and all such expenses relating to any amendment, waivers or
consents pursuant to the provisions hereof, including, without limitation, any
amendments, waivers, or consents resulting from any work-out, renegotiation or
restructuring relating to the performance by the Company of its obligations
under this Agreement and the Notes. The Company also agrees that it will pay and
save you harmless against any and all liability with respect to stamp and other
taxes, if any, which may be payable or which may be determined to be payable in
connection with the execution and delivery of this Agreement or the Notes (as
opposed to your ownership of the Notes), whether or not any Notes are then
outstanding. The Company agrees to protect and indemnify you against any
liability for any and all brokerage fees and commissions payable or claimed to
be payable to any Person in connection with the transactions contemplated by
this Agreement.
'Section 9.5. Powers and Rights Not Waived; Remedies Cumulative';. No
delay or failure on the part of the holder of any Note in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right, and the rights and remedies of the
holder of any Note are cumulative to, and are not exclusive of, any rights or
remedies any such holder would otherwise have.
Section 9.6. Notices;. All communications provided for hereunder
shall be in writing and deemed effective upon receipt and, if to you, delivered
or mailed prepaid by registered or certified mail or overnight air courier, or
by facsimile communication, in each case addressed to you at your address
appearing on Schedule I to this Agreement or such other address as you or the
subsequent holder of any Note initially issued to you may designate to the
Company in writing, and if to the Company, delivered or mailed by registered or
certified mail or overnight air courier, or by facsimile communication confirmed
by written notice sent by overnight air
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Handleman Company Note Agreement
courier for delivery the day following delivery of notice by facsimile
communication, to the Company at 500 Kirts Boulevard, Troy, Michigan 48084-5299,
Attention: Chief Financial Officer, Facsimile No. (810) 362-3656 or to such
other address as the Company may in writing designate to you or to a subsequent
holder of the Note initially issued to you; provided, however, that a notice to
you by overnight air courier shall only be effective if delivered to you at a
street address designated for such purpose in Schedule I and a notice to you by
facsimile communication shall only be effective if made by confirmed
transmission to you at a telephone number designated for such purpose in
Schedule I and confirmed by written notice sent by overnight air courier for
delivery the day following delivery of notice by facsimile communication, or, in
either case, as you or a subsequent holder of any Note initially issued to you
may designate to the Company in writing.
Section 9.7. Successors and Assigns;. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to your benefit
and to the benefit of your successors and assigns, including each successive
holder or holders of any Notes.
Section 9.8. Survival of Covenants and Representations;. All
covenants, representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with a
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
Section 9.9. Severability;. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it is hereby declared
the intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts, or
portion which may, for any reason, be hereafter declared invalid or
unenforceable.
Section 9.10. Governing Law;. This Agreement and the Notes issued and
sold hereunder shall be governed by and construed in accordance with New York
law.
Section 9.11. Captions;. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
Section 9.12. Entire Agreement;. The parties hereto agree that this
Agreement, together with the Schedules and Exhibits attached hereto, represents
the entire agreement and understanding of the parties hereto with
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Handleman Company Note Agreement
reference to the transactions contemplated herein; and no party shall claim that
any party hereto has any right or obligation regarding the transactions
contemplated herein other than as stated in this Agreement or any amendment
hereto duly adopted pursuant to (S)7.1 hereof. Without limiting the foregoing,
nothing contained in any disclosure document prepared by the Company or in any
other document shall constitute a consent, waiver or agreement of the holders of
the Notes nor may it be used in any manner whatsoever to interpret, modify or
otherwise affect this Agreement.
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Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
[Variation]
By
Its
Page 180 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
Nationwide Life Insurance Company
By
Its
Page 181 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
West Coast Life Insurance
Company
By
Its
Page 182 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
Farmland Life Insurance Company
By
Its
Page 183 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
The Travelers Insurance Company
By
Its
Page 184 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
New York Life Insurance Company
By
Its
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Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
New York Life Insurance and
Annuity Corporation
By
Its
Page 186 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
Principal Mutual Life Insurance
Company
By
Its
By
Its
Page 187 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
The Franklin Life Insurance
Company
By
Its
By
Its
Page 188 of 228
Handleman Company Note Agreement
The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Agreement may be executed in
any number of counterparts, each executed counterpart constituting an original
but all together only one agreement..c4.Signature Page;
Handleman Company
By
Its
Accepted as of November 1, 1994
Teachers Insurance and Annuity
Association of America
By
Its
Page 189 of 228
Name and Address of Purchasers Principal Amount and Series
NATIONWIDE LIFE INSURANCE COMPANY $17,500,000
One Nationwide Plaza Series A
Columbus, Ohio 43215-2220
Telecopier Number: (614) 249-4698
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 7.81% Series A Senior Notes due April 21, 2000, PPN 41025@
AA1, principal, interest or premium") to:
Morgan Guaranty Trust Company of New York
(ABA #021-000-238)
JOURNAL #999-99-024
For the account of Nationwide Life Insurance
Company Custody Account #71615
Attention: Custody Service Department
Notices
All notices of payment or in respect of the Notes and written confirmation of
each such payment to:
Nationwide Life Insurance Company
One Nationwide Plaza--1-32-09
Columbus, Ohio 43215-2220
Attention: Corporate Money Management
All notices and communications other than those in respect to payments to be
addressed:
Nationwide Life Insurance Company
One Nationwide Plaza--1-33-07
Columbus, Ohio 43215-2220
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Page 190 of 228
Attention: Corporate Fixed-Income Securities
Telecopier Number: (614) 249-4553
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 31-4156830
I-3
Page 191 of 228
Name and Address of Purchasers Principal Amount and Series
WEST COAST LIFE INSURANCE COMPANY $2,000,000
343 Sansome Street Series A
San Francisco, CA 94104
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 7.81% Series A Senior Notes due April 21, 2000 PPN 41025@
AA 1, principal, interest or premium") to:
Morgan Guaranty Trust Company of New York
(ABA #021-000-238)
JOURNAL #999-99-024
For the account of West Coast Life Insurance Company
Custody A/C #73290
Attn: Custody Service Department
Notices
All notices of payment, on or in respect of the Notes, and written confirmation
of each such payment to be addressed as first provided above, Attention: Lina
Cruz - Investments.
All notices and communications other than those in respect to payments to be
addressed:
West Coast Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attn: Corporate Fixed-Income Securities
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 94-0971150
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Page 192 of 228
Name and Address Principal Amount
of Purchasers and Series
FARMLAND LIFE INSURANCE COMPANY $500,000
1963 Bell Avenue Series A
Des Moines, Iowa 50315
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 7.81% Series A Senior Notes due April 21, 2000 PPN 41025@
AA 1, principal, interest or premium") to:
Morgan Guaranty Trust Company of New York
ABA #021-000-238
JOURNAL #999-99-024
F/A/O Farmland Life Custody A/C #74879
Attn: Custody Service Dept.
Notices
All notices of payment, on or in respect of the Notes and written confirmation
of each such payment, to be addressed as first provided above, Attention: Paula
Swalve - Investments.
All notices and communications, other than those in respect of payments, to be
addressed:
Farmland Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
Name of Nominee in which Notes are to be issued: None
Taxpayer I. D. Number: 42-0863880
I-5
Page 193 of 228
Name and Address of Purchasers Principal Amount and Series
THE TRAVELERS INSURANCE COMPANY $20,000,000
One Tower Square Series B
Hartford, Connecticut 06183-2030
Attention: Securities Department--
Private Placement Division 9 PB
Telecopier Number: (203) 954-5243
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 8.26% Series B Senior Notes due November 18, 2001, PPN
41025@ AB 9, principal, interest or premium") to:
The Chase Manhattan Bank, N.A. (ABA #021000021)
One Chase Manhattan Plaza
New York, New York 10081
for credit to: The Travelers Insurance Company
Consolidated Private Placement Account
Number 910-2-587434
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payment and written confirmation of each such payment,
to be addressed Attention:
Cashier--Securities Department 10 PB.
Name of Nominee in which Notes are to be issued: Tral & Co
Taxpayer I.D. Number: 06-0566090
I-6
Page 194 of 228
Name and Address of Purchasers Principal Amount and Series
NEW YORK LIFE INSURANCE COMPANY $7,500,000
51 Madison Avenue Series B
New York, New York 10010-1603
Attention: Investment Department,
Private Finance Group, Room 206
Telefacsimile Number: (212) 447-4122
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 8.26% Series B Senior Notes due November 18, 2001, PPN
41025@ AB 9, principal, interest or premium") to:
Morgan Guaranty Trust Company of New York
(ABA #021-000-238)
23 Wall Street
New York, New York 10015
for credit to: New York Life Insurance Company
General Account Number 810-00-000
Notices
All notices and communications regarding unscheduled or optional payments to be
addressed:
New York Life Insurance Company
51 Madison Avenue
New York, New York 10010-1603
Attention: Treasury Department, Securities
Income Section, Room 209
Telefacsimile Number: (212) 576-4296
All other notices and communications to be addressed as first provided above,
with a copy to: Office of the General Counsel, Investment Section, Room 10SB,
Telefacsimile Number
I-7
Page 195 of 228
(212) 576-8340
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-5582869
I-8
Page 196 of 228
Name and Address of Purchasers Principal Amount and Series
NEW YORK LIFE INSURANCE AND $7,500,000
ANNUITY CORPORATION Series B
c/o New York Life Insurance Company
51 Madison Avenue
New York, New York 10010-1603
Attention: Investment Department,
Private Finance Group, Room 206
Telecopier Number: (212) 447-4122
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 8.26% Series B Senior Notes due November 18, 2001 PPN 41025@
AB 9, principal, interest or premium") to:
Chemical Bank (ABA #021-000-128)
New York, New York
for credit to: New York Life Insurance and
Annuity Corporation
General Account Number 008-0-57001
Notices
All notices and communications regarding unscheduled or optional payments to be
addressed:
New York Life Insurance and Annuity Corporation
c/o New York Life Insurance Company
51 Madison Avenue
New York, New York 10010-1603
Attention: Treasury Department
Securities Income Section, Room 209
Telefacsimile Number: (212) 576-4296
All other notices and communications to be addressed as first provided above,
with a copy
I-9
Page 197 of 228
to: Office of the General Counsel, Investment Section, Room 10SB,
Telefacsimile Number: (212) 576-8340
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-3044743
I-10
Page 198 of 228
Name and Address of Purchasers Principal Amount and Series
PRINCIPAL MUTUAL LIFE $13,000,000
INSURANCE COMPANY Series B
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department--Securities Division
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 8.26% Series B Senior Notes due November 18, 2001, PPN
41025@ AB 9, principal, interest or premium") to:
Norwest Bank Iowa, N.A. (ABA #073 000 228)
7th and Walnut Streets
Des Moines, Iowa 50309
for credit to: Principal Mutual Life Insurance Company
General Account Number 014752
Reference: Bond #1-B-60258
Notices
All notices concerning payment on or in respect of the Notes, to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment Department, Accounting & Treasury
All notices and communications other than those in respect to payments to be
addressed as first provided above.
I-11
Page 199 of 228
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-012-7290
I-12
Page 200 of 228
Name and Address of Purchasers Principal Amount and Series
PRINCIPAL MUTUAL LIFE $4,000,000
INSURANCE COMPANY Series B
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department--Securities Division
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 8.26% Series B Senior Notes due November 18, 2001, PPN
41025@ AB 9, principal, interest or premium") to:
Norwest Bank Iowa, N.A. (ABA #073 000 228)
7th and Walnut Streets
Des Moines, Iowa 50309
for credit to: Principal Mutual Life Insurance Company
Separate Account Number 032395
Reference: Bond #16-B-60258
Notices
All notices concerning payment on or in respect of the Notes, to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment Department, Accounting & Treasury
All notices and communications other than those in respect to payments to be
addressed as first provided above.
I-13
Page 201 of 228
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-012-7290
I-14
Page 202 of 228
Name and Address of Purchasers Principal Amount and Series
THE FRANKLIN LIFE INSURANCE COMPANY $3,000,000
Franklin Square Series B
Springfield, Illinois 62713
Attention: Investment Division
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Handleman Company, 8.26% Series B Senior Notes due November 18, 2001 PPN 41025@
AB 9, principal, interest or premium") to:
Morgan Guaranty Trust Company of New York
(ABA #0210-0023-8)
23 Wall Street
New York, New York 10015
Attention: Money Transfer Department
for credit to: The Franklin Life Insurance Company
Account Number 022-05-988
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 37-0281650
Institution Identification Number 36362
I-15
Page 203 of 228
Name and Address of Purchasers Principal Amount and Series
TEACHERS INSURANCE AND ANNUITY $25,000,000
ASSOCIATION OF AMERICA Series C
730 Third Avenue
New York, New York 10017-3263
Attention: Ms. Beth Agnello, Securities Division, Private Placement
Telephone Number: (212) 916-5745 or (212) 490-9000 (general number)
Telecopier Number: (212) 916-6581
Payments
All payments on account of the Notes shall be made in immediately available
funds at the opening of business on the due date by electronic funds transfer
through the Automated Clearing House system (identifying each payment as
"Handleman Company, 8.59% Series C Senior Notes due February 28, 2005, PPN
41025@ AC 7, principal, interest or premium") to:
Morgan Guaranty Trust Company of New York
(ABA #021000238)
23 Wall Street
New York, New York 10015
for credit to: Teachers Insurance and
Annuity Association
Account Number 121-85-001
On order of: Handleman Company
Notices
Contemporaneous with payment, written confirmation of each such payment to be
addressed as set forth below including the following information: (1) the full
name, private placement number, interest rate and maturity date of the Notes;
(2) allocation of payment between principal, interest, premium and any special
payment; and (3) name and address of Bank from which such transfer was sent to:
Teachers Insurance and Annuity
I-16
Page 204 of 228
Association of America
730 Third Avenue
New York, NY 10017
Attention: Securities Accounting Division
Telephone Number: (212) 916-4188
Facsimile Number: (212) 916-6199
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-1624203
I-17
Page 205 of 228
Liens Securing Funded Debt
(Including Capitalized Leases) as of October 1, 1994
Secured Party Description of Collateral Debt Secured
Economic Development Land, buildings and building $3,200,000
Corporation of Conyers improvements located at such site
County, GA
Economic Development Land, buildings and building $3,000,000
Corporation of Pulaski improvements located at such site
County, GA
IBM Financing Lease IBM Equipment $ 181,000
II-1
Page 206 of 228
HANDLEMAN COMPANY
7.81% Series A Senior Note
Due April 21, 2000
No.
PPN: 41025@ AA 1 __________ __, ____
$
Handleman Company, a Michigan corporation (the "Company"), for value
received, hereby promises to pay to or registered assigns on the twenty-first
day of April, 2000 the principal amount of
Dollars ($__________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 7.81% per annum from the date hereof until maturity, payable quarterly
on the twenty-first day of each January, April, July and October in each year
commencing on the first of such dates after the date hereof, and at maturity.
The Company agrees to pay interest on overdue principal (including any overdue
required or optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest, at a rate
equal to the greater (determined on a daily basis) of (x) 9.89% per annum, or
(y) the rate per annum which NBD Bank, N.A. (or its successor) announces
publicly as its "prime" rate of interest (or such lesser amount, if any, as may
be permitted by applicable law), whether by acceleration or otherwise, until
paid. Both the principal hereof and interest hereon are payable at the
principal office of the Company in Troy, Michigan in coin or currency of the
United States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
This Note is one of the 7.81% Series A Senior Notes due April 21, 2000 (the
"Series A Notes") of the Company in the aggregate principal
A-1-2
Page 207 of 228
amount of $20,000,000 which, together with $55,000,000 aggregate principal
amount of the Company's Series B Senior Notes due November 18, 2001 (the "Series
B Notes") and $25,000,000 aggregate principal amount of the Company's Series C
Senior Notes due February 28, 2005 (collectively with the Series A Notes and the
Series B Notes, the "Notes") have been issued or are to be issued under and
pursuant to the terms and provisions of the separate Note Agreements, each dated
as of November 1, 1994 (the "Note Agreements"), entered into by the Company with
the original Purchasers therein referred to and this Series A Note and the
holder hereof are entitled equally and ratably with the holders of all other
Notes outstanding under the Note Agreements to all the benefits provided for
thereby or referred to therein. Reference is hereby made to the Note Agreements
for a statement of such rights and benefits.
This Series A Note and the other Notes outstanding under the Note Agreements
may be declared due prior to their expressed maturity dates all in the events,
on the terms and in the manner and amounts as provided in the Note Agreements.
The Series A Notes are not subject to prepayment or redemption at the option
of the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Note Agreements.
This Series A Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Series A Note or its attorney duly authorized
in writing. Payment of or on account of principal, premium, if any, and
interest on this Series A Note shall be made only to or upon the order in
writing of the registered holder.
This Series A Note and the Note Agreements are governed by and construed in
accordance with New York law.
Handleman Company
By
Its
A-1-1
Page 208 of 228
HANDLEMAN COMPANY
8.26% Series B Senior Note
Due November 18, 2001
No.
PPN: 41025@ AB 9 __________ __, ____
$
Handleman Company, a Michigan corporation (the "Company"), for value
received, hereby promises to pay to or registered assigns on the eighteenth day
of November, 2001 the principal amount of
Dollars ($__________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 8.26% per annum from the date hereof until maturity, payable quarterly
on the eighteenth day of each February, May, August and November in each year
commencing on the first of such dates after the date hereof, and at maturity.
The Company agrees to pay interest on overdue principal (including any overdue
required or optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest, at a rate
equal to the greater (determined on a daily basis) of (x) 10.34% per annum, or
(y) the rate per annum which NBD Bank, N.A. (or its successor) announces
publicly as its "prime" rate of interest (or such lesser amount, if any, as may
be permitted by applicable law), whether by acceleration or otherwise, until
paid. Both the principal hereof and interest hereon are payable at the
principal office of the Company in Troy, Michigan in coin or currency of the
United States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
This Note is one of the 8.26% Series B Senior Notes due November 18, 2001
(the "Series B Notes") of the Company in the aggregate principal
A-2-2
Page 209 of 228
amount of $55,000,000 which, together with $20,000,000 aggregate principal
amount of the Company's Series A Senior Notes due April 21, 2001 (the "Series A
Notes") and $25,000,000 aggregate principal amount of the Company's Series C
Senior Notes due February 28, 2005 (collectively with the Series A Notes and the
Series B Notes, the "Notes") have been issued or are to be issued under and
pursuant to the terms and provisions of the separate Note Agreements, each dated
as of November 1, 1994 (the "Note Agreements"), entered into by the Company with
the original Purchasers therein referred to and this Series B Note and the
holder hereof are entitled equally and ratably with the holders of all other
Notes outstanding under the Note Agreements to all the benefits provided for
thereby or referred to therein. Reference is hereby made to the Note Agreements
for a statement of such rights and benefits.
This Series B Note and the other Notes outstanding under the Note Agreements
may be declared due prior to their expressed maturity dates all in the events,
on the terms and in the manner and amounts as provided in the Note Agreements.
The Series B Notes are not subject to prepayment or redemption at the option
of the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Note Agreements.
This Series B Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Series B Note or its attorney duly authorized
in writing. Payment of or on account of principal, premium, if any, and
interest on this Series B Note shall be made only to or upon the order in
writing of the registered holder.
This Series B Note and the Note Agreements are governed by and construed in
accordance with New York law.
Handleman Company
By
Its
A-2-1
Page 210 of 228
HANDLEMAN COMPANY
8.59% Series C Senior Note
Due February 28, 2005
No.
PPN: 41025@ AC 7 __________ __, ____
$
Handleman Company, a Michigan corporation (the "Company"), for value
received, hereby promises to pay to or registered assigns on the twenty-eighth
day of February, 2005 the principal amount of
Dollars ($__________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 8.59% per annum from the date hereof until maturity, payable quarterly
on the twenty-eighth day of each February, May, August and November in each year
commencing on the first of such dates after the date hereof, and at maturity.
The Company agrees to pay interest on overdue principal (including any overdue
required or optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest, at a rate
equal to the greater (determined on a daily basis) of (x) 10.68% per annum, or
(y) the rate per annum which NBD Bank, N.A. (or its successor) announces
publicly as its "prime" rate of interest (or such lesser amount, if any, as may
be permitted by applicable law), whether by acceleration or otherwise, until
paid. Both the principal hereof and interest hereon are payable at the
principal office of the Company in Troy, Michigan in coin or currency of the
United States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
This Note is one of the 8.59% Series C Senior Notes due February 28, 2005
(the "Series C Notes") of the Company in the aggregate principal
A-3-2
Page 211 of 228
amount of $25,000,000 which, together with $20,000,000 aggregate principal
amount of the Company's Series A Senior Notes due April 21, 2000 (the "Series A
Notes") and $55,000,000 aggregate principal amount of the Company's Series B
Senior Notes due November 18, 2001 (collectively with the Series A Notes and the
Series C Notes, the "Notes") have been issued or are to be issued under and
pursuant to the terms and provisions of the separate Note Agreements, each dated
as of November 1, 1994 (the "Note Agreements"), entered into by the Company with
the original Purchasers therein referred to and this Series C Note and the
holder hereof are entitled equally and ratably with the holders of all other
Notes outstanding under the Note Agreements to all the benefits provided for
thereby or referred to therein. Reference is hereby made to the Note Agreements
for a statement of such rights and benefits.
This Series C Note and the other Notes outstanding under the Note Agreements
may be declared due prior to their expressed maturity dates all in the events,
on the terms and in the manner and amounts as provided in the Note Agreements.
The Series C Notes are not subject to prepayment or redemption at the option
of the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Note Agreements.
This Series C Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Series C Note or its attorney duly authorized
in writing. Payment of or on account of principal, premium, if any, and
interest on this Series C Note shall be made only to or upon the order in
writing of the registered holder.
This Series C Note and the Note Agreements are governed by and construed in
accordance with New York law.
Handleman Company
By
Its
A-3-1
Page 212 of 228
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you as follows:
1. Subsidiaries. Annex 1 attached hereto states the name of each of
the Company's Subsidiaries, its jurisdiction of incorporation, the
percentage of its Voting Stock owned by the Company and/or its Subsidiaries
and its total assets as of October 1, 1994. The Company and each Material
Subsidiary has good and marketable title to all of the shares it purports
to own of the stock of each Subsidiary, free and clear in each case of any
Lien. All such shares have been duly issued and are fully paid and non-
assessable.
2. Corporate Organization and Authority. The Company, and each
Material Subsidiary,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry
on its business as now conducted and as presently proposed to be
conducted; and
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or
leased by it makes such licensing or qualification necessary except
where the failure to be so licensed or qualified would not, in the
aggregate, have a material adverse effect on the properties,
business, prospects, profits or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole (the states in
which the Company is duly licensed or qualified are listed on Annex
3 hereto).
3. Business and Property. You have heretofore been furnished with a
copy of the Confidential Direct Placement Memorandum dated October, 1994
(the "Memorandum") prepared by SPP Hambro & Co. and NBD Bank, N.A., which
generally sets forth the business conducted and proposed to be conducted by
the Company and its Subsidiaries and the principal properties of the
Company and its Subsidiaries.
4. Financial Statements. (a) The consolidated balance sheets of
the Company and its consolidated Subsidiaries as of the fiscal year end in
each of the years 1988 to 1994, both inclusive, and the consolidated
statements of income and retained earnings and
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Page 213 of 228
changes in financial position or cash flows for the fiscal years then
ended, each accompanied by a report thereon containing an opinion
unqualified as to scope limitations imposed by the Company and otherwise
without qualification except as therein noted, by Coopers & Lybrand, have
been prepared in accordance with generally accepted accounting principles
consistently applied except as therein noted, are correct and complete in
all material respects and present fairly the financial position of the
Company and its consolidated Subsidiaries as of such dates and the results
of their operations and changes in their financial position or cash flows
for such periods. The unaudited consolidated balance sheets of the Company
and its consolidated Subsidiaries as of July 30, 1994, and the unaudited
consolidated statements of income and retained earnings and cash flows for
the three-month period ended on said date prepared by the Company have been
prepared in accordance with generally accepted accounting principles
consistently applied, are correct and complete in all material respects and
present fairly the financial position of the Company and its consolidated
Subsidiaries as of said date and the results of their operations and cash
flows for such period.
(b) Since April 30, 1994, there has been no change in the condition,
financial or otherwise, of the Company and its consolidated Subsidiaries as
shown on the consolidated balance sheet as of such date except changes in
the ordinary course of business, none of which individually or in the
aggregate has been materially adverse.
5. Indebtedness. Annex 2 attached hereto correctly describes all
Current Debt, Funded Debt (other than Capitalized Rentals) and Capitalized
Rentals under Capitalized Leases of the Company and its Subsidiaries
outstanding on October 1, 1994.
6. Full Disclosure. The financial statements referred to in
paragraph 4 hereof, the Agreements, the Memorandum and any other written
statement furnished by the Company to you in connection with the
negotiation of the sale of the Notes, do not contain any untrue statement
of a material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact peculiar to
the Company or its Subsidiaries which the Company has not disclosed to you
in writing which materially affects adversely nor, so far as the Company
can now foresee, will materially affect adversely the properties, business,
prospects, profits or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole.
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7. Pending Litigation. There are no actions, proceedings or
investigations pending or, to the knowledge of the Company threatened,
against or affecting the Company or any Subsidiary in any court or before
any governmental authority or arbitration board or tribunal which, if
adversely decided, individually or in the aggregate would materially and
adversely affect the properties, business, prospects, profits or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a
whole.
8. Title to Properties. The Company and each Subsidiary has good
and marketable title in fee simple (or its equivalent under applicable law)
to all parcels of real property and has good title to all the other items
of property it purports to own which, in each case, are necessary to the
present and planned conduct of the business of the Company or such
Subsidiary, including all property reflected in the most recent balance
sheet referred to in paragraph 4 hereof, except (i) as specifically
disclosed in the most recent balance sheet referred to in paragraph 4
hereof, (ii) minor title defects which, individually or in the aggregate,
do not have a material adverse effect on the properties, business,
prospects, profits or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole, (iii) property sold or otherwise
disposed of in the ordinary course of business and (iv) Liens permitted by
the Agreements. The Company and its Subsidiaries enjoy peaceful and
undisturbed possession of all material property which is leased by the
Company or any Subsidiary. To the best of the Company's knowledge after
due inquiry by a responsible officer, all material properties which are
used or useful in the conduct of the business of the Company and its
Subsidiaries (whether owned in fee or leasehold interest) are in good
repair and working order, normal wear and tear excepted.
9. Patents and Trademarks. The Company and each Material Subsidiary
owns or possesses all the patents, trademarks, trade names, service marks,
copyright, licenses and rights with respect to the foregoing necessary for
the present and planned future conduct of its business, without any known
conflict with the rights of others.
10. Sale Is Legal and Authorized. The sale of the Notes and
compliance by the Company with all of the provisions of the Agreements and
the Notes--
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any order of
any court or governmental authority or agency and will
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not conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute a default under the
Articles of Incorporation or By-laws of the Company or any material
indenture or other agreement or instrument to which the Company is a
party or by which it may be bound or result in the imposition of any
Liens or encumbrances on any property of the Company; and
(c) have been duly authorized by proper corporate action on
the part of the Company (no action by the stockholders of the Company
being required by law, by the Articles of Incorporation or By-laws of
the Company or otherwise), and the Agreements and the Notes, when
executed and delivered by the Company, will constitute the legal,
valid and binding obligations, contracts and agreements of the
Company enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally, and subject, as to
enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
11. No Defaults. No Default or Event of Default has occurred and
is continuing. The Company is not in default in the payment of principal
or interest on any Funded Debt or Current Debt and is not in default under
any instrument or instruments or agreements under and subject to which any
Funded Debt or Current Debt has been issued and no event has occurred and
is continuing under the provisions of any such instrument or agreement
which with the lapse of time or the giving of notice, or both, would
constitute an event of default thereunder. The Company is not in default
as lessee under any lease.
12. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Company of
the Agreements or the Notes or compliance by the Company with any of the
provisions of the Agreements or the Notes.
13. Taxes. All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have, in fact, been filed, and all
taxes, assessments, fees and other governmental charges upon the Company or
any Subsidiary or upon any of their respective properties, income or
franchises, which are shown to be due and payable in such returns have been
paid, except where the
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failure to file such returns or pay such taxes would not, individually or
in the aggregate, have a material adverse effect on the properties,
business, prospects, profits or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole. The Company does not know
of any proposed additional tax assessment against it for which adequate
provision has not been made on its accounts. The provisions for taxes on
the books of the Company and each Subsidiary are adequate for all open
years, and for its current fiscal period. For all taxable years ending on
or before May 3, 1986, the Federal income tax liability of the Company and
its Subsidiaries has been satisfied and either the period of limitations on
assessment of additional Federal income tax has expired or the Company and
its Subsidiaries have entered into an agreement with the Internal Revenue
Service closing conclusively the total tax liability for the taxable year
and no material controversy in respect of additional Federal or state
income taxes due since said date is pending or to the knowledge of the
Company threatened.
14. Use of Proceeds. The net proceeds from the sale of the Notes
will be used to refinance bank indebtedness and for other corporate growth
purposes. None of the transactions contemplated in the Agreements
(including, without limitation thereof, the use of proceeds from the
issuance of the Notes) will violate or result in a violation of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, Section 7 of
the Securities Exchange Act of 1934, as amended, or any regulation issued
pursuant thereto, including, without limitation, Regulations G, T and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter
II. Neither the Company nor any Subsidiary owns or intends to carry or
purchase any "margin stock" within the meaning of said Regulation G. None
of the proceeds from the sale of the Notes will be used to purchase, or
refinance any borrowing the proceeds of which were used to purchase, any
"security" within the meaning of the Securities Exchange Act of 1934, as
amended.
15. Private Offering. Neither the Company, directly or indirectly,
nor any agent on its behalf has offered or will offer the Notes or any
similar Security to, or has solicited or will solicit an offer to acquire
the Notes or any similar Security from or has otherwise approached or
negotiated or will approach or negotiate in respect of the Notes or any
similar Security with any Person other than the Purchasers and not more
than 75 other institutional investors, each of whom was offered a portion
of the Notes at private
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sale for investment. Neither the Company, directly or indirectly, nor any
agent on its behalf has offered or will offer the Notes or any similar
Security to, or has solicited or will solicit an offer to acquire the Notes
or any similar Security from, any Person so as to bring the issuance and
sale of the Notes within the provisions of Section 5 of the Securities Act
of 1933, as amended.
16. Employee Retirement Income Security Act of 1974. The
consummation of the transactions provided for in the Agreements and
compliance by the Company with the provisions thereof and the Notes issued
thereunder will not involve any prohibited transaction within the meaning
of ERISA or Section 4975 of the Code. Each Plan complies in all material
respects with all applicable statutes and governmental rules and
regulations, and (a) no Reportable Event has occurred and is continuing
with respect to any Plan, (b) neither the Company nor any ERISA Affiliate
has withdrawn from any Plan or Multiemployer Plan or instituted steps to do
so, and (c) no steps have been instituted to terminate any Plan. No
condition exists or event or transaction has occurred in connection with
any Plan which could result in the incurrence by the Company or any ERISA
Affiliate of any material liability, fine or penalty. No Plan maintained
by the Company or any ERISA Affiliate, nor any trust created thereunder,
has incurred any "accumulated funding deficiency" as defined in Section 302
of ERISA nor does the present value of all benefits vested under all Plans
exceed, as of the last annual valuation date, the value of the assets of
the Plans allocable to such vested benefits. Neither the Company nor any
ERISA Affiliate has any contingent liability with respect to any post-
retirement "welfare benefit plan" (as such term is defined in ERISA) which
could reasonably be expected to materially and adversely affect the
properties, business, prospects, profits or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole.
17. Compliance with Law. Neither the Company nor any Subsidiary
(a) is in violation of any law, ordinance, franchise, governmental rule or
regulation to which it is subject; or (b) has failed to obtain any license,
permit, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of its business, which
violation or failure to obtain, in the aggregate, would materially
adversely affect the business, prospects, profits, properties or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a
whole, or impair the ability of the Company to perform its obligations
contained in the Agreements
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or the Notes. Neither the Company nor any Subsidiary is in default with
respect to any order of any court or governmental authority or arbitration
board or tribunal.
18. Compliance with Environmental Laws. The Company is not in
violation of any applicable Federal, state, or local laws, statutes, rules,
regulations or ordinances relating to public health, safety or the
environment, including, without limitation, relating to releases,
discharges, emissions or disposals to air, water, land or ground water, to
the withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances
(including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited or regulated substances
which violations, individually or in the aggregate, could have a material
adverse effect on the business, prospects, profits, properties or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a
whole. The Company does not know of any liability or class of liability of
the Company or any Material Subsidiary under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(42 U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery
Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).
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SUBSIDIARIES OF THE COMPANY
AS OF OCTOBER 1, 1994
Percentage of
Voting Stock Owned
Name of Jurisdiction of by Company and Total
Subsidiary Incorporation Each Other Subsidiary Assets
Handleman Company Ontario, Wholly-owned by $37,488,000*
of Canada, Ltd. Canada Handleman Company
Video Treasures, Inc. Michigan Wholly-owned by $49,353,000*
Handleman Company
Entertainment Zone, Michigan Wholly-owned by $10,667,000*
Inc. Handleman Company
Hanley Advertising Michigan Wholly-owned by less than
Company Handleman Company $500,000
Big Screen Video Michigan Wholly-owned by None
Productions, Inc. Handleman Company
(inactive)
Hanley Advertising Company Ontario, Wholly-owned by Hanley None
of Canada, Ltd. Canada Advertising Company
(inactive)
Scorpio Productions Texas Wholly-owned by $1,127,000
Handleman Company
Softprime, Inc. Michigan Wholly-owned by $1,942,000*
Handleman Company
Michigan Property and Risk Michigan Wholly-owned None/1/
Management Company by Handleman Company
Rack Jobbing, S.A. de C.V. Mexico 50% owned by $7,931,000/2/
Handleman Company
Rack Jobbing Mexico Wholly-owned by Rack $9,000/2/
Services de C.V. Jobbing, S.A. de C.V.
* Indicates Material Subsidiaries
/1/ Information will be made available to the Purchasers as soon as the
valuation of such Subsidiary has been completed.
/2/ The amount reflected represents 100% of the assets of such Subsidiary.
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DESCRIPTION OF DEBT AND LEASES
1. Current Debt of the Company and its Subsidiaries outstanding on October 1,
1994 was as follows:
Senior Note due October 1, 1994 $31,000,000
(paid in full October 3, 1994) ===========
IBM Financing Lease 172,000
=======
$31,172,000
===========
2. Funded Debt (other than Capitalized Rentals) of the Company and its
Subsidiaries outstanding on October 1, 1994 was as follows:
Economic Development Corporation
Limited Obligation Revenue Bonds
(EDC)
Conyers County, GA $3,200,000
Pulaski County, GA $3,000,000
----------
$6,200,000
==========
Credit Agreement dated as of July 12, 1994
Among the Company, certain Banks and
NBD Bank, N.A., as Agent
$88,000,000
===========
$94,200,000
===========
3. Capitalized Rentals under Capitalized Leases of the Company and its
Subsidiaries outstanding on October 1, 1994 were as follows: IBM Financing
Lease $9,000
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JURISDICTIONS IN WHICH COMPANY IS DULY
LICENSED OR QUALIFIED AND IS IN GOOD STANDING
All fifty states of the United States and the
U.S. Virgin Islands
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DESCRIPTION OF SPECIAL COUNSEL'S CLOSING
OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by (S)4.1 of the Agreements, shall be dated each Closing
Date and addressed to the Purchasers, shall be satisfactory in form and
substance to the Purchasers and shall be to the effect that:
(1) The Company is a corporation, validly existing and in good
standing under the laws of the State of Michigan, has corporate power and
the corporate authority to execute and deliver the Agreements and to issue
the Notes;
(2) Each Agreement has been duly authorized by all necessary
corporate action on the part of the Company, has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
contract of the Company enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless
of whether the application of such principles is considered in a proceeding
in equity or at law);
(3) The Notes have been duly authorized by all necessary corporate
action on the part of the Company, and the Notes being delivered on the
date hereof have been duly executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in equity
or at law);
(4) The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreements do not, under existing law,
require the registration of the Notes under the Securities Act of 1933, as
amended, or the qualification of an indenture in respect thereof under the
Trust Indenture Act of 1939, as amended. If you should in the future deem
it expedient to sell your Notes, which we understand you do not now
contemplate or foresee, such sale would be an exempted transaction under
such Securities Act of 1933, as amended (the "Securities Act"), and would
not of itself under present law require registration of the Notes under the
Securities Act or the qualification of an indenture in respect thereof
under such Trust Indenture Act of 1939, as amended, provided either (i)
that a "public offering", within the meaning of such Securities Act, of the
Notes is not involved, or (ii) if such a "public offering" is
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involved, that at the time of such sale you are not, within the meaning of
such Securities Act, engaging or participating directly or indirectly in a
distribution of the Notes for the Company or for any other person deemed
under section 2(11) of such Securities Act to be an issuer of the Notes;
and
(5) The issuance of the Notes and the use of the proceeds of the
sale of the Notes in accordance with the provisions of and as contemplated
by the Agreement (including, without limitation, the representations and
warranties set forth in the Agreement) do not violate or conflict with
Regulation G, T or X of the Board of Governors of the Federal Reserve
System.
The opinion of Chapman and Cutler shall also state that the opinion
of Honigman Miller Schwartz and Cohn, is satisfactory in scope and form to
Chapman and Cutler and that, in their opinion, the Purchasers are justified in
relying thereon. In rendering the opinion set forth in paragraph 1 above,
Chapman and Cutler may rely, as to matters referred to in paragraph 1, solely
upon an examination of the Articles of Incorporation of the Company as certified
by the Director of the Department of Commerce of Michigan and a good standing
certificate for the Company in the State of Michigan and the By-laws of the
Company. The opinion of Chapman and Cutler is limited to the laws of the State
of New York and the Federal laws of the United States. With respect to matters
of Michigan law, Chapman and Cutler may rely upon the opinion of Honigman Miller
Schwartz and Cohn.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Company and upon representations of the Company and the
Purchasers delivered in connection with the issuance and sale of the Notes.
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FORM OF CLOSING OPINION OF
COUNSEL TO THE COMPANY
[Letterhead of Honigman Miller
Schwartz and Cohn]
__________ __, 1994
To the Purchasers named in Schedule I to the Agreements (as defined below)
Re: Note Agreements, dated as of November 1, 1994, by and among
Handleman Company and the signatory purchasers thereto (the
"Agreements").
___________________________________________________
Ladies and Gentlemen:
We have acted as counsel to Handleman Company, a Michigan corporation (the
"Company"), in connection with each Agreement, the Notes, and the transactions
contemplated thereby. This opinion is being delivered to you pursuant to Section
4.1 of the Agreements. Except as otherwise defined in this opinion, capitalized
terms used herein shall have the meanings given to them in the Agreements.
We have examined such records, documents, certificates and other
instruments and have made such investigation of fact and law as we deem
necessary to render this opinion. As to various questions of fact relevant to
this opinion, we have relied upon statements and certificates of officers and
employees of the Company and the Subsidiaries and of public officials.
In our examination, we have assumed the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as copies, and
the authenticity of the originals of such copies.
Based upon the foregoing, it is our opinion that:
1. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Michigan, has all requisite
corporate power and authority to own or lease its property and to carry on
its business as now conducted, and is in good standing and authorized to do
business in each jurisdiction listed on Annex 3 to Exhibit B to the
Agreements.
2. The Company has corporate power and authority to execute and
deliver the Agreements, to issue the Notes and to incur the Indebtedness
evidenced thereby and to engage in the transactions contemplated thereby.
3. The issuance and sale of the Notes and the execution, delivery
and performance by the Company of the Agreements have been
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duly authorized by all necessary corporate action and are not in
contravention of (i) the Company's Articles of Incorporation or Bylaws, or
(ii) based solely on our review of contracts and undertakings of which we
have actual knowledge and on a certificate of an officer of the Company and
with no independent investigation or verification, any contract or
undertaking to which the Company is a party or by which the Company or its
property may be bound.
4. Each Agreement and the Notes being delivered on the date hereof
have been duly executed and delivered and constitute the valid and legally
binding obligations of the Company and are enforceable against the Company
in accordance with their respective terms.
5. No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental authority,
federal, state or local, is necessary in connection with the execution and
delivery by the Company of the Agreements or the Notes.
6. None of the transactions contemplated in the Agreements
(including, without limitation, the use of proceeds from the sale of the
Notes, assuming such proceeds are used as stated in the Agreements) will
violate or result in a violation of Section 7 of the Securities Exchange
Act of 1934, as amended, or any regulations issued pursuant thereto,
including, without limitation, Regulation G of the Board of Governors of
the Federal Reserve System (12 C.F.R., Chapter II).
7. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreements constitute an exempt
transaction under the registration provisions of the Securities Act of
1933, as amended, and do not under existing law require the registration of
the Notes under the Securities Act of 1933, as amended, or the
qualification of an indenture in respect thereof under the Trust Indenture
Act of 1939.
The foregoing opinion is subject to and qualified by the following
qualifications:
A. We express no opinion concerning any laws other than federal
laws of the United States and the laws of the State of Michigan. To the
extent that the Agreements and the Notes are governed by the laws of the
State of New York, we have assumed for the purposes of this opinion,
without any independent investigation or verification, that the laws of the
State of New York are identical to the laws of the State of Michigan with
respect to all matters relevant to this opinion.
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B. Whenever we have asserted above that a matter is "to our actual
knowledge", our knowledge is limited to the actual knowledge of those
attorneys in our firm who have directly participated in this engagement or
who are primarily responsible for the Company concerning any issue or
factual information addressed herein. Additionally, with respect to
factual matters not independently established by us we have relied upon
certificates of officers of the Company, which reliance we deem
appropriate.
C. To the extent our opinion relates to the validity, legality,
binding effect or enforceability of any agreement or obligation, it is
subject to and qualified by the following:
(1) the effect and application of bankruptcy, insolvency,
reorganization, moratorium and other laws now or hereafter in effect
which relate to or limit creditors' and secured parties' rights or
remedies generally;
(2) the effect and application of general principles of
equity, whether considered in a proceeding in equity or at law;
(3) limitations imposed by applicable law on the
enforceability of purported waivers of rights and defenses; and
(4) we express no opinion as to the validity, legality,
binding effect or enforceability of (a) any provision (including,
without limitation, any provision with respect to indemnification or
that might be construed as a penalty of any nature) that might be
found violative of public policy or (b) any provision requiring the
payment of interest on interest.
D. In rendering the opinions set forth herein, we have assumed the
accuracy of the representations and warranties contained in the Agreements.
Without limiting the generality of the foregoing, in rendering the opinions
in paragraphs 5, 6 and 7 above, we have assumed the accuracy of the
representations and warranties contained in Section 3 and Exhibit B of the
Agreements.
E. With respect to the validity and legality of the interest
provisions of the Agreements and the Notes, no opinion is expressed as to
the effect of the Michigan criminal usury statute (MCLA 438.41) if the
applicable rate of interest on the Notes at any time exceeds the applicable
rate specified in such statute (25% per annum simple interest).
F. We have made no independent investigation as to the accuracy or
completeness of any of the statements set forth in the certificates of
representatives of the Company or other documents presented to us for our
review, but we have no actual knowledge of
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any incorrect or misleading statement therein.
G. This Opinion is given as of the date hereof, and we undertake no
obligation to advise you of any changes in the matters set forth herein.
This Opinion is addressed to and is for the benefit solely of the
Purchasers and their permissible successors, assigns and participants and may
not be relied upon by any other person, firm or corporation for any purpose
whatsoever and may not be published or disseminated, nor referenced in any other
document or writing without our express written consent; provided, however, that
with respect to matters of Michigan law, this opinion may be relied upon by
Chapman and Cutler, special counsel to the Purchasers, in its opinion being
rendered simultaneously herewith in connection with the Agreements and the
Notes.
Very truly yours,
Honigman Miller Schwartz and
Cohn
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