this really does it!!!! after reading all the analyst reports issued immediately following Jeff Govermans warning, I decided to read the $75m factoring agreement.
and guess what???? it nothing more than a loan agreement!!!!
in fact there's a clause in the agreement which states the possibility that a court may even deem it to be just a loan. in fact, TLC has liability!
what does this mean? Jeff was right! DSO's are really much higher than reported. TLC uses the para loan agreement called "factoring" to hide the DSO's.
READ FOR YOURSELF: 10Q 8/19/97
THE LEARNING COMPANY FUNDING CORPORATION
RECEIVABLES PURCHASE AGREEMENT
This Receivables Purchase Agreement dated as of June 30, 1997 is among
The Learning Company Funding, Inc., a Delaware corporation, as the seller (the
"Seller"), Lexington Parker Capital Company, LLC, a Delaware limited liability
company, as purchaser ("Purchaser"), Fleet National Bank, a national banking
association, as the agent ("Agent") TLC Multimedia, Inc., a Minnesota
corporation, as servicer ("TLC Multimedia" or "Servicer") hereunder and The
Learning Company, Inc., a Delaware corporation ("TLC"). Unless defined elsewhere
herein, capitalized terms used in this Agreement shall have the meanings
assigned to such terms in Exhibit I hereto.
INDEMNIFICATION
Section 7.1. Indemnities by Seller. Without limiting any other rights
which Agent or Purchaser may have hereunder or under applicable law, Seller
hereby agrees to indemnify Agent or Purchaser and their officers, directors,
agents and employees (each an "Indemnified Party") from and against any and all
damages, losses, claims, taxes, liabilities, costs, expenses and for all other
amounts payable, including reasonable attorneys' fees and disbursements (all of
the foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them to the extent, but only to the extent, that
such Indemnified Amounts arose out of or as a result of this Agreement or the
acquisition, either directly or indirectly, by Purchaser of an interest in the
Receivables, excluding, however:
(i) Indemnified Amounts to the extent final judgment of a
court of competent jurisdiction holds such Indemnified Amounts resulted
from gross negligence or willful misconduct on the part of the
Indemnified Party seeking indemnification;
(ii) Indemnified Amounts to the extent the same includes
losses in respect of Receivables which are uncollectible on account of
the insolvency, bankruptcy or lack of creditworthiness of the related
Obligor; or
(iii) taxes measured by the overall net income of such
Indemnified Party to the extent that the computation of such taxes is
consistent with the Intended Characterization;
provided, however, that nothing contained in this sentence shall limit the
liability of the Seller or the Servicer or limit the recourse of Purchaser or
Agent to the Seller or Servicer for amounts otherwise specifically provided to
be paid by the Seller or the Servicer under the terms of this Agreement. Without
limiting the generality of the foregoing indemnification, the Seller shall
indemnify Purchaser or Agent for Indemnified Amounts (including, without
limitation, losses in respect of uncollectible Receivables, regardless of
whether reimbursement therefor would constitute recourse to Seller or Servicer)
to the extent, but only to the extent, that such Indemnified Amounts) relate to
or result from:
(i) any representation or warranty made by Seller or
Servicer (or any officers of the Seller or the
Servicer) under or in connection with this Agreement,
any Monthly Report, Daily Capital Report or any other
information or report delivered by Seller or the
Servicer pursuant hereto, which shall have been false
or incorrect in any material respect when made or
deemed made;
(ii) the failure by the Seller or the Servicer to
comply in any material respect with any applicable
law, rule or regulation with respect to any
Receivable or Contract related thereto, or the
nonconformity of any such Receivable
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or Contract included therein with any such applicable
law, rule or regulation;
(iii) any material failure of Seller or Servicer to perform
its duties or obligations in accordance with the
provisions of this Agreement;
(iv) any products liability or similar claim arising out
of or in connection with merchandise, insurance or
services which are the subject of any Contract;
(v) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor or any losses
in respect of the insolvency or lack of
creditworthiness of the Obligor ) of the Obligor to
the payment of any Receivable (including, without
limitation, a defense based on such Receivable or the
related Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in
accordance with its terms), or any other claim
resulting from the sale of the merchandise or service
related to such Receivable or the furnishing or
failure to furnish such merchandise or services;
(vi) the commingling of Collections of Receivables at any
time with other funds;
(vii) any investigation, litigation or proceeding to the
extent, but only to the extent, the same relates to
or arises from this Agreement, the transactions
contemplated hereby, the use of the proceeds of a
Purchase, the ownership of the Receivable Interests
or any other investigation, litigation or proceeding
relating to the Seller in which any Indemnified Party
becomes involved as a result of any of the
transactions contemplated hereby;
(viii) any inability to litigate any claim against any
Obligor in respect of any Receivable as a result of
such Obligor being immune from civil and commercial
law and suit on the grounds of sovereignty from any
legal action, suit or proceeding; and
(ix) any Servicer Default or Termination Event
notwithstanding anything contained in this Agreement or any other Transaction
Documents to the contrary, it is expressly agreed and understood by the parties
(i) that no indemnification provision herein is intended to constitute a
guarantee of the collectibility or payment of the Receivables or Receivable
Interests sold hereunder and (ii) that nothing in any such provisions shall
require Seller or Servicer or any Affiliate thereof to indemnify any indemnitee
for damages, losses, claims or liabilities or related costs or expenses
resulting from such indemnitee's gross negligence or willful misconduct.
Section 7.2. Increased Cost and Reduced Return. If after the date
hereof, any Funding Source shall be charged any fee, expense or increased cost
on account of the adoption after the
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date hereof of any applicable law, rule or regulation (including any applicable
law, rule or regulation regarding capital adequacy) or any change therein, or
any change in the interpretation or administration thereof after the date hereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency (a "Regulatory Change"): (i) which subjects
any Funding Source to any charge or withholding on or with respect to any
Funding Agreement or a Funding Source's obligations under a Funding Agreement,
or on or with respect to the Receivables, or changes the basis of taxation of
payments to any Funding Source of any amounts payable under any Funding
Agreement (except for changes in the rate of tax on the overall net income of a
Funding Source) or (ii) which imposes, modifies or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of a Funding Source, or credit
extended by a Funding Source pursuant to a Funding Agreement or (iii) which
imposes any other condition the result of which is to increase the cost to a
Funding Source of performing its obligations under a Funding Agreement, or to
reduce the rate of return on a Funding Source's capital as a consequence of its
obligations under a Funding Agreement, or to reduce the amount of any sum
received or receivable by a Funding Source under a Funding Agreement or to
require any payment calculated by reference to the amount of interests or loans
held or interest received by it, then, upon demand by Purchaser, the Seller
shall pay to Purchaser, for the benefit of the relevant Funding Source, such
amounts charged to such Funding Source or compensate such Funding Source for
such reduction.
Section 7.3. Other Costs and Expenses. Seller shall pay to Purchaser or
Agent on demand all costs and out-of-pocket expenses in connection with the
preparation, execution, delivery and administration of this Agreement, the
transactions contemplated hereby and the other documents to be delivered
hereunder, including without limitation, the cost of Purchaser's or Agent's
auditors auditing the books, records and procedures of the Seller, reasonable
fees and out-of-pocket expenses of legal counsel for Purchaser or Agent (which
such counsel may be employees of Purchaser's administrative agent) with respect
thereto and with respect to advising Purchaser as to its rights and remedies
under this Agreement. The Seller shall pay to Purchaser or Agent on demand any
and all reasonable out-of-pocket costs and expenses of Purchaser or Agent, if
any, including reasonable counsel fees and expenses in connection with the
enforcement of this Agreement and the other documents delivered hereunder and in
connection with any restructuring or workout of this Agreement or such
documents, or the administration of this Agreement following a Servicer Default.
The parties agree that Seller's liability for Purchaser's and Agent's counsel
fees (inclusive of expenses) for the structuring, negotiation and preparation of
this Agreement and the Transaction Documents contemplated hereby shall not
exceed $100,000.
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