Exhibit 10.13

 

CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT is dated as of the 27th day of September, 1999 and is by
and between K-TEL INTERNATIONAL, INC., a Minnesota corporation with offices
located at 2605 Fernbrook Lane North, Plymouth, Minnesota 55447 (the
“Borrower”), and K-5 LEISURE PRODUCTS, INC., a Nevada corporation with offices
located at 220 Saulteaux Crescent, Winnipeg, Manitoba, Canada (the “Lender”).

 

RECITALS:

 

WHEREAS, the Borrower has entered into a Loan and Security Agreement with
Foothill Capital Corporation (“Foothill”) dated November 19, 1997 for a
revolving loan of SIX MILLION AND NO/100 U.S. DOLLARS (U.S. $6,000,000) and a
term loan of FOUR MILLION AND NO/100 U.S. DOLLARS (U.S. $4,000,000)(the
“Foothill Agreement”);

 

WHEREAS, the Lender desires to extend to Borrower a conditional revolving credit
line in the principal amount of EIGHT MILLION AND NO/100 U.S. DOLLARS (U.S.
$8,000,000.00) (the “Credit”) for working capital purposes; and

 

WHEREAS, the Lender is willing to make the Credit available to the Borrower
subject to the provisions of this Credit Agreement;

 

NOW, THEREFORE, in consideration of the premises and of the mutual agreements
herein, the parties agree as follows:

 

SECTION 1                                   Definitions

 

In addition to those terms as defined in the above recitals, as used herein:

 

1.1                                 “Agreement” shall mean this Credit Agreement
and all amendments and supplements hereto which may from time to time become
effective hereafter in accordance with the terms hereof.

 

1.2                                 “Banking Day” shall mean a day on which
banks are generally open for business in Minneapolis, Minnesota.

 

1.3                                 “Borrowed Money” shall mean funds obtained
by incurring contractual indebtedness and shall not include trade accounts
payable or money borrowed from the Lender.

 

1.4                                 “Closing Date” shall mean the date on which
funds are advanced under the Credit.

 

1.5                                 “Current Note” shall mean the promissory
note of the Borrower substantially in the form of attached Exhibit A, evidencing
borrowings under Section 2.1 hereof.

 

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1.6                                 “Events of Default” shall mean any and all
events of default described in Section 8 hereof.

 

1.7                                 “Guaranty” shall mean the Guaranty of K-Tel
Online, Inc.; Dominion Entertainment, Inc.; K-Tel Consumer Products, Inc.; K-Tel
TV, Inc.; K-Tel Video, Inc.; K-Tel International (USA), Inc.; K-Tel
International GmbH; K-Tel Entertainment (UK) Ltd.; K-Tel Entertainment (Can)
Inc.; K-Tel Direct, Inc.; K-Tel Marketing (UK) Limited; and K-Tel Ireland
Limited in form and content acceptable to the Lender.

 

1.8                                 “Liens” shall have the same definition as in
the Foothill Agreement.

 

1.9                                 “Loan Documents” shall mean this Agreement,
the Current Note, the Guaranty, the Security Agreement, the Stock Security
Agreement and all other documents contemplated by this Agreement.

 

1.10                           “Maturity Date” shall mean November 20, 2001.

 

1.11                           “Permitted Liens” shall have the same definition
as in the Foothill Agreement, with the addition of the liens created by the
Foothill Agreement.

 

1.12                           “Permitted Protests” shall have the same meaning
as in the Foothill Agreement.

 

1.13                           “Reference Rate” means the variable rate of
interest, per annum, most recently announced by Norwest Bank Minnesota, National
Association, or any successor thereto, as its “base rate,” irrespective of
whether such announced rate is the best rate available from such financial
institution.

 

1.14                           “Security Agreement” shall mean the security
agreement of the Borrower substantially in the form of Exhibit B.

 

1.15                           “Stock Security Agreement” shall mean the stock
pledge agreement substantially in the form of Exhibit C.

 

1.16                           “Subsidiary” shall mean any corporation of which
more than fifty percent (50%) of the outstanding voting securities shall, at the
time of determination, be owned directly, or indirectly through one or more
intermediaries, by the Borrower.

 

SECTION 2                                   The Loan

 

2.1                                 Subject to the other provisions of this
Agreement, the Lender agrees to continue to lend to the Borrower from time to
time sums not to exceed EIGHT MILLION AND NO/100 U.S. DOLLARS (U.S.
$8,000,000.00) in aggregate principal amount at any one time outstanding.  Each
borrowing under this Section 2.1 will be requested in writing or in person by an
authorized officer of the Borrower, or telephonically by any person reasonably
believed by the Lender to be an authorized officer or designee of the Borrower. 
Each borrowing under this Section 2.1 will be

 

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evidenced by a notation on the Lender’s records, which shall be presumptive
evidence of such borrowing (absent manifest error), and by the Current Note. 
Within the limits of the Credit and subject to the terms and conditions hereof,
the Borrower may borrow, prepay pursuant to Section 2.5 hereof and reborrow
pursuant to this Section 2.1.

 

2.2                                 Interest on the unpaid principal of the
Current Note shall be calculated at an annual rate equal to the Reference Rate
in effect from time to time on the basis of the actual number of days elapsed in
a year of 365 days, and shall change as and when the Reference Rate changes.

 

2.3                                 Interest on the Current Note shall be
payable monthly, commencing on the first day of the first month following the
date of this Agreement and continuing on the first day of each succeeding month
until the Current Note is paid.

 

2.4                                 The outstanding principal of the Current
Note shall be repayable in full upon the Maturity Date.

 

2.5                                 The Borrower may at any time prepay the
Current Note in whole or from time to time in part without premium or penalty.

 

SECTION 3                                   Conditions Precedent

 

3.1                                 The Borrower shall deliver the Loan
Documents to the Lender on or before the Closing Date, duly executed by the
necessary parties.

 

3.2                                 The Borrower acknowledges that the following
items have been delivered to the Lender and remain in full force and effect:

 

A.                                   A certified copy of resolutions of the
Borrower’s board of directors authorizing the execution, delivery and
performance of this Agreement, the Note, the Security Agreement, and each other
document to be delivered pursuant hereto;

 

B.                                     A certificate of the Borrower’s corporate
secretary as to the incumbency and signatures of the officers of the Borrower
signing this Agreement, the Note, the Security Agreement, and each other
documents to be delivered pursuant hereto; and

 

C.                                     Certificates of insurance, in form and
substance acceptable to Lender, indicating that Borrower is in compliance with
the covenant contained in Section 6.6 hereof.

 

3.3                                 The Lender shall not be obligated to lend
hereunder on the occasion for any borrowing unless:

 

A.                                   The representations and warranties
contained in Section 5 hereof are true and accurate in all material respects on
and as of such date; and

 

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B.                                     No Event of Default, and no event which
might become an Event of Default after the lapse of time or the giving of notice
and the lapse of time, has occurred and is continuing or will exist upon the
disbursements of such loan.

 

SECTION 4                                   Security

 

4.1                                 To secure the Current Note and the
performance of its additional obligations as set forth hereunder, the Borrower
acknowledges that all obligations under this Agreement shall be secured by

 

A.                                   the Security Agreement and financing
statements, in form and substance satisfactory to the Lender, granting to the
Lender a first security interest (except for Permitted Liens) in inventory,
accounts receivable, equipment, furniture, fixtures and general intangibles, now
owned or hereafter acquired; and

 

B.                                     Stock Security Agreement from the
Borrower, with the certificates representing such shares and guaranteed by the
Guaranty, which is secured by security agreements in form and content
satisfactory to the Lender; provided that Lender cannot take the shares if held
by Foothill.

 

4.2                                 As additional security for the prompt
satisfaction of all obligations of Borrower under the Current Note and Security
Agreement, the Borrower hereby assigns, transfers and sets over to the Lender
all of its right, title and interest in and to, and grants the Lender a lien on
and a security interest in, all amounts that may be owing from time to time by
the Lender to the Borrower in any capacity, including, but without limitation,
any balance or share belonging to the Borrower, of any deposit or other account
with the Lender, which lien and security interest shall be independent of any
right of set-off which the Lender may have.

 

4.3                                 The foregoing liens shall be first and prior
liens except for Permitted Liens.

 

4.4                                 At any time requested by the Lender, the
Borrower shall execute and deliver or cause to be executed and delivered to the
Lender such additional documents as the Lender may consider to be necessary or
desirable to evidence or perfect the security interests referred to in Section
4.1 hereof.

 

SECTION 5                                   Representations and Warranties

 

To induce the Lender to enter into this Agreement, the Borrower represents and
warrants to the Lender as follows:

 

5.1                                 The Borrower is a corporation duly
organized, existing and in good standing under the laws of the State of
Minnesota.

 

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5.2                                 The execution, delivery and performance of
this Agreement, the Current Note and Security Agreement by the Borrower are
within its corporate powers, have been duly authorized, and are not in
contravention of law, or the terms of Borrower’s Articles of Incorporation or
By-Laws or of any undertaking to which the Borrower is a party or by which it is
bound.

 

5.3                                 The property of the Borrower is not subject
to any lien except Permitted Liens.

 

5.4                                 No litigation or governmental proceeding is
pending or, to the knowledge of the officers of the Borrower, threatened against
the Borrower which could have a material adverse effect on the Borrower’s
financial condition or business, except as disclosed on Schedule A attached.

 

5.5                                 All financial statements delivered to Lender
by or on behalf of Borrower, including any schedules and notes pertaining
thereto, have been prepared in accordance with generally accepted accounting
principles consistently applied, and fully and fairly present the financial
condition of the Borrower at the dates thereof and the results of operations for
the periods covered thereby.

 

SECTION 6                                   Affirmative Covenants

 

The Borrower covenants and agrees that so long as any indebtedness remains
outstanding hereunder, unless the Lender shall otherwise consent in writing, it
will:

 

6.1                                 Pay, when due, all taxes assessed against it
or its property except to the extent and so long as contested in good faith.

 

6.2                                 Maintain its corporate existence and comply
with all laws and regulations applicable thereto.

 

6.3                                 Furnish to the Lender copies of all reports
and certificates required to be provided to Foothill under Article 6 of the
Foothill Agreement within the time periods set forth therein.

 

6.4                                 Comply with all the affirmative covenants
set forth in Sections 6.1 to 6.16 of the Foothill Agreement, so long as Foothill
has not declared a default under the Foothill Agreement or Foothill has not been
paid in full.

 

6.5                                 Cause its properties of an insurable nature
to be adequately insured by reputable and solvent insurance companies against
loss or damages customarily insured against by persons operating similar
properties, and similarly situated, and carry such other insurance (including
business interruption insurance) as usually carried by persons engaged in the
same or similar businesses and similarly situated, with the Lender named as loss
payee on all such policies of insurance.

 

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6.6                                 Permit any of Lender’s duly authorized
employees or agents the right, at any reasonable time and from time to time, to
visit and inspect the properties of Borrower and to examine and take abstracts
from its books and records.

 

6.7                                 Pay all of Lender’s reasonable legal,
accounting, financial and out-of-pocket expenses incurred by the Lender in
connection with preparing this agreement and all related loan documents, the
transactions contemplated therein, and the administration and enforcement of
this Agreement.

 

SECTION 7                                   Negative Covenants

 

Without the Lender’s written consent, so long as any indebtedness remains
outstanding under the Credit, the Borrower will not:

 

7.1                                 Do any of the items listed in Sections 7.1
through 7.22 of the Foothill Agreement.

 

7.2                                 Permit any lien including, without
limitation, any pledge, assignment, mortgage, title retaining contract or other
type of security interest to exist on its property, real or personal, including
specifically any liens or security interests on copyrights, trademarks and other
intellectual property, except Permitted Liens.

 

7.3                                 Enter into any transaction of merger or
consolidation, or transfer, sell, assign, lease or otherwise dispose of (other
than sales in the ordinary course of business) all or a substantial part of its
or its subsidiaries’ properties or assets, or any of its note or accounts
receivable, or any stock (other than directors qualifying shares) or any assets
or properties necessary or desirable for the proper conduct of its business, or
change the nature of its business, or wind up, liquidate or dissolve, or agree
to do any of the foregoing.

 

7.4                                 Create, incur, assume or suffer to exist,
contingently or otherwise, indebtedness for Borrowed Money, except indebtedness
disclosed to the Lender in writing as existing at the time of execution of this
Agreement, including but not limited to indebtedness to Foothill.

 

SECTION 8                                   Events of Default

 

8.1                                 Upon the occurrence of any of the following
Events of Default:

 

A.                                   Default in any payment of interest or of
principal on the Current Note when due, and continuance thereof for 10 calendar
days;

 

B.                                     Default in the observance or performance
of any other agreement of the Borrower set forth herein or in the Security
Agreement and continuance thereof for 30 days after notice;

 

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C.                                     Any representation or warranty made by
the Borrower herein, or in any statement or certificate furnished by the
Borrower hereunder, is untrue in any material respect;

 

D.                                    There occurs an Event of Default under the
Foothill Agreement.

 

E.                                      A garnishment summons or a writ of
attachment shall be issued against or served upon the Lender for the attachment
of any property of the Borrower or any indebtedness owing to Borrower.

 

F.                                      Borrower or any Guarantor shall (A) be
or become insolvent (however defined); (B) voluntarily file, or have filed
against it involuntarily, a petition under the United States Bankruptcy Code; or
(C) if a corporation, partnership or organization, be dissolved or liquidated
or, if a partnership, suffer the death of a partner or, if an individual, die;
or (D) go out of business.

 

then, or at any time thereafter, unless such Event of Default is remedied, the
Lender or the holder of the Current Note may, without notice and without demand
to the Borrower, terminate the Credit or declare the Current Note to be due and
payable, or both, whereupon the Credit shall terminate forthwith or the Current
Note shall immediately become due and payable, or both, as the case may be.

 

SECTION 9                                   Miscellaneous

 

9.1                                 The provisions of this Agreement shall be in
addition to those of any guaranty, pledge or security agreement, note or other
evidence of liability held by the Lender, all of which shall be construed as
complementary to each other.  Nothing herein contained shall prevent the Lender
from enforcing any or all other notes, guaranties, pledges or security
agreements in accordance with their respective terms.

 

9.2                                 From time to time, the Borrower will execute
and deliver to the Lender such additional documents and will provide such
additional information as the Lender may reasonably require to carry out the
terms of this Agreement and be informed of the Borrower’s status and affairs.

 

9.3                                 Any notices or consents required or
permitted by this Agreement shall be in writing and shall be deemed delivered if
delivered in person or if sent by certified mail, postage prepaid, return
receipt requested, or telegraph, as follows, unless such address is changed by
written notice hereunder:

 

A.

 

If the Borrower:

 

 

 

 

 

K-Tel International, Inc.

 

 

2605 Fernbrook Lane North

 

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Plymouth, MN 55447

 

 

 

 

 

Attention:  Mr. Steven Kahn

 

 

 

B.

 

If to the Lender:

 

 

 

 

 

K-5 Leisure Products, Inc.

 

 

220 Saulteaux Crescent

 

 

Winnipeg, Manitoba R3J 3W3

 

 

Canada

 

 

 

 

 

Attention: Dennis W. Ward

 

9.4                                 The substantive Laws of the State of
Minnesota shall govern the construction of this Agreement and the rights and
remedies of the parties hereto.

 

9.5                                 This Agreement shall inure to the benefit
of, and shall be binding upon, the respective successors and permitted assigns
of the parties hereto.  The Borrower has no right to assign any of its rights or
obligations hereunder without the prior written consent of the Lender.  This
Agreement, and the documents executed and delivered pursuant hereto, constitute
the entire agreement between the parties , and may be amended only by a writing
signed on behalf of each party.

 

9.6                                 If any provision of this Agreement shall be
held invalid under any applicable Laws, such invalidity shall not affect any
other provisions of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.

 

9.7                                 The Lender agrees to provide payoff
statements within a reasonable time after receipt of the Borrower’s written
request therefor.  Lender, upon satisfactory assurance that it will be paid in
full, will deliver satisfactions and/or releases into an appropriate escrow to
facilitate payment.

 

9.8                                 Lender’s rights and remedies under the Loan
Documents and all other documents and agreements contemplated by this Agreement
shall be cumulative.  The Lender shall have all the rights and remedies not
inconsistent herewith as provided under the Uniform Commercial Code, by law, or
in equity.  No exercise by the Lender of one right or remedy shall be deemed an
election and no waiver by the Lender of any Event of Default shall be deemed a
continuing waiver.  No delay by the Lender shall constitute a waiver, election
or acquiescence by it.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

 

 

K-TEL INTERNATIONAL, INC.

 

 

 

 

 

By

/s/ Lawrence Kieves

 

 

 Its

   PRESIDENT

 

 

 

 

 

 

K-5 LEISURE PRODUCTS, INC.

 

 

 

 

 

By

/s/ Philip Kives

 

 

 Its

   CHIEF EXECUTIVE

 

 

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