SECURITY AGREEMENT
This Security Agreement (the "AGREEMENT") is dated as of December 12,
1997, by and among the parties executing this Agreement under the heading
"Debtors" (such parties, together with any additional parties who execute and
deliver to the Agent an agreement in the form attached hereto as Schedule D,
being herein referred to collectively as the "DEBTORS" and individually a
"DEBTOR"), each with its mailing address at 0000 Xxxxxxxxxxx Xxxx, Xxxxx
0000, Xxxxxxx Xxxxx, Xxxxxxxx 00000, and BANK OF MONTREAL ("BOM"), with its
mailing address at 000 Xxxxx XxXxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000, acting
as agent hereunder for the Lenders hereinafter identified and defined (BOM
acting as such agent and any successor or successors to BOM acting in such
capacity being hereinafter referred to as the "AGENT");
PRELIMINARY STATEMENTS
A. Platinum Entertainment, Inc., a Delaware corporation (the
"COMPANY"), Intersound, Inc., a Delaware corporation ("INTERSOUND"), (the
Company and Intersound being hereinafter referred to collectively as the
"BORROWERS" and individually as a "BORROWER"), Lexicon Music, Inc., a
Delaware corporation ("LEXICON"), CGI Records, Inc., a Delaware corporation
("CGI"), River North Records, Inc., a Delaware corporation ("NORTH RECORDS"),
Light Records, Inc., a Delaware corporation ("LIGHT"), The Recording
Experience, Inc., a Delaware corporation ("EXPERIENCE"), Peg Publishing, Inc.
a Delaware corporation ("PEG"), JustMike Music, Inc., a Delaware corporation
("JUSTMIKE"), Royce Publishing, Inc., a Delaware corporation ("ROYCE")
(Lexicon, CGI, North Records, Light, Experience, Peg, JustMike and Royce
being hereinafter referred to collectively as the "GUARANTORS" and
individually as a "GUARANTOR"), BOM, individually and as agent, and certain
lenders have entered into a Credit Agreement dated as of even date herewith
(such Credit Agreement, as the same may be amended or modified from time to
time, including amendments and restatements thereof in its entirety, being
hereinafter referred to as the "CREDIT AGREEMENT"), pursuant to which BOM and
other lenders from time to time party to the Credit Agreement (BOM and the
other lenders which are now or from time to time hereafter become party to
the Credit Agreement, together with any affiliates of such lenders to which
is owed any Hedging Liability, being hereinafter referred to collectively as
the "LENDERS" and individually as a "LENDER") have agreed, subject to certain
terms and conditions, to extend credit and make certain other financial
accommodations available to the Borrowers.
B. Pursuant to the Credit Agreement, the Guarantors guarantee all of
the indebtedness, obligations, and liabilities of the Borrowers to the Agent
and the Lenders under the Credit Agreement.
C. The Borrowers, or any of them individually, may from time to time
enter into one or more interest rate exchange, cap, collar, floor or other
agreements with one or more of the Lenders party to the Credit Agreement or
their affiliates for the purpose of hedging or otherwise protecting the
Borrowers, or any of them individually, against changes in
interest rates on the Revolving Loans and the Term Loans (the liability of
the Borrowers, or any of them individually, in respect of such agreements
with such Lenders or their affiliates being hereinafter referred to as the
"HEDGING LIABILITY").
D. As a condition precedent to extending credit or otherwise making
financial accommodations available to the Borrowers under the Credit
Agreement, the Lenders have required, among other things, that each Debtor
grant to the Agent for the benefit of the Lenders a lien on and security
interest in certain personal property of such Debtor pursuant to this
Agreement.
E. The Company owns, directly or indirectly, all or substantially all
of the equity interests in each Guarantor and the Company provides each
Guarantor with financial, management, administrative, and technical support
which enables such Guarantor to conduct its business in an orderly and
efficient manner in the ordinary course.
F. Each Guarantor will benefit, directly or indirectly, from credit
and other financial accommodations extended by the Lenders to the Borrowers.
NOW, THEREFORE, for and in consideration of the execution and delivery
by the Lenders of the Credit Agreement, and other good and valuable
consideration, receipt whereof is hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms
used herein without definition shall have the same meanings herein as such
terms have in the Credit Agreement. The term "Debtor" and "Debtors" as used
herein shall mean and include the Debtors collectively and also each
individually, with all grants, representations, warranties and covenants of
and by the Debtors, or any of them, herein contained to constitute joint and
several grants, representations, warranties and covenants of and by the
Debtors; PROVIDED, HOWEVER, that unless the context in which the same is used
shall otherwise require, any grant, representation, warranty or covenant
contained herein related to the Collateral shall be made by each Debtor only
with respect to the Collateral owned by it or represented by such Debtor as
owned by it.
SECTION 2. GRANT OF SECURITY INTEREST IN THE COLLATERAL; OBLIGATIONS
SECURED. (a) Each Debtor hereby grants to the Agent for the benefit of the
Lenders a lien on and security interest in, and right of set-off against, and
acknowledges and agrees that the Agent has and shall continue to have for the
benefit of the Lenders a continuing lien on and security interest in, and
right of set-off against, any and all right, title and interest of each
Debtor, whether now owned or existing or hereafter created, acquired or
arising, in and to the following:
(i) RECEIVABLES. Receivables, whether now owned or existing or
hereafter created, acquired or arising, and however evidenced or acquired,
or in which such Debtor now has or hereafter acquires any rights (the term
"RECEIVABLES" means and includes all accounts, accounts receivable,
contract rights, instruments, notes, drafts, acceptances, documents,
chattel paper, any right of such Debtor to payment for goods
-2-
sold or leased or for services rendered, whether arising out of the sale
of Inventory (as hereinafter defined) or otherwise and whether or not
earned by performance, and all other forms of obligations owing to such
Debtor, and all of such Debtor's rights to any merchandise and other goods
(including without limitation any returned or repossessed goods and the
right of stoppage in transit) which is represented by, arises from or is
related to any of the foregoing);
(ii) GENERAL INTANGIBLES. All general intangibles, whether now owned
or existing or hereafter created, acquired or arising, or in which such
Debtor now has or hereafter acquires any rights, including, without
limitation all patents, patent applications, patent licenses, trademarks,
trademark registrations, trademark licenses, trade styles, trade names,
copyrights, copyright registrations, copyright licenses and other licenses
and similar intangibles and all customer, client and supplier lists (in
whatever form maintained) and all rights in leases and other agreements
relating to real or personal property, all causes of action and tax refunds
of every kind and nature, all privileges, franchises, immunities, licenses,
permits and similar intangibles, all rights to receive payments in
connection with the termination of any pension plan or employee stock
ownership plan or trust established for the benefit of employees of such
Debtor and all other personal property (including things in action) not
otherwise covered by this Agreement;
(iii) INVENTORY. Inventory, whether now owned or existing or
hereafter created, acquired or arising, or in which such Debtor now has or
hereafter acquires any rights and all documents of title at any time
evidencing or representing any part thereof (the term "INVENTORY" means and
includes all goods which are held for sale or lease or are to be furnished
under contracts of service or consumed in such Debtor's business, and all
goods which are raw materials, work-in-process, finished goods, materials
and supplies of every kind and nature, in each case used or usable in
connection with the acquisition, manufacture, processing, supply,
servicing, storing, packing, shipping, advertising, selling, leasing or
furnishing of such goods, and any constituents or ingredients thereof, and
all goods which are returned or repossessed goods) including, without
limitation, Inventory consisting of records, albums and music videos;
(iv) EQUIPMENT. Equipment, whether now owned or existing or
hereafter created, acquired or arising, or in which such Debtor now has
or hereafter acquires any rights (the term "EQUIPMENT" means and includes
all equipment, machinery, tools, trade fixtures, furniture, furnishings,
office equipment and vehicles (including vehicles subject to a certificate
of title law) and all other goods, in each case now or hereafter used or
usable in connection with such Debtor's business, together with all parts,
accessories and attachments relating to any of the foregoing), including,
without limitation, Equipment consisting of recording equipment;
(v) INVESTMENT PROPERTY. All Investment Property, whether now owned
or existing or hereafter created, acquired or arising, or in which such
Debtor now has or hereafter acquires any rights (the term "INVESTMENT
PROPERTY" means and includes all
-3-
investment property and any other securities (whether certificated or
uncertificated), security entitlements, securities accounts, commodity
contracts and commodity accounts, including all substitutions and
additions thereto, all dividends, distributions and sums distributable
or payable from, upon, or in respect of such property, and all rights
and privileges incident to such property);
(vi) RECORDS AND CABINETS. Supporting evidence and documents
relating to any of the above-described property, including without
limitation, computer programs, disks, tapes and related electronic
data processing media, rights of such Debtor to retrieve the same from
third parties, written applications, credit information, account cards,
payment records, correspondence, delivery and installation certificates,
invoice copies, delivery receipts, notes and other evidences of
indebtedness, insurance certificates and the like, together with all
books of account, ledgers and cabinets in which the same are reflected or
maintained, all whether now existing or hereafter arising;
(vii) DEPOSITS AND PROPERTY IN POSSESSION. All deposit accounts
(whether general, special or otherwise) maintained with the Agent or any of
the Lenders and all sums now or hereafter on deposit therein or payable
thereon, and any and all other property or interests in property which now
is or may from time to time hereafter come into the possession, custody or
control of the Agent or any of the Lenders, or any agent or affiliate of
the Agent or any of the Lenders, in any way and for any purpose (whether
for safekeeping, custody, pledge, transmission, collection or otherwise);
(viii) ACCESSIONS AND ADDITIONS. All accessions and additions to
and substitutions and replacements of any of the foregoing, whether now
existing or hereafter arising; and
(ix) PROCEEDS AND PRODUCTS. All proceeds and products of the
foregoing and all insurance of the foregoing and proceeds thereof, whether
now existing or hereafter arising;
all of the foregoing being herein sometimes referred to as the "COLLATERAL."
(b) This Agreement is made and given to secure, and shall secure, the
payment and performance of (i) (x) any and all indebtedness, obligations and
liabilities of the Borrowers, or any of them individually, to the Agent, the
Lenders, or any of them individually, evidenced by or otherwise arising out of
or relating to the Credit Agreement or any promissory note of the Borrowers, or
any of them individually, issued at any time under the Credit Agreement
(including all notes issued in extension or renewal thereof or in substitution
or replacement therefor), (y) any and all Hedging Liability of the Borrowers, or
any of them individually, to the Lenders, or any of them individually, and
(z) any liability of the Guarantors, or any of them individually, arising out of
the Credit Agreement, as well as for any and all other indebtedness, obligations
and liabilities of the Debtors, or any of them individually, to the Agent, the
Lenders, or any of them individually, evidenced by
-4-
or otherwise arising out of or relating to this Agreement or any other Loan
Document, in each case, whether now existing or hereafter arising (and
whether arising before or after the filing of a petition in bankruptcy), due
or to become due, direct or indirect, absolute or contingent, and howsoever
evidenced, held or acquired, and (ii) any and all expenses and charges, legal
or otherwise, suffered or incurred by the Agent, the Lenders, or any of them
individually, in collecting or enforcing any of such indebtedness,
obligations or liabilities or in realizing on or protecting or preserving any
security therefor, including, without limitation, the lien and security
interest granted hereby (all of the foregoing being hereinafter referred to
as the "OBLIGATIONS"). Notwithstanding anything in this Agreement to the
contrary, the right of recovery against any Debtor (other than the Borrowers,
to which this limitation shall not apply) under this Agreement shall not
exceed $1 less than the amount which would render such Debtor's obligations
under this Agreement void or voidable under applicable law, including
fraudulent conveyance law.
(c) Notwithstanding anything herein to the contrary, the lien of this
Agreement on the Collateral shall be released as and to the extent required
by Section 8.18 of the Credit Agreement.
SECTION 3. COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
Each Debtor hereby covenants and agrees with, and represents and warrants to
the Agent and the Lenders that:
(a) Such Debtor is duly organized and existing under the laws of the
state of its organization, is the sole and lawful owner of its Collateral
and has full right, power and authority to enter into this Agreement and to
perform each and all of the matters and things herein provided for; and the
execution and delivery of this Agreement, and the observance and
performance of any of the matters and things herein set forth, will not
violate or contravene any provision of law or of the articles of
incorporation, by-laws or operating agreement of such Debtor, as
applicable, or of any indenture where such violation or contravention would
have a Material Adverse Effect, loan agreement or other agreement of or
affecting such Debtor or any of its properties, or result in the creation
or imposition of any liens or encumbrance on any property of such Debtor.
(b) The Collateral is in each Debtor's possession at the locations
listed under Column 1 on Schedule A attached hereto. Each Debtor's
respective chief executive office and chief place of business is listed
opposite its name on Schedule A attached hereto and the Debtors have no
other places of business other than those listed under Column 4 on
Schedule A attached hereto. No Debtor will, without the Agent's prior
written consent, remove its Collateral from the locations specified in the
first sentence of this Section 3(b) other than temporarily in the normal
course of business or to deliver the Collateral to any purchaser thereof in
connection with any sale or other disposition of such Collateral expressly
permitted by the Credit Agreement (provided that if for any reason
Collateral is at any time kept or located at locations other than its
present location or locations hereafter consented to by the Agent shall
nevertheless
-5-
have and retain a security interest therein). The aggregate value of
all Debtors' Collateral located in the State of Tennessee shall not at
any time exceed $5,000.
(c) The Collateral and every part thereof is and will be free and
clear of all security interests, liens (including, without limitation,
mechanic's, laborer's and statutory liens), attachments, levies and
encumbrances of every kind, nature and description and whether voluntary or
involuntary except for the security interest of the Agent, the Agent
therein and as otherwise provided in the Credit Agreement (including
without limitation, Permitted Liens), and each Debtor will warrant and
defend its Collateral against any claims and demands of all persons at any
time claiming the same or any interest therein adverse to the Agent or any
Lender.
(d) Each Debtor will pay promptly when due all taxes, assessments,
and governmental charges and levies upon or against its Collateral in each
case before the same become delinquent and before penalties accrue thereon,
unless and to the extent that the same are being contested in good faith by
appropriate proceedings.
(e) Each Debtor at its own cost and expense will maintain, keep and
preserve its Collateral in good repair and condition and will not waste or
destroy such Collateral or any part thereof except as expressly permitted
by the Credit Agreement and will not be negligent in the care and use of
any Collateral and will not use or permit to be used any Collateral in
violation of any statute, ordinance or other governmental requirement.
Each Debtor will perform its obligations under any contract or other
agreement constituting part of the Collateral, it being understood and
agreed that the Agent and the Lenders have no responsibility to perform
such obligations.
(f) Except for Permitted Liens or as expressly permitted by the
Credit Agreement, and subject to Sections 5(a), 7(b) and 7(c) hereof, no
Debtor will, without the Agent's prior written consent, sell, assign,
mortgage, lease or otherwise dispose of its Collateral or any interest
therein.
(g) Each Debtor will insure its Collateral which is insurable against
such risks and hazards as other companies similarly situated insure
against, and including in any event loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as the Agent
may specify, in amounts and under policies containing loss payable clauses
to the Agent as its interest may appear (and, if the Agent requests, naming
the Agent and the Lenders as additional insureds therein) by insurers
acceptable to the Agent. In case of any material loss, damage to or
destruction of its Collateral or any part thereof, the appropriate Debtor
shall promptly give written notice thereof to the Agent generally
describing the nature and extent of such damage or destruction. In the
event any Debtor shall receive any proceeds of such insurance, such Debtor
will immediately pay over such proceeds to the Agent. Net insurance
proceeds received by the Agent under the provisions hereof or under any
policy or policies of insurance covering the Collateral or any part thereof
shall be applied to the reduction of the Obligations (whether or not then
due); as and to the extent provided
-6-
in the Credit Agreement. All insurance proceeds shall be subject to the
lien and security interest of the Agent hereunder.
UNLESS THE DEBTORS PROVIDE THE AGENT WITH EVIDENCE OF THE INSURANCE
COVERAGE REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE INSURANCE AT
THE DEBTORS' EXPENSE TO PROTECT THE AGENT'S INTERESTS IN THE COLLATERAL.
THIS INSURANCE MAY, BUT NEED NOT, PROTECT ANY DEBTOR'S INTERESTS IN THE
COLLATERAL. THE COVERAGE PURCHASED BY THE AGENT MAY NOT PAY ANY CLAIMS
THAT ANY DEBTOR MAKES OR ANY CLAIM THAT IS MADE AGAINST SUCH DEBTOR IN
CONNECTION WITH THE COLLATERAL. THE DEBTORS MAY LATER CANCEL ANY SUCH
INSURANCE PURCHASED BY THE AGENT, BUT ONLY AFTER PROVIDING THE AGENT WITH
EVIDENCE THAT THE DEBTORS HAVE OBTAINED INSURANCE AS REQUIRED BY THIS
AGREEMENT. IF THE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE
DEBTORS WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING
INTEREST AND ANY OTHER CHARGES THAT THE AGENT MAY IMPOSE IN CONNECTION WITH
THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE
CANCELLATION OR EXPIRATION OF THE INSURANCE. THE COSTS OF THE INSURANCE
MAY BE ADDED TO THE OBLIGATIONS SECURED HEREBY. THE COSTS OF THE INSURANCE
MAY BE MORE THAN THE COST OF INSURANCE THE DEBTORS MAY BE ABLE TO OBTAIN ON
THEIR OWN.
(h) Each Debtor will at all times allow the Agent, any Lender or
their respective representatives free access to and right of inspection of
the Collateral. Each Debtor will, to the extent it is within its power so
to do, authorize and instruct all bailees and other parties at any time
holding, storing, shipping or transferring all or any part of such Debtor's
Collateral to permit the Agent, any Lender or their respective or its
designees to examine and inspect any of such Collateral then in such
party's possession and to verify from such party's own books and records
any information concerning such Collateral or any part thereof which the
Agent or such Lender may seek to verify. As to any premises not owned by
any of the Debtors wherein any of the Collateral is located, if any, the
appropriate Debtor shall, unless the Agent requests otherwise, cause each
Person having any right, title or interest in, or lien on, any of such
premises to enter into an agreement (any such agreement to contain a legal
description of such premises) whereby such party disclaims any right, title
and interest in, and lien on, the Collateral, allowing the removal of such
Collateral by the Agent or its designee and otherwise in form and substance
acceptable to the Agent; PROVIDED, HOWEVER, that if and so long as no Event
of Default has occurred and is continuing, no such agreement need be
obtained for (i) locations owned or leased by Polygram or (ii) leased
locations where inventory for all the Debtors aggregating at all such
locations (all such locations taken together) of not more than $500,000 in
value is located in the ordinary course of a Borrower's business for
delivery to purchasers thereof.
(i) Each Debtor agrees from time to time to deliver to the Agent and
any Lender such evidence of the existence and identity of such Debtor's
Collateral and of its availability as collateral security pursuant hereto
(including, without limitation, schedules describing all Receivables
created or acquired by such Debtor, copies of customer invoices or the
equivalent and original shipping or delivery receipts for all
-7-
merchandise and other goods sold or leased or services rendered, together
with such Debtor's warranty of the genuineness thereof, and reports stating
the book value of Inventory and Equipment by major category and location),
as the Agent or such Lender may request. Each Debtor will promptly notify
the Agent and each Lender of any Collateral which such Debtor has
determined to have been rendered obsolete, stating the prior book value of
such Collateral, its type and location.
(j) Each Debtor will comply with the terms and conditions of any
leases, easements, right-of-way agreements or other agreements covering the
premises wherein its Collateral is located and any orders, ordinances, laws
or statutes of any city, state or other governmental entity, department or
agency having jurisdiction with respect to such premises or the conduct of
business thereon for which any such non-compliance would have a Material
Adverse Effect.
(k) On failure of any Debtor to perform any of the covenants and
agreements herein contained, the Agent may, at its option, perform the same
and in so doing may expend such sums as the Agent may deem advisable in the
performance thereof, including without limitation the payment of any
insurance premiums, the payment of any taxes, liens and encumbrances,
expenditures made in defending against any adverse claim and all other
expenditures which the Agent may be compelled to make by operation of law
or which the Agent may make by agreement or otherwise for the protection of
the security hereof. All such sums and amounts so expended shall be
repayable by the Debtors immediately without notice or demand, shall
constitute so much additional Obligations hereby secured and shall bear
interest from the date said amounts are expended at the rate per annum
(computed on the basis of a 360-day year for the actual number of days
elapsed) determined by adding 3% to the Domestic Rate (such rate per annum
as so determined being hereinafter referred to as the "DEFAULT RATE"). No
such performance of any covenant or agreement by the Agent on behalf of any
Debtor and no such advancement or expenditure therefor, shall relieve any
Debtor of any default under the terms of this Agreement or in any way
obligate the Agent or any Lender to take any further or future action with
respect thereto. The Agent, in making any payment hereby authorized, may
do so according to any xxxx, statement or estimate procured from the
appropriate public office or holder of the claim to be discharged without
inquiry into the accuracy of such xxxx, statement or estimate or into the
validity of any tax assessment, sale, forfeiture, tax lien or title or
claim. The Agent, in performing any act hereunder, shall be the sole judge
of whether the relevant Debtor is required to perform same under the terms
of this Agreement. The Agent is authorized to charge any depository
account of any Debtor maintained with the Agent for the amount of such sums
and amounts so expended.
(l) Each Debtor warrants that such Debtor has not transacted
business, and does not transact business, under any trade names except as
set forth on Schedule B. Each Debtor agrees that it will not change its
name or transact business under any trade names without first giving the
Agent 30 days' prior written notice of its intent to do so.
-8-
(m) Each Debtor agrees to execute and deliver to the Agent such
further agreements and assignments or other instruments and to do all such
other things as the Agent may deem necessary or appropriate to assure the
Agent its security interest hereunder, including such financing statement
or statements or amendments thereof or supplements thereto or other
instruments as the Agent or the Required Lenders may from time to time
require in order to comply with the Uniform Commercial Code as enacted in
the State of Illinois and any successor statute(s) thereto (the "CODE").
Each Debtor hereby agrees that a carbon, photographic or other reproduction
of this Agreement or any such financing statement is sufficient for filing
as a financing statement by the Agent without notice thereof to any Debtor
wherever the Agent in its sole discretion desires to file the same. In the
event for any reason the law of any other jurisdiction than Illinois
becomes or is applicable to the Collateral or any part thereof, or to any
of the Obligations, each Debtor agrees to execute and deliver all such
instruments and to do all such other things as the Agent in its sole
discretion deems necessary or appropriate to preserve, protect and enforce
the security interests of the Agent under the law of such other
jurisdiction to at least the same extent as such security interests would
be protected under the Code. If any Collateral is in the possession or
control of any Debtor's agents or processors and unless the Agent requests
otherwise, such Debtor agrees to notify such agents or processors in
writing of the Agent's security interests therein, and upon the Agent's
request instruct them to hold all such Collateral for the Agent's account
and subject to the Agent's instructions. The Debtors agree to xxxx their
books and records to reflect the security interests of the Agent in the
Collateral.
SECTION 4. SPECIAL PROVISIONS RE: RECEIVABLES. (a) As of the time any
Receivable becomes subject to the security interest provided for hereby and at
all times thereafter, each Debtor shall be deemed to have warranted as to each
and all of such Receivables that all warranties of such Debtor set forth in this
Agreement are true and correct with respect to such Receivable constituting an
Eligible Account; that each Receivable and all papers and documents relating
thereto are genuine and in all respects what they purport to be; that each
Receivable is valid and subsisting and, if such Receivable is an account, arises
out of a bona fide sale of goods sold and delivered (or intellectual property
licensed) by such Debtor to, or in the process of being delivered (or, in the
case of intellectual property, licensed) to, or out of and for services
theretofore actually rendered by such Debtor to, the account debtor named
therein; that no such Receivable is evidenced by any instrument or chattel paper
unless such instrument or chattel paper has theretofore been endorsed by such
Debtor and delivered to the Agent (except to the extent the Agent specifically
requests such Debtor not to do so with respect to any such instrument or
chattel paper); that no surety bond was required or given in connection with
said Receivable or the contracts or purchase orders out of which the same arose;
that the amount of the Receivable represented as owing is the correct amount
actually and unconditionally owing, except for normal cash discounts on normal
trade terms in the ordinary course of business if such Receivable is an account
and that the amount of such Receivable represented as owing is not disputed and
is not subject to any set-offs, credits, deductions or countercharges other than
those arising in the ordinary course of such Debtor's business which are
disclosed to the Agent in writing promptly upon such Debtor becoming aware
thereof. Without limiting the foregoing, if any Receivable
-9-
arises out of a contract with the United States of America or any of its
departments, agencies or instrumentalities, each Debtor agrees to notify the
Agent and execute whatever instruments and documents are required by the
Agent in order that such Receivable shall be assigned to the Agent and that
proper notice of such assignment shall be given under the federal Assignment
of Claims Act (or any successor statute).
(b) Each Debtor shall keep all of its books and records relating to the
Receivables only at its chief executive office described in Section 3(b)
hereof.
(c) Unless and until an Event of Default occurs, any merchandise which
is returned by a customer or account debtor or otherwise recovered may be
resold by the Debtors in the ordinary course of their respective businesses
in accordance with Section 5(b) hereof; after an Event of Default occurs,
such merchandise shall be set aside and held by each of the Debtors as
trustee for the Agent and the Lenders and shall remain part of the Agent's
Collateral. Unless and until an Event of Default occurs, each Debtor may
settle and adjust disputes and claims with its customers and account debtors,
handle returns and recoveries and grant discounts, credits and allowances in
the ordinary course of its business and otherwise for amounts and on terms
which such Debtor considers advisable. However, after an Event of Default has
occurred and unless the Agent requests otherwise, each Debtor shall notify
the Agent promptly of all returns and recoveries and on request deliver the
merchandise to the Agent. After an Event of Default has occurred and unless
the Agent requests otherwise, each Debtor shall also notify the Agent
promptly of all disputes and claims and settle or adjust them at no expense
to the Agent or the Lenders, but no discount, credit or allowance other than
on normal trade terms in the ordinary course of business shall be granted to
any customer or account debtor and no returns of merchandise shall be
accepted by such Debtor without the Agent's consent. The Agent may, at all
times after such an Event of Default has occurred, settle or adjust disputes
and claims directly with customers or account debtors for amounts and upon
terms which the Agent considers advisable.
(d) From time to time, as the Agent may request of any Debtor, such
Debtor shall provide the Agent with schedules describing all Receivables
created or acquired by such Debtor, provided, however, that the failure of
such Debtor to execute and deliver such schedules shall not affect or limit
the Agent's security interest or other rights in and to any such Receivables.
Together with each schedule, each Debtor shall if requested by the Agent,
furnish copies of customers' invoices or the equivalent, and original
shipping or delivery receipts, for all merchandise sold, and each Debtor
warrants the genuineness thereof.
SECTION 5. COLLECTION OF RECEIVABLES. (a) Except as otherwise
provided in this Agreement or the Credit Agreement each Debtor shall make
collection of all of its Receivables and may use the same to carry on its
business in accordance with sound business practice and otherwise subject to
the terms hereof.
(b) Whether or not the Agent has exercised any or all of its rights
under other provisions of this Section 5 and whether or not any Event of
Default has occurred, at the request of the Agent, such Debtor shall instruct
all account debtors to remit all payments in
-10-
respect of its Receivables to a lockbox or lockboxes under the sole custody
and control of the Agent and which are maintained at post offices in Chicago,
Illinois selected by the Agent.
(c) Whether or not any Event of Default has occurred and whether or not
the Agent has exercised any or all of its rights under other provisions of
this Section 5, in the event the Agent requests any Debtor to do so, all
instruments and chattel paper at any time constituting part of the
Receivables (including any postdated checks) shall, upon receipt by such
Debtor, be immediately endorsed to and deposited with the Agent.
(d) Upon the occurrence and during the continuance of an Event of
Default, the Agent or its designee may notify any Debtor's customers or
account debtors that Receivables have been assigned to the Agent or of the
Agent's security interest therein and either in its own name, or such
Debtor's or both, demand, collect (including without limitation through a
lockbox analogous to that described in Section 5(b) hereof), receive, receipt
for, xxx for, compound and give acquittance for any or all amounts due or to
become due on Receivables, and in the Agent's discretion file any claim or
take any other action or proceeding which the Agent may deem necessary or
appropriate to protect and realize upon the security interest of the Agent in
the Receivables.
(e) Any proceeds of Receivables or other Collateral transmitted to or
otherwise received by the Agent pursuant to any of the provisions of Sections
5(b), 5(c) or 5(d) hereof shall be handled and administered by the Agent in
and through a remittance account maintained at the Agent (such remittance
account to constitute a special restricted account for purposes of Section
4.2 of the Credit Agreement), and each Debtor acknowledges that the
maintenance of such remittance account by the Agent is solely for the Agent's
own convenience and that such Debtor does not have any right, title or
interest in such remittance account or any amounts at any time standing to
the credit thereof. The Agent may apply all or any part of any proceeds of
Receivables or other Collateral received by it from any source to the payment
of the Obligations (whether or not then due and payable), such applications
to be made in accordance with Section 3 of the Credit Agreement. Except for
purposes of computing interest on the Obligations in accordance with Section
3.7 of the Credit Agreement, the Agent need not apply or give credit for any
item included in proceeds of Receivables or other Collateral until the Agent
has received final payment therefor at its office in cash or final solvent
credits current in Chicago, Illinois, acceptable to the Agent as such.
However, if the Agent does give credit for any item prior to receiving final
payment therefor and the Agent fails to receive such final payment or an item
is charged back to the Agent for any reason, the Agent may at its election in
either instance charge the amount of such item back against the remittance
account, together with interest thereon at the Default Rate. Each Debtor
shall accompany each transmission of any proceeds of Receivables or other
Collateral to the Agent with a report in such form as the Agent shall require
identifying the particular Receivable or other Collateral from which the same
arises or relates. The Debtors hereby jointly and severally indemnify the
Agent and the Lenders from and against all liabilities, damages, losses,
actions, claims, judgments, costs, expenses, charges and attorney's fees
suffered or incurred by the Agent or the Lenders because of the maintenance
of the foregoing arrangements. The Agent and the Lenders shall have no
liability or responsibility to any Debtor for accepting any check, draft or
other order for
-11-
payment of money bearing the legend "PAYMENT IN FULL" or words of similar
import or any other restrictive legend or endorsement whatsoever or be
responsible for determining the correctness of any remittance.
SECTION 6. SPECIAL PROVISIONS RE: INVESTMENT PROPERTY. (a) Unless
and until an Event of Default has occurred and is continuing and thereafter
until notified to the contrary by the Agent pursuant to Section 9(e) hereof:
(i) Each Debtor shall be entitled to exercise all voting and/or
consensual powers pertaining to the Investment Property or any part thereof
owned or held by it, for all purposes not inconsistent with the terms of
this Agreement, the Credit Agreement or any other document evidencing or
otherwise relating to any Obligations; and
(ii) Each Debtor shall be entitled to receive and retain all cash
dividends paid upon or in respect of the Investment Property owned or held
by it.
(b) Certificates for all securities now or at any time constituting
Investment Property hereunder shall be promptly delivered by the relevant
Debtor to the Agent duly endorsed in blank for transfer or accompanied by an
appropriate assignment or assignments or an appropriate undated stock power
or powers, in every case sufficient to transfer title thereto, and, with
respect to any Investment Property held by a securities intermediary,
commodity intermediary, or other financial intermediary of any kind, the
relevant Debtor shall execute and deliver, and shall cause any such
intermediary to execute and deliver, an agreement among such Debtor, the
Agent, and such intermediary in form and substance satisfactory to the Agent
which provides, among other things, for the intermediary's agreement that it
will comply with entitlement orders, and apply any value distributed on
account of any Investment Property maintained in an account with such
intermediary, as directed by the Agent without further consent by such Debtor
at any time after the occurrence of any Event of Default; PROVIDED, HOWEVER,
that, prior to the existence of an Event of Default and thereafter until
otherwise required by the Agent or the Required Lenders, a Debtor shall not
be required to deliver any such certificates or cause any such agreement to
be entered into with the relevant financial intermediary if and so long as
(i) the fair market value of any such Investment Property held by such Debtor
is less than $50,000 and (ii) the aggregate fair market value of all such
Investment Property held by the Debtors and not subject to the control (as
such term is defined in the Code) of the Agent under the Collateral Documents
is less than $250,000 at any one time outstanding. The Agent may at any time
after the occurrence of an Event of Default cause to be transferred into its
name or the name of its nominee or nominees any and all of the Investment
Property hereunder.
(c) Unless and until an Event of Default has occurred and is
continuing, each Debtor may sell or otherwise dispose of any Investment
Property to the extent permitted by the Credit Agreement, PROVIDED that no
Debtor shall sell or otherwise dispose of any capital stock or other equity
interests in any other Debtor or any direct or indirect Subsidiary of any
Debtor without the Agent's prior written consent except as expressly
permitted by the
-12-
Credit Agreement. During the existence of any Event of Default, no Debtor
shall sell or otherwise dispose of all or any part of the Investment Property
without the prior written consent of the Agent.
(d) Each Debtor represents that on the date of this Agreement, none of
the Investment Property consists of margin stock (as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve System) except
to the extent such Debtor has delivered to the Agent a duly executed and
completed Form U-1 with respect to such stock. If at any time the Investment
Property or any part thereof consists of margin stock, the relevant Debtor
shall promptly so notify the Agent and deliver to the Agent a duly executed
and completed Form U-1 and such other instruments and documents reasonably
requested by the Agent in form and substance satisfactory to the Agent.
(e) Notwithstanding anything to the contrary contained herein, in the
event any Investment Property is subject to the terms of a separate security
agreement (including, without limitation, the Pledge Agreement bearing even
date herewith relating to the equity interests issued by certain of the
Debtors hereunder) in favor of the Agent, the terms of such separate security
agreement shall govern and control unless otherwise expressly stated therein
or agreed to in writing by the Agent and the Lenders.
(f) In the event of any irreconcilable inconsistencies between this
Agreement and the Credit Agreement regarding the administration of
collections on Receivables, the provisions of the Credit Agreement shall
govern.
SECTION 7. SPECIAL PROVISIONS RE: INVENTORY AND EQUIPMENT. (a) Except
as expressly permitted by the Credit Agreement, each Debtor will at its own
cost and expense maintain, keep and preserve its Inventory in good and
merchantable condition and keep and preserve its Equipment in good repair,
working order and condition, ordinary wear and tear excepted, and without
limiting the foregoing make all necessary and proper repairs, replacements
and additions to the Equipment so that the efficiency thereof shall be fully
preserved and maintained.
(b) Each Debtor may, until an Event of Default has occurred and is
continuing and thereafter until otherwise notified by the Agent, use, consume
and sell its Inventory in the ordinary course of its business as presently
conducted, but a sale in the ordinary course of business shall not under any
circumstance include any transfer or sale in satisfaction, partial or
complete, of a debt owing by any Debtor.
(c) Each Debtor may, until an Event of Default has occurred and is
continuing and thereafter until otherwise notified by the Agent, sell or
otherwise dispose of Equipment as and to the extent permitted by Section 8.18
of the Credit Agreement.
(d) As of the time any Inventory or Equipment becomes subject to the
security interest provided for hereby and at all times thereafter, each
Debtor shall be deemed to have warranted as to any and all of its Inventory
and Equipment that all warranties of such Debtor set forth in this Agreement
are true and correct with respect to such Inventory and
-13-
Equipment and that all of such Inventory and Equipment is located at a
location set forth pursuant to Section 3(b) hereof. Each Debtor warrants and
agrees that no Inventory is or will be consigned to any other person without
the Agent's prior written consent.
(e) Each Debtor shall at its own cost and expense cause the lien of the
Agent in and to any portion of its Collateral subject to a certificate of
title law to be duly noted on such certificate of title or to be otherwise
filed in such manner as is prescribed by law in order to perfect such lien
and shall cause all such certificates of title and evidences of lien to be
deposited with the Agent unless otherwise permitted by the Required Lenders
in their sole discretion; PROVIDED THAT no Debtor shall be obligated to cause
the Agent's lien to be so noted or to deliver any such certificate of title
to the Agent to the extent such certificate is held by another Lender with a
purchase money security interest permitted by the Credit Agreement on the
Collateral represented by such certificate.
(f) Each Debtor shall at its own cost and expense cause any certificate
of title evidencing any of the Collateral to be amended to reflect the
current and correct name of such Debtor as and when required by applicable
law, but in any event no later than such date on which such Debtor must renew
its registration of such Collateral under applicable law. Each Debtor shall
cause the lien of the Agent in such Collateral to continue to be duly noted
on such amended or reissued certificate of title.
(g) Except for Equipment from time to time located on the real estate
described on Schedule C attached hereto and as otherwise disclosed to the
Agent in writing, none of the Equipment is or will be attached to real estate
in such a manner that the same may become a fixture.
(h) If any of its Inventory is at any time evidenced by a document of
title, such document shall be promptly delivered by the appropriate Debtor to
the Agent.
SECTION 8. POWER OF ATTORNEY. In addition to any other powers of
attorney contained herein, each Debtor appoints the Agent, its nominee, or
any other person whom the Agent may designate as such Debtor's attorney in
fact, with full power to endorse such Debtor's names on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that
may come into the Agent's possession, to sign such Debtor's names on any
invoice or xxxx of lading relating to any Receivables, on drafts against
customers, on schedules and assignments of Receivables, on notices of
assignment, on public records, on verifications of accounts and on notices to
customers, to send requests for verification of Receivables to customers or
account debtors, to notify the post office authorities to change the address
for delivery of such Debtor's mail to an address designated by the Agent and
to receive, open and dispose of all mail addressed to such Debtor and to do
all other things necessary to carry out this Agreement. Each Debtor hereby
ratifies and approves all acts of any such attorney and agree that neither
the Agent nor any such attorney nor any Lender will be liable for any acts or
omissions nor for any error of judgment or mistake of fact or law other than
their own gross negligence or willful misconduct. The foregoing power of
attorney, being coupled with an interest, is irrevocable until the
Obligations have been fully satisfied and any commitment of the Lenders to
extend credit constituting Obligations has
-14-
terminated. The Agent may file one or more financing statements disclosing
its security interest in any or all of the Collateral without any Debtor's
signature appearing thereon. Each Debtor also hereby grants the Agent a
power of attorney to execute any such financing statement, or amendments and
supplements to financing statements, on behalf of such Debtor without notice
thereof to any Debtor, which power of attorney is coupled with an interest
and is irrevocable until the Obligations have been fully satisfied and any
commitment of the Lenders to extend credit constituting Obligations to the
Borrowers, or any of them individually, has terminated. Agent agrees that it
will not exercise the power of attorney hereby granted in a manner
inconsistent with the provisions of the Credit Agreement.
SECTION 9. DEFAULTS AND REMEDIES. (a) The occurrence of any event
or the existence of any condition which is specified as an Event of Default
under the Credit Agreement shall constitute an "EVENT OF DEFAULT" hereunder.
(b) Upon the occurrence of any Event of Default, the Agent shall have,
in addition to all other rights provided herein or by law, the rights and
remedies of a secured party under the Code (regardless of whether the Code is
the law of the jurisdiction where the rights or remedies are asserted and
regardless of whether the Code applies to the affected Collateral), and
further the Agent may, without demand and without advertisement, notice,
hearing or process of law, all of which each Debtor hereby waives to the
extent permitted by law, at any time or times, sell and deliver any or all
Collateral held by or for it at public or private sale, for cash, upon credit
or otherwise, at such prices and upon such terms as the Agent deems
advisable, in its sole discretion. In addition to all other sums due the
Agent and the Lenders hereunder, the Debtors jointly and severally agree to
pay to the Agent and the Lenders all costs and expenses incurred by the Agent
and the Lenders, including reasonable attorneys' fees and court costs, in
obtaining, liquidating or enforcing payment of Collateral or Obligations or
in the prosecution or defense of any action or proceeding by or against the
Agent or such Lender or the Debtors or any of them concerning any matter
arising out of or connected with this Agreement or the Collateral or
Obligations, including without limitation any of the foregoing arising in,
arising under or related to a case under the Bankruptcy Code. Any
requirement of reasonable notice to any Debtor shall be met if such notice
made to the Company in accordance with Section 13.8 of the Credit Agreement.
The Agent shall not be obligated to make any sale or other disposition of the
Collateral regardless of notice having been given. The Agent or any Lender
may be the purchaser at any such sale. Each Debtor hereby waives all of its
rights of redemption from any such sale. Subject to the provisions of
applicable law, the Agent may postpone or cause the postponement of the sale
of all or any portion of the Collateral by announcement at the time and place
of such sale, and such sale may, without further notice, be made at the time
and place to which the sale was postponed or the Agent may further postpone
such sale by announcement made at such time and place.
(c) Without in any way limiting the foregoing, during the existence of
any Event of Default, the Agent shall have the right, in addition to all
other rights provided herein or by law, to take physical possession of any
and all of the Collateral and anything found therein, the right for that
purpose to enter without legal process any premises where the Collateral may
be found (provided such entry be done lawfully), and the right to maintain
such
-15-
possession on each Debtor's premises (each Debtor hereby agreeing to lease
warehouses without cost or expense to the Agent or its designee if the Agent
so requests) or to remove its Collateral or any part thereof to such other
places as the Agent may desire. During the existence of any Event of Default,
the Agent shall have the right to exercise any and all rights with respect to
deposit accounts of any Debtor maintained with the Agent or any Lender,
including, without limitation, the right to collect, withdraw and receive all
amounts due or to become due or payable under each such deposit account.
During the existence of any Event of Default, each Debtor shall, upon the
Agent's demand, assemble its Collateral and make it available to the Agent at
a place designated by the Agent. If the Agent exercises its right to take
possession of the Collateral, each Debtor shall also at its expense perform
any and all other steps requested by the Agent to preserve and protect the
security interest hereby granted in the Collateral, such as placing and
maintaining signs indicating the security interest of the Agent, appointing
overseers for the Collateral and maintaining stock records.
(d) Without in any way limiting the foregoing, each Debtor hereby
grants to the Agent and the Lenders a royalty-free irrevocable license and
right to use all of such Debtor's patents, patent applications, patent
licenses, trademarks, trademark registrations, trademark licenses, trade
names, trade styles, and similar intangibles in connection with any
foreclosure or other realization by the Agent or the Lenders on all or any
part of the Collateral, provided that the license granted hereunder shall not
include any rights in any license agreement under which the relevant Debtor
is licensee which, by its terms, prohibits the license contemplated by this
Section. The license and right granted the Agent and the Lenders hereby
shall be without any royalty or fee or charge whatsoever.
(e) Without in any way limiting the foregoing, during the existence of
any Event of Default, all rights of a Debtor to exercise the voting and/or
consensual powers which it is entitled to exercise pursuant to Section
6(a)(i) hereof and/or to receive and retain the distributions which it is
entitled to receive and retain pursuant to Section 6(a)(ii) hereof, shall, at
the option of the Agent, cease and thereupon become vested in the Agent,
which, in addition to all other rights provided herein or by law, shall then
be entitled solely and exclusively to exercise all voting and other
consensual powers pertaining to the Investment Property and/or to receive and
retain the distributions which such Debtor would otherwise have been
authorized to retain pursuant to Section 6(a)(ii) hereof and shall then be
entitled solely and exclusively to exercise any and all rights of conversion,
exchange or subscription or any other rights, privileges or options
pertaining to any Investment Property as if the Agent were the absolute owner
thereof including, without limitation, the rights to exchange, at its
discretion, any and all of the Investment Property upon the merger,
consolidation, reorganization, recapitalization or other readjustment of the
respective issuer thereof or upon the exercise by or on behalf of any such
issuer or the Agent of any right, privilege or option pertaining to any
Investment Property and, in connection therewith, to deposit and deliver any
and all of the Investment Property with any committee, depositary, transfer
Agent, registrar or other designated agency upon such terms and conditions as
the Agent may determine. Without limiting the foregoing, during the
existence of any Event of Default, the Agent may, by written demand, direct
any securities intermediary, commodities intermediary, or other financial
intermediary at any time holding any Investment Property, or any issuer
thereof, to deliver such Collateral, or any part thereof, and/or liquidate
such
-16-
Collateral, or any party thereof, and deliver the proceeds therefrom to the
Agent. In the event the Agent in good faith believes any of the Collateral
constitutes restricted securities within the meaning of any applicable
securities laws, any disposition thereof in compliance with such laws shall
not render the disposition commercially unreasonable.
(f) The powers conferred upon the Agent hereunder are solely to protect
its interest in the Collateral and shall not impose on it any duty to
exercise such powers. The Agent shall be deemed to have exercised reasonable
care in the custody and preservation of Investment Property in its possession
if such Collateral is accorded treatment substantially equivalent to that
which the Agent accords its own property consisting of similar type assets,
it being understood, however, that the Agent shall have no responsibility for
ascertaining or taking any action with respect to calls, conversions,
exchanges, maturities, tenders, or other matters relating to any such
Collateral, whether or not the Agent has or is deemed to have knowledge of
such matters. This Agreement constitutes an assignment of rights only and
not an assignment of any duties or obligations of any Debtor in any way
related to the Collateral, and the Agent shall have no duty or obligation to
discharge any such duty or obligation. The Agent shall have no
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any Collateral or initiating any action to protect
the Collateral against the possibility of a decline in market value. Neither
the Agent or any Lender, nor any party acting as attorney for the Agent or
any Lender, shall be liable for any acts or omissions or for any error of
judgment or mistake of fact or law other than such person's gross negligence
or willful misconduct.
(g) Failure by the Agent or any Lender to exercise any right, remedy or
option under this Agreement or any other agreement between the Debtors or any
of them and the Agent or any Lender or Lenders or provided by law, or delay
by the Agent or any Lender in exercising the same, shall not operate as a
waiver; no waiver shall be effective unless it is in writing, signed by the
party against whom enforcement of the waiver is sought and then only to the
extent specifically stated. Neither the Agent, any Lender nor any party
acting as attorney for the Agent or such Lender, shall be liable for any acts
or omissions or for any error of judgment or mistake of fact or law other
than their gross negligence or willful misconduct. The rights and remedies
of the Agent and the Lenders under this Agreement shall be cumulative and not
exclusive of any other right or remedy which the Agent or any Lender may
have. For purposes of this Agreement, an Event of Default shall be construed
as continuing after its occurrence until the same is waived in writing by the
Lenders or the Required Lenders, as the case may be, in accordance with the
Credit Agreement.
SECTION 10. APPLICATION OF PROCEEDS. The proceeds and avails of the
Collateral at any time received by the Agent upon the occurrence and during
the continuation of any Event of Default shall, when received by the Agent in
cash or its equivalent, be applied by the Agent in reduction of the
Obligations in accordance with the terms of the Credit Agreement. The
Debtors shall remain liable to the Agent and the Lenders for any deficiency.
Any surplus remaining after the full payment and satisfaction of the
Obligations shall be returned to the Debtors or to whomsoever the Agent
reasonably determines is lawfully entitled thereto.
-17-
SECTION 11. CONTINUING AGREEMENT. This Agreement shall be a
continuing agreement in every respect and shall remain in full force and
effect until all of the Obligations, both for principal and interest, have
been fully paid and satisfied and any commitment to extend any credit
constituting Obligations to the Borrowers, or any of them individually, shall
have terminated. Upon such termination of this Agreement, the Agent shall,
upon the request of the Debtors, execute and deliver to such Debtors a proper
instrument or instruments (including Uniform Commercial Code termination
statements on form UCC-3) acknowledging the satisfaction and termination of
this Agreement, and will duly assign, transfer and deliver to such Debtors,
against receipt and without recourse to the Agent, such of the Collateral as
may be in the possession of the Agent and as has not theretofore been sold or
otherwise applied or released pursuant to this Agreement or the Credit
Agreement.
SECTION 12. PRIMARY SECURITY; OBLIGATIONS ABSOLUTE. The lien and
security herein created and provided for stand as direct and primary security
for the Obligations. No application of any sums received by the Agent in
respect of the Collateral or any disposition thereof to the reduction of the
Obligations or any portion thereof shall in any manner entitle any Debtor to
any right, title or interest in or to the Obligations or any collateral
security therefor, whether by subrogation or otherwise, unless and until all
Obligations have been fully paid and satisfied and any commitment to extend
credit constituting Obligations to the Borrowers, or any of them
individually, shall have terminated. Each Debtor acknowledges and agrees
that the lien and security hereby created and provided for are absolute and
unconditional and shall not in any manner be affected or impaired by any acts
or omissions whatsoever of the Agent, any Lender or any other holder of any
of the Obligations, and without limiting the generality of the foregoing, the
lien and security hereof shall not be impaired by any acceptance by the
Agent, any Lender or any holder of any of the Obligations of any other
security for or guarantors upon any of the Obligations or by any failure,
neglect or omission on the part of the Agent, any Lender or any other holder
of any of the Obligations to realize upon or protect any of the Obligations
or any collateral security therefor. The lien and security hereof shall not
in any manner be impaired or affected by (and the Agent and the Lenders,
without notice to anyone, are hereby authorized to make from time to time)
any sale, pledge, surrender, compromise, settlement, release, renewal,
extension, indulgence, alteration, substitution, exchange, change in,
modification or disposition of any of the Obligations, or of any collateral
security therefor, or of any guaranty thereof or of any obligor thereon. The
Lenders may at their discretion at any time grant credit to the Borrowers, or
any of them individually, without notice to any Debtor in such amounts and on
such terms as the Lenders may elect (all of such to constitute additional
Obligations) without in any manner impairing the lien and security hereby
created and provided for. No release, compromise or discharge of any Debtor
hereunder or with respect to any of the Obligations or any Collateral
provided by such Debtor shall release or discharge, or impair the agreements
of, any other Debtor hereunder or in any manner impair the liens and security
interests granted by any other Debtor hereunder; and the Agent may proceed
against the Collateral provided hereunder by any one or more of the Debtors
without proceeding against any or all of the other Debtors, their respective
properties or any other security or guaranty whatsoever. Without limiting
the generality of the foregoing, the Agent (acting at the direction of the
Lenders) may at any time or from time to time release
-18-
any Debtor from its obligations hereunder or release any Collateral or effect
any compromise with any Debtor, and no such release or compromise shall in
any manner impair or otherwise effect the liens granted by, or the
obligations of, the other Debtors hereunder. In order to foreclose or
otherwise realize hereon and to exercise the rights granted the Agent
hereunder and under applicable law as against any Debtor or any Collateral in
which such Debtor has rights, there shall be no obligation on the part of the
Agent, any Lender or any other holder of any of the Obligations at any time
to first resort for payment to the Borrowers, or any of them individually, or
any other Debtor or any other Person, its property or estate or to any
guaranty of the Obligations or any portion thereof or to resort to any other
collateral security, property, liens or any other rights or remedies
whatsoever, and the Agent shall have the right to enforce this instrument as
against any Debtor or any Collateral in which such Debtor has rights,
irrespective of whether or not other proceedings or steps are pending seeking
resort to or realization upon or from any of the foregoing.
SECTION 13. THE AGENT. In acting under or by virtue of this
Agreement, the Agent shall be entitled to all the rights, authority,
privileges and immunities provided in Section 10 of the Credit Agreement, all
of which provisions of said Section 10 are incorporated by reference herein
with the same force and effect as if set forth herein in their entirety. The
Agent hereby disclaims any representation or warranty to the Lenders
concerning the perfection of the security interest granted hereunder or in
the value of any of the Collateral.
SECTION 14. MISCELLANEOUS. (a) This Agreement cannot be changed or
terminated orally. All of the rights, privileges, remedies and options given
to the Agent and the Lenders hereunder shall inure to the benefit of their
respective successors and assigns, and all the terms, conditions, promises,
covenants, representations and warranties of and in this Agreement shall bind
each Debtor and its legal representatives, successors and assigns, provided
that no Debtor may assign its rights or delegate its duties hereunder without
the Agent's prior written consent. Without limiting the generality of the
foregoing, and subject to the provisions of Sections 13.11 and 13.12 of the
Credit Agreement, any Lender may assign or otherwise transfer any
indebtedness held by it secured by this Agreement to any other person or
entity, and such other person or entity shall thereupon become vested with
all the benefits in respect thereof granted to such Lender herein or
otherwise, subject, however, to the provisions of the Credit Agreement. Each
Debtor hereby releases the Agent and each Lender from any liability for any
act or omission relating to its Collateral or this Agreement, except the
Agent's or such Lender's gross negligence or willful misconduct.
(b) All communications provided for herein shall be in writing, except
as otherwise specifically provided for hereinabove, and shall be deemed to
have been given or made, if to any Debtor when given to the Borrowers in
accordance with Section 13.8 of the Credit Agreement, or if to the Agent or
any Lender, when given to such party in accordance with Section 13.8 of the
Credit Agreement.
(c) No Lender shall have the right to institute any suit, action or
proceeding in equity or at law for the foreclosure against any Collateral
subject to this Agreement or for the execution of any trust or power hereof
or for the appointment of a receiver, or for the
-19-
enforcement of any other remedy under or upon this Agreement; it being
understood and intended that no one or more of the Lenders shall have any
right in any manner whatsoever to affect, disturb or prejudice the lien and
security interest of this Agreement by its or their action or to enforce any
right hereunder, and that all proceedings at law or in equity shall be
instituted, had and maintained by the Agent in the manner herein provided for
the ratable benefit of the Lenders.
(d) In the event that any provision hereof shall be deemed to be
invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Agreement shall be construed
as not containing such provision, but only as to such locations where such
law or interpretation is operative, and the invalidity of such provision
shall not affect the validity of any remaining provision hereof, and any and
all other provisions hereof which are otherwise lawful and valid shall remain
in full force and effect. Without limiting the generality of the foregoing,
in the event that this Agreement shall be deemed to be invalid or otherwise
unenforceable with respect to any Debtor, such invalidity or unenforceability
shall not affect the validity of this Agreement with respect to the other
Debtors.
(e) This Agreement shall be deemed to have been made in the State of
Illinois and shall be governed by the internal laws of the State of Illinois
(without regard to the principles of conflicts of law). All terms which are
used in this Agreement which are defined in the Code shall have the same
meanings herein as said terms do in the Code unless this Agreement shall
otherwise specifically provide. The headings in this instrument are for
convenience of reference only and shall not limit or otherwise affect the
meaning of any provision hereof.
(f) This Agreement may be executed in any number of counterparts, each
constituting an original, but all together one and the same instrument. Each
Debtor acknowledges that this Agreement is and shall be effective upon its
execution and delivery by such Debtor to the Agent, and it shall not be
necessary for the Agent to execute this Agreement or any other acceptance
hereof or otherwise to signify or express its acceptance hereof.
(g) THE AGENT AND THE DEBTORS AGREE THAT ALL DISPUTES AMONG THEM
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING
IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR
FEDERAL COURTS LOCATED IN XXXX COUNTY, ILLINOIS, BUT EACH OF THE AGENT AND
THE DEBTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF XXXX COUNTY, ILLINOIS. EACH OF THE
DEBTORS WAIVES IN ALL DISPUTES ANY OBJECTION THAT SUCH DEBTOR MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE OR ANY OBJECTION THAT SUCH
DEBTOR MAY HAVE THAT ANY OTHER PARTY HAS NOT BEEN JOINED IN SUCH PROCEEDING.
EACH OF THE DEBTORS AGREES THAT THE AGENT SHALL HAVE THE RIGHT TO PROCEED
AGAINST EACH AND ANY OF THE DEBTORS OR THEIR COLLATERAL IN A COURT IN ANY
LOCATION TO ENABLE THE AGENT TO REALIZE ON THE COLLATERAL, OR TO ENFORCE A
-20-
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT, WHETHER OR NOT
PROCEEDING SEPARATELY AGAINST ANY DEBTOR AND ITS PROPERTY OR JOINTLY AGAINST
THE BORROWER AND ANY ONE OR MORE OF THE DEBTORS AND THEIR PROPERTY. EACH OF
THE DEBTORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT IN WHICH THE AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
PARAGRAPH.
[SIGNATURE PAGES TO FOLLOW]
-21-
IN WITNESS WHEREOF, the Debtors have caused this Agreement to be duly
executed as of the date first above written.
DEBTORS:
PLATINUM ENTERTAINMENT, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
INTERSOUND, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
LEXICON MUSIC, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
CGI RECORDS, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
RIVER NORTH RECORDS, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
LIGHT RECORDS, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
-22-
THE RECORDING EXPERIENCE, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
PEG PUBLISHING, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
JUSTMIKE MUSIC, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
ROYCE PUBLISHING, INC.
By /s/ Xxxxxx Xxxxxx
------------------------------------
Its: President
-23-
Accepted and agreed to as of the date first above written.
BANK OF MONTREAL, as Agent as aforesaid
for the Lenders
By /s/ Xxxxxxx Xxxxx
------------------------------------
Its /s/ Director
---------------------------------
-24-
SCHEDULE A
COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
NAME OF DEBTOR CHIEF ADDITIONAL PLACES LOCATION OF
(AND FEDERAL TAX EXECUTIVE OF BUSINESS COLLATERAL
I.D. NUMBER) OFFICE OR DEBTOR
Platinum Entertainment, 2001 Xxxxxxxxxxx Road None 0000 Xxxxxxxxxxx Xxxx
Inc. Xxxxx 0000 Xxxxx 0000
Xxx XX #00-0000000 Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
0000 Xxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000
Federal Xxxxxx Moving
and Storage
000 Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
0000 00xx Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Lexicon Music, Inc. 0000 Xxxxxxxxxxx Xxxx Xxxx 0000 Xxxxxxxxxxx Road
Tax ID #00-0000000 Xxxxx 0000 Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
Intersound, Inc. 0000 Xxxxxxxxxxx Xxxx Xxxx 0000 Xxxxxxxxxxx Road
Tax ID #00-0000000 Xxxxx 0000 Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
0000 Xxxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxx, XX 00000
0 Xxxxxx Xxxxxx, Xxxx 00
Xxxxxxxxxxx, Xxxxxxx
X0X 0X0
00000 Xxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
00 Xxxxxxxx Xxxx.
Xxxxx 000
Xxxxxxxx, XX 00000
COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
NAME OF DEBTOR CHIEF ADDITIONAL PLACES LOCATION OF
(AND FEDERAL TAX EXECUTIVE OF BUSINESS COLLATERAL
I.D. NUMBER) OFFICE OR DEBTOR
000 Xxxxxxxxxx Xxx. Xx.
Xxxxx 000 & 000
Xxxxxxxxxxx, XX 00000
CGI Records, Inc. 0000 Xxxxxxxxxxx Xxxx None 0000 Xxxxxxxxxxx Xxxx
Xxx XX #00-0000000 Xxxxx 0000 Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
River North Records, 0000 Xxxxxxxxxxx Xxxx Xxxx 0000 Xxxxxxxxxxx Road
Inc. Xxxxx 0000 Xxxxx 0000
Xxx XX #00-0000000 Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
Light Records, Inc. 0000 Xxxxxxxxxxx Xxxx None 0000 Xxxxxxxxxxx Xxxx
Xxx XX #00-0000000 Xxxxx 0000 Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
The Recording 0000 Xxxxxxxxxxx Xxxx Xxxx 0000 Xxxxxxxxxxx Road
Experience, Inc. Xxxxx 0000 Xxxxx 0000
Xxx XX #00-0000000 Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
Peg Publishing, Inc. 0000 Xxxxxxxxxxx Xxxx Xxxx 0000 Xxxxxxxxxxx Road
Tax ID #00-0000000 Xxxxx 0000 Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
JustMike Music, Inc. 0000 Xxxxxxxxxxx Xxxx Xxxx 0000 Xxxxxxxxxxx Road
Tax ID #00-0000000 Xxxxx 0000 Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
Royce Publishing, Inc. 0000 Xxxxxxxxxxx Xxxx Xxxx 0000 Xxxxxxxxxxx Road
Tax ID #00-0000000 Xxxxx 0000 Xxxxx 0000
Xxxxxxx Xxxxx, XX 00000 Xxxxxxx Xxxxx, XX 00000
-2-
SCHEDULE B
TRADENAMES
DEBTOR TRADENAMES
Platinum Entertainment, Inc. none
Intersound, Inc. none
Lexicon Music, Inc. none
CGI Records, Inc. none
River North Records, Inc. none
Light Records, Inc. none
The Recording Experience, Inc. none
Peg Publishing, Inc. none
JustMike Music, Inc. none
Royce Publishing, Inc. none
SCHEDULE C
REAL ESTATE LEGAL DESCRIPTIONS
NONE
SCHEDULE D
ASSUMPTION AND SUPPLEMENTAL SECURITY AGREEMENT
This Agreement dated as of this 12th day of December, 1997 from
[NEW DEBTOR], a ______________ corporation (the "NEW DEBTOR"), to Bank of
Montreal ("BMO"), a chartered bank of Canada, as Agent for the Lenders
(defined in the Security Agreement hereinafter identified and defined) (BMO
acting as such Agent and any successor or successors to BMO in such capacity
being hereinafter referred to as the "AGENT");
WITNESSETH THAT:
WHEREAS, certain parties have executed and delivered to the Agent that
certain Security Agreement dated as of December 12, 1997 or supplements
thereto (such Security Agreement, as the same may from time to time be
modified or amended, including supplements thereto which add additional
parties as Debtors thereunder, being hereinafter referred to as the "SECURITY
AGREEMENT") pursuant to which such parties (the "EXISTING DEBTORS") have
granted to the Agent for the ratable benefit of the Lenders a security
interest in such Existing Debtor's accounts, inventory, general intangibles,
equipment and certain other properties, rights, interests and privileges to
secure, among other things, any and all indebtedness, obligations and
liabilities of Platinum Entertainment, Inc. (the "COMPANY") and Intersound,
Inc. ("INTERSOUND"; the Company and Intersound collectively referred to
herein as the "BORROWERS") to the Agent and the Lenders; and
WHEREAS, the Company provides the New Debtor with substantial financial,
managerial, administrative, technical and design support and the New Debtor
will directly and substantially benefit from credit and other financial
accommodations extended and to be extended by the Lenders to the Borrowers;
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances
made or to be made, or credit accommodations given or to be given, to the
Borrowers by the Lenders from time to time, the New Debtor hereby agrees as
follows:
1. The New Debtor acknowledges and agrees that it shall become a
"Debtor" party to the Security Agreement effective upon the New Debtors'
execution of this Agreement and the delivery of this Agreement to the Agent,
and that upon such execution and delivery, all references in the Security
Agreement to the terms "Debtor" or "Debtors" shall be deemed to include the
New Debtor. Without limiting the generality of the foregoing, the New Debtor
hereby repeats and reaffirms all grants (including the grant of a security
interest), covenants, agreements, representations and warranties contained in
the Security Agreement as amended hereby, each and all of which are and shall
remain applicable to the Collateral from time to time owned by the New Debtor
or in which the New Debtor from time to time has any rights. Without
limiting the foregoing, in order to secure payment of the Obligations, the
New Debtor does hereby grant to the Agent for the ratable benefit of the
Lenders, and hereby agrees that the Agent has and shall continue to have for
the ratable benefit of the
Lenders a continuing security interest in, among other things, all of the New
Debtor's Receivables, general intangibles, Inventory, Equipment and all of
the other Collateral described in the granting clauses of Section 1 of the
Security Agreement, each and all of such granting clauses being incorporated
herein by reference with the same force and effect as if set forth in their
entirety except that all references in such clauses to the Existing Debtors
or any of them shall be deemed references to the New Debtor. Nothing
contained herein shall in any manner impair the priority of the liens and
security interests heretofore granted in favor of the Agent under the
Security Agreement.
2. Schedule A of the Security Agreement shall be amended by adding the
following information thereto:
ADDITIONAL
LOCATIONS OF CHIEF EXECUTIVE CHIEF PLACE OF PLACES OF
DEBTOR COLLATERAL OFFICE BUSINESS BUSINESS
[NEW DEBTOR].
------------- --------------- -------------- ------------
3. The New Debtor hereby acknowledges and agrees that the Obligations
are secured by all of the Collateral according to, and otherwise on and
subject to, the terms and conditions of the Security Agreement to the same
extent and with the same force and effect as if the New Debtor had originally
been one of the Existing Debtors under the Security Agreement and had
originally executed the same as such an Existing Debtor.
4. All capitalized terms used in this Agreement without definition
shall have the same meaning herein as such terms have in the Security
Agreement, except that any reference to the term "Debtor" or "Debtors" and
any provision of the Security Agreement providing meaning to such term shall
be deemed a reference to the Existing Debtors and the New Debtor. Except as
specifically modified hereby, all of the terms and conditions of the Security
Agreement shall stand and remain unchanged and in full force and effect.
5. The New Debtor agrees to execute and deliver such further
instruments and documents and do such further acts and things as the Agent
may deem necessary or proper to carry out more effectively the purposes of
this Agreement.
6. No reference to this Agreement need be made in the Security
Agreement or in any other document or instrument making reference to the
Security Agreement, any reference to the Security Agreement in any of such to
be deemed a reference to the Security Agreement as modified hereby.
-2-
7. This Agreement shall be governed by and construed in accordance
with the State of Illinois (without regard to principles of conflicts of law)
in which state it shall performed by the New Debtor.
[NEW DEBTOR]
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
-3-
