**Exhibit 10.13**

 

CREDIT AGREEMENT

 

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

 

RECITALS:

 

WHEREAS, theBorrower has entered into a Loan and Security Agreement with Foothill CapitalCorporation (“Foothill”) dated November 19, 1997 for a revolving loan of SIXMILLION AND NO/100 U.S. DOLLARS (U.S. $6,000,000) and a term loan of FOURMILLION AND NO/100 U.S. DOLLARS (U.S. $4,000,000)(the “Foothill Agreement”);

 

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

 

WHEREAS, theLender is willing to make the Credit available to the Borrower subject to theprovisions of this Credit Agreement;

 

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

 

SECTION 1                                   Definitions

 

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

 

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

 

1.2                                 “BankingDay” shall mean a day on which banks are generally open for business inMinneapolis, Minnesota.

 

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

 

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

 

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

 

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

 

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-TelInternational (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 theLender.

 

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

 

1.9                                 “LoanDocuments” shall mean this Agreement, the Current Note, the Guaranty, theSecurity Agreement, the Stock Security Agreement and all other documentscontemplated by this Agreement.

 

1.10                           “MaturityDate” shall mean November 20, 2001.

 

1.11                           “PermittedLiens” shall have the same definition as in the Foothill Agreement, with theaddition of the liens created by the Foothill Agreement.

 

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

 

1.13                           “ReferenceRate” means the variable rate of interest, per annum, most recently announcedby Norwest Bank Minnesota, National Association, or any successor thereto, asits “base rate,” irrespective of whether such announced rate is the best rateavailable from such financial institution.

 

1.14                           “SecurityAgreement” shall mean the security agreement of the Borrower substantially inthe form of Exhibit B.

 

1.15                           “StockSecurity Agreement” shall mean the stock pledge agreement substantially in theform of Exhibit C.

 

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

 

SECTION 2                                   TheLoan

 

2.1                                 Subjectto the other provisions of this Agreement, the Lender agrees to continue tolend to the Borrower from time to time sums not to exceed EIGHT MILLION ANDNO/100 U.S. DOLLARS (U.S. $8,000,000.00) in aggregate principal amount at anyone time outstanding.  Each borrowingunder this Section 2.1 will be requested in writing or in person by anauthorized officer of the Borrower, or telephonically by any person reasonablybelieved by the Lender to be an authorized officer or designee of theBorrower.  Each borrowing under thisSection 2.1 will be 

 

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

 

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

 

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

 

2.4                                 Theoutstanding principal of the Current Note shall be repayable in full upon theMaturity Date.

 

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

 

SECTION 3                                   ConditionsPrecedent

 

3.1                                 TheBorrower shall deliver the Loan Documents to the Lender on or before theClosing Date, duly executed by the necessary parties.

 

3.2                                 TheBorrower acknowledges that the following items have been delivered to theLender and remain in full force and effect:

 

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

 

B.                                     Acertificate of the Borrower’s corporate secretary as to the incumbency andsignatures of the officers of the Borrower signing this Agreement, the Note,the Security Agreement, and each other documents to be delivered pursuanthereto; and

 

C.                                     Certificatesof insurance, in form and substance acceptable to Lender, indicating thatBorrower is in compliance with the covenant contained in Section 6.6 hereof.

 

3.3                                 TheLender shall not be obligated to lend hereunder on the occasion for anyborrowing unless:

 

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

 

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

 

SECTION 4                                   Security

 

4.1                                 Tosecure the Current Note and the performance of its additional obligations asset forth hereunder, the Borrower acknowledges that all obligations under thisAgreement shall be secured by

 

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

 

B.                                     StockSecurity Agreement from the Borrower, with the certificates representing suchshares and guaranteed by the Guaranty, which is secured by security agreementsin form and content satisfactory to the Lender; provided that Lender cannottake the shares if held by Foothill.

 

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

 

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

 

4.4                                 Atany time requested by the Lender, the Borrower shall execute and deliver orcause to be executed and delivered to the Lender such additional documents asthe Lender may consider to be necessary or desirable to evidence or perfect thesecurity interests referred to in Section 4.1 hereof.

 

SECTION 5                                   Representationsand Warranties

 

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

 

5.1                                 TheBorrower is a corporation duly organized, existing and in good standing underthe laws of the State of Minnesota.

 

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

 

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

 

5.4                                 Nolitigation or governmental proceeding is pending or, to the knowledge of theofficers of the Borrower, threatened against the Borrower which could have amaterial adverse effect on the Borrower’s financial condition or business,except as disclosed on Schedule A attached.

 

5.5                                 Allfinancial statements delivered to Lender by or on behalf of Borrower, includingany schedules and notes pertaining thereto, have been prepared in accordancewith generally accepted accounting principles consistently applied, and fullyand fairly present the financial condition of the Borrower at the dates thereofand the results of operations for the periods covered thereby.

 

SECTION 6                                   AffirmativeCovenants

 

The Borrowercovenants and agrees that so long as any indebtedness remains outstandinghereunder, 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 extentand so long as contested in good faith.

 

6.2                                 Maintainits corporate existence and comply with all laws and regulations applicablethereto.

 

6.3                                 Furnishto the Lender copies of all reports and certificates required to be provided toFoothill under Article 6 of the Foothill Agreement within the time periods setforth therein.

 

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

 

6.5                                 Causeits properties of an insurable nature to be adequately insured by reputable andsolvent insurance companies against loss or damages customarily insured againstby persons operating similar properties, and similarly situated, and carry suchother insurance (including business interruption insurance) as usually carriedby 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                                 Permitany of Lender’s duly authorized employees or agents the right, at anyreasonable time and from time to time, to visit and inspect the properties ofBorrower and to examine and take abstracts from its books and records.

 

6.7                                 Payall of Lender’s reasonable legal, accounting, financial and out-of-pocketexpenses incurred by the Lender in connection with preparing this agreement andall related loan documents, the transactions contemplated therein, and theadministration and enforcement of this Agreement.

 

SECTION 7                                   NegativeCovenants

 

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

 

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

 

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

 

7.3                                 Enterinto any transaction of merger or consolidation, or transfer, sell, assign,lease or otherwise dispose of (other than sales in the ordinary course ofbusiness) all or a substantial part of its or its subsidiaries’ properties orassets, or any of its note or accounts receivable, or any stock (other thandirectors qualifying shares) or any assets or properties necessary or desirablefor 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 forBorrowed Money, except indebtedness disclosed to the Lender in writing asexisting at the time of execution of this Agreement, including but not limitedto indebtedness to Foothill.

 

SECTION 8                                   Eventsof Default

 

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

 

A.                                   Defaultin any payment of interest or of principal on the Current Note when due, andcontinuance thereof for 10 calendar days;

 

B.                                     Defaultin the observance or performance of any other agreement of the Borrower setforth herein or in the Security Agreement and continuance thereof for 30 daysafter notice;

 

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C.                                     Anyrepresentation or warranty made by the Borrower herein, or in any statement orcertificate furnished by the Borrower hereunder, is untrue in any materialrespect;

 

D.                                    Thereoccurs an Event of Default under the Foothill Agreement.

 

E.                                      Agarnishment summons or a writ of attachment shall be issued against or servedupon the Lender for the attachment of any property of the Borrower or anyindebtedness owing to Borrower.

 

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

 

then, or at any timethereafter, unless such Event of Default is remedied, the Lender or the holderof 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 shallimmediately become due and payable, or both, as the case may be.

 

SECTION 9                                   Miscellaneous

 

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

 

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

 

9.3                                 Anynotices or consents required or permitted by this Agreement shall be in writingand shall be deemed delivered if delivered in person or if sent by certifiedmail, 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                                 Thesubstantive Laws of the State of Minnesota shall govern the construction ofthis Agreement and the rights and remedies of the parties hereto.

 

9.5                                 ThisAgreement shall inure to the benefit of, and shall be binding upon, therespective successors and permitted assigns of the parties hereto.  The Borrower has no right to assign any ofits rights or obligations hereunder without the prior written consent of theLender.  This Agreement, and the documentsexecuted and delivered pursuant hereto, constitute the entire agreement betweenthe parties , and may be amended only by a writing signed on behalf of eachparty.

 

9.6                                 Ifany provision of this Agreement shall be held invalid under any applicableLaws, such invalidity shall not affect any other provisions of this Agreementthat can be given effect without the invalid provision, and, to this end, theprovisions hereof are severable.

 

9.7                                 TheLender agrees to provide payoff statements within a reasonable time afterreceipt 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 tofacilitate payment.

 

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

 

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IN WITNESSWHEREOF, the parties hereto have duly executed this Agreement as of the day andyear 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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